Bankless - Are L2s Extensions of Ethereum? | Kyle Samani & Max Resnick vs. David Hoffman & Jill Gunter

Episode Date: October 28, 2024

Bankless Nation, we’ve got the hottest debate in crypto right now: Are L2s extensions of Ethereum? On one side, we’ve got Kyle Samani and Max Resnick proposing that the current Ethereum Rollup-Centric Roadmap is off-track. On the other side we’ve got David Hoffman and Jill Gunter defending L2s as successful  extensions of Ethereum. ------ 📣 GET YOUR ALL ACCESS PASS TO THE PODCAST https://bankless.cc/podshownotes ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2    ⁠  🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  🪄 MAGIC EDEN | HOME OF WEB3 https://bankless.cc/MagicEden  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle    🤖 0G | MAKING THE IMPOSSIBLE, INEVITABLE https://bankless.cc/0G  ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/85?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ TIMESTAMPS 0:00 Intro 8:54 Defending “Extensions of Ethereum” 16:33 Interoperability Standards 25:36 Are L2s Parasitic to Ethereum? 32:37 ETH Economics & Value Accrual 41:30 Solana vs Ethereum L2s 49:09 Closing Thoughts ------ RESOURCES Kyle Samani https://x.com/KyleSamani   Max Resnick https://x.com/MaxResnick1   Jill Gunter https://x.com/jillrgunter   ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠  

I think the market demand for producing chains should be just taken as fact. In this day and age, we know that there is going to be many, many, many chains. Some chain is going to figure out how to aggregate all the chains. Some chain is going to figure out how to make these chains have stronger property rights and composability mechanisms between all these chains. And that one chain is going to incentivize the production and aggregation of even further chains. And that chain will become money. Bankless Nation, for those of you who did not make it too,

mission lists this year. There were some pretty hot conversations that were held over those three days at the conference. The spiciest conversation, or debate, I should say, is what you're going to hear right now. It's a debate as to whether or not layer twos are extensions or Ethereum. This debate is between Kyle Samani and Max Resnick teamed up on the side of no layer twos are not extensions of Ethereum versus myself and Jill Gunter, Jill Gunter from Espresso, on the side of, yes, they are extensions of Ethereum. Some people said that. that this was the panel of Permissionalists, not my worst. This was a tweet out of the moderator, Westy from Blockworks. It was also the last panel on the last day of Permissionalist about four

hours before my fight with Kane Warwick, and I used this panel to get into war mode in order to prep for the fight, and I definitely think that worked. There were also lots of other super hot panels and conversations that were held throughout Permissionalists. Ryan's mainstage panel with Chris Dixon was super insightful. I did a Defi mainstage with Kane, Stani, and Sam Casmanian from Frax, co-moderated by Mike Epilito, and Ryan had an Ethereum Layer 2 conversation with Alex from ZK Sync, Harry from Arbitrum, and Rushi from Movement Labs. All of those conversations are getting released on the Bankless Premium Podcast feed.

So let's go ahead and get right into the episode. But first is a word from our sponsors. Yeah, how's it going, everyone? I've been excited for this conversation for a while, ever since we set it in stones. I'm Westie. I'm on the Blockworks Research team. Most of my researchers have been around Ethereum infrastructure. roll-ups. And so this question that we're debating today, I've been talking about for a while,

and it feels like there have been a ton of conversations on the Twitterverse, on podcasts, but I don't think we've ever gotten people with different views in one place at one time. So I think this will definitely be a super fun conversation. Hopefully we get some hot takes as well. And like I said, end this conference with the bang here. So I guess to start, I'd love to have sort of opening statements, if you will, from everyone on the panel so we can get a click introduction to everyone. And then if each person also wants to go into, well, I guess their high level thoughts are what they think of when they hear the question are L2's extensions of Ethereum. So we'll start with Kyle here and make her way down. Sure.

Hi, everyone. My name is Kyle Simani. I'm a co-founder at Multi-Goin Capital. We are seven years old, investment for our focusing in crypto. and I do not believe L2s are in their current form generally used widely popular L2s such as an arbitram-based optimism or not extensions of Ethereum

although there are other configurations that could be. Hi, everyone, I'm Max Resnick. I'm the head of research at Special Mechanisms Group. SMG is a SkunkWorks organization within consensus, which is the parent company at Metamask and Fura. we do special projects, we work with all sorts of things throughout. We particularly specialize in M-AV, transaction supply chain, transaction landing. We also do a bunch of work on the Ethereum Protocol.

And I agree with Kyle that L2s in their front form are not Ethereum. I love that you guys are already adding some nuance to this debate. My name is Jill. I'm a co-founder at Espresso Systems. We're working to solve cross-chain composability, starting with L2s on Ethereum's. very relevant. And I believe that L2s are an extension of Ethereum. I think there's two ways to ask the question.

One is based on definitions. The other way is to ask it based on the goals of L2s versus the goals of Ethereum. And I think any way you slice it, they're extensions. Hi, I'm David, one of the two bankless guys, the other ones in this room somewhere. And I think layer twos are Ethereum, are extensions of Ethereum, naturally. And I think whether or not that that statement is true or false really depends on, of course, how we define words. All debates are essentially semantic debates. I think Ethereum, all blockchains are property rights systems.

And whether or not layer two are extensions of Ethereum is either true or not true based on how strong the layer one can promise assure your property rights on a layer two. And so this is why we have things like layer two beat, the different stages. Fraud proofs, ZK proofs, the whole purpose of layer twos is to be a one-to-one extension of your property rights on Ethereum. And I think this debate is being had now because what is not happening, or at least what is perceived by the market is not happening, is that layer two's are not becoming extensions of each value accrual. I think perhaps that is something that is worth maybe talking about or focusing on, but at the very least, that could also only be temporary. Amen. Yeah, there's a lot of threads you mentioned that I definitely want to go off of. First,

we should certainly define exactly what we're talking about here because I think that's the first question most people have is what does it mean to be an extension of Ethereum or to be Ethereum? And it sounds like you defined it, David. So I'm curious because the people sort of on the anti side here said in their current state. So I'm curious from this side. What would you say like what properties would you say make something an extension that like maybe in the current state or not but they could be at some point in the future. I have a fairly simple litmus test for this which is is the extension thing. It's an extension if it's doing something that cannot function on main net. And that doesn't just mean like hey, you increase the throughput of an app by like 10x

or 100x like that's still functionally the same thing. But if you're actually unlocking like new behavior or new use cases, that that to me is an extension. And explicitly, therefore, not a replacement. The mainstream L2s that exist on Ethereum today are explicitly replacing a function that L1 did a year or two ago. Would you agree? Yeah, I would agree with that. I think my test is also about whether these things are their own siloed state with network

effects. And when you're your own siloed state with network effects, you naturally compete. with Ethereum, which is a silent state with network effect. So that's another thing that I would add to my definition. And then I would just add, like, go look at what the things Arbitram Dow is spending money on. And it's basically spending money to take away the lifeblood of apps that are currently operating on Ethereum L1. And another thing, go look at the fact that Unichane just announced that they're launching

their own L2. So that's a hugely popular app. The Uniswap router is one of the most commonly, uh, used highest gas use of contracts on Mainnet. And they're saying, hey, we're going to go away from Mainnet and make our own L2, which again has siloed state, which is not interoperable with anything else. Today. They explicitly have on their roadmap interoperability and composability is a goal. So are we taking unichane as it exists, or I'm not even sure the state and it exists that it exists in today? Or are we taking L2s at the word of their roadmap? So like,

according to your logic, if we put like 1 million TPS on the roadmap, does that mean that Ethereum is scaling? Like, I just think we live... Do you have a viable path to get there? We've been saying Ethereum is scaling for years. I think you would agree with that. I would not agree that Ethereum has been scaling for years.

I don't think we've done any... I guess because you see L2 is not as an extension of Ethereum. I want to address what Kyle said, though. I mean, I think, firstly, we can simplify the definitions. What is Ethereum? It's a world computer. it's a platform for innovation. And what are L2s?

They're applications. They're a specialized form of application, but they're applications. And I would contest the statement that L2s are only extensions of Ethereum if you're doing something you fundamentally can't do on the main net. I'm not true that I really understand that. But I would say that regardless of that definition, you are doing something on L2s that you can't do on the main net. you have a totally different dynamic around transaction costs, throughput, etc.

I'm surprised to hear that statement coming from someone who's such a big backer of Solana because what would be the use case of Solana? What would be the reason for a developer to go over to Solana if that was not, by your own definition, a fundamentally different experience than you could get on Ethereum? That's what L2s are offering to developers today. Salana competes explicitly with L2s. So I agree with that. But the frame of the question is not base versus Salana, it's base versus Ethereum.

Yeah, but you're getting a fun. Why would any developer choose between these things? Why wouldn't they just go to Eith Mainnet, you know, as of a few years ago, which was where all of the activity, all of the users, all of the liquidity was? Because they're getting a fundamentally different experience on Solana. And today, because they get that fundamentally different experience via an L2, which then by your definition is an extension. How can you have a fundamentally different experience and an extension those to our contradictory statements? If it is fundamentally different, it is not the same.

That's what I'm working off of Kyle's definition, so you'll have to ask him. Well, like Kyle is saying that he is not afraid to say that Solana is competing with Ethereum, but I'm not afraid to say that. And I'm, I'm also saying that L2s can be competitive with the Ethereum L1 as well. And there are things that I would like to see on the L1 that are only possible on the L1, like censorship resistance and credible neutrality that you cannot expect to see from a U.S. entity centralized sequencer. And, you know, you want to see the Canadian truckers be able to use the chain when they want to get their money out of their account. Then you probably shouldn't rely on a regulated centralized sequencer on U.S. East 1 or on some box somewhere in a westernized country.

You need more than one box contributing. you need decentralized sequencing and you cannot basically provide the same guarantees ethel1 provides without doing that. I think a large part of this conversation comes down to the competitiveness of layer two chains to the host chain

like the layer one chain. When base grows, does it subtract from Ethereum? Which is yes. Probably the answer is yes. It also subtracts from optimism. It also subtracts from ZKSink. it also subtracts from all chains, actually. Actually, there's no really difference between when Arbitrum wins.

It's pulling away from Solana, too. And so there has been this ongoing development architecture in crypto, even with and without Ethereum. You see this in Cosmos, where you have a variety of chains with, like, no real ropes between them, no real connections. You have Pocodot with many, many chains, with, like, very rigid connections between them. And that really didn't take off.

And now you have Ethereum with, like, what I think you guys are saying, very loose connections, but connections nonetheless, strong property rights are continued across chains. And at least when an Ethereum layer two wins, it takes away from Solana more than it takes away from the aggregate of Ethereum because at least it keeps it inside of the Ethereum ecosystem. So when you can keep value inside of Ethereum, yes, the Layer 2, the Roll Up Central Roadmap is designed to have all chains,

be competitive with other chains inside the Ethereum-centric roadmap, but at least there's some aggregate value created that's retained by the net Ethereum ecosystem that is pulled away from the very disconnected layer one landscape. Okay, but let's kind of take this view. So is Avalanche, which is an EBM chain L1, part of the Ethereum ecosystem by this logic? Is Monad part of the Ethereum ecosystem?

Do you have to just like, do you just automatically become part of the Ethereum ecosystem by posting state rates, or do you have to use Ethereum for DA? There's no clear line. There's no clear line. It's a set of concentric circles, but I think there is a clear line

as to where property rights are given assurances to, and I think where property rights assurances stop is somewhere like Avalanche, an EVM chain monad. And then way further away is Solana. A lot of great takes going on right now. Curious your thoughts on sort of interop. Like, let's say Ethereum and all the rollups agreed on one interrop standard, that there was good UX to basically easily switch assets from one roll-up to another,

to Ethereum L1, and you had this cohesive ecosystem like you did Solana across these roll-ups. What that changed your guys as mind? Would that be, like, what L2 is in that case, like, sort of be Ethereum and be a part of one ecosystem? Or would that not matter at all? I mean, it's like, what does it mean to be Ethereum? Like, David, you can say our property rights, you know, functionally equivalent and like, okay, that's one element.

another element is do normal people perceive it as the same? Another would be like is there some general sense of credible neutrality? Another would be if you want to get like transaction latency for inclusions, whether you live in India or the Philippines or in Mexico, like what are those guarantees? So there's like different properties of the systems. Oh, and then maybe the other one of like, like again, answering the question, is X Ethereum?

You know, the most obvious one, in my opinion is, like, is it truing MEV value to the base asset? And so there's different constructions of various roll-up-y-looking things, whether they're espresso or arbitram or base or unichain or base or base roll-ups or whatever. And all of these systems have different versions of some of these properties. I think in Math Max as in my definition, none of the proposed systems by any of these groups are functionally equivalents to Ethereum. They may have partial equivalents on some properties, but none of them are 100% functionally equivalent.

By definition, if that was the case, then I want to be on stage right now. Like, there would be no date. But very obviously, they're not functionally equivalent. Yeah, and I guess just to come back to our opening statement, it's like in its current form today is exactly what we are talking about. We are not talking about what is on the roadmap because we work in an industry where roadmaps are memes, okay? Roadmaps do not exist. Ship code. The code that's shipped is what the thing

is, not the code that you promised to ship in the future. Words on a page are not code on the compiler. But Ethereum has had a pretty coherent roadmap. They had the pivot in like 2019 to the roll up centric roadmap. But nonetheless, there was some true North Star that it kept when it pivoted to the roll-centric roadmap. There was one central North Star we just decided to get there a different way. And so anyone who's like investing in crypto based on current conditions is not going to make it. Like things are going to change in the future. I think Ethereum was on its role of centric roadmap in 2021 when Solana had a big rise as we realized that the layer one is congested and we really only had Polygon as a side chain to Ethereum with no actual strong commitments of property rights

connecting there. But now we have, and so this was the era of many independent siloed walled garden chains blossoming out of Ethereum, proving the use case of, or the idea of a successful roll-up centric roadmap, the Pocodot model, the Cosmos model, but this time actually working and thriving. And so we had the growth of many independent silo chains. Now we have what is, I think, the era of the cross-eastern. hatching between these chains. We have Jill from Espresso doing some of that work here. That is

one frontier of the composability of networks. But this one canonical bridge is the first step to producing composability. But then the rest of the shape gets filled in by many different technologies. And I think that is going to define the next two to three years of Ethereum. I just want to build on that to come back to this question of what are the goals of Ethereum and what are the goals of L2s. I think we've named three different goals throughout this conversation so far. One would be to create censorship resistance applications. Now, that's not the goal of every L2, certainly the goal of some L2s. There are L2s that include per nato-cash transactions. There are L2s building explicitly for even more kind of cypherpunk values than exist on Ethereum today, on the Ethereum main net.

And so I would say that on that front, the goals are aligned and compatible between the main net and the L1 and the L2s, at least some of the L2s building upon it. A second goal that we've named now is composability. I think censorship resistance and composability are basically the two reasons that you have as a developer to build in Web3 or as a user to use Web3 apps. Composability to me is honestly still a big question mark. That is where I think there is a risk that L2s go off to build their own walled gardens. That is why I'm working on espresso to work to solve composability. And then there's a third question, which you mentioned earlier, that I think we've all been skating around, which is the question of value accrual. And that is the real reason why everyone is sweating over this is because I think Bitcoin, Solana, or each up like 40% in the last few months.

an Ethereum, that meme where you're poking it with a stick saying to something. I think in the current state of Ethereum, we do have kind of this blank step of, and then there's a perfectly composable Ethereum. And there's like a missing step there. But nonetheless, we do see signs of internal composability across what Alex Gloukowski is calling the clusters, the super chain, the elastic chain. There are, it's a pretty coherent. Orbitz, yeah. There's a pretty coherent path for having internal composability across these systems. And once the super chain, once the elastic chain fixes internal composability, of which they are highly motivated to do,

and they have the war chest to do the R&D to do that, then we learn a bunch of lessons to apply. It's like what worked and what didn't. We have like five different of these frameworks all tackling this problem. Maybe there's five different solutions. Maybe there's one different solution. We're going to find it. And we're going to export those lessons learned to fill in the gaps between

the frameworks, between the arbitram orbit, orbit chains and the super chain. And that will take time. It'll take a lot of time. But that is the path that we're on. And I don't think that that's like a crazy, incoherent vision of the future. It's not defined. Like, yes, anything is possible. Sure, you didn't describe violating laws of physics. So like, okay, it's possible. But like, that's not helped. Like, you're just saying, I'm not proposing breaking law physics. I mean, there's another thing you said, David, which is that it didn't work for Cosmos, and it didn't work for Kolkidot. This time is different.

We have, but we actually have the chains now. Like, it is currently working. You know that like a rested development meme? I mean, first of all, we'll see what happens when the liquidity rewards dry up on Arbitrum. And these war chests run out. We'll see if it actually works. When the tide comes out, we'll see. Max, what would it have to look like for L2s to be an extension of Ethereum?

What about, okay, also the other thing David said was that we've been consistent on the road, map, but then the first thing he said was actually we shifted the roadmap from sharding. And if it was basically sharding, I think that would be like pretty, pretty consistent with being Ethereum, but it's not sharding. It's a separate team building a separate system, which is not composable with economic, has a separate economics and its own token that it's distributing to its team that does not depend on ETH at all. And it's making money for itself and for its team members and for its token holders and not

for eat. Yeah, I definitely want to go there to the economics and value cruel, which we have been skating around a little bit. So I guess that brings about the question that I hear a lot, which is RL2's parasitic to the L1. So I'll pose that question to Kyle. In a counterfactual world in which the L1 was otherwise scaling and sequencing, yes. If that is not your counterfactual world, then no. But like that's kind of like implicit, like the question implicitly is being asked. against that counterfactual. Otherwise, you'd just say we're scaling the matter of thing, but like, you need to position it against something.

Would you guys say that the L2 is a parasitic symbiotic? Yes, they are parasitic to Ethereum. They are also net generative of value inside of the Ethereum ecosystem. And so when Arbitram attracts the marginal user, they attract it to the Ethereum ecosystem. And by the way, the dominant asset on Arbitrum and all of the major L1s is E. So there's demand in these ecosystems for ETH, and there's pathways to exponentially grow the user base of Ethereum from what we've seen anytime historically on any chain. And that transaction volume and the growth of the user base, the growth of holders of ETH, including long-term holders of ETH, who will probably still do that on the L-1, all of that is value accretive. there's a the roll of centric roadmap will succeed or fail based on the tension between defection of chains away from Ethereum or coordination incentives towards Ethereum.

There needs to be a harmony there, a yin and a yang of like we need to allow enough flexibility, enough tolerance for these layer twos to issue their own tokens to grow their own wealth to provide their own utility, but enough incentives for that value generation to stay inside of the Ethereum ecosystem. And this is actually in the start contrast to interestingly, both Bitcoin and Solana, which are kind of like monolithic chains where Bitcoin is like, don't build any value outside of BTC the asset, prune everything away from Bitcoin to focus on BTC the asset. And Solana is the same way, which is, in my mind, net stunting is a ceiling on the total value because you're actually being very rigid on the net ecosystems that can be born. And so whether or not the roll up centric roadmap succeeds is going to be, because it's, it allowed systems to be parasitic of the layer one, yet still be contained inside of the broader

ecosystem. I think you're touching on something really important, which is incentives. There's a reality that developers are incentivized to launch their own chains. And so to the point of counterfactuals, was Coinbase going to launch base on Solana as an application if they didn't build it on Ethereum or were they going to launch it as their own chain? I'm not part of the base team. We can go ask Jesse afterwards, but I think in that counterfactual world, they would have launched it as their own chain instead of keeping it within the Ethereum family, which L2s have enabled them to do. So I guess I want to clarify my position, which is I do believe that L2s are bad for cryptocurrency. I just believe that they are parasitic to Ethereum in their

current form. Do you mean that they're net parasitic to Ethereum as in they take away more than they give back? I think they're currently taking users and giving back nothing. So I think, like, from a, like, how much are they taking away? Well, that is a positive thing. And then how much are they giving back? Well, it's like one cent a month on blobs. I think that's... What about their reservation demand of, like, how much Eth is on Arbitrum? Like, I actually don't know. I've looked this up a hundred. A hundred. Like, yeah, uh-huh. A quite a large supply of Eth on Arbitrum. What value does that provide to the ecosystem? Thank you. Oh, it would have been on Eth if it wasn't bridge to arbitram.

Sorry. It would have still been on ETH if it wasn't Bridge to Arbitritor. Would it? Yeah, but it would have... The L-2s have grown the usage of these networks? I'm saying that we should have... The counterfactual is we could have

just scaled the L-1. That's a roadmap. And... Layer 2s are the largest buyers that will ever exist of ETH because of how big the layer twos are going to get. L-2s are not buyers of ETH. What? No.

Users have a... I'm not the deposit contract. as net buyers of E. That's not a buy. That's a new. It would have been on the E. It was already on L1 by definition previously. That is the only place it could have ever come from.

It was already there. The net value of these ecosystems, the value that they provide to the world, is in addition to the Ethereum ecosystem, and that value is creating reservation demand for ETH. So the value is in addition to the Ethereum? I thought they were part of the Ethereum ecosystem. For all that you guys have said in this panel so far,

this debate so far that we can't talk about roadmaps roadmaps don't exist your counterfactual depends on a scaling roadmap for ethereum that has never existed your counterfactual is that all of that demand for for eath would exist on the eth l1 if it were not for arbitram i actually i agree that's amen i don't i don't think there was ever a plan to scale l1 i mean they talked about charting for a while I don't think there was ever a serious design skill issue. I agree with that. But like that is the counterfactual to compare against. Like it's just like it's the obvious counterfactual.

But that never existed. Again, it's called Salana. It does exist. We are using... Would base have been built on Salana? What do you think? Base is just a, it's literally a fork of optimism. It's the same shit.

It's not an application at all. It's another... L2s are forms of applications. No. they're not. Okay. It's literally Kyle. And you copy,

and you take the same unerswap contract and you copy paste it there. If you just copy paste the same shit 10 more times, like it... It's still an application. That's like half the applications in crypto. But if I'm Coinbase and I want a way to bring users on chain, which as I understand is the fundamental goal of base, what am I going to do? Am I going to build my own chain,

build an L2 on Ethereum, or go deploy an app on Solana? I'm going to either build a chain or build an L2. None of the above. You can just be a broker and you can... Look, Coinbase today, you have Coinbase the UI, whether it's the retail app or the pro app or Prima or whatever, and you've got a database on Amazon. And like, the front end happens to point at the back end, obviously, because Coinbase owns both of them. And like, the back end is there,

but the front end could point at any other place. And that other place or other places it could point to, could include Ethereum Mainnet. It could include Arbishop, it includes Salon of Mainnet. It includes fucking Avalanche. Who cares? And like, so saying that, like, they needed base to exist is incorrect. They already have the users. They have the KYC. They have the apps on people's phones. They can just tap into liquidity anywhere. The basis is by definition unnecessary. I mean, they literally forked optimism. They don't, it doesn't have to exist at all. Can someone let Brian Armstrong know? Yeah. Actually, I would love to chat. Seriously. So one thing I do want to get back to is you guys mentioned sort of like eat the ass. And one thing, yeah, like with

this relationship between L2s and L1, whether the parasitic symbiotic sort of all comes down to ETH the asset because that sort of is the exchange, right? Like L2s are paying the L1 to post their data and in return they're sort of allowing ETH to proliferate on these

L2s. So I guess I want to get your guys' take on sort of Eith the asset. Is it enough to have it on these L2s? Is Eith money on these L2s? Like where does the actual value accrue for the L1 from ETH? I think it's

going to have a very hard time in this conversation because Kyle doesn't believe in money. There's a very easy limit test for this. So the only assets at scale that are quoted in ETH or in Seoul are NFTs, NFTs of fact on no chain are quoted in dollars. They're only quoted in native assets. But like NFTs today are down 97, 8, 9%, something like that. And if you look at liquidity pools, the vast majority of quote pairs across both CFI exchanges and DFI are against dollars. There are a couple of pools that are ETH nominated, like it's not zero. but I bet you across all ETHL1 and ETHL2s, I bet you ETH quotes as a percentage of LP volume,

percentage of TVL and as percentage of actual volumes, I'm guessing is on the order of 2 or 3%. The number one pair on Ethereum L1 is ETHUSDC. The number two pair is ETHUSDT. So in this industry, we're going to just settle for the United States dollar as the unit of account because that's not the cyberfying future I'm looking forward to.

What about the Fiat currency crisis? that has underpinned this entire industry for the last decade. Sorry, what crisis? The fiat currency crisis. What's the crisis? The one that we keep on printing all of them, how we printed $16 trillion in 2020. What is the, I understand you described the set of facts, but what is the crisis? The devaluation of fiat.

What's the crisis? People being able to store their wealth, soar and maintain their wealth. There's an infinite number of assets in the world you can own, saying like, you can't We were all in the solar effort for the last four years, Kyle. Huh? If all do we have been. You can buy real estate in New York City. It will go up.

You can buy real estate in Dubai. It will go up. You can buy gold. You can buy silver. Look, I think the real thing that people have consternation about when it comes to value accrual and the economics, et cetera, let's just name the elephant in the room, it's that L2s have tokens to. That's all there is to it.

And fundamentally, I think that this is a question of whether you think that on balance, L2s being on Ethereum versus whatever counterfactual you want to pick, even with them having their own tokens, is that going to be a net positive or net negative to Ethereum, Ethereum's, whatever you want to call it, business model, protocol model, etc. I don't see a case why the pie can't grow and those tokens and those tokens having value can't coexist with Ethereum's value growing. Granted, that is not what the data shows over the last several months. And so this is a forward-looking statement. And maybe my counterparts here will say, no, roadmaps, no future.

But I think that there is a path towards L2s being value-creative to the ETH asset, even while they have their own tokens. I think arguing that ETH is money in 2024 or 2022-2020 is harder because we are looking at a very distant future and arguing that ETH isn't money is easy because if we are only looking at today's age, Bitcoiners have done this fantastically well where Bitcoin is actually becoming this new internet currency

that is like digital gold. But in the future world, if there is this incentive to produce chains, like there has been the incentive to produce tokens in crypto, and if there is this desire to have these chains aggregated into the same ecosystem, and if one ecosystem captures all of that demand to produce chains, that which we've seen, yeah, base is just another stack of OP fork.

Maybe we should just fork the OP stack 10,000 more times. Maybe people are actually going to go do that for whatever the hell reason. Probably. Probably. Maybe there's in addition to other reasons other than scaling. And maybe there's one ecosystem where all of these chains are tied together, however loosely, and this is what we call the internet, and there's one currency that's native. to this whole network of chains, and that is money.

Dude, this assets were $300 billion is one of the largest assets in the world. The onus is on it to justify its valuation, and like all of the valuation value capture is explicitly leaking to the other places, to the L2s. I wonder what... In like the last year. What would show up if you looked at all of the ETHL2 tokens and you kind of added them up and put ETH market share with the ETHL2 tokens and then compared it to Bitcoin? I wonder what that would look like.

Someone's doing math, get on coin market cap out here? I bet you it's about like 50%. If, Eth plus Eith layer two is probably about 50% of the value. Maybe I'm putting words in your mouth, but do you think that like optimism token and arbitram token have taken away value from the ETH token? None of this is financial advice, by the way. Like maybe in the short term, based off of narrative, but also in the long term, also based off of narrative, I could equally see value flowing back to ETH.

Sorry, where is that value coming from? please be explicit? Multi-coins capitulation. That's not value flowing back to east. Can I ask a question genuinely about the Salana ecosystem? Because I don't know. What are the primary sort of, I don't know, value capture mechanisms, business models, et cetera, of the apps on Solana?

I mean, I know that there's like a lot of mean coin generation. So that's an element of it. But, you know, do we see this desire to launch your own chain that we've seen through throughout the history of crypto, at least, you know, since 2016, since 2014, maybe, even with alt coins. And the business model of Seoul today is functionally basically the same as the business model of ETH. No, no, the apps on Solana.

I'm sorry. Yeah. I mean, again, every app on ETHL1 and on NEL2 has a functional equivalent on Solana today. I don't think there is an exception to that statement. I would posit then perhaps Ethereum is living in Salinas future. perhaps just by virtue of being more mature, having been around longer, having had app devs go through the many painful cycles of the last several years. I mean, Solana, in many ways, I think, had the benefit of launching in a really rough market right around the start of COVID. And it's been not exactly up only, but certainly relative to that.

Whereas app devs on Ethereum have cut their teeth over the years and have realized that they need a better model, both in terms of, their own ownership of their roadmaps and technology development also just in terms of owning their own value accrual. And that's where this desire to launch their own chains comes from. And I think Ethereum has done itself a service by keeping them at home. So let me answer this question. Are there people on Salana who want to build their own L2? Yes. You can go look at them. There's one sitting right there. Yes. Okay. Represent. The difference between the way that ETH is a approaching this and the way that Salana is approaching this is that Salana is still focused on scaling the L1 and ETH is focused on doing as much as possible to make the L2s happen.

I'm saying something else though. I think fundamentally scaling is part of the issue. There's also an incentive issue. Well, I think that, no, I strongly reject. Like that statement is implicit on the only way to capture value is to be a chain and kind of implicit on that statement is to control sequencing. And it's just not necessary. There are many. many apps on Salon today. Camino, Drift, margin, drip, bunch that are all making 12 on. Oh, yeah, pump is in the nine figures. All the ones I just listed are well in the eight figures.

Revenue. And they're all in Salon of Mainnet. And obviously, like, Avey on Eith Mainnet, I think is doing roughly $50 million, I think, year to date, roughly in revenue. So I get that the statement is just like not correct. Baker has revenue. I would say, though, long term, what is the best way to capture value? Maybe this remains to be seen. But I think the very, fact of uniswap and unichain making this pivot. Arguably, I mean, certainly I think no one in this room would argue that it's not the thing that they point their mom and dad to as the app that Web3 has enabled. I think that that's a strong data point on the other side. I actually

onboarded my mom to pump that fun the other day. Another question I do have a thing, Kyle, is, yes, L2s are being built on Solana and they're actually called network extensions pretty ironically, I'm curious if you think there are differences from like a text standpoint or or maybe something that points to the fact that those are more extensions of Solana than L2s are of Ethereum. Yeah, I mean, again, the term that we're going to extendions came about because I was chatting with Austin and Raj about this a while ago. And there's an academic definition of L2's and you can kind of, maybe David's sector of like

property rights, as you mentioned earlier, maybe kind of the academic definition. definition of what makes an L2 and L2. Then there's like the practical thing that the normal people observe. And what normal people observe today is arbitram and optimism and base are the same fucking thing as E-DL-1. It's literally the same contracts deployed. It's the same applications. Like even it's Uniswops copy-based, but even like Aerodrome, which is like the top

decks on base is a copy. I was like a four of you. Like, you know, so it's like literally the same copy-based shit. And and also it's, the same assets too. And so my observation was, okay, the term L2 just means L1, but a little cheaper, a little faster. And there are some people in Salana who are doing that. And I sure call those things L2s, whatever, I don't really care. But then there's a group of people doing things that are off-chain that interact with the chain, but that are not that, that are not copy-paced

of the same things. Some examples that include grass. Another example of that would do with Metaplex is doing with their new aura thing. There's probably one or two other examples. I saw Maddoch blog and Sonic on Slana. And I looked at these things and I was like, okay, they're not copy pasts of the same contracts and they're not the same applications. So I thought it would actually be helpful for the ecosystem as a whole to try and create separate vocabulary for that fact.

Can you say in like an academic sense of like property guarantees rights guarantees? It's the same like sure. But like there's more to it. than that. There's like what people today observe as L2s. And so the intent was the great separation there. But I just want to double click. The reason that

Solana's approach to L2's is very different than ETH's approach to L2's is that ETH has spent the majority of dev time over the past four years on the L2 roadmap. That means making, being an L2 as cheap and easy as possible. And Solana has done the opposite.

And we're looking at the fruits of the labor now. And we can make our own judgments on which was a good decision. But to say that there are L2s on Solana and there are L2s on Eath, and therefore both of them have L2 roadmap is wrong, because the roadmap on Salana was never to make L2's awesome. It was to make Salana awesome and to increase the throughput to a million TPS and they're working on it. Okay, we'll see if they get there.

Fire Dancers doing some good work, I understand. but there was never a wavering in the conviction that Salana could be a place where a ton of ton of activity could happen. And there was never a, oh no, we're like not skilled enough to scale it so that we probably should like let Ed Felton do the scaling for us. And I think it's partly a compensation issue. Core devs, do not get paid enough on Eath? They get paid a lot more on Salana. And if you went to like Ed before he started off chain labs and said, hey Ed, like we, like, we. really want you to work on scaling the core protocol and here's a million dollars and

you're really smart guy. Hopefully you can help us with that. Would he have launched a token? I don't know. Maybe not. And I think the same is true for a lot of the other talents of people that have started L2s. If we just compensated them appropriately like Solana is doing for the developers, we could probably have good developers working on scaling the L1 and not working on launching their own L2 token and creating time boost to attract as much value to that token as possible. I think part of your perspective, Max, is just because I think you're kind of like a layer one maxi, like, call Ethereum, Solana, whatever, you just like, you prefer value captured to beyond the layer one, and that's your, that's your frame of reference, right?

I could be convinced that the Ethereum project has over-indexed on subsidizing layer two. That could be convinced that Ethereum layer one once upon a time had this D-Fi golden goose that is more or less giving up for free to a network of VC-funded layer 2s that are more than happy to take it because Ethereum is not scaling the layer 1. I could be convinced of that. Yeah, also at the same time, the Ethereum network of chains model, which I keep on returning back to, is also under competitive threat as well. Celestia would love to take DA consumers away from Ethereum. And I think Ethereum DA is at 75, 80% capacity, and filling in that last 20% is going to be, relatively easy and it's probably going to be done in the next couple months or so. And so it's

really about do you believe in the roll-up centric roadmap? What do you want your priority to be? Ethereum is trying to do it all. And I know some people therefore invest in Bitcoin and Seoul as the barbell. And some people think that Ethereum will eventually do it all because it will eventually have very fast layer one block times and it will also have a network of chains. And I think it's really just a matter of perspective of where what design architecture you think is valuable. I think we have to decide to be the best at something. We cannot be the second best DA layer or the third best DA layer,

the second best execution chain or the third best settlement layer. The first best money. We cannot do that. We cannot be the second best on everything and expect to win. We have to be the first best on something. Yeah, I mean, it's my comments I've made about North Star over the last couple months to reflect. It's like, well, like, what does defy mean in the extreme case?

And to me that means, There are, you know, thousands of consensus participants, if not tens of thousands, who are all over the world. And those people are synchronizing financial market information, AMM curves, C-Lobs, desks, positions, whatever it is, payments, whatever, it doesn't matter. And that information is synchronizing around the world at the speed of light to anyone who raises their hand and says, I have a piece of hardware that can deal with that. because obviously if you're dealing with global scale financial information, like that's not going to run on a small computer, there's just no way to do that, at least not to do it in real time,

because inherently financial market data is time sensitive. And so it's like, okay, well, what are you building? And if you want to just say, look, we're building one server somewhere, and yeah, we get you using property rights guarantees based on this other DA thing underneath, like, okay, that's a thing. It is functionally similar-ish to the thing that I just described, but like it is not functionally the same thing. And like the question is like, what are you building? And in my mind, like, if you're not synchronizing the world's financial market information in real time around the world to everyone who raises their hand and says, I have a piece of hardware for it, then like that's not defy.

We're building the first best settlement layer, the first best property rights engine, as David put it. Most economic security. It's the most in demand from developers. Yes, including the developers on L2s. I'm not sure what the question is there. But I will say, Max, I think this is something we can all agree on, hire comp for Cordy F Debs, for sure. It's part of my platform, actually. That part, RIMAWRID with. And we're going to pay teachers more, too. Hell yeah. And no taxing the tips.

So unfortunately, we're already over time. I definitely wanted to see that play out a bit. So I guess to close things out, if everyone could give, I guess, closing remarks based on this conversation, maybe we found some middle ground, and maybe you want to solidify a position. So I guess we'll start with David this time and work our way down this way down this way.

I think the market demand for producing chains should be just taken as fact in this day and age. We know that there's going to be many, many, many chains. The first thing that happened after we made Bitcoin was we made 15 more chains. And that was the proof of work for confer launch era. There's going to be more chains. Some chain is going to figure out how to aggregate all the chains.

Some chain is going to figure out how to make these chains have stronger property rights and composability mechanisms between all these chains. And that one chain is going to incentivize the production and aggregation of even further chains. And that chain will become money. What are the goals of East and what are the goals of the L2s to create censorship-resistant apps, to create composable apps and user experiences? That one, again, I think is the big outstanding question. That's what we all need to be working on.

And number three, to have a sustainable economic engine behind all of this, value accrual. And that sustainable economic engine needs to acknowledge the reality that the best way for app devs to deploy is by doing it as their own chain. That's what we see in a mature ecosystem. And that is not at the expense of the base money of EATS. David, you mentioned that you might be convinced that we're giving up our golden goose of defy. that some VC-funded L2s could, you know, take that away and they'll be happy to do it. What more you need to see to be convinced of that when Paradigm has launched two L2s this week and has more L2s in portfolio than they have venture partners, they know what they're doing.

We should recognize it and we should immediately understand it and say, hold on a second, BCs. This is actually Eith. This is not yours. And we should immediately act to stop the migration of financial activity in the lifeblood of Ethereum off of the L1.

I think that's a question today. It's not asking a question. Yeah, I'll leave a rhetorical question. Yeah, just come back to my North Star comment. Like, these are financial systems. That's what we have, we have defy, payments. Like, do you be clear about what financial system you want?

in the world. The one I want is one in which anyone can raise their hand, whether they're in India or the Philippines or in the USA or in Europe, raise their hand and say, I get to access the information at the same speed as everyone else. I think that is like the definition of the maximally democratized open financial system. I don't understand even an academic definition that more fully encapsulates that vision. And so like that that's what I'm trying to build and that's where I'm allocating my capital. Awesome. This was super fun. David, good luck with the fight tonight. Thank you.