Bankless - Introducing RSOV: A Better L1 Valuation Metric than REV | Jonah Weinstein

Episode Date: May 26, 2025

How should we value L1 tokens in crypto? Today’s guest, Jonah Weinstein of Skycatcher, introduces RSOV—“Realized Store of Value”—a new metric designed to fundamentally rethink how we evaluate Layer 1 assets like ETH, SOL, and BTC. In this episode, we explore why traditional models like DCF and REV fall short for monetary assets, how RSOV works, and why it may be a better way to understand crypto’s total addressable market. Tune in for a fresh perspective that could change how you analyze L1s forever. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🌐SELF | PROVE YOUR SELF https://bankless.cc/Self 🟠HEMI | BTC & ETH, ONE NETWORK https://bankless.cc/hemi ------ TIMESTAMPS 0:00 Intro 0:23 How to Value L1 Tokens 7:18 REV 20:32 L1 Tokens are Money 27:11 Payments vs SoV Use Case 36:13 TAM for Digital Money 41:45 BTC: Special Snowflake? 45:31 RSOV 1:03:17 REV vs RSOV 1:12:07 RSOV Valuations 1:18:27 RSOV Drivers 1:34:10 Future of RSOV 1:36:43 Skycatcher 1:38:55 Opportunities to Watch 1:40:46 Closing & Disclaimers ------ RESOURCES Jonah Weinstein https://x.com/_Jonahw RSOV Deck https://docsend.com/view/mb2v6k3yr38gpfwm RSOV Dune Dashboard https://dune.com/sc_research/rsov RSOV Template Financial Model https://docs.google.com/spreadsheets/d/1IH0IX0yal7raqhO8SWzcVGK-TAH-b7avRlZ3pxR0krc/edit?usp=sharing Skycatcher https://skycatcher.xyz/ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

You want to recognize that your L1 token is money and accrues value like money. It's less about whether or not we decide as analysts to value it. And our view is more that this is what drives value whether or not we recognize it. Jonah Weinstein, welcome to bankless. Thank you for having me. Okay, every layer one blockchain has a native token. These tokens are commonly called layer one tokens. The question is, how do we value these layer one tokens?

And before we get to that question, I think the bigger context is, why is this question even important in the first place? Yeah. So for this question, you know, we as investors, we want to know what drives returns, generally speaking, so we can evaluate risks against that potential and basically know the bet we're making with L1 tokens, really with any asset. And so, you know, for valuation, it's important to have a framework that gives us, as analysts, basically a perspective on something whether or not it's over or undervalued. And we also want to be able to compare blockchains. We want to be able to compare Solana, Bitcoin, Ethereum, talk about these things in like the best apples to Apple's way possible, too. Yeah, you want to be able to have informed discussions and you want those discussions to be rooted in what's actually driving value to these tokens and what's. driving returns. And so it's an important discussion and important to know what that is.

I mean, speaking of value, right? Let's all remember the vast bulk of like value. What is the total crypto market cap right now, guys? Like 3.5 trillion? Yeah, it depends on the day, right, a little bit. But in the above north of three trillion range, okay? And let's just remember, the vast majority of that is actually layer one tokens. Yeah, like 95% are layer one tokens. So layer one tokens. Bitcoin is a layer one token, guys. All right? That's like the OG. That's throwing off two trillion or so. Maybe it's 2.3 trillion. It's like 63% of that. But then we also have number two, which is Ethereum, you know, 350 billion or so. We've got Solana. We've got Sue. We've got BitTensor. So the way we quote unquote value layer one tokens, that's essentially the entire crypto market,

isn't it, Jonah? Yeah, it's a majority share right now. I think there's other segments. that will be sort of continue to grow and share, but all of those applications, for example, that are built on these platforms are really levered to the value that these sort of base layers are accruing. And so, yeah, we need to understand what's driving that. I just feel like it's kind of the founding question of bankless too, right? Like, we were always trying to figure out, okay, so how do we value these new monetary money systems with bank lists? Like, what's the metric for this? I mean, it's quite literally the trillion dollar question. How do you value cryptocurrency?

because we know how to value things in other contexts, and we like to extend those things to crypto, but it doesn't quite work. There are other variables and other dynamics than what like valuation method, you know, traditional investors would leverage in non-crypto contexts. And so that that mysterious question of like L1 token valuations is still, I think, plagues the industry to this day where we still don't quite have this figured out. Still early, still a lot of debate for sure. Well, can we go down history, memory lane a little bit? So I remember a number of different ways people have tried to answer this question in the past to varying degrees of kind of success.

Do you guys and Jonah, do you remember the days of MV equals PQ? Was that like around your time and kind of entering the space? What was that? That's like a monetary theory about people using money supply for payments and centering the valuation of money on the volatility. velocity and basically the rate of spending or velocity must always equal price times output or nominal GDP. It's a traditional sort of theory in economics and people are naturally looking to apply that sort of in the crypto context. We were pretty excited about that back in like, you know, 2016, 2017. I know old Chris Berninski posts were writing about this theorem. It's kind

of fallen away as the value as the way to value L1 tokens. We've also seen stock to flow. Bitcoiners kind of popularized this, which is like based on this assumption that just scarcity, measured by the ratio of existing supply to annual Bitcoin issuance, that's what directly drives value. And there's a lot of like regression lines that you can make. And it's all about the happening that's celebrated. That's a stock to flow valuation metric for Bitcoin, at least. And highly comparable to gold, right? Where we can talk about demand for gold is not met with an increasing stock, an increasing flow. And so that makes gold very price. price sensitive and the same relationship is found in Bitcoin, where if demand for Bitcoin 10x is,

the inflows of new Bitcoins into the market does not 10x because that's just not how it works. And so, you're kind of getting somewhere, right? But these, it's really about the demand picture, I think, in our view. And you've got to look at both of those. Stock to flow on its own is, I think it really just assumes like infinite persistent demand. It's a very supply side-focused metric. And so, you know, the relative valuation and starts to get a little bit closer to, what's driving demand here. It's interesting you say relative valuation, because when I think about Bitcoin now, the stock to flow is not as popular, hasn't kind of held up.

The aggression lines haven't held up so well. No one's talking about MVE equals PQ. They are sort of talking about non-sovereign store of value, and look at the tam of gold right now, right? What is it, you know, 18 trillion, something like this, right? What's the value of gold right now? And if Bitcoin captures X amount of that store of value, non-nation state store of value status,

then it'll be worth X trillions of dollars. And so kind of the relative metric is look at gold and then Bitcoin, what percent of that can Bitcoin capture? And that's where you get the number for Bitcoin. Yeah. And I mean, I think that's more directionally the sort of line of thinking. You're looking at traditional analog assets

and trying to make some assumptions around inflows, sort of value from that inflow relative to the end. analog valuation. So I think we can get more specific in that context around layer one assets. And then Bitcoin Bulls will go so far to say, when does the digital version ever not have more value than the analog version? So why would digital gold, why would Bitcoin have only 50% or 40% or even 60% of the value of gold? Why wouldn't it be 2x, 3x, 4x the value of gold? That's what like Bitcoin Bulls would say. Well, it's interesting because I don't know that there's ever been a case where the analog incumbent that is being disrupted by the digital disruptor has remained

bigger than the digital disruptor. Exactly. And so I think that line of thinking, again, we can extend to other Ler1 assets. I think we should do that. And I want to talk about that in a second. But let's flash to where we are, I think, in May 2025 with respect to evaluation. It seems like, and I'll give maybe a consensus version of sort of analysts, talented analysts in our industry.

they will agree, the consensus is they agree, Bitcoin can be measured on something like gold. It is a quote unquote special snowflake that's actually a phrase that's used for Bitcoin. It's special, so it gets the status. All of the other layer one assets should be valued based on something else. There's something else, some analysts I think Blockworks has popularized this is called REV. We could define what REV actually is. But basically, it's kind of a discounted cash flow of block space sales. So maybe you could kind of explain Rev to us.

And just the framing of this is Bitcoin is special. It gets to be valued based on a monetary store of value, reserve asset, as a percentage of gold or whatever that could be. And then there's all the other layer ones. And those assets are discounted cash flow based on this metric called Rev. Can you explain Rev to us? Yeah, so REV is effectively a metric that measures how much fees users are paying to L1 validators or how much value those validators are capturing from transaction activity on the chain.

And I think to your point, there is a cohort of analysts who are interpreting this metric as company cash flows like they would an equity company. and so they're using that metric to sort of feed a DCF model and argue that these Lero-1 tokens can be valued like companies. DCF model. So for non-fiance.

Okay. Yeah. So the present value of a given asset is the sort of some of all future cash flows and then you incorporate some discount rate. It's interesting in the history of DCF, right? So, I mean, the stock market's been around

for a while. Actually, the discounted cash flow way of of valuing, you know, equity assets, stocks, didn't come to being until 1938. And this was in kind of like a niche textbook, really. It wasn't popularized. It wasn't consensus. And then over the years, it sort of became consensus. And now it's taught in business schools is, hey, if you want the proper way to evaluate the

value of a stock, you use discounted cash flows. Yeah. And for companies that basically compound or grow a balance sheet of, like not, you know, of currencies, of like fiat currencies, like this makes sense. You can, you know, own 100% of the shares of Apple, for example, like as if Apple does not trade on any market. And any given share of Apple is still worth its pro rata share of the sort of discounted of cash flows of that company, right? And so that is a fundamentally sound in real metric. And it's not just our crypto analyst community. It's the broader financial community.

uses that to understand what is a company worth today. To be clear, you can do this with blockchains too. So blockchains produce some sort of revenue in the process of selling blocks, right? I don't think you can. I don't think you can do this. And this sort of gets into the problem of trying to use this model to value layer one tokens. And the issue is that these tokens are not company shares. They don't accrue value like company shares.

So I think, you know, historically people have looked at or, you know, people have talked that like, you know, is this money? Is it a company? And like the biggest criticism with money, you know, viewpoint has been that there's nothing real to measure. People will say like it's non-falsifiable. And I think we've put together a framework to show that that's not the case. But the real issue with this DCF approach is that validators don't collect revenue in some non-native currency. They're not earning staking yield in USDC. They're earning more ETH or Seoul or what have you. And so, you know, the traditional DCF metric says, I have this asset, stock of Apple, and I know what it's worth regardless of what the price

of Apple is, because it compounds a non-native asset. And so because these L1 tokens are not earning non-native assets, they're just earning more of their own token. Like, it's very circular reference. So you need a non-circular, fundamental driver to measure so that you can value this asset in dollar terms. One of the reasons why REV is so relevant right now is there's just a debate forming around it. And to give REV some credit, it is a naturally pure metric. It's just measuring the total dollar value that anyone making a transaction on a blockchain,

the aggregate value that people are paying to make transactions in a snapshot of time. And Jonah, the point is that you're making is that with these users making these transactions, they are paying ETH or Seoul or BTC. They're paying the native unit of account to make these transactions happen. Typically, what REV people are doing is they're actually measuring the value in dollar terms, even though that it's not denominated in dollars. And then this turns into an input for people to do a DCF model. The argument that you're saying is that because,

there actually are no dollars in question. Because the way that you make a transaction on Ethereum is you use Eath, the way that you make a transaction on Solana is you use Seoul. This implied conversion into dollars is an extra step that is muddying the waters about the effectiveness of REV as a metric. So that's kind of like the critique of RIV. And then I'll still say the pro of REV is still a great snapshot window into the current demand to use a blockchain by the aggregate users. And so you can still kind of compare

REV across chains if you swap it into a shared currency, which is the dollar. And so you can compare REV on Solana to REV on Ethereum by swapping it to dollars using the currency of dollars and kind of comparing those things. And that's a useful tool. And then you're also saying, but it's still nonetheless incomplete in a global valuation metric because of this like currency conversion that's happening? I would say there's one thing that you said I would disagree with, which is that I don't think it is a complete measure of the demand to use the chain.

I think it's one very specific measure of like using the L1 token for payments, right? For like a very, for transactions. But there's a whole other area of demand for these assets that it is missing. And I think it's important to dive into that. I mean, valuing these on like a DCF, you know, valuing the layer one token, using sort of rev as a DCF that's captured by the validators

is like trying to value Apple on how much Apple shares it collected from its own users. Like it fundamentally is not an intrinsic valuation metric. And there's a sort of like mental quick test you can do to understand whether or not you should be using a DCF model.

And that is if one person, if one account, one bank account, one wallet, owned the entire supply of shares of Apple, like I said, it wouldn't change the value of Apple. But if one person, one account, one wallet owned the entire supply of ETH, of Seoul, of BTC, of TAN, of BitTencer, of whatever, right, the value that would be zero

because there's no one paying fees, there's no one doing anything, right? The entire supply is in one wallet. And so that sort of shows you that it's something going on here more than a DCF. There's, you know, money as a network. There's something about,

relative valuation here that needs to happen. And I think a framework that needs to sort of be developed that takes that more holistic view. Yeah, this is like Raul Paul's and other people's leveraging of Metcalf's law where like the analogy here is like say we're spinning up like telephone lines. We'll say one person owns every single end point of every single telephone in a telephone line system. If you, that one person picks up one telephone, it's the same person on the other than the telephone. It's just one person. Well, then the value of that network is zero because you actually can't do any sort of communication. And I think you're kind of extending that to like crypto assets, where if one person owns all the Bitcoin, then Bitcoin is valueless. Now, there's also

one thing that I want to say here where like you're saying like, okay, do we use a DCF model or do we use a different model? Something about cryptocurrencies and blockchain networks is, in my opinion, I want to get your opinion on this, Jonah, is a synergy of multiple valuation inputs rather than an either or It's a yes and. And so you have to consider REV. You have to consider Metcalf's law. You have to consider M-V-E-E-E-E-E-E- equals P-Q. It's more of just like a balance between many valuation methodologies

rather than choosing one at the expense of others. How do you feel about that take? Yeah, I think from our perspective, we wanted to put together a framework and a metric that is rooted in sort of what we believe is driving long-term value. As investors, we want to know the bet we're making so we can make an informed decision.

What is driving, you know, potential returns, where are the risks, all these questions need to be grounded in some understanding of what is driving fundamental value here. And I think, you know, in the case of REV,

it is a fine way to measure how much value validators are capturing from transaction activity on the chain, but it is, in our view, it's, there's a much,

bigger sort of driver, secular value driver here happening, and we wanted a metric that sort of measures that in its entirety. In the wild west of Defi, stability and innovation are everything, which is why you should check out Frax Finance. The protocol revolutionizing stable coins, DFI and Rolex. The core of Frax Finance is FraxUSD, which is backed by BlackRock's institutional biddle fund. Frax designed FraxUSD for besting class yields across Defi, T-Bills, and carry trade returns all in one. Just head to Fract's. Iffrax.com, then stake it to earn some of the best yields in Defi. Want even more?

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Audited by ZK security, the self app is live on iOS and Play Store. Visit self.x.com. So we're creeping up to the metric itself, our SOV. And what we're saying, what Jonah, I think you're saying, is that Rev and this discounted cash flow is a secondary input into the bigger story, which is RSOV realized story value. We're all blind feeling the elephant. Five different people, feeling the elephant in different ways. No, no, no, no.

Jonas got the whole elephant, man. He's wrapped his whole. We've got a basic outline of what we think is an elephant and we love the elephant. He may not have the trunk. He's wrapped around all four legs. We've got most of the elephants around it. We've got what we think we do. Okay, okay.

So one more thing I want to establish for REV because I think we'll spend the rest of the episode probably knocking it down in the context of measuring L1 assets is, you're only using this RSOV metric for layer one assets, okay? All of the D5 protocols, let's say, all of the apps that generate the AVEs of the world, let's say, that generate cash flows, those should be DCFed. Those are REV. You're not, you love our, see, some of the analysts listening this episode, they love REV. And by the way, we love REV and discounted cash flow metrics because it has helped bring us out at the dark ages. So the dark ages of crypto were back in 2016

where any kind of narrative could be hyped up by a cult leader and prop to like multiple hundreds of trillions of dollars, multiple billions of dollars, just on kind of a story. And there was nothing, I'm going to use the F word, fundamental. There was nothing fundamental about crypto assets. And so the analyst class goes, hey, if you want to be serious about this whole asset class,

you got to look at traditional ways to value assets the way Wall Street does it. Okay? And so I guess what I'm saying is you're still a proponent of REV and DCF when it comes to non-Layer 1 assets, right? The defy tokens of the world, the other assets that should be throwing off cash flows. And it's great that you can measure that on chain. So the scope of the conversation here is just layer 1 assets that have some sort of kind of monetary property around them.

Yeah, absolutely. Again, the litmus test is if I owned the entire supply of AVE, AVE is still generating generating revenue and I'm still collecting, in this case, the entirety, or if I own 10%, 20% of AVE, 10%, 20% of that revenue, of those earnings. Because it's compounding non-native, it's not earning revenue in, it's not earning income in AVE, it's earning income in other monies that my AVEA token is basically has a, has a pro out of claim on. So those metrics are.

sound. Okay. So the L1 tokens here where we need a new framework. All right, the L1 tokens. Because, because, so, so here's kind of a thesis is L1 tokens are money to you, right? They're not like stocks. They're not like assets. Tell me about that. Yeah. So I think, again, one of the main criticisms when people start talking about Ler1 tokens in this monetary context is that it's not very specific. It's not definitive. It's hard to measure. Money is so squishy. And so I wanted to sort of at the onset make very clear, and sort of what's clear to us, is that these tokens, layer one tokens are money, because money has a very specific definition. Money is any asset that's primarily used to make payments and is a store of value. So even copper, for example,

if people start hoarding copper and using it as a store of value to sort of hedge against monetary debasement or something like that, copper becomes money. If people start using it for payments, if there's a country that forms, you know, it'd be. becomes money. And so you look at fiat currencies, they fit this definition explicitly. It's used for payments to buy off-chain goods and services by coffee and, you know, consulting services and all these things. And it uses a store of value. People store their wealth and bonds and in bank deposits. And similarly, when you look at layer one tokens, they are used for payments for on-chain services and goods. So all of the transactions on all of these chains are paid for in the native

token. That's payment. And there's, you know, NFT, and stuff on the margin, but that's the large primary payments use case. And there's no transactions on any of these layer one tokens that can be sort of confirmed that can happen in any other token other than the layer one token itself. So it's used for payments. And it's used as a store of value. Again, it's used for stake, you know, to stake, take a little duration risk to earn a yield, just like bonds, and as a deposit asset in defy.

And so we contest that layer one tokens are money because they fit the precise definition of money. The money word really, it's got a lot of subjectivity to it. And I think when people see the word money, they're like, okay, it's the thing in my wallet. It's the cash money in my wallet. It's a nation state fiat currency. That's money. Everything else is something different. And I think we're using a little bit more of an expansive version of the word money. You talked about like, well, people are storing wealth in copper and they're transacting on copper. Well, then copper is money. And I'll kind of call that a commodity money, which I think a lot of people would like agree with It was a commodity money.

And anything like a commodity has money-like properties. There's something, I think, like, crypto networks. Ethereum and anything with that, that's a smart contract network, is actually something splitting the difference between a nation-state fiat money and a commodity money like gold or copper. Because Ethereum does have an economy. There is a GDP of Ethereum. You do have to pay taxes to Ethereum in order to get your transaction through

using the unit of account. And so there's something in the middle, crypto net L1s, there's something in the middle between a nation state fiat currency that issues its own currency and a commodity money with scarce resources found in the outside world. And so like L1 tokens are like our money, they're like commodity money, something in the middle,

something in the middle. Absolutely. And I think you make a great point, just to be really specific here, it's about the actual usage. So we want to be focusing on ground truth facts and then trying to understand what's actually happening and what that means, right?

And so, copper today is not money because people are not using it as money. They're not using it to store value. They're not using it for payments. Dollars, US dollars, yen, all that. People, it's money, not just because someone says, because the government said, but because people are using it as money. And so when we look at these layer one tokens, it's the actual usage that we know is really happening that mean they constitute money. Another way to substitute the word money, because as you guys are saying, money has this baggage attached to it is you could short-stor. circuit it and just say store of value, if that's better for people. Because while these assets are

used as payments, I think, Jonah, part of what you're saying in your thesis is that the big bulk of value created is more on the store of value use case, right? And when people think about like money in the real world, they think about what's the thing that I can buy my coffee with at Starbucks, that's money, right? And so they gravitate towards Fiat. But the bigger use case here for all money, is what's the thing that you're actually storing your value in, okay, across time? That's the dimension. It's the Bitcoiner concept, right? That's the dimension of money that we're talking about here and it's more important.

Would you agree with that that for crypto layer one assets, the store of value use case for money is bigger than the payments use case for money? Yeah, absolutely. And I think even in Fiat money context, right, the dollar is the world. reserve currency because people who make money in other economies, you know, sell the wealth that they create and they, you know, they earn in other countries in other currencies to store their wealth in dollar-denominated assets. And that's what drives U.S. dollar strength. So that highlights the sort of relative value concept, you know, the sort of relative value flows as driving a sort of valuation

for money that we're talking about here. Now, in the case of L1 token specifically, that, that aspect, the store value use case, is really the meat of the sort of value driver, we argue. It constitutes the majority of the value accrued to these L1 tokens, more so than the payments use case. And I think there's another slide here after this or the one after, maybe not. But the reason is the reason we focus entirely on the store value use case and we basically discount the payments usage entirely when valuing Ler1 tokens is because blockchain scale really quickly,

like 100, 200, 500, 500% year over year sometimes. And so the cost of, you know, the primary service that people are using for payments is transactions and the cost of transactions just continues to deflate at that rate of scaling. Now, this, and so that deflation basically negates whatever, you know,

growth adoption from payments is happening here from a value accrual perspective. But with SOV, you know, the supply If eth inflates, you know, 0.5% a year, actually 0% if you're staking, right? If you're a staked, sort of if you buy in stake eth, your share of the network doesn't get deflated or diluted at all. So demand for the store of value use case here can grow to, three, 400% a year. And the token supply, even if you're not staking, grows, you know, half a percent year over a year. And it doesn't change if the store of value demand increases.

So with transactions, demand growth is met with more supply growth. In any commodity, supply growth is the enemy of price. But in the SOV use case, demand growth is not met with more supply. So price goes up. I think the way I'm hearing what you're saying, Jonah, is that the number of REV for every network will approach zero as time continues on. And there's like debate about this too. It's like, will it actually hit zero? Probably not.

but it will approach zero, fees will compress for all blockchain networks, because all blockchain networks are going to scale. So even though REV is still like a technically sound measure, it's just its input into the global valuation metric, whatever that is, is just going to reduce over time. So the thing that does not reduce over time, the thing that is forever is the inherent store of value of the layer one. That's forever.

REV is pleading, store of value is permanent. Sort of. I would, the broad statement I've seen people, make is that REV and aggregate is going to trend to zero. And I actually disagree with that. I just think there's nuance around what is a durable driver of REV. For example, priority fees in transaction ordering and sequencing transactions. And that's, I think this is really important distinction versus things like DA, which are not going to be a durable driver. We don't believe of REV long term. And the reason is because, again, it's about supply, right?

It's as demand for DA increases supply, there's no fundamental constraint on supply. The network can just continue to scale it in order to meet demand and maintain market share. And that is what we see with many commodities, like eggs, for example, that don't have a fundamental constraint on supply. However, with transaction ordering, I mean, like until we live in a quantum world where there's many timelines at once, right, there's a fundamental limit on time. One transaction has to come in front of the other. And so therefore, there's sort of a durable supply constraint. And that can be a durable driver of REV. The important point, though,

is that REV just need to be taken in the monetary context. It needs to be considered for what it really truly is at the bottom sort of ground truth level, which is it's a native yield paid in the native asset. That's what stakers earn when they stake it.

That's what users pay when they pay it. And so I think in aggregate, if you look at staking yields across these layer ones, I would definitely argue that over time, as demand for non-government money increases, as the risk, you know, that the market sees a non-government money relative to government money

decreases. We can expect those yields to compress over time that are paid to stakers, but it's almost more because we're going to see more inflows, more store value demand, compress those yields, right? The demand for those yields are going to increase because people are going to look at these as more credible store value assets, less so because, you know, transaction ordering is going to generate less revenue. or less income. Yeah, okay, Jonah. So let me throw this back to you and you tell me if this sort of makes sense. So what you're saying basically is the payment, there's the payments use case and then there's a store of value use case for these layer one assets. And those two are separate

things. The payments use case is generally driven by purchase of block space. That's what you're paying for. You're paying for block space. Of course, it's other things like NFTs and such, denominate, but primarily large drivers the purchase of block space. The store of value use case is you're purchasing the underlying asset itself. So you're buying Bitcoin, you're buying Ether. That's the store of value use case. You go to the payments use case and you look at supply of block space. Again, the thing you're purchasing and look at all the networks that are scaling, okay? The supply of block space, I mean, we were just talking about Ethereum this morning. And if kind of the, you know, ZK dream comes true for Ethereum, the supply of block space on just the Ethereum

layer one is going to 100x. It's going to 100x in terms of supply. And that's not to mention all of the other block space, of all of the layer 2s and everything else, right? And so you have a massive supply expansion of block space, again, the thing you're paying for. Then you look at kind of the store value side of things, and you look at the supply of ETH, right? Well, what's the supply of ETH doing? It's going max plus 2% per year. And generally that's going to ebb and flow between like, you know, negative 1%. ETH could be deflationary again in the future to 2%. It's a very small range. It's not going 100x, it's very tiny in terms of its supply, right? And so it's kind of this dichotomy of you've got block space that's expanding, payments are going to be kind of more of commodity type use case,

but store of value and the supply of ETH or Seoul or Bitcoin, that's very small in terms of percent increased supply per year. That's what you're saying. Yeah, and I think we just need a fundamental metric or a way of measuring the holistic picture of what is driving value to these tokens. And so, you know, even the priority fees, you know, generated from transaction sequencing that, you know, might boost the yield or increase the yield paid to stakers, you know, if stakers are just basically, you know, collecting that yield and selling it for dollars, it's kind of like in one end out the other of the network. And so what we're looking for is a metric that measures all of the different drivers of value. And when I say value, like inflows of

dollars into the network that are staying in the network, right? We want, you know, the dollar goes up when people sell other currencies to buy dollar denominated assets. We want to focus on fundamental drivers that we can take a long-term bet on, you know, as investors and a foreign bet on as investors that measure these inflows into the native token that are durable and that will persist and like, you know, that are secular because then we can sort of take a future view on them. One last establishment of why this whole debate is important and why this is the whole enchilada. Yeah.

Yeah, this is the total addressable market for digital non-sovereign money. Jonah, maybe you could explain this, what we're showing on the screen, and then the next slide. So the headline here is you want your L1 token. You want your favorite L1 token to be valued as, I mean, valued as money. I say valued as money. Like, you want to recognize that your L1 token. is money and accrues value like money. It's less about whether or not we decide as analysts to value it. And our view is more that this is what drives value whether or not we

recognize it. I think it's good for many reasons to recognize it, least of which is, I mean, the Tam is pretty exciting. So this is like the most conservative way of comparing, I think you're looking at Tam, right? But on the left, you see digital crypto money. And on the right, you see analog and government base money. So the total tam of Ler1 tokens, or the total market cap Ler1 tokens on the left, and gold plus the base money values of fiat currencies. And base money, in this case, is defined as basically what is physically available for settlement. So physically printed cash and like real bank reserves. It's not all of the dupli, you know, the money multiplier.

It's not like M2 and up the stack. Exactly. I think you could make arguments for looking at that way, but we wanted to have a more conservative view on this. And you can see, I mean, it's 20x upside just on this. Yes, what we're seeing is we're seeing $45 trillion in analog and government-based money that's kind of available. And right now, digital crypto money is $2.5 trillion.

Yeah, and it's funny, we're really, Bitcoin is about 20 years old, ETH is a little bit less than that. Like, we're really early, 10 or 15 years, we're really early into this transition. And so in many sense, you know, it's taken a while just to get here. And you can see the sort of valuation of these, or the value of these layer one tokens relative to the analog physical sort of base monies for fiat and for gold.

And so I think we look at this and we say, still early. It's taken this long to get here. And I think Bitcoin is really just a Trojan horse over the next 10, 5, 10, 20 years. I would not be surprised. We think the market is going to increasingly see these digital crypto monies as increasingly credible stores of value relative to the fiat alternatives, which, by the way, are going through their own sort of periods of crisis here. And those, the drivers of that crisis seem to be accelerating, not decelerating. So you have this new digital sort of autonomous, you know, programmatic money that is disrupting the physical analog version. And I've never, like we said at the beginning, I've never known an analog

sort of incumbent that is being disrupted by the digital disruptor to sort of, you know, remain bigger, right? The digital disruptor always tends to be, to become larger than the physical incumbent. And so the analog incumbent. And so, the analog incumbent. And so, I think over a long enough time frame, we could totally see that happening. And again, the opportunity here when you look at these layer one tokens relative to the physical counterparts is pretty exciting. So what we're looking at on the slide right now for the listeners is the TAM for digital non-sovereign money. And it's comparing Bitcoin Ether, Solton, Tao to gold and also fiat currencies. So gold is the big one at 19 trillion, followed by the United States dollar at 5.6 trillion, followed by the euro at 5.3 trillion, followed by the Chinese yen at 5.1.

And like we could be in theory, like hypothetically looking at an alternative slide that's like the tam for DCF based assets. And then we would start being comparing these things, Bitcoin Ether to like Apple and Nvidia. And that would look different. The numbers would be lower. It would be a smaller like Tam that we are comparing to. And so what we're saying here is like if we want to be bullish about crypto as an industry, we want to look to. the digital non-sovereign money comps rather than DCF comps.

Do you agree with that? Well, yeah, what I would say is we want to, like, the argument for this valuation framework that we'll get into the details on, from our perspective, is more rooted in what is actually happening with the tokens and how they're being used

and what drives value and what drives returns, more so than anything else. So it's not just what we want, it's what's actually happening. Yeah, it's not what we want. That's not what we want. Like this is a better outcome.

You know, maybe be a little bit more open-minded. So if you're, so like the message, a takeaway that I'm getting from this is like anyone who's like pushing DCF or REV as like the metric, the priority metric, they're bearish. They're a bearish person because they don't see the 10 times larger Tam that could be for the crypto industry. Yeah, I'd say there's, they're missing the force in the trees in a really, really big one. Yeah. Well, but there's also another interpretation back to kind of the kind of the

consensus view right now, which is like Bitcoin is the special snowflake. And Bitcoin's going to eat all of it, like Pac-Man, is going to eat all of these other like currencies and store value assets. And then there's layer ones, which are Rev, DCF, other layer ones. Bitcoin gets to acquire the TAM for digital non-sovereign money. And only Bitcoin gets to acquire that. And everything else is relegated to an REV-DCF valuation metric. That's the consensus view. That's the current like state of crypto Twitter, which is like downstream of current market pricing, which is Bitcoin is price like that and everything else seems to be collapsing towards an REV valuation. That seems to be consensus on crypto Twitter. I have a very good friend and mentor and colleague

as an investor who said to me one time, Jonah, I want to be buying reality and selling the dream. And so what you have here, and I love that line, it really resonated. What you have here is the reality, which is that all of these tokens accrue value in the same way. And when I say all of them, Bitcoin, Eath, Seoul, Tahn, all of these circular reference assets that are used as money, that do not compound non-native value, that only collect the native yield, accrue value, we argue, in the same way, which is as money, you know, net inflows, specific store value, you know, sort of demand use case that we're measuring in this framework that we introduce, these are all accruing value in the same way.

And that reality, you compare that relative to maybe what is consensus here. I mean, that's alpha. That's opportunities for investors. And that's what it looks like to buy reality and sell the dream. So I think we're early. I think Bitcoin is first because there's this whole, right, there's this whole wave of demand for non-government money, non-government store value because of, you know,

changes that are happening with government money systems. and those changes are creating risks for investors, and investors are wanting to diversify away from those risks. And so as a result, they're looking to gold and Bitcoin and whatever, non-government store value assets. And Bitcoin is the sort of first crypto that gains those inflows that is able to meet that demand because people view Bitcoin as the coin that changes the least. And so there's this change happening in the Fiat War,

changes that they're sort of seeing as risks. They want to diversify away from those changes that are creating risk. And so they see this thing like, this changes the least of all crypto. Like, I'm going to start there. But that, in my view, is really just the beginning. And that's Trojan horse, because when you really take a look at all of these other crypto assets, Eith and the whole down the line, and as those things mature, this will increasingly become the case, that these are in many ways more reliable, less sort of counterparty dependent, you know, management dependent, human dependent, monetary systems. So they're digital and they're increasingly programmatic. They're increasingly more transparent. They're increasingly more

autonomous in how the supply is managed and how what you can measure. And so in those ways, right, they're liquid 24-7, all of these different reasons that, you know, monetary attributes that these assets have that when you compare them to Fiat, begin to look increasingly interesting and sort of offer a very similar value proposition to what Bitcoin with, you know, other changes as well that are interesting. Okay. It's time. Let's buy some reality here.

All right. And so for the analyst class who's listening, they might say, well, all that's cool. We've heard the monetary story before. Show us the data. Show us the numbers. Show us the reality of the situation. And here's where we introduce a metric that you. you are, you think tells a good chunk of this story.

Again, like four legs of the elephant here. It's called R-S-O-V. I think that stands for realized store-of-value. Jonah, could you define realized store-of-value for us? Yes. So this realized store-value metric tracks the two primary drivers of SOV use or demand for these layer one tokens. So again, we want to be measuring ground truth

real usage and real metrics. We pick two that for us are the biggest primary drivers that we can track and measure the actual demand. And that is the realized value of layer one token staked and the realized value of layer one tokens in D5. This is a metric we apply across all layer one tokens. And realized value is inspired by the sort of realized cap metric that people might be familiar with with Bitcoin on GlassNode.

It's effectively a sort of net daily inflows metric, and it uses the US dollar value of that day. And by summing these two realize value metrics, the RSOV, you get this sort of total sum, monetary value that is accumulating to the layer one token. And so this is a fundamental measure of the net inflow. that any given layer one token has. And for us as investors, we want to be very specific

about what's driving these inflows. We want to understand it to be a very fundamental driver because we want to be able to use it to make some forward, develop some forward view on a potential investment. And so, you know, staking and using the token in defy both to form yield, both, you know,

as collateral, as a monetary hedge, These are very fundamental drivers that we can measure. Their store of value use cases. Absolutely. Store of value drivers. People buying the token and holding it. And so that's the key behavior that we're measuring here. In 2017, John Feffer, who was a super successful investor in his own right,

panned a paper that was very popular at the time. And it basically outlined that this, hey, money has a real definition. anything primarily used for payments or as a store of value. And what it means to be used as a store of value is to be hoarded, basically, to be huddled, to buy and hold for whatever reason. But that behavior, and then he went on to make other conclusions, but that behavior is what defines store value use. And so we sort of inspired our framework, our framework here is inspired by that paper. And it says, hey, when people are buying and staking and when people are buying and putting in

defy and using it for liquidity or using it as collateral and a loan, that is people buying and holding. And so we want to measure the realized value, the net cumulative inflows in dollar terms into the token that is accumulating over time for those two use cases. I want to deconstruct the definition here. So our SOV, I think, comes downstream of that metric that you measured, that you mentioned in Bitcoin, which is realized cap. Now, this is different from Bitcoin's market cap.

Bitcoin's market cap is, of course, the number of units times the price of the units, this is different. Realized cap is the last time a Bitcoin moved on the Bitcoin blockchain, a transaction of Bitcoin, a transfer of like one Bitcoin from one address to another, at the price it was transferred at. And so the implied assumption here is that somebody is making a sale of Bitcoin at a particular price. And so, you know, Bitcoin in theory could jump from $100,000 to $1 million dollars per Bitcoin, but with very few Bitcoin transfers actually happening on the Bitcoin blockchain. And so while Bitcoin price could do a 10x, realized cap moves much more slowly.

And it takes into account the correlation between the price that Bitcoin moves and then also how many bitcoins move. And that's just super simple way to think about it because Bitcoin is so simple. There's no smart contracts here. And this is like the foundation that our SOV stands. on when we start to apply this to a smart contract platform. Absolutely. So this realized cap for Bitcoin, as you explained, is really a proxy for the aggregate cost

basis of the entire network. So the total supply of this asset, what is the aggregate cost basis? And that can go down when there's net outflows out of the Bitcoin network into Fiat or whatever. And that can go up when there's net inflows from Fiat into the Bitcoin network. And so in the case of this RSOV framework, we took that as a sort of first principle and we sort of formed an adapted version where we're measuring the aggregate cost basis not just of the whole network, but specifically for these two sort of use cases of the token. So it's not just the last time the tokens move, but more specifically, because again, we want to bet on something as very fundamental as investors and a core. use case. And so because it's a smart contract platform, it's more expressive, we can have a more

definitive use case that we can define. And so this is an adapted version where we're measuring the aggregate cost basis over time of value staked and value in defy. Okay, so the two metrics, realized value of the L1 token being staked, and then the realized value of the L1 token being deposited into defy. And so if I take 10% of the Ethereum supply, ether supply, and I stake that at a $5,000 price, that is going to impact RSOV. And, you know, since, you know, Heath prices at like 2000, whatever, it's going to make RSOV go up because I take 10% of the ETH supply and I stake it at a much higher dollar price. And so realize value goes up. And what you're saying that implies is that a bunch of money came in to buy a bunch of ETH and hold it for a long time.

And that is the realized value of this token going up. And since we are a smart contract platform, this also works for depositing ether into AVE, into MakerDAO, into Uniswap, into Morpho, into Pendle, really anything that has like a TVL number. And this is actually like reminiscent of, I think, our early days in Ethereum with this defy pulse locked in defy metric that so many of the Ethereum people just loved to look at is like how much ETH is being locked up in all. of these smart contract platforms. And it's just illustrating the reservation demand, the total demand to buy and hold ETH in these supply sinks. And so if we want to go back and talk about one of these early like metrics that we talked about, we talked about MV equals PQ, which has some amount of usefulness, if we take like 50% of the ETH supply and we put it into AVE, MakerDA,

unisw, Pendel, Morpho, we are reducing the velocity of ether and making it stay stagnant in holders by holding it, hoddling it. And so as a result, realized cap goes up. Any comments on all that analysis? Yeah, I think sometimes the best way to simplify things from a mental model standpoint is to think in absolute extremes. So if a trillion dollars came into a staking contract, right?

Like someone had a trillion dollars of USDA or whatever and they bought East and put it into, you know, the value of ETH would be a lot higher. The number of ETH tokens outstanding would not change. Now there's just a huge inflow into the, into the staking contract that is obviously has a huge impact on sort of the value of the network and the price per token. And then vice versa.

Today, you know, if $100 billion left E. Staking contract, those outflows you would want to know about. That reduces, that pulls value out of the system. So again, it's back to this framework around what drives the value of money and why supply demand is really important because supply demand is for everything. But in the case of money, it's all relative valuation. So are people selling their dollars to buy ETH or Seoul or Ton? And we need a, again, we need a way of measuring that behavior that's grounded in a fundamental

use case because we want to bet it in the future. And we don't want to count people just speculating and opening some short-term position on a centralized exchange, we want to look at, okay, like this is an on-chain economy, this is an open, accessible platform, we want to be grounded in a real fundamental use case here so that we can understand the trend, we can analyze it, analyze potential risk to that trend,

develop a forward view. But, yeah, again, the left curve version of this is, you know, when people buy the token, the price goes up. So, like, let's figure out why people are buying and holding the token and measure it. Okay, this is also the intuition here is this is also, a proxy measurement of the store of value use case for the underlying L1 token. So again, we'll take ETH as an example, right?

If I have some ether at $2,500 right now and I go and I decide to stake that ether, MSOV is going to go up and it'll be the realized cap of that staked ether. So it'll be at $2,500 at that point in time. or if I take that ether and I deposit it for a collateral loan in something like AVE, even on a layer two, it doesn't matter. It doesn't matter if you're layer one or layer two. I think it's all in defy in your metric. Then I am by definitionally, I am using that ether as a store of value asset in order

to take a loan out against it. It's the monetary. It's the store of value use case. That is effectively the intuition. for why realized staking and why realized in defy. Is that right? Yeah, absolutely. And two important points here.

The first one is on realized value. In your example, you know, if you buy and stake a bunch of eth or you stake a bunch of eth today, $2,500 per eth, the realized value of eth goes up, of east staked increases, RSOV goes up. And then if next week the price of ETH goes up by 30%, the RSOV, the incremental RSOV from your, like, doesn't change, right? It's about the price when it happened. It's a cost basis metric.

And so RSOV can only increase when there's actual, like, real on-chain transactions, real inflows that we're measuring here. And it's not about future price. And it's not affected by future price in that sense. The second thing is on layer two is that, you know, there's a lot of debate on fees and revenue and DCF. and extractive and parasitic or supportive net growth. And like, certainly it is the case that, as in the current form,

the early version of L2s that were introduced, began sequencing transactions, sort of displaced the layer one, blockchain for Ethereum as a, as the provider of sequencing to the open market. And we've seen estaking yields compress as a result of that. But in the context of RSOV, what's also happening, and this is the long-term driver here, is that people are buying ETH, buying Seoul, buying whatever token, and depositing it into DFI. And so we are measuring, it doesn't matter what chain, we are measuring people buy net inflows,

cumulative, realized value changes for these tokens regardless of what chain. So if people buy ETH and use it in DFI on base or on arbitrum, that grows the realized value of using. Yeah. Okay, okay. So basically a layer one wants its RSOV to go up because that sort of starts to represent a bottom floor of quote unquote how this network should be valued. We'll talk about that a bit more. But what you're saying is this whole debate, are L2's parasitic? Are they synergistic? That's almost a discounted cash flow rev type debate because it's about, you know, are they going to purchase blocks space?

It is unequivocally the case that if you have a layer two that is, is importing all sorts of ether, and that ether is being used inside of the blending platforms or even as training pairs inside of the L2 network, that's going to increase your MSOV. An increase in MSOV is net good because that's kind of a represents sort of a bottom floor on how these networks should be valued

from an MSOV perspective. So I think there's nuance here. Okay. Yes. And like the first version of these, layer ones, of these layer twos, they displaced main net as the primary, like, in terms of sequencing transactions. And as a result, staking yield on Ethereum shrunk, it compressed. And so, again, viewing rev in the monetary context, viewing staking yield for what it truly

is, a native yield, that lower yield discouraged inflows into staking. Whereas a higher yield incentivizes inflows. It's like when the dollar had much higher yields, when rates shot up in 2022 and 23, the dollar had its dollar milkshake moment. You saw a bunch of inflows, and that drove the dollar to be much stronger than other currencies, relative to those other currencies. And so in a case of Ethereum, this next wave of layer two infrastructure, people call them base roll-ups, right, where applications on their own, you know, AVE can launch its own base

roll-ups just for the AVE application, still use the layer one for a hefty part of the sequencing sort of services. The layer one itself is, you know, be scaling as well. That's where you get both benefits, where the layer to sort of UX experience allows more people to buy ETH and use it as an MSOV, but also it doesn't dilute the native yield. And so when you have a higher yield and you have that ability to sort of onboard new capital, get people to sort of buy and use ETH as a store value, that's when you get both benefits.

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of it, like almost automatically, just naturally. There's a tweet from John Charbonneau that he compares the numbers. of Ether and Sol respective all-time highs. Ryan, if you could click that graphic on the left. And also when they were correlated with the all-time highs of REV. And so Ether's all-time high of $4,800 happened in November. And that's also when its REV was the highest. And then Solana had its all-time high in January post-Trump meme coin launch.

And that's when its REV was also the highest. So John is making the correlative statement that REV is, is highly correlated to price. If REV goes up, price goes up. What's hidden here is RSOV as a metric is also in this all-time high calculation. And John is just focusing on the R-A-V metric, but R-S-O-V is also here too.

He's just not calling it out. So maybe you could give your analysis of when Solana and Eth hit their all-time highs. What was R-E-V doing or R-S-O-V doing in that moment? Yeah, so I would, John's super smart, but I would just say on that correlation does not equal causation. And so what we're doing with RSOV is trying to think in first principles and saying, what is driving long-term value?

What is driving price appreciation and then sell-up? Like, what is the bet I'm making as an investor, fundamentally? And when we think about it in first principles and we look at, you know, hey, this is accruing in native yield. Hey, people are using this token for payments. and as a store of value. This does not earn, you know,

doesn't collect earnings like a company does and non-native asset. It's very circular reference. It's a network. Other people have to join the network for it to increase in value. And usage has to go up.

When we think in those terms, we say, okay, something more like RSOV measures the actual causation of long-term returns. That's what the bet we're making is that people are selling their dollars to buy this asset,

not just use it as a payment, but is he used it as a store of value. And so one of the really interesting things I think about RSOV is that it very elegantly captures REV in that when people, you know, transact on a network and pay in the token

and as long as validators are buying and, you know, are not selling the token, right? They're basically compounding, they're holding the REV that they capture and using it to compound their returns. The realized value of that token staked also

increases, right? Because the cost basis of the token being added to that staking contract is increasing. You're adding more value to the staking contract. Oh, right. Yeah, like one block at a time. You're adding more RSOV. One block at a time, REV grows RSOV. One block at a time. So I think in that context, again, REV in the monetary context is how we think about it. There's a bigger story here than just like a company cash flows. And RSOV, we think, really elegantly captures the REV part of this bigger story. So if I'm buying an NFT on Ethereum in 2021 when there's like $500 gas fees, or if I'm aping into a Solana meme coin and I'm paying like a 20% slippage tax to the validators, when REV is very, very high, what we are actually measuring is a hastening transfer of Sol or

the L1 asset from spenders to stakers where it is showing up in RSOV. Because if you're staking, if you're staking Solana, if you're staking Ether, you're inherently the supply sink. And you are the thing that is hoddling the layer one asset. And so what REV does is it measures the rate of transfer from spenders to savers. And when REV is high, that transfer is happening higher. And that's how REV is incorporated into RSOV, like kind of in this technical on-chain way. But I'll also add some additional color that we can just know from this story of when Ether was at all-time highs during the NFT mania,

and then Solana's at all-time highs during the meme coin mania, you can go look at the Solana pump fund bonding curves in the radium pools, and for every meme coin that exists, there is somewhere between like 100 and one, the valueless meme coins, all the thousands and thousands of valueless meme coins. There's somewhere between like $50 to like $1,000 to $5,000 of Seoul

locked up in these bonding curves, just abandoned in these radium pools. And so in addition to, like all of the execution fees that Salon is getting that is showing up in the REV numbers. There's also just this inherent supply sink of soul going into the meme coin economy. And that same thing was happening with Ether and its NFT mints where somebody is like, oh, I really want this Azuki thing. I don't really care about all these other NFTs, but Azuki really speaks to me. So I'm going to go buy $10,000 of Eith and then send it to the

Azuki team who now has a treasury of Eith. And that shows up in RSOV. Also REV. There's also gas fees. There's also the eth burn that we were all getting very excited about. Now that burn's not so much here anymore, but what's still here is the numbers implied in the RSOV by both the meme coin mania and in Ethereum's NFT mania. And so I think people will, in this day and age, look at the absolute cash flows that Salon is printing from execution fees. And they'll say this is why Salon is doing so well. But we are still missing the inherent unit of account denominator of all meme coins, which is Seoul. So soul is money, is the reserve asset for the meme coin economy, which defined the

2024 year. And so we're feeling up the elephant, like the REVs are feeling, we're feeling the elephant. And they're like, oh, look, clearly it's the cash flows, but we're missing the whole entire other side of this story, which is the RSOV side. It's soul is money for meme coins. Yeah, absolutely. And I think when you think about the meme coin, you know, frenzies or the, you know, the NFT frenzies or even the ICO frenzies, right,

or the LST farming frenzy. I think what you see is the value of these base layer assets going up, not because, you know, David, you, me, and Ryan are passing them around amongst ourselves, right? But there is an increase in the amount of people that are putting their dollars into these currencies to do, you know, to whatever, do stuff with it. And some of that stuff is short term.

And so we have a framework that ignores that. And some of that stuff might be long term, like buying stake, right? And we have a framework that measures that. But the fundamental activity of people moving their other currencies, right, their US dollars into Seoul, into BTC, into ETH, whatever, means that the sole USD price, the Seoul or the ETH USD, you know, BTC, US, those pairs go up. And that's fundamentally the bet we think we're making as sort of long-term investors. Yeah, I don't know if we explicitly mention this other driver that seems obvious to me if you think about it is. So, the relationship between RSOV and REV again, right? So the more that REV increases, the more yield to

stakers, the more people are going to want to stake. And the more people want to stake, the more you get that kind of realized staking, which increases RSOV. So of course, Rev is related to RSOV. It's like an airport. And then I think part, you know, you can see the bigger picture there as well too because when rev increases, the staking yield increases, you know, with liquid stake tokens, right, now you have a higher yielding asset that can be used in defy and so people are looping it and people are farming it and you get inflows into defy as defy activity picks up, right, the inflows, the same inflows that people are moving their dollars into ETH or to sole to stake it. Now people are moving their dollars into ETH to use it in defy. The, you know, you could

takeout at 70% LTV, $4,000 loan instead of a $3,000 loan, right? So there's a bigger, there's a, you know, there's a bigger forest here in the trees. And it's not just rev and it's not just staking yield. It's, it's staking, it's rev in the monetary context. And then the aggregate inflows across these two fundamental drivers here that are certainly, you know, it's very interrelated, but there's a big picture here. there's an aggregate value that is flowing into the network, and we want to measure that aggregate value.

Okay, let's look at some numbers here then of what RSOV actually looks like here. So I'm showing a chart of the RSOV realized store value of Etherium right now, right? And so there's an orange, kind of like a deep orange line here, and that represents the value, the realized value of ETH stake, and there's like kind of a lighter orange here, kind of a cream color, which is the realized value of ETH deposits in DFI. And together that amounts to, I don't know, it depends on the time of recording, right? But let's call it $120 billion. That's the realized store of value for Ether right now is $120 billion. And we know the market cap is different than that. There's a delta right now. So it's trading on a premium to realize store of value. What's the market

cap, guys? Are we at like 350 billion? Something like that. I don't check every second. But we'll say in the 300. So there's a delta there between the realized story value and the market cap of ETH, right? And you could also do this for Solana. You could also do this for Tau. Any layer one. You can do this for Bitcoin?

Well, wait, can you do this for Bitcoin? Realized cap is for the Vignton. The realized cap is the proximate equivalent. This is the adapted realized cap for smart contract platforms, right? So it's the same core principle, and you can absolutely do it across all L1 tokens, and that's how we evaluate all L1 tokens. We want to know the bet we're making. And the bet we're making, we think, is inflows.

Is this premium, like, I guess there's multiple ways to interpret it, right? Is this premium of market cap to RSOV a good thing, or is it a bad thing? Do we want a large gap or small gap? What's better? Yeah, what do we want? Well, you know, as analysts, as investors, the main thing is we want, we want to have a framework that not just measures the core value drivers, but then allows us to understand what's priced in relative to, you know, this current value driver, right? So we can compare the current

market cap to the current RSOV total and say, okay, that gap, that $176 billion gap is how much future growth effectively that the market has currently priced in. And then from there, we can decide, okay, you know, maybe we're really excited about, like in the case of Eath, real-time proving and, you know, based roll-ups and what that's going to do to staking yield and how much value that's going to attract. And maybe there's a market understanding of monetary asset that's going to catch up with Bitcoin. And like, we think there's way more than $176 billion that are going to, you know, sort of accrue in incremental inflows for ETH. And, man, it's really undervalued over the next, you know, one, two-year time frame, right? But, but that's up to

each analyst. That might be my view and our view, but the point is now we have a framework, a tool that every analyst can use to measure what's currently priced in and make, you know, develop that view of their own. So, okay. We're looking at a chart here with Bitcoin, Ether, Salonatau, Aptos, Ton, and Suey. And each one of these, we have the price to RSOV ratio here. One of these is standing out in a very big way. You know, Bitcoin and ether, 2x priced RSOV, Salonah 6x, tau 7x. You get to suey and you see 185x. So the price of suey is 185 times larger than its RSOV. It's realized store of value. What is that telling you as an investor? Yeah. So my interpretation of that is that the market cap of suey is much higher than the

actual sort of usage of sui the asset is a store value asset. There is a lot of future growth priced in. And again, our view is that these inflows are the bet we're all making here with layer on tokens because the value of money is relative and this is money. And so we need to measure these inflows. And there's a lot of people holding suey. There's not a lot of people who have staked the suey or who are using it on chain. And I think that's what this multiple shows. So investors are making a very large bet that suey's demand for sui inside of its own depository apps, its defy apps, or also suey staking, they're willing to pay a very high price because they're very bullish on the growth of the usage of sui as a store of value, either in suey staking or in sui defy or in any other like application cases. And so maybe it's maybe they're not incorrect. They're taking a position that the suey price was undervalued compared to a. future RSOV growth. Yeah, that's right.

But then also you can look at that right now and be like, hmm, that's expensive. That's expensive. As a store of value, a lot of store of value properties are being baked in now that have not actually shown up in any sort of like on-chain analysis. It's certainly a lot more expensive than the other tokens out there. Yeah. You're assuming a lot of growth, I suppose, in RSOV. For every dollar that's expressed in RSOV, for Suey, you're assuming that's, you know, $180.

You're paying $185 for that. And we're using the same growth word in RSOV as other people would use in their DCF. So if we're doing a DCF model on a layer one and it's like the multiples are very high, you're saying, okay, we're assuming a lot of growth in cash flows in order to justify this. It can be used in a similar way, right? But like, you know, traditional equity investors use a DCF. and crypto investors investing in or evaluating equity-like tokens or tokens that compound a non-native asset,

like Ave or Pendle or Hyperliquid, certainly can use a DCF to evaluate the value. But again, it's funny, you know, traditional investors also invests in all sorts of commodities. There's whole commodities markets that people are active in. So there are frameworks that those people use. And I think when you go to those people, you can sort of get some inspiration

for how we should view these layer one. tokens, which again, is fundamentally how they're used and like what we're looking at the ground truth here. These are commodities. Okay. So if people at this point in the episode are now starting to believe in the RSOV view of the world, again, maybe it's not the full elephant, but we got a larger chunk. Okay, let's say somebody believes that. Now as an investor, you have to start thinking through kind of the drivers, the implications of this. And so you have to start thinking about, okay, what are the things that help RISO, Because again, you want more RSOV because that's sort of a bottom floor.

And let's say the market cap was trading below RSOV. And by the way, this is realized cap. This is, you know, like there's so much history for realized cap in Bitcoin. Where if the market is value in Bitcoin below the realized cap, it's always a buy. It's a buying. It's always a buy, bye, bye, blah, blah, blah, and you're going to make money, right? And we evaluated L1 tokens at the same time. Right, right.

So, okay, so if the, you want the realized cap to increase for your L1 network because that kind of represents the floor. So the question is, what are the things that help increase RSOV for a layer one? And then also, what are the things that hurt RSOV for a layer one asset? Yeah. So, again, it's really these core drivers that we've identified in the formula. But, you know, things that grow SOV or RSOV are inflows into staking. And so that can come from higher staking yield that attracts more inflows.

Like we said, the sort of dollar milkshake theory where dollar strength, higher yield, stronger dollar more inflows relative to other currencies. It can also just be the market changing their view on the asset and increasing the demand for the yield. So if the yields, if, you know, East yield today is 3.5% and like the REV, it's capturing does not change, but, you know, the market like inflows basically buys an additional 100 billion of east staking and the yield goes from three and a half to 2.2 or whatever, that's RSOV positive, right? It's just the market saying, we actually perceive this to be lower risk. Like, we like the deal at three and a half percent. We're going to buy it at three and a half percent and we're going to

buy it all the way down to 2.2 percent. So it's really, you know, higher staking yield is one way of expressing the incentive to stake, but, you know, it can also be just a change in how the market views the asset relative to others. And so, positive. positive inflows grows RSOV. And the same thing is true in DFI, right? It's positive inflows into the asset, you know, using the asset as a deposit asset in DFI for collateral, for liquidity, more usage, higher yields to incentivize that usage, all help RSOV. And the other two things here are derivative of this framework, which is growing asset issuance across the network, right? Because to be used in defy, it has to be paired with another asset.

It's the same principle as, you know, the value of the money is zero if one person owns it. If more people own it, it can become more valuable. ETH has to be paired with stable coins, with tokenized BTC, with, you know, biddle, tokenized money market fund. It has to be paired with these assets in defy to become valuable. And so as more of those assets become available on chain, that can't, that's a sort of leading indicator of potential future use of the asset in defy. And then the last thing again is like reliable issuance policy, hardened protocol rules, and easy to verify chain. These are what I would call

monetary attributes that highlight the strengths of digital crypto money relative to analog physical government money. Okay. So I'm in the bottom line for RSOV. It's specifically it's a measure of on-chain store-value use of the layer-one asset. So it's not really measuring off-chain stuff that we can't see. For example, if there's a eth-collateralized loan somewhere in Coinbase or somewhere in, you know, God forbid Celsius like back in the day or Block 5, that's not going to be captured in RSV. That's off-chain. But what we're really measuring is because these are smart contract platforms, other L-1s that aren't Bitcoin. We're measuring kind of growth of the layer one asset inside of the on-chain economy.

So what you want is more growth. You want more EFDFI pairs or sole defy pairs, depending, or collateral loans backed on. You want to grow the economy. And that's the primary driver, but not the only driver. The other driver is sort of do people in general want to store their value and their wealth inside of these assets, as they do with Bitcoin today. And Bitcoin is certainly solidified, you know, that case. because think of it from a staker perspective, right?

If you are staking your eth, the yield really doesn't matter, does it? Because it's eath denominated. It's only a few percent per year. You're really taking a position on how valuable is this ether going to be in the future? If you're making three or four percent per year, you're getting to something for sure. But the value of the decrease is 90 percent. Like, what are you doing here? It's your 4 percent worth.

Absolutely. That's the risk reward. That's why we focus on staking and that's why we focus on defiUs, right? Like if you think about staking, someone buys ETH and they, you know, they're staking it to collect a yield. They're expressing a monetary view, right? They own this monetary asset and they're holding it for the long term. They're storing their wealth in it. And their risk reward is not, they're not doing that because, like, they're not earning 4% in dollars terms, right?

I mean, that's the cost of capital right now anyway. They're doing it because they think the aggregate demand for this asset, which is fundamentally a money, meets the definition of money, is going to grow. And specifically what we're focused on is the store value demand because that's the long-term demand that accumulates in the network over time. Well, it's almost like this, Jonah, that with these layer one blockchains, we've created kind of two products, right? We've created block space as a product, and that's expressed in DCF and Rev as we talked about.

But then we've also created another product, which is a uncensurable, non-state, non-sovereign store-value asset. And it's like those two products kind of have their own, like, different supplied demand dynamics. And this should not really be a surprise because it's completely obvious that that's how it works in Bitcoin. Bitcoin has a massive amount of demand for its asset, for Bitcoin the asset, okay? It has a very small amount of demand for actually the Bitcoin blockchain. Okay. The point of it might be a problem. It's still, yeah, to the point, security budget, it could be a problem at some point in time, but no one tries to do a rev DCF of Bitcoin. And I guess if we have these two products, and that's kind of the worldview that RSOV sort of has, but part of my question is,

you know, it may not be the case, right? I would think, Jonah, that all layer ones will cross the chasm of becoming valuable from an RSOV perspective. So just yesterday, earlier this week, we saw a hack on the sui chain, again, a layer one asset, and what it ended up happening. So the hacker goes and actually withdraws $60 million of sui, brings that to ETH, market buys eth, right, and is on the Ethereum blockchain, you know, in an effort to protect the hacker's wealth, okay, this is a hacker use case, it's not great, but to, you know, protect its wealth. And what did the sui validators do? They basically froze the remaining hacker wealth on the sui blockchain.

that to me does not meet the criteria of a non-sovereign store of value. And so maybe something like sui, if it's centralized, should be valued on a DCF REV model. And you can take that same occurrence with a sui. Like the sui validators censored the use of the sui currency by an attacker. And we can take this to the invasion of Russia into Ukraine. And what did the United States do? it censored the holdings, the United States Treasury holdings of Russia. And Russia started to have to figure out how to navigate around that censorship by the Federal Reserve.

And then China looked at that and I was like, ooh, I don't like that, especially in the context of Taiwan. And so now I'm going to sell United States treasuries and buy gold. And so you can see that same level of censorship causing, I don't know if we can use RSOV in the International Treasuries Reserve Asset, context, but you can see the same thing happening there where like, okay, like there was opinionated censorship of this asset. Maybe I shouldn't store my value in it. So I think, David, you said it, which is, it's the suey currency. And, you know, the question here is just because if the U.S. censors, you know, some actors access to the dollar or dollar, does that mean the dollar is no longer a currency. And I think the answer to that is of course not. So suey, the validators,

censored transaction activity. Sui is still a currency because of how it's used in like the role it plays on the blockchain. But the fact that it can be censored maybe just means it's not very good money. It doesn't mean it should be valued on a DCF because it's still a currency. What drives the return here is people buying it with their other currency. It's the influx. So that's it's saying, we're still money, it's just bad money. It's still RSOV. But it will probably lead to a decrease of RSOV. And I think this also kind of illustrates the tribal dynamics inside of crypto Twitter, where Bitcoin and Bitcoiners have always been a fan of like stripping all utility out of the Bitcoin blockchain.

They actually want revenue to go down because they prefer their Bitcoin, the value of the Bitcoin to be as a close to 100% RSOV emphasis as possible with zero coming from the DCF. They think any amount of like cash flows into Bitcoin dilutes the monetary base of Bitcoin. And so they've stripped utility out. And then on the opposite side of things, you look down the market cap stack, down towards Solana, which is a big fan of REV as an ecosystem. And then even further down, you see more emphasis on trying to get revenue, trying to get demand for block space, trying to grow fees for the block space,

the further down the market cap stack you go. And so on Bitcoin, you have the realized cap maxis. down the market cap stack you have like the REV DCF, I'm not going to call Maxis, but people who emphasize this. And this has always been the thing about Ethereum where Ethereum has tried to always do both. It's tried to generally speaking be a synergy

of many things in crypto. It wants to be a layer one store of value. It also wants to have the burn. And so this is where the valuation metrics where people want to pick a tribe. Like I am in the REV side of things I believe REV is good or I'm in the like layer ones are digital gold

layer one, SOV camp. Ethereum's always trying to do both. And I think that fact kind of breaks people's brains because they want things to be simple and they want to pick one. But Ethereum's always tried to go for both. We do want the burn. The burn is good for RSOV.

RSOV is also good for the burn. And so it kind of works both ways. And I think that ties a knot in people's brains because they can't really accept both at the same time. Yeah, I would say all of these chains in the RSOV view, like, accrue value in the same way. It's about people selling dollars to buy the token and hold it long term. And so when you have a higher staking yield, right, you can increase the incentive for doing that and you increase the incentive for using it in defy and creating all these default opportunities and having the smart sort of defy developers create new market mechanisms and like, you know, you sort of yield money making opportunities and all these things. But so these all accrue value fundamentally, the same way, which is it's about net inflows. And one way you can think about sort of, again,

because the yield, the staking yield for any given chain, really there's two drivers. There is the value being captured by the validators from transaction activity, and there is the net, like the realized value, like the net inflows, right? Like it's how many tokens are staked. And so that value being captured can be flat,

but if the net inflows increase and the yield goes, is down, just like a bond. So, you know, one way to interpret the yields as they exist today on all these L1 tokens and then Bitcoin with no yield, right? Actually, you could also look at it as negative yield because you're being diluted as a Bitcoin holder. And I know there's only 21 million, but for the next, you know, 100 years, there's emissions. So one way you could look at these yields on the L1 token relative to Bitcoin is that it's how the market, it's not just how much value they're capturing. It's how the market is valuing that yield. It's the demand for that monetary yield, the rev in the monetary context. And a lower yield indicates lower monetary risk.

Chain has to pay a higher yield to attract inflows because, again, the lack of realized value there indicates that the market does not express the same demand for maybe something like Eath or Seoul. So higher yield also means market. is perceiving higher risk. There's one other thing I think analysts say when you talk about L1s, and it's basically this idea, if there's a cash flow, it should be valued based on cash flows.

And so I think what's happening in Wall Street right now is they see cash flows with everything aside from Bitcoin. And so they start valuing these crypto layer one networks based on cash flows. What would you say to that? I think that's such a lazy assertion. Because if you ask anyone on Wall Street, like, if you show them a validator, they're going to be like, okay, I'm getting paid in more ETHs. Like, you're not getting paid in dollars. You're getting paid in more native token. So that is not cashful like a company compounds non-native cash. That is something else. That is a native yield. And the assets used as money. It's valueless if you own the entire thing. So I think, you know, you can't argue that this thing, that the staker yield is cash flow. And then when I, I say, okay, the thing that is being used to pay the cash flow is money is cash. And you're like,

no, that doesn't make sense. If you call it cash flow, then it's money. Because you're only getting paid in more East Seoul, whatever. Yeah. And let's remember there's a lot of, I think I understand why people want to cling to that because, you know, for equities, DCF is obviously the right way to do it. It's the, it's the fundamental value. And that, I think, it's, you know, we want to be trending towards more fundamental valuation here and analysis and discussion, 100%. But I think you're trying to fit a square peg in a round hole when you apply a DCF to an asset that is money. Traditional investors should remember as well.

There's tons of traditional assets that can't be valued based on DCF. Try to DCF gold. Try to DCF oil. Try to DCF, you know, the euro. Like, you can't, guys, there's a lot of other assets that can't be DCFed. The world is bigger than equities. Yeah, you're making the argument that L-1s are one of those assets as well. Jonah, this has been great.

Okay, so hopefully we're getting the idea of RSOV out there. I think maybe you could give us your perspective on what you hope happens next because this is almost like a V1 version of RSOV. I'm sure the metric could be improved in various ways. What do you hope analysts kind of take away from this and where do you hope RSOV goes from here? Yeah, so there's two things. think we're hoping for. The first is absolutely this is a framework. This is an outline of the elephant. And we want more input from more analysts, particularly around identifying store of value usage

that maybe this framework does not capture, that we can still measure. So maybe it's ETF inflows or something, right? Maybe there's another behavior on-chain usage of this asset as a store value that we missed and that we can measure. And so, you know, in the show notes, there's a lot. There's a link to this doondash where you can see the RSOV that we track for a whole basket of letter one tokens. You also see there in the right-hand side section about RSOV framework, and we're including this in the show notes as well. There's an Excel template, so you can download it, you can experiment with it, you can

sort of see how sort of this works from a valuation standpoint. And again, the hope is for analysts to make optimizations, improvements, you know, at me, sort of tag me on Twitter, DM, email. You know, we want to continue this conversation. And we want this to be a conversation that sort of improves. The second thing is, you know, the community of data scientists and providers of data services in this industry, the Artemis, the Blockworks, DefiLama, like, we got this data through a lot of our own hard work.

You know, DefiLama was helpful. They gave us an API, you know, for token usage. We used that to sort of build out some of this data. And, you know, but otherwise we had to do a lot of sort of first-person research. And it would be great if the sort of data platforms of the industry can help us improve the quality of the signal we have here, can help, you know, sort of help mature the signal or the data that we have in the data pipelines and make it easier for other people to access this and make it more reliable. That's the call to action everybody. So all of all of those Dune dashboards, a way to contact Jonah. his Twitter, all of that will be in the show notes for you guys to go connect with them.

Last thing, Jonah. So I think some people listening to this on the bankless podcast might assume, all right, well, it's bankless. Of course, we want to popularize this new metric because it's, you know, they're ETH bulls and they love Eith. And maybe Jonah is kind of an ETH maxi. And so he came on to like, you know, do that. Tell us about Skycatcher because I don't think you guys are, I mean, you invest in a variety

of crypto layer one assets. Tell us how you came up with RSOV. Was it sort of tribal and maximalist, or was there another vantage point here? No, we're chandagnostic. So I can give you some background on Skycatcher, which is an investment firm really focused on bespoke opportunities at the internet frontier.

And we're across asset classes. So public equities, private, crypto, you name it, it doesn't matter. We're across asset classes. And so we run a very concentrated strategy. We're super obsessive about our research process. We're very data-driven. And we're really all in with this.

Like we're all in with our net worth. We're mostly investing partner capital, select few unlimited partners. But, you know, we're building a super high-performance boutique investment firm. That's how we do this. And that's our, we wake up and do that every day. And so I joined in 2022 to lead our crypto strategy. So our view has always been very data-driven,

very fundamental focused, very chain agnostic. right? And so a lot of our crypto investing is at the app layer where we can do DCF and it makes sense. And as we sort of work down the stack into the infrastructure into the L1 tokens, we had to do a lot of real sort of research

and first principle thinking about what really makes the most sense here. What is the bet we're making? And so we came up with this framework. We shared about, you know, we shared it a little bit of it last year and you pick that up and you know, super really appreciate you guys reaching out and having the opportunity to

share sort of our thinking on valuing layer one tokens. Okay. And then last question, because I just want your subjective opinion here, right? So when you look through the lens, crypto assets, through the lens of RSOV, what looks attractive to you? Because some might still say, Bitcoin's this special snowflake, it's going to get all of the RSOV. What do you say? Yeah. Well, again, we can be impartial and then as investors have really strong views. And so, you know, when you look at Ethereum relative to Bitcoin, it's 15% of Bitcoin's market cap or something like that. And I think the probability that it surpasses Bitcoin or even reaches sort of,

you know, equal level of inflows as a monetary asset, it is much higher than 15%. It could be 40% and 30% plus. And then when you look at the sort of bottoms up, so that's the big picture. And then the individual like product level catalysts here, you know, real time proving coming to market, that opportunity is super exciting.

Like I said, the based roll-up opportunity where the layer one is doing more work. You've got real conversations, you know, the leadership change around scaling the layer one, making it more capable, shortening block times. All of that could very, you know, all of that could lead to a huge jump in ETH staking yield, which could attract a number of inflows.

And I think when you look at ETH relics as everything else, it is clear, like it really differentiates itself on these monetary attributes. that it's not censorship resistant, it's very low inflation, I think it's like 85% of on-chain finance is going to be built on EVM where ETH is sort of accepted

as a base asset. So again, relative to Bitcoin, which relative to finance or Fiat money is overall, like it just looks really, really undervalued in our view. And so we're pretty heavily concentrated on that ecosystem. There you go.

Jonah's saying there can be more than one snowflake, though every snowflake is special. in its own way. There you go. Jonah, thank you so much for joining us and continuing the conversation with this metric. Thank you for having me. Bankless Nation, got to let you know, of course, crypto is risky.

None of this has been financial advice. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot.