Bankless - Devcon #2 - Justin Drake | The Next Steps for ETH

Starting point is 00:00:02 Welcome back Bankless Nation to DevCon 6, the DevCon 6 experience in this interview. We're talking with Justin Drake. Justin Drake gave the only talk at Heath, Denver, about Ultrasound money, about eth the asset. There was one talk about eth the asset, which is like, you know, technically an infinity number percentage more talks than all previous devcons about Ether the asset. So we're trending in a good direction. A lot has happened about ETH the asset since the last devCon. And of course, Justin Drake has been the... the pioneer of the ETH Ultrasound Money narrative.

Starting point is 00:00:36 I talked to him about the Ultrasound.money website and effort that he's involved with. And overall, what are the next steps for Ether as an asset? What does 4844 do to Ether? How will Ether change coming into the future? And just a story of Ether and what he wants to do moving into the future. So I hope you enjoy this conversation with Justin Drake, Mr. Ultrasound Money himself, right after we talk to some of these fantastic sponsors that make the show possible. TrueFi is leading Defi into the future of on-chain, uncollateralized loans,

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Starting point is 00:03:36 Justin, you had the only talk that was about Ether, the asset. Was it about Ultrasound Money? It was, yes. So basically the talk in Spanish was the prep talk, and then I did it in English two days later. Yeah, the only talk about Ether the asset, despite, in my opinion, ether the asset being critical towards the ultimate success of Ethereum. But was there any talk about Ether the Asset last DevCon? Because I feel like maybe it was zero last time and it's one this time.

Starting point is 00:04:03 Oh, yeah. So it's like infinitely better, yeah. Zero to one and then the next step is one to ten or something. So walking around this DevCon talking to people, how are people receiving the ultrasound money mean? Like, how do people think about it? How are people talking to you about it? Very well.

Starting point is 00:04:19 You know, I walk through DefCon and people say, good talk, good talk. So I think it's appreciated. Another really cool thing is that I've had, you know, thinkers and researchers and analysts and economists come to me, me and say, hey, I've been thinking about this as well, and I have some ideas, and I have feedback on the content you've delivered. And so now I think we have this kind of this small group of maybe 10 to 12 people who are like seriously interested in analyzing this narrative and understanding its fundamentals. And why do you think this narrative is capturing the

Starting point is 00:04:50 brains of these people? Because everyone wants to see a film succeed. And in order to get there, we need to really, you know, make EFA succeed as well. Because, it's kind of somewhat counterintuitive, but as the price of ether grows, that reflexively increases the utility of Ethereum itself. And that's for two reasons. Reason number one is economic security. The more valuable EF is, the more secure Ethereum is, and so therefore, at developers who want to see the applications live decades and centuries are more incentivized to go build

Starting point is 00:05:25 on this protocol. That's basically the protocol sync thesis. Like as the price of ether goes up, Ethereum becomes heavier and heavier and heavier. The other aspect is that we want to be building decentralized finance, and for that we need so-called economic bandwidth. We need this asset that can be used as collateral. Now, of course, we can use real-world assets,

Starting point is 00:05:49 that comes over all sorts of complications, in terms of counterparty risks, in terms of contract risk, Oracle risk, whatever it is. but there is this one pristine asset, ether, which if we had it in very large quantities, would make if you're much, much more useful and valuable. And we are now officially in the era of ultrasound money. While the meme started sometime in 2021, we actually haven't gotten to Ether becoming true ultrasound money until we merged six weeks ago or so.

Starting point is 00:06:19 And now Ether is ultrasound. And we've seen this insane amount of supply reduction. I think if we were still in proof of work, we would have had 350,000 ether issued, but instead we just have 7,000 ether issued instead. So we are now in the era of ultrasound money, but I don't think that story ends here. There are other things that might influence or change the trajectory of the ultrasound money meme. There's 4844, which will impact the economics of ether. What's left in the roadmap for ether, the asset?

Starting point is 00:06:51 Right. I think a big one is going to be scalability. And, you know, we have this search coming, this big wave of scalability. In my opinion, we're going to, over the next decade, go from 10 transactions a second to 10 million transactions per second. So that's going to do a couple things. Like, one is that it's going to dramatically decrease the per transaction fee. That's pretty obvious. But there's this other maybe less obvious thing is that it's just going to create much more value. And there's this notion of, you know, induced demand.

Starting point is 00:07:24 As you improve things, Ethereum will be providing more and more utility. And therefore, in aggregate, when you take all the transactions fees together, if the historical trend continues, will be in a position where Ephem is able to capture a lot of that value and therefore become more useful for that developers because that means more economic security and more economic bandwidth.

Starting point is 00:07:47 And so the general idea is that we are going to, scalability is a huge theme here. And I think now that we're done with proof of state, in EIP-1559, it's scalability that is where we are focusing next. And some people are saying like, oh, EIP-4844 is going to reduce a lot of the ethburn. And perhaps that's probably true, at least in the short term, until that induced demand actually starts to manifest and we find new use cases that are sub one-cent transaction

Starting point is 00:08:13 fees and people start transacting 10,000 times a day. Is that kind of the idea? Yeah, absolutely. I mean, one thing to mention is that when EIP 4844 comes in, it's not like, the fee market will instantly crash. And the reason is that there needs to be adoption. So just like roll-ups themselves needs to be adopted, and this is still like an ongoing story

Starting point is 00:08:35 and is relatively slow. Roll-ups came into production, let's say, a year ago, and still right now we don't have much adoption. It will be an additional kind of friction to move away from so-called call data, which is the resource which is being consumed today to EIP-844 because of various technical reasons. What will happen, though, is that once we move from proto-dank sharding to full dang sharding,

Starting point is 00:09:00 that is basically just increasing the amount of so-called blob data, and here it will actually lead to an instant crash in the market. And then here we'll have to wait for kind of a ramp-up after that. But these are transitory things that will happen in the next few years. I like to think about the end games, I guess. And Justin, there's two ways to, talk about ultrasound money. There's one at the technical layer, which is what we're doing.

Starting point is 00:09:28 EIP-159, proof of stake, 4844. That's like the technical ways that ether changes as an asset. But there's also ultrasound money, the meme. How is the meme going? So technical, I think we're doing pretty well. We're shipping pretty hard. How is the meme doing? How would you rate the strength of the proliferation of the ultrasound money meme?

Starting point is 00:09:49 Right. So there's different metrics that we can use to measure the proliferation of the meme. We can look at, for example, the number of Twitter accounts that have the bad signal propagating the meme. And there's actually something like 8,000 accounts now. Wow. That's that have the bad signal. A bunch of them are spam, something like 2 to 3,000, but there's still like this core group of 5,000 that are not spam. There's also kind of metrics from the website, right?

Starting point is 00:10:19 So I'm helping out of the website, and so I get access to the ultrasound. That's correct. yes. And before the merge, we were doing about 3,000 unique visitors a day. After the merge, we were doing something like 10,000 unique visits per day. And now we're doing something like 20,000 to 30,000 unique visits. Because people want to see the ether supply go down, and this is exciting. And also, there's going to be so much more content on this website coming up. And by the way, a small plug, if you're a front-end developer, there is a position available. Amazing. Yeah. And that website is just becoming more and more and more useful. It's a great service just to understand the metrics

Starting point is 00:10:58 around ether, the asset. And that's always one of the things I've really enjoyed about ether and Ethereum, and especially the monetary policy of ether, is that there's more numbers to look at. Like, Bitcoin is 21 million. That's the only number. Maybe we talk about like the difficulty adjustment. That's like the only two numbers for Bitcoin. For ether, there is the burn per block. There's the burn rate, the issuance rate. There's so many more metrics to look at. and ultrasound money is doing a great job of just displaying all of this. How much work do you think it's left to do on this ultrasound money website? Where is it now versus where you want it to be in the future?

Starting point is 00:11:33 Right. So let me tell you about the vision for this website. The idea is to be like the one-stop shop for ether, the asset. And really try and digest everything for mainstream audience. In terms of what's next to be built, there's a lot around like the whole search story. So there's, for example, looking at the burn per roll-up, but also diving into each roll-up and understanding where the burn comes from, but also looking at things like total value secured. Because ether, the asset, can be programmed to be like this very hot money, you know, in the context of transfers and transactions, but it can also be used as cold money collateral. And I think total value secured is something that's not really appreciated today because, you know, it's only $5 million or $120.

Starting point is 00:12:22 million, so it's pretty negligible. But I think what will happen over the next 10 years, the 80% of all leaf will be used as collateral, either in staking or in defy, and that's going to have a huge consequences in terms of velocity of money and things like monetary premium.

Starting point is 00:12:38 So how much more do you think there is to unearth about ether the asset? Do we kind of know most that we will know about ether the asset, or is there still a lot of story to be told here? I think two years ago, knew almost nothing. And I think this is typical for technical people. Technology, technology, technology. And I've learned so much over the last few years, and I still keep on learning.

Starting point is 00:13:05 And also, like, as I mentioned, there's people who approach me, and there's some people who just disagree with me. And so that's going to lead to debate and refinements and new hypothesis put forward. But one of the fun things is that, you know, this is low-hanging fruit. We're doing something that's never been done in the history of money. It's extremely exciting. It has a lot of potential. And here we are at the frontier discovering it. I was hoping you were going to say that word.

Starting point is 00:13:31 We're on the frontier. Oh my gosh. There's so much left in this story to be told. One of the critiques about ether, the ultrasound money narrative, is it's deflationary. And deflation is bad. It's going to spiral out of control. It's going to make Ethereum too expensive to use, blah, blah, blah, blah, blah.

Starting point is 00:13:47 Is this a misconception? Is this critique valid? How do you think about the deflation? critique of ether. Right. So I think deflation is bad, is a valid criticism for some types of monies, but not for ether the asset specifically. And the reason is that I distinguish two types of assets. I distinguish debt money and collateral money. Now, why is it good for debt money to be inflationary? Can we define debt money real quick? Yeah. The idea of debt money is that you put forward a collateral and you take out debt from this collateral. So the simplest example is maybe a house. You have a house,

Starting point is 00:14:21 you take a mortgage, you take out debt. And it's good that this debt is denominated in US dollars, for example. And one of the reasons is that it's inflationary, and so over time it becomes easier and easier to pay the debt. And so you're actually unlikely to default on your debt. And the reason why the house is kind of a good collateral is because house prices are up only. So that's the reason why banks are just so comfortable at giving you a mortgage,

Starting point is 00:14:47 because houses are optimized as collateral, and then US dollars are optimized as debt. And it's the same thing with ether. You have, ephers are optimized as a collateral asset against which you're going to take debt, which is going to be a stable coin like dye or rye or l-USD. And in my opinion, and here is, because you're on the other side of the coin,

Starting point is 00:15:09 you actually want your debt, your collateral asset, to be deflationary. You want it to grow in value over time because it means that you're less likely to get liquidated and therefore lead to these like large, a systemic risk where potentially you have mass defaults and things collapse.

Starting point is 00:15:26 Okay, so there's two types of money. And that's the only two types of money? There's collateral money and debt money. Is that a fair take? Yeah, that's one way to classify the two sides of the coin. Right, yeah. And so you're saying that you want the collateral money to go up in price and you want the debt money to go down in price and that probably produces

Starting point is 00:15:42 a more stable financial system over the long term. You probably don't want it to be too inflationary or too devalational. You want it to not be too volatile. But where the collateral grows up in value and the debt goes down in value over the long term, you're saying is a good financial system. Yeah, full robustness. For robustness, yeah.

Starting point is 00:15:58 And I always thought it was another take about the deflationary aspect of ether is that, well, there's so many other currencies on Ethereum that you get to kind of pick and choose your monetary policy. And I think what you were saying is actually a more evolved version of this narrative. But my idea was that there's the Rye monetary policy, the die monetary policy, the ether monetary policy. all of these things have tons of liquidity with each other on Ethereum. It doesn't matter if ether is super deflationary

Starting point is 00:16:25 because you have like alternatives, right? And it's not like while it is setting like the core foundation of all of Ethereum, it's not like the die economy is actually somewhat distinct from the ether economy. Yeah, exactly. Like if your use case is like hot money, meaning high velocity money, then you can move in and out really quickly of various currencies. But in terms of use cases of money as currency, by the way, currency comes from a current. It means money that flows.

Starting point is 00:16:56 I think Eiff is going to play a large role for a couple reasons. One is if you think of a D5 money blocks, they're going to compose through this money API. And if these money blocks want to live for decades and centuries, they're going to want to choose the most pristine APIs and most robust ones. And so I think Eiff is going to play a large role. already seeing that, for example, on Uniswap, 95% of the non-like-to-like trading volume is EF. And also a very similar story on OpenC, like a lot of the NFT trading is an EF. But even for those use cases that don't want EF because it's too volatile, I think what we want as a community is to use stabilized EF. So we could use a stable coin like USDC or USDT, but that comes with all sorts

Starting point is 00:17:44 or problems. And my hope, at least, is that these, you know, custodial-based, centralized, stable coins are, you know, a temporary thing. And in 10 years time, there'll be a thing of the past. So historically in the developer circles of Ethereum, it's always been a focus on Ethereum, the network, not Ether, the money. And you've been the developer leading the charge. It's like, hey, no, also Ether, too. How has that been resonating with the other developers in the Ethereum circles? Yeah, like there's been this gradual warming up. You know, I used to be the exception, but now like more and more people, you know, appreciate it. And I think it's a journey again that technical people kind of go through. And I think, you know, as a researcher, you know, I spend a lot of time really deep in the technology. But now that I have a bit more free time because the research problems have been solved, I can kind of go at different layers of the stack.

Starting point is 00:18:41 And I think this might happen with other people as well. And I think there's also kind of this aspect of taboo associated with it, which I think is slowly dissolving, you know, partly because, you know, maybe of regulation as well. Like there was like uncertainty around whether, you know, ether is a security. I think at this point in time, you know, I don't want to put, I'm not a lawyer, but, you know, I think we can move on and start talking about it more freely. Certainly. So, Justin, you are the ultrasound money guy, the guy that thinks a lot about Ether and monetary policy.

Starting point is 00:19:17 But what else about Ethereum? Outside of Ether has captured your attention, especially some of the conversations here at DevCon. Outside of Ether, what is in your brain? Yeah, so I'm really fascinated by ZKADMs. Like, there's a nerd dream because it encompasses so much technology in this one black box. and I've just been amazed as how much progress there's been there's still a lot of work to do and often like the ZK roll-ups

Starting point is 00:19:44 will kind of hype themselves a little bit too much one of the things I'm worried for example is bugs right we have these extremely complicated circuits and one critical bug is enough to break the ZK roll-up

Starting point is 00:19:57 and we're talking potentially a billion dollar plus hack and now we've seen empirically that we can't even get bridges correctly like every ever week there's a hundred million dollar bridge hack and so I'm I am worried about the security of ZKableOps and you know this is an opportunity right for people who are security experts

Starting point is 00:20:19 who are formal verification experts what are fuzzers whatever it is please join us we need you to solve this problem how do we solve this problem or is that just a research task I think it's more of an engineering task like you want to build systems that are modular so that we can kind of analyze like chunk by chunk. And if this bit is secure and this bit is secure, then we want these composability guarantees that the whole thing is also secure. And one of the good things about breaking it down in chunks

Starting point is 00:20:51 is that we can put out the best tools that we have. So we have just audit using your eyes. We have fuzzling, which is this idea like throwing all sorts of random junk at it and seeing where it breaks. And then we have the extreme end of the spectrum, which is called formal verification, where you basically write a mathematical proof written by a computer that this thing is exactly equivalent to the spec that it's meant to match.

Starting point is 00:21:20 Amazing. Yeah, the excitement around the ZK EVMs are definitely palpable, especially when at ECC, the theme was the ZK EVMs are here, now here at DevCon, all the tests and that's are coming online, and ZK Sync has their layer threes. Are you optimistic that we'll be able to smoothly solve the bridge issue and the bug issue, perhaps faster than what we've seen in 2021? Right. So one of the things that I think will happen is that these roll-ups won't go fully decentralized and permissionless from day one.

Starting point is 00:21:51 There will be this gradual ramp-up. And one of the things that I think is a good idea is basically this maybe one-hour safety buffer. So one of the big selling points. of ZK rollups is that you get this instant finality. But I think it's actually okay that in the early days, finality takes a whole hour. And the idea of delaying by an hour is that if an attacker basically forges a proof for an invalid route,

Starting point is 00:22:18 which kind of empties the whole thing, we have this one hour to kind of press the big red pause button and fix everything. Okay. Yeah, I can definitely see that. And with ZK roll-ups, of course, they're all super hype. but it's also some of the most new technology that we have in this space, which is always a little bit scary.

Starting point is 00:22:39 Justin, do you have any plans for Bogota for the rest of your time here? So there's like a couple kind of off-sites, one for the holder of the EF, one for the research team. Looking forward to getting out, I've been primarily like a hotel in here and the five minutes from each other. Spend so much time meeting people, the energy is like so high, and, you know, it's been very productive. Do conferences drain you?

Starting point is 00:23:07 They energize me and they drain me at the same time. It's like adrenaline and then, you know, I'm happy to go back home so that I can kind of see my family and rest. Well, Justin has been fantastic hanging out with you here in Bogota and thank you for your time. Yeah, thank you. Cheers. Cheers.

Bankless - Devcon #2 - Justin Drake | The Next Steps for ETH

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