Bankless - Austin Federa: Is SOL Money?

Episode Date: August 10, 2023

Bankless hasn’t had the most coverage of Solana, the network, and SOL, the asset, but in this episode that changes. Our guest, Austin Federa is Head of Strategy at the Solana Foundation and is the host of the Validated podcast.  David was recently a guest on Austin’s podcast where they went back and forth on some of the cultural and philosophical differences between the Solana and Ethereum projects. Today is a continuation of that episode.  Despite some differences in community perspectives, Austin brings a fresh perspective on the design philosophy that relates Solana the network to SOL the asset and so much more.   ----- 🏹 Airdrop Hunter is coming soon! Become a Citizen for full access:  https://bankless.cc/HuntersGonnaHunt  ------ 📣 STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2  ⁠ 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  ⁠ 👾POLYGON | VALUE LAYER OF THE INTERNET https://polygon.technology/roadmap  🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku  ----- TIMESTAMPS 0:00 Intro 6:50 Programmable SOL Values 8:10 SOL’s Story Arc 12:25 SOL’s Architecture & Utility  17:30 SOL’s Economic Sustainability Model   19:20 SOL’s Triple Point Asset Thesis 25:15 Solana’s LSDs  28:48 Solana’s MEV Philosophy  33:56 End Game of Solana MEV 40:00 Ethereum vs. Solana 50:00 Market Cap, Values, & Layers Debate 1:00:15 Closing & Disclaimers   ----- RESOURCES Austin Federa https://twitter.com/Austin_Federa  157 - Will Solana Make It with Anatoly Yakovenko https://youtu.be/zlx64JjXlgQ   Solana is Launching a Phone? | Co-Founders Anatoly & Raj https://youtube.com/live/9wfNeVTtBz0   The Philosophy of Ethereum According to Bankless' David Hoffman https://solana.com/validated/episodes/the-philosophy-of-ethereum-according-to-bankless-david-hoffman   ----- 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. See our investment disclosures here: https://www.bankless.com/disclosures ⁠ 

I think as we go into the future, no one can really say what's going to happen here. We all just need to figure out what are the best defense mechanisms to prevent the sort of bad scenarios from happening that we don't want to have happen. Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today on the show, we've got some bonus content for you, Bankless Nation, an episode diving into the nature of soul, the asset, and the economics of Solana, the ecosystem. We haven't done too much Solana content on Bankless before. so little. In fact, I'd say that it's actually kind of a meme that Bankless just doesn't produce Salana content.

We've had Anatoly and Raj on once to discuss the Salonophone. We had Anatoly himself exclusively on earlier this year post-FTX collapse to give us the Salana story. And then I also went on the validated podcast, which shorthand is just the Salana podcast hosted by Austin Federer, the guest on this episode. So that's the entire spectrum of Solana content coming out of Bankless. But on this episode, we're having Austin, Adara on to discuss the design philosophy that relates Salana the network to sole the asset. And it's really sole the asset that has been the thing that has hung up me and Ryan the most while trying to understand the Salana ecosystem. The investment thesis behind Seoul has never really been salient to us. If you know the bankless thesis, you know that we think that there are very strong technical bonds

between the design architecture of a layer one and the nature of the native asset that it produces. And tinkering with the properties of one impacts the property. of the other. We think that a layer one that prioritizes decentralization and censorship resistance at the base layer produces downstream strong store value properties in its native asset, where a high throughput layer one, for example, sacrifices the hardness of its money by compromising on its issue and schedule and the properties of censorship resistance. This has always been the bankless thesis that has guided us in our investing and our content. It makes sense to us, so it's the frame of reference that guides are thinking across other areas.

And it's how bankless has gotten the brand of being an Ethereum podcast, even though we're not, we're just a bankless podcast. We've got our thesis. It happens to line up with Ethereum. And therefore, for all intents and purposes, we're an Ethereum podcast. I see how people come to that conclusion. Sometimes, though, perhaps most of the time, the Salonic community doesn't accept that. And bankless is a subject of a lot of hate out of the Salonic community. And it's also impossible to tell what signal and what is noise here. Crypto tribes is going to crypto tribe. And the loud members of tribes, often just drown out the quiet and contently satisfied parts of crypto. But nonetheless, Austin has always been a treat to converse with. If you haven't listened to my episode with him on his podcast, validated, I highly recommend it. If there are any listeners out there who have

been following my path through crypto ever since my POV crypto podcast days, my podcast before bankless, these conversations with Austin feel a lot like my conversations with CK, my old Bitcoin a co-host, which is where a lot of early development of my thinking in crypto began. And like bank lists were both me and my co-host learning and content producing and tandem, which is what I think that you will experience here with this episode with Austin about Solana and sold the assets. So without further ado, let's go ahead and get right into that conversation. But first, a moment to talk about some of these fantastic sponsors that make this show possible, especially Cracken, our preferred exchange for 2023, whether you're an ETH fan and you buy your

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regarding a potential ZK-powered upgrade of Polygon proof of stake. If approved Polygon proof of stake would become a layer 2 ZKEVM validity. So make your voice heard on this proposal by joining the Polygon Discord today. You have a chance to help the Polygon community give the internet the value layer it deserves. Are you planning to launch a token? Is your token already live? And are you granting your employees and contractors vesting token awards? And are you trying to figure out how to take care of taxable events for your team?

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Hedera, GITCOIN, and many more. So if you want some help navigating the complex world of token compliance, go to Toku.com slash bankless or click the link in the description below. Bankless Nation, I would love to introduce you to Austin Federa, head of strategy at the Salana Foundation, host of the validated podcast, where Austin and I, not too long ago, went back and forth on some of the cultural and philosophical differences between the Salana and Ethereum projects. Today on the show, I want to continue that conversation with a focus on the native assets behind these two ecosystems, ETH and Seoul with a specific focus on Seoul, of course, because the rest of bankless focuses plenty on ETH. Because the focus on soul, I think, I would say,

is the biggest hang-up that both Ryan and I have about being able to integrate Solana, soul, as an investment thesis. What actually is soul? I don't actually know the answer to that question. So hopefully we can start to get around the contours of what soul actually is here today on the show with Austin's help. Austin, welcome to the show. Hey, thanks for having me on. This is going to be fun. Yeah, so, Austin, that was my preamble.

And we did a show on the validated podcast, which if any bankless listeners out there is looking for the intersection of Solana and Bankless, that would be the show to listen to. And Austin, I had a ton of fun in doing that. And I think we can just keep going going with that conversation. Like I said, specifically with the focus on like the native assets behind these ecosystems. I think there's a very deep integration between culture and asset in this space, and that's one of the cool things about programmable money, is you can program values into your assets. And I want to know, from your perspective, what is programmed into Seoul, the asset?

And sometimes I speak in these words, and I'm not sure everyone totally understands it, but I think, I think you totally do. Are you ready to get into this conversation? Yeah, let's do it. I mean, I think one of the analogies that helps people sometimes is the architecture of a network is sort of thought of as a city zoning. That New York is very different than San Francisco for many reasons, but one of them is literally just what the zoning is of different parts of the city and what you're allowed to build there and what the sort of innate characteristics that these rules and framework set up. That's a pretty good analogy for non-technical people for blockchain architecture, that the architecture Bitcoin is based on allows a very different

set of things to be done on that network than what can be done on a network like Slana or Ethereum. Sure, sure. And any long-time bankless listener will know that Ryan and I have developed like models over time. And one of the big stories of bankless, it runs in parallel with the story of ether because ether in 2017 is not the ether of today. It's had a story arc. We had to truly fight for the understanding of eth as money, eth as collateral, eth as like triple point asset, which now is ultrasound money. And this was a story arc. And this was a story arc. that's developed. And would you say that the sole token is going through a similar story arc? Because that's my frame of understanding for these things. And I'm wondering how to think about the story

arc of solely asset. So I want to get into that. I think one of the things is useful sort of like just a quick overview of like what Solana is trying to do from like a network architecture perspective. Sure. So the thesis of Solana originally was, you know, basically NASDAQ at or blockchain at NASDAQ speed, right? It was the idea that you could build one global state machine that was going to be as fast as traditional financial markets. And it was a pretty narrow thesis in the beginning. There wasn't sort of NFTs involved. There wasn't sort of social tokens. There wasn't all this other world that we now consider the broader part of Web3. But that core thesis was that Ethereum was right about one very important thing. Everything is better in

one global state. And when you start fracturing the state up into side chain, and L2s and sort of like even the approach that near takes with sharding, you reduce the developer experience, you hurt the user experience, and that if you can keep things in one global state, that is better. Now, there are downsides of keeping things in one global state, right? It's an Ethereum node is a very light operation. It's computationally very easy to run. It's bandwidth-wise, very easy to run, because Ethereum only does about 20 things per second, right?

And so that is a decision that's made to keep those requirements super light. Solana, the requirements are heavier, right? It takes about $3,000 of hardware to run a validator on Solana that will keep up to the tip of the chain. What that also lets you do, though, is things like keep one global state and have a steady state of 4,000 transactions per second. And so these are all just different architectural decisions about how to do things out into the future. I have a whole bunch we can talk about about how EEP is actually going. to get much heavier and much more difficult to run, especially as we start talking about tracking L2s and roll-ups and getting a full state of Ethereum. If now, as you've said yourself, if Ethereum is

optimism and Arbitron and Hermes and all of these other types of things, you suddenly need to run 6, 7, 8, 12 nodes to actually get a full snapshot of the state of Ethereum. But just to sort of start out, that's kind of the basic grounding principle of Solana, is that keep the network as fast as possible, keep the cost of transactions as low as possible, and sort of the model that Ethereum has gone for of artificial scarcity on the base layer and then offloading the scaling onto L2s and roll-ups and sort of things like that,

the design decision on the Slana Network is to flatten that into one stack. And this flattening goes even further, right? So on Ethereum, you have the EVM and you have Nakamoto Consensus that run beneath it. Like if you look at a stack, there are two separate layers there. That is part of why if you run GethLocon,

you max that at about 400 TPS. There's limitations there that are from a software architecture, not necessarily a network architecture perspective. Salana flattens that into one layer. So the VM and the consensus layer are basically all running in the same spot. One of the trade-offs of that is if you have a crash in the VM, you're going to actually have a crash in the consensus protocol. Whereas what you saw with Ethereum is when the VM crashed,

for lack of a better term, earlier this year, twice, the network was actually able to continue. Now, it couldn't reach consensus. census. They couldn't finalize transactions for an hour or so. But that was a totally different type of experience than what you saw in Solana in 2021, where you'd have an outage where it wasn't a finality problem. It was a block production problem. Now, how does all of this architecture start to couple with the conversation of the nature of the layer one asset? Yeah. So if you go back to, gosh, even 2020, there was no burn mechanism in Ethereum, right? That, that,

whole idea that the way Ethereum was going to deliver value over the long term was it was going to implement specific economic policies designed to create deflation, right? It was designed to reduce supply over time. That was what, four, five years into Ethereum main net? Yeah, the proposal was made in 2019. So yeah, four years, yeah. Yeah, so that was very long into the main net. Now we're basically four years into Salana, well, less than four years into Salina Mainnet.

was March of 2020 that MainNet launched. So there is this sort of thing where we're seeing a pressure on all networks to accelerate, right? It took 10 years for Bitcoin to get to the place that it got to. Ethereum got there in maybe four or five years. And so these networks need a little bit of time to figure out what are the innate characteristics of the network and what are the economic models that in some ways get backed into the value of where that network comes from. Now, a good analogy here, and I really don't mean to offend any Ethereum folks with this, is there was a time and place where the way software was sold was $10 to $50 million contracts with massive companies. These were contracts by IBM. These were contracts by Sun Microsystems.

They were contracts by Oracle. And suddenly this crazy thing came along, which was cloud and software as a service. And it said, instead of signing a $50 million deal with one company and becoming the provider for X or Y or Z company, we can actually sell slack. We can sell it to hundreds of thousands of companies all over the world, and it'll cost $10 a month. And in aggregate, we are going to actually have a much larger market and potentially a much higher profit on that

than you get from this traditional contracting model. That didn't kill Oracle. That didn't kill IBM. Oracle is still around today. The stock is still a pretty good performer. There's tons of people who are employed by that company making lots of money. Ironically, I believe Amazon still runs on Oracle as its back-end database for its store.

because these migrations are hard and people know the systems they know and that works great. But this is a little bit of an analogy for what we might be seeing in the blockchain space too, that the rise of Amazon Web Services and cloud providers didn't kill Oracle. It just created a whole new product category

where the needs of those types of products and services are very different than what you can necessarily build with Oracle. And we could see a world here where, you know, Solana's cheap transactions and massive throughput, that ends up being something very similar to SaaS for blockchain, where on an individual transaction basis, yes, the fees are minuscule, but when you have 100 million people per day transacting on the network, which, to be fair, no blockchain has anywhere close to that today.

But in that future where you accelerate out and you say, okay, we're going to see priority fees, we're going to see basic transaction fees, and we're going to see network capacity increase, to a point where you have functionally similar economics to Ethereum on an aggregate level, but the individual microeconomics are very different. Okay, so how we get there is different,

but the resulting conclusion is the same? Potentially, yeah. I mean, there's one other key piece of sort of utility for Seoul introduced in the last 12 months, which is this idea of stake-weighted QOS. And so there were three pieces of tech that were sort of shipped over the last year and a half to really address some of the reliability issues.

One, pretty boring, quick, just a new networking standard as opposed to using raw UDP packets to send data around the network. The advantage of Quick is basically that lets a validator say this IP address is spamming me. I'm going to close the socket connection,

which is not something you can normally do on UDP. The other one was these local fee markets, and that's kind of one additional area where you see changes in economic value on the Sala network, because now suddenly you don't have an incentive to send 10,000 spam transactions. You can just pay 10,000 times as much.

for the transaction and be pretty sure you're going to land that arbitrage. Basically, this was kind of addressing what ETH went through with Shanghai attacks back in, whenever that was a long time ago, where someone just basically bought up all the block space. The last one is this stake weighted QOS. And what this does is it's basically a guarantee for quality of service. This is if I'm running a node that is 0.1% of the stake of the network on it, I have basically the right to transmit 0.1% of the blocks. And this is not necessarily on, like normally, right, you'd say on Ethereum, well, if I control 0.1% of the

of the stake, I'm going to be building 0.1% of the blocks. So from that perspective, stake weighted QOS is basically a guarantee that says every block I have the right to put in my stake weight worth of transaction. Now, I don't have to do that. But if there's controversy around what fits into a block, my transactions coming from my validator, which is stake weighted, is going to outpace your transaction. action coming from Phantom going through a public RPC with no stake attached to it. All of these things that you're describing seem like the marginal utility of Seoul rather

than like the base, right? These are like extra little add-ons that do impact the economics, but only in more extreme situations or more marginal situations. And so I think we've actually accidentally skipped to like the long tail of Seoul token economics. Let's start with the base, the very simple questions of like, what does Soul do? Why do will people buy it? Why will people, why will the price go up? Like, because like the ether model for this is the triple point asset or ultrasound money. Like what is that for Seoul? What is the economic sustainability model for Seoul? Yes. So it's very similar to Ethereum in the sense of the utility of the sole asset is a civil resistance mechanism, the same way in any proof of stake network, that that's why

you have stake, and then it is to pay transaction fees on the network. Right. Those transaction fees on Solana take two components. One is a base layer fee, which is 5,000 lamports, which is quite low. It's like $0.000.25. What's a Lamport? Is that like a way? Yeah, it's a subdivision of a soul.

Okay, cool. Yeah, it comes from Leslie Lamport, the computer scientist. Sure. Okay, okay. You know, for completion's sake, way comes from Way die, who's a cryptographer. So, like, you know, we got nerds. Yeah. All of the people who were originally involved in all these networks are just massive nerds who love every blockchain.

But, you know, the fundamental point of the sole token is to pay gas fees on the network. Right. And to help secure the network from a civil resistance mechanism. That's it. That's the base structure for NEL1. It's not like polka dot where you use it to reserve state or something along those lines. It's very similar to Ethereum in that fundamental architecture. Can you just like map on the triple point asset thesis onto Seoul and then change the economics, right?

Like the unit economics, but really the triple point asset thesis does map to Seoul pretty well? It does if you believe that blockchains are going to be higher demand than they are today. I think one of the things that the Ethereum community and the economic modeling did very well is they basically created a system that said, we don't really need much more adoption of Ethereum for the effects of deflationary pricing to take effect, right? Ethereum has always had about a one and a half percent inflation rate. That's just, like, since Genesis, Solana's inflation rate began at around 7 percent,

and it decreases by one and a half percent every year until it ends at that sort of steady state of one and a half percent, right? And so, you know, from that perspective, one and a half percent in a vacuum, as in without any transaction burn from demand? Correct. Yes. Okay.

So if no one is using the Solana blockchain, it inflates at 1.5%. Assuming it's building blocks, yes. As long as the network is building blocks, there will be inflationary rewards distributed the same way on Ethereum. If everyone stopped using Ethereum, it would still produce 1.5% of inflation per year. Okay. Okay. And then so whatever burn is on top of that 1% and 1.5%.

Yeah, exactly. Now, today I think it's closer to like 6% just because it's on a, it's on a schedule where it steps down. But, you know, what was the schedule of that once per year? One and a half percent per year on a fairly linear decrease. Basically, it's adjusted automatically at the end of every epoch, which is a three-day period. So it's not a Bitcoin happening event. It's much more smooth. Yeah, yeah, exactly.

Because like the happening is like, you know, look, like no one knew what they were doing when he made Bitcoin, but like it is, it is just like such a big media enterprise for no reason. I will say that it's probably pretty good PR and like, I don't know, maybe more networks should think about having big splashing moments. Yeah, exactly. Besides ordinals, right? But as we kind of step through this process, right, the thesis of Solana is that blockchains are going to be incredibly widely used. And if that's the case that the base layer transaction fee needs to be kept very low. And so even when you saw, you know, the price of Seoul hit its all-time high, the cost to transact on the network was still extremely low.

And a lot of that original economic modeling of sort of what is a cost per transaction was actually based on much lower numbers, right? The original economic modeling was sort of in a like one to $10 range for a price of Seoul. I don't think most people thought that these networks were going to pop like they did and the user adoption was going to come and we'd have, you know, thousands of, of developers building stuff on the network in 2021, right? Like that new to when the network actually launched. So as you go through that process, all of this sort of has to compound over time, right? You need enough demand for block space

that you actually need a network like Solana. And we're kind of seeing that already today in that the developers who chose to build on Solana in 2020 and 2021 and to some extent 2022 as well, they couldn't build what they wanted to build anywhere else. It was technically impossible to build it on another blockchain because the speed and performance wasn't there. There were specifically just building applications that needed the massive speed that Solana can provide. Yeah.

And that is not to say those applications are better or worse than the applications you see on Ethereum. It's just the nature of them. It's just very different, right? Uniswap is built for large trades. Uniswap is more expensive than Coinbase and more expensive than any other centralized exchange if you're trying to do $100,200. Now, if you're trying to do $50,000, it's different. It's not uniswap that is more expensive. It's the Ethereum blockchain that makes Uniswap more expensive.

But from a user perspective, it's no different. Sure, certainly. Like the economic effect of using it. But the uniswap on any layer two is going to not have the gas fees of Ethereum layer one. Totally. Of Ethereum layer one. Well, maybe. We'll see.

But the question there is when you start fracturing the state, is there enough liquidity on Ethereum, on a layer two built on Ethereum with a uniswap deployment. Like if we have 14 versions of uniswop deployed across with a bunch of different OP chains, a bunch of different roll-ups, there's one on polygon, there's one on fill in the blank. You've suddenly taken your liquidity and you've had to fracture it. And if you're shuffling liquidity back and forth via bridges, that is either time consuming, transaction consuming, because most of this is still clear through the L1, or you – well, and you also introduce a lot of trust assumptions into the mix there. So it can work, but it's just a much more complicated architectural system to get it there. right. That's sort of the pitch and value of Solana is that you can do this all in one L1

and that's not to say the stuff you're again, not the stuff you're building on Sana is better or worse than Ethereum, but like you can't do helium on Ethereum. It's just too expensive and they're not enough transactions. Sure. And that's just a different architectural system. Like you don't have central limit order books built on

Ethereum L1. You have D-YDX which went to Cosmos for. Right. Yeah, yeah. Okay, so in the triple point asset thesis, It's collateral is one pillar, one of the three. The other one is the burn, which we've talked about, and the other one is staking yields, which we've talked about. I think we can just strike collateral because I don't think there's any differences

between Ether and Solana on their respective networks about collateral. I don't think the network architecture of these things change the nature of collateral inside of these systems. So these things are kind of going to be the same out of the box, correct? Yeah, I think the only difference is that there's less of a single player in the liquid staking market on Solana. That's where I was going to go with next with yield. And so how is the LSD ecosystem on Ethereum?

I don't know if you guys call LSDs on Solana. We don't know. Yes. Yes. Okay. So like what does the LSD ecosystem on Solana look like? Like is staked soul as going to be as strongly permeated as staked ether is assumed it will be on Ethereum? So let me start by kind of a little bit of a scene set for Ethereum.

There's a few architectural decisions that I think were largely economic decisions on Ethereum that pushed folks into things like Lido. The first is a requirement for 32E to be able to stake. Also, if you have 33 ETH, you couldn't stake that last one unless you went through a liquid staking system, right? But there's also now an EIP that changes this, that eventually is going to get approved. Right. But like on Solana, you can create a stake account that has one soul in it. Right. And so what that means is that initially...

With your $3,000 of hardware, or is that delegated? Or with someone else's. Okay. Right. Because, again, Ethereum, like, the term validator on Ethereum is not actually a validator, which is a 32 bundle of the language. I mean, someone screwed up the language. It could have been everyone else, too.

Yeah, yeah. The whole industry. I know, right? If you go to, like, nodewatch.io or one of those websites, you can see there's about 7,000 physical computers around the world that are actually Ethereum nodes, slash validators in the way that everyone else calls a validator. Sure. So the analogy here is like on Ethereum, a validator is actually a stake account.

And those stake accounts have to be 32Eath. On Solana, they can be any size, like they can on many proof of stake networks. So there was less of an economic incentive in the early days to go with a liquid staking protocol as opposed to just saying, oh, I'm going to stake to the Bison Trails validator. I'm going to stake to the blockbem and validator, you know, the bankless validator, fill in the blank there. today there is actually a stake pool contract which is like the one that most folks on the network use and then there's a whole bunch of different liquid staking providers so lido is on salana marinated is something called emsol there's gido soul which is a mev optimized um basically stake pool

and so there's a pretty robust liquid staking ecosystem today there's a little bit of fractured liquidity because of the withdrawal periods being like three days on that stuff but there's a group unstake it that are actually doing a common liquidity layer for all liquid stake tokens on Solana. So I think we're getting to a place where like the ecosystem on Ethereum is a little bit more robust, but you're seeing the same sort of system develop on Solana, but it is developing in a little bit of a different way because again, the network architecture has different advantages and disadvantages. Right. Okay. But the resulting conclusion is like you still have staked soul and that stake soul will be

collateralized in Solana's defi applications in the same way like staked ether, rocket pool eth is staked in Ethereum. Yeah, exactly. There's actually programs now that you can say, I have a stake account that has, let's say, a hundred soul in it. I'm going to transfer the authority

on that stake account to a stake pool and it will instantly mint me the equivalent of that liquid stake token. I don't have to unstake and transfer. I just have to reassign authority on who owns that stake account. So that would be like if I have a 32-Eath node that I'm solo staking, and then I sign it over to Lido or Rocket Pool,

and all of a sudden that protocol mints me are ether, or staked-eath in return. Exactly. It's a very, very similar architecture to the way Ethereum works from that perspective. Okay. Cool. Okay, so that's the St. To Eith conversation.

I want to talk about M-E-V, because M-EV and then M-EV burn is like a pretty strong part of ether economics. So is there a philosophy that Solana has about how it approaches MEV and how it wants that to impact or not impact the sole asset? So Gito is the group that has built the MEV client for Solana. They have done a bunch of work to basically build a relayer and all that sort of thing with a bidding system where it's very similar to what FlashBots does on Ethereum

for that perspective. As an aggregate number of transactions, though, the MEV on Ethereum is actually pretty small. It's usually single digit percentage of transactions that are actually getting searched and getting chosen and getting packed. That's partially because of the transaction costs that you need a larger delta for that to be possible. You see the MEV bots on Solana going after like $2

opportunities because the transaction fees are so low. Right. They have to, right? Because MEV on Solana versus MEV on Ethereum, it has to be so much harder because the blocks go so much faster and the margins have to be so much slimmer. It's got to be a much more fierce competition on Solana, correct? It's actually even worse than that because we don't have a Mempool. So it's not even like there's this big pool of potential transactions you can pull from to pack. You have to actually basically, it's much more close, like, M.V is sort of like fishing in a barrel on

Ethereum, right? It's like you can see the fish and you can go in and you can grab it. Yeah, high school students are collecting MEP right now. Yeah, yeah, exactly. Like on Solana, it's, it's much It's a much faster process that's kind of more equivalent to like a bear trying to grab a salmon out of a stream. Right. Like. Right. It's something more like the high frequency trading. Exactly.

Like the flash, the original Flash Boys. Yes. Stuff. Yes. Exactly. And so it's much harder to do. The opportunities tend to be very non-consistent.

Right. You will see times when, you know, there's like a very small earnings for a day or two. And then it spikes up because there's lots of market movement or something like that. it's much more dependent on market movement or other on-chain activity than it is just sort of your steady state. Oh, here's a bunch of people trying to do something similar. If I order them correctly, I can make some profit off of that. Are you a Metamask user? Well, you're listening to Bankless, so of course you are.

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fast, cheap, and friction-free. So the Ethereum philosophy, or just like, approach, stance towards MEV is eliminate it. Like, do your best to suppress it. Do your best to democratize it. Obviously, everyone knows it has realized that there actually is no eliminating MEV. You can only push it to a different place. But the place that we want to push it towards, the philosophy of Ethereum, is into ether, the asset, because it's perceived that ether, the asset, is actually one of the most decentralized.

components of Ethereum. And so rather than letting one central party own the MEV stack, like capture MEV and own it themselves, and they are just the MEV service provider of Ethereum and their their jump capital collecting all their MEV. No, you take it from the large players and democratize it by just putting it into ether the asset and the holders of ether the asset, again, the most decentralized component of Ethereum, or actually the thing, the people, the party of people that benefits from this. Does Solana have? have some sort of philosophy or strategy as to where it wants M.EV to go? Or what is the end destination of Solana M.AV? I think that's a slightly rosy interpretation of what happens on

Ethereum. There is still, like, one of the core principles of blockchain is brutish self-interest economic forces drive good results for everyone. And so there's definitely still a lot of people in Ethereum that are doing M-EV that is not sort of as a public good, but as a personal enrichment activity, right? This is like the long-term desire. with appropriate mechanism design, this is where it goes. We don't have MEP burn yet, but in the final conclusion,

this is like what the Ethereum stance towards MEV is. Yeah, I'm skeptical if we'll get there just because human interest is to steal as much as humanly possible, and so you have to, like, that, like one of the really interesting things about just as a slight deviation

on the Ethereum community is there's a lot of folks who hold a ton of ether who are very, actively involved in building things like the MEV infrastructure. I am skeptical that that's going to survive Ethereum going mainstream. That you're going to have like the same way that, you may have people now who are like, I'm running these searchers and what I fundamentally care about is ether the asset going up because I have 100,000 eth on a wallet somewhere. Eventually

that economics are going to change. You're going to have new people coming in who are basically like the equivalent of the people who sell you gadgets on Instagram that are like, I don't have a storefront, I don't have this like backhaul legacy of ETH in my wallet that I can use to, that I'm trying to enrich. I am personally trying to accrue as much money, ether, USDC, whatever we're talking about this moment, as humanly possible. And so I'm skeptical that that economic system is going to work in the next bull cycle when we see a large expansion of the number of users with blockchain, but we will see. So on, on, Solana, like the approach for democratizing this is stake weighted QOS. That is the counterpoint

M-E-V. Like on Ethereum, the only way that you can be guaranteed that your transaction is going to be included in a block is to be building the block yourself. Right. On Solana, there is this approach with stake-weighted QS that says, like, if you're a defy application and you decide to run a validator and you have 0.1% of the stake, that may be enough to make sure your most important transactions and your most important users are always able to be included in a given block. And so that's sort of that counterpoint there. The MEV clients on Salana are all sort of open source and about 27% of the network is actually running on the GTO client nowadays. So there's a pretty serious percentage of the network that is actually using this stuff on a daily basis now.

But the way it works is like I opt my validator into being a part of this. There's rewards based partially to that. But the answer, instead of driving value back to ether like you're talking about over the long term this is where something like gito soul comes in which is a stake pool token where you're basically saying i'm going to give you my stake and then in exchange for that you're going to give me a significant portion of your mavd revenue in addition to the normal staking rewards you'd receive okay so instead of it being burned and going into ether the asset it is just directed into this one particular sole uh lsd token yeah it's Sort of like if Lido decided we're going to run MEP clients on all of the validators that we run for Ethereum,

and then we're going to take those returns and bring them back. Now, I actually think that's probably much more likely to be what happens in Ethereum than people are like, I'm a good Samaritan. I'm just going to return it back to the network because I haven't seen a good proposal on how you can enforce MEV burn. Because it's not protocol level, it's application level. But maybe we'll see that in the future. No, MavV burns at the protocol level. It's got this mechanism of an implied oracle that can tell the Ethereum layer one exactly how much MEV was extracted and how much MEV needs to be burned in order to make that block valid.

Yeah, but that's still functionally an off-chain system analysis, right? I think that's kind of the piece that, like, I'm skeptical. Every time we bring in oracles, those are like... It's not an actual Oracle. It's an implied Oracle. It's a market-derived number that I can say as an Oracle because it's external data coming into the Ethereum Layer 1, but it's not actually an Oracle in the same way. that chain link is an oracle. Totally.

It's an implied one. Yeah, but it's like how ETH slashing can do up to six, like there's a six month lag up to in terms of like a slashing event. And that gives room for human intervention, right? That's not because it takes six months to compute whether a slashing event occurred.

So I think we'll see, right, is the answer here. Now what we could potentially see is that like the council of people who, the brain trust of Ethereum basically says like, we are going to socially punish people who are not burning MEV.

By saying we know your accounts, we're going to actually ensue like a social consensus burn or slashing of some of your tokens. I think that would be a massive violation of the Ethereum social contract. I do not think that that would ever happen. I also don't think it would happen,

which is why I'm not sure we're going to see MEV return to ether. But only the future will tell. Okay, so this is falling into the category of people who are making claims that Ethereum won't actually execute the proposal that it's saying that it will execute,

which usually if you say that Ethereum is going to be late, you'll be right. But if you say Ethereum's never going to do it, you've never been right. Bitcoiners betting against Ethereum, shipping the updates that it's saying that it will, have never been right. I'm going to challenge you a little on this

because what I would say is Ethereum ships updates. They are very often not the updates that they say they're going to ship. If you want to specify in very granular detail, hey, you promise this, but we got this, then yes, there's differences there.

If you go back to the beginning of Ethereum and also understand the Ethereum, again, like philosophy and purpose and generalized architecture rather than the granular details, everything that Ethereum has shipped is 100% in alignment with its original roadmap. I don't think that's a hot take. So you go back to fall of 2020.

The architecture of ETH II was supposed to be shards. It was supposed to be executed. And now we have roll-ups, which those are different, but also the same. Well, so this is where, like, they're different and also the same, but also kind of worse, right? Because a shard and executional layer shards. So the original vision, right, in, like, in 2020, like that white papers were coming out about, people were writing about, was basically that we were going to have, instead of one beacon chain, we were going to have multiple shards. each shard was actually going to be able to run and execute smart contracts. Every 20 minutes those shards would sink up and you'd basically get a global state checkpoint every 20 minutes.

Which is like a step closer between what Solana is and what Ethereum's roll-up-centric roadmap is. It's like it's a middle ground between these two things. And so just for bankless listeners, because we haven't talked about the roll-up, the sharding roadmap to Ethereum in forever because we've moved on from it. but like think of roll-ups like arbitram optimism polygon think of those as like actually being enshrined in the Ethereum layer one and each of them are execution shards and they're actually more controlled by the actual Ethereum layer one protocol rather than being controlled by these layer two teams with independent choices and so every single execution chart is like a roll-up and then the Ethereum coordinating beacon chain just forces consensus between these two and end forces. is probably a better word, N-forces coordination between these execution shards every 20 minutes. And so these roll-ups all sync together every 20 minutes. But we went even, Ethereum progressed even more in like a laissez-faire way, where they say like, you know what, we can just have one chain, we'll stop with the execution charge,

and we can just let roll-ups be these execution environments that can move asynchronously rather than synchronously. Yes. Now, what I would say is that there's a real compromise on decentralization that took place. That original vision would have kept Ethereum just as decentralized as it was on a proof of work system. Every L2 is highly centralized. Every roll-up is highly centralized. The Solana ecosystem would love for this to be true. It is true. You can't run a permissionless layer two system.

I'm categorizing this is one of the things that, like, Ethereum critics will say is true about Ethereum, but will also not give credit for the fact that Ethereum has never failed to execute on its road. map. These are two different things that you're talking about. And I get why you're trying to bring them together. But if we look at a world where ETH2 had actually done like L1 native roll-ups, we wouldn't have a bunch of L2 tokens that have no economic value in existing, right? Oh, that's not true either, bro. Sure you would. You would have, you definitely have the tokens, but they had totally have economic value. Sequence or fees, man, sequencer fees. Sequencer fees are paid in EF. That's two, the layer twos. You could have every L2 just have,

fractional transactions in Ethereum that would mean you wouldn't need all these different tokens. Every time you want to be on a different roll-up or a different network, you could just use ether everywhere. Wait, you only for optimism, polygon, arbitram. Yeah. The only thing, the only gas token that you need the layer two of is starkware. And it's like the most Ethereum unaligned layer two of the ones I just mentioned. It's also the only one that allows you to run a permissionless node.

But yes. Yeah, because they have the benefit of having to be, they can get to create, their own ecosystem from the ground up. All of the permissionless validation that we're participating, like Arbitrum just introduced permissionless validation this last Friday. And so they get their little...

Yes, but it's the sequence or problem still continue. So all I'm trying to say is like... Yes, and it's the next thing on the roadmap. They're going to do it, dude. Yes, but you and Ryan are constantly being like, oh man, like Salana is so centralized, right? That was like a whole thing coming from a lot of the ETH brain community for a while.

and it just didn't it felt very dishonest because yeah i know right like it was this it was this transition from saying like ethereum was depending on how you kind of the first or second most decentralized network and the entire scaling roadmap collapsed that down into extreme centralization and this is not to say that it will be that way forever i actually do think that over time we are going to see l2 is decentralized people are going to figure out a way to have permission people are going to figure how to have more than one single sequencer on a roll-up or an L2, and then they're going to figure out how to have decentralized sequencers eventually. I just think we're several years away from that, and we'll get there, right? But there's this innate faith that you have,

and that others have, that Ethereum is the only network that's going to figure it out. And I just don't see, like, I think if you look at the pace of new technology shipping on the Slana network and, like, where the network come in the three years that it's been live, you'd say, wow, that's like an insanely high pace of innovation and change. This reminds me of how Ethereum relentlessly innovates on its core idea. And the point here is not to say like, oh, Ethereum is super centralized. It's that like what you have seen over your engagement with the network is that you have a faith that is going to figure it out. Right.

And what I would say- Ethereum the benefit of the doubt. And then we give Solana whatever is the opposite of that. Yeah. Yeah, yeah, exactly. Yeah. But also because Ethereum has a track record and Solana is a newer network. And so Solana still has to earn its stripes.

This is like what I've been calling the L1 hazing of the last bull market. Totally. It's like you're illegitimate until you make it through the next bear. I would say at this point, Solana has been through at least as much hardship as Ethereum has. If Solana has certainly been through a lot of hardship. There are different hardships. They're very different hardships. The Ethereum perspective would be like, well,

Solana sold its soul to the devil with its co-seeing with SBF, right? Ethereum's hardships were, we almost ran out of money for two years straight. I mean, that also, to be fair, that also happened to Salana. There were, the Salana Labs, you know, in the fall of 2020, had actually, they cut their staff by 50%. They were almost totally out of money. So, like, there has been that sort of thing, too, let alone, obviously, the collapse of FtX was just, like, such a punch to the ecosystem.

Yeah, the difference though when Ethereum ran out of money is that it had independent client teams that were all grant funded, rather than the Salana Foundation being this one, like, monolith of an organization supporting the network. And so, like, Ethereum as a movement had already decentralized, and we needed, like, a pretty decent amount. And we needed grant money to support open source client developers who were not. a part of the EF and we're just like doing things of their own accord. Like this is where the famous Vitalik Yolo tweets came in and sent like a hundred eth to Prismatic Labs, which allowed Preston Van Lune and a few others to quit their jobs at Google in the middle of a bear market to go build the first like layer two or Ethereum 2.0 client, right?

Yeah. And so the, so yeah, Solana also like ran out of money. But it was different because it was Salonah was like a startup, whereas Ethereum was a movement at this point. Well, then that was also, to be fair, that was nine months into Mainnet, right? That event you're talking about did not happen nine months into the Ethereum. Right.

That was four years, three years afterwards. Right. So today, right, the Solana Foundation has given grants for multiple validator client. There's four validator clients in active development. The one by Solana Labs, Firedancer, by Jump. There's a Sig, which is a Zig client implementation. And there's Gito, and there's also a Tiny Dancer, which is a light client. So there's, you know, depending on how you count, there's four or

five in development. And this is where, like, you're totally spot on that Solana is younger than Ethereum. It does not have the same ecosystem built out yet. I just see us as on a very similar trajectory. And that is not, I don't, I don't see this as a zero-sum situation at all, actually. I'm kind of surprised that sometimes there is this, like, hostility towards, like, oh, Solana is a threat to Ethereum. I actually don't think Solana is a threat.

to Ethereum any more than Bitcoin is a threat to Ethereum. Or Filecoin is a threat to Ethereum. Yeah, like all of, my philosophy around layer ones is that if you're a layer one, you compete with other layer ones. You can grow the pie as well. We can all grow the pies, but all layer ones want to eat as much of the pie as possible. I don't think Ethereum's competing with other L-1s. I think Ethereum's competing with nation states.

I think layer ones compete with nation states. Yes, but I think the primary opposition to Ethereum today is not Bitcoin, and it's not Salana, and it's not Polygon, and it's not. Because we run-40s around Bitcoin, except for the market cap, which we one day get there. Sure, but the market cap is, like, the most boring thing about crypto, right? But it's also, like, the point. Do you think it's the point? Yeah, I think layer ones are supposed to be money, and layer ones in, like, market cap and fighting nation states are, like, very similar. And like we said at the beginning, we have the power smart contracts.

We can encode values into our native currencies. And if you encode good values and the native currency goes up, that means you are literally scaling values. And so a lot of the values that make up the Ethereum ecosystem like pluralism, decentralization, power to the individual are all, in my mind, comprised, imbued into ether the asset. And in order to scale those values to the world, we need Ether to have a higher market cap. So here's my criticism of that is that you're not going to be able to reach, to be egalitarian, to reach the world, to allow people to go bankless if the transaction fees are $20. Yeah, but there won't be.

Yeah. But here's the thing. If ETH is money and the idea is everyone transactional. There's a really big logical jump there to say like, like the layering of Ethereum up to L57s at some point in the future is. basically a rebuild of the traditional financial ecosystem where you start with the Fed and then you go out to the commercial banks and then you go out to the lending banks and you go out to the retail banks and you go out to Venmo then you go out to the eBay store then you go out to the person selling the thing on eBay and each step in that line is a potential taxation and value capture point and I don't disagree with that but I don't also think you get to say that they are equivalent the topology of the networks definitely lines up like first you have the global settlement layer, which is the Ethereum layer one, which is the Federal Reserve. And then you have the commercial banking layer, which are the Ethereum layer two's. And then you have like the stripes, which are the layer three payment chains.

Like that topology definitely maps. But you also have core unique properties that are also added to this whole stack, which also just change the way that these things are expressed. And mainly the new innovation here is cryptography. And cryptography can take and sky. and scale parts the properties of the Ethereum layer one all the way to the L59-69 that whatever you want, right?

Sure. And so like, yes. And so like to me is like, yes, the topology wasn't created by the Federal Reserve commercial banking layer, stripe, etc. That was created by nature. Nature created that. And Ethereum is also mapping on to nature,

which is the same thing that the old traditional financial system also mapped onto. But Ethereum is doing it with better tools that allow for minimize taxation and maximized a value transfer as transference across networks. Potentially, the other

version of that is you introduce a lot of security hops. You introduce a lot of bridges. The things in crypto that got hacked right now are bridges. Right. And so every time you're going... See, this is our narrative too. Yeah, totally. But every time you go up or down a layer, you are introducing a point

of risk, right? And there's an attempt to say that there's no risk involved. in settling a transaction to the base layer one. And that is just not true. There is a lot of amazing work that's been done to reduce that risk dramatically. It is not zero.

And I think that's just like worth noting here that like there is a amazing egalitarian beautiful future where the Ethereum stack and all of its layers ends up being something that feels much more integrated, feels much more fair, feels like it delivers much of the value it would as if it were in one global state, like the original ETH2 design,

there's also a potential future where, you know, as people cycle out of the Ethereum ecosystem, as more people come into the Ethereum ecosystem, the value, there's nothing, to use your terminology, there's nothing natural about the values of Ethereum. The values of Ethereum are actually fairly,

weirdly anti-capitalist from a perspective. And it's great, right? It is actually this amazing social experiment, and there's so much amazing stuff that's been made possible here, I just, I'm not sure that those values can survive contact with J.P. Morgan and Raytheon. And what we've generally seen is that when extreme multinational corporate capitalism gets involved in systems, it extracts value. Like what the private equity firms have done to the health care system in the United States is like not accidental.

It's incredibly intentional. And I think when we're thinking about system architectures over a many, many, many year horizon, reducing the points of potential capture and interference, I think is a really good objective to have. And so to bring this back to Solana, right, the view there is that the socially safest thing to do is to keep everything in one global state. And that's not to say Ethereum can't be successful in its drive to do this, but we've already seen from a lot of other L1s. that they're already, like, parrachians are already facing capture problems, right? There's a lot of other things. And maybe Ethereum is big enough and mature enough and sort of, you know,

has the resolve, for lack of a better term, to escape that and to be able to actually get past it. Statistically, there's only a few countries in the world that have ever done that. Most countries fall prey to resource capture. Most countries are authoritarian. Most countries have really unhealthy economic systems. And maybe Ethereum can get past that. but that is a big bet to make that anyone else can play that move. And so that's kind of where, from a philosophical standpoint,

Slana is choosing to do a zag where Ethereum did a zig. And that doesn't mean that it's better or worse. It just is, I think, two very different expressions of trying to end up in a similar place. Yeah, we're definitely, I would definitely agree that that is the correct articulation for, like, what we're doing here and why we're designing the networks and the way that we're designing them. the Ethereum perspective will flip it flip it around and say like the Ethereum layer one is deeper than any sort of

corrupting influence corrupting corporation will ever be able to get to it it's too deep in the stack it's too it's very very like metaphysically low and so like we have this old thesis called the protocol sync thesis which the most socially scalable and the most legitimate protocols sync to the bottom of the stack

and if you are a corrupting influence of Raytheon like capitalist interest whatever like the layer the roll up centric roadmap of ethereum like a big big old not old big ships big like container ships if they like run into ground or they run into an iceberg like a modern titanic they're like compartmentalized right so like water will get in but it'll only get into like one small cell of the hull of the ship and it won't spread and that's that's how I would consider the roll up centric roadmap to Ethereum like they can try and like we have the jp morgan chain quorum or whatever which is like a geth fork that no one uses, like they can make their own roll up and they can corrupt that as much as they want, but they can't, it won't spread. It won't spread to the other chains and that because of the power of cryptography. Yeah. And so like, in getting deep, getting down to the layer one and impacting Ethereum governance, super hard. That's the hardest thing that you can do because that's when you also, you start to fight the social consensus as well, not just the cryptography. The Ethereum perspective

on Salon is like, it's only one network. You have one point of insertion. If you get that thing, then the whole system is corrupted. Like there's only one cell to puncture, and all of a sudden you have the entire stack. And so like jump capital making their client, that gives Ethereum people the hebi-jeebies. Like, I don't want jump capital making a client, and then I will not download that software.

And so that would be like the re-articulation from the opposing perspective. Yeah, I guess like when we're looking at like market cap capture, right, like the thing Elon Musk did with Twitter, right, Buy up a bunch of stock in secret, in dark, and then suddenly come out and say, hey, I own 10% of Twitter, I want to buy the whole thing, or I'm going to ruin your life. That's not impossible to do on NEL1, right? You could, the Ethereum market gap is only $224 billion today.

Yeah. Right? That is a lot of money. That is not an amount of money that is an opposition to potentially over time larger and larger chunks getting bought up, right? We see already with the trusts that exist and sort of the centralization of some custody is not an Ethereum problem. This is sort of across the space that the proof of stake is much more resilient than

proof of work to capture, but it is not immune from it. And so the idea that you're spot on that, like, yes, like if Polygon gets taken over by a bunch of, like, you know, private equity firm folks, you can just sort of cut off that tree and say, all right, Polygon's dead. we're going to not build on that thing anymore. The base layer is still not immune to capture, even if there's stuff on top of it that can be lopped off. And I think the place you see this,

which is sort of a counterpoint is, Salana validators are pretty hard to run, right? And what that means is they're not run on AWS. Right. And if you look at the percentage of eth that's on AWS, it's quite high compared to something like Salana. Now, Solana, like, there's lots of other downsides. One of those downsides is that you have to run these things bare metal.

That's harder to do. That is one of those things that, like, is a counterpoint to that capture problem. Now, it's a very different solution to the capture than what Ethereum is done, but I think they're very spiritually similar approaches to preventing those sorts of problems from happening. But, yeah, like, I think as we go into the future, no one can really say what's going to happen here. We all just need to figure out what are the best defense mechanisms to prevent the sort of bad scenarios. from happening that we don't want to have happen. Well, Austin, this actually went in a different direction

than specifically focusing on sole the asset, but I think that was actually probably the logical conclusion of where this goes because of the point of talking about what is sole the asset is to talk about what are the values of Solana, the ecosystem. And so I think this conversation did a fantastic job of peeling back the layers for a lot of people who haven't been to expose for that in the bankless audience

because we just don't talk about Salana too much. So, Austin, thank you for helping me navigate this conversation. Hey, thanks for having me on. It's always fun to chat with you. So Bankless Nation, if you like this conversation, you want more of that. Let us know on Twitter or in the Discord. But in the meantime, crypto is risky. Ethereum is risky, D5 is risky, layer 2 is risky. Salon is also risky. You can lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot.