Bankless - In Defense of The Ethereum Roadmap | Mike Neuder

Episode Date: September 23, 2024

Is the Ethereum’s Rollup centric roadmap a Queen Sacrifice blunder? That’s the core question the industry is asking and Bankless has aired some of these dissents. Today’s episode voices a counter to the doubters. Mike Neuder is an Ethereum developer and previous Bankless guest. He thinks the Ethereum roadmap is pretty great as is, it’s right on track, in fact, his message is to stay the course, play the long game, and watch ETH grow in value as a monetary asset as the Ethereum economy grows across L2s.     ------ 📣 SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24  https://bankless.cc/spotify-premium  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2    ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle    🗣️TOKU | CRYPTO EMPLOYMENT  https://bankless.cc/toku   ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/67?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E   ------ TIMESTAMPS 0:00 Intro 6:06 Why is the ETH Roadmap Great 12:38 Ethereum’s North Star 17:12 Property Rights 28:14 Rollups 33:20 Rollup Stages 47:38 Data Availability 1:06:25 Value Accrual for ETH 1:15:33 ETH as Money 1:21:35 Closing Thoughts ------ RESOURCES Mike Neuder https://x.com/mikeneuder   Mike Neuther Thesis https://hackmd.io/@mikeneuder/ethesis   Max Resnick Pod https://www.youtube.com/watch?v=FLUJ0uLye0U   Kyle Samani Pod https://www.youtube.com/watch?v=7CMMLdVrtFE   ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠  

I'm only trusting the L2 to provide me the nice stuff. I'm not trusting it to provide me the core stuff, the core property rights and such a resistance that Ethereum is going to give me. Welcome to Bankless, where today we explore the defense of the Ethereum roadmap. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help me become more bankless. The Ethereum roadmap has been called into question recently. I think bankless has aired some of these dissents. And I'll say maybe two things about that before we begin. First is this. I think dissenting opinions are really important for us to consider, and David and I will continue voicing them on bankless. And even when they're wrong, I think at best they help sharpen our ideas.

And both David and I would rather err on the side of open engagement than live in an echo chamber. So that's the first thing. Second, I just think we have to recognize, yes, all this roadmap angst recently could totally just be a price thing. As we know in crypto, narrative follows price. And when price is down, people find all sorts of reasons to doubt their conviction. And on this, time will tell. But today's episode voices a counter to the doubters on the Ethereum roadmap. Mike Noiter is an Ethereum developer and a previous bankless guest. He thinks the Ethereum roadmap is like pretty great as is. It's right on track. In fact, his message is that we should stay the course, play the long game, and watch the value of Heathrow as a monetary asset as the Ethereum

economy grows across all sorts of layer twos. I think there are some open questions that remain at the end of this episode. The core question that I think the industry is asking is, Ethereum's roll-up-centric roadmap, a queen-sacrifice blunder or a queen-sacrifice end-game victory? And I think all three people, me and Ryan and the guest, Mike, on this pot today, are pretty assured that it's the latter. And this episode illustrates that end-game win scenario for Ethereum. But still, nonetheless, a second question remains, does the roll-up-centric roadmap produce sufficient moniness for ETH? So if we're sacrificing layer one execution, we're consistently going to expand the supply of DA far beyond demand, what is the structure that's left for ETH to become

money? And is the network of chains that the roll-up-centric roadmap blossoms enough to create ETH as money? I think these are kind of the questions that I'm now pondering. But I do also enjoy this idea that Mike echoed a couple times in the podcast that he said also comes from Dankrad, which is, first, Ethereum needs to create value. Developers need to use the block space that Ethereum is creating to create value for the world, and only then will ETH become money after that. And it kind of reminds me of the Fatalic take in 2017 of, did we deserve it? Eath will become money if Ethereum deserves it, I think is one possible interpretation of this. So let's go ahead and get right into this fantastic episode with Mike Noiter. But first, a moment to talk about some of these fantastic sponsors

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Download the Uniswap wallet today on Chrome, iOS, and Android. And don't forget to claim your free uni.comi-eath username. directly in the mobile wall. Start swapping smarter with Uniswap. Bankless Nation, very excited to introduce you once again to Mike Noiter. He is a researcher at the Ethereum Foundation. I think the last time we had him on, we're actually going through the details of the Ethereum roadmap. It's a fantastic episode. It's called Endgame 2.0 where we go through all the swimming. Longest bankless episode ever. Yeah, it was, right? It's like three hours plus. Anyway, it was a fantastic episode. Mike, welcome to Bankless. Yeah, thanks for having me, guys. Again, I feel like I say this every time I'm on

the show, but this was like a huge part of what got me into crypto and being on here is always a real treat. So thanks again. That's super cool. We're honored. Okay. So Ethereum is one of the things that got me into crypto as well. So the topic today is Ethereum and the Ethereum roadmap. And I want to set some context for the conversation we're about to have. So David and I have recently had some episodes in the podcast that have really called into question the Ethereum end game, the roadmap, a roadmap that has optimized the roll upcentric view, layer two is that kind of thing. Kyle Simani was a guest we had on. He basically says this prioritization, this roadmap is the reason why ETH is down so bad relative to other assets this cycle.

He has his own bag bias maybe and his own preconceptions, of course. We also had an episode with Max Resnick, who is a protocol developer as well. And his take was that the Ethereum roadmap is off track and went through an episode with him where he sort of describes it. Now, your take, I think, is contrary to those two takes. You think the ETH roadmap, as it is, is pretty great. We're going to discuss why you think that. But let me start with the broadest of questions. Why is the ETH roadmap great? Yeah. So I guess I'll start by kind of setting the framing for this episode. And I guess I wrote this

article called ETHIS, which is a portmanteau of like ETH and thesis, right? This is kind of my first stab at having a bigger picture understanding of what makes Ethereum valuable as a platform and also like considering ether the asset kind of along a bunch of different dimensions, including the roll-up-centric roadmap. So that's kind of like where we're at. And I do want to say, kind of before jumping into kind of how I think that this is very much a personal opinion, like that is kind of an op-ed of sorts. And so I don't want to like say that I'm speaking on behalf of the EF or on the whole Ethereum community. This is just like one person's perspective. But yeah, hopefully can help voice some of the arguments that I think

are true and that a lot of people might resonate with. So yeah, I guess to start the kind of framing I used in the article was settlement, DA, execution in that order. And so Maxx brought up this really good point, which is, you know, we only have a limited amount of kind of bandwidth, both in terms of how much network capacity we can handle, like, kind of on the physical layer, but then there's also bandwidth in terms of what we as an Ethereum community can ship in terms of protocol upgrades. And so kind of, I think it's totally accurate and valid to be thinking a big picture about how to prioritize upgrades and changes. And in my article, I say that I think settlement is kind of first and foremost the priority. This is kind of the fundamentals of

ETH as properties, digital property rights, and we'll kind of dig into that. And I think that a lot of that take was kind of inspired by the bankless thesis, triple point asset thesis, et cetera. Then the second is kind of a deep dive on DA. And kind of beyond just thinking about DA in terms of fees and in terms of the value accrual to ETH asset, I think it's also worth exploring some of the nuance of DA in terms of what it provides to roll-ups, in terms of composability, in terms of network effects, these types of things. And also just like making abundant block space. And kind of as we usher in this new era of truly decentralized access to this blob space and block space, like what could be built out in the future. And then execution kind of as the third thing, but still very much

something we should consider doing. And that's kind of focused on L1 execution, how that plays into the future of ZK and scaling the base layer. And that's relationship to, I guess, maybe more of the valuable arguments that people are very familiar with in terms of the burn, et cetera. So, yeah, I'd say that's kind of the flow of the argument and what I hope we can cover today. Yeah, I think this episode does assume some knowledge. So we're diving right into, you know, 300-level Ethereum crypto content. So bankless listener will include in the links some resources where if you don't know what settlement DA and execution kind of are, like some other episodes that will help you out on those terms. But I think in order to dive in the deep end of the pool, we have to, you know, assume some common knowledge across bankless listeners today with those terms. And I'll just note that you said settlement, DA, and execution in that order. That's roughly what the existing Ethereum roadmap kind of prioritizes. And I'll contrast that with, you know, what Max and others have been kind of saying, which is like, okay, we did some settlement in DA. Now we have to go swing back towards execution and really focus on that for the Ethereum layer one and make that a priority rather than settlement

and data availability. So they would probably reorder what you just said and probably put execution first. Is that your impression of their message? Yeah, yeah, it is. And I would say this type of kind of reversal and pendulum swinging back towards execution is totally valid and totally worth considering. But it does kind of fundamentally suggest the question of like, where do we expect user activity to take place? And I think kind of one of these core tensions that Max was getting at in his post or in his kind of writing and in the podcast was he very much wants like all the future of defy to take place on Ethereum L1. Right. And so if that's the premise, if that's where your starting point is for kind of viewing the Ethereum roadmap, then I totally

with him. You have to start optimizing the L1 for execution because as we've seen, like, activity is moving to the L2s and it is moving kind of away from the base chain. But I think the core thing that I disagree with him on and kind of I would reject a bit in terms of that premise is that you can get the scalable execution on the L1 without compromising on the settlement and kind of the decentralization of the L1 in the first place. So his argument kind of rests on the assumption that multiple concurrent proposers and braid and these kinds of kind of like new, cool technology ideas will help keep the same level of decentralization and censorship resistance of the base chain while still allowing it to scale up. And I think,

you know, if that turns out to be true, like if that ends up being something that we can all agree on, then like full steam ahead, like, let's go. But where I would push back is like if we have any reason to believe that we're compromising on the decentralization and the kind of core premise of censorship resistance on the L1, then that's like a tradeoff that doesn't make sense to make in terms of kind of like almost trying to give up what we're good at and chase something that we're not good at. And that feels like the fundamental pivot that would be kind of a strategic mistake as an ecosystem broadly. As we say kind of high a level in the first part of this podcast, maybe it's useful to kind of articulate what the main goal of the

Ethereum roll-up-centric roadmap is, what the North Star is. I think if you go and you'll look at those five different swim lanes of the Ethereum roadmap, the verge, purge, scourge, all the urges. Splurge, surge. Splurge, yeah. It's pretty easy to kind of get lost in the sauce of what each one of these things are doing. Oh, there's five different lanes, five different goals. Maybe you can weave the goals of Ethereum together. How would you describe the actual main goal of the roll-up-centric roadmap? What is the North Star?

Yeah, I think right now, the North Star is growing the amount of economic activity that takes place in the Ethereum ecosystem. And in the Ethereum ecosystem, kind of includes L2's roll-up specifically that use Ethereum-D-A. And so, you know, Donkrad had this really awesome point in a recent AMA where he said, like, before we can start thinking about like value accrual or like why, you know, is going to be a long-term valuable asset, we have to think about value creation. And that value creation is going to come from people actually like getting on chain, using digital assets, swapping, sending money across borders, et cetera. So yeah, I think kind of first and foremost, the goal here should be to onboard more users and to increase activity on the L2s. And if you look at L2B, like things are, looking great on that angle, right? You look at like number of transactions, active addresses, volume on the L2s, and it's kind of like nothing but up into the right. So I think that's fundamentally where we start. And that's in my mind still like the number one goal of what Ethereum should be doing. And that's why when we're looking forward to the kind of next phases of these hard forks, stuff like peer dash, stuff like full dang sharding, which

continue to optimize for like creating this abundant block space, are still very high on the priority list. Because I think everyone's under the assumption that, that, sure, like, DA is cheap right now, but we're going to hit this point of growth where, like, Ethereum needs to keep scaling the DA fast enough to keep up with the demand for that block space. So, yeah, I think kind of fundamentally increasing the amount of economic activity in and around the Ethereum ecosystem is the goal right now. And then I guess the last thing I'll add here is that the kind of core principle of preserving the neutrality of Ethereum block space is the other kind of counterargument. and kind of the force that is also working in terms of making sure that, you know, MEV doesn't result in a highly centralized and censored chain.

To maybe articulate what I think you said with Bitcoin, we created this thing called Blockspace, secure Blockspace. Now, ever since Bitcoin, we've been learning what to do with it. Then the Ethereum project comes along with smart contracts and we can do even more things with Blockspace. And I think maybe what you're saying with Dankrad's take is with, you know, cheap data availability with layer 2s, we have so much cheap block space, and now we have surface area for people to do things that create value for the world with this thing that we've created called

block space. And optimizing for value creation by leveraging secure block space is the correct north star of the Ethereum roadmap. Let's increase the Ethereum GDP by giving people block space consumers the tools that they need to create as much value as possible using the high-quality block space that Ethereum has. And in order to preserve high-quality block space, we need to have strong censorship resistance mechanisms. We need to make sure that M-EV doesn't corrupt the chain. And that's why we're kind of focusing on some of the things that we're focusing on in 2024. Is that a way to articulate the summarized point? Yeah. Yeah, exactly. And I think there's also kind of a nice element here that comes in, which is as scaling kind of increases on the L2s,

and as some of this tech evolves and ZK EVMs continue to kind of increase at this astounding rate, some of that execution scaling and kind of the more long-term futuristic, I guess, sci-fi chain stuff that Justin would talk about can kind of come into the fold kind of as it becomes ready. So I think, again, part of Ethereum superpower is like the ability to kind of scale trustlessness and scale decentralization while still absorbing all of the awesome open source tech and kind of magic cryptography that gets built out in the system. Mike, in your article, you call the essence of Ethereum property rights. and I think that's a lens that we certainly enjoy.

Property rights, I don't think, was a big part of the Ethereum white paper. I don't know how many times this idea of property rights was mentioned in the early days of Ethereum. But nonetheless, you're calling it the essence of Ethereum. So what does property rights have to do with Ethereum? And how is it just aligned with this North Star that we were just talking about? Yeah, I don't think it was used in the white paper, not because it's like a difference in fundamental views, but more so like we have a different terminology and a different language to understand. stand the same thing, which is kind of first and foremost self-custody, right? Like, this is the main

thing in my mind that differentiates, like one of the core things that differentiates assets that you hold on a blockchain versus assets that you hold in a bank, right? It's, you know, you'd have to come to someone's house and physically take their private keys in order to seize their assets. Secondly, I think property rights as a focus of what actually is the kind of measurable thing you get from decentralization, right? So decentralization. was always part of the kind of core Ethereum vision, and I still see decentralization is mostly a means to preserving credible block space. So, you know, it's great if I can self-custody my ETH at my house and I have my private key, whatever, but in order to actually, like, make use of the chain

in order to send someone ETH in order to kind of participate in this online economy, beyond just like storing and self-custodying the Eth in a cold wallet, I also need to be able to send transactions. And, you know, neutrality of Ethereum's block space, is kind of this idea that if I want to send a transaction, like, no one can choose to exclude me from that financial ecosystem. So, yeah, I would say the kind of first and foremost thing is self-custody, but also being able to interact with the state that Ethereum creates and the economic platform that it services is, like, a huge part of what it means to, like, maintain and preserve property rights of digital assets. I think David and I have always seen Bitcoin is, like,

also a property right system. But like a property right system that does one thing, it secures and preserves the property right of Bitcoin, right? It's kind of like a mono asset platform. And so it's sort of a narrow view of property rights. And this whole kind of meme around digital gold, the question of like what secures the digital gold? And the answer is Bitcoin block space, right? This is different than gold in the physical world where you have, you know, the periodic table of elements that makes it sort of censorship resistant. It's like impossible to go reproduce gold without expending more energy than just like kind of like mining it in the first place. And of course, you can custody your gold in your house and you might guard it, you might put it in a vault,

or you might bury it and hide it in various places. And so that's kind of a cost of the system. Anyway, the traditional way in meat space that we've preserved property rights for bearer assets is we've tried to like secure them by force, you know, you have a vault. or you have guards with guns. And of course, on the internet, in the digital world, that's not possible. And so we created this product called Bitcoin Blockspace, which can now secure Bitcoin. Well, Ethereum does that with all sorts of assets, like any type of asset. Broad property rights.

Yeah, right. Not just a single store value asset, although it has that. It's called Ether, but any token that you might want to spin up. I guess, though, there are some limits in terms of things that we can't fully secure on a property right system like Ethereum. So we have these kind of crypto-native bearer assets like Ether and the various ERC-20 tokens that are only native and only available on the Ethereum network. But there are some limits. There are some things that we can't secure on Ethereum. So what types of property rights can we secure on Ethereum? What are kind of the limitations here?

Yeah, for sure. So I think you're totally right in calling out that kind of crypto-native assets are like the kind of most permissionless and most sovereign of all of these crypto assets, right? Like no one can actually take away my ether without getting the Ethereum network to agree on invalid state transition or coming and taking my keys. Now, obviously, like, I think the elephant in the room in terms of assets that live on the Ethereum blockchain, but are clearly not imbued with the same level of property rights are like things that have a real world component, right? So the canonical example of this would be stable coins. There's also like kind of broader push for tokenization of real world assets generally. But once you kind of make that bridge between the

digital space and the real space, like there is a bridge between the bank account that Circle has and, you know, the USDC token that's on chain, you kind of do have some reduction in the property rights. Like there is a counterparty here, which is Circle, right? So Circle is ultimately the ledger of record for USDC, not Ethereum, right? Because if I have some USDC and Circle decides, like, I'm going to take way Mike's USC, they can do so by just, you know, turning off the transfer button on my USDC. So, yeah, I do think it's like very important to acknowledge that a lot of the value that's stored on blockchains does have this counterparty risk. And, you know, in order to truly scale permissionlessness and kind of true trustless value and value creation, we need to lean into

these crypto-native assets and hope that they continue to get used. Like, obviously, maker and dye, like, was the original idea for this? You can kind of collateralize a stable coin. Obviously, they have some real world components in their design now that kind of changed the counterparty risk there. But yeah, fundamentally, I see I see kind of the digital native assets, the crypto-native assets as the core value of the kind of economic system that we're creating. So with this property rights frame of reference, maybe we can bring back up like censorship ship, Caesar's ship, Caesar ship resistance. Why are these things important when we have this brand new, like, property rights system? Because like so much of Ethereum's time over the last, like,

two years, the EF researchers, has been around, like, censorship resistance and things like MEV, which, you know, some people perceive MEV as just like backdoor theft. So why is resistance to these things so important here? Yeah. So when I started my article, at the very top, I put a quote from Hayek, who's like one of the original Austrian economics thinkers. And I'll just read it and says, what our generation is forgotten is the system of private property is the most important guarantee of freedom. And obviously like this kind of leans more into the political economy and the kind of theory of, you know, personal freedoms and liberties. But I definitely do believe that a huge part of modern society is like having access to private property and being able to store that

value without having the risk of kind of an authoritarian regime or someone with a gun coming, like someone who has a monopoly on violence, kind of taking away access to your value. So, you know, I always come back to the Canada Trucker example because I think it was, it was just so shocking to me because they were trying to like exercise their free speech and that free speech got taken away by the seizure of their assets. And, you know, a few more examples that I think are super relevant. And I actually heard about through your guys' podcast. First was Cynthia a lumbus who came on your show a few weeks ago and she was talking about how she was debanked basically after her husband passed away suddenly and just like it shows you and i know you guys were

also debanked at some point when you you as a company like are not able to function and you know as a media company like that's that's sort of taking away your freedom of speech right like if you can't spend money on equipment and you can't pay your utility bills and stuff then like fundamentally any capture of your property takes away your freedom of speech. And that's fundamentally like the civil and kind of human right that feels like it's really important to preserve, especially under today's regime. Like I think, you know, maybe over the past 40 years, kind of especially for people who live in the U.S., like this wasn't really a concern. And I think a lot of people have a very similar opinion about privacy of their own data, right? It's like

privacy of your data is not that different from having property rights. over your money, right? Like, if you're willing to concede that the government can read anything you write and, like, you know, you're like, I have nothing to hide. Why should I be worried about it? Then I think if you kind of view that only from the lens of being in a highly developed country with, like, a strong, you know, rule of law and like a strong currency, then, yeah, it might not make as much sense. But like, we're seeing that huge amounts of crypto adoption are actually taking place in places with more authoritarian regimes or like weaker currency. And so, yeah, I guess, fundamentally these things feel like they might become more important in the world as we kind of

move into this maybe less stable period with less clear like monopower in the US. And yeah, I think this type of stuff, it doesn't matter until it's the only thing that matters. And property rights feel like fundamental as a human right. So your answer, Mike, to the question of like, why has Ethereum really prioritized seizure resistance and censorship resistance? Your answer is to increase the settlement assurances for the property that is held inside of Ethereum. And all of the economy and transactions that are tied to it, it's all about property rights and increasing the settlement assurances. So if I have Ether and I want to send it to somebody, I know that nobody on Earth can actually stop me from doing that. That's basically the summary of why Ethereum has prioritized

these two features. Right. Right. And the kind of core, I guess, underlying assumption here is that if you give up on decentralization, you give up on that strong settlement assurance because you open some surface by which either like a nation state or a giant corporation can control the outcomes of this economy. So yeah, I think that's kind of the fundamental grounding of decentralization and why it makes sense for Ethereum's roadmap. I think the first part of this conversation that we've had so far has just been kind of just like receding why Ethereum is important, why we're all here, why we align with this project that has this grand arc that we've been following for years and years. And this idea of just like unlocking property

rights for the internet has like pilled so many people. It's why we have this podcast. It's why you're at the EF. Really great like foundation for I think what we want to talk about next because there has been some parts of the Ethereum roadmap that I think haven't been formally like integrated into a lot of people's mental models that have been developed in the past. Like we, We have the triple point asset. We have ultrasound money, roll-up-centric roadmap. And we haven't really integrated roll-ups very well in our content sphere on bank lists yet as it relates to this idea of property rights or the property rights layer of the internet.

Or, you know, said differently, we haven't really integrated. How do roll-ups fit into like the value accrual mechanisms for ETH? Now that we have a roll-up-centric roadmap, how does that change the triple-point asset or like ultrasound money? So I think that's what we want to do. and then this next part of this conversation is like really unpack in 2024, what do roll-ups do to these pre-establish mental models that we've covered so much in the past? And so maybe we can start with there.

How do roll-ups expand Ethereum block space? And is that also the same thing as expanding Ethereum's property rights system? Because we have two different things here. We have property rights. And then we have Ethereum block space. I don't know if those are one-to-one equivalent. Are those the same things? Are those different?

And overall, like, how do roll-ups fit into this? like model for understanding Ethereum. Right. So starting from the second part of your question, I think kind of first and foremost, we should consider how the L2 consumption of Ethereum block space imbues some similar censorship resistant, seizureship resistant properties on L2 assets. And kind of fundamentally, how I think about this is the roll-ups are effectively represented, some of their state is represented on Ethereum as this canonical bridge. And the assets that live in that Ethereum space are able to be used. in the roll-ups because when you are sure that your roll-up assets have the same censorship-resistant

properties that they would have on Ethereum, the L-1, right? So there's kind of two components to this. First, there's becoming a stage two roll-up, and we can maybe talk about some of the details there, maybe not, but this is kind of around the details of the smart contract bridge itself, and who has the permission to upgrade the bridge, who has permission to upgrade the state. These are fundamentally things about like the representation of the assets in the bridge and how those assets can be withdrawn. The second thing is the kind of force withdrawal mechanism from L2 to L1. And fundamentally I see this as kind of like the freedom of movement for your L2 assets, right? And this is very much the same as kind of what we were talking about earlier with, you know, a bearer asset on Ethereum where I can send it and I know no one in the world can stop me from sending it.

In the same way, if I have an asset on an L2 and that L2 has this forced inclusion mechanism, I know that I have that same right, which is even if the L2 starts censoring me, even if all of the L2 operators collude against me and decide, like, I want to steal that guy's money, they are not able to do so. I can bridge my money down to the L1 and take my assets elsewhere. So those are kind of like the core ways that I see L2's as inheriting Ethereum's security and Ethereum censorship resistance. And therefore property rights. So like those two things come together is like, okay, is offering assurances on property rights.

Yeah, exactly. And so given that, now I think the L2s have like a more flexible design space over how they provide users what kind of the daily users want beyond those two core things, which is fast transactions, good onboarding, offboarding, and very low fees. Yeah, the sexy stuff. Yeah, the sexy stuff. Right. So, you know, as a user, I could be a lot more comfortable knowing that like most of my

activity is going to happen on the L2 so long as I know I still have. have my, like, core self-sovereignty over the assets themselves. And I think, you know, in the long run, that's going to be very important because some L2s that don't inherit the security of Ethereum are going to end up with kind of decreased property rights for their assets. And this actually happened already, right, on blast. So there's a hack on blast. Everyone talks about it as if it was a good thing. And I think it's kind of a blessing and a curse, but this Munchables protocol got hacked for $60 million. And, you know, they basically communicated with the hacker and said, hey, we're going to update the contract and take away your money,

and they just sent it back. And so it's kind of like, okay, this is a weird dystopian end game where we're like doing this hostage negotiation through EtherScan. But that just doesn't feel like an actual thing that should be able to happen if I'm using an L2. And I'm only trusting the L2 to provide me the nice stuff. I'm not trusting it to provide me the core stuff, the core property rights and censorship resistance that Ethereum is going to give me. So currently, let's say, do layer two's provide the same property rights as Ethereum's layer one block space?

You kept using this phrase stage two. And of course, if people want to understand what that means, they can go to L2B, which tracks kind of the stage progress of all of these layer twos. And the case that you just mentioned, Mike, with Blast, blast is basically stage zero.

Yes. Okay, so along its decentralization journey. So it does not have the property rights of the Ethereum mainnet, has the ability to censor, has the ability to kind of like freeze in some respects. But all of these layer twos should be on a journey towards full stage two, which imbues them with property rights that are similar, maybe not equal to, but pretty similar

to the guarantees of Ethereum layer one block space. Now, there's a few things we could get into there in terms of like some people doubt whether layer twos will actually ever get to stage two. others don't think that stage two actually imbues the same level of property rights as Ethereum Layer 1. But let's park on this for a second. Can we define what exactly Stage 2 actually means and how a layer 2 achieves that and whether any of these are close? Right. So stage 2 is fundamentally asking the question of what does it take to change the L1 contract that represents the view of L2 according to the bridge on Ethereum's L1? said differently, is it like stage two is like what kind of control does the Ethereum

Layer 1 have over the Ethereum Layer 2? More like what type of control do people in the real world have over the bridge that represents the state of the L2? So, you know, right now basically being able to upgrade that contract is essentially the equivalent of being able to play God, right? Like if you bridge your assets into that contract and then someone just upgrades the contract to send all the assets to their own account, then your property is gone, right? And that's something that is kind of like fundamentally broken about having contracts that are upgradable, at least upgradable in the sense that they are now.

So Vitalik kind of laid out a few specific guidelines for how the contract upgrade must kind of go through, like what preconditions need to be met in order for a contract upgrade to happen. One of those preconditions is you have multiple client implementations that disagree on the state given the same set of transactions. So this is kind of like using the multi-client approach to say, hey, if there's a bug and we need. don't actually know what the new state is. Then we defer back to a security council where they can upgrade the contract. So this is almost kind of like a worst case scenario fallback mechanism to save everyone's assets if the bridge is giving wrong results. He also lays out some ideas around like if the roll-up goes offline for seven days, then this is kind of like the roll-up is stuck. It's no longer live. You need to kind of grant access back to the bridge operators to the people who run the actual

roll up to upgrade the contract. And then I guess the third bullet point he lists in there is that upgrades can happen, but only after like a long delay, such as 30 days. And the idea here is that any sort of long delay like this would offer the roll up consumers time to decide if they're going to bridge out or keep their assets in that L1 contract, right? So fundamentally I like have this choice where it's like, I see the upgrade happening. Maybe they're going back to stage zero. Maybe they're going back to blast mode of operation, I don't think I'm comfortable with that, so I'm going to do my exit, and they give me like 30 days to kind of inform myself and make that decision. So obviously, like, in some ways, this isn't purely the same as being able to just like lock

away your eth and not touch it for 20 years and then wake up and, you know, move it kind of trustlessly. But I think the level of property rights that you can get at stage two are so close that it'll be like, you know, equivalent in many regards and enough. for people to trust using the L2s fully. Right. So this whole like stage zero is stage one, stage two thing. And also if we opened up layer 2B and we looked at all the pie slices that are either red, orange, or green, these are all measures of an individual's property rights on this layer 2. And so like whether a layer 2 is at stage zero or stage 2 is a statement about how strong one's property rights

are on this thing. And then you can, again, you look at the pie slices and if they're all green, then like your property rights as an individual are like, pretty damn strong. If they're all red, then your property rights as an individual are pretty all week. But all of this is under this North Star umbrella of just like evaluating property rights across this layered stack, right? Yeah. The bridge upgradeability and the stage two, stage one, stage zero stuff we were just talking about is kind of imbueing seizure resistance to L2 assets. Now, there's another very important thing to consider, which is actually censorship resistance of those assets, right? So the path here is I have some ETH on Ethereum, may not

and I bridge it into the contract. And now I'm operating on the L2, but the only person who's able to sequence L2 transactions is a centralized entity. And they decide that they don't want to process my withdrawal request. Like I have 10 ether in there and I want to withdraw it. And they just, I send them to transaction and they just drop it. They ignore it.

Now, the way that roll-ups are designed to protect those assets and to give back that censorship resistance of the L1 is this idea of a forced transaction inclusion mechanism. So this is called different things on the different stacks, but the idea is the same, which is I can post a transaction to the L1 and know that even if the L2 sequencer ignores me and continues to ignore me, as long as that transaction lands on the L1, my withdrawal will get processed and I can take my ether out. And so this is kind of the fundamental protection against any arbitrary sequencer ignoring my

wishes and kind of censoring me on that axis. So kind of with these two things combined, the stage two ability to like trust that the contract can't get arbitrarily upgraded. And with the guarantee that I can always land a transaction on the L1 that will bridge my assets out from the L2 contract, I have such bulletproof properties for my assets in the L2 that they're functionally equivalent to assets on the L1. Mike, do you have a doubt that layer twos will actually achieve stage two? So this is something that Max said basically that's not incentive compatible. They don't have the kind of the motivation because it sort of destroys a, you know, MV revenue model for them. It was interesting.

that I saw recently that Vitalik is kind of applying some social pressure to layer two. And, you know, tweeting out that he's not going to be talking about layer twos unless I think they achieve stage two. Is this stage one or above? Like something to this effect. They're getting closer to stage two. Stage one and above. Okay.

So it's one and above. So at some point, you can imagine Vitalik saying, hey, I'm not going to talk about you until stage two. So that's social pressure, but it's, I guess, a bit of a stick take. And it's, you know, he can't compel them to do this. So what about Max take that, you know, L2s aren't going to actually, you know, move towards stage 2. So that would be nice if the reality you said was true, but it's just not going to happen. So, yeah, this is actually a really common misconception, which is stage two doesn't say anything necessarily about the decentralization of the sequencer itself, right? So stage two has this component of how can you upgrade the contract, and this forced transaction inclusion mechanism is about what happens if the sequencer is censoring you.

But the actual decentralization of the sequencer is kind of deprioritized in this stack ranking of things. And Vitalik actually mentioned this specifically in the recent Reddit AMA, which is to say, you know, it's fine if the sequencer is still centralized, is still collecting MEV. And like, this is kind of more of a question around like, how can the sequencers compete to give the best execution to the users? Because fundamentally, like, the users are going to vote with their feet and they're going to choose whatever gives them the best execution. But the kind of important thing is that all of these sequencers compete on the same level playing field of they give the same property rights to the assets. underlying those transactions. So yeah, I actually fully agree with Max when he said, you know, there's no incentive for the L2s to decentralize their sequencer. I kind of agree with him. Like fundamentally, a big part of how I view their business model, and I think you guys have said this before, is they're kind of reselling block space, right? They're marking it up. They're providing goods and services that make it more consumable for the average user, but fundamentally, like, they have to make a profit somehow. And I think the sequencer is a natural

way for them to make a profit. And, you know, the ultimate decision around, which L2 to use will come down to like which L2 can provide the best features for the users, not which L2 can provide the best property rights. The best sexy stuff, yeah. So I like to think about it as like, as long as they all have the same kind of core fundamental security, then the kind of extra add-ons are what they should actually be competing on. So you're agreeing with Maxx in that you're saying that the incentives to decentralize the

sequencer are simply just not there, but you're also making kind of a broader point, a higher level point, which is that, well, decentralizing the sequencer is, actually not a core condition that we need to have our roll-ups be set for. That's not a bad benchmark to compare to because actually just maybe we're actually kind of just conflating this idea of I know like centralization is kind of a bad word in our industry and like why don't you want to decentralize a sequencer bro? Like do you not like decentralization? Like are you a centralization maxi? Maybe you can kind of unpack this take a little bit like decentralizing the sequencer like important not important like why do we want this why don't we want this

unpack that take a little bit. Yeah, this is kind of maybe a personal opinion, but in my mind, sequencers should be centralized because they rely on Ethereum for decentralization. So, like, why would a sequencer kind of double down on the thing that Ethereum's already best at, which is providing strong property rights, instead of kind of working in a more symbiotic way and kind of doing what Ethereum's not willing to do, which is be fast, be slightly more centralized, and offer people better user experiences and kind of like merge those two things to make the most kind of complete full flow

of interacting with these systems. So yeah, I guess Max in his podcast, we're picking on him a lot, but I think it's worth going through. You know, he basically said, oh, we already have like permissionless consensus, like the L2s should just run a proof of stake network and that's like how they should naturally decentralize their sequencers.

But I don't think that actually makes that much sense because basically what this involves is taking away some of the core value add features that the L2s have in the first place, which is like you can give 200 millisecond, you know, confirmations. Like, that's just not possible if you have to do permissionless consensus. And the level of permissionless consensus kind of no matter what would be worse than the consensus that's actually taking place on Ethereum, right? So it's like you're trying to do what Ethereum's doing, but you're doing it at a worse level and to what ends, because you're not actually

giving people better kind of long-term property rights and store value properties for their assets. I think he would say here that, like, maybe we're giving them better real. time censorship resistance. And I think, you know, there is a world where maybe that's worth exploring, but kind of from a first principles perspective, I don't see why decentralized a sequencer in the kind of near term is actually something that needs to happen. Yeah. So I think what you're doing is you're kind of just stacking the idea of a decentralized layer two sequencer set is like one of the many things that all of our layer two are all going to compete on. And to whatever degree that having a decentralized sequencer set is valuable for the users, is valuable. It's valuable.

for the block space of that layer two is something that that layer two can compete on. But there's also nothing fundamentally wrong with having a single sequencer. In fact, all of the technology around optimistic roll-ups and fraud proofs and ZK roll-ups is all about enabling a centralized sequencer set without compromising individuals' property rights who use a centralized sequencer. It's actually kind of just like you can actually have your centralization, but have all the benefits of a decentralized network that is keeping that centralized entity in check.

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Maybe it's because users are coming onto the Mantle Layer 2 to capture some of the highest yields available in Defy and to automatically receive the points and tokens being accrued by the $3 billion Mantle Treasury in the Mantle Reward Station. Maybe it's because the Mantle team is one of the most helpful teams to build with giving you grants, liquidity support,

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property rights, these settlement guarantees that we get in layer two's, right? Do all of those things come into play when layer twos are using Ethereum for settlement? Or do they also have to use Ethereum for settlement and DA, which is data availability that we've been talking to? Like, if they don't use Ethereum for DA, do they get the benefits of censorship resistance and seizure resistance that we've been talking about? Or does this pristine property rights settlement assurance is only come into play if they're kind of like doing both layers of the stack here. Right. So the answer here, as with many questions about like L2 constructions, it's quite nuanced. So I guess first and foremost, the only way you get the exact level of censorship resistance and seizure resistance that we described before

was to have roll-up actually post its transaction data to EthereumDA. The reason is because of the forced transaction inclusion mechanism. So you can have a stage two, kind of going back to the first part, you can have a stage two roll-up that the contract has no like an upgrade ability that uses external DA. And now you know that like there's still no one who can kind of arbitrarily, capriciously upgrade that contract and take away your assets. However, if you post the transaction data to an alt-l-1, you don't have the guarantee of forced transaction inclusion.

Ah, okay. And the reason for that is because in order to prove that my transaction to do the withdrawal is valid, I need to know what the state is and be able to say, like, my transaction is valid after the current state. So basically what would happen is if someone was trying to block the forced transaction inclusion path for someone using a roll-up that uses an Alt-D-A layer, they could say, hey, I posted a new state route to the L-1 contract, but I'm not posting the data to the Alt-D-A layer. Now, this is only possible because the Alt-D-A layer is different than an Ethereum blob. So when you actually are using Ethereum blob, you can't update the state on the bridge unless it's corresponding blob with the commitment to the transactions is there. So now you don't have that and you have this kind of optimistic path where you say, I'm assuming this state update is valid, conditioned on the fact that the transaction data actually is available on this Alt-D-A layer, right? If the transaction data is not available on that Alt-D-A layer, then there's no way for me to prove that my transaction is valid and my assets are frozen in the L-Y.

contract. So this is kind of a doomsday scenario because fundamentally what's happening here is the L2 is effectively losing its liveliness. It's shutting off permanently. And the moment it starts posting transaction data again, then I can do my forced exit. But there still is a path where, you know, someone who is posting that data to the ALA layer stops posting it and all the assets within the L1 contract are frozen and seized. And so different DA layers, we have like Celestia, example. Maybe everyone feels good about posting DA to Celestia. Celestia is a pretty robust network. It's meant to receive DA. But also that DA layer could also be Google. Like Google is part of the consortium of, I think, like, arbitram any trust. And, you know, Google, super centralized entity.

Maybe it wants to withhold data for whatever reason. And so maybe that would change users' appetites for what kind of assets that they would elect to hold with Google. Maybe they only want to hold their like world of warcraft currency, aren't Arbishop any trust, which is also what Arbishop any trust is optimized for. It's optimized for gaming. Also, maybe they don't want to hold their like crypto punk or their ether or their, you know, life savings with data availability that's from a centralized entity. But also, nonetheless, anything that's not Ethereum DA is a new dependency that does not exist if it would otherwise be Ethereum DA. And so if we're going back to this North Star of just like strong property rights, anything that's not athiery,

Ethereum DA is some sort of compromise on one's property rights assurances because part of what they're doing is they're trusting something that's outside of the loki of control that Ethereum has, right? Yep, yep, exactly. And it's also worth saying that like this kind of data withholding attack doesn't actually necessarily need to be malicious. You could have a situation where the Alt-DA layer just is unavailable for whatever reason. Like, let's just say it's an outage on Google Cloud and 90% of the validators are running in U.S. East 1, and that results in no data being finalized on the Alt-D-A layer. And a really important piece here, too,

is that not only does data need to be posted to this Alt-DA layer, but it also needs to be finalized, right? So there's this kind of core reality that, like, in order to release the funds from the L1, if you're using an Alt-D-A layer, you have to have finality of the alternative chain in order to ensure that you're not going to get a reversion of the data that was posted there in the first place. So, yeah, there's kind of huge amounts of

complexity in engineering how these two chains work in parallel and also all of the fallback mechanisms between them when one goes down or when one changes state. Okay, so we've talked about maybe a main reason why layer two's need effectively in order to preserve Ethereum's level of property rights guarantees need to use Ethereum for both settlement and DA data availability. Are there other reasons, though? Not everyone in the world, Mike, is like us. I mean, They're not all... Not everyone is bankless. You know, what are my...

What are my property rights on this, like, particular asset? Like, they don't necessarily think of that. I think that the larger of an entity they are, the more assets that they might have, if you're operating at the level of an entire chain's worth of assets, then you're definitely thinking about that. But many people maybe aren't. Are there other reasons to tap into Ethereum's DA? Because there are those who would say, look, DA is just kind of like nothing.

Data availability is kind of like a commodity. you know, even layer twos don't value it. You know, we'll have so much of it. It'll never drive the price of ether. But are there network effects that would lock layer twos in aside from property rights? Yeah. So this is a great question. And I think one that will continue to be discussed kind of as we look forward and it's a very central part of the Rulpcentric roadmap. So what we described before is kind of the longest time horizon version of network effects. And I guess we'll start by defining network effects as one roll-up may choose to post their data to Ethereum blobs, to Ethereum DA, and benefit from the fact that other roll-ups are doing the same. Like, that's kind of the

fundamental premise of what provides network effects to consuming Ethereum DA. Yeah, it's Metcalf's lies. Like, more participants in the network, more valuable the network is for all the participants. Right. It's a blob party. All the blobs are hanging out if they're all at the same party. Yeah, exactly. Right. So the kind of first version we described, I would say, is what Surrealam calls trustless composability, which is kind of at the core, the assets on all of these L2s have the same trust substrate, which is Ethereum's property rights. Now, that's super valuable. And I think this is kind of what you described as like the super cypherpunk mentality around L2 assets. Now, on the far other end of the time spectrum, and this is kind of like

the potential endgame that's most exciting, and this is what Justin often calls universal syncretist composability, you could imagine a world where the network effects arise of having basically immediate and trustless interop between roll-up states. So this world kind of depends on a few things. I would say you need shared sequencing and you need real-time proving, where not only are multiple roll-ups being sequenced by the same entity, but they're also generating ZK proofs about the state kind of subslot, like within 200 milliseconds of me creating a transaction, I have a proof, I can send that proof to the sequencer and kind of atomically move my assets between chains even within a single Ethereum slot. So this is

kind of like the kind of long-term future of like how cross-chain interoperability could work, especially at the real-time level. And the reason this would provide network effects is kind of the classic argument of basically this turns all of Ethereum block space into a shared state because now you have access to all the liquidity across all the chains. You know, DeFi pools can be balanced and arbed, and you get kind of, by not being part of this, you lose all of the access to that value and to that interoperability and all the MEV that gets generated from being part of the kind of blob party that we described earlier. So now we're actually creating a reason for decentralizing the sequencers. Like we establish early in a conversation, hey, maybe the L2s are not incented to decentralize their sequencers because of, you know, their reselling block space and they extract fees on top of that. And the business model is kind of, you know, MEV. But now we're creating. sort of a reason, which is basically, hey, if you want to tap into this trade network of all of these layer two's interoperating and the shared liquidity pool, then you're going to need to

decentralize your sequencers, right? And so maybe that gives them the incentive to actually take this next step and, like, create a union of these chains, a deeper economic network. Yeah, I think one important distinction here is the difference between a shared sequencer and a decentralized sequencer. You know, you could have a world where there's a single shared sequencer that is centralized and still is able to do all this cross-chain atomicity stuff. But yeah, obviously, I think most versions of a shared sequencer are pitched as decentralized or kind of more decentralized than a single box running in like US East One. And so I think that world could also be totally in play. Now, I also want to be able to

kind of look at the middle time horizon, which is, you know, not as long term as this kind of trustless composability, not as short term as the this universal synchronous composability, but more in the medium term, I'm calling it maybe like the human time horizon, which is I don't necessarily need like 200 millisecond trading between all these chains. Let's just say I have some money on optimism mainnet and I want to bridge it to arbitram and I want to do that trustlessly. Maybe I'm willing to wait like one or two Ethereum blocks. Obviously, I don't want to wait like several weeks. I don't want to have to go through the long flow. But one way that Ethereum DA could enable this trustless kind of human

time horizon interop is through the non-force withdrawal flow, the kind of standard off-boarding flow. So kind of walk with me through this thought experiment here, which is imagine we're in a world where there's ZK roll-ups and they can prove like the ZK EVM blocks within a single slot. So we're not saying they need to be able to do it in like 100 milliseconds. We're saying they have like the full 12 seconds to do so. Now I want to use the normal, like let's say I'm not being censored by the sequencer. So I want to do the normal flow of just like, I have money on Arbitrum. I want to bridge it down and into Ethereum and then up into optimism to buy an NFT there.

Like super simple flow. I don't necessarily want to wait the, or I guess, yeah, this wouldn't work with the Arbitrum and Optimism example because those are optimistic rollups, but we need a ZK rollup that I have my money in that I need to bridge out of. Now, if the rollup Prover can prove my transaction is valid within 12 seconds, then I know that during the next slot, I can have my assets on the Ethereum, L1, one and then bridge them into the next roll-up I want to transition to. However, this is only possible if that ZK roll-up posts the proof to an Ethereum blob. The reason for this is because if the proof

is on a different Alt-D-A chain, then all of the things I was describing where you rely on the Alt-D-A chain's Fork Choice rule come into play. So I'd have to wait until that Alt-D-A chain finalizes, and there's all these trust assumptions around kind of if that chain has a safety violation or aliveness error, then all of this kind of like same slot or next slot interoperability goes away unless you're using Ethereum DA. So I like to think of this as kind of just the kind of default flow making it so good that I don't need to use like a market maker to bridge between two L2s. I can do it trustlessly. I don't need to do it in 100 milliseconds. I can do it in like 12 seconds and maybe this tech is ready in like the next one to two years instead of being ready

in the next two to four years. So that's kind of one medium-term time horizon thing that I think is really under-explored. And yeah, again, this is for the withdrawal flow that isn't through the forced inbox. This is just like the normal withdrawal flow from a ZK roll-up. This is getting into the conversation of, of course, broad Ethereum network composability and using Ethereum as inclusive of its layer twos. And I think the perspective here is that, like, since we are doing the very hard work of having strong property rights assurances across all of these layer twos, we are now figuring out mechanisms to compose the Ethereum layer twos without sacrificing the strong property rights here. And we've come to this idea of like the blob party,

where all these blobs, again, are hanging out different blobs from different layer twos. And layer twos can read other layer two's blobs. And that is what gives property rights assurances across layer twos. These are now chains that are reading the property rights of a different layer two in order to have a cross-layer-2, like almost a, yeah, atomic transaction between different networks. And it kind of starts from there, and then it sounds like there's a path to get this even faster and faster and faster as time goes on. But like what you're kind of saying is in the short to medium term, one to two years, you'll have uncompromised property rights inside of one Ethereum slot, inside of 12 seconds, that goes across the Ethereum layer two landscape. Is that right? Yeah, exactly.

And I think there's a path dependence thing here. which is if we immediately got to a place where blob space became so overpriced and so congested, kind of right out of the box, that the default path was for teams to use alternative DA. Then there's a world where the Overton window has shifted too far, and getting people to actually use Ethereum blobs is impossible. But we're in a pretty cool position now, which is we've shipped blobs, and they're not immediately at capacity, right?

And Vitalik had a tweet about this two days ago, which is, you know, It's only been since April. It's been four or five months since Ethereum blobs have actually gone live, and we still have abundant blob space. And so this kind of dovetails nicely with the vision of, hey, we should make Ethereum blobs the default choice, not only from a security perspective, but also just from an engineering perspective, you don't have to rely on this external system. And just from like, kind of from the get-go, L2 teams shouldn't have to make the decision about where they post their blobs, just making Ethereum. the de facto choice and keeping it the de facto choice as we like ramp into kind of mainstream adoption feels like the correct like strategic positioning for ethereum okay so like in order to get that network effect we need to create the network effect around ethereum blob space and ethereum da and so it's kind of good that it's super cheap for layer two is from that perspective because we're munching on market chair we got to eat up all the market share in order to create these penetrative price yeah get this network effect yeah yeah exactly

And, you know, this does kind of take us nicely into thinking about DA fees and kind of how this plays into the long-term value accrual to eth asset. And one really nice kind of back of the napkin math we can do on this is just to say, okay, let's say Ethereum blobs scaled to the level that we kind of think is possible with full bank sharding, right? So if we're at that point where we have like around 128 blobs per block, then Francesco did some calculation. and showed that we could get to the place of maybe having two giga gas per second, right? So this means on L2s, two billion gas per second can be created of transactions and stored on Ethereum blobs, right? Like, that's kind of the metric that we're setting the stage for. You're talking about right now? No, that's with folding sharding. Yeah. And what kind of an increase would that be if people are not used to the giga gas unit of measurement here? It's like, are we

talking to 100x or is this 1,000 X? Yeah, two orders of magnitude. Okay. Of more scale on the Ethereum layer 2s. Yeah. And we haven't even hit the upper limits of our current levels of scale on layer 2s right now. Right. Yeah.

Okay. So it's two orders of magnitude of a current level that we have not currently met in total transactional demand on layer 2s. Right. With full dang sharding. With full dang sharding. Yeah. So this is kind of like, you know, looking into the future, what could this like actual

volume of transactions look like and how would that play into the kind of monetary properties of ether asset, right? So once we get to 128 blobs per block, which is kind of the upper bound that we expect to be possible while kind of preserving the same level of decentralization of the validator set, we think that like the block space will be so abundant and kind of so useful that there'll be kind of no reason for L2 is not to use Ethereum blobs and the ability to really trust that if you build an L2 application that goes super viral, like, DA fees are going to be reasonable enough that you can

kind of build whatever you want and deploy it and know that you still get the Ethereum property rights and censorship resistance of building on a roll-up. Okay, all right. So that basically, what you just described is the Ethereum roadmap is just like to continue scaling up the DA for these layer twos. It's roll-up centric and as they migrate

from, you know, optimistic layer twos to ZK layer twos, the blob space on Ethereum will be abundantly cheap. And they won't need to go to a third-party non-etherium, you know, DA provider, they'll just stay on Ethereum because it's ultra-cheap. All of this makes sense so far, except, and here's maybe the gap in the armor here. What happens, though, Mike, if the value of ETH, the price of ETH drops to zero, okay? Maybe I'm being hyperbolic here, okay? Like, I am purposely so. The entire foundation of this economic

system that we're creating the shared security is dependent on the value of Ether. the asset. And so this is the other point that detractors are making with this roll-up-centric roadmap is like what you are destroying is a value accrual mechanism for ether, the asset. You create abundant block space and we can already see it. You go to all-town money charts. We are burning less ether than we had been historically after the deployment of cheaper blob space. And so it's losing that cash flow property. If bankless listeners recall, we've mentioned it a few times in this episode, but the basis of the triple point asset value accrual mechanism for ether is threefold, right? Like one is it's used as a commodity. So in order to buy block space, you need ether the asset,

right? So it's like, you know, the value of block space as priced in ether. That's one dimension of the value that flows to ether. Another dimension is it's a cash flowing asset. So it's a productive asset. So basically cash flows that are generated from the purchase of block space accrue to eth holders as well. And the third dimension that may be the most difficult to define is a store value, right? These are the three dimensions. What we're doing when we make blob space really cheap for DAs is we destroy that capital asset dimension. We destroy the cash flow coming into ether the asset, at least in the short term, maybe in the medium term, but like maybe, as just tractors say, maybe forever, maybe layer twos are the ones that reap all of the benefit from this transaction

activities. And so we create these really fat, really profitable layer two juggernauts that, oops, oh, they're centrally controlled by Coinbase governance, let's say, and shareholders that own coin and Brian Armstrong. And he's a good guy, right? We all like Brian, but like, what if he turns evil or what if he leaves and somebody else, you know, usurps Coinbase? And so that is the entire problem. What if through this roadmap we are like chipping away at the value proposition of ether the asset. So let's talk about that now. What is the value of ether the asset if we carry forward this roll up-centric roadmap? Yeah. No, it's a great question. And I think it's very much part of this conversation as evidenced by it's the main thing that people

are focusing on, you know, when the Twitter discourse was happening around the roll-up-centric roadmap. It was basically like centered on this idea of, okay, what about the revenue? What about the fees? but in my article, I intentionally put this kind of farther down because I do think it's like not the number one thing we should be focused on, but it is a conversation worth happening. So I'm glad we're having it. So yeah, I guess first and foremost, I think the triple point asset thesis is like a very useful framework for thinking about things. And in my mind, eth as money, eth as kind of a store of value asset is the primary driver of its value. And kind of ETH as a consumable, eth as a utility asset is also like clearly going to be the case as you know, DA fees have to be paid in ETH. There's kind of like this long-term vision of businesses and individuals holding ETH to pay for gas on Ethereum L1 and pay for Ethereum blobs. Now we get to kind of this capital asset thing. And I guess I'll start by saying I don't fundamentally see ETH's value as corely dependent on it being net deflationary. Okay. Like, I do think it's important to have kind of strong assurances around the supply and around the inflation schedule. But I don't think in the aggregate,

it like in the infinite time horizon, it has to be net deflationary. So yeah, I guess starting there, it feels important to me. Now, I'll first talk about L1 execution, and then I'll talk about blob fees, because those are the kind of two ways that the Ethereum network counteracts the inflation, right? So inflation comes from the issuance schedule, which is how validators are paid for participating in consensus. And fundamentally, like, that's just the new set of ether that's minted every 12 seconds, every 32 slots, you know, that's kind of, everyone's on the same page about that curve. Now, how does that one execution play into this? This is through the 1559 mechanism. The base fee is burned. And in regards to L1 execution, I still do think, even if, you know, most user activity

takes place on the L2s, there still will remain like high value transactions that do take place on the Ethereum L1. And I kind of like to use the mental model. I think maybe you guys have used it before, or like maybe even I got it from you guys. But the idea of L1 is kind of like a B2 chain, right? Like, people who are very price insensitive will use the L1 to do transactions. You know, maybe it's very deep liquidity for trading assets, even though most of the users are like doing their trading at a different dimension. Maybe it's, you know, where the pristine NFT drops happen and there's still like massive amounts of congestion when those Cryptopunk 2.0 gets dropped. But fundamentally, like, I view the ecosystem of economic activity

that kind of all funnels down to Ethereum L1 as resulting in valuable transactions is going to happen on the L1 and that feels like kind of a core thing to start with. Now, if we take L1 base fee out of it completely, L1 execution base fee out of it completely, we can do some back of the napkin math upon how much the blob fees would have to burn

to offset the Ethereum issuance kind of in isolation. So now we're saying, okay, throw Ethereum execution completely out of the picture. Let's only consider how much burn happens as a result of blobs and how much in particular L2 activity has to pay in order to offset that inflation. Right. So the setup here is right now we have about one million ether issued per year at the current rates. This is with 30% of ether state, which is about 33 million ether, and 3% yield leads to about 1 million ether issued per year. So that's at, you know, $2,500

ETH, that's 2.5 billion U.S. dollars of issuance every year from the Ethereum consensus layer. Right. So now if you look at how much blobs would have to pay, and we're kind of looking forward into the world of full bank sharding. So let's say there's 128 blobs per block. And we're going to do a unit conversion here, which is taking the blobs per block and converting it into gas, because gas is the unit of account in which transactions are measured on L2s. So, you know, Francesco has this post. I mentioned it earlier, but. basically we expect that to be around two gigagas, so two billion gas per second of L2 block space. So now the question is, okay, we have $2.5 billion of issuance, and we have $2 billion giga gas per second

of L2 block space. How much do we have to pay for that block space, like in order for it to match that $2.5 billion? And if you do the math, this kind of turns out that if you consume all of the L2 gas with just simple transfers. So this is me just sending ETH from one address to another. That would be $0.008 per transaction. So less than a tenth of a cent per transaction. And so the point here is these transactions are still dirt cheap, right? We're talking one-tenth of a cent transaction fees, but we're still fully offsetting the Ethereum inflation if we fully consume this L2 block space. Now for swaps, it's closer to one cent, but it's just one more order of magnitude higher. So the idea here is you could still get one cent swaps and one tenth of a cent

base fee or transfers on the L2s. So like dirt cheap transaction fees while still kind of burning enough ether to counteract the inflation of Ethereum issuance. So yeah, thanks for really with me through that. Hopefully it made sense. Okay. So it's like in your estimation with the L2 roadmap, ether as a cash flowing asset as a result of, you know, like burning fees from contentious excess blob space use is not the main value accrual mechanism for ether. The main value accrual mechanism is basically ethas money, ethas a store of value asset. Some people hear that and still don't understand or believe why that would be the case. So more L2s, more economic activity on L2s, L2's being able to charge kind of like rent on the block space that they are reselling,

to users, they understand how layer twos might accrue value. But why does it hold that ether the asset would increase in its use as a money, store a value use case if all of these layer twos settle on Ethereum and also use Ethereum for data availability? What is that kind of logic leap? Are we just kind of like hoping and praying? We're just kind of crossing our fingers. We're just thinking, okay, well, the one thing all of these layer twos in common have is they're all using Ethereum for DA and settlement. And the one asset that can flow across them in a pristine, you know, censorship-resistant way is ether the asset. Therefore, ether the asset will be a key pillar of all of these layer two economies. And therefore, ether the asset will increase

in terms of its use as money and store of value capability. Like, there's a few sort of dots there that I'm not sure that we're connecting. We're almost like taking it on faith. And that's what it sounds like when you try to describe this to doubters and haters of the Alty Roadmap. So, like, do you have any more detail on this, or is this sort of like what we're counting on and hoping for? Yeah, I think ETH as money, these discussions are kind of by definition more loose, because as David mentioned earlier, like, money is kind of hard to define and memetic in its own right. Like, it's kind of a faith-based system that the U.S. dollar has value kind of. So monetary premium is something that, you know, we hope will accrue to the eth asset, but it is harder to make, like,

picture, you know, like super bulletproof claims about it because it's a fuzzier concept. But I think money is just simply not objective. It's not objective. It's a squishy, very subjective subject. Yeah, intersubjective. Yeah, it's intersubjective. That's great. That's great. As you all would say, the pod was great. So, yeah, I think there's a few things that are worth kind of hammering on here. one is kind of these other properties of money that are often talked about. One is like the medium of exchange and the unit of account. So I do think there is value in the L2s, in the norm that the L2s will use Ethereum as a gas token, right? And the reason for that is it because it increases the kind of latent demand for people to hold the ether asset itself because they know they need to use it to interact with the L2. So this is almost like extending ETH's utility to the L2. and kind of imbuing it with that unit of account property that makes it more attractive to hold in the first place. Now, everyone's like, oh, but the L2 tokens are going to be replacing ETH as the L2 gas token. I think it's not actually so clear, right? And the reason for that is

if I'm a user of an L2, I don't want to hold their token necessarily. Like, sure, you know, the VCs who own the tokens might want you to own it. But as a user themselves, like, they probably want to hold the asset they actually have like the highest conviction on. And I don't think the L2 assets are going to be like substantially better or kind of more convenient for them to hold than ether itself. And so it could actually be like a competitive disadvantage as an L2 to force your users to pay in your native token. Another thing that is definitely worth saying here is kind of circling back to this idea of counterparty risk. So I think when people talk about programmable money, oftentimes they think of like USDC as a lot of, you know,

as, hey, this is just like the simplest idea of programmable money. You kind of put this dollar on chain and you can program it to do all this different stuff. But I don't really think you can have programmable money with this type of counterparty risk that exists that we defined earlier. So I think as Ryan described, ETH is kind of the permissionless censorship resistant kind of shelling point of where value gets created, stored, and transmitted among the whole ecosystem. like it does feel like a real clear-cut candidate for becoming money in this world. And yeah, I think the medium of exchange stuff is maybe a little less clear. I still fully believe in the collateral thesis for ether as collateral to mint truly decentralized

stable coins or stable coins that aren't necessarily like pegged to the US dollar, but kind of like have lower volatility than ether asset, but are still useful as kind of a daily medium of exchange for going and buying coffee. So I think these types of things are maybe mostly going to show up after a Black Swan event. For example, if there's a giant asset seizure of USC, or if Circle starts KYCing everyone who owns USC or something like that, that could lead to a much more compelling reason to need decentralized stable coins and need a way to store value on chain that doesn't have this counterparty risk. And in my mind, that's the best candidate for creating the unit of account power that would also drive the monetary premium. Going back to some very early

episodes of Bankless when we were exploring what money is in the first place. We inevitably came back down to that mimetic word of, well, at some point, like, money is just what people believe it to be. And I think the way that this connects to the Ethereum roll-up-centric roadmap, and especially with these, like, very large scalability numbers when we talk about full dangsharding, 128 blobs per slot, two gigagas per second, a bajillion transactions floating around all of the Ethereum layer two space. The way that I'll connect this with these ideas of what money is, is that when so many chains spawn and, like,

roll up as a service providers find ways to spin up a random chain for, like, this gaming event that happens on some, like, gaming chain or something. And we have another big chain happening over here. We have a third big chain happening. We have so many chains, a million chains. There's a lot of people making a lot of bets on, like, millions of chains being birthed. When all of these spawn from the strong property rights systems

that comes out of the Ethereum layer one, all of those are secured by Ethereum, that memetic surface area goes from what was previously ultrasound money, the burn, the metrics that we kept on looking at for 2021, 2022, which those metrics aren't exactly looking so great right now,

and perhaps that's related to some of the despair felt in the ETH-BTC ratio, the ETH community, because what we're doing is we're doing the Indiana Jones thing of like swapping out burn with this grand property rights system, which is not here yet. Like, we have a pretty good number of roll-ups,

but we do not have a million roll-ups. And a million roll-ups represents surface area, just mimetic surface area, for ether the asset and the strong property rights that it carries with it to float around this property rights system, this ledger system going all around the internet. And we're in this moment of time

in which, like, people are evaluating the Ethereum roll-up-centric roadmap. And I think Ryan put it really well. I'll pose the question that he kind of put in his tweet, is like, is the Ethereum roll-up-centric roadmap a queen sacrifice for the victory, or is it a queen sacrifice blunder? And right now, people are kind of like, is it a blunder or is it just like the end game? And I think this episode is kind of alluding to like, well, no, this is a, we're sacrificing the execution on the layer one.

We're sacrificing capturing DA fees because DA is a commodity and we're scaling it even beyond that. And yet, what do we get out of this? We get out such a Cambrian explosion of abundant secure block space. that we can actually bring the whole entire universe now and in the future on chain in a strong property rights, internet sovereign way. And I think that is the meme of Ethes Money articulated perhaps in this like Ethereum roll-up-centric roadmap. Yeah, you know, I think the real blunder would be if we just stuck our head in the sand and decided not to have the conversation at all. So I'm really thankful that like people are pushing back and we're reevaluating. And I don't think this episode will be the nail in the coffin on either side of the debate. But I do think it's worth fundamentally

evaluating the roll-up-centric roadmap and make sure we're on a path towards what we think is the correct outcome. So, Mike, I guess your message today or your take on all of this is stay the course with the current roadmap, right? The Ethereum roadmap is pretty good. Yeah. In terms of prioritizing for settlement and DA and execution, that's the first piece. And if we prioritize those things and layer 2s are successful in creating economic GDP, then that will lead to ether the asset accruing continuous monetary premium, particularly as a store of value across the entire layer 2 economy. That's kind of the summary, and that's sort of the take in response to some of the recent roadmap critiques that we've been hearing. Is that a good summary? Yeah, that's a great

summary. And I also think it's totally true that Ethereum is supercharged by, diversity of thought, right? And having so many people invested in Ethereum's base layer and so many people kind of working to build out this future internet economy is part of what makes Ethereum great. And I hope that, you know, this discussion encourages people to engage more and think through it. And also the roll-up teams, you know, who are contributing to the base layer continue to, like, have the same vision and goals for what Ethereum's trying to do. All right. Well, may the conversation continue. And I'm sure it will. Mike, thank you so much for joining us today. Thanks for having me. Guys, got to let you know. Of course, you know,

crypto is risky. So is Ethereum. So our roadmaps, all of these things are risky. But we are, yes. Sorry. Queen sacrifices? I don't know what I'm talking about with respect to Chess, David. You know better. But this is the frontier. It's correct term. It's not for everyone. We're glad you're with us on the bankless journey. Thanks a lot.