Bankless - 214 - L2 Tokens: Bullish or Bearish? with Sassal, Jordi, & Ippolito

Episode Date: March 18, 2024

✨ DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-l2-tokens/ ------ Are Layer2 Tokens bullish or are they just worthless governance tokens? We’ve brought a team of expert panelists to help us answer that exact question. Mike Ippolito, Jordi Alexander and Anthony Sassano explore Layer2 business models, where value is accrued and how to capture that upside. ------ 🥩PRIMESTAKED | MINT primeETH NOW https://bankless.cc/Origin-pod  ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24  https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2   ⁠  🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo   🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku   🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 💸 CRYPTO TAX CALCULATOR | USE CODE BANK30 https://bankless.cc/CTC 🦄 UNISWAP | SWAP SMARTER https://bankless.cc/uniswap ------ TIMESTAMPS 0:00 Intro 7:50 L2 Value Capture 13:37 Short-Term vs Long-Term 17:30 L2 Business Model 28:24 Worthless Governance Tokens? 42:04 Immutable & Base 53:40 Vertically-Integrated Chains 1:05:24 Do L2s Need Tokens? 1:15:38 L2 Experimentation 1:32:44 Capturing L2 Upside 1:38:44 Closing & Disclaimers ------ RESOURCES L2Beat https://l2beat.com/scaling/summary  ETH in 2024 https://www.youtube.com/watch?v=0rPF8zNnfnE  Anthony Sassano https://twitter.com/sassal0x  Mike Ippolito  https://twitter.com/MikeIppolito_  Jordi Alexander https://twitter.com/gametheorizing  ------ Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

You mentioned the high valuations of like these layer twos right now. Like you actually do a DCF on them right now. And yeah, they're losing money on paper, right? massively bleeding money on paper. And they shouldn't be worth what they're worth. But I think ball market things, obviously, but also that kind of like shelling point premium to, I'll just buy that. Because it's a lazy thing. And most people want to be lazy about it. Like, I'll just buy that. I'll just buy that. Cool. You know, there's a lot of that going on. And that's why we see these obscene coins are popular too. Oh, you know, I like a meme coin because it's just easy to buy. Oh, you know, there's a dog with a hat on it. I'll buy that. Cool. You know, so there's a lot of that going on. And that's why we see these observes served valuations, but I think, again, long-term, that kind of reality sets in. Welcome to bankless, where we explore the frontier of internet money and the internet finance. Today, we explore the frontier of layer twos. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, we did a panel about two months ago on 2024 Ether, the Asset. We brought the same panelists on that episode.

Now we're running it back. This time, we've got layer twos under the microscope. So we have Mike Epilito, we've got Jordy Alexander, and we've got Anthony Sassano in what I think is an expert panel on where layer twos are going and how these tokens might accrue some value. So a few things we covered today. Number one, what's the bull case for layer two? How would these panelists articulate it? Number two, what about the tokens? Are layer two is just worthless governance tokens or is there something there?

Number three, we talk about which layer twos are going to be bullish this cycle and why? Number four, we talk about the layer two experiments. the new things you haven't yet seen that are under development, the best experiments that are going on today. And number five, we end with this question. What are the best ways to get exposure to layer two's? You just buy ETH? Or is there some mix of tokens that make sense? I think there's just such a large number of ways to think about layer twos.

And those number of ways can also change depending on when or where in the market cycle we are. In a bull market, in a bull cycle, the ways to think about layer twos are going to be different. than in the bear market, right? Like, I think it's going to be narrative, mind share ideas and energy in a bull market and maybe a reversion back to fundamentals in a bear market, but it's always going to be both of those things playing off of each other, just with different weights. And overall, with alongside the development in the shared sequencing landscape,

the intense landscape, aggregation layers, there is a bunch of middleware being born in the layer two world that is also going to shift the dynamic of what a layer two can be and how one can be constructed. I think this will go in. We didn't really talk about shared sequencing or any of the composability infrastructure that's being built. But as that part of Ethereum does get built, I think the second half of this conversation where we talked about layer two experimentation is going to become even more relevant because as Ethereum solves some of its composability problems, composability issues, the ability to spin up a crazy new layer two that innovates on a

completely different design surface area is just going to become easier and easier and easier. Overall, I think everything in this market is catching a bid right now, including layer two's. And so really this episode is kind of just meant to answer why and what that will look like moving forward into this bull market. All right. We're going to get right to the episode. But before we do, we want to thank the sponsors that made this possible, including what of our preferred places to convert your Fiat to layer two tokens.

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Doing very well, David. Thanks for having me on. And of course, Jordi Alexander, Chief Alchemist at Mantle. Jordi, welcome back. I am pumped. Let's go. Go bad energy. Wow.

And bringing up the rear, Anthony Sissano, the Infinite Creator, over at the Daily the Gway, also the Infinite Bull. Anthony, what's up, my man? What's up? I'm very good. Not as pumped as Jordy, I think. He's pretty pumped as this morning, but I'm doing good and thanks to having me on. Yeah, of course. Okay, so about two months ago, we released an episode that we titled Eith in 2024, as Eith has been going through some growing pains about where it wants to be as a network for itself, Eith, the asset and its trajectory. And I think that was very helpful for me and for everyone, I think, really understanding ETH's place in the current moment in history. And I think we want to do something pretty similar for the layer on top of Ethereum, which are

its layer twos. It's a much more nuanced conversation because ETH and Ethereum are just these one singular networks and assets, but layer twos can be anything. And we have the current crop of layer twos. We have incoming crops of layer twos. We have patterns that extend across all layer two's and then some layer two's are just much more unique, much more like app chains. And so I think we kind of want to just kind of do some bare bowl analysis of the different components that makes up layer two's, the layer two world. And there's probably like a hundred different ways to start this conversation. But maybe we can just try and ask about each of your guys's general frameworks about the bull or bear case for layer two tokens. What are the truisms

that are true about all layer two is about why they will or will not go up. in price. Maybe, Mike, I can throw this one to you. Like, when you think about the valuation of layer two networks and their respective assets, what are the properties, what are the things you think about first and foremost? Yeah, maybe to put this within the context of layer two's as they exist today on Ethereum. I talked about this a little bit before, but my mental model for Ethereum is the purpose of the protocol today is to export its canonical asset, ETH, in the safest way possible. And the L2s are basically the best way to do that. So you've got, sort of settlement and consensus happening on ETH, and you've got all the execution happening on the

layer two's. And I think if you look at the L2s through almost purely that lens, you see just a massive amount of tailwinds that these L2s have to surf. If you just head over to L2B, you can look at this just relentless up only chart, which is assets flowing onto the layer twos. And that can be from, I think of there's like 27 billion of assets sitting on the collective suite of layer twos today. about 15 billion of that is ETH that's been bridged from main chain. So, yeah, there's just tremendous tailwinds in terms of the assets and network effects that are flowing onto layer twos. Ryan is showing his screen for all the podcast listeners, and we're, of course, looking at a chart that is going up only. And, Ryan, I think if you even denominate that in ETH, it also still goes up

only only. So it's both U.S. dollars and in ETH terms where this thing is just only going up. Yeah, it's phenomenal. And the specific construction of layer twos allows you to all albeit a lot of the negative tradeoffs of some of the more centralized parts of the setup. So I think maybe just to start there, like that's, I think, the bull case for ETH layer two's in the meantime, but I'd be curious what the rest of the panels, the panelists have to say. Just to really kind of maybe summarize what your point is that layer twos are in a fight for ETH. And so like whether or not a layer two token goes up or down in price, you think it's going to be perhaps largely determined by its ability to capture ETH on this network? Yeah.

And I think that's going to lead to massive amount of network effects for the L2s that capture the most the most amount of ETH. And then maybe one more point to just, you brought up the token specifically, but a lot of people have been talking about, like the major L2s, like optimism or arbitronous being ETH beta, which I agree, but I would also add maybe a nuance that I think the L2s will be the crypto-native way to bid on ETH this cycle probably, whereas I think a lot of what's going to drive the price of ETH is going to be more of an institutional bid. Interesting. So maybe just one bit of nuance there. Mike, you were talking about ETH beta in the context of it being like investment beta, right? Yeah.

You know, that sort of thing, rather than, like, not a beta network for Ethereum. You're talking about investment beta. No, yeah, investment beta. So if ETH goes up this much, the L2s will go up that times, you know, 1.5 or whatever. Anthony, you want to pick up the thread from Mike. I know you got a bunch of things to say, where do you want to take this from here? I would say that I completely agree with pretty much everything Mike said. I think it's a really great framework for thinking about these things.

And obviously I'm hyper-bullish on layer 2s, right? Especially the ones built on Ethereum, because I know that some other networks, are kind of like vying now to get layer two's built on them. Not really much happening there, but I know it's going to become a thing. But yeah, specifically, I guess the ones built on Ethereum for, yeah, the same reasons. Like the network effects is of ether's an asset. It's just going to increase, you know, so much through these networks. But I do want to say, though, that like I actually can think of like way more reasons to be bearish on like the tokens, the L2 tokens long term specifically than I can to be bullish on them. And that's not to say

that I don't think some of them will be very, very valuable. But there's so many of them now and they're all competing on like, well, at least the generalized L2s are all competing on the same kind of axis. And like we've already seen the power law effects play out on the layer one tokens, like BTC and ETH being worth just so much more than every other layer one token, that I feel like it's going to be a similar thing with the L2 ones. And I think that there's still a lot of open questions around these L2 tokens, like how they're going to capture value long term. I do a great short term, like they're going to have these hype cycles. They're going to be like this beta against E, things like that. But like the long term value accrual,

questions are still there. And I think that they also have things that, like, ETH doesn't have. Like, for example, they've got a lot of VC investment with VC unlocks and those sorts of things and that overhang that ETH just doesn't have. So obviously on the ETH bull episode that we did, I was like hyper bullish Eith. And, you know, I find it very easy to be very bullish on ETH. But when it comes to the L2 tokens, even though I'm, I should disclose, I'm an investor and a lot of them as an angel, I just find it hard to, you know, know, know, which ones are going to long-term be value, accrue a lot of value and how they're going to accrue a value against ETH as well, because I'm not just measuring against U.S.D. I'm still, I'm also measuring it against

ETH as well. Because if you're going to call them ETH beta, I guess you're going to expect them to outperform ETH, right, over longer periods of time as well. So, okay, just to put a fine tip on that. So both Mike and Anthony are saying layer twos are bullish for ETH or the asset and the monetary properties of ETH or the asset. So it's starting to sound like the episode that we did. We already did that episode. We're focusing on the token. I will point out after this episode, you know, I think ETH is up a 80 billion or so in the last two months.

So well done, panelists. A healthy amount. For that, we appreciate you guys. Let's get into the time horizons there because you mentioned short term versus long term. And we definitely want to have a discussion around value accrual of tokens. But I want to hear what you mean when you say short term versus long term. When you say short term, Anthony, where you see some, you know, value, the appreciation of tokens, maybe beta to ETH, as Mike just said.

are you talking about short term being this cycle, the next few months? Like, long term to you is what, like five to 10 year time horizon versus short term is what, 12 months to 18 months, this cycle? I would say long term, yeah, five plus years sort of thing. And short term is definitely for the cycle, right? But at the same time, I think the crypto cycles are changing as well. So it's just going to become even harder now to define these things. But yeah, short term, typically I refer to like general kind of crypto bull market cycle, so not the bare market part of the cycle, like the bull part, which we're pretty much currently in, right? So maybe like the next 12 to 18 months.

And then, yeah, long term is like five plus years. Because like the industry changes so much in five years, right? Like it just reinvets itself so much in those five years that while I'm bullish on the layer twos themselves, I just don't know, you know, which ones are going to be the big winners. Like right now we obviously have some leaders, but like, do they stay the leaders, right? Or does someone else come along and just eat their lunch? Because these things happen all the time, right? It's really hard to have a moat in crypto, specifically when you're trying to build.

things like on the execution side of things. I think settlement is, you know, pretty strong moat like Bitcoin and Ethereum offer a very strong settlement guarantees and that's a very strong moat that's solely based on a lot of different factors that I don't think the layer two is kind of share there. So yeah, I mean, if I was to pick a layer two token to buy today and like hold it for five years, I couldn't give you any. Honestly, I would not feel comfortable holding any of them for five years right now. Jordi, what's your take on this? What would you add? You know, I like a lot of this stuff, Anthony said. I do think about, you know, this short-term versus long term. The reality is there are short-term games going on. You'll see something like Manta,

you know, they'll do some nice kind of game, get like a bunch of, you know, billion dollars locked up somewhere, hype people because there's anirdrop, air drop gets listed. And, you know, we'll see like in five years where those, you know, projects are. And maybe they're doing incredibly well. And maybe, like, you know, it's flourishing. But it seems a little too easy to launch an L2, do a bit of a Ponzi game. you know, with an airdrop, get this like rotation going. And it works tremendously well in a bull market. Ultimately, it is good for ETH as an asset. You know, there's just like more activity and more eating burned.

And like it's kind of like the common community money that I talked about last time. You know, as a percentage of ETH market cap, all of L2s, you know, can do quite well in a bull market. Like Michael said, like, you know, there is like a little bit of a, the beta component, I would describe it as like, these coins are not as liquid as ETH. And so like an inflow of money, even. if it's proportional, even if it's like, you know, 30% of the ETH money goes to L2s, it'll just move them more. So like you can get these like outsized moves, right? On the other hand, I agree with Anthony. Like not all of these are going to establish a mode for

themselves and be relevant in, you know, some years. And the other thing that I talk about all the time when I'm discussing value of coins is unlocks are very important. Like if you have like monthly unlocks forever and ever and it's just like, you know, somebody has to keep buying the new coins. It can get absorbed. pretty well in a bull market, but maybe not in a bear market. So what's that Warren Buffett saying? Like, you know, it's better to, instead of owning a great company at a, you know, a two high valuation, it's better to, you know, just own an okay company at like a very low valuation. So valuation matters as well. And some of the valuations that we're seeing, we're recording,

like, at a period where like Stark might launch, you know, at some very high valuation. We're seeing, you know, Arbitrum obviously already quite high. So it just depends where you're getting it. And you brought up Arbitrum at the very end there. when Ryan and I have talked about just like the business model of layer two's. We've talked about it in a sense that like layer twos have this extremely amazing property in which that they don't have to pay for security. And so it's basically they just take Ethereum block space. They mark it up and then they distribute it and they sell it at a premium,

but they spread it out amongst many, many users. And from the perception of the users is very, very cheap. This has been proved out in spectacular fashion, I would say, by like the Arbitrum Treasury. You can just see ETH flowing into that thing. and then you see Arbitrum the network buying Layer 1 block space and it just not spending that much on layer 1 block space and taking in a huge amount of revenue into their treasury on chain that you can witness on the Arbitrum chain. And this has always been like our articulation for just like Layer 2's. You can just do a DCF model on them and that is their business model. But also I would be remiss to say that like perfect thought about fundamentals shows up in Layer 2 token prices.

There's a bunch of other variables in crypto, much more ghosts in the wires, about how things become valued. Mike, how much does this like fundamental analysis actually do you think is important? And what else would you want to add on to any sort of like qualitative analysis of like how to value a token? Yeah, I had some thoughts. I actually wanted to respond to what Anthony and Dorey said because I'm in pretty violent agreement there. And the way that I would describe this is I think there's going to be a barbelling of what happens in the L2 landscape. And this is kind of what I was trying to maybe describe before not so eloquently. is I think there's going to be some degree of network effects, depending on where the Eth flows from

main chain. So right now, one of the problems that we've talked about on this podcast and that gets talked about quite a lot on Twitter is kind of the fragmentation of liquidity in the L2 landscape. I think that's eventually going to be fixed, but it's going to take a little bit of time to get fixed. So basically, the L2s that end up accruing the most amount of liquidity are going to have a big advantage in the meantime. So honestly, my mental model for the way the L2 landscape is going to play out is kind of this barbell of looks like optimism and eth are going to be around for a long time. And then I think there's going to be another smaller subset of L2s that do sort of clever tricks to acquire.

That tricks has a negative connotation, like clever strategies to acquire some of that like blast, regardless of what you think about it. Not financial advice. I have no perspective on the mechanism or whatever, but they've done something pretty clever to attract a bunch of ETH. So you're kind of saying winners are more entrenched than maybe people think, or at least there is a process of entrenchment of layer two chains with a bunch of ETH. Is that what you're saying? Yeah, I am because I think the way that it's going to work is a bunch of ETH is going to flow up to

these sorts of winners. And that's going to lead to more liquidity on exchanges on those platforms, on the Bar-LN parts of those platforms. Like if you want NFTs on those platforms, it's just going to be a massive advantage for a whole bunch of the financial use case that L2s have today. And I think if you're in this sort of messy middle of layer two's where, you know, you don't offer something particularly special like yields or some of the stuff that Jordy's doing with Mantle. Like you're just going to be like, well, why aren't I doing this on Optimus Marbitrum or Mantle or blast or something like that? So I think there is going to be a hollowing out of the middle of L2s, which maybe this sounds a little bear. But I think that's actually a positive because it's

going to solve some of that fragmentation that we all feel in the meantime. I also think the fragmentation gets solved with non-financial use cases. Like Farcaster is a really good example of that. Like go on Warpcast and tell me that L2 is fragmented. That wouldn't even make sense, right, you're just using a social app. But in terms of the valuation and some of the issue and stuff, I agree with you, David. I think cost is a major thing, but maybe just let me poke at that for a second and give you some pushback, which would be, this kind of reminds me of the software business model where they really optimize for gross margins. But then if you look at the net margin, what they end up doing is they end up spending all of that additional stuff on sales and marketing.

I think if you actually looked at the issuance of some of the major L2s like Arbitrum or Optimism, you'd see that their issuance doesn't look particularly good in the short term, right? Like, OP spent a lot of their token supply on getting base on there. Like if you look at Arbitrum, there's kind of this endless wave of short-term incentive programs, the Stip, long-term incentive programs, and issuance actually doesn't really look particularly great on the L2s. And I think the way that I would thread that needle is there's less spend on security, but they end up making up in this kind of like knife fight for developers and users.

And you're doing something there, Mike. you're kind of redefining issuance as sort of like unlocks as well, which certainly in the short term is a major factor with respect to like outflows and sales of the asset, right? So like you could define issuance as like net inflation and most of these layer twos do not have inflationary properties, at least the total supply is not increasing. But you're saying that's immaterial because in the short run you have all of these unlocks, you have all of this token spending, you have these treasuries, funding various grants, and the market has to absorb that in some way. That's sort of what you mean, right?

Exactly. I'm not sure it really matters from the perspective of the token, whether or not you're paying your native token out to a validator who then turns around and sells it after some period of time or to an application or something like that, who would then take that as a grant and then dump it on the market at some period of time, too. So I think it nets out to be basically the same. What do you think about this, Anthony? Yeah, I mean, I totally agree with that.

I think, you know, I mentioned before the VC kind of unlocks, But that's, yeah, only one part of it, right? These kind of Layer 2s have these treasuries where they give out grants and things like that. I mean, optimism has their retroactive public goods funding thing, which they give out to, you know, they give out a huge amount of OP to people. And as Mike mentioned, Arbitrum has their stip thing. And they've all got incentives and things like that. I mean, it's just the classic bootstrapping mechanism for a network, right?

I mean, layer ones do this by having, well, traditionally they did, the proof of work layer ones. They would have, like, huge issuance at the start, right? Bitcoin had huge issuance at the start. Ethereum had huge issuance at the start in order to attract. minors essentially to the network, right? And a lot of these other layer one proof of stake networks do the same thing just with proof of stake instead of proof of work where they kind of front the massive issuance and then over time will reduce it as fee revenue picks up and kind of makes up for that. But as we've seen, you know, the vast majority of these networks have never been able to do that,

right? They've never been able to actually get real demand into their product that they're selling, which, you know, with the layer ones is block space, but the same applies to layer two's, right? they have to be able to sell enough block space and make enough money that way so that they can become self-sustaining and attract enough liquidity as well so they don't have to keep paying out these incentives to do it because we saw the same thing play out in DeFi summer back in 2020 a lot of incentives paid out very few apps made it out of that and actually were long-term sustainable right a lot of it was just wasted money i think so yeah i totally agree with that but also on the um these tokens the tokens themselves just from a pure kind of like valuation perspective outside

of anything fundamental. I think that they're very similar to layer one tokens in that they have what I like to call a shelling point premium. And what I mean by this is that they are tied to a generalized network. And when people think about what to buy, say you're like, oh, I want to get exposure to optimism. You know, what are you going to buy? We're going to buy OPE, right? You're not going to buy any of the app tokens on optimism. If you want to get broad exposure to optimism, you buy OPE. If you want to get broad exposure to Arbitrim, you buy Arb. And optimism even has base tied to it. So it's like, I want exposure to base. So I'll go by O.P., right? same with the layer ones. Oh, I want exposure to Ethereum, I buy Eth, so on and so forth. And that's why you see

such large valuations on these layer ones and layer two's compared to the apps, because the apps have a very specific narrow kind of defined thing, whereas these platforms can be anything. You can be like, oh, I can get exposure to everything by buying this. And it's not really based on kind of, I guess, the fundamentals as we think about it. Like, you can't do a DCF on this or anything like that, but it's more based on like how many people want to buy it, like the network effect, really, of that asset. And I think that's why the layer ones, like some of them that, have been dead for a long time and they exist as basically zombies, they still have a high market cap because people still buy them as like, you're like, oh, if this layer one kind of takes off,

I can just buy the native asset and I'll have exposure to everything and I have to kind of go into anything else. And I think the same thing is going to play out with some of these L2s. I think that a little bit like lazy logic. I mean, I agree with you that that's working and it's been working for years and it seems to keep working ongoing. But like, you think about the proof of work, and I don't mean this in the Bitcoin sense. I mean, the proof of like building a good product, it seems a lot harder to build like a world class application that, you know, know, it's going to be used by like hundreds of millions of people, then just like spinning up another, you know, L2 or L1 and, you know, changing, tweaking a couple things. It doesn't,

it seems like people are just being lazy and it's more like they're using the token as a trading instrument rather than like, you know, a fundamental valuation of, you know, as an equity. What would this be worth? I agree. It's kind of like a shelling point almost. And I think it's just the reflection of the current market participants in crypto, right? Like, you know, most market participants in crypto retail and they're not buying like they like to go down the risk curve right and they like to buy these things like to shield the narratives around these things and i guess i'm just describing the current state of things and what it's been for actually a very long time as you mentioned so i think that ethan btc may be graduating above that with the ets but the rest of the stuff

is still predominantly traded by these retail and then you have these people who call themselves institutions who just trade like retail anyway because they know that it's a good game to play right so i think that it plays a huge part in a lot of these valuations Because if you look at, you mentioned the high valuations of like these layer twos right now, like you actually do a DCF on them right now. And yeah, they're, I mean, Mike mentioned that they're losing money on paper, right? Massively bleeding money on paper. And they shouldn't be worth what they're worth. But I think ball market things, obviously, but also that kind of like, you know, shilling point premium to, I'll just buy that. Because it's a lazy thing. And most people want to be lazy about it. Like, I'll just buy that. I'll just buy that. Cool. Don't have to think too hard about it. And that's why things like meme coins are popular too. Oh, you know, I like a meme coin because it's just easy to buy. Oh, there's a dog with a hat on it. I'll buy that. Cool. you know. So there's a lot of that going on and that's why we see these absurd valuations. But I think, again, long term, that kind of reality sets in. The narratives can only get you so far. Long term, the reality sets in. And then the smarter players are like, well, I'm not going to hold this in a bear market. I'm not going to hold this when demand is like. I know what's going to happen to this thing.

And then that's why we see these things obviously bleed out. Well, it's interesting because we say they shouldn't be worth what they're worth, right? And Jordy's made comments about that. Anthony, you've made comments about that, right? But like, it's kind of the question of relative to what. So, you know, you look at the charge from a fully diluted valuation perspective, and Solana is 3x, a fully diluted valuation of Arbitrum, which is the next closest layer two. I mean, I always say Solana is very overvalued if that's where you're going. Well, it's not just Solana, and I'm going to skip XRP because we know that's peculiar. B&B, right? 54 million fully diluted valuation versus, you know, polygons, 10 billion fully

diluted valuation. You've got Cardano, which is still ahead of it. There's kind of a question of relative to what. And you could make the case on either side, right? You could make the case that, well, compared to some of these layer ones, layer twos are cheap. Look at Arbitrum. It has more total locked value, it has more traction. You could argue that based on various metrics. Or you could make the case that these layer twos are maybe overvalued and the market is getting frothy and ahead of itself. One formulation of this that I want to throw by the panel is basically, I've heard people say that layer two tokens are, quote, unquote, worthless governance tokens. Okay. There's some sort of maybe, like, call on what's in the treasury, sort of, but like we've

seen the futility of governance and can't the core team kind of take it away and they don't even get sequencer revenues necessarily. It's all very murky. Jordy, what's your reaction to that statement that layer two tokens are nothing but worthless governance tokens? Yeah, I mean, like I said, you know, it's a case-by-case situation. There is multiple categories of layers two, like things like OPR, ZK, S-K, thing. They're ultimately trying to build an ecosystem.

will be attracting other layer twos and kind of builds like super chains and you know you have a shared sequencers or you know what polygons trying to do like there's people trying to build this infrastructure layer like a middle layer above ethereum and before like you get to like the application layer where you know people are deploying directly and some will win that game and that will be a huge game and i understand that there's like a premium for those who seem to be doing really well obviously like op has a head start in the sense of it's very ethereum aligned and And it's like the default, like if you want neutrality, if you're based or something like that, you know, you just kind of go with OP.

You know, Mantle is kind of looking at OP as like this neutral layer as well. And maybe there's better technology if you go to the ZK path. I mean, there's like teams that are potentially going to be able to attract layer twos in their ecosystem over there that might have, you know, much better user experience, right? Like better finality, bridging out is a lot faster, all this kind of stuff. So that's one category. And then there's like the category that I've been working on, I guess, personally, which is just trying to actually build product that people are actually using. And like I'm not kind of, you know, so fast with middle layers and trying to get other people to build stuff.

I'm just looking at like the end consumer. What do they want to use? What financial products do they want to use? Can I give them better yield than anywhere else? And like we're seeing that applications can be very valuable. They can get, even on the gaming side, this is kind of a little bit crazy. Like I don't know if you guys have talked to any gaming teams that are raising money. but they're just getting bit up by like, you know, mutables, giving them X million,

and they're getting $5 million of it, and it's just crazy. And actually, I don't mind it because it kind of shows that to be relevant, these ecosystems do need to attract viral use cases. And it could just be culture. It could be like NFT collections. It could be something, you know, culture-based. I think culture is extremely under understood how important it is. I mean, you talked about Cardano, stuff like that.

That's probably like a culture built around, you know, maybe one person or, you know, or one concept. It is valuable. So I have been thinking a lot about culture, and I think culture will capture a lot of value. And the thing I love about Ethereum as an asset, and as we talked about last time, why I've been so bullish,

is more like the cultural community aspect rather than, you know, is it like necessarily earning so much in burnt fees or something? Okay, so, Jody, you've described a couple of approaches chains are taking. Some are trying to become platforms. It's called them platform-type chains, right?

Others are trying to focus on the apps and actually the consumer side of it. are trying to really develop some sort of culture, some sort of memetic relevance, let's say. But none of that still answers the question as to whether the underlying token is value. Like, is the token a claim on all of those things? We seem somewhat confused about that. We're not even sure that Uniswap, the Unitoken is sort of a claim on the success, the overall success of Uniswap at this phase in time.

I'm not sure if we should be thinking of these as network equities or are these stills just like worthless governance tokens. Talk to me about that. I'll give you the inside, like, story on this. In a bear market, everyone's thinking about, like, cash flow and showing, like, you know, a good P. ratio. And in a bull market, it just all goes out the window. It goes about, like, getting tension, getting TVL.

Unfortunately, and then, you know, in the bear market, it'll go back to that. We look at something like Lido, and, you know, like the revenue from Lido is not that high, even though it's by far the largest TVL and all of crypto, right? It's like, you look at the DeFi Lama charts. It's kind of way off there. But the actual revenue is not that high. And when I look at these things, I'm more thinking about, like, it's not just the direct revenue from something like, you know, 5% of the 3% or whatever, this kind of thing. It's more like, can you build other things to capture the ecosystem value that you have?

Like, you know, musicians don't make much money on streaming, but they go and they, you know, they do a tour and they make like infinite money, you know, doing live shows. And with these like layer two tokens, potentially, you know, like with Mantle, for example, doesn't just have to be the sequence for fees. like we can do profit sharing agreements with like the decks that we choose like we choose a perp deck so we want to like fully back and then we get a profit share from that that could be like a lot of money as well and you can expand that into like other things in the ecosystem so you have to kind of start thinking what else can I do with the environment that I'm building not just sequence or fees what would you say to this Mike I'm curious here to take on this like if I'm buying ARB or if I'm buying OP am I receiving a claim of that network success or

Or is this a bit more distant from an actual claim on the upside of this network? I'm going to take the opinion that eventually these L2s will find a way to extract value from the apps that get built on their ecosystem. And I think I wouldn't actually be wildly concerned with that. You can even look at optimism and arbitram, and they have two very different ways of thinking about extracting that value. There's a really great post. I think probably that Ed or Steven on the arbitram side of things that used a theme park analogy

to try to describe how they do it. And basically it's like Coney Island versus Disneyland. And on the optimism side with the super chain, it's the Coney Island model where it's basically free, but to actually get into the theme park, but then to actually do all the rides that you'd want to do, if you want to be a part of the super chain, then you have to pay some sort of fee. And Disney, it's the exact opposite. You have to pay $5,000 or whatever it is up front.

But then once you get in, everything is free. And that's very similar to the licensing model that Arbitrum has, where you have to pay a bunch, but then everything's kind of free after that. and it's sort of the optimism. I'm not actually wildly concerned. I think there will be different models that these L2s find ways to extract value from their bundle. And I actually think it's probably a decent bet that if you buy the token, it does end up being an index for the value that gets created there. Do you agree with that, Anthony? Do you think that basically a given that if you buy the token, you're buying upside in the network? I don't know if it's a given, but I think

it's a solid bet, basically. I think index, yeah, I guess calling it an index is kind of similar to calling it a shelling point, right? Like indexes is normally, used as shelling points for various things. I mean, it's just easy for people to think about. And I guess one thing you said before, Ryan, about relative valuations, that's actually incredibly important within crypto. That is like the main thing that people value things against like each other, right? Like, because it's an easy kind of thing to do. It's like, okay, well, if you have a competing L1 and you're, you know, you're competing with Ethereum, well, of course you're going to look at ETH and be like, okay, well, it's worth $300 billion.

We're worth $10 billion. Oh, look, we can be worth $300 billion too because we're a platform just like Ethereum, right? And that happens. all the time, not just with layer ones, not just with layer twos, but apps, everything. That is the thing that drives a lot of these narratives, as those relative valuations. Now, of course, as we've been saying, like, in a bull market, all the rules of the game go out of the window, right? Like, you've got so much demand coming in, right? It doesn't actually matter. And then he tried to reason about this, and you can't, because it makes no sense over that kind of, I guess, six to 12 month bulk of the bull market period where things are just going nuts. And that's why I say that I think a lot of these things

I definitely overvalued based on my kind of thinking cap on. But if I take my thinking cap off, then I'm just like, well, what do I know, right? Like, everyone's bidding up these things for various different reasons. I don't know anything. And that's why I say, like, short term, yeah, sure, you can do really well buying these things that I think aren't going to be good long term. But, yeah, long term, I mean, I've done this myself over the long term. I've held some things, like, I held something from 2017 to like 2019 or something and I got like destroyed on it, right? But I did really well in 2017. But like two years later, I was just completely wrecked. on it. The same thing is definitely going to play out here. But I do think there's something to be

said about like the less overhead for people to just buy these things as a broad exposure to an ecosystem, right? Because like a lot of people just are not very involved in crypto. Like I'm not talking about the crypto natives who are on here, degenning into new farms every day and trying to air drop farm, whatever. I'm just talking about the casual observer who's heard about this thing on like YouTube or some media site. And they're like, okay, well, this thing seems to be growing, you know, everyone's talking about it. I'm going to buy it because I want exposure to it. I think that's as far as a lot of people go. And I think that's why you see in like the stock market, for example, like most people aren't going to go in and buy individual stocks. I'm going to buy the index because

I haven't got time to look into individual stocks and follow their quarterly reports and everything. Most people don't have time for that. So I think that's why you see such a strong power law in BTC and ETH as well as because they're the two most well known by far, right? And they have good, obviously, tokenomics to kind of help with that too, I think. And they've been around for a long time. So the network effect is huge. But yeah, I think that same thing's going to play out for layer two. And I think it's already played out for apps as well to an extent. And it's funny because you can kind of view, you know, these single assets as an index. But in the stock market, it's not just a single asset, right? The S&P 500 is 500 different kind of assets. Whereas in crypto, it's like,

oh, ETH is your index for Ethereum. That's one asset. That's a very different mindset there. But people still treat it the same way of like, I'll just buy ETH. I have exposure to Ethereum. I'm just like, I'll buy the S&P 500. I have exposure to America. I think that's the analogy. But it's kind of funny how different it is, like one asset versus 500, right? You want to go, Mike? Yeah, I've actually got a question for Jordy. How would you describe the business model of layer two? So I'd be really curious to get your answer there.

Yeah, I mean, we definitely think about, like, other ideas for revenue. Like I said, we ultimately think that, first of all, like Mantel is taking a bit of a unique approach where it really collaborates with applications less neutrally than, like, you know, an arbitrum where we, arbitrum is like a mini Ethereum, right? It's just like trying to recreate. Same thing with cheaper gas fees. Mantle's taking an approach of, you know, we're differentiating. we're very closely with the founders, with the apps, trying to align incentives and the entire stack, ultimately.

So I agree with what you said. Like, there will be ways to capture value. Maybe for some L2s more than other L2s, depending on the approach they've taken. I think Blast is something that I'm looking at with keen interest. I saw the announced, like, 17 of the apps. And because they've taken this native yield approach, which is also something that, you know, we've been working very hard on having, like, very high, like, yield. You can do some really cool stuff.

I don't know if you guys saw the list, but there was something saying, like, there's like NFTs that are refundable. Refundable NFTs because like there's yield on it, the project can still get the yield. So as long as people are holding it, you know, like I can buy it for 10-Eath and then I can get back 10-Eath whenever I feel like. And then the longer I hold it, you know, the project is just generating yield on the ETH without anyone like losing money, like this kind of stuff. Obviously, like you have to have high yield for it to be meaningful, you know, if it's like 2%, it might not be. But these kind of like creative things is, I love the fact that like, you know, people are experimenting. I love L2s in the sense of like everybody can design their own ecosystem and then we'll see like who actually, it's competition like drives, you know, progress.

Who's going to be able to get the killer stuff, you know, the killer applications, best communities. And then, you know, we're all kind of like trying to learn from each other and improve each other. So it makes me very bullish overall, but I think there's going to be like winners and losers in three years time. You know, I do think about revenue and I think sequencer fees are one part of the puzzle. You know, everyone's, you're very happy to, you know, capture more and more of that for their sequencer. But yeah, there's other sources as well. I definitely do want to get to the conversation about layer two experimentation and how much left there is to do there. I think that's been a growing focus in the layer two space about like,

hey, have we really experimenting as creatively as we could be? But there's still a few bits of conversation that I want to tie off here before we get there. There are two chains that I want to bring up that are examples. Maybe they'll just illustrate themselves. One is immutable and the other is base. And these are both very large chains, either by valuation. It's hard to value base, but I think if it had a token, we would all agree that it would be very high up the stack on the market cap. And immutable is a ZKEVM chain from Polygon. It's higher valued than both optimism and arbitram. The only layer two chain that's valued higher than that is the actual Polygon proof of stake chain itself. And then a base. And base is, of course, built on the OP

stack. So we have the OP stack, and then we have the Polygon ZKEVM chain development. kit. And both of them have produced these like decently gargantuan chains, at least in like network valuation and also activity. And this kind of illustrates the business model, the strategy of these chain development kits, right? So maybe one way to articulate a bullcase for optimism or anyone with this like chain development kit strategy is that like the OP main net or the arbitraum main net or the polygon main net is actually one of the smaller chains inside of a larger ecosystem where their chain development kits actually is powering these like, you know, immutable to gaming chain or like Coinbase's chain, Crackens chain whenever it comes and whoever does a chain, they are all way bigger.

And this makes sense to me because if you're in the OP stack and you want to join the collective, you pay 15% to optimism, optional if you want to join the collective. But then also, if that's like the fundamental analysis, but there's also just like the left side, left bell curve, just like, oh, that one's built on optimism. Therefore I'm bullish OP. Oh, that one. built on Polygon, therefore I'm bullish-matic. This is like there's got a fundamental case, there's got a narrative meme case. There's probably a few other things to talk about here. But Mike, when you hear this, like what do you think of? Yeah, I think there are probably two very different stories behind IMX and base. And I think there are right and left curve arguments,

frankly, for both of them. I think on the IMX, you know, the immutable, the immutable roll-up, I think basically it might be a little bit of a story, like it might be getting the blur treatment here. And what I mean by that is, you know, people, if you're bullish NFTs, but you don't really know which collection you think are going to go up, maybe you just buy blur because that's a pretty good index for eth NFTs. And I think it's probably a pretty similar story on the gaming side of things, where we actually had Robbie on Bell Curve last week, and he mentioned that there are 80 games that were launching this year, which is frankly a way higher number than I thought. I don't know if everyone else knew that that was in the pipeline, but that's a lot of games. And I guess from my

perspective as an investor, I'm not going to go parse through 80 games, but maybe I want some exposure to that, so I just buy IMX. I'm sure there's absolutely a right curve argument for immutable as well, but I think that's probably what's driving the price right now. Base is really interesting because I think the pro case for base is that it has all of this baked in distribution from Coinbase, which has more users than any other on-chain product in existence, probably by one or two orders of magnitude. So I think you're seeing a lot of adoption just based on the brand, based on this distribution that they have. And I don't know if they're ever going to launch a token.

I would actually bet that they probably will at some point. But yeah, I think for sure. Mike, you don't think they have a token? It's called coin. Yeah. Well, I think they're going to have another token. It's going to be called. They have coin.

Now they need base. Coin base. Yeah. I think base is like an extremely interesting experiment. And I think they've done great at bringing quality apps on their. so far, Farcaster is a great example, but I think it's just the beginning for that. Anthony, want to add anything to this? I will say that I think that, like, each of these kind of changes, you mentioned, IMEX

and base, they have their own narratives, as we kind of heard there, is where, like, IMX has this gaming narrative as well as the L2 narrative, and base has, like, the Coinbase narrative, right? And I would actually argue that OP probably wouldn't be worth as much as it is if base had a token. I think there's a lot of value baked into OPE just from kind of base being there, because, as I said before, you can't buy base. I mean, obviously you can buy coin, but if you're a crypto-native, you're probably more inclined to buy like the crypto-native token, right, rather than the stock.

So you're thinking, okay, well, I'm just going to buy O-P. And I think, you know, you mentioned immutable is built on Polygons technology. I actually don't think many people are aware of that. It isn't something that I see, like, mentioned too much. I think that whenever someone talks about immutable, they're talking about just gaming. They're not talking about, like, polygon too much. It's just like, okay, here are the games on immutable or I'm bullish on crypto gaming. I'm just going to go buy IMX. So I think there's like, a kind of marketing thing as well there or kind of like a closeness relationship where essentially everyone knows that base is part of the optimism ecosystem. I would argue that a lot of people don't

know that immutable is part of the polygon ecosystem. Now, I don't know if that's the fault of immutable or if that's the fault of Polygon for not being louder about this. From what I've seen, at least anecdotally, on places like Twitter and elsewhere, I definitely think there's a difference there. But at the same time, there's also another token you can bid on. As I said, like, if there's just Madic and there was no IMX token, then probably people would buy to get exposure to immutable. I think that's what they're doing with base, where they're like, okay, there's no base token. I'm going to buy OP. So I think those factors are played there, but I'd be very curious to know what OPs valuation would be if base had a token. No, I don't know if it would

be like half of it, what it is now, because people would just buy the base token instead, but I definitely think it would be lower because if base had a token. So I agree on that in some sense, and I wouldn't say actually that the retail is the buyer. I don't think there's any like retail person, it's like, oh, I'm going to buy OP because I want exposure to base. I think it's mainly like the large VCs that need to deploy hundreds of millions of dollars that they've raised. And they cannot necessarily just buy Ethereum. That's not like supposed to be what they're doing.

So they're looking at like, what can I deploy into? And layer twos are big enough from market cap that they can deploy. And like it looks like a reasonable thing to do. You're not going to get fired for, you know, putting hundreds of millions of dollars like into O.P or ARB like, A. these kind of giants have to do. Like, we're also going to write a $200 million check, right? And it sort of creates this flywheel where, yeah, like there's incentives and they're

given out and it keeps the activity going indefinitely until, like, you know, the inflation runs out. It's a bit of a strange game. It runs you a little bit of the we work, you know, Adam Newman thing where as soon as you have like kind of big bags coming in, like funding the making the rent's cheap and everyone's renting now because it's cheap. Ultimately, like, you have to get to an equilibrium at some point, which, first of all, I'm not saying, like, you know, this matters in a bull market. Like, you know, people don't care. This is like a long-term thing. But in a long-term, the things that, to go back

to what Michael was asking, like, where value is captured, look at something like Binance. It's capturing this, like, long-term value, even though it's getting fudded and all this stuff. Because there's just, like, this concentration of liquidity and just activity. It's hard to move all the activity at the same time. So it just stays there. And it's potentially like IMX, something like that, will get all the game activity. And maybe the theory is that if you have all the games in the same place, you just kind of have this network effect that is very strong. And maybe the currencies between the games are, you know, it is important to sell your currency in the shooter game to get the go-cart game or whatever. But that's a bet that, you know, we'll see what the reality is.

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your take, Jordi, and maybe the rest of the panelists, too, is like, what I don't know. I call kind of these vertically integrated stack type chains. So, Jordy, you mentioned just all of the different strategies chains are taking right now, right? So you have platform-based chains. There's tons of those. And then you have app chains, like kind of like the mantle type approach is taking. And then you have some that are trying to carve out other niches. Like you have something like blast, which is just, we're just going to juice the yields and play, you know, have some psych tricks, basically. And like a track TVL that way. One area that a mutable brings to mind is what I think could be a popular model and a successful

model is the complete vertically integrated chain where they're not just building kind of like the chain. They're also building the entire user experience, right? So like IMX, and Moodwell has like identity. And so you have your gaming passport and you have one identity into this ecosystem. If you look at what Zora is doing with the Zora chain, like they're building apps on top of it, right? I would be surprised if they come up with a mobile app at some point in time, right? And so they're just building the entire full stack chain experience. I think that is currently underrated by the market because that could actually be the secret to onboarding the masses, right? The gaming masses or the culture masses and that sort of thing.

I'm wondering your takes there, Jordy, you know, am I onto something there? Is that a category to you? Yeah. I mean, at least it makes sense. And that's more than you can say about a lot of other stuff. So what you're saying makes a lot of sense, ultimately, like, creating this like full funnel, full stack. You know, where is your financial life being held?

Right now you could say, you know, there's a lot of money in arbitrum. so maybe that's kind of like the defy chain where people are kind of, if I was going to build a financial product to manage, you know, your money, and I don't want to do it on mainnet because the gas is too high, I would kind of go to where that is. And the more that the chains can get involved in that and build that out, I think they can not only capture more value, but create more value because they'll be more seamless for the user.

By the way, I don't know if you guys saw this, but like I saw like Revolut is planning to start like building exchanges and doing stuff. And I don't know, like, Ryan, is this something that could be like more powerful than we realize because, you know, they have that, I don't know if you've ever used Revolut. I've lived in Europe a bunch in Asia as well, where it's just a very common app that you use for all your banking, all your FX transfers, everything, you can do it in one app. It's very sleek. If they start kind of bringing the crypto experience, I know they've already been offering crypto, but now they're kind of like looking to band it. Yeah, I think they totally

need to. I think another area, another category is like TradFi. Like, basically, if you're a consumer fintech app, like you're going to need to have some sort of chain experience. You're they're going to adopt, you know, like a base if you want to sort of bend the knee to Brian Armstrong or, like, build your own chain. I think it's more likely that they will start building their own chain. But like, to me, with Coinbase doing base, just that's the firing shot on the race here for all of the fintechs and like all of the banks to have to start deploying a chain strategy of some sort. So I didn't actually know that Revolut was going that direction, but we've seen what PayPal's doing. They have Venmo right now, which is, you know, obviously massive on the consumer

app side in the U.S. And they have the PayPal coin, right? It's like, that was the exact trajectory that Coinbase took, right? First, we have USDC. We have sort of our own stable coin. The next step is a chain. I would not be surprised if we saw a chain coming out of PayPal as well. Yeah. Actually, one sort of interesting thing that happened this week that might not seem immediately related is, is you guys seen this blowback that Coinbase is getting for not using canonical Bitcoin in their payments. So that's pretty interesting. And actually, Udi did a whole long response to this. Can you share what that is, Mike, for people who may have missed that? You know, these exchanges have various integrations with different chains. Famously, Bitcoin,

a lot of the exchanges took a long time to integrate with Lightning. And I'm not an expert about this, but the reason is, like, we haven't been super honest with ourselves about how difficult lightning is to use and some of the problems with that as a layer two. I think that's getting fixed in Bitcoin as we speak. They have a lot better solutions right now. But it's interesting to here, there's been some flack and pushback against Brian and the sort of Coinbase Commerce part of their business because it's been revealed that they're not actually dealing with canonical Bitcoin, but Udi did this very long explainer as to why that is. And it's because if you want to use canonical Bitcoin, then you're subject to main chain, like using Bitcoin the actual chain,

which has all of these performance issues. It's like 10 minute block times. It's extremely expensive now with the JPEG revolution that's happening over there. And it's a massive challenge. And that's probably going to be the same case with main chain eth, right? If there are neobanks that want to, you know, integrate with kind of the more open, permissionless part of crypto, which is a big if, but if they do, then they can't do it on main chain east. But where they can do it is on layer two's honestly. So and what's interesting about that as well is if there's a revolut that wants to integrate with a layer two or something like that to facilitate payments or visa or whatever it is, then you kind of can't do the yield part of that, right? Then Blass is taking its

out of the race for that particular use case, because I'm pretty sure VISA doesn't want all the underlying foam-moing into different yield opportunities, but like some people will. And when we have these debates about the future, it's like, well, is it going to be this or that? It's very binary. And we just don't know, you know, all of these different entities have very specific parameters that ultimately impact their choice. And I do think that was a very interesting sort of moment for me on the Bitcoin side of things. And I think it opens up a really wide set of opportunities for layer two's, frankly.

opening up a bit of a side quest here in this comment from Brian Armstrong that was in the thread that you were talking about, Mike. You said that they're not using canonical Bitcoin. People were frustrated that when you use Coinbase Commerce to check out, you could either use wrapped Bitcoin, the ERC 20 token on Ethereum, or you could pay with Bitcoin inside of your Coinbase account. So if you had Bitcoin inside of your Coinbase account, then you could pay. But nowhere was it actually touching the Bitcoin blockchain. And then Brian comes in with some additional context where he says, Commerce uses a new EVM payment protocol. And this was actually new to people. Like those are the first, like, we've heard about a EVM payment protocol powering coin-based commerce. And like, come on, like put two and two together here, guys. Like, they have the base chain. They own 25% of circle. They're building an EVM payment protocol. Like, put these puzzle pieces together and like, where do you guys think that goes? Like, PUSD has its own, like, stable coin and you bet your ass. Like, PayPal also is trying to build the same exact strategy out. But, like, the circle-based payment network, work, I think is like a very viable thing to even just like start to form some of those pieces together.

These are my like patterns that I'm reading. What do you guys think about that? Mike, I'll start with you. I mean, yeah, I agree. I think they probably will end up doing it. I mean, Coinbase is transitioning off. If you listen into their earnings calls, if you hear them describe what their strategy is, they want to transition away from a transaction based business model. And actually not this most recent quarter because transaction revenue rebounded so strongly, but the quarter before, it was the first time that the services and subscription part of their revenue bucket was actually higher than transactions. And they've went ahead and built themselves. I know this isn't the topic of the podcast, so I don't want to go too deep down this rabbit hole, but they've built themselves a pretty interesting little business there that's

independent of the transactions part of their business. They've got the stable coin revenue that they have with Circle and USDC. They've got a great staking business, their blockchain rewards line item. And I think they're going to expand into payments. And frankly, even like the coin base wallet is extremely slept on. So yeah, I think payments feels like a pretty natural next step for them. Honestly, the Coinbase wallet-based integration is the best UX in crypto. I minted the Coinbase NFT earnings NFT and also the Coinbase buy a penny or mint a penny or whatever. That was the first time I had ever minted an NFT without switching an application on my phone. I minted it on my phone, which was already a huge, like, hurdle to overcome. And never did I have to like swap a different app and

sign a message. It was all inside of the Coinbase wallet. And, If we're talking about like consumer crypto and consumer adoption and where people are going to go, like not only is it going to be Coinbase, but also where the best UX is, which is also Coinbase. I totally think there's like this base renaissance that's coming, even though it's already been here for a while. I'm confused how all this helps my layer two bags, yes, does it? Or is it more competition? Well, apparently you buy OPE to get exposure to base, right? And that's been the conclusion of the podcast so far. Fair enough. I do want to add something quickly to that whole discussion, though. I think that this is something that I,

try to talk about a lot on my own show because people are always asking me, it's like, you know, when mainstream adoption, when mass adoption? I'm like, well, okay, first we have to build the infrastructure and the user experiences to enable this mass adoption. Like, no one's mass adopting MetaMars. Like, I'm sorry, guys, but like, it's just not going to happen. No one's mass adopting Ethereum layer one or anything like that. So we've slowly been building out of that infrastructure and some players are bigger than others now. And I totally agree. I mean, I think Coinbase's end-to-end integration right now is probably the strongest in, in crypto. I mean, they have the wallet, right?

They have the stable coin. They have the network. And now they're integrating it across their entire suite of products while making public commitments basically saying this is our core business now. You know, we are an on chain company now. This is what we're focusing on. And it's working splendidly for them so far. It's just such a strong kind of a developing mode.

I wouldn't say it's a moat yet, but they're developing this moat very, very quickly now. And I think it's been a really good strategic decision for them to focus on building it within an already very ether-lined ecosystem like optimism because now all the like Heath Maxis are like cheering you on and on your side and being your marketing department and all that, right? So I feel like they've not only built the tech and continue to build it out and be a huge contributor to Ethereum, but they also were very strategic in their alignment here because they've been attacked, or maybe attacks the wrong word, but they've been kind of like aggressively kind of replied to on Twitter by other kind of people and other networks saying, you know, why didn't you

use this network? Why didn't you use this network? And, you know, Jesse Pollack, the lead of the base development would always say, you know, we chose base basically more on the social side of things, more on the kind of like, you know, they think that optimism is building a long-term sustainable solution in a long-term sustainable ecosystem. You know, they vibe with the way optimism is doing things, the way Ethereum does, things, the development process, so on and so forth. So it was less maybe a tech decision and more of kind of a long-term sustainability decision for them. Because at the end of the day, the tech can be improved, right? But your social layer, while you can try and improve it, it's very, very difficult to improve that. And it's very difficult to create

sustainable ecosystems, as we've seen within crypto, you know, most things are flash in the pan. Most things last a few months and then they're gone. Whereas, you know, aligning yourself with a very sustainable ecosystem like Ethereum that has proven out itself is really good. And maybe if Bitcoin could do what Ethereum could do, they would have gone with Bitcoin, right? But obviously it can't. So I think they chose Ethereum because it was closely aligned with their values as a company as well. I'll take the bare case, like, pretty heavily. I know you guys are all bullish base. And maybe maybe it's like a voice of like, you know, just kind of completing the picture, maybe. I'm actually quite bearish, and I think the key is what Michael said.

They don't have a token, and you guys massively underestimate me. Like, I'm on the ground. I see it every day, day out. They're going to have a huge problem, like OpenC had. And they're kind of like in that open sea phase where, you know, it's just nice and clean. I agree with David. Like, I've used the Coinbase app. I've used it in Thailand.

It's like, do you want to add some Thai bat to buy your thing? I'm like, wow. He knows where I am. It's giving you the local. It's incredible. Great tech. OKX wallet. People, I haven't used it.

Everyone I talked to says like this, incredible. There's like other tech. And ultimately, like, what will win is what I'm really bullish on is like these like aligning incentives like revenue share models where you can even like barra chain, something like, you know, out there, they're doing something very cool where like the applications are going to be getting some of the validator income. There's like ways that you want to be able to use your token to create like alignment of incentives that you simply cannot do on base. Maybe if they can like find a way to tokenize coin, but I think the SEC all this regulation is going to be like extremely difficult to like do some. something like that. So I think where it ends is what Michael said, they will have to launch a token.

And I think it'll be sort of like pressed upon them rather than like happen organically. It would be like, okay, shit. Like blast is getting the founders now. We had a little moment where we were getting them, but now, you know, other ecosystems, maybe Mantle, maybe somebody else is kind of doing a better job. And they're super talented. I love reading their like philosophy, like great products. No token. Need a token. Can I comment on that? I think this has been one of my big questions about L2. which is what is the role of the token in layer two? Can I point out like Solana?

Like the token doesn't make any sense. Like the feet is like infinitesimal. And it just like has like unlocks going forever, right? Like just like 20, 25, like forever. It's just going to be like unlocked. But the community just wants something to congregate around. And they love the vibe of Solana. They want that token and they're willing to just like coalesce around it.

And these L2 ecosystems, they're trying to build communities and build a brand and an identity and built culture. And that token just becomes a representation of that, right? So tokens never make sense. They're just a cultural shelling point, Jordi? They are a cultural shelling point for the most part. Having underlying economics is important. And I think, you know, for base, like there's like toshi, right?

Like there's like a meme coin of the cat of Brian Armstrong. But like, is it strong enough or the community will just make this like the money of like the whole maybe? I don't know. But the problem with me coins is like the holding it like the distribution of the ownership is not very, sustainable, right? It's very bucketed. So I always look at unlocks, distribution of token, and like culture. These three things are kind of what creates a sustainable. Mike, I feel like part of Jordy's answer is it makes as much sense as it does in a layer one, particularly an alternative layer one. What do you think about that?

I think here's the way that I would describe it is I think the business model of layer ones, why they exist, is basically to bootstrap a form of digital commodity like money. I think that's essentially the purpose. And the way that that has been achieved in the past, there's a shelling point and sort of soft community aspect to this that doesn't necessarily fit into an Excel spreadsheet. But I think the model was essentially you have these distributed computing network. And if you want access to the things that that distributed computing network can produce, then it's token gated.

And you essentially need to buy into the native token of that environment. And there's this very virtuous cycle that kicks in where the more useful stuff that gets built on top of that network, the more people need to actually buy that token to get access to those goods and services, the more you end up just holding it. And it's this kind of virtuous cycle that kicks in. But that is, I think, essentially what the model is. You still have that basically intact on Solana, is the way that I would describe that is they don't have layer twos. They have slightly beefier validators that allow them to keep everything on the same layer. And that's essentially what the model is. Ethereum with the roll-up centric roadmap has moved. They've made that a little bit more nuanced and complicated, where they said, actually,

you're not going to really want a bunch of goods and services on this main chain, but there are these other sort of extension chains where you are going to want, where you are going to want the goods and services that are built on top of that. And so I think the business model of Ethereum is still to bootstrap and export that currency, but the way that they're going to do that is these more performant and aligned layer two chains. But the model of the layer two chains, as soon as they introduced the token, makes it a little bit weird, right? Because you can't token gate with two tokens, right? You've got Ethereum, but then you've also got the native token.

So the question is, what is the purpose of the native token? And I agree with Jordi that it might not have to matter right now. You can have a shelling point for a really long period of time. Shit and crypto doesn't have to make sense on a one to three or maybe even five-year time horizon. But I am in the camp that eventually it's going to have to make sense. And I think what you're probably going to see is a lot of L2s get confused about what their ultimate role is going to be. They're going to try to jam their own token and try to get people to use it as money,

but it's just not the same. I just think you're never going to be able to bootstrap those network effects like ETH was able to. And so I think it's kind of a business model where you should just be able to generate revenue, right? Like L2s are essentially a bundle where you're trying to attract a bunch of apps. There's economic activity that gets generated on that ecosystem. There should be a certain amount of revenue that should flow back to the token holders, hopefully in the form of ETH, I think.

The big question is regulation. There's this bitter irony in the way that regulation works right now, where the more useful you try to make a token, the more illegal it is in the U.S. And it's actually led to these massive distortions in business models and markets that has set us back a long way, frankly, in the industry. So I don't know what the timeline is for that ultimately to get worked out,

but for me, if you could just have ETH denominated revenue flow to L2 token holders, problem solved, fixed. The question is just when is that going to happen? And I don't really know. Interesting. Anthony, what's your take on that? And one thing I'll add is it's been interesting recently. Starknet has launched and they are using the new Stark token. Their token is about to launch, let me say, will be launched by the time of this episode errors. And they are using their native token as the unit of gas for the Starknet economy. That is kind of different than most of the other layer two's that we've seen. What's your take on this whole token value comment here? Yeah. So, there's a lot to unpack there between jordy and mike i think i just wanted to quickly agree with

what jordy said the bear case for base like i completely agree with that that is definitely the bear case and i don't know if it's exactly going to turn out like open sea i don't know how open sea fumbled the bag so hard like it actually is shocking how hard they fumbled that bag like no offense to them they had an amazing product right they still do obviously there was a competitor with a token and stuff like that as well but still it's pretty bad at least from my view yeah from where they went to where they are now right but yeah i don't know if the same's going to happen with base and And as I said before, people use OP as a proxy for base. So there's the OP governance just favor base and just send OP base as way to kind of

incentive vice people to come on and do those things you were talking about. Remains to be seen. They are doing a bit of that. They actually did pay base a lot of OPE already, I think. So I think that it would be in their best interest to keep doing that because base is obviously the biggest chain besides OP main net. So we'll see, we'll see what happens there. World coins are they go.

Yeah, it's true. But see, not even I associated WorldCoyne with OP because I know it's built on OP, but I think Worldcoin is like an AI coin, right? It's not a layer two. It's an AI coin. So that's kind of my thoughts there. But I guess to like Mike's point, I mean, I completely agree regulation has kind of like set these things back a lot.

And I completely agree if there's just eighth denominated revenue went to these kind of token holders that would solve a lot of these issues and you'd have clear value accrual to these tokens. But at the same time, a lot of the technology is just not there yet. Like to have value accrual, you'd have to have them staked on validators or sequences. And like none of these L2s, have permissionless, like most of them, they don't have permissionless ways of doing this yet. They will, of course. Like, I mean, arbitram is committed to being stage two this year.

Like, so they probably have that this year. But, yeah, the regulatory side of things, especially for anyone based in the US, is definitely extremely murky and doesn't seem to be getting any better, which is very disappointing there. But yeah, I completely agree with that side of things. And I think I'll also say that, like, when you look at the kind of layer two networks, it's funny that we've all been mentioning the same ones during this podcast, right? The same like arbitram and optimism and stuff, right? when there's a lot of these L2s already. So you can already see kind of this power law effect playing

out where we're basically already mindfully just mentioning a few as the top ones and the rest of them kind of go by the wayside. So that's what I meant when I said at the start that like if you'd ask me which one I can pick for five years, I can't really give you one. Like if I was gone to my head, it'd probably be R or OP, but I wouldn't feel comfortable about it, right? So it's kind of funny that's kind of how we've kind of, it's been a shilling point for us without us even realizing it of landing on there. So I think the main thing I've taken away from this podcast is that we actually don't know much. There's so many open questions right now around this.

We all have our own thoughts and opinions on this, but there are so many moving parts at such a new ecosystem that this is exactly why investing in these things is so hard, especially if you want to do it over the long term. And I think that it's going to be interesting to revisit this in even a couple of years and see where we sit. I'm glad you just brought all of that up, Anthony, because I want to tackle some of that matter just head on.

I think the 2019 to 2022-2020 era of Ethereum layer 2 development, with some exceptions, has always been about like how to be one-to-one extend Ethereum block space, right? Like Arbitrum and optimism where it's like, no, we're more Ethereum equivalent. Polygon is doing the same thing with the ZK-EVM, scroll, Tyco are all trying to be like so close to Ethereum. Starknet is the big differentiator here. They've always been like, I call them Stark maxies. They're just trying to maximize Stark's.

But there's a lot of layer twos coming online this year that I think are really going to break that pattern. And I think we're seeing some of that same energy with what Jordy was talking about with being creative with how to construct your layer two. Blast putting native yield into the layer two is like opening up some like a design space. We have eclipse coming with the SVM to be as a layer two on Ethereum, like brand new like playing field that like no other layer twos are going for. There's Phoenix, which is a layer two based on fully hormomorphic encryption. Like how do you even compare that to any of the layer twos that we've talked about? Aztec has been around for a while and, you know, in the fullness of time, they'll get there and it will also be an extremely differentiated

layer two. And these are just the ones that I can think of in this breath. And I think there's overall been a lot of focus saying to like, hey, this whole like Ethereum equivalence, Ethereum alignment thing is great. And there's other things to focus on and other things to really innovate and experiment with. And so hopefully, like the call here is that there's going to be like a resurgence of layer two experimentation. And I don't know how much juice there is to squeeze there. Like, is there like this massive new design space? And, that's totally unexplored, or is it just like a nice little side quest? Jordy, maybe I'll start with you here.

Like, how much is there in the world of layer two experimentation? Like, is there more or less than what people think? Undeniably more. Like, you can't imagine the kind of ideas and the things that haven't been touched upon because we're still need time to build all this stuff, but there's so much to explore. And I'm not just talking about like SVM versus EVM and just talking about like, you know, what kind of like incentives, what are you building? You know, Blast is ultimately...

something that I keep coming back to because I've seen like, you know, paradigms getting involved. Dan Robbins talking about like native rebasing token. They're going to change the contract. One of the issues that we're having is like, you know, if you go rebasing, you can't integrate it into defy. If you go like, you know, value accruing, then it depegs from the dollar and it's like a weird user experience. They're trying to just like, you know how 404 is just kind of like did this like unofficial new code. Make rebasing a part of the entire chain, right? So it's like native in the chain. Like the contracts are like if you're deploying, this is kind of like something you have. to use. There's a lot of experimentation that's going to happen. I think, you know, with Mantle,

I've tried to experiment very heavily on just kind of like using, you know, yield, using boost, using like an environment. There's like something very cool launching soon called Puff that's going to, you know, maybe double the, you know, meth pvl right now is when we were chatting about meth a couple months ago, you guys were like, what's this meth thing laughing off? It's soon going to be like maybe the second largest after Lido, I think, after like this next few months, quite common. that we'll get to that $4 billion mark of TVL. And it's just because of like, you know, individual creativity and trying to bring value to users and make them like have the best experience they can have.

And there's so much experimentation mode is another L2. That's quite interesting. I talked to the founder and, you know, I've seen them like do some pretty aggressive partnerships, try to generate like, you know, some good, very strong yield with Athena and some of this other kind of higher yield options. the more established you are, the less risk you can take. And if you're up and coming, you just say, like, you know, screw it. Like, we'll do this.

And you can go anywhere from extremas, like, I don't care about Ethereum alignment. Like, I'm paying the security gas fee. Like, just leave me alone. I'm paying for that. Now I'm just going to, like, go in my own direction. And some people are doing that. And they'll have some community. And some are, you know, very much like you guys, very like Ethereum, like, you know, just the ethos and trying to represent that.

So we'll see everything. And there's so much experimentation. I'm really excited. Anthony, what are you most excited about on the layer two experimentation side? I would first agree with what Jordy said. There's just so much kind of left to cover. And I think I said on the eighth bull podcast we did last month or the month before, I think I remember saying that I was most bullish on the experimentation side of layer two's

rather than the scalability side because the scalability stuff was table stakes. We have that. You understand that layer twos are supposed to increase scalability. So what else can we do? And, you know, David ran through a long list of these other L2s that are either live right now or are coming that are doing, you know, lots of different experimentations. You know, they're trying not to be EVM, of course, you know, clips with the SVM and Fluent is doing ZKWASM stuff. So there's all that experimentation happening and I'm really excited to see it play out. But I kind of always wonder,

like, how much of that's actually going to be successful, you know, how much of it will actually end up being enshrined in the Ethereum protocol itself? Like, is it a really good idea, but is it so good that it actually belongs in the Ethereum Core Protocol rather than at layer two? Like, you know what I mean, there are some ideas like that. Like, for example, Tyco's working on based, boosted roll-ups. Like, that to me works better enshrined than maybe at layer two, because the whole concept is using the layer one to kind of sequence transactions, so that might end up getting enshrined, right? So I think that there's that open question around what happens there. And it was funny, because it makes me think of what I used to think about, a lot of these layer ones that were

doing non-kind of EVM or kind of different to Ethereum. I used to call them professor coins, where there was a lot of smart people working on them, and they were building some really cool stuff, but I felt like that would never really build an ecosystem around it because it was something that would like bolt on to an existing ecosystem as like a feature rather than it create its own ecosystem. And I think the most obvious example of that is like privacy coins, right, Zcash and Monero. Like they have their own kind of small user bases, relatively small, I guess. But like you put privacy on Ethereum and look what happened with Toneta Cash. It was used but so much. It had so much volume going through it that the US felt it was a threat and basically whacked it with

the sanctions hammer. So I think that there. are certain things that better built like, you know, as feature sets rather than entire ecosystems. And I think we're going to see some of that play out in the layer two space. But the really powerful thing about the layer two space is that we get to experiment with those things. Because it was just layer one Ethereum, you can't experiment on layer one Ethereum. You have to go through the whole governance process to just get a small EIP change in, which could take like two years. I mean, I was looking at one of the EIPs that's coming in Dengun that UNUSOP needs to launch V4. It was proposed in 2018.

So like almost six years ago that EIP, and it's finally going in Denkun. And that's why we saw a lot of these L1s offshoot off of Ethereum, right? Because they wanted to experiment, but they couldn't. Now we get to bring that experimentation in-house, right, with these layer 2s and basically keep it in the Ethereum ecosystem and still export ETH as money to them and basically keep it all within Etherium. And that's what makes me most bullish on that side of things. Anthony, can I push back on the experimentation thing a little bit? So I agree with many aspects of experimentation. It's like pushing the frontier of Ethereum and developing all sorts of different directions. There's a lot of benefit that comes from that. on the other hand, there are those that would say that is further fracturing the Ethereum ecosystem. You know, I notice a lot of chain fatigue out there where it seems like, you know, a new chain pops up,

very little differentiation. You know, they have a token. Maybe they offer a bell and whistle, and it just almost feels extractive. Or like another use case is you get the 50th chain and it's a separate island. It's not connected to any of the other chains. And so like, what am I going to do? I have to figure out, like, how the hell am I going to track my assets on this brand new chain and, like, interoperability, and did I bridge? I don't know. So experimentation and lack of standardization could lead to a more fragmented Ethereum. And you have an alternative layer one, right, come up and they say, like, we have it all here. Like, you're a common state. You don't have to worry. It's all kind of one platform. So there's also some fatigue with some of this experimentation I'm seeing. if we don't have experimentation with kind of like shared standardization, shared liquidity, then is the Ethereum ecosystem actually losing? What would you say to that?

I would say you've gone down three rabbit holes that could each be a podcast in themselves in just that comment there, which is quite funny. But like just as a general kind of, I guess, a rebuttal, if you will, it was already happening, right? As I said, there were other layer ones being spun up all the time to do this experimentation. So regardless of if Ethereum was doing it with layer two's or it was kind of existing as layer ones, it was kind of already happening in that sense. And I think that the fragmentation thing is like a short-term thing, long-term, not really a big deal. I think power law effects are just going to play out. We're going to, you know, remove a lot of these kind of U.X hardship for users that just abstracted away longer term, right? So I just generally

don't think it's a big of an issue as people like to make it out. And, you know, the ironic thing, I would bet that pretty much everyone who complains about it on crypto-twe is doing the bridging, doing everything because they want to farm the airdrops. They want to make the money. They want to go where the action is. And they're just complaining about it because it's more cumbersome than, as you said, being on one chain, I think we discussed this, maybe even on the last episode we did together. I mean, I've discussed this endlessly on my own show.

Like, we do the roll-up centric roadmap because we do not believe everything can be done on one layer, right? That's the whole point. Like, that's the entire point of the roll-up centric roadmap for Ethereum. And as I said, that is in of itself a podcast, but I'm not going to ramble on about that. But that's my general view there. I mean, it's not just the power of the power law concept. just four incredibly talented, very, very well-funded teams building, you know,

bridging and cross-messaging. Like you have CCIP, you have layer zero, XLR, wormhole. That technology will get better and better. Even if, like, we keep fragmented and everything else, it should get, like, a better user experience just because of those guys eventually sort of like finding the best solution for everybody, I think. Definitely, definitely. And I mean, as I said, like, that's just going to be abstracted away.

So even if the underlying, you know, technology, you know, gets better, but it doesn't get to the point where it feels as seamless as, you know, using just one chain for things, it will to the end use them. That's all that matters, ultimately, I think. Yeah, just to disagree a little or poke back. I actually think there's a decently strong incentive, at least for the leading L2s to not be interoperable and integrate. Like, if I was sitting in charge of optimism or arbitrum, again, Jody, I think you're totally right. There are so many great solutions out there. Where are they? Why haven't they been implemented? I think it's more of a social reason than a tech reason for not making these chains interoperable.

And from the perspective of a small layer two, it's like, hey, guys, we should be interoperable. You know, the big guys are like, yeah, you would think that, right? That's the thing. Like, I agree, but can that be stopped, right? If they want to be permissionless ecosystems, then eventually they're not going to be able to stop it, right, or else they're not really permissionless. Would you agree with that? I do agree with that.

And I think there's ultimately an interesting sort of tension, and I don't know how this ends up playing out in between experimentation, which I think the layer two should be running right now, that's a huge benefit of being in a layer two is you get to push the limit a little bit in terms of the VM, for instance. But ultimately, I think the value proposition of layer two is similar to Ethereum or Lido or any of these sort of mass adopted protocols is that it should be this like kind of ossified, extremely safe, permissionless sort of thing. And maybe an interesting example would be that right now when you interact with a dollar, right? Like when you hold a dollar, It doesn't feel different to you based on which bank you're at or if you're in a different country.

But in reality, it is. Every dollar is JPMD or B-O-A-D, right? Or like a dollar in Europe has a very different security assumptions and trust built in there than it does in the United States. But we don't feel the need to disclaim that. Why? Because we're all relatively certain that this dollar is going to be backed up and safe. And the reason why the U.X still feels not great in crypto is because, you know, if I was

Coinbase, I feel the need to disclose to my user that this is not conodonial. ETH, this is an obligation of this chain. That's why we feel the need to describe that to users and what makes it so confusing. And so I think there are a couple different ways that this could go, but really, I think all roads point to fewer L2s in the future. I basically, like, maybe just to put a falsifiable prediction out there and I can be proven wrong or right in a couple of years. I just think there are fewer L2s, big general L2s. That's why I'm like, like, how are you defining L2s here? Because you could say that there's like the optimism super chain, the arbitram orbit chain, Polygon SuperCham, whatever they end up calling it.

Like, those could be our few L2s, but like, then they have all these little mini L2s in them that all natively interoperate, and then those things can talk to each other as well. So you could think of them like countries, right? United States has different states. They're the different L2s. And then there's Europe and, you know, it has all the different countries inside it. So, like, that's how I think about it as well. Like, there's going to be very few of these kind of generalized ones, but they're all

going to have, like, little L2s inside them that all interoperate. That's basically how I think it's going to play up to. Yeah. So I think, David, I've heard you describe it this way, almost like economic zones or trust zones or whatever you want to describe. And I think there will be this sort of broad Ethereum trust zone and then minor almost alliances of different groups or bundles where interop works slightly better in between these different groups of chains that have split economics. And it's very difficult to predict how that's going to play out because a lot of that's going to be dependent on what the application actually ultimately ends up needing for interop. Like here's something that looks like it might go together. You can already squint at it, like, farcaster frames and NFTs are pretty interesting. So maybe there's this weird dynamic that is just invisible to us today where social and NFTs should be on the same platform. Like if Web3 social ends up being the front end distribution for new mints, then there's a strong incentive there to put NFTs and social on the same sort of interoperable. So Mike, you're saying

there's sort of Ethereum and then the super chains. And the super chains would be like these three to seven, let's say large economic zones, you know, chains of chains, basically. And you might have many chains on top of those. Yeah. And then the competition vectors for different apps within those ecosystems will be to sort of push the limits and go out and attract users. And I think for the actual trust of the frameworks, right, like optimism is a framework, arbitram is a framework. The competition vector is going to be similar to what it is in ETH or LIDA or any of these. Like they want to be kind of flat and permissionless and ossified and safe and unopinioning. and I think that's ultimately going to be right now they should be taking risks,

but I think ultimately they're going to end up competing on the same vector that a lot of our favorite protocols in crypto do today. That's what I would say. Do you agree with that? What do you think? I'm just like thinking about something else, which is that we're going to start having issues around tradeoffs, just tradeoffs everywhere. And like one tradeoff could be, you know, I have an app.

I want to tap into liquidity on base, on blast, on mantle, on arbitrage from everywhere else. So I want to deploy everywhere, and then maybe I want to share the experience. So I know like Vertex announced the vertex edge, which is basically they're just going to combine the liquidity across like multiple chains into their own like shared sequencer, which is a completely new kind of like thing. And maybe you're giving up a little bit of risk or centralization or like, but actually the user experience across all the chains. Now they get to like share liquidity. There's going to be these tradeoffs that are quite interesting to see on the app layer. And especially like once like an app becomes very strong and gets like a lot of. incentives giving it to it. These traders are going to really come into play, and we're going to

start figuring out, like, how much, it's the age-old question. Like, how much do you want to give up in terms of, like, user experience in exchange for, like, you know, decentralization, like, these types of things where do you want somebody just MEV you to death? Or do you want that, you know, protected, or the Jareds from Subways are not sandwiching you all day? Guys, I think we're going to need to draw this to a close. And I love where this conversation kind of ended because I think maybe you mentioned it, Anthony or Jordi. earlier in the episode where there's so much that's undetermined right now about crypto, particularly in layer two. We know a lot right now about kind of layer ones and how those might emerge.

We have a more solid picture about Ethereum, I think, but layer two is just like a massive question mark. And that to me is so exciting. This is like the Cambrian explosion era. We have no idea which life forms are going to actually succeed and live to kind of like dominate the planet. But we see a whole bunch of different things being tested right now. This might be actually the most dynamic I've ever seen crypto, right? Like, it almost feels like the possibilities of 2017 when we just started to tap into what a smart contract platform could do. It feels like that only like maybe more so. And that's why it's an incredibly exciting time here. So I want to end with this question to each of you, right? So this panel, I think, is largely bullish, obviously,

on Ethereum. We talked about that and on layer twos. But if you're trying to, like, capture the upside in terms of layer twos, what is the best way? to do it in your opinion. Again, like not financial advice. You can either describe what you're doing personally or just like some thoughts on this. I mean, I want to capture L2 upside. Do I go and buy ETH is ETH essentially an index of layer twos? I'm betting you might say yes. But then if I want to get, you know, the beta of layer twos, as we've called it, what do I do? Do I just pick a basket of my favorites, the ones that are, you know, top five market cap? Or do I try to do a larger index? Or do I just use them all and select my favorite? Do you have any guidance on this, Jory?

from your own personal experience or just thoughts here. Yeah, look, I'm a fundamentalist. I think, like, you know, Eith, the asset is just one pretty good way just to get the exposure. And, you know, just talk about beta and whatever. And sometimes just want to keep it simple. You know, I have a bag of meth. It's a big bag of math and it's like riding it to Bala. Something that I keep it simple.

In terms of other L2s, I think, you know, the advice that I would give other people, not trying to be biased, just very unbiased, look at, like, you know, where is activity moving? like not like fake tvL that's sort of like a short-term pump you know there's like some game going on but like where's the activity going where's the mind share going which ones are kind of like attracting the quality founders so it's not about like buying the top five that seems kind of like lazy if you have time and you're like living in the ecosystem and you're like you know on twitter or farcaster you're kind of like seeing what's going on go over like the direction and the hype is going and you'll upperform about you anthony how do you play this market yeah i mean i would totally agree

with what jordy said again i guess i go back to the time timelines that we were talking about earlier, like short term versus long term. Short term, it depends on your risk appetite, your risk profile. And as Jordy said, like going into the ecosystem, seeing where the money's flowing, seeing where the projects are going, you know, who's got which projects have got actual fundamentals behind them and like not just this fake TVL that comes and goes and air drop farms and stuff like that. So I think, you know, looking into that's very important. But like if I'm talking long term, like five plus years, like as I said, like, I can't pick anything. Like, Heath would be my only pick over the, I can't see really any of these things outperforming

ETH over a five plus year time horizon. And if they do, I can't pick it. Like, there's no way for me to pick it right now. I think, as I said before, the conclusion of this podcast for me is that like there's so many open questions and that is not good as a long term investor because as a long term investor, like, okay, you can have a lot of open questions and that means you're taking a lot of risk, right? Like, you're taking a lot of risk if there's a lot of open questions. But hey, maybe you get a lot of reward because that paid off for you. But I mean, for me, like, in my own position where I am today, I'm like, I'm looking at this and I'm like, I can't take that risk. That's such a big risk on the public markets. Again, I disclose that I am an investor in these things

on the private side of things. And maybe I'm fighting my own bags here, so to speak. But I can't in good conscious go and tell someone, hey, like, I would buy these things on the public market and hold them for five years. I'm not going to do that just because I'm holding it because of my angel investments. That doesn't feel right. And I'm not just saying to buy ETH because like I'm an ETH or whatever. I'm just saying they're like, I truly do believe over the long period of time. It's going to be extremely hard to outperform ETH. Anthony, like for just much respect for you, like, fudding your own bags in that sense. Not many people have that, like, clarity to just like, yeah, you know, I got in early

at these things. They're up massively. There's unlocks happening. I'm going to be unlocking for the next, you know, two years. But like, you know, fundamentally as a user, you know, the asset, the base asset is maybe like a better risk reward and just respect, respect. Jordy, hold on. Anthony is not fudding, okay?

Some of his bags. He's actually supporting here. There's bags up. But I acquired all my eighth on the public markets. I'm comfortable with that. I didn't get any preferential treatment for eighth. Mike, what are your thoughts? How could this market be played from an investing perspective? I would probably sit in the Anthony camp here where you should ignore what I'm saying. I have no idea. I would probably just attach this huge caveat to it. I think my mental framework for this,

which I've been sort of hinting at this podcast, is just that I do think in the short to midterm, there will be network effects based on how much these layer twos are able to attract primarily in ETH. So if you want to play these markets, what I would do is probably just track the amount of eth that finds its way migrating up to these layer twos. And it's probably a decent assumption that the layer twos that are able to attract a whole bunch of eth will be successful over the at least midterm. So I have no specific recommendations. But if I was playing the market, that is one thing that I would be looking at. Yeah, look at the clues. Go to layer two beat, I guess, start by total locked value. Denominate that in eth. And you can kind of get some sense of

where some of these things are going. Guys, it has been a fantastic episode. Very difficult to call what's going to happen next in Layer 2s, and I think that's why it is so exciting. A little bit like being bullish on the internet, but not knowing which websites you should bet in. That's sort of how it feels at the conclusion of this episode. And I want to thank you again for doing this.

I think this could also be called the Heath Bull Panel Part 2, but I'm not sure. We did talk about Layer 2s a lot in this episode. So thanks a lot, everyone. Thanks for having us. Thank you. Thanks. Cheers.

Bankless Nation, some action items for you. We will include a link to the episode we did two months ago that I think is holding up fairly well at this point. Got to end with this. Of course, none of this has been financial advice about Ethereum, about layer two is about anything. Crypto is risky. You could lose what you put in. But we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us in the bankless journey. Thanks a lot.