Bankless - The ETH Merge: BULL OR BEAR? David debates Jordi Alexander

Episode Date: September 10, 2022

Jordi Alexander returns to debate David Hoffman on whether or not next week's Ethereum Merge is bullish or bearish for ETH. The debate is moderated by none other than, Ryan Sean Adams. Let us know if you're bullish or bearish in the comments or on Twitter: @banklesshq ------ 📣 ConsenSys | Mint a Merge NFT! https://bankless.cc/themerge  📣 Converge 2022 | Register with code Bankless250 for $250 off https://bankless.cc/Circle  ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/  🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/  ------ BANKLESS SPONSOR TOOLS: 🚀 ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  ❎ ACROSS | BRIDGE TO LAYER 2 https://bankless.cc/Across  🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave  🌴 MAKER DAO | DECENTRALIZED LENDING https://bankless.cc/MakerDAO  🔐 LEDGER | SECURE STAKING https://bankless.cc/Ledger  ------ Topics Covered: 0:00 Intro 3:03 David & Jordi's Luna Debate 10:07 Why the Merge is Overhyped? 16:50 Merge Bulls 21:05 Long ETH? 23:10 The ETH Narrative Play 32:05 Overestimating the ETH Yield 42:38 Blockspace Demand 1:02:05 Multichains 1:06:17 Ethereum's Gravitational Pull 1:09:57 Value Accrual 1:17:23 ETH Not Monetary Premium? 1:28:50 Price Range Predictions ------ Resources: Jordi Alexander https://twitter.com/gametheorizing  Jordi's Article https://newsletter.banklesshq.com/p/is-the-merge-overhyped  David's Rebuttal to Jordi's Article https://newsletter.banklesshq.com/p/a-rebuttal-to-jordi-alexander-and  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://newsletter.banklesshq.com/p/bankless-disclosures 

Bankless Nation, it's debate time. Debating, I think, the most interesting topic in crypto today is the merge overhyped. We get the bear case and the bull case for the merge. We try to answer the question on whether it's overhyped or not. Today, my role is a bit different in bankless. Today, I am the moderator. I am the host of this debate. We have David Hoffman, who of course is taking the bull position. And we also have Jordi Alexander, who I'll introduce later, who is taking the bull position. We also have Jordi Alexander, who I'll introduce later, who is taking. taking the bare position. He thinks the merge is overhyped while David thinks it's probably still underhype or appropriately hyped. And we will get into all of that. I think the market still might not understand the merge. It's going in both directions. And so hopefully this episode gives you some clarity on that. I'm going to introduce our debaters in just a minute. But a few quick announcements. I'm going to have David help me do this as well. Of course, you know, bankless, not me today. the moderator, but bankless is overall bullish on the merge. So is consensus. The merge is happening

next week. And if you want to pick up an NFT to commemorate the merge, you can do that for free. All you have to do is go to the website. We'll link a something, a link in the show notes. And you can click this link on being the first to know and get a merge NFT as a commemorative collectible from consensus. David, I think there's one other announcement we need to cover before we get in. And that is you are going to a conference pretty soon. Yeah, Converged 2022 in San Francisco. That is at the end of this month, September 27th through 30th. One of the first conferences, post-merge.

So we'll be able to talk about and have conversations and content around the post-merge world. We got Brian Brooks. We got Phillips out there from Li-Fi. We got Vitalik Buterin also giving a talk. I will be hosting a panel as well as many other speakers in the crypto and fintech space over in San Francisco. There's a link in the show notes to get a ticket. and also a link in the show notes to get a discounted ticket, more importantly.

So you can check that out if you want to go to converge 2022 with me. I think you've got to pick up that discount by September 15th. It's $250 or something like that. Use the code bankless. You'll find that link in the show notes as well. All right, David, we're going to get to it. So we're about to introduce,

I guess no one needs to introduce you, but I want to introduce Jordi Alexander in a minute. He is the merge bear in this episode today. And he put an excellent post out in Bankless on why he thinks the merge is overhyped. Jordy, welcome Bankless. How you doing? Good to be here. I'm excited.

David, you, of course, are the Merge Bull, and you are bullish on the Merge. And you are also known to host a podcast in the space that is also well known to be very bullish on Ethereum. and The Merge. Welcome to the show, David. Thanks, Ryan. Thanks for having me. I got to ask maybe before we get in, just a little chit-chat, David, are you a little bit worried about this debate? I mean, the last time we had Jordi on a bankless podcast for a debate, the coin that he was bearish on went to zero in six weeks, all right? So are you a little bit worried about this one? Well, you know, data point of one. However, I will say,

the sobriety that one needed in order to be like bearish Luna in the time of complete Luna just the narrative tailwinds behind Luna where the strongest was was hard and took a very smart and rational person to do so and so I think maybe I'm perhaps the person drinking the Kool-Aid this time and now it's my turn to have to go up against Jordie, yeah.

Jordi, just real quick before we get in, what was kind of like the aftermath because I don't think we've we've talked to you much about this but the aftermath after that debate and kind of the you know the crash of Luna did you hear from anyone just what were the kind of the months after that event like for you um yeah obviously there was six weeks so between that time there was quite a big run up in Luna I mean it went up another 50% I think like to 120 125 it really had like it's uh it's like an you know next surge there I got involved a little bit in trying to understand, you know, the exact mechanics of how Luna might be leaking because I kind of felt intuitively like it was leaking value. Sadly, I didn't really, because there was so much other stuff going on, I didn't spend the time to really understand exactly what the switch, the kill switch was.

I did that work as it was falling apart. And then I'm like, okay, now I really need to like just not sleep the whole night, stay up the whole night and really try to pinpoint like, why is this happening? And I did, but it was too late. It was falling apart at that point. But I realized that that design can never work ever because basically people can just arbitrage Luna and get cheap U.S.T. so they can mint U.S.T forever just by kind of buying low, selling high, Luna back and forth.

So that means that no matter what, like it was doomed to fail. Like it was going to go to zero at some point. David and I have talked about that episode a little bit, and it was really funny sort of as the episode was being live streamed. And in the days after, there was a lot of vitriol from the lunatic community, I would say, about that episode. A lot of negativity, negative comments. And then what you see is like a couple months later, the comments begin to change. And there start to be like appreciative thank you comments. Like thank you for airing both sides of this argument.

I should have listened a bit more rationally to Jordy's take on it. I'm wondering if you got any thank yous in the aftermath, because I know post that episode, there was a lot of anger from a community who felt like maybe you, maybe bankless or at large, was kind of just trying to knock down Luna and we were just kind of haters of something that was innovative and new. Yeah, I mean, definitely, like there was a lot of that. It wasn't surprising or new to me. I mean, I kind of had my first go around with Olympus Dow people back, and it was over like $1,000. And it kind of crashed soon after.

And I saw a lot of the same thing. Is Jordy just this Reaper meme just going, knock on doors? You're in trouble, David. That's what I'm trying to tell you. You know, it's kind of like something that has opened my eyes a lot about, you know, the power of community when things are really well. where they're, you know, it's just kind of, I don't want to say, Eith is showing that as well now. But when things are going well, there can be like a huge momentum and maybe like less critical thinking.

And then when things are badly, like people are trying to like reevaluate and see like, you know, what they missed. This is an amazing setup for the episode that we're a bit about to have because I think the most valuable part of debates on bank lists specifically is to bust bubbles and to inject some of that critical thinking into some of our theses. So we're hopeful to do that. And we're going to get to the debate in just a minute. But before we do, we want to thank the sponsors that made this episode possible. Lens Protocol is an open source text act for building decentralized social media applications. It is the new era for social media. We all have toxic relationships with our

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The entrance of ultrasound money, maybe. Jordi has some questions about that. And he is taking the case for why the merge is overhyped. He's taking the bear case on the merge and trying to deflate some bubbles. Jordy Alexander, of course, is the CIO of Salini Capital, which is a multi-strategy trading firm. It's also liquidity providers specializing in crypto assets. He's also a seasoned debater.

He came on to make the case that Luna was on shaky ground. I did that six weeks before Luna then collapsed to zero. Jordy, welcome back to Bankless. It's great to have you. That's good to be here, guys. Of course, David Hoffman is a leader of the Bankless movement. He's the co-founder of a media studio of the same name. He's a well-known writer.

He's also appeared on this podcast. more than a few times. He's also known to be bullish on Eith. David, you ready for this one? I'm indeed ready. I've been preparing for this one for a long time, Ryan. All right. Well, let's start. Yes, you have. Indeed, for your whole crypto career, I think. Let's start with Jordy, with kind of the preamble and the question. Jordy, you wrote a fantastic post that we actually published in Bankless that kind of goes through why you think the merge is overhyped. But why don't you start there with the preamble? We'll get into the details of all of your reasons and rationale for why it's overhyped.

But give us the big picture. Why is the merge overhyped in your mind? What are the main reasons or the main things that are overhyped about it? Yeah, I mean, you know, that people have different time horizons, but I think there's reasons on the short, medium, and long term to potentially be like concerned about certain parts of the narrative. On the short term, I think people assume that, you know, once this merge happens, price will just continue to flow up because it's happened.

but in reality, I think very strongly that we will see the usual sell the rumor, you know, buy the rumor, sell the news for many reasons, including the fact that it is such a huge catalyst that people are really looking forward to it. The price action on it is going to happen now as people are like expecting it. After it's done, you know, in two months' time, people are going to be moving on to the next narrative and the next thing as they always do. And so I think that's like something to be mindful of in the short term. In the medium term, what really concerns me is the fact that, you know,

Heath as an asset is supposed to be this like yield bearing, you know, base interest rate, financial instrument. I'm very concerned about gas fees. I don't think they're going to recover to the levels that they were. And that creates an unsustainably, the expectation for yield being high is just not sustainable. So I've kind of done a lot of work looking at, you know, what yields are actually going to be. Once things settle down and it's it's less than treasuries. So it's not very exciting compared to like, you know, traditional market riskless rates. And then lastly, on the long run, you know, my thesis on ETH is that it needs to find what it is.

Is it this? Is it that? Is it money? Is it, you know, is it like global computer? Is it a financial sector? It has to kind of pick and choose. You know, Vitalik wants to say that, you know, the community just wants to do everything. so we'll just be all of the above.

And I have a belief that unless it chooses and kind of focuses on one thing, it will get eaten up by other cryptos that want to specialize on a certain, you know, theme. This is great. So if I were to summarize, you've got short, medium, and long-term concerns related to the merge. But then, you know, Ethereum writ large in the short run, you think it's maybe priced in. Like the narrative's out there, the narrative is overhyped, and maybe it's kind of priced in. the medium term, you're concerned about the expectation around yields. You think they might be less than some people think it is. And over the long run, you're concerned with the value

proposition of Ethereum as a network. I think that's one of your criticisms is that the bulls and the overhypers think of this world as one chain to rule them all. We'll get into all of those in just a minute. I want to hear from our bull before we do. So David, just give us kind of your preamble. Don't have to address all of Jordy's points, but where do you contend the most with some of like the arguments that Jordy has raised, both in his written form and just now on this episode? Yeah, there's two ways to go. There's like what is the fundamental bull case for the merge and why is it not priced in? And then there's like specifically what about Jordy's arguments, I think, are wrong.

And so I'll kind of do a little bit of a hybrid on that. Fundamentally, like, the whole, like, triple point happening aspect of Ethereum and the Ethereum and the Ether merge, I think, is, like, the most understated thing about this. And so, like, really what that means is, like, you know, the Bitcoiners are always perpetually bullish on the happening, right? And they claim that, like, once a happening happens, it destens a bull market to happen there afterwards. And it's because of the structural supply flows that we all know how press to be super bullish on. And like the, it's called the triple happening because we get three of them

all at once. And so I think it follows is that if you, an indecent proportion of the crypto industry does believe this is that, you know, if Bitcoin does cause bull markets, the Bitcoin happening does cause bull markets like two years later, you would expect the triple happening to cause like either a three times larger bull market or an equivalent bull market three times faster or somewhere in that between those two ends of the spectrum. Just because of the raw, sheer magnitude of how bullish it is as a fundamental catalyst. And like the reason, the overarching reason while I'll say it's not priced in is that we have not yet seen as an industry collectively some bullish catalyst of this magnitude never before seen since 2000 and like 2009, 2010 when Bitcoin was created.

So as a market, we don't have a history of understanding how bullish this thing can become. We haven't seen something so bullish yet. So we don't know how to price it in. And therefore, I'm claiming overall that because it's the most bullish event in crypto history, it's just generally not priced in because we haven't had to deal with it yet. That would be my main argument, I would say. All right, that's great. Let's go into this in a bit more detail.

And, Jordy, I think you have some fine-grained arguments that you've written. in your post and including some fantastic memes by the way and I got to ask with this with this meme in general where this is kind of like the eth merger if you guys have seen that that meme template of somebody who who thinks that you know none of this is priced in and then eth price is going to infinity you kind of do a play on that in your post I got to ask is this a picture of David we're looking at right here Jordan is he a merger no no it is not it is a generic merge or it is not this specific merger well can you go over maybe your four points here that you raised and then we will we will hit the first one so we'll hit them one by one what are kind of the ways that

merge oars or super merge bulls kind of over overinflate expectations here i think there are four of them yeah i mean to get to david's you know main point that um you know this type of thing has never happened before. I mean, that's true from a crypto aspect, but what I find consistently with the crypto communities, they, well, now they're starting to respect it more, but historically, they have not respected macro enough. They haven't understood that it's just the subset of like the global kind of liquidity system and the liquidity flows that are occurring. And it is a really bad time to have a monumental kind of, you know, supply event. And no matter how many how beginnings it is, even if it was like, you know, 10 halvings.

If you're about to enter like a recession and everyone's tightening and taking liquidity out of the system, yes, there can be, there can be some idiosyncratic flows and kind of price pressure and action. But ultimately, you know, the Bitcoin happening, the last one happened at a time where we were really entering an unprecedented like liquidity flow. I mean, that was like really once. Once in, that's like once a lifetime. The previous one, you know, 2017, that was like the first like real mainstream adoption kind of curve where, you know, people were like rushing in.

So using those examples, I think kind of ignores the fact that we're entering a very different monetary regime where, you know, right now people are not getting stimulus checks to like get into ETH. They're not having like extra money like laying around that they need to like kind of foamo. if anything, FOMO is kind of like reducing and we're seeing that in traditional markets as well. Maybe I'll allow David to kind of rebut that if you have anything to say. So Jordi is saying macro essentially dominates. And so, you know, the merger deflationary aspect doesn't really matter in the scheme of things. What would you say to that? Yeah, I think that's a super fair take.

I think that macro, like no matter how bullish the Ethereum merge is, like, you know, macro is something completely irrelevant to that, right? Like, it has its own massinations and plans for all markets, regardless of crypto markets or not. And I think the frame of mind that I always really come for as, like, somebody who holds all of my net worth in, like, crypto assets

is that, like, I'm kind of already exposed to crypto no matter what. And so this is coming from that perspective of... I've already committed to ride the crypto wave and many others in the crypto industry are, like, maybe, like, there's, like, the perspective of, like, are you a U.S. dollar bowl or are you really playing the market inside of crypto? And are you trying to find the asset that beats the rest of the market

in that short-term time frame? And so I'm totally ready to concede that I don't have the same level of conviction on the ether U.S. dollar price in macro terms. And I do on things like the ETH-BTC ratio or the ETH Avalanche ratio or the ETH, you know, a Salonah ratio. Because that, like, that really just closes out, like, it closes out a factor that I'm not in control of. And this is why, like, my current position is actually short Bitcoin long ether, which takes the dollar trade out of that move. And so, yes, I will agree that, like, I have tons of, like, conviction about the merge trade. And a lot of that conviction comes from being ether being related to the rest of the crypto asset market. So David is willing to, like Atlas, take all of the

crypto risk on his shoulders. But within that, he thinks that ETH will outperform other equivalent crypto assets. What do you think about that take, Jordy? Yeah, I mean, that's generally fair. I mean, we have seen already a large move, though, in ETHBTC, for example, at the low is 0.5.055. Now it's kind of hit at some point. Obviously, today is a little bit of an aberration, but it's been rallying in the previous days and it's gone up, you know, over 50%. So I would say, you know, that's played out and that was fair. I do want to acknowledge that I am bullish this supply squeeze. I do think it doubles the value of Heath compared to what it would be in a proof of work

state. So, you know, that is significant. I think that that's playing out. It has been playing out quite a bit already. I will, I will again, like reiterate though, like I strongly, as many years of trading, I believe that once the event is in the back mirror instead of in the forward mirror, as a trader right now, if Heath goes down, I'm very comfortable buying the dip. Why? Because I know that you know

they know and everybody knows that this thing is happening in a couple weeks. And so like it has the attention. And it kind of like it presents defense mechanism, like it prevents a floor. Like no one's really going to let it drop. So as a trader, I'm being very aggressive. I'm like, I can buy ETH dips aggressively, as I have been doing. You know, I'm not like short ETH. I'm long ETH here.

I am short at like, you know, over 2000 given this environment. And I'll talk about like why that specific price later on. but I do think that there is an element of, you know, going forward in two weeks time, people will start wondering how much BTC needs to catch up. And so even having an ETH-BTC trade where like BTC has been lagging, there could be like a catch-up phase. So I'm really not convinced how ETHBTC is going to do in October, for example. Jordy, I read you part of your post.

I think one of the points was around ETH being maybe. the ethereal being kind of a narrative play, essentially, and your take that, hey, like, everyone knows about this narrative. They've known about it for a long time. Can you get into that criticism that you have and a reason why the merge is overhyped?

Do you think it's mainly a narrative play? And maybe that narrative has already been priced in. Talk about that. I mean, there's a few narratives. I mean, we should go into the different narratives because, you know, people are looking at it from different aspects. In terms of the ethereum community,

of course, they're already all in, right? Like that buying has happened. Like they're waiting and they're, you know, they have their eath in their hands and maybe steak teeth as well. And that's fine. They should kind of know what to expect in terms of yields in terms of price action, in terms of other things. But, you know, as in general narrative, that's okay.

If you look at like institutional narratives about yield especially, you know, this is going to bring the institutions in because they're going to get yield. I think that's just a completely wrong narrative, very misplaced. And the kind of thing that maybe you hear an echo chamber, but I want to like really kind of look at some of these narratives that I disagree with a lot. And that's one. The other one is like the deflationary meme. It was a good meme. It looked like it might be deflationary. My estimates are that it will definitely not be deflationary. That's

not a big deal. I don't think deflationary is a big deal. But as using that as like a meme, when it's not correct, you know, people should not have that expectation and then it doesn't happen. I know you guys and many other people have been talking about the deflationary meme. I just don't think that the math adds up that there will not be deflation on a yearly basis. So we've got, you know, three different pieces there that Georgie just laid out or three reasons of rationale. And I want to get you to respond to that. And I mean, the first I heard was that, hey, like if people know about this, the permaboles, they've already bought in. So just discount that entirely.

And secondly, the institutions are coming and, kind of the internet bond and yield on ETH, that's way overplayed. And then thirdly, the whole ultrasound money narrative with ETH being deflationary, that's not actually going to be the case, is what Jordy's saying. David, I want to get you to respond to those critiques. Yeah, the first one that, you know, that it's, it falls into the category of, like, there's a bullish catalyst, the traders trade around that catalyst, and because that that happens, it, like prices out that catalyst,

saying, it's more or less saying like all catalysts get front run by the market, right? Which is generally like more or less true to like some degree. You know, if there's something bullish, then like people will front run this. That's how markets work. It's basically like I feel like it's an articulation of the efficient market hypothesis, right? It's like there's never. But like it doesn't leave room for, it's just like a catch-all argument saying like it's a fun, it's a bullish catalyst, therefore it's priced in.

And yes. And I think this really is about like time frame. right? Like, could I see Ether dumping after the merge because it's a cell of the news event? Two weeks, four weeks, six weeks afterwards. Yes, I could see Ether being in the red for six weeks afterwards. Eight weeks afterwards, too. Like, maybe we go up to 16 weeks afterwards and it's still in the red versus where it was at the post of the merge. But I think really the merge trade is about like every week after the merge, the likelihood that Ether flips green increases. And maybe that's not very likely on week one or two or up to 20. But like,

Beyond like 20 weeks, we're starting the likelihood of ether becoming green because of the fundamentals of the merge, it goes in ether's favor. And so, like, yes, traders can always front run the trade and get ahead of it, and then they can dump post the news. And maybe it wasn't, maybe it was priced in. People already front ran this. But it's really about after the merge and, like, and really, like, this ETH BTC trade that I'm on and a few other people are on, is like you win this trade by holding it, not by like playing the merge. Like you hold it through the volatility.

And so like, yes, I can totally see ether dumping. But it always, like the merge fundamentally puts the tailwinds at ether's back. So if it is a sell-the-news event, you just wait. And then all of a sudden, eventually like the fundamentals catch up to it. And then I'll also go back to what I said earlier is that like it's still so fundamentally bullish that we haven't had an experience. the market hasn't had an experience like this. And markets learn through experiences.

Like markets are shared collective memories of all market participants. And so like this is like markets learn through having like a scar in it. And so like people that got blown up on leverage are likely not to take leverage in their lives because of like the early 2022. People that trade the Bitcoin happening

will learn that the Bitcoin happening is fundamentally bullish in a two year timeframe. And but people haven't been able to learn the data about the merge because you only merge once. And this one-time event that will never occur again in history and has never occurred before history is not something that the market has learned. And so if you combine that with the fact that like,

and even if you are still right and people front ran this, that you still ultimately win by wading out through those short-term volatility, I'll kind of say that the merger isn't priced in, right? Because it'll only not be priced in for a short amount of time, short to medium amount of time post-merge. So that's the first argument. I could go on to the first two, but Jordy, in the vein of being categorized about our conversations, I want to give you a moment to respond. I mean, you talk about kind of waiting for the fundamentals and waiting for those to kick in.

I mean, I agree that the supply change is a big deal. If it was happening in a bull market where we were like burning a ton of eth every day and like NFTs were going crazy and you have the merge, I mean, there would just be like supply squeeze. And that's like totally true. That I don't expect that to happen now because of what's happening on chain, which is like the activity is very low. If we get like another surge of activity in a year or two years, yes, it will amplify the fact that there is like no supply. That is equally true for Bitcoin. Once some of the like Bitcoin supply overhangs that are kind of, we know, the Mount Cox and the different kind of coins that are expected to dump into the market at some point, similarly, you can have a supply squeeze. I think for both currencies, long term, I am very bullish because they have a lot of the mind share of the space.

And both of them can eventually lead to a supply squeeze where the long term holders have all the coins. There's only so many coins. If you say, you know, eth is not going to be deflationary and it's going to be $122 million, let's say, whatever, Justin Drake's, I think that's his like most recent. He's kind of updated after I called him out on his last estimate. I think 122 and, you know, 21 million Bitcoin. In the long run, once there's like global adoption, both those assets will have a scarcity squeeze at some point. Like that is for sure going to happen. But in the short run, selling use, medium run, concerns about gas, long run, there is a lot of potential for ETH still.

But I think it needs to kind of get its narrative right. So, I mean, I don't disagree with a lot of what you're saying. I just don't know that the timeline is going to happen right away. But yeah, I'm interested to hear your take on if you've kind of done any work on looking at the yields and this internet bond. And if you actually believe, you actually believe that institutions, you know, you have a bank or you have whatever balance sheet on some institution. Are they going to say, I want to get my ETH yield. Forget this dollar stuff. Like, do you think that's going to be the case?

Certainly not immediately. I think it's going to be one of those slow roles into an eventual crescendo. And that could be a multi-year-long process. And again, like, the conversation of the eth-trade, the eth-merge trade is, like, always a timeline conversation, right? Like, do I think the institutions will, one, like, are institutions waiting on the sidelines with, like, cash in hand, just, like, waiting for the merge to happen?

No, no, they're not doing that. I think slowly one institution will do it, like one market money manager who's privy to bankless and the Ethereum merge. Maybe they are. and then like that folds into two, folds into three. But that's a multi, that'll be like slowly throughout 2024. And like it'll kind of feel and look like in my mind a normal crypto bull market in the sense that like

there's like the quiet year where prices are discreetly up only. And then there's the next year after that where people kind of figure it out and it turns into a mania. I feel like that kind of catalyst is where I'm seeing how institutions play in. It's like some smart institutions are like, oh, you can get yield on this thing, and it's not only, is it real yield, but it's also not correlated to the dollar. And so, yes, it's volatile, but, like, you can take on that risk.

We can talk about that later. I think one thing that, Jordy, you said in your post, though, is that the ethmerge bulls are vastly overestimating the actual yield that will be received by the quote-unquote meme internet bond. Can you talk about that? criticism for a minute and then maybe David could respond. Yeah, absolutely. I mean, in general, like in all these pieces, I do spend a lot of time on research and I try to compare, like, you know, I go to the source. I don't just kind of rely on some internet resource and I, you know, copy paste it from

there. I really look at the actual numbers and I have gone quite in depth in this. And it has been quite disappointing to see how overinflated this specific narrative on the yield is. And I would say, like, out of all the things that have researched, this is the one that really stood out to me as what's going on. Like something's really wrong. There is no free lunch.

I would say that in terms of yield, we've seen this in crypto many times, promises of high yield. People think that somehow, you know, ETH being, you know, a more legitimate play than a lot of the other, USTs or whatever else you want to look at that promises high yield. They just thought that, yeah, like this is, let's take it at face value because it's ETH, you know,

it's wholesome. Sadly, even in the case of ETH, there is no free lunch. There is no, like, low yield. There will, there will not be any, like, low yield.

The yield will be, like, close to zero, basically. Like, you know, even after a year, it will really dilute. We need to understand a lot of where the yield meme came from. People initially were not staking ETH because they were first risking that, the liquidity,

because you have to wait many years until the merge happens, until the Shangai Fork happens. So people do not want to stake. The amount of stake, ETH was so small. And the pool that was given to them was substantial that they have been generating a decent amount of yield. When you flip the switch and you give block rewards to people who are staking, which they're not getting the block rewards right now. Similarly, you know, six months ago, a year ago, those block rewards looked like they might be a big deal. because there was a lot of gas tips being paid. There were a lot of M&V kind of plays going on,

all that sort of financial front running that was happening. And people put one in one together. They thought that there's always going to be only 10% of supply staked. And they thought there's always going to be like this huge amount of tips being paid. They put them together and they got these like 10 to 20% yields. in reality, over time, there will be a lot of staked eath. In fact, if yields are significant, there will be even more because people will be more incentivized to stake-eath. And they will have to, like, share that eth between like more and more stakers, more validators.

And as we're also seeing, like, you know, generally, like tips are a lot lower now. So when you put one and one together, you end up with two, two percent yield. That's what I see. And out of that 2% yield, some of it is going to be inflation because, like I said, ETH will not be deflationary unless like some crazy like, you know, bull market happens again. And so part of that 2% will be inflation. So the real yield will be like in the one-ish percent range. Wow.

So that's incredible. I just want to recap. So right now when you stake your ETH, you are receiving a nominal yield, not necessarily a real yield of like, you know, 4.5% something to that effect. and you probably discount the real yield by the issuance, right? A lot of merge hypers, merge bulls, think that the yields post-merge are going up. Some have even said into the double-digit range. So we're talking between 4 and 10% plus in terms of yield.

And what you just said, Jordie, is that's a load of BS. We're actually talking about a real yield of around the 1.4%. percent mark. Is this what you're saying? Correct. There, there, there is like a three month period right after the merge where I expect there to be a long queue for validators. They will only allow about four million youth to join, maybe six million, depending on kind of how, how exactly it pays out. Like over the first few months, it will be more and more allowed in. But let's, let's discount those first months, because first of all, you'll have to wait in queue so you won't get it right away. If you buy steak teeth like Lido, you will be diluting all the other Lido holders.

So that's like a different story. We don't need to talk about Lido specifically. Just talking about steak teeth in general, first of all, it would be hard to get a validator in because it would be a long queue. Once the queue clears, the yield will at that point be a lot, a lot lower. So I don't think it's worth looking at a three-month yield because that's just like a little bonus that you get is a one-off bonus. I think it's more important to look at it, you know, one year in, where do things lie when you're in. Wow. Okay.

So low yield. And of course, if there's a low yield, then it makes sense from your perspective why the internet's bond is not very interesting if it's just half a percent or, you know, 1% yield in each denominated terms. David, what do you say to this critique from, from Jordy? Yeah. Yeah. There's, there's, sorry.

You got unmute. There's two parts to this critique, right? It's that the yields are going to come down and the gas fees aren't sufficient enough to, like, prop up that decline in yield. So gas fees are down bigly from Defy Summer and the yields inherently are overhyped because as more people come to stake their ether, then the yields will come down and that makes just ether less attractive of an asset. So let's take these one at a time. It's actually always been my bulk case that the yields on ether come down because what that inherently means is that a significant amount of ether becomes staked. And we've described like the three pillars of ether's value accrual on bankless a couple times before.

staking sucks up a large supply of ether, and that becomes staked and therefore removed from the market, right? You can't stake your eth and sell it two. You've got to do one. But if you're staking your ether, you're saying I'm not selling it. And generally people will stake for a long time, I think, rather than just go and like, I'm going to stake my eth this month, but then sell it the next month and buy it back. I think people are staking for the long term.

So I think generally the churn of stakers is going to be relatively low. And I'll talk about why that's not just speculation, but actually built into the proof of stake model. And so, like, if we're talking about, like, yeah, the ether yields are coming down to, like, something very modest, 3% or less, 2%. Well, that follows that a ton of ether supply is now staked. And I think in order to get to something as low as 2% real yield, like we need something like 50 million ether, 40 million ether locked up. And that's like almost 50% of the supply. And so if you're telling me that ether's coming down, I'm bullish. That makes me bullish because a lot of ether comes off of the market.

And you also get this compounding effect of defy. Because if you can borrow ether from defy and lend it into staking and stake it to get that yield because there's an arbitrage there. So like say it costs you 1% to borrow ether and you can stake that ether for 2%. People will do that to arb that rate out. So like not only do you get like 50 million plus ether locked in, locked in staking, but that also increases the ether demand out of the defy side. So you get like a nice bonus multiplier on ether demand because then defy also sucks up some ether. And so that's like the second pillar of of eth value accrual is like how much ether is in defy. And when there's like

sustainable, strong demand from ether on the staking side, it actually bumps up the amount of that defy will demand of ether because you can also get yield in defy on your ether. And then the third pillar is, of course, the ETH burn rate. And, like, yes, transaction fees down bigly. I think right now, like we were looking at the numbers yesterday, we are barely deflationary. I think we're like 16, 17, 18, Gway average on the last month. We've been reporting it wrong at Bankless with the mean rather than the average. The mean has been something like 12, 10 or 12, but the mean is the average, excuse me, the median. The median. Yeah, this actually the average that is like the correct ultrasound number. And that one's like barely deflationary.

And so I think if we compare the ether gas markets to what we were all starting to talk about this ultrasound money meme way back one in 2021, when gas prices sustained like 100, 200, way for a while, yes, we're not burning that much ether. And so, like, those numbers are down bigly. So the narrative has lost some tailwinds, but the fundamentals has always been the reduced issuance. and you know okay so like we're going from four point something percent issue and 4.4% we're going down to 0.4%. And then the ether burn does take us down to like 0.1% issuance or 0% issuance

or like negative point something percent issuance and so like we actually do get deflationary and so maybe we do recapture some of that narrative but like when it's really the point is comparing these to all other crypto assets where you have Bitcoin at 1.7% inflation Solana at 6.7, Avalanche at 5.2, Cardano's doing pretty good at 1.8, but it's really comparing it to these and saying, like, yes, like, if Ether is not as ultrasound as it once was,

if we had merged, like, in the bull market, but the comparison is, like, off the charts and compared to other crypto assets, and if we compare this to, like, a treasury yield, I don't know what we're getting on Treasury, 3%. Like, but that's the dollar, though, and the dollar doesn't go up in price. Ether, I mean, it goes down and price and went down from 40,800 down to where it is now, it also goes up in price too. And especially as we get into like wartime currencies where like currencies have to be inflated to pay for Europe's energy debt crisis. And just generally the poor store value nature of fiat currencies, I don't think it's fair

to like compare treasuries to ether because you don't get the upside potential. And eventually like as once the bull market returns, like if ether goes to 10K, which I think it will. Like the yield that you get on your ether now, maybe it's just 2%. But if it goes up 5x, that effective yield is then 10% in today's terms if you are also willing to express bullishness on ether. So that's what I'll say holistically to all those arguments. I want to get back to Jordy in a minute, but just real quick, David. So do you think that block space demand for Ethereum will come back the way it was earlier in this year or like in previous years? I think a majority's argument that we're not ever

really going to come back to like sustained 200 gway gas prices is totally accurate like when we had like 200 300 400 gway during D5 summer we didn't have a flourishing ecosystem of layer two's there even weren't competitive layer ones to like

offload a lot of that demand and we and I think we noticed that like eth price, east gas prices weren't high in the second half of 2021 because we had ways to get offload that block space demand onto other chains. So you think the new normal is low lower than the bull market i also think that we are in a depressed gas market environment and so i think like maybe it's more normal what's a range david for you 30 to 50 is going to be

30 to 50 gway is going to be the more normalized once we get back to some like sense of normalcy on gas markets yeah 30 to remind us again when does eth go deflationary 15 15 so jordy there's there's kind of like two pieces i want you to pull apart from david's counter argument. The one is he's saying, hey, to get the low yield that you're talking about, your criticize him, you have to lock up an awful lot of ETH in order to do that. And that's fundamentally bullish. And then secondly, I think he's saying block space demand, you just heard him, is actually in a kind of a temporary recession. And we're going to see Gway prices at least 30 to 50, maybe not the bull price for block space demand, but at least 30 or 50, which is

deflationary. So what do you say about those points? Yeah, I mean, starting with the first one, another one that I feel very strongly that I disagree completely about. Let's go a year forward. And let's just imagine that indeed 60, 70% of ETH is staked. When you go to the exchange and you go to FTIX, Coinbase, you know, finance, you're going to be surprised that maybe the pair that you're trading is not going to be ETH USD. It's going to be staked ETH USD or maybe, you know, some other version of that. That doesn't protect the price from going down. Like it's locked.

People are trading it. It doesn't mean it's locked locked, locked. Like people would just trade the other one. It'll just trade steak teeth. It'll just go up and down exactly the same way it's going. It's a misconception to think that supply will be like off the market. It'll just be in a different form. The only way to really take it off the market is to like lose the keys.

In that case, sure, that's super bullish. Like if like you lock it up and you actually like throw the key away, but if you're locking it up into a liquid instrument, by definition, it's a liquid instrument. It will have the same price impact. So I've seen this brought up many times, and I think it's a misunderstanding. On the yield aspect, I want to talk about that a little bit as well because 30 to 50 is way out of my expectation. So we do kind of disagree a little bit there. In terms of like the inflation reduction, like I said, this is very bullish.

They should double the price of ETH from what it would be otherwise. That's kind of like important to say. Now, in terms of like using it as a meme, first of all, you know, Bitcoin in the next halvening, which is only two years away, we'll go down at 0.8. If the 15 way that's been quoted is actually incorrect, it goes up as more people's stake. There's two things happening as more people's stake.

More eth is being issued. At the same time, it's divided by more people. It's kind of confusing because both are happening not linearly. So it's like both are happening a little bit. If 15 million people stake versus 30 million, there's not going to be twice as much ETH being issued. The inflation of ETH will only go up by like, you know, there's like a formula. Maybe it's like, but instead of being times two, it'll be, let's say, like 1.5.

And, you know, you're dividing that 1.5 by more people. But in terms of managing to stay deflationary, I think you're on a race that you'll never catch up. you kind of start at the point where like for the first few weeks, you're very close, but one is up only. The amount of steak teeth is up only. Like you can't even withdraw right now. So even if you want to, you can't take it out for a long time. And I agree that, you know, the structurally, we won't really see like a reduction in steak teeth over time.

As people get used to it, the wallets integrate, the exchanges integrate. Heath will just be staked Heath. It will be like a mistake not to stake it. So we will just see like that up only. at some point, the amount of ETH issued every day will go from 1,500 a day to 5,000 a day, possibly more, if you get 80%, which is what we'll be seen in Salana and some other layer 1s in terms of staking. 5,000 eth a day requires very high gas usage. And as David said, layer 2s are giving a lot more block space now. They will potentially become much more efficient in their block usage when they want to check back into layer 1s.

Protocols themselves like OpenC are spending a lot of work. on getting their smart contracts more efficient to burn less gas as well. So a lot of these things are kind of inherently reducing gas usage. And therefore, I think it's a losing race and we won't actually see any sustainable deflationary ETH. And in fact, I think that in two years,

the issuance between ETH and BTC will be very close to each other. Maybe ETH will still be a little bit lower, but it'll be quite close. Jordie, I wanna ask, so if David's projections, I think you were saying a couple of things, but let's talk about the block space demand. If David's projections are 30 to 50 Gway is kind of a more normalized post-recessionary block space rate, like what are your projections as far as block space? 8 to 16. And the reason you're giving is because we won't see another, you know, 2000 to 2000, early 2022 period of like 200 plus Gway prices because applications.

are getting much more efficient in their usage of block space, including layer twos? That's only on the margin. That's something that maybe reduces everything by 30%. The main contribution to the difference between what we saw before is the existence of layer twos, of other layer ones, so that if you have a new mania, like an NFT mania, so it wasn't just DFi summer. I mean, the NFT, like, boom initially. OpenC just had Ethereum.

That was like the only integration. They were the only platform that people were really like doing a lot of volume on. going forward, if there's a new mania, semi-fungible tokens, let's just say, like, there's a new thing that the people want to do a lot on. They don't need to do it on the main chain. They'll be able to do it. People don't want to spend like $200 on a trans. I can afford it.

And it still bothers me. Like, it just feels wrong. People want to just spend like small amounts. So they'll do it on, you know, if they want to do it on the Ethereum ecosystem, they'll do it on Arbitrum, you know, some other layer two. There's a ton of them coming online for different use cases. And they'll also have app chains, which we can get into at the end. But I think that that's another important thing to consider. So they'll have a lot of other options for excess blocks-based demand that weren't present in 2020 to 2020.

I do agree that there will be like at some point a new mania that people want to do things on chain. I just don't think that they'll have to spend a lot of gaps for it. These are tantalizing critiques, I think, and I want to get David to respond, but we're going to do David a favor and cut to sponsors so he can have a couple of minutes to think about what he's going to say in reply. Guys, we'll be right back with this debate between Jordi and David. Is the merge overhyped or not? But before we do, we want to thank the sponsors that made this episode possible. Juno is bringing crypto-friendly banking straight into your checking account. With Juno, you can send money from your Juno.

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season pro, it's time to ditch those risky extensions and it's time to switch to the Brave wallet. Download Brave at brave.com slash bankless and click the wallet icon to get started. Jordy Alexander and David Hoffman on whether the merge is overhyped or not. Jordy says it is. David says it's not where we left things. Jordy just gave a fantastic critique and criticism, David. I want to hear you maybe push back on. So two things he said, you know all that staking lockup you're talking about, you know, 50 million, eth or so locked away? Well, that actually doesn't matter because it's all pretty liquid. And so when you say locked up, it's not really locked. That was the first critique. The second is around blocks based demand. Now, you were saying maybe the normalized rate is between 30 to 50 gway. Jordy is saying, no, it's a fraction of that, eight to 16 gway. And the reasons he gave were there are far more options than that. there were in previous cycles, and that is new for Ethereum's never had to compete for block-based demand in that way. So, David, back to you. What order do you want to take these

critiques in? And also on that gas market argument, he's also, Jordi's also saying that, well, as more stake comes into the market, which I think we all agree will happen, more ether will become staked. The threshold for being ultrasound also goes up because more issuance comes in and more status. Rather than 15-gway, it becomes 20-25, something like that, yes. Okay, so I will admit that like I hadn't actually fully accounted for the whole Staked Eth derivative meta, which I mean, I do believe that over time, Staked Eth derivative

tokens are like Rocket Pools R-Eath, Lido, Staked Eth, those like other competitors coming onto the market, Coinbase's CBEth, does approach like slowly, but surely does like begin to approach 100% of all stake. Like that's just like the logical outcome. Maybe in practice

it only gets to like 70, 80, 90% of all staked ether, but like the utility of staking your ether and creating a derivative token out of it is higher than not doing that. So, like, naturally, the consequence will be all staked ether will become a staked derivative token, like with Rocket Pool, Coinbase, whatever. So I do agree with that. And so therefore, yes, then, like, the whole supply coming out of the market maybe is overstated

because it's not actually locked. You can actually just get liquidity on it, hence the whole point of these products. So, yes. Are you conceding a point here, D. I'll concede a point there. But my brain then next goes to like this inherent nature of proof of work, excuse me, proof of steak is that it rewards bulls for being bullish. And this is in direct contrast to proof of work where proof of work minors are in like a race to sell Bitcoin

because or their proof of work asset because of the very nature of what proof of work is. It forces you to have operational costs that theoretically approach 99.99% of your of your profit margins. Because if you have any more profit margins, you reinvest into your business to produce and consume more Bitcoins than your counterpart. The proof of stake completely inverts that. And it actually starts to like make a game of chicken of who's more bullish. It's like, oh, you're going to stake your ether down to 3% yield. Well, I'm going to stake my ether down to 2.5% yield because I'm so bullish ether that I'll take a lesser yield than you and I'm still holding my asset. I'm still a holder. And because I'm still a holder and I'm super long,

on ether, what do I want most in the world? More ether the most. And so I'll stake it for the least amount of yield. And so like we get to this game of chicken, it's like, oh, you're bullish down to like 1.5%. Well, I'm bullish down to 1%. I'm still holding. And so like, it kind of doesn't matter so much

if like the yields go down because the way that proof of work work or proof of stake works is that whereas proof of work creates the theoretical 100% cell pressure, proof of steak creates a theoretical 100% hoarding supply. And so the stakers are always going to be the most bullish people on ether the asset. And they're the people who get the issuance.

And so while real, like, well, real yields might compress, the holder supply, the people that are holding all of that issuance are the most bullish people who aren't sending it to the marketplace. So that would be my revised rebuttal to that particular point. Well, let's start with that, Jody. What do you think? I mean, there is an element of hoarding for sure, because once you have the assets, you have that's also getting you more of the asset, you want to keep it.

You know, there's no reason to be negative on everything. My point is you can't have your cake and eat it as well. So if you want to say that no one's going to sell because they're going to, you know, they're just going to hold it. They're going to hoard it. And that's possible. There's two problems. One, the distribution is going down.

So like, you know, as new teenagers are becoming adults and they want to partake and have like a sizable, meaningful amount of Eath, it becomes harder and harder if people like hoarding, it's harder. And also for usage as well, which is the other thing I want to get into, which is very important, which is if you're actually using this as a hoarding asset, if people want to just use it to actually do stuff on chain, they're not going to do that. So maybe that's fine. Maybe like all the activity moves to L2s and all the fees come from like L2's kind of checking

into state on L1. So maybe that's okay. But you won't have this like romantic vision of like, you know, guy going to call it. and working and getting his first eth and being able to like just go to main chain and buy some nfts on main chain whatever it might be a different world if it ends up being like this hoarding asset so that's true and i will i will also say you know to the i will agree with one really positive argument that if you do get a lot of steak teeth and this is maybe like what i want to focus on the most ultimately one amazing good thing is that you're getting a lot of

security. And proof of stake, there's two ways to count security. There's censorship resistance, which you can make a lot of cases that proof of work is better for censorship resistance in the sense of, you know, China wanted to shut down. People just moved to a different country. But if everyone owning the ETH, you know, the exchanges are based in the U.S. and the U.S. government says something, you know, that might be a problem for the exchanges. And like we've already seen all the discussion around Coinbase, for example, what would they do? So we, we, we have. can kind of like look at the censorship resistance. I'm actually happy that we will have the two biggest coins each take a different approach,

one proof of work, one proof of stake, so that if the state ever wants to destroy crypto, they need to find a way to attack both. And that's just going to be like very, very difficult to do at the same time. So I'm happy that we have both. And I will say like very positively, having a lot of stake teeth, which we will have because it's incentivized, it creates a huge amount of security in terms of dollars needed for somebody to do like a 51% attack, for example, or, you know, really to get enough ETH to mess with, you know, the amount of validators that are needed.

So this is true. And in a way, there is a way to look at it as the value proposition for ETH because where if you're an app, you're not going to build your own like $100 billion security model. You're just going to latch on to this one. And we have a few different security models. The ETH one is obviously like a really important one to look into. There's a few other ones. I would mention three.

We have Pocodot. I've always not been a fan of the Pocodot one because basically you're, it's like a landlord that has a mall and it's charging people to get a store in the mall. It's like you have an auction and you figure out how much you need to pay for your security inside my mall and you get access to the mall. I think what we've seen is that apps don't want to pay for security. They want to get paid. It's not like they actually want to like.

give money for security. They want to kind of partake. We have NEAR, which is a very interesting one, where we've seen things like Sweatcoin now kind of choose near because they get 30% of the gas back. So they get, it's kind of like a JV. And I think that's extremely interesting. And then we have Cosmos, which is like the other interesting system, which I think will be like the two, the second biggest one after the theory ecosystem. And that has its unique point. So maybe part of the discussion is which security system is going to be long term better because you will have a lot of security. I do think this is an interesting criticism maybe that we can dive into. I do want to get back to the blocks-based demand piece of it, but let's park that for later. So I think one of Jordy's

points that I heard him just make now, David, and I certainly saw in his article, is the Heath Bulls, on the long-term horizon seem to think there's going to be one chain to rule them all, one global settlement layer that is going to accrue the vast majority of the model. Jordy, I don't want to put words in your mouth, but I think what you were saying is like, hey, that's not true. Like, that's some rose-colored glasses. We live in a multi-chain world. There are some other protocols with unique approaches near the cosmos,

where you have sort of the idea of all of these sovereign chains, not one central settlement layer. Maybe we could get into that, David. What do you think about this? Are Eith Bulls being like Merge Bulls in particular, too long-term bullish that the Ethereum model of one chain to rule them all is going to win? What do you say to these pushbacks and criticisms? Yeah, I do think I fall in the camp of the believers,

the beliefs that one chain will become the dominant settlement layer to rule them all. I do believe that. And the reason why I think this still works while also preserving our ability to produce chains that have different philosophies on how they work is that like the long, the Ethereum vision, the rollup centric roadmap vision to Ethereum is about producing one central blockchain that does one thing extremely well, which is having and providing a ton of security. And then the other thing that like not really accounted for by like core Eath devs, but what I think is naturally going to emerge is. is that the Ethereum layer one largely kind of just becomes like uniswap and curve and maybe OpenC as like the dominant NFT liquidity engine, but basically exchanges, like decentralized exchanges for assets.

And I kind of can totally see a world where like uniswap block space demand is like 50% of Ethereum or like exchange blocks based demand is 51% of Ethereum. Then we have all of these rollups plus the combination of EIP 4844, which, if I were to summarize what EIP 4844 does, is that it allows for a roll-up to be built on Ethereum with minimum viable rent extraction, as in the minimum amount of layer one gas fees that these roll-ups need to pay for Ethereum to provide security.

So it's the minimum amount of couple between the layer-1 Ethereum and the layer-2 roll-up that gives the maximum amount of security. So it's Ethereum saying, like, hey, we want to extract from you, the absolute minimum amount it takes to provide you with a full might and power of the Ethereum layer one security. And so with that model, you can have whatever and everything that Jordy just said on these other

models. Like you can put NIR as a roll-up on Ethereum because we like that model. You can put whatever you want on top of Ethereum because of your particular philosophy or political leanings or design choices. And so it is like this whole like one chain to rule them all in that property that that chain wins by is security. but that it's the very nature of that is it actually creates a flourishing of many, many, many, many blockchains on top of it that does actually tick the box of, hey, what is your values, how are your design principles, what do you want to do here? And I do kind of think that like all of these alternative chains, like the Cosmos ecosystem, the near ecosystem, Celestia, if they had the money, if they had the dominant security asset, they would be the ones.

They're like, no, it's our model that's going to be the one chain to rule them all. and everyone else is going to be built on us. So I think all the subdominant chains are like, it's going to be a multi-chain world because they're sub-dominant. And as soon as they become like the dominant chain, they're like, no, no, no, no, everything is secured by us. We have for the most security. Everything is going to be built by us.

And so it's really just a matter of who's in the lead at this point. I think this is really interesting. And it links back to the block space argument because I think what you can sort of see where David is coming from versus Jordi. I'm talking to the listener now. So if you believe in what. David believes with one chain being kind of the global settlement layer and its gravitational

pull sucking all of the other chains in, then you could easily see a 30 to 50 Gway price in like a normalized Ethereum mode. Probably even... Because it's roll up settling with each other. Right. Probably even higher. But if you believe, as Jordy does, that there's not going to be one dominant chain to rule them all, that Ethereum block space ain't nothing special, or at least not too special. If you reject this idea of Ethereum exceptionalism that maybe you think David is preaching here, then you can easily see a world where ETH is no longer deflationary and you have gas prices of eight to 16 way. I want to have you weigh in on this argument a little bit longer, Geord, because this kind of goes

to your long-term criticism with the Eith bulls and the merge bulls. What do you say to David's points about Ethereum being kind of the gravitational pull for settlement for everything digital, everything in crypto? Yeah, I mean, in general, I agree with parts of what David was saying. But one of the main things I wanted to put forward in my article and in general, I think, is very under-talked is we should really look at things from the app perspective. Because we've kind of like, you know, 2021 really was like a layer one a year. It was all about layer ones and all layer ones. And that's really what was kind of like doing very well.

And we had all this like explosion, can be an explosion of different attempts and different like. models. But I think it's time to start looking at use cases and apps. And I really want to focus on the app perspective rather than the base layer perspective. Because you can kind of look down from the base layer and say like, hey, I have all the security. Come here and do stuff. Or you can look at it from an entrepreneur who is building an app. And he's like, you know, I'm going to get 100 million people to like do pushups in the right way. I'm going to reward them with this token. They're not necessarily like thinking about I need $100 billion for security. They might be thinking about like, you know, what's going to give me like a cheap throughput and, you know, share the fees

with me and like I can have my own store and my own decks and whatever. So from that perspective, which I think is very overlooked at, there is a reason to be quite confident on the multi-chain world, which I am, because not everything needs security, certainly like certain financial transactions. And like if you have a lot of, you know, money you parked on stable coins, you probably want it on ETH. You don't want it on like a chain that can get attacked, you know, quite easily. That's, that's for sure. But if you're doing like an NFT project, do you need Ethereum? I mean, maybe initially because it was kind of where everything was happening on OpenC and everything else. But, you know, if you're building a game, does it have to be a layer two

on Ethereum? Can it just be like its own completely separate chain? There's different layers of decentralization that are needed for different use cases. And as we look at the use cases, a lot of them will go in different buckets and we'll say like, okay, this one does need like $200 billion of security. This one needs to have like full ownership over what it's doing. It doesn't need that much security. Maybe Adam is the coin that kind of provides a shared security for like kind of, you know, a group of chains.

There's different models that we can see. And I would disagree that you can just kind of have all of these, you know, you can take near and put it as layer two. Ultimately, like either there's rent extraction happening or there's not. And if you don't need the rent extraction, then nobody wants to pay for it. So I think looking at the use cases, it's hard to know exactly what they're going to be, like which ones are going to be the successful ones. Nobody like, you know, retaliated and see NFTs coming.

The next one could be like something out of left field. Obviously, like step in, you know, move to earn, whatever was like another, you know, successful one that was out of left field. I'm not sure that money necessarily will be at the center of it. It could be entertainment. And so, you know, Ethereum's security layer is mostly useful for the monetary kind of uses that are high value, like stable coins, things like that. And even for those, there could be other options as they grow bigger.

So needing ethos security layer is a maybe. And it depends on the apps. And I really think people should think about apps more. So how about, I want to get to the crux of the question, maybe the crux of the sort of the disagreement between you and David on this, Giority. So David might agree with you that the vast majority of applications will occur off of Ethereum L1 or even layer two ecosystems.

Where I think you might disagree is the value accrual. So if you say something like all of the money, applications are still on Ethereum. I think David might retort and say, yeah, that's because that's where all the value is. And the other block space will be low commodity, low fee block space. The Ethereum block space will be the block space that's valuable. So maybe just distilling this into like in a fully realized multi-chain world, what percentage do you think Ethereum will be of the total layer one market cap, let's say, of 100. Are we talking Ethereum at, you know, 10 to 20 percent?

Are we talking Ethereum at like 60 to 90 percent? I think market cap about 30 percent. And I think TVL could be higher, but that doesn't, it won't scale with market cap because there'll be less demand for block space, even with things that don't have a high TVL. Like we talked about like, you know, gaming doesn't have a lot of TVL, but it can burn a lot of transactions. It can burn a lot of gas. So I think ultimately, you know, in the one-third range is kind of where I expect in like the 10-year horizon to see Eath.

And I see like another big successful story like maybe Adam, maybe something else, having a similar kind of size. And then a bunch of smaller niche decentralized blocks, block chains. David, I want you to paint up a similar picture 10 years from now. So what are we looking at as far as eth for layer one percentage of market cap? Jordi says 30%. What would you say? Yeah, it's a hard question. Jordy, do you think in that world that Ethereum, Ether is not the number one

crypto asset by market cap? As it's currently designed, I don't think that it can scale. And I don't think that unless changes are made, that it will be the number one crypto asset. I guess we're eventually going to get to like the monetary argument, the monetary argument, the monetary premium argument because a lot of it ultimately, this is like one of my main points. You're having this hybrid thing where you're looking at it as like, you know, Bitcoin, like gold, digital gold, a digital kind of asset that people will just store value in.

And then you have, you know, the block space argument. So when you look at the price, if you look at it from the block space argument, what I've laid out in my article is like ultimately what you should look at is how much money are people spending on gas and how much will they be willing to spend. Right now, it's less than a billion dollars a year. But let's take like one to two billion. If the market cap is $200 billion, which is very close to what it is right now, it's around $200 billion, you have between $100 and $200, you know, priced earning ratio,

like a P ratio, which is obviously like a very high. I'm not saying it's wrong. I actually think it's okay. It is a growth asset. It's a new asset, like, you know, something like Amazon and like an earner, early days or Google will also have like an extremely high P-year ratio. But what we're basically saying is that if block space, if if block cost doesn't change and things kind of stay where they are and people are only spending $1 billion a year

on block space, it'll take 200 years for this business. If you look at it as kind of like a business to, you know, get its valuation. So people will say like, well, then, you know, part of its monetary premium, it's not just it's not just that and it's such a complicated argument and we can get into it but i guess that's my first foray into how how i mentally construct right the the two elements yeah i think the logical flow of this conversation is is like yeah the reason why it's 200 price per earnings is because the p e ratio doesn't price in like a reservation demand as collateral inside of defy apps and so like you'll buy ether and stick it inside of Maker and that'll pump the price without creasing the

block space revenue. I think that conversation I think is generally well understood by long-term bankless listeners and also like the lesser interesting part. And kind of going back to what Ryan was saying is that when he was like making my argument for me is that, you know, Ethereum block space is super valuable because it's the most secure, right? Like if you have something of high value, you buy a very, very good safe to put that in. you don't buy like a cheap Amazon safe to put your,

to put your expensive transactions into. And so like, yeah, like if we have this gaming suited chain that does a bajillion TPS, yeah, it's because like my like long sword of fire is not going to be the need the same amount of security as like my uniswap trade. And so like, sure, like you can have like you put all of the like non-value transactions on like a specific chain. but that chain isn't going to generate is going to have an even worse P.E. ratio than Ethereum. Because we've seen this anecdotally in like Solana, Avalanche, every like Ethereum competitor

that scales as a monolithic chain by scaling the layer one, their P.E. ratios are like off the charts in comparison to Ether. Ether, as an industry, I think has the best P.E. ratio of any like layer one asset, but proof of sake, smart contract asset. And so again, it goes back to a little bit of just, like, what are we comparing it to? And so, like, we could say maybe there's like a bare case

fundamentally for ether on the horizon, but compared to all other, like, things that we actually see in the crypto world, like the P.E. ratio on ether is the best. People are willing to pay the most block space because it's the most secure. The willingness to pay, I think, is really the big one here. David, before we get off of you, I do want to make sure you do answer that question that Jordy answered, which is he said 30% market cap. And you asked him if he thought ETH was number one in that. He said, no, he doesn't think it'll be number one. So 10 years from now, percentage of layer one market, what do you think ether is at that point in time? I don't have a strong conviction on the percentage. I don't know. I do have strong conviction that ether is the number one

crypto asset. I think I would be comfortable saying 30% is like the floor, as in it won't be below that. I could see a world where ether is not above 50% of all total layer one. I think I would be layer one market cap. Do you want to change? Are we including, are we including Bitcoin as layer one? Yes. We are. Okay.

Yeah. Then, then my number is probably lower than 30%. Is it closer to what? What would be closer to? Yeah, like 20%. 20%. And then, David, what do you think as far as 10-year market cap in terms of dollar numbers? Dollar numbers?

I don't even know what the devaluing. the dollar's going to be in 10 years, Ryan. All right. So like really, really, really big. Fair enough. Well, let's get to this last piece of the argument. Then I want a round trip and talk short term again. And then I think we can call this a success.

And I think bankless listeners are really learning a lot from this conversation. It's just a pleasure to have you both on. I get to have David on all the time with Jordy. It's a pleasure to, if you're ever looking for a podcast host, okay? Yeah. But anyway, so, just kind of round-tripping on this conversation, because I don't know if I saw it in your article explicitly, but it seems to be a point that you're making is you seem to doubt entirely.

Maybe not entirely. That's too strong of words. But you seem to doubt the monetary premium aspect of ether as an asset that I think is probably fundamentally inherent in the eth-merge-bull over-hype case. They think that ether is actually money. and they call it ultrassound money. And this means that it has a monetary premium. But you seem to think that's not the case.

Can you poke some holes in the monetary premium argument that the ethibles are making? Yeah, absolutely. I'm happy to talk about it. I do think it is complicated. Even in the real world, we have the reserve currency, the US dollar. We have other currencies that are not reserved currencies that still have value just because they're used in that ecosystem in that country. Like the Brazilian real might not be the best currency in the world,

but it has a lot of value, like a lot of people use it. In a way, Ethereum can have monetary premium that is not reserve asset, digital reserve asset monetary premium. If it has a very strong community and the community wants to have Ethereum, it can have potentially monetary premium. I don't know exactly what that means because we haven't seen it before. It's something that, you know, we have these new digital communities, digital countries.

So the fiat or the digital kind of currency of the Ethereum country, if you look at it as kind of Balaji talks about it, like a decentralized country, can have monetary premium without ETH necessarily acting in the global world as a reserve to back, you know, some other use case or to back like, you know, central banks or whatever else it is. So even without ETH becoming a global store of value, it can have some monetary premium, which is sort of like a community or a global nation monetary premium. And I don't know how to value that exactly. So I don't discount it completely. But I will say that in terms of the store of value thesis and competing with Bitcoin and the obsession a lot of eth fools have with the flippinging, I am completely against the obsession. I think it's possible there's a flippinging.

It could reflipp in. There could be like a third thing that comes up. I don't think it's what really is important. the idea that somehow Heath can act as both a global reserve currency of the digital world and also act as something that people

are actually transacting with does not work. You have to kind of specialize in something. And other people have said this. I know Arthur Hayes talks about this as well, but the properties of money, if you actually want to have like a base money, sort of like a hard money,

are very different than the properties of Ethereum. It's not that Ethereum is a better, version because you can do stuff with it. It's a worse version because you can do stuff with it. And I think people who really philosophically understand why hard money exists and what the purpose of it is eventually get to this conclusion. And so I think the current like catch all of it's a better version because you can also spend it and also this actually is mistaken. And ultimately my hope for Ethereum and like really what I would like to see and would make me extremely bullish long term is if it kind of settles into what it is and understands that taking the role of the digitally scarce asset,

which Bitcoin serves quite well, not exceedingly well, it has long-term security concerns. So that's a completely different topic and a podcast to get into separately, like, you know, how those will get resolved. But in terms of like Ethereum acting as that asset, it is not designed for it. And it should kind of maybe be the currency of its own country. and maybe be like the cost of valuable block space and look at it as like, you know, what is the benefit of an app being able to use this very valuable security rather than trying to be everything. I just don't, I don't see that happening. So are you, would it be accurate to say, Jordy, you're more bullish on Bitcoin as a monetary premium asset in crypto than ether?

Yes, as a digital reserve currency. Like I said, the concept of a monetary premium, I think, I think even Dogecoin can have monetary premium, which is like a meme premium, which it will always be that, you know, the pure first meme. It will always have that aspect to it that will, you know, potentially in 50 years, people will still buy Dogecoin, which is useless because it has like a monetary premium, as you can call it. So I think ETH can have a sort of monetary premium. Just within its community and not be viewed outside as outside of its economy as a reserve currency asset. Correct. I don't, exactly. I don't see how ETH can become a macro asset where, you know, in a macroeconomic conversation, they're saying, well, gold is up today and Bitcoin is up. And actually, it's Ethereum that's like, that's hard to get from point A to point B. All right. So David, we in here, Jordy Sand, pick a lane. Enough with the manifest destiny around the flippinging, right? You're there sound money, some sort of utility asset in your economy. But don't try to be both. Bitcoin's already got that use case covered. What do you think about this?

Yeah, the whole idea of, like, it's money inside of its own community and its own, like, sector is actually a concept I wrote about way back when in, I think, like, a 2009 article called, like, Ether is Equity. I wrote about it, like, as a version of company script. You're probably going to be in 2019, rather than 2009.

Oh, yes, yeah. I was not writing about crypto in 2009, sadly. David is Satoshi. Yeah. And then, like, the idea for this is, like, there are these, like, coal mining towns, and they issue their own currency to their own town. And, like, you use that currency inside of your own community.

And it has value because, like, you can use that the general store and the bar and you're paid in it or something like this. And that's kind of like what Ether is. Like, we mint our own money. You can use it in Unitswap. You can use it in MakerDAO. It's good for our own community. The thing is, is that, like, it starts off small. But eventually, like, Ethereum, I think, just naturally fills the container that it resides inside of.

And that container is the internet. And so, like, the reason why Ether will be. a macro asset is because Ethereum is as large as the internet itself. It comes to put financial roots into like all relevant corners of the internet that can see that. And we're seeing this like right now with like Reddit, for example, doing their like avatars as NFTs on like an arbitram layer two. And that's just like one small part of Reddit in one small corner of the internet. And like, you know, you can layer on gaming. And like it goes back to the fundamental belief that I do all think that Ethereum does become the generalized settlement layer to all financial corners of

the internet. And like the thing that the internet has not yet become because of Web 2 doesn't allow for it is like financialized. So Ethereum is like best positioned to like put not the layer one, but many layer 2s and app specific layer 3s as like a fractal root structure that just grows into all corners of the internet and all of a sudden ether becomes the native currency of the internet. And the ETH stake rate is like the native bond of the internet. That's like the fundamental bulk case for Ethereum. And like the reason why this always works for Ethereum and the lesser or so for any other proof of stake smart contract system, because those also exist, is that the Ethereum is the only one that prioritizes security above all. And so it actually has

the abundant security to actually extend security into all those corners of the internet and what is security other than settlement assurances that your asset is yours. Maybe you don't need strong settlement assurances if we're talking about like a Reddit avatar. But the fact, but that's actually a choice by a choice that the arbitram layer two can make. And eventually you can actually, if you do want to, because for some reason, your Reddit Avatar, NFT becomes super valuable, you can also go all the way back down to the Ethereum Layer 1. And that only works in a system that is designed for strong, secure settlement that offers any sort of settlement guarantees. And you just don't get that same thing with any other proof-of-stake smart contract platform that we know of today,

because Solana and Avalanche have not optimized for security. They optimize for speed. and so like you just lose the monetary premium nature. And then the other thing you said is that like, you know, ether is trying to do all the things versus like just trying to become a money. And I think this is like a core philosophy that I see I see being debated in the world of crypto space.

Like do you become money because you add a bunch of utility to your asset or are you Bitcoin and you just have like the supply schedule and that's the money? And like I'm firmly in the camp that the way that you make and inject monetary premium is that you fill all three asset superclasses to the best of your ability.

You got consumable assets like energy, gasoline, and gas as ether to make a transaction on Ethereum. You have store value assets like a house or gold or Bitcoin or ether as collateral inside of defy. And then you also have capital assets

which are yield-bearing instruments like a bond or a house or a dividend paying stock. Those are the three asset superclasses. Ether is the only asset in all time to fit inside of all three asset superclasses. So it goes as follows is that the monetary premium behind this asset is also going to be the strongest monetary premium that the world has ever seen because we've never seen an asset fit into all three superclasses before this. I'll let it go there.

Guys, this has been a really fun debate and it's getting a little bit long. Jordan, do you have a burning desire to respond to that, or should we talk about short-term and then close it out? I don't need to respond, though, you know, that's like a nice bull kind of like argument. I will just say a couple things. Like, one, we should just remember, you know, behind everything else, what matters is incentives. You know, people are ultimately, well, I know what will determine the future. And you have to follow incentives. And, you know, for example, with Bitcoin, one of the problems that it has had,

had is once it got too big, people could just pump something smaller, get like a 5x return rather than get like a 10% return in Bitcoin. That was an incentive issue that started to kind of plague that, you know, it stalled progress, let's say, like it stalled a lot of the progress. So we have to be cognizant of like human incentives. And so like for my next article, I will be trying to think for myself because like nobody's answer to these things, but think about, you know, what, what do human incentives point us towards? What kind of a equilibrium's to we reach. And I'm not sure that, you know, once ETH is very big, if somebody new is coming in as

an entrepreneur or like trying to do something new, that they will be incentivized to use it. Maybe they'll be incentivized to create something new. So like incentives ultimately will determine who wins the ultimate debate. And I'm going to try to help kind of push the ball forward in terms of our thinking about incentives. That's really cool. we're definitely going to be looking forward to that argument. So full circle, last question for both of our debaters. Let's bring it back to the short run. So, Jordy, I think I heard you say earlier in the episode that in this macro environment, you can't see anything pre or post merge from a price perspective of ether exceeding $2,000. Is that the case? And tell us why. Tell us kind of your range price prediction for what happens in the short to medium run after the merge.

Yeah, I mean, you know, in crypto, as we know, everything is really fuzzy. So we kind of latch on to the round numbers, things like 1,000, 10,000, 2,000. And, you know, once we kind of got to 2000 recently, it was like the dog catching up to the car. I kind of felt like, okay, now you caught the car. What do you do now? Like, you cut up to the car. And so, like, we just kind of bounced back off. I see like there's a lot of resistance there.

We eventually, of course, break it just as, you know, I think Bitcoin will break upwards as well at some point. But I would say given the macro environment and the resistance level and the psychological resistance, that's the point at which I'm not right now comfortable kind of pressing forward past that point in the, you know, next months until the macro environment clears. So price cap of 2000 until the macro environment. clears out, David, what do you think about that? What are your kind of price predictions if you're just to take a crystal ball out? Right. Yeah. Macro is scary right now. And it's just like, you know, energy crisis, bad, like you've got revolts, blah, blah, blah, blah. Like there's actual war going on.

But also, like, in a way, there's a way for that to also be, like, bullish for assets. And that's just like if macro gets actually bad that we actually just like have to turn on the money printer then like it's actually bullish so in my mind I'm like macro's confusing there's bear scenarios there's bull scenarios I kind of just like it just washes out the bull the bull scenarios wash out the bear scenarios it kind of I think those those things cancel each other out to the most of my knowledge because I can't really reason about it too much and so I kind of don't really consider macro again and it mostly goes to my focus on like comparing ether to other crypto assets But I will say that two things.

There's the execution risk that we haven't talked about so far. There's the execution risk that goes away post-merge if we merge correctly. So I guess that also begs the question, like, there might be a catastrophic event. I don't know how to calculate the likelihood of that thing. But there's like there are people who are waiting for ether to der-risk, and they'll perhaps buy ether once we post-merge because the risk is gone. And then there's also people who just fundamentally don't think that the merge is happening, or they're just not staying up to date with Ethereum,

and they're Bitcoin, they're Bitcoiners, Bitcoin Maxis, who are doing this, like, la, la, la, la. And so there's all these people. And, like, the reason why I actually think there's enough of those people out there is, like, various Twitter polls from somebody like Eric Wall, who is a relatively neutral observer who has a very diverse group of Twitter followers. It was something, like, 60% said the merge was going to go totally according to plan, and 35 to 40% that the merge is going to be delayed or kicked back or something is going to go wrong.

and like all the Ethereum core devs are like 95% plus likelihood of success. And honestly, 95% is low. And so, like, I think that is like the crypto market itself, the crypto community, the people that move their money around inside of crypto assets are actually not priced in on the merge because, you know, proof of sake has been coming for six years now. Like the fact that it's actually like arrived is probably falling on deaf ears because like we've been having this like, yeah, proof of sake has been coming for like six years. seven years now. The fact that it's actually here, I think, is going to blindslide a lot of people,

and that's, and that is capital that is undeployed into ether, that I think will become deployed into ether as a result of the merge. And I think that is a bullish catalyst. The actual US dollar numbers, if I gave out a number, I would just set up myself up for being wrong in the future. That's okay. You've done that before. I've learned not to. Do you have a BTC number? Above $2,000. And I do think that Ether hits 0.1 BTC by the end of Q1, 22. 23, 23.

What is it now? 0.085. 0.085. It was 0.085 yesterday. It's like 0.082 today. And you are more comfortable with your ratio bet than your U.S. dollar price bet because who knows what's going to happen with macro. Correct. there we have it guys this has been a lot of fun um i just want to thank jordy for for coming on

and speaking to uh to david agreeing to to debate on this topic i'd also like to thank our fantastic moderator yes you were extremely moderate as a moderator you did not take any strong size and that that's very well done well good uh i'm glad i mean these are lots these these are really fun and honestly this is some of our favorite content to produce at bankless because we want to double check our thought bubble and you've given all of us the entire bankless community a lot to think about so jordy appreciate you and david of course as always appreciate you coming on the podcast and for everything you do um guys we'll end it there but you know what we will include a link to both jordy's article which was on bankless a few weeks ago and then david couldn't help himself

you wrote a rebuttal to that article so we'll link in the interest of fairness to that article as well and it's my time to remind you as I close risk and disclaimers of course eith is risky the merch is risky fam all right david's 95% certain but like you know you never know and of course so is all of defy 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