Bankless - Is SOL Undervalued? 83% Discount to ETH? | Michael Nadeau

Episode Date: July 17, 2024

SOL is currently trading at an 83% discount to ETH - should it be? Michael Nadeau is a crypto analyst who can help us answer this question. His approach isn’t technical, he isn’t a decentralization-maximalist, and he doesn’t represent any specific tribe. Instead, he focuses on current on-chain fundamentals like daily active users, fee revenue, and Total Value Locked to provide insights. In our discussion, we explore why fundamentals matter when analyzing crypto assets like ETH and SOL. We review the data for 2024 to see who’s winning and examine the catalysts for both ETH and SOL. Additionally, Michael shares his price predictions for ETH and SOL this cycle and offers insights on which asset will outperform the other in the second half of the bear market. ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/32?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E  ------ 🐡 PUFFER | CHECK OUT PUFFER UNIFI https://bankless.cc/PufferUnifi  ------ BANKLESS SPONSOR TOOLS: 🐙 KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2  ⁠  🛞 MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  🦄 UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap  ⚡️ FUEL | EARN FUEL POINTS https://bankless.cc/fuel  ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum  🗣️ TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku  ------ TIMESTAMPS 00:00:00 Start 00:02:59 Are Fundamentals Having a Moment? 00:08:59 Solana's 83% Discount 00:12:11 Fundamentals Data 00:17:09 Fees, SOL vs ETH 00:19:52 Fee Generation & MEV 00:22:36 DEX Volume 00:25:31 Stablecoin Volume 00:28:08 Total Value Locked 00:31:49 Core Devs 00:34:50 Value Accrual 00:41:45 The Bull Case For Ether 00:49:22 Upcoming Catalysts 00:57:09 Qualitative Differences 00:59:40 Price: SOL vs ETH 01:04:10 Price Targets ------ RESOURCES Michael's Report: https://thedefireport.io/research/sol-discount-eth  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠ 

If you get to $1.8 trillion, that's about slightly under $15,000 per coin for ETH. If Solana gets into that $450 billion range, that gets you above $900. Bankless Nation, the price of the sole token is currently trading at an 83% discount to Ether. The question is, should it be trading at a discount? We have Michael Nato on the podcast today. He is a crypto analyst who can help us answer this question, I think is a very relevant one for investors. His lens really isn't technical. He's not a decentralization maxi.

He doesn't represent tribe A or tribe B. He just looks at current on-chain fundamentals like daily active users and fee revenue and total valued locked of these respective networks to answer the question of what should these assets be worth. A few things we discuss on today's episode. Number one, why fundamentals matter when we analyze crypto assets like ether and soul. Number two, the data for 2024 and who's winning. Number three, the catalyst for ether and the catalyst for.

for Seoul. Number four, his price predictions for Ether and Soul this cycle, which asset will outperform the other on a relative basis in the second half of this bull market? I won't spoil this now. You've got to wait until the end. And before we get there, got an announcement from our friends over at the Staking Protocol Puffer. So you probably know Puffer as an Ethereum staking protocol. Well, now they're doing something even more exciting. They're releasing a roll-up that helps solve Ethereum's layer two fragmentation problem. that's a problem we've been talking about a lot on bank lists. It's called a base roll-up, and it's called Puffer Unify. We are really excited about based roll-up tech. You've probably heard Justin Drake on the podcast talk about it. How does it work? Puffer Unify leverages layer one sequencing,

integrates pre-confirmations from Puffer's restaked validators. So all of that results in benefits like synchronous composability and unified liquidity in Ethereum's layer one. So this fixes fragmentation. It also features fast confirmations, pre-confirmations, I should say, and there's native yield on your eth in the form of unify eth. So go check that out. Really think that this is the next generation of roll-ups on Ethereum, it tackles Ethereum's fragmentation, and it unifies unified liquidity. So if you want to find out more about Puffer, Unify, and I suggest you do, go take a look at

their light paper. There's a link in the notes. And if you are a developer and you want to build on top of this exciting new frontier, then fill out the form in the show notes and you can get started. All right, let's get to the episode with Michael right now. Bankless Nation, very excited to introduce you to Michael Nato. He's the founder of the DeFi report and he writes some of my favorite analysis in crypto. I got to say that because his focus is old-fashioned fundamentals, you know, old school on crypto. So he likes to analyze tokens, crypto assets like equity as capital assets with cash flows. He also models the

demand for crypto assets as money, and he has less of an emphasis on, you know, some of the attention metrics, let's say, the tension economy behind crypto and more focus on overall fundamentals. Anyway, it's just a great blend to me of a crypto-native knowledge and financial analysis, and I hope the crypto world starts viewing assets, our crypto assets, the way Michael does in his reports. So it's just a solid base to figure out what's real. So, Michael, what do you think of that gushing intro?

I don't usually do that for my guest, but I've got to say I'm a big fan of your reports here. That was a gushing intro. I'm blushing a little bit. No, it's great to be here, Ryan. First time, long time. I've been a fan of the show for a while. So awesome to be here with you. Okay. Well, let's open this up with a leading question.

So on the agenda, of course, we're going to be talking about Soul versus Heath. I might get a little spicy for people out there. In particular, you wrote a report called Should Soul be trading at an 83% discount to Heath, which is approximately what it is right now at the time of recording, what it is when you publish that report. We're going to table that. Get to that conversation in just a second. I want to ask an overarching question to you before we begin, which is fundamentals. Are they making a comeback in crypto? And recall the way I just defined fundamentals as, you know, kind of like cash flows as an equity analyst might view these crypto assets. We are seeing Maker. This is a, this is performance

of Maker, MKR, a token in the blue chip, defy token, it's never really received kind of the credit fundamental analysts are due. It's had a great year so far. And people are talking about maybe the rekindling of fundamentals analysis. Maybe it's fundamentals, crypto, maybe fundamentals are fundamentals are cool again? What do you think? Are fundamentals having a moment? I love to hear this. And it is interesting to see this narrative starting to pop up. a little bit on Twitter. My view on fundamentals is that everything we do at the Defyreport

starts with data. So that's always the starting board. Even if it's a meme coin, right? I think there's actually fundamentals of meme coins. You can even go in and see how many, what's the growth of token holders? There's fundamentals related to social

and what's happening on Twitter and things like that. So fundamentals is a broad term. And I just think that ultimately this is all going to fundamentals. for me, the fundamentals are easier to sort of wrap your head around, I think, in a bare market. And in this discussion today, we're going to talk a little bit about Solana versus Ethereum. And really what kind of brought me to Solana initially was studying it in the bear market. I think that's where it's actually easier to see projects.

As Warren Buffett likes to say, when the tide goes out, you can see who's kind of been swimming naked. And you can kind of see that wash out. and you can see what might last in a bare market. But I love to see this at the Defi report. We work with some of the beta companies in the space that are very focused on fundamentals. We believe, ultimately, this is where the industry is heading. So it's great to see this narrative out there.

Maker-Dow is obviously one of the projects that has fantastic fundamentals in the space. That's fantastic. Yeah, it's interesting. Somewhat ironic that we mentioned is fundamentals coming back in style as a narrative, which is interesting. and that does seem to be the way that crypto markets fluctuate. But what is just the general thesis behind fundamentals?

Is it as simple as, hey, like in the long term, that Buffett quote, markets are kind of a weighing machine in the short term. He didn't say this, but maybe they're more of a narrative game. But in the long run, fundamentals actually matter. Is it just that simple with respect to why you view crypto assets from a fundamentals perspective that they're important in the long run and they will reflect in price over the longest period of time? Yes.

It is basically that, but I think that, you know, the market needs to have some sort of KPIs for relative, you know, valuation. Like, I think today, if you look at the crypto markets, like, I don't think anybody's making any argument that, like, crypto assets are trading on cash flows. And but ultimately, I believe that is, that is where we're going. Even though we're not trading on cash flows, we do have these, like, sort of benchmarks in the market. You've got Bitcoin and Ethereum as sort of the two, like, alpha assets. And then everything is sort of a relative value. on those two assets. And so there's always going to be, you know,

fundamentals and KPIs that the market needs to understand. I think what we're trying to sort of work through now is like what are those KPIs? You know, when you go back and study sort of how security analysis came about, these are really social constructs, right? I think it's important for people to realize that, you know, the market sort of coalesces around a shared set of ideas because we can make sense of them.

And a discount cash flow is sort of how we did this with stocks and equities. Is discount cash flow going to be the thing we use for relative analysis in crypto? Maybe, maybe, maybe not. But I believe we are in this process of sort of sorting that out today. It's funny that kind of the metagame here is not only do you have to believe in fundamentals, you have to get all of the other investors who are buying crypto assets to also believe in fundamentals, right, as you sort of define it. So it's almost like a coordination game, a consensus game. One reason I think to be more bullish on fundamentals, who knows,

maybe not this cycle, but in the months and years to come is Tradfai's growing involvement in crypto. This is how they're used to viewing traditional capital assets, and they're going to, by default, bring that lens into crypto. I've actually been super impressed with some of the analysis I've seen from shops like Van Eck, which they dive into crypto assets, and it's really, It's from a fundamentals perspective. I mean, you could disagree with the variables. You can adjust them. You can say those assumptions are wrong.

That's all fair game. But the way they're actually coming up with their price predictions and analysis, it's all very much fundamentals based. 100%. And there's different fundamentals for different types of assets as well, right? You don't use the same metrics for if you're analyzing a basket of banks as you would for commodities or some other asset class. Crypto is a new asset class.

And so you do have, you know, databaseed. fundamentals, but then crypto is very social, right? It lives on the internet. It kind of lives on crypto Twitter. So there's all these other nuances that get folded into fundamental analysis in crypto that is unique to this asset class. So the reason I led with those questions is because I want bankless listeners to hear how you think about assets and your approach to investing in general. And I think you're bringing this framing to the conversation we're about to have. And that's why I think this conversation is so valuable. So you wrote an analysis report. I think you published this last week that kind of caught my eye.

I read through this, and I think it's a great subject to have an episode on and actually apply what we just heard about fundamentals to two assets that have really been taking a lot of mindshare this cycle. So Ether and Solana. And the title of this report is, like, it's a good title, well written, made me click right away, should Seoul be trading at an 83% discount to Ether? So you're viewing this from a market cap perspective, and the current market cap fully diluted, I assume, Solana is trading in an 83% discount to ETH. And should it be? That's the question. And you call this a data-driven investigation. And the reason I wanted to have you on to talk about this rather than somebody else is because I think you can bring a objective, like, neutral, hey, like, this is what the data says, perspective to the analysis. And it's like less tribal. in fighting. There's less of this debate between decentralization and centralization. I'm not saying

that those debates don't matter. I'm just saying your lens is a little less political, I would say, and it's a bit more objective with respect to the data. So high level, as we get into the key metrics and analysis, what are you actually analyzing here? Like, what are the core data points that you look at when you look at L1 tokens like Ether and Solana? Yeah, so, and this kind of like comparison between these two L-O-1s in particular goes back to like the end of 2022. And after FTCS, we really started taking a hard look at Salana. And I was comparing Salana at that time to like ETH back in like January of 2018. And I was seeing some similarities in the data there.

And really what I was looking at was like total value locked. Salana versus Ethereum back then. I was looking at the number of users, looking at the number of transactions, looking at the number of developers and sort of the application activity sort of anecdotally, looking at where is venture capital money going, where our VC's sort of focused.

And so, you know, when I started to see those numbers and Salana basically looked like Ethereum in January of 2018, this was in December of 22, that sort of forced me to go deeper on Salana at the time when everybody was sort of punching down on Salana and sort of giving up on the project. So that's where it always just sort of starts with fundamentals for me. And then there's obviously layers of nuance within crypto and analyzing crypto assets, the social layer and the sort of nuance there that we layer in. But those are that's kind of the core, I guess, fundamental analysis here. Okay. And I want to, you'll say something

that you said at the beginning of this report, which is you used fundamentals analysis in kind of like the depths of the bear market in December of 2022, and it allowed you to see this dislocation in price. So at the time, December 2022, like bear market, FTCS had just imploded. It was the end of the world, particularly for Solana. And at that time, Salana's market cap was just 3% of ethers in the wake of the demise of FtX. So like 97% off the price of ether. And so you said you didn't think that was right. And you shared a long Solana kind of report. And since that time, Solana has appreciated a capture. Now it's 17% of Ethereum. So it went from 3% relative to ether the asset to 17%. And it definitely has been the trade of this cycle, right? Kind of the ETH-Salana ratio has been a good way to do well.

So the question, I think, in this report is, will that continue? Will Solana continue to build its relative value versus ETH? So let's talk about the data, the fundamentals data. The first is this, daily active addresses. And if listeners want to go log into like YouTube or Spotify and video, you can see sort of the charts that Michael and I are looking at live. But this is a chart of daily active addresses of Solana versus Ethereum. plus Ethereum layer 2s. So not just Ethereum.

It is Solana versus Ethereum plus the layer 2s. What are we looking at on this chart on the screen here? Yeah, so this is looking like you mentioned. I think when you do any type of relative comparisons now for Ethereum, you need to factor in probably like the top 10 L2s. So we do have, I think, the top 12 included in this report, so all the majors. And what I'm pulling together here is just we're combining Ethereum.

and we're going back to June of 21 and just looking at sort of the chart between Ethereum's growth or Solana. I mean, Ethereum's chart looks fantastic, right? There's nothing wrong there. What I'm trying to understand is where does Solana sit relative to Ethereum and the combined L2s? And Salon, I really made a lot of progress really over the last six months. In this report, we were looking at just Q2 data for the course. quarter, Solana averaged 1.3 million active users, which is about half of what Ethereum

plus all of those L2s are doing today. So it's doing quite well. A few things I noticed from this chart too. And Ether and the L2s are in purple and Solana is in pink. And you say here, now it's about 50% of Ethereum and the top layer 2s from a daily active addresses perspective. One question I just want to get out of the way is, do, do? Do we know how much of this is like civil activity or like bot activity between the different networks and like does that factor in it all to the analysis? Yeah. So Artemis does a good job with this.

They do have civil detection now with some of their data. You know, there's definitely a lot of civil activity and bots. My view on this is, you know, those things pay fees. So I don't, I know there's this narrative that if it's a bot, it's like not real. but like over I think over 60% of trading in Tradify is coming from algorithms. It's like bots are taxpayers too. Yeah, exactly. So they're users.

They are users and I don't really sort of parse them out. I still think there's product market fit if there's something using the tool, paying fees to do so. So certainly plenty of bot activity on Solana. But again, they're paying fees. Yeah. And we should remember the definition of a user here is, like an active address. And of course, a bot can have multiple addresses. A person does have

multiple addresses as well. But that's what we're calling a user. I almost think of it as like a bank account, an active bank account here. One other thing I mentioned, I noticed from this chart, though, is if you compare this back to the last bull cycle in 2021, 2022, Salonah was actually higher in terms of daily active addresses than Ethereum, not by a little, by a lot. Now, yeah, like, what do you make of this? So like we're looking right now. If you just look at the last, you know, 18 months or or or or or two years or so, you're kind of looking at the chart and you're like, wow, Salon is really on the tail of Ethereum in the layer two is really catching up. But if you go back to 2022 and kind of like the mania of of the bull market, Salana was actually higher. I don't

from the chart, it looks like it was like just a good, you know, 2x, maybe 3x higher than Ethereum at the peak in terms of daily active addresses. So from that relative, benchmark it's actually not doing as well as it was previous cycle. Yeah, no, that is interesting. And I think that was happening really sort of at the peak of last cycle or actually almost sort of after like the actual crypto markets had peaked. And right before sort of Terraluna and everything that kind of came thereafter, to me, there's a lot of signal there.

Like, you know, I sort of watched Solana last cycle to not invest in it was sort of just this new shiny thing and trying to figure out if it was real or not. And typically what, you know, I see, and I tend to like to sort of wait. I put this in the report as well. Like I like to kind of wait and observe and look at data and kind of just watch the markets and then wait for those dislocations. But you could see that there was something here with Solana. And then you can see those users just come off like basically after FTX.

And there was basically a restructuring of the whole blockchain. And they have since reemerged. But there's usually some signal. When there's hype, there is some signal. And then I usually sort of wait. and look for the fundamentals in the bear market. Let's talk about the next fundamental, which is one that I am quite fond of.

We are quite fond of that bankless, and that is fees, because something we repeat often is what do blockchains do? Blockchain sell blocks. And fees represent blocks base that has been purchased. So we're looking at a chart of Seoul versus ETH and layer twos, again, the fees on these networks.

And I think ETH is represented in purple and Solana in pink. yet again throughout this report. And the summary here of this chart is in Q2, Solana did 151 million in fees. That's 27% of Ethereum and the top layer twos. Can you explain this chart? And actually, I was kind of maybe not fully understanding this chart itself because it looks like you're saying the summary

that Solana did 27% of Ethereum in the top layer two, but it looks like on the chart, the pink, the Salana, is higher than the purple. Am I misreading this chart? And like, what is it saying? There's two axes. There's two there. So that's what's going on there.

It just the chart, if I only used one excesses, then you're not going to be able to tell the difference. I see. I see what's going on. Yeah. So Ethereum is still much higher here. This chart is a little bit misleading. But it was the best way to show Salana's growth in kind of the last six months. Okay.

And yeah. So really what's happening here is you can see the pink line is Solana. Even when you showed that chart that showed the users really jumping up last cycle. on this chart, you can see the fees there as well, but certainly not as expressive as the users. But we can see the fees really spiking up. I mean, last cycle, Salana was doing something like 20 million transactions per day and stuff, but the fees were so low. It was really, really low.

It was like thousands of dollars on the day. Right. It was really like, you know, Ethereum is doing just orders of magnitude more here. But we've seen that gap close. Now, if you just look at the Q4 performance, Solana was about 27%. And a lot of this is MEV now we're seeing on Solana as well. So you can just kind of see interesting to me that fees are rising on Salana. The whole narrative has been that the fees are going to stay super cheap.

We'll see. We may see in this full market that Solana, you know, we'll see when Firedance or gets introduced as well. But there could be bottlenecks on Solana that the same process. that Heath went through and we're going to see if that starts to play out later in this cycle. Fees is a fundamental that I like and I respect because it represents like the taxpayers on the network. It's like real activity because they're willing to pay something for it. So it's I love it because it's relatively civil resistant. I want to ask you about the compilation of the fees because

there are two ways that blockchains can generate fee revenue, right? The first is just selling the space within a block. And the second, that's one source of the revenue. And the second is selling the ordering of the transaction in the blockchain itself. And so you referred to MEV earlier. That's the second category. It's kind of like you're paying for priority ordering in a given block and getting your transaction in. So you're either paying to get your transaction in ahead of everybody else or you're paying for the ordering of that transaction. What's the different compilation in terms of like fees? My impression has been that Solana is doing like quite a large amount of its fee revenue on the MEV side.

of things, that is the ordering side of the transaction. How is that different than how Ethereum is generating fees today? Yeah, I haven't looked at this super recently, but it was over 50%, and a lot of this is running through, you know, GTO validators currently, which can share that MEV with people that are validating. You know, there's an interesting view here that, like, some people have this view that all fees should sort of collapse towards you as, you know, layer one blockchains sort of get commoditized, you know, as they should. And really sort of the value accrual mechanism is going to come through MEV in the future. It's really all about priority access to block space.

And this is basically how it works in traditional finance today. There's no fees to trade. And everything comes from ordering transactions and value that can be extracted during that process. So we'll see how that starts to pan out with Ethereum. We're starting to see this with layer two's post-EIP 4844. transaction fees have dropped significantly. We put together this quarterly report on Ethereum that this is sort of the story of Ethereum from last quarter is that EIP 4844 significantly reduced fees at L2, and that that's now

impacting L1. We'll see if that starts to sort of a new supply of block space ultimately gets backfilled in the future here. But my view is that, you know, MEV is probably the main thing in the future. for how these things are monetized. This is going to be interesting, and this kind of gets into the different design strategies of Ethereum versus Solano, whereas Ethereum has outsourced, I'll say,

some of its execution, kind of the ability to order its blocks to layer twos. Salana has done none of that. So it gets to retain all of this MEV. So there's some interesting questions as to how long are you on MEV in general across these chains and how will that shape up? That factors into the analysis. But let's get to the third fundamental, which is Dex volumes.

So we're looking at Dex trading volumes on Salana versus Eith and the L2s yet again. And Dex volume has been pretty impressive. Salana did 108 billion in Dex trading in Q2. So that's 36% of Ethereum and the layer two is a much different story than last cycle where just the volume was not there. What do you make of this chart? Yeah. I think this basically shows that DeFi was basically non-existent on.

Solana, you know, just even a couple years ago. And, and most of this activity is now happening on Jupiter. And if you look at, if you just compare Jupiter, where most of the trading is happening, or most of the user activity is happening, compare that to Uniswap. The users are, Jupiter is doing about 90% of what Uniswap is doing in terms of active users. So I think that's where most of this, this volume is coming from. And, you know, at an aggregate level, Solana is still significantly below what we see from Ethereum and the L2s combined here. But this is interesting to me. I use Jupiter now when I'm buying and selling assets on Salonah rather than Coinbase.

I find the user experience to be really nice. You can avoid sort of the bridging and a lot of the sort of UX challenges that Ethereum still has. So this is something I'm watching to see if there's a potential for retail to potentially on board to Solana, or it's more of that happening in this cycle versus going, you know, directly to a Coinbase or a centralized exchange. So we'll see, we'll see how that plays out. Do you have any takes on the kind of the compilation of these traders and the assets that they're trading? So I think there is the impression that Salana's activity is maybe a bit more retail,

let's say, a bit kind of, you know, like lower in terms of transaction size for trade, but like, like more people. And it's the asset compilation is like heavily meme coin right now. It's other assets certainly, but meme coins have had a massive boom on Solana and that's got to account for a good portion of this Dex activity. Do you have any takes in the compilation differences between the networks? Definitely more meme coin trading on Solana. This is all, you know, purely speculative bull market type of assets that are being traded on Solana. There's quite a bit of stable coin activity, which which we'll get to as well. But yeah, I think that's, you know, to me, the sort of signal here is that there's a lot of velocity.

You know, Solana has always had much lower sort of TVL than what you see on Ethereum. But the velocity has always been higher. Smaller amounts can be transacted. I think this comes back to the Salana user experience. Fees are low, a little bit easier to use so people can play around and just trade memes at very small volumes, things like that. So I think that's kind of what we're seeing play out in this data. Okay, since you brought it up, let's talk stable coin volumes. This has been super impressive in Solana.

There's just basically nothing in stable coin activity. You can't even see it on the charts last cycle. This cycle, it's quite a different story. So you say here, the summary is for Q2, Salana did $4.7 trillion in stable coin volume. So it looks like it outpaced Ethereum, stable coin volume. And again, this is back to kind of the velocity type of take, right? So we'll get into TVL later. the amount of stable coins on Solana.

But from a velocity perspective, these are big numbers. Huge numbers. This is like pretty underreported. I was pretty shocked to see this number. This is coming from Artemis. Artemis has fantastic stable coin data. But yeah, I mean, and it's really all happening over the last six months or so. We saw it really kind of peek out in Q2.

We'll see where that number goes. I mean, 4.7 trillion in a quarter is absurd. This is not, you know, these are not like peer to peer payments and e-commerce and things like that. This is mostly happening on Dexas on Solana. So keep that in mind. But that is just a really big number right there, 4.7 trillion. And we'll see how that plays up. But to your point, it's really the velocity, the ability to, you know, I think a Salana user is transacting many more times a day than your typical Ethereum user today.

This is 2x, by the way, that 4.7 trillion is 2x that of Ethereum and the layer 2s over the similar time period. You put a footnote here saying you're not concerned about the fact that a large percentage of this trading activity or sorry, the stable coin activity is related to meme coins and bots and algorithms. And you say why? It's estimated that more than 60% of trad five volumes algorithmic. I guess that's the point you were talking about earlier in the episode. Bots are people too. Botts are taxpayers. And so like why discount them when you're doing this type of analysis?

That's how I view it. And, you know, I know, like, you know, Salana has been focused on, like, creating, like, the NASDAQ, you know, on a blockchain. And to me, you got to, you got to try that out. You got to have some sort of, like, minor leagues before the big leagues. And we're, we're seeing it with meme coins and speculation today. But to me, the signal is that it's happening. And it's happening at high, very high volumes. So bots are people too and memes are assets, too, is kind of like the, the Salana narrative here. Let's talk about, this chart, which paints a different picture than I think all of the other charts so far, which have been very bullish Salana.

This paints a bit more nuance into the story here. This is a chart of total value locked. And this is, again, Solana versus Ethereum plus the layer twos. And you can see this kind of chart over time. It's interesting, by the way, that in purple, Ethereum and the layer twos, it's not up to all-time highs of previous cycle. So we've got a ways to go. But the pink shading, the area of...

under the purple here in pink, which is Solana, TVL is just like not exploding the way the other metrics are exploding. In fact, it's about approximate in terms of like, you know, you can kind of see this, eyeball this relative to what it was doing last time as a percentage of TVL on Ethereum in the layer two's. So Solana averaged 4.3 billion of TVL total locked value, it's layer twos or, you know, assets under management, I suppose. Maybe that's a more Tradfi explanation, which is 7% of the,

Ethereum of Ethereum in the top layer two. So 7%. So TVL is showing a different story here. What do you make of this? I think this shows a lot of this is telling me like the fact that you have way more ETH locked in defy on Ethereum just tells me that the Ethereum ecosystem is much more mature and much more further along. And ETH the asset is a more capital efficient asset, I would say, than Seoul currently. Part of the reason for this, I think, is that, Ethereum started as a proof of work blockchain. And so, and it's Salana started as proof of stake. And if you look at the sort of stake rates between these two networks, it's like 80% on

Solana and it's like 27% and that's come up from basically nothing over the last few years on Ethereum. And so you have like this glut of soul basically from the original validators that is just locked up and it's not really making its way into defy just yet. I know Salana has made a lot of attempts to get with like, with staking solutions and different ways to try to incentivize people to pull that, pull that value and get it, get it into defy. That's, that's really where this has to go for Solana to really get that number up, I think. But I think the big takeaway is that just, you know,

it's a difference between East starting as proof of work and also just being a much more mature ecosystem today. Yeah, it's also interesting. Maybe a quick side quest here is like when I always hear that the tribal infighting, it, oftentimes if your team Salana, you'll take the perspective that. TVL doesn't matter. It's a made-up metric, right? If your team, Ethereum, you take the perspective. Daily actives are all fake. Like, meme coin, volume, decks, like, trading all of those fundamentals don't matter. When you look at kind of a holistic picture, and you're not just taking one fundamental into account, you're taking multiple fundamentals into account, does that tell a better story here? Like, or is there one

fundamental that's more important than another? Or, like, do you take them all into account equally? Like, of the metrics so far, which are the most important ones towards valuing this asset? Yeah, it's definitely, I think, putting all the ingredients together to sort of paint that picture. And then there's office, we certainly look at other stuff outside of just the on-chain data as well. And that's more like the intangibles of kind of what you see with community and what you see on Twitter and things like that. I mean, I think the biggest signal is always like what are people paying for. So that's like probably number one always looking at users as well. knowing that that's a proxy, like there's certainly people with multiple wallets and things

like that and bots. But I think fees is always number one. And then you kind of layer in the other ingredients thereafter. It's like if you're cooking a meal, you probably, if you're not a vegetarian, you probably want some meat in there first. And that's probably your fees. And then you layer in a few other spices and ingredients as well. So that's kind of how I think of the analysis.

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let's say, that you included in the report, is core developers. Core devs on Soul versus Eith, And this is ETH plus the L2s, again, it looks like. Right. Okay, so Solana averaged 59 active core devs. I guess you're looking at GitHub repos and that sort of thing and seeing commits. And that would be in Q2 again. This is a full Q2 analysis. So that would be 11% of Ethereum and the top layer 2s.

It looks like it has definitely grown since like the early days of Solana, 2018. It's not quite at the highs. it was previous cycles, is there anything you divine from this metric? Yeah, I mean, I will just say that this is coming from Token Terminal. You're right. It's looking at GitHub repos. And this is core devs only. So this is only people that work directly on Solana versus directly on Ethereum.

So it's not factoring in the ecosystem devs, all the apps and protocols within the ecosystem. If you looked at that data, and I probably should have included it here, it's about 30, almost Salon is out about a third of what you see on Ethereum total. But yeah, from a core dev perspective, I think in general, if the ecosystem is really developing, the core devs don't need to grow that much, right? You need a lot of activity at the beginning to get things stabilized,

but ultimately you should see the development coming from apps and protocols around that kind of core community. And I think we're seeing that with Solana, and we're certainly seeing that with Ethereum. You can see the Ethereum chart just continues to go up into the right. So we're seeing it in both areas. To me, what I'm looking at with developers is like red flags, right? Like if I'm seeing, you know, other metrics that look good or there's a lot of speculation going,

but then you look at devs and there's like a few devs on the project, that's more of a red flag to me and that's kind of what I'm using this metric for. but no red flags on either side, I would say. Okay. So let's just summarize the fundamentals, the data-driven analysis we've just done. So on Q2, Q2 performance, Solana now has 50% of Ethereum users, like as you measured by daily active addresses, 27% of Ethereum fees, 36% of Ethereum Dex volumes, 190% of Ethereum stable coin volumes, 7% of Ethereum TVL, and 11% of Ethereum. of Ethereum core developers. And of course, the context for this report

and the market conditions right now is Solana trades at about an 83% discount to Ethereum at this point in time. So that's some of the qualitative analysis that goes into this. I don't think we're quite ready to get to the conclusion and your take on the conclusion,

but that's maybe the fact so far in the summary. So let's talk about the next section, right? So we've got all of these on-chain fundamentals that we've just gone over. Let's talk about value accrual. And there are some differences in terms of how the networks are now architected with respect to value accrual. So there's something I think investors need to really get through their heads as to thinking about this space. You can create a whole bunch of value. There's value creation. It doesn't necessarily mean you're able to capture that value in an asset. So an example I always like to give is like in the early days a peer-to-peer

your predicate call like a bit torrent or something like this, or Napster in the early days, created a whole bunch of, let's call it value, right? Like, it was awesome. I could like listen to MP3s in college and like all of these things as highly valuable, but it was not able to capture that value in an asset as part of a business model. So when you look at like fundamentals behind assets, it's not enough to see value creation happening. You also need to see the asset actually accruing that value.

So with that stead, what are the similarities and differences between sole the asset and its ability to capture value versus ether? So I think the big difference here. And yeah, thanks for that intro. That's fantastic. And I see this all the time. By the way, I think bankless creates a ton of value for like the entire like crypto ecosystem. So that just want to throw that out there. A lot of these L1s benefit from media and crypto.

You know, I think the biggest difference here between these two ecosystems is, you know, Ethereum is building itself out as this like modular tech stack. And so, you know, when a user comes into an L2, they're transacting, they're paying a fee to that to the L2 sequencer, you know, today that is just going to these L2s and their sequencers. And then there's a settlement fee also that gets paid down down to Ethereum. So if you're an ETH validator and you're or you're holding the ETH token, that's sort of, you get that, you know, percentage of the pie today. It's getting, there's a piece that's going to the L2 with Solana because they are building it out so far in a monolithic tech stack, you, the, the validator

itself is capturing 100% of that. There's no L2 that's sort of a middleman in there that's capturing some of these economics. And so I think that's the primary difference here. You know, I don't know, I'm not, I'm not convinced that Solana won't need L2s, you know, at some point here. I've had conversations with founders in Salana that have told me that there's a chance that they're going to need an L2 because they've already run into some bottlenecks. So we'll see how that plays out. But so far today, it's cleaner on Salana in terms of the value accrual to that token. In general, the two assets themselves, I would say, are building out very strong network effects. I think ETH has the strongest network effect of any asset in crypto.

And I think Seoul is probably number two. today. So let's talk about this in a bit more detail because I think this is like the crux of some the conversation. I think part of the reason Ethereum has had so far a lackluster performance in the bull market relative to Solana is this architectural decision that it's made that it thinks will be long term beneficial. But in the short run, it's basically, and like you might not put it this way, but this is the way I've been putting it. It's outsourced its execution layer to other chains, layer twos. Salana has not done that. It is taking, is not sharing with others, right? the sole token is the recipient of settlement and execution and all of the fee capture of block ordering

and block sales related to that go to the sole token. Whereas Ethereum has said, nope, we're trying to scale and maintain its version of decentralization. And so with that design constraint, we're going to be a recipient of the settlement fees. But execution, that's going to happen in arbitram. It's going to happen in optimism. That's going to happen in a ZK rollup. And we're going to give up that revenue model. Now, the belief for the Ethereum folks is that that will pay dividends later in the future. So it's a more credibly neutral settlement layer. It's not competitive now with other layer ones in the same way it used to be. It's kind of like the base layer for settlement. It gets to export ether as monetary assets inside of all of these layer two economies that are

springing up. And it gets to maintain it's like decentralization, its version of decentralization. But that seems to me is like a bet for sure and also a long-term play. But that's what's happening right now and is a key difference between these assets. You have any reflections on that? Yeah. No, I think that's exactly what's happening. It's making the market a little bit confused. And I think this is something Ethereum is going through right now.

And if you look at the data from Q2, it's an interesting time to be looking at Ethereum data because we're seeing the impacts of EIP 4844. And that plays into this story because ultimately what that did is open up this massive amount of supply of block space. And my view here is that if you look at any past technology movements, when you open up a glut of supply, it gets backfilled. And what's causing it to be backfilled is new entrepreneurs, new developers coming in and building new things. And I sort of view that as like we're in kind of like this, this is the broadband moment for kind of Ethereum. In the interim, it looks a little funny because Ethereum's fees are down,

L2 fees are down. And so it's starting to look much more competitive as well. And investors have to decide, am I putting my money in an L2? Am I putting it in ETH? You know, you're potentially diluting value capture for ETH. And we're in this sort of confusion right now. ultimately I do think this plays out and because of the network effects with ETH the asset, it's potentially going to capture value accrual happening throughout the tech stack with restaking,

potentially capturing value from these L2s as well and other protocols. So I do see that story playing out and I'm actually bullish on that story. But in the interim, I think it's a little bit confusing for investors. That is a fantastic story in the long term. we'll have to see how it plays out. Like your reflection is it's not playing out that way right now in the on-chain fundamentals, right? And so like what it looks like is, oh my God, Ethereum just like cannibalized itself. And it's now just taking all that juicy fee revenue.

And because it decided not to scale or scale via execution layer twos, it's just like outsourcing that. It's giving that away. And like, why would it cannibalize itself? That's what it looks like right now, snapshot of time in, you know, at the end of Q2, 2024. And it almost looks like a bad decision. from a fundamentals perspective. But let's talk about maybe the bull case for ether in this section in terms of value accrual versus the sole token.

A few things I want to check with you. So I think the Heath Bowl would say there's the long running assumption that the execution layer is kind of the commodity here, actually. And that's going to have not much of a moat and that there will be other incredible execution layers that spring up and go fight Salana essentially for execution. So theorems over here with settlement. It's the only player that's really doing that well. And then execution wars will be severe, will be harsh.

Have you seen the telegram daily active addresses? It's absolutely insane. And it's getting to Solana-type levels. And so all of the roll-ups on Ethereum will go fight that battle with Solana. And you've got roll-ups like base with the power of Coinbase behind it, fighting for execution against Solana. So that will be a commodity game. What do you think about that counter to value accrual for sole the asset? I think that's fair.

I definitely think that's fair. And one of the things that I think is very bullish for Ethereum also here, you mentioned base. Like Coinbase, there's a relationship there, and Coinbase is very focused on the Ethereum ecosystem. Over 100 million accounts signed up on Coinbase. So I think that's pretty interesting. I've been looking at potentially what Robin Hood may start to end.

and it looks like they are going to be focused on Ethereum. They've got a deal now with Arbitrum to potentially allow the Robin Hood wallet users to interact via Arbitrum. I think that's going to bring users into defy. So, you know, there's definitely a story here, a bullish story intact for ETH. And, you know, we'll see how it shakes out. Solana needs these types of stories. I believe Salon is trying to be NASDAQ on the blockchain.

You know, a lot of the rare world asset narrative, what black, black, Rock is doing also happening in the Ethereum ecosystem. So, you know, there's plenty of competition to play out here. Michael, did you get a chance to watch that Anatolia versus Justin Drake debate that we had a few weeks back? I've seen, yes. I don't think I've watched it in full just yet, but yes, it was a great episode. And yeah, I did tune into sections of it. One of the themes from that, which was incredibly interesting, is in something that we can't, like, we don't have evidence to verify. It's like Part of my challenge to both Justin and Tully was like, make a prediction and let's check back in three to five years and see who is right. And that will sell it.

Right. That's where we said. But like Justin's perspective as the Ethereum bull was that Salon is making some short-term decisions that are centralizing it with respect to, you know, like, M-EV will centralize. It's monolithic design will centralize like block production. So this is a bad foundation to host layer two. to be a credibly neutral monetary asset, to preserve censorship resistance, to preserve the properties that actually make crypto corruption resistant. And those properties like the market discounts and undervalues in the short run, but in the long run, they matter a lot. And isn't

that the point of crypto to maintain corruption resistance and be censorship resistant and immutable and no rollbacks and all of these things? What do you think of that argument? Because I think the Salana camp would say, hey, like, you're just co-opting this word decentralization. You're giving an Ethereum-specific meaning. Solana does have decentralization, and here's how. But what do you make of this? Yeah, there's no question that I think Ethereum is more decentralized. It's cheaper to spin up a node on Ethereum.

It's more expensive. The hardware requirements are more on Solana. So I think there's no question here that Ethereum is more decentralized. I think Sislana at the same time is sufficiently decentralized with the number of validator clients that they have, the sort of geographic dispersion of those clients. I am not as technical as Anatolia and Justin Drake debating these concepts, certainly. And I think they're very healthy debates. I'm always happy to see these types of debates in the market. It's not something that I am looking for sufficient decentralization myself.

and it's also in line with just like my ethos and like why I'm in crypto. But from an investor perspective, it's not something that I'm really factoring in just yet. But I think that's fair that you do need to be thinking long term here. And there could be potential issues that I'm unable to see currently. Let me run an idea by you and see if you kind of like co-sign this. But like I guess my theory is that all of that, all of the tradeoffs and all of the decision that are being made by each respective network, will in the fullness of time, play out in the fundamentals.

So you will see it reflected in on-chain revenue. So, for example, if, you know, users leave Solana because they're getting, like, sandwich attacked on the transaction because MEV is centralizing, or the validators, like, take control and kind of, like, distort the economics, so they're receiving some, like, proceeds and kind of, like, diluting everyone else. or just like corruption happens, nefarious things happen.

Over the long run, that will result in less activity on Solana, less V-generation, you know, like it basically, it tends to play out in the long run. If on the other hand, none of this manifests, and Solana proves itself sufficiently decentralized for the use cases that users want, and there is lots of activity on it, well, that will play out in the fundamentals as well. So, like, my take here as like a little bit of a fundamental, I'm a decentralization, like, lover, But I also live in the real world of investing, and I do, like, fundamentals matter a lot.

So I'm kind of a fundamentals maxi. My take is that, like, the debates are kind of temporal and a little bit silly. Like, it'll all play out in the fundamentals in the very long term. What say you to that? I think that's fair. And there's something to be said here to, like, the users, are users going to care? We care. The people that are in crypto early certainly care.

But do the normies and the people that are actually. actually going to be using these things in the long run, do they actually care? You know, we can get into like the privacy conversation as well and all this data is public today. So there's a story there. But yeah, I mean, to me, like, you know, when I hear Anatoly and Justin debating a lot of these topics, I'm just looking for like, is there some red flag that I'm unaware of? Because I'm not deep in all these technicals. Yeah. But I think you're right that like this is going to play out. The market is always correct. It's kind of how I think of this. And it is going to play out in time. One thing that's sort of interesting to me with Solana that I haven't fully reconciled is the fact that jump

crypto, which is like a market maker, you know, in crypto, one of the largest ones is the developer of the fire dancer, you know, validator. And like, you know, Anatoly talks about, you know, bringing, lowering latency on blockchains and allowing it so that nobody can sort of frontrun you. We're seeing all this MEV on Solana. You have a market maker developing the next iteration of the validator client. You know, that's kind of concerning. So I think to your point, like, there's some stuff that needs to be worked out here as well. Yeah, I raise my eyebrows on that, although the Salana Bulls tell me it's going to be open source where it is open source. and so everyone can kind of audit it and check.

I still haven't kind of gotten to the truth there. But the fundamentals hopefully will be the reflection of what actually plays out and the best decisions. So speaking of a fire dancer or client, let's get to some upcoming catalysts for both networks. So Solana, you do mention the fire dancer client as an upcoming, I guess, short to medium term catalyst. So there's something that's going to play out in the next six to 12 months. So what do you see as the core catalyst? Maybe let's start with FireDancer, the core catalyst for Solana.

Yeah, so this is, we just mentioned, you know, this is being developed by Jump Crypto, open source, so, you know, anybody can kind of jump in here and also participate in the development. You know, the big thing here, to me, is just the redundancy of the blockchain and having this, like, single point of failure because, you know, Salana has one validator client. So I think that's the most important thing here. And then this, you know, sort of gives Salon. like over time, that sort of Lindy effect, once a fire dancer goes in and it never has another, you know, point where it sort of needs to be shut down the blockchain, then, you know, the market

starts to forget about these early days when Solana had these issues. You know, Ethereum had issues earlier as well, maybe not shutting down the blockchain, but it had other issues that because it's continued to sort of run and validate transactions over a really long period of time, the market just forgets about it. So there's a chance that that's going to start to start. to play out on Fire Dancer. What does that mean for the, you know, for this like real world asset narrative? Is BlackRock going to start to sort of pay more attention to Salana? Because they can see that it's more secure and it's been around for longer.

You know, that's sort of the signal potentially that comes out. This plays out over a multi-year period, I think. But that's kind of what I'm looking at with the Firedancer client there. How about Blinks? Let's talk about the blinks. What are those and why are they a bullish catalyst for Solana? Yeah, so blockchain links. This is like very similar to what we saw like on Farcaster with Farcaster frames. It's basically bringing like a Web3 wallet experience right to the browser within social media. So Blinks are something that you can do on Twitter. Currently we may see this start to pop up more on other social networks. But it basically allows you to like do stable coin payments and things like this like right in right in your browser. You know, I could see this starting to sort of really pick up. later in the cycle, potentially, if we get into one of these like hype manias again,

where people are sharing all kinds of these links, they're probably going to look kind of scammy and toy-like and potentially pumping meme coins and things like this, where you could send it, you know, you could have influencers sharing links right on Twitter, and it goes right to Jupiter, and you can make a trade and buy the meme coin right from your Twitter, your Twitter feed. So we may start to see stuff like that later in the cycle. That's what I'm looking for with Blinks. but in the long run, potentially changing like the consumer, consumer behaviors, e-commerce, potentially impacting, things like that.

There are some other catalysts. We don't have time to get into, but D-PIN is carved out a special place on Solana. Also, there's some stuff going on in social. Let's flip to the other corner, though, with upcoming catalysts for Ethereum. The first is something that, my God, I hope this is the last week we will go without an Ethereum ETF, but the Ethereum ETF, that is a major catalyst. Let's talk about that for a second. So that is a catalyst on the Ethereum side of things. If Solana gets an ETF, it's kind of like a Hail Mary pass, like, you know, who knows when it'll happen. But Ethereum is just like about to get an

ETF. We saw what it did for Bitcoin and he takes there. This is huge. And this definitely factors into sort of how I'm thinking about how this cycle is going to play out. You I expect the ETH ETF to potentially surprise people. I know a lot of the sort of experts over at Bloomberg, and I've been watching sort of what they're projecting out there, I think somewhere in the 10 to 20% range of what the flows that Bitcoin got. I'm sort of thinking it might surprise people a little bit. And I just think the narrative for ETH, which is still largely misunderstood, I think,

but just this idea that it's sort of this open source app store, there's a cash flow, you know, the ETH, ETF is not going to allow staking initially, so there's going to be no yield there. But I just think that like the addressful market for Ethereum is to me, and this has always been my thesis, is much larger than Bitcoin. And we may start to see this start to become realized once the smart money or the big money on Wall Street starts to really, kind of understand Ethereum. We have this flagship quarterly report we put out the Ethereum investment framework, so I'm hoping that gets a little more traction now that the ETF is here. But, you know, I just think that Ethereum has a very compelling story for Wall Street, and it could surprise people once this thing starts trading.

Well, let's add to that story of real world assets. You listed as a catalyst. You've got Black Rocks, Biddle Fund, tokenized treasuries. The bulk of that activity is happening on Ethereum. This is kind of like the serious assets are on Ethereum type of take. But tell me about that as a catalyst for Ether. Yeah. So I just think, you know, I always try to like making sure I'm understanding all the incentives that are at play. You know, you've got Ethereum, you've got BlackRock, you know, with this ETF coming. I believe they're going to want to sort of legitimize Ethereum for putting, you know, financial products on the asset.

And so they've already, you know, they already tokenized money market fund on Ethereum. I'm expecting to see more of this. I'm expecting to see Larry Fink once the ETF is trading, going on CNBC more, talking about all the benefits of putting these assets on chain. This is like the real use case for crypto is putting all these assets on a blockchain, creating efficiencies, making these markets more liquid.

And I think BlackRock totally gets it. We can talk about it on crypto Twitter and amongst ourselves all we want. It's a totally different story. when Larry fanks on CNBC talking about this stuff. So I just think there's a chance that Ethereum starts to get that flywheel going where you get the burned ETH, the narrative is driving price, which is driving more burned ETH, and potentially we see like a period

where ETH just outperforms everything. I'm looking for that potentially later on in this cycle. We haven't as well had retail come aboard yet, but once they do, they'll probably be coming aboard via an exchange and then being routed by someone like Coinbase to go on chain and to use the base platform. So you list Coinbase and Base as a layer too. It's a fast-growing L2. Of course, Solana as an execution layer, has had many years of doing this, including an entire bull cycle. We have not yet seen base in a retail bull cycle. And you think that that could be a major catalyst for Ether as well. I think it's, yeah, I think it's another

catalyst. We've seen not similar levels of meme coin trading and stuff on base, but there's certainly plenty happening there. There's a lot of volume. The fastest growing app on base is Uniswap, which is kind of interesting competitor to Coinbase in some ways. So yeah, I think base is

another big catalyst and also just Coinbase facilitating the migration of their users on chain. Lastly, let's talk about qualitative differences and then we'll get to kind of like what all this means and we'll answer the question at the beginning of the episode You list a few qualitative differences, and this is kind of like opinion-based, of course,

but user experience right now it's better on Solana. I think people would say, hey, it's also good on Layer 2s, but then the counter would be, yeah, but it's all fractured across all the layer 2s, and Ethereum has had a major kind of like, which layer 2 do I use, like from a DevX perspective and a fragmentation perspective. And also the difference here is Solana is kind of centralized. It's a VC-funded. it's almost like a Silicon Valley type of team. You go to like, you look at the Salana events

and it looks a bit more like an apple type, you know, like an apple type, you know, that has that flavor and that feeling versus Ethereum. It's just kind of like, it's like Linux. It's a little like open source, a little haphazard. And, you know, like lastly, maybe I'll add something. Some of the feedback I was hearing from ETHC is that the Ethereum community feels also fractured on the social layer. So not only do you have fractured user experience,

but you have some of the layer twos that are kind of fighting. And it's like, what's the cohesive Ethereum community this cycle, right? So there's some question as far as that goes. Whereas Solana has a simple message. Like sole app, sole token go up. We're really excited about meme coins. They can unify around kind of like the shared state in a bit of a different way. Anyway, what do you want to reflect on in those qualitative differences here?

I mean, I think you said it pretty well. I mean, I think from my perspective as a user in crypto, like I do find myself using Solana a little bit more just because of this, just the wallet experience. and not having to bridge, my view is that's going to get solved on Ethereum with account abstraction, and it's just a matter of time. And it may end up coming through stuff like Robin Hood and stuff that start integrating with Ethereum. So we may see them. We need somebody who's a really good interface developer come in and sort of fix some of those challenges.

I do think it does get solved, but right now it's better on Solana. And yeah, there is just some fascinating differences. I think Ethereum has sort of the Bitcoin sort of ethos, very decentralized. If you're BlackRock, if you're Larry Fink, and you're trying to figure something out on Ethereum, like, are you calling who you calling? I think there's like a direct line somewhere at Solana where you can speak to someone and they're going to help you. And there's a little bit more organization, I think, just with developing the developer community and things like that. So we'll see, we'll see how that shakes out.

So let's the moment we've been waiting for. Let's answer the question, see where this leaves you at the end of the report. So the question was, should Seoul be trading at 83% discount to Seoul and recall some of the stats we mentioned earlier in the episode? So back in November 22, Solano was trading at 3% of Ethereum's market cap. The market has said that that's not, that was not correct. Now it's at 17% of the market cap, but that's still 83% of like off in terms of the market cap. So what's your answer to that question? Should it be trading at this discount relative to Ethereum at this point in time? And what do you see on the horizon for the next six to 12 to 18 months? So the conclusion is that that number's still too low. So I think that is

actually going to get sort of re-rated higher. My view is that it could go up to like 25% or so in this cycle. So we're at 17% now of Ethereum and you think that it could go up to 25%. Correct. And this is, you know, this is just pure speculation, not financial advice or anything. And I'll share that in my personal portfolio, I haven't sold any ETH for Seoul. I did add to Salana, but I never, never sold, never, you know, convert. I think a lot of people have done that in this cycle where they've sort of taken their ETH and gone into Seoul. But no, I think the way I see this playing out is with this ETH, I think ETH is going to have a period of sort of outperformance here. And I'm looking for Salana to sort of outperform later in the cycle when potentially we get this like, you know,

all coin rotation. So I think this is going to be interesting. Ethereum has typically been sort of the outperformer in the latter stages of these cycles. Now that you have a new, you know, market participant in Wall Street, buying those ETFs could change us a little bit. But yeah, the take here is that Ethereum has a great run. My sort of base case for where this is all going, and I use that. the $10 trillion market cap for all of crypto.

And that would sort of follow a similar growth pattern that we saw from the 17 top to the 21 top, muting in a little bit for just the larger market cap. But if we get to that 10 trillion mark, you know, I usually sort of pencil in Bitcoin gets to 40% of it or so. Ethereum in the last few cycles has gotten somewhere between 40 and 50% of Bitcoin's market cap. So you potentially get to like Ethereum at around 1.8 trillion market. cap. And then if Salon is 25%, you're getting somewhere in that, you know, between 400 and 500

billion market cap. So it's getting sort of to where Ethereum got in the last cycle. It's kind of where I see this, is shaking out. But, you know, that's not saying Salon is going to flip Ethereum, right? Ethereum is growing. Bitcoin is growing. They're all growing. I just think that Salon is going slightly outperform in this cycle. And there's a chance that, you know, if you look at the performance of some of these alternative layer ones in last cycle, you know, Cardano and some of these things did better than Ethereum. So there's a chance even if you go farther down the list, there could be outperformance on Seoul as well. So. Yeah. And if, yeah, I guess if crypto history repeats, there definitely will be some outliers that just like pump and do absurd things.

But likely without the fundamentals to back them up. Like, you know, It doesn't always happen that way. Okay, so you are a slightly overweight sole relative to Ethereum, but you don't go as far. You don't come close to thinking that Salon is going to flip in Ethereum this cycle then. It's kind of like 25%, maybe a little higher is kind of like the top layer in terms of percentage of market gap. That's exactly right.

I don't see it flipping. I think in the fullness of time, Ethereum flips Bitcoin. and we'll see there's going to be the battle here between Solana and Ethereum. My view is that we ultimately get four to five of these major L-1s, and there's three that I think are investable, and that's where all my research is focused currently. We'll see how that sort of shakes out between the smart contract platforms, but I'm not calling Solana to flip Ethereum in this cycle.

So you are overweight ether relative to Bitcoin and overweight soul relative to ether. Very interesting. This has been great, Michael. Thank you so much for guiding us through this. Just curious, maybe at the end, if you could translate some of those market caps into price. I don't know if you could do that math on the spot or you maybe have some of this memorized. So you mentioned a $1.8 trillion, eith. Can you just like do the math? What's the price of ether this cycle look like and similar for the sole token if we hit those numbers? Yeah. So in a little more context. So about 77. percent of the market cap today is in like the L-1s. So you can, that's another factor here.

But yeah, if you get to $1.8 trillion, that's about, slightly under $15,000 per coin for ETH, like the peak. And again, this is forecasting a $10 trillion market cap. If Solana gets into that $450 billion range, that gets you above $900 per soul. You know, I sort of have this scenario analysis sheet that I work off of. You could say, okay, maybe the market cap only gets to $8 trillion. do it from there, you could say, well, maybe Eath actually outperforms Bitcoin, and it gets even higher than the 1.8, maybe Sol does a low. So you can kind of, you know, toggle it as you will.

But I think these are sort of the base case if we see this, you know, a strong second half of this bull cycle. So that last if, I just want to press you on that for a second. So your base case is around 10 trillion, which is like a full bull cycle. Like, you know, it's kind of a repeat of the last bull cycles, you know, four-year cycles that have been historic. There's also kind of like the the bad news case, like the bad scenario here. Like what if this time it's different, Michael? What if this time, you know, the bull gods kind of skip crypto because they're very, very excited about AI right now. You know, they pivoted over to Nvidia stock and like AI and crypto doesn't get the cycle it's had previously. What's the probability or chance?

of that in your mind? Or are you just like betting on kind of like similar cycle? You know, we'll get to the kind of Raul Paul's banana zone and like we'll figure this all out. Yeah, I mean, I will say that crypto is like has this incredible ability to like express human behavior. And I always sort of root myself in this. And like there's people that have this view and they always overthink like, oh, retail got hurt last cycle. They're not going to come back. And like, to me it just fails to understand human behavior. And like once the number starts going to going up, like I've already seen this anecdotally with, you know, my family members reaching out to me and asking me what assets to buy when I told them, you know, 12 to 18 months ago to be interested. So I just think it's going to play out again.

This is even more interesting this cycle because you have like Wall Street. I think they're going to have the same FOMO that that retail has had as well. I'm not worried about AI, you know, stealing the narrative or anything like that. I just think this is human behavior. We're don't bet against humans, just doing human things. And so I do think we're going to have another cycle. I think it's going to play out similarly to the past. They've always sort of peaked in Q4.

So we've got a ways to go potentially in this one. And there is like the other side of this that like, well, if markets are rational, then like people should be front running this and it like it can't possibly play out that way. But it continues to do it. I think Rao Paul does a good job with like his like banana zone analysis. and liquidity cycles and how all this plays in. But I just think it's all setting up with the election cycle, with global liquidity. The Fed may start cutting rates here into Q4.

So I just think it's all setting up. And don't overthink it. Just don't overthink it. Don't overthink it because you're not so much betting on crypto, maybe for the cycle view of things, you're betting on human psychology, which fundamentally just doesn't change. I will tell you anecdotally, Michael, a few weeks ago, I got my first text from a family member saying,

saying, hey, I was talking to this guy about XRP at a party. What do you think of that? There you go. There you go. The trickle has started. Let's end it here. Michael, one last thing. Can you shout out where people can access the Defi report? You also have a podcast. So you do some of this analysis in podcast forms. Where can folks find out more about the resources that you have in the content you're putting out? Yeah, we share all our research through the defyreport.io. So people can go there and access the podcast. also all the written research. And I'm on Twitter at Just Do It and also on LinkedIn as well. So yeah, thanks for having me on, Ryan. This has been fantastic. Amazing. Got to end with this. Of course,

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