Unchained - Ethereum Gave Away Too Much for Too Long. Will Its Pivot Be Enough? - Ep. 829

Episode Date: May 6, 2025

After years of underperformance, Ethereum is trying to change course, from scaling the layer 1 to potentially dumping the EVM. In this episode, Tarun Chitra and Max Resnick break down each of these new changes, analyzing the good, the bad, and the ugly.  Is this a reset that can save Ethereum’s market position and price? Or has the protocol given away too much for too long? They dive into: Whether the gas limit increase changes everything What went wrong with Ethereum’s economics and solo staking politics Max’s view on “the single most important” change Ethereum needs to make How ETH could claw back value from layer 2s What Max would do if he ran Ethereum Whether this pivot is too little, too late Visit our website for breaking news, analysis, op-eds, articles to learn about crypto, and much more: unchainedcrypto.com Bitwise https://bitwiseinvestments.com/ciomemo Tarun Chitra, CEO and Co-Founder of Gauntlet Max Resnick, Lead economist at Anza Unchained:  Ethereum Ecosystem Shifts Toward User Focus Ethereum Developers Vote EOF Out of Fusaka Hard Fork Vitalik Buterin Proposes Replacing Ethereum Virtual Machine The Block:  Vitalik and new Ethereum Foundation co-executive directors outline updated board structure, mission Vitalik Buterin- and StarkWare-backed Kakarot reveals alternative Ethereum ZK stack, targeting real-time STARK proofs on Layer 1 by end of 2025 CoinDesk: Ethereum Could Supercharge Transaction Speed to 2,000 TPS Thanks to Bold New Proposal Simplifying the L1 by Vitalik Buterin Timestamps: 👋 0:00 Introduction 🛠️ 2:05 Why Ethereum had to pivot and what triggered the urgency 📈 7:16 Why raising the gas limit could actually be a big deal 💻 9:12 Whether Ethereum devs are too idealistic ⚡ 19:02 How Solana managed to outperform Ethereum at the base layer 👨‍🏫 24:09 Why Max feels Vitalik’s proposals focus on outdated technology  🔧 27:57 The growing gap between Ethereum research and its execution clients 👍 35:02 The ONE thing Max thinks Ethereum is doing well ⚖️ 40:38 Did “credible neutrality” push Ethereum down the wrong path? 🌀 48:23 Will the new Ethereum R1 rollup succeed?  🔀 52:53 What the new updates mean for layer 2s and their value proposition 📉 1:02:58 Whether ETH is finally due for a price reversal 🎯 1:09:12 Why Ethereum should take a page from Trump’s strategy playbook Learn more about your ad choices. Visit megaphone.fm/adchoices

I mean, one thing you could do is just blacklist all the L2s, just like hard forked out all the L2 contracts and just say you're not allowed to post these anymore. I don't really understand why you would not do that. If you're like, if you would took over Ethereum today as a company, this is what you would do. We just say like, hey, your guys are not posting to us anymore. You're not using us anymore. We're not doing disalignment games. We're going to freeze all the assets. You have to pay us to get them out.

And let's, you know, do a hard reset. And that would probably be a good idea. Yeah, but of course, it will not do that. That would be very bad for E because they did that. But that's what you would do if you were a company that inherited this situation. Hi, everyone. Welcome to Unchained. You're a no hype resource for all things crypto.

I'm your host, Laura Shin. Every episode, we're featuring your comments. Today we have a comment responding to my recent interview with Sam Kessler about the move scandal. On YouTube, Doom Guy VR says, quote, I'm tired of how scummy this industry is. The fact remains, way too many unsavory elements got early into crypto. While its idealistic values have always been important, we've had to carry the baggage of shitty people along. This is what made BTC Maxis far too extremist in the other direction. If you want to hear a comment on a future episode, write a review of the podcast overall,

or leave a comment on our video on YouTube, Farcaster, or X. This is the May 6th, 2025 episode of Unchained. Crypto moves fast. It's why Bitwise launched the weekly CIO memo, a jargoner. bargain-free summary of what's moving crypto markets, written by one of the best in the business, CIO Matt Hogan. Get up to speed in five minutes or less. Check it out at bitwiseinvestments.com slash CIO memo. Carefully consider the extreme risks associated with crypto before investing. Today's topic is Ethereum's pivot and how it could impact the price of Eith. Here to discuss

are Tarun Chitra, CEO and co-founder of Gotlett, and Max Resnick, lead economist Ted Anza. Welcome to Roon and Max. Hey, excited to be here. All right. Thanks for having me. There's been a bunch of changes in Ethereum recently at the foundation, plans for the layer one, proposals for the virtual machine, and more. I'm just going to start with a general question before we dive into the specifics of each of these and any other changes. Before we got to this moment of this pivot or reprioritization,

as some people are calling it, how would you have characterized Ethereum's main problems? And it's just to differentiate voices for this moment, I will call on, I'll call on Tarun first. Yeah, I mean, I guess like first off, the fact that no one can agree on the fact that it is a pivot, even though it's like very clearly a pivot, if you like read the documents from, you know, now versus, you know, 2021. I think like one kind of clear realization is that Ethereum kind of really did something that is very unique for a, company to do, let alone a sort of decentralized network and decentralized community, which is, it kind of took users of its protocol and said, actually, we're going to give away 90% of what you're paying us for for free via roll-ups. And we're going to take this like, I mean, maybe more than 90% in practice, but, you know, we're going to take this tiny sliver in terms

of blob space. And that's the only economics we're going to take, are going to give you everything else for free effectively, right? That's how an end user views it from the economics standpoint, which is, you know, kind of crazy, right? Like how many companies or entities kind of give away 90% of their economics but are able to kind of like build a network effect? And I think this pivot is sort of a realization that you can't give away all of your economics at the same time as like trying to improve your network.

because those two are sort of at odds, fundamentally at odds with each other. And I think this is a realization of that. And of course, Max maybe kind of herded cats before moving on to Solana in this direction. And so maybe that's a nice kind of segue for Max to kind of explain, given that he was sort of in some ways one of the main instigators, in my opinion. Yeah, I mean, I think at the end of the day, just to go back to the core question, what are the main problems with Ethereum? Basically, any company needs to build something people want,

and Ethereum did that initially, and then other people build something that people want more, and Ethereum didn't make their product better, and so people moved over to the other product, which was better. And for a long time, the network effects on ETH sustained what was going on there, a ton of activity because there's some value from doing your activity where everybody else is doing your activity. But eventually, the other products that were competing with ETH got to the threshold. Usually we say you need to get 10x better to overcome network effects. And that's basically what

happened with Solano is it became 10X better after a bunch of very hard work from the engineers. And meanwhile, Eich was not improving the product at all. And now users have started to switch over. at the same time, ETH made a bunch of strategic errors around their revenue, which drewer was just mentioning, especially with respect to blobs in the 4844 upgrade, where they basically set the price of blobs from their most price insensitive users,

which were the roll-ups to zero for no reason. And that caused revenue for ETH to go to zero overnight, and you could see it on the chart. And there was basically no plan, no thought whatsoever into how this would affect revenue in the short term. If you think of a successful pivot, like the Netflix pivot from sending you a DVD to watch to use streaming it, they didn't just give you the DVD for free while they went and built the other part of the business. They continued to operate the other part of the business and then they built the other part of the business out. And here the pivot was not executed very well originally, which was the pivot from the L1 to the L2 was not executed very well.

And now they're having to pivot back because that wasn't a successful pivot. Yeah, I can't remember who said this to me. This was a while back. But I remember they were comparing different chains and they described them by like country. And so I don't remember the full description, but I remember they said Ethereum is Canada because Vitolic is from Canada. And not that I'm saying that hopefully people won't take it as me criticizing Canada. But there is, you know, Canadians like to say, like, compared to Americans, they're kind of like more nice. They think about all of society.

Americans more are capitalists, blah, blah, blah. So anyway, point is like, I remember thinking, oh, that is such a good description. And I wish I could remember the other analogies they may or the comparisons to countries. But I just feel like it sort of sums up what Max is saying there and Turun. So I know we're going to, like, go more deeply into each of the specific changes later in the podcast. But like right now, I just am curious because there are kind of so many of these different changes. I was just curious, which of the changes do you each find most significant, you know, both for both like it could be symbolically, but also for increasing the odds that Ethereum won't continue to lose ground against competitors? I think the kind of concession to increase the gas limit.

it was like a very big deal because I think there was a long time where people were like increasing the gas limit by 5% is haram you know like we're not that's like too hard to do it's too expensive and all of a sudden you're going from like 5% to 100x right so it's like 2,000x turnaround in how much you know price of supply at elasticity you know in the sense of like increasing the block space people are willing to do so I think that seems to me to be the biggest sort of just quantitative change that people are willing to do. On the other hand, I haven't really heard much on the kind of latency side. I think they're going down by a factor of two or three, whereas like basically everyone

else, including L2s, is faster by sort of a factor of like 50, 20 to 50. So something that that I think inevitably is going to be an issue. I think the 100x, the current gas limit thing, though, is sort of a, you know, the real pivot in the sense that it's a pivot from catering to solo stakers. And I think that's probably going to be the battleground on, you know, if you look at the response to some of those proposals, the solo staker thing is still a sticking point, but it does seem to be much less of a sticking point than it was even like a year or two ago. Yeah, I would say that solo stickers politically are the biggest obstacle that Heath has to deal with. But it's almost hiding.

the real issue, which was, first of all, they want things to be able to run on a very constrained set of hardware with a very constrained amount of bandwidth. Okay, so that's one issue. And obviously, if you constrain yourself artificially, you're going to be constrained in what you can produce. But they thought that they were much more constrained than they actually were. And part of that is because the people who are leading the charge arm the Ethereum roadmap don't understand computers very well. And they don't have good intuition for how fast a computer can run, which are the bottlenecks in blockchains. I always say since I moved over to Salana six months ago, on Eath, I learned how a blockchain works. On Salon, I learned how a computer works. And it turns out that learning

how a computer works is a lot more important for making a blockchain go fast than knowing how the blockchain works. So there are a lot of very smart people who know how blockchain works, partly because they invented a lot of parts of it. But they don't really know how to make a computer go fast. And so they make these very unnecessary errors, like failing to forecast how much you could increase the block space on a solo staker type machine without breaking things. And so I had a conversation with Vitalik where we were talking, this was maybe eight months ago at this point in September.

And we were talking about, you know, can we just start scaling the L1? Like, why are we not doing this? Why is there so much pushback? And his response was maybe if we did, do go down the road of scaling the L1, and then we only are able to scale 5x from here, then that will be a failure because we will have failed to move on the L2 side of things, the horizontal scaling in favor of vertical scaling, and then we'll waste it two years, basically. This was his argument. And I think that argument would be fine if it was true that

Eath could only scale 5x without breaking Zola Stakers, but it's just not true. You could actually scale 100x, and so the argument is wrong. And even if you can only scale 5x, the idea of horizontal scaling is you put these things side by side. So you multiply your vertical scaling by your horizontal scaling. It makes a lot of sense to scale vertically and horizontally at the same time, even if you want to do horizontal scaling. So my basic argument of what went wrong for ETH was too much ideology, solo stakers, but more than that, just not looking at the actual data. And now we look at the actual data, we see clients like Nethermind, even all the other clients able to handle. much, much higher gas limit than what's running on Main Net today.

And that's sort of what's been able to push everybody over the line in terms of people saying they want to scale the L1 though. So I guess like I will present the kind of like devil's advocate other side argument because I think I think you made a kind of strong claim, which is a little bit sort of true and sort of not true, I guess, which of like the people in Ethereum, you really focus on the blockchain side and not the kind of computational constraint. I think, like, to your point, the client teams are much more aware of the computational constraints. I think maybe the research side is not.

But I think there was kind of this belief, you know, and I remember seeing this even in 2019 or 2018, there was this really strong belief that ZK would just like have a really crazy exponential growth curve. And it would be, you know, people would basically be able to run ZK proving stuff so efficiently. by 2025 that the blockchain would only really need that. You would never really need to kind of, you know, a blockchain would just be storing proofs, all the computation would be done off chain. You can optimize that separately.

You don't need to have as much consensus. And I think part of that has come true, right? Like people have built useful ZK stuff. They're really optimizing it to run quickly. But I think people overestimated how well that would work. by a few orders of magnitude. I think people really thought this kind of real-time proving stuff would already be live. But I think philosophically, that's sort of what Ethereum was really banking on, was zero knowledge

proving is so fast and so efficient that we don't need to be the fastest blockchain. Like the L2s can go optimize latency and go optimize bandwidth. All they have to do is post-proofs and we don't think about it. And I think there is a little bit of bullions and optimism that came. that was necessary to have that kind of leap of faith. And perhaps it was the wrong bet. And I think that's like kind of what the Ethereum community is probably reckoning with is that. I think they really thought ZK would be this like abundant resource.

And in practice, it hasn't quite hit the dreams, if that makes sense. I don't know if I agree with this. I think I don't want to get too into the weeds, but if execution is not a bottleneck, the case for ZK is much, much, much weaker. And they believed execution was a bottleneck. In fact, it was not a bottleneck. In fact, the bottleneck was consensus. Yeah.

And so they said, well, execution is the bottleneck. We're going to do ZK to fix that. And it wasn't even a problem at all. And so they were basically doing a bunch of engineering work in search of a solution to a problem that did not exist, or at least did not exist for the next 100x in scaling. And they could have just cranked the gas limit. and focus all of their energy, which they should be doing now, on reducing the block time. And then they're still not reducing the block time.

So what are they doing? Okay. So I'll agree with you a little bit on this one point of like, I think it was sort of like the wrong hammer. Like, you know, like what's the phrase like when the only tool you have is a hammer, everything looks like a nail. It did have that kind of like people didn't like try to benchmark just even basic data for But I'm just trying to say, like, if you zoom back seven or eight years, like, this was really what people's mental model was.

And I think, like, they just kind of didn't adapt until, you know, until Solana basically kind of started eating their lunch. But, Toreen, I just, sorry, I just want to be like very precise here because what you're saying is they misforecast how fast ZK Tech would be available. And my argument is even if they were correct in their forecasts, like say we had a, Sysync came out with a Prover Tomorrow. That was 100x more performer than the one today. And we're basically in the world that they thought we were going to be in, according to your argument. I still think that the Ethereum blockchain would be in a much worse place than its competitors

because it has been focusing on solving a problem that doesn't exist versus solving a problem that does exist. Yeah, I just think you have to go back to like pre every, every L1 other than Ethereum existing. At that time, everything was very conjectural. And I think the thing is the roadmap was kind of set so many years ago and never adjusted. That's kind of all in kind of getting great. Like pre, basically in 2020, this was like when all of these L-1s had raised a lot of money, but no one was launched. There was kind of this ethos already. Like that, like this is our roadmap.

And I think like the adaptation just didn't happen. That's all. Yeah. And I actually, that was what I was going to say is that I think that, I think that, Ethereum and Solana launched in such different times that just super banked into Ethereum's DNA for such a long time was this notion of like we have to be as, you know, max decentralized as possible. And, you know, like during the time before they did their presale, they were freaking out about the SEC. Like that was like a huge thing for them. And then the fact that, you know, there was like a known team behind this compared to like,

Bitcoin, that was another thing that had instilled this sort of fear of God that like they had to do max decentralization, try to be more like Bitcoin. And there was this whole kind of like way that they were constantly being criticized by the Bitcoin community for not being decentralized and, you know, all those things. And, you know, by the time Solana came around, you know, like there was a thriving VC community that was investing in these things. You know, like they, obviously they didn't do a pure crowd fund the way that it's. Ethereum did. I mean, it was just like such a different time. Like Solana eventually did become named a security by the SEC and like, you know, but by that point, just so this thing that Ethereum had

feared for so long and had tried to do all the things to not have happened to them, like Salana just went and, you know, did that. They like touched the flame and they were okay. And so yeah, I do think that is part of why Max, like you're saying that they were trying to solve for a problem that didn't exist. Yes, by that time, it didn't exist. But for all the years before, it did exist. And so I do think that kind of like focus on decentralization, like the solo stakers, you know, most, you know, biggest common denominator type of tech. Like, I think all of that, it was just such a part of how they had operated for years by that point. So I do. I'm not trying to like justify what they were doing by that time because I do think that, yeah, they probably didn't shift quickly enough.

which is why we're having this discussion right now. But I'm just trying to just show the different types of environments those two chains launched in. But either, let me push back on this a little bit because I don't think it's correct to say that because multi-coin invested in Solana, Salana is more performant. Like, Solana is more performant because the code base is more performant and because of a bunch of the design decisions that we made.

And I think a lot of people, maybe on Ethland, would think the reason that Solana is more performant is that we've made this decision to put our nodes in data centers and require a higher amount of compute and bandwidth. And certainly that's true. But the factor of performance that Solana is over ETH is much, much higher than the factor of how much our bandwidth and hardware requirements are. So we have about 10x hardware and bandwidth requirements, maybe in some cases a little more, cases a little less, depending on the compute resource that you're talking about. But we already

have 100x performance in terms of capacity. We have something like 30x faster block times. So it doesn't really make sense to say that the difference was a cultural difference in terms of what they were optimizing for. I would argue it's basically been how well did these teams optimize, given their set of constraints and what they were optimizing for. Ethereum, what it should have been doing is saying, we want to build a performing blockchain that is decentralized, that is state resistant, maybe that's also World War III resistant.

And my argument is even given those constraints, set all those constraints, set the minimum hardware requirements that you want. You could have built a much better system if you had focused on that instead of focused on all these things out off in the distance. And that's basically what Solana did. we had a slightly different set of constraints, but we're optimizing within our set of constraints. Like, we want to be decentralized too,

maybe not the same extent of World War III resistant or more focused on providing a great product for users. But we still want decentralization. We love state actor resistance. I think we have some of that to some extent now. We're certainly much more decentralized than an L2, but we're continuing to optimize within our set of constraints. And what Ethereum did is just said,

these are our constraints. Clearly, we're such geniuses that we've hit those constraints. So the only way that we could possibly make the blockchain better is to change what we are optimizing for instead of just optimize the objective function that you're given. One thing I would say, though, is that I think one aspect of Ethereum's view of decentralization is that they could outsource that to their affiliates, right? Like the goal was like, hey, the L2s will kind of solve this for us. And, like, I agree. There's a little bit of, like, naivity in that, right?

That these kind of, like, affiliates slash collaborators of yours won't be competitive with one another and that will actually do something that's, like, beneficial to the overall network, which turned out not, for the most part, not to be true, right? Like, they all kind of fought with each other. They all kind of did this stuff to make it, like, interoperability worse, dot, dot, dot, dot, right? You can go down the list of kind of the, but I think there was this idealism that, hey, by providing the bare minimum substrate that was, you know, and again, I'm giving you kind of the view from like what was kind of planned five to seven years ago. I think that the real issue is that there was never, it took a long time for this like introspection to be like, okay, actually, shoot, like the market has completely changed. we can't stick to the same path. And that just took like five years too long or something. You know, like I don't know how else to describe that.

But I do think there was kind of this idea that, hey, decentralization means that like anyone can build, you know, L2 on top of us and it will be Ethereum and will kind of contribute. And I think obviously, you know, the terminal market state doesn't look like that. And that's sort of perhaps one of the reasons I think they had to make this pivot. despite the fact that no one agrees with the name. Sorry. The way that I would just maybe characterize some of what you were saying, Max, or like it just described maybe how I would respond to that is just like, so it's almost like if any of you are familiar with the New York City subway,

and then you go to, you know, like a city in Asia and like they have this amazing subway that's so clean, you know. But, yeah, it was built like 100 years later. Like, of course it's going to be so much nicer. And this is not to say, yes, I agree. Ethereum probably didn't pivot quickly enough. Like, I think I remember when Justin Drake was on bankless and he said, like, Ethereum has won. I was like, oh, that statement right there. You've lost yourself if you think that this moment in time is a moment when you can declare that. Yeah, they didn't pivot quickly enough.

But the point is, like, once you have something in motion, you have a lot of activity on it, like, just shifting that around is just like a lot more complicated than just launching something fresh. So anyway, so we have gone like way into the weeds before we even gone deeply into all the changes. So yeah, so let's quickly talk through all of them. We kind of, so we talked about the gas thing. But let's talk about Vitalik's blog post about simplifying the L1. To come up with the Bitcoin comparison again, he talked about the beauty of the Bitcoin protocol being at simplicity. He then proposed changing the consensus layer to have three slot finality, reduce the number of active validators.

There were a bunch of things that he could have put in there. But I didn't know which of these proposed changes was most notable to you or that stuck out at you. Max clearly has so many opinions to go. If you're listening to this, like, I love you, man. Like, this is not a personal attack on you. It is like, this is what needs to happen for Eith to succeed. You need to check back in and update based on new information, not on like, takes from 10 years ago or four years ago or whatever. You look at that post.

It's like, oh, we're going to do it. three-slot finality. This is an idea that's been around for four years. If it was good, it should have been shipped four years ago, not today. There's so many new developments in the literature. And I really feel like lately, I mean, when I started in the space, like, Vitalik was one of my absolute idols in terms of everything I read. It's like, I just learned something new that I probably never would have thought of myself. And I read his work today, and it doesn't have that in it. And you know, maybe I should get in the benefit of the doubt. I need to wait a few years for it to come true.

But I have a feeling that mostly it's basically he needs to just put a little bit more, like he needs to be in that mindset he was in during the merge. And if he got back to that, it would be really good for Eath. Right now, I've read a lot of his recent work. There are things that are inaccurate. I hated that blog post. I hated the Risk Five thing. And I think it was, you know, the Risk Five thing was really,

checked out because again, execution is not the bottleneck. Maybe you want to explain what those changes are just for the audience. So by the way, Risk 5. So I could not figure, I'm not a technical person. It's RISC reduced instruction set computer VES and 5 and it would replace the EVM or maybe just be added as an additional option. But yeah, can you explain that more for listeners who don't understand? Yeah, I mean, maybe the best way to explain it is that it should make the ZK stuff much easier on top of the EDM, because a lot of the ZK systems are kind of built on top of the Risk 5 instruction set, which is a low-level instruction set. And so, like, you look at succincts SP1, for example,

it takes some instructions, maybe in Rust, compiles them to Risk 5, and then compiles those into like a ZK proof. and I believe that is the reasoning for why this is important. Again, I argued earlier in the podcast that this is just not important whatsoever for the next 100X in Ethereum performance. And so it should not be something that Vitaliki commends so much mindshare. And we're talking about this right now, even though it was an irrelevant article. And so he should be very, very mindful of the things that he posts because it can distract a lot of people and waste a lot of time. And I think this was a case.

And I think the rest of that kind of simplifying the O-1 article, you know, yeah, like, fix the mistakes that you made before. Like, fix the mistake of having way too many signatures. So you have to aggregate 800,000 signatures. Obviously, that's dumb. But it's coming in Petra with Maxib. So hopefully that will be fixed. But I think, like, I broadly agree with the, the only thing I agreed with was the title, which is, like, we should make consensus simpler. And then I thought everything in there was like, oh, yeah, let's do this thing from four years ago.

when we have brand new literature, that's actually much simpler and much more performant rather than this thing from four years ago. Cheroon, what do you think? And you can address either of those, the L1, simplifying the L1 blog post or the Risk 5 proposal. One thing I will say I agree with and kind of from the type of things Max is describing is the divide between the like research proposals and the, pull requests and the clients has never been higher, like what code people are writing for

Ethereum clients and what people are saying they're doing are like, I have watched that path like from 2016, they were like very close. 2017, they were close. 2018, they're pretty close. They diverged in 2019 a little bit, came back a bit in 2021. And then after the merge in 2022, like they just have never, like what is proposed research wise just doesn't make it into clients anymore and in the codebase. It's actually crazy how much they've diverged. And I think, like, you could very easily

quantify this effect. Like, you could basically just go compare the text in ETH research posts to the text of actual pull requests, like, things that are committed as code to these clients. And they are just very divergent. And I think

that aspect is one of the, like, competitive disadvantages in many ways that Ethereum faces and that, you know, if you do look at competitors, generally speaking, what they say they're going to do in the next six months makes it into a client in six months. Now, people can get angry about that and be like, oh, well, that's because they don't have vision or whatever. But the thing is, you do have to eventually implement these things, right? You can't just like say, hey, here's another thing that we're going to add to, like, the list of to do's versus the stuff that's actually

there. And I think that divergence is like a kind of. cultural divergence between sort of like the engineering and research side. And I'm not sure how you reconcile that. I think one of the reasons that divergence also exists is the roll-ups, actually, if you look at what roll-ups say they're going to do versus their code base, much tighter feedback loop, right? Like generally speaking, they actually implement what they say they're going to. And in some way, that created a brain drain for the L-1 of people who are going from idea to execution. And so now you have the L1 kind of before there were a lot of people who were like taking ideas

and making sure they actually got implemented and executed. And a lot of those people ended up going to roll up or they went to other chains or whatever. And so now you have this kind of all, I don't know what brain drain may be the wrong exact analogy, but it feels a little bit like that. And now you have like the idea island of people who could never kind of execute stuff. And you know the people who can execute stuff, but they don't know what direction to go. and then they're kind of getting farther apart. And I think that effect seems very apparent,

just from the public codebases, from the public writings. Like, you can see that. So at least that, there's no doubt that that seems to be true. In a moment, we'll hear Max's response to that. But first, a quick word from the sponsors who make the show possible. Hi, I'm Matt Hogan, CIO of Crypto Asset Manager Bitwise. Look, crypto can be confusing. There's so much noise and the space changes so quickly.

That's why, every week, I write a five-minute memo on the biggest stories impacting crypto in plain English. Why is Bitcoin up or down? What are people missing? Where should investors look next? Get the lowdown every week. Sign up to get the weekly CIO memo delivered straight to your inbox. Go to bitwiseinvestments.com slash CIO memo. That's bitwiseinvestments.com slash CIO memo. Carefully consider the extreme risks associated with crypto before investing. We have more comments responding to my recent episode with Sam Kessler about the move scandal. On X, Bitvisory writes, This move scandal sounds like a Wild West show, Laura, hope that investigation brings some clarity.

And on X, ballol. nST says, shows that even political ties can't fully shield bad plays in crypto. At the end of the day, markets still punish shady moves no matter who's backing it. Let us know your thoughts on our video on YouTube, Farcaster or X. You might hear it in a future episode. Back to my conversation with Tarun and Max. So, Max, you look like ready to respond to what Tarun said. Yeah, I very much agree with what you're saying, Trun, and then I'll say something positive about what's going on, which is nothing to do with the researchers and people who actually write the code are working on it. But the thing that happens

when you have a completely separate team of researchers from the team of engineers is that communication just takes so long, and there's a lot that's lost in the communication. And there were a few people who I know them because I worked with our consensus, and they're now working at eigenlayer or optimism or arbitram. And they're the people who were the glue holding those two pieces together. And they're working at roll-ups now. So, like, it's not just true and say that. There are specific people I want in their names here, but who are really important for that

and were important for it, especially during the merge, who have now moved over to the L2s and to eigenlayer, et cetera. And they moved over in the last year while I was working at consensus. So that's definitely a factor. The other thing is when you have a long lead time between research and engineering and going into the client, things get stale. So we were just talking about three slot finality, which I think is basically what you should do with Ethereum consensus is rip it out because it's garbage and put in a new thing

that's better. And it's not garbage because the people who did it were dumb. because it's 10 years old. And you wouldn't want a 10-year-old component slowing down your computer. You don't want a 10-year-old component slowing down your blockchain. So they should rip it out. It sucks and replace it with something better. But what they're actually doing is trying to take a 5-year-old proposal or 4-year-old proposal that was suggested and graft it on to this already bad protocol. And that doesn't reduce complexity. It increases complexity. So that's basically what's going on. And then you have all these other areas when this has happened where either the thing has been done but too late.

And so it wasn't the stay of the art anymore when it was put in. So something like a EOF, which just got scrapped, it's like, oh, maybe we don't need to do EOF. We could just go to risk five instead. So that was an example of a bunch of wasted time because it was so stale by the time people were ready to implement it. Another example is Virkle. Sorry, I'm just saying these things without explaining them. But the point is that there's a bunch of these things where people were working on them for a long time. And then new tech came out.

And because the thing hadn't been shipped in four years, it was time to kill it because the new thing was better. And then you have a new cycle of, oh, let's work for four years on some Poseidon hash-based thing or whatever. They wanted to replace Virgilip. That's not my area. And by the time that's ready, there's going to be a new thing that's ready. And then they're never going to ship anything. So they need to tighten up that feedback loop for sure. So let me just say one thing because I'm, like, being very negative.

There is something very positive going on. Really? I couldn't tell. The number one most important, positive thing for ETH is what POTOS is working on right now, which is network coding. And it's a derivative of what we're doing with turbine at Solonar. It's more state of the art than what we're doing the turbine at Salonar right now. So it's actually based on random linear network codes, whereas we use erasure codes. So it's actually state of the art right now.

We'll see how state of the art it is when it actually goes in. But it's definitely state of the art right now. And what this will do is it allows you to get the block from the proposer to the rest of the validators faster. So it's very simple to see what that matters. The faster you can get the block from the proposer to everybody else, the faster they can vote on it, the faster they can confirm things. And these are the types of changes that ETH needs to do. It's being worked on by an engineer and not by the researchers. I suggest all of the researchers read up on Rapp, read up on Tremine, read up on Raptorcast.

Single most important change for Ethereum in the next two years will be that. if it goes in. If it doesn't go ahead, I think ETH is completely cooked because there's absolutely no way to get block times below like six seconds or four seconds without that change. And so shout out to Pochis, who we've had our differences. But he's, I think the single most important theorem cord up today is Poch's. I think the only thing I will add to that is, um, RLNC's random linear network codes are generally super interesting because they, make things a lot smaller, but I will say getting implementation, a practical implementation from something that has mainly had research implementations will take a little while. And obviously,

there's multiple teams working on this now. So I would be excited, but like if I think about something like Eurasia codes are invented in the 1970s and really only kind of put in production probably in the 90s, like fully. So just, you know, to be realistic to like get a lot of the stuff fully working can take a while. Not saying that it'll take 20 years, but it's just like getting it to like production level, no errors, really understanding kind of like that failure cases can take a while. Yeah, especially the adversarial stuff for the R1C. So when you're working in a Byzantine setting, like a blockchain is even newer than the RLNC research. So yeah, I think there's definitely stuff. It is interesting you're betting the house on that, though.

like this is the only thing. Whereas I would say Ethereum does have this kind of like, to take Laura's analogy, right, like everyone knows New York subways are unfortunately crumbling infrastructure, but the liquidity is still around them, right? Like the buildings didn't kind of disappear. Of course, new buildings maybe are not coming here, right? But, you know, the buildings kind of are still here. The kind of liquidity is here. So there is sort of some liquidity advantage, but I do it. So I don't think it's like, hey, in a year, if it doesn't happen, it's dead. But I do think there is kind of a general new assets will, if, you know, if you think about societies, you know, as they grow, they create some new assets. And those new assets either stay in that society or they leave, right? And if you become a place where new assets don't stay, like they disperse, then like you will slowly die, right? Like you'll diffuse over time. And I, I think, People, I think, don't appreciate that as much as they should in Ethereum because they're just like, oh, we have like the highest stable coin density. Yes, that's true.

That is going to stay there. But if new assets aren't being issued, then, like, eventually people will be chasing the new assets and that liquidity will leave. Right. Like, that's just an inevitability of capitalism and then finance. And I think this focus, there hasn't been as much of a focus on that. And part of the reason, in my opinion, is that I don't think Ethereum developers or researchers view application developers as their customer, like, fundamentally. I think that there's like this fundamental disconnect of, like, there was a while where the validator was their customer.

There was a while where, like, the wallet provider was their customer. But the application developers, they don't, you know, there's a lot of lip service done, but in practice, they don't give a shit about them. I don't think there's any sugar coding nut. This EOF thing is proof of that, right? Like it really took a lot of angry application developers who are like, you broke my app completely to kind of get this thing not put in.

And I think that aspect is one reason you don't get new assets. Because where are the new assets coming from? It's like the application developers, right? Fundamentally. And so I think like that is going to need a bigger reset. To me, that is not like a technical nuance thing of like this is like a, you know, cultural thing in some ways that I think I don't know how you get around because it really does feel like people just, there is like this kind of lack of regard for the application

developer. They're like, oh, well, we're decentralized. Someone else will come and do the same thing you're doing and we don't care. We're not going to help you. And I feel like that lack of being inviting to your real user is like not ideal long. Yeah, well, this actually makes me want to ask about the last kind of big change kind of top down from Ethereum or the foundation. And then we will move on to, I think the other juicy bits around like the token and tokenomics and stuff. But everybody's been talking about.

So the Ethereum Foundation did publish a blog post about its focus going forward. And one of the things that struck me when I read it was that they talked about how they have this goal of having people directly or directly benefit from Ethereum. And then the first example of what that would look like was, quote, internet native financial access. And the description was like tokenized assets on Ethereum. And then defy was another one. And this to me struck me as a change because previously it sort of felt like they kind of looked down on defy or financialization. And I wondered, you know, if you thought they were changing their tune there. And the. the last bit I'll throw in is just like, you know, I think people have noted the irony that

Anatolia said he wants to be the, Solana to be the decentralized NASDAQ. And instead it's more like meme coins and then Vitolic looks down on TFI. But that's what's working there. So anyway, what did you take from this message coming from the foundation or whatever pivot you're perceiving from the foundation? I think like Tamash, I really respect because he's. he's been in the trenches of dealing with applications and developers

since, I don't know, I don't know when, at least since 2019, 2020. And I think it's actually good to have someone who like, has had to deal with 2 AM code fixes have an input versus like someone who has probably never used the chain. But I do feel like it does feel like it's a little still kind of not,

pandering in a way that is like weighted by use. So like, you know, a normal company, and again, I'm not saying a decent person, never has to be a company. I'm just trying to make the juxtaposition would basically say, hey, look, here are our biggest users and here's how we want to help them grow, right? Like if I'm Microsoft or Amazon cloud services, which is in some ways the closest, you know, centralized analog, I am hyping up. the applications that people are doing right now, right?

I'm like, this is the, this is growing, this is the most important. We're going to help build all this infrastructure for them to grow faster. And I don't feel like you get that sentiment from the Ethereum Foundation's message, right? They're not like, oh, this is the stuff that's really making Ethereum grow and people want to use the chain and we're really investing in making sure it's better. They're just like, here's a smorgasbord of stuff we could do, maybe. And I think that is sort of why I think it's like a little too hedged. in some way. And I get the credible neutrality argument, but there's also the data argument.

Like, look at who is using your chain. And like, this is what people want out of it. And I think that there's like, I think there's a way to be credibly neutral while also being respectful of the true data. And I think that it didn't, to me, it didn't land both of those. And I think that that's what I would ideally personally have wanted. Yeah, I was in Vienna in maybe it was September, we had a meeting. There was an academic conference where I was going to be there, a bunch of Ethereum Foundation researchers were going to be there. It was clear that we had some big differences in what we thought the change should be doing. So we said, let's get together for a little meetup and see if we can hash those out. And one thing that became clear

at this meeting, I went up, I said, no, the number one use case right now on the change. On the chain is trading. And so we should optimize the chain for trading. Does anybody agree or disagree with that statement? And I asked them like, raise your hands if you agree with that statement. And zero hands went up except for my little faction. And this was one of the things that was like,

okay, well, if I believe we should optimize the blockchain for trading, I probably should work on a blockchain that optimizes for trading. So that's why part of why I moved to Solona. But I thought it was very characteristic of the infinite garden type of approach versus the, we want to be decentralized NASDAQ, let's build for it. And I would absolutely 100% agree that Solana is not decentralized NASDAQ today. In fact, I have a post with Amatoli coming out soon. And I think the first line of the post is something like, you know, we created this to build

decentralized NASDAQ and it's not. So we need to do something else, do something different. So that was like the, that's the sentiment we have on Zalana is like, yeah, we still believe we want to be decentralized NASDA. And we need to change our approach because the first thing we tried to do of making the blockchain super fast and cheap, we succeeded in making it fast and cheap. Maybe not quite fast enough, not quite cheap enough yet, but we're pretty close. And it looks like that is not enough to produce decentralized NASDAQ so we need to add another ingredient. So if you believe in something, the best way to show it is to actually change your product to optimize for it and not write a blog post about it. I would be a little more charitable.

Like I said, I think in it to Ethereum is. I think like a descent, dcentral network does really have this truism of like, hey, you should be neutral to whoever is using you. On the other hand, you have to be neutral, but also respect the fact that people are using you, and this is some people are using you more and less. And like somehow that in these neutrality arguments that people have, they're like, oh, we can't feature any one thing. Sure, but you could feature people based on how much they're actually used, right? Like that seems very respectful to like the, you know, like in a neutral playing field, this is what happened, like that this application ended up being used more. And I think they maybe err too much on the side of like trying to make sure no one's feelings are hurt. But to run like what is credibly neutral about L2s are 20% of our gas usage, DFI is 80%.

Therefore, we should slash the prices of L2 a blob gas to zero. That's not credibly neutral at all. I agree. I agree. The blobs, the blob economics are clearly not neutral, right? They're like so unfavorable to DFI protocols so much. as to like make people not want to use them on L1, right? So there is a very tenuous line there.

I think the problem is people don't view the act. And maybe this is kind of a difference between Solana and Ethereum, right? Thelana is always like, hey, we want to be cheaper. And I guess if you're ruthlessly going after cheaper, then you don't really care about neutrality because you're just like, hey, it's cheaper for everyone, right? I think Ethereum didn't quite go after that until eventually. They're like, oh, well, that's the L2's problem. They should make it cheaper for the end user.

And then they were like, okay, but actually it's hard for them to do that. So we're going to give them this kind of huge subsidy. And I think people didn't realize that was a free trade agreement where there was a free trade agreement with like basically no economic value coming to one side. And, yeah, certainly not neutral. Arguably, like, in the same way app developers got very up in arms about EOF, they should have been up in arms about the economics. But, you know, you can't litigate fights that are already,

so the ship has sailed on, if that makes sense. Yeah, I did want to ask you guys about the L2 issue. Before we dive deeply into that, I don't know if you saw this proposal for R1, the neutral roll-up for Ethereum. They describe it as being 100% donation funded, no token, no presale. Stage two from day one, permissionless proving, long upgrade delay, broad community multi-sig, public good funding until 2030, then all fees burned.

And then they said replaceable by design. You know, I saw that there was some positive response to that. What are your thoughts? I mean, this is evidence of Vitalik being 200 by Q, right? I mean, he was working on public goods funding. He figured it out. He knew that we would need public good funding

to avoid the issue of the L2 roadmap, which he created. So he did all this public goods funding research, and now it's here. And so we can finally incentivize a top quality team to build us out of this roll-up hole, right? Drew? Thoughts?

I think, do you guys know this? comic, this XKCD comic of, hey, they're 15 standards for doing the same thing. Why don't we just make one standard that unifies all of them one week later? They're now 16 standards. I do feel like there is kind of this problem with this. And this is actually in some ways the mal-incentives of roll-ups, right? Like there's a much higher incentive for you to create the 101st roll-up than to try to improve any of the previous hundred. I'm not saying there's any. wrong with this model in and of itself. I just think like enshrined or special roll-ups have there's always a new proposal for one and like somehow each new favored enshrined roll-up

somehow fucks up in some way on their own. They all they each find their own way to make a mistake uniquely. And I think there is oftentimes it's like lack of cohesion in the incentives of the roll-up and the incentives of the main chain in a way that's like really hard to get around. and I don't really have a great answer as to like how how that you can you can kind of get around that. I think it's like these types of ideas are all cool, but I want to see, you know, show me the repo and like running sequencer first. You know what I mean? I think like idea is cool, but like is it actually going to run? Is it working?

Like are there enough app developers who want to go there? Like another problem for roll-ups, I think that people underestimated was. forget about interop and fragmentation, but like, how hard is it to convince a new app developer to go to your roll-up and not leave to another roll-up? That retention thing is actually a really hard problem for roll-ups. And inevitably, they actually are basically paying block inflation akin to the way an L-1 has to pay block inflation to keep the validators. The roll-ups have to effectively pay some type of incentive and inflation effectively to keep app developers from moving between the roll-ups because there's basically very low switching costs and you have to

somehow incentivize it. And I think once you have a hundred roll-up, like when you're, you know, when there's like the incremental new roll-up, that cost goes up for everyone. Like everyone has to increase their subsidy to their app developers because now there's the new chain who has like a new pool of incentives. And I actually think that kind of merry go-round between the roll-ups and app devs and stuff is like a very hard thing to in practice to kind of reconcile. And you can see this in practice. Like you can see the app developers like moving from chain to chain. It is a very real problem for for building these. And so I think the reason I bring this up is, you know, you take take an idea like this R1. If they don't have incentives, they're going to have very hard

developer retention problems, in my opinion. And if you, you have these kind of developer retention problems, then it's like hard to kind of grow, right? Like how hard to be the liquidity sink. And then you don't get the feedback loop of like users keep coming back. And again, these are like practical things. I think like a lot of the people working on roll ups would be like, oh, you're like thinking about these boring things. Who cares? I'll build it and they will come. But you can't do that a hundred times, if that makes sense. Yeah. I actually wanted to ask you guys about the impact of like all these changes that we've been talking about, gas, the consensus layer, this

possible risk five implementation, you know, or even the change from the foundation, just pretty much any other change because there's a lot of them right now. But I wanted to know how you thought these changes would impact the layer two's. Like if you were in one of these roll-up ecosystems right now, like how would you be feeling? At what type of participant? I think that's actually an important distinction. I guess probably the devs that built that chain, but I would also think for any apps on the chain,

those are probably the main two categories. I'll at least take the side of the apps, which is, A, as roll-up infrastructure has gotten more commoditized, it's extremely easy to not have to stay in one place. over time. At the same time, it's made the user interface. Like, the easier it's gotten for developers, the worse has gotten for users. This is like tradeoff because now things are more fragmented. Liquidity is not one place. Oh, like this particular bridge has worse latency to one roll up than another. And it's not symmetric. Like going from roll up A to roll up B is really fast,

going from B to A is really slow, stuff like that. And I kind of think like from the app developer standpoint, it's like, how do I get the most incentives to attract users? Because there's such a like, there's, it's very hard to keep the users in one place. And then that kind of goes turtles all the way down. From the set, kind of mindset of a roll up developer, I think they're just trying to figure out like, yeah, whoever's running the sequencer basically. Yeah. I think from the sequencer kind of business model, one question is like, how? How much do I have to pay an incentive per unit of sequencer fee revenue that I get? And, you know, obviously the king of that is base where I'm paying basically zero, right?

Like, there's no base token. There's no base incentive. I mean, there are U.S.DC incentives, but they're very de minimis relative to the sequencer revenue. And then you have the other end of the spectrum, which is like new roll-up, 500th roll-up, and, like, they have to give away 50% of their token supply just to keep users to stay there for one month. And I think that is a bit of an unsustainable place for like the developers on the new roll-up side. I think effectively what we're going to have to see is like MNA slash concentration into a smaller set of pull-ups. Like I think that's inevitable.

That's a model. I don't know. Max, you probably also have kind of some thoughts on this. Well, yeah. I mean, if you were in the Paradigm Investment Committee 12 months ago, you would have known that there could be infinite roll-ups. That's why they started a roll-up launch pad. They weren't there to be as many roll-ups as there are tokens on Puth Fund, 1,000 new roll-ups a day, all backed but not endorsed by paradigm.

But the reality is there was really only ever going to be one, two, or maybe even three roll-ups, and then a long tail of very shallow liquidity, places where you go farm rewards for three months and then hope not to get rugged and then go back to their main chain. So the roll-ups are not getting rugged, although it's kind of, surprising that this happened given, you know, Arbitram like bought a client team and they still got rocked. So it's a little bit, they should have played the game a little bit better. Maybe they thought they got everything we needed with the blobs and didn't realize that

there was this political uncertainty going on. It's certainly better for them if the L1 is as bad as possible. And I think for a while they were trying to push the narrative that all activity would happen on L2s. So now they have another competitor. They were competing with each other They're not competing again with the Ethereum L1. They're competing with Solana. They're competing with roll-ups that are not on Ethereum like Mega-Eath and Eclipse on Celestia, et cetera. So they're competing with a ton of people.

I think Ethereum L1 is probably not their biggest threat. Like if I'm Jesse from base, I'm not like, oh shit. Ethereum is going to scale 100X in four years to the point where they're at where Solana is today in four years. I'm really worried about Solana and I think that's probably what Jesse wakes up every day thinking about

is Solana and he probably wakes up in a cold sweat having nightmares because we're kind of crushing him right now. But my guess is this doesn't change much in the calculus for L2 because Ethereum is not a credible competitor to them anymore.

And until they start lowering the block time, until they start fixing some of their issues with MEP, until they start attracting new apps which they're not doing in new roll-ups. I don't think that they're going to care too much.

And they're still committed to giving them way more blob capacity. So they're committing to scaling the L-1 and scaling the blob capacity, which is good for, you know, Jesse. I guess like maybe more charitable versions, which is this seems to be the Dr. Jekyll and Mr. Hyde of this podcast is like, Max takes the extreme salon of maxi thing. And I try to reel it back in a little bit is I think, like, inevitably, the great roll-up experiment was an experiment in abundance mindset, right?

Like this idea that we, everyone can have a roll-up. You can, like, this Oprah, like, you can have a roll-up, you can have a roll-up, you can have a roll-up. And people didn't think about the economics of it. They're just like, okay, we're just like, chains are going to be like water. It's going to be abundant and everywhere. And I think the economic reality of that is just not true, right? Like you are paying costs per incremental new chain. You are actually creating costs for all the previous chains in terms of liquidity,

in terms of having to get bridges, in terms of dot, dot, dot, dot, like user costs, application and user costs that I think people underestimated. And those costs naturally have a sort of carrying capacity. So, you know, there's kind of this classical sort of theory in economics called Coast theorem and it sort of says, hey, why do firms exist? You know, firms are effectively collections of people, each doing sort of some amount of transfer with one another. Why couldn't everyone just be a contractor? Well, there's some notion of transaction costs that get shared amongst a group of people who work together in a firm, right? Like, if you work at a company and you

talk to the lawyer who works at your company, they're not billing you by the hour at any rate that's like what using an outside law firm would be, right? And Costa's theory of the firm is a very simple, but, you know, I guess you went a Nobel Prize back in the day for this, but it's kind of simple kind of concept, which is there's an amount of revenue coming in per person, and there's an amount of transaction costs, which depend on how many people are sharing those transaction costs. And the size of a firm is basically where those net out, right? Like where you find the optimal sharing of transaction costs for a given amount of revenue.

And in some ways, the roll-ups were trying to defy this economic gravity. They assume these transaction costs were zero, so you could have a million of them, right? Like, everyone in the world is a contractor is the same as everyone in the world has a roll-up. And the fundamental economic reality is that cannot happen, right? You cannot just, like, keep creating them and they are costless. They actually, inure a cost on all the previous ones. And I think there is kind of a bit of a slight of hand in this kind of credible neutrality discussion of like, hey, the economics we choose or the changes we make, say, L1 shouldn't really affect this abundance mindset of roles. But it's not really true.

Like, there is a sense in which a lot of these changes will force the economics of a lot of roll-ups to collapse to zero. Like, they're just not going to be able to function. And I think that's probably a good thing, right? It will make liquidity better. it'll make ux better, it'll make it easier for app developers. Hopefully you have to spend less on app developer retention and user retention. You can actually have a more organic growth like Ethereuml1 did initially. But I will be the first to say it's not really credibly neutral.

You really did change the economics for like the incremental new roll-up. But that's fine. Again, there's this Kosian kind of argument that there's a natural capacity to the maximum number of roll-ups. And I do think people who kind of didn't totally believe that, I think they are coming to grips with reality of that. And in some ways, that's what how I view these changes is this. Yeah, as you're talking, honestly, I keep thinking about how Manhattan probably was like, you know, two or 300 years ago. if you think of a blockchain as having a certain amount of block space, you know, these roll-ups could be like different avenues or something. And then there's like different activity on all these

different streets. But like, before you fill out the entire island of Manhattan, it doesn't make sense to have all this streets that we have now. And you don't, but also you don't want it to be too planned. If it's too planned, then you don't get the organic kind of creative like thing. that makes a good capitalist system. So I just sort of feel like, oh, it's like maybe just the lower part of Manhattan has been pulled out. And then they were thinking, oh, we're going to fill this whole thing with like all these different streets. And everyone's like, wait, wait, wait. That just makes sense. And like, does that mean maybe in the future or wouldn't? I don't know. But yeah, there's probably going to be some set number. So, yeah, we kind of have to see how more of these

develop. But I did also want to ask, like, so here we are talking about. out potential impact on the L2s, but really what everybody cares about. And this is the reason why this whole quote unquote pivot came about or even just like the discontent in the community happened over the last year. And it's basically because of the price of ETH. So do you think that these changes will positively impact the price of Eath? And if so, or even if you don't, but just like generally when you look at all the different possible changes, which ones at least make you the most hopeful that there would be a positive impact on the price of Eith? So I'm not supposed to comment on the price of Solana,

but I am allowed to comment on the price of ETH. So let me say this is not financial advice, that I do not think that the current sentiment, like the way you described it is the reason this is happening is because the price went down. No, the price went down because they didn't do anything for four years that impacted the user experience whatsoever. And everybody else was doing things. And then all the users left.

And so this was all predictable. I predicted while I was still working on ETH and very much wanted ETH to succeed. I still would like ETH to succeed. Only I wanted to succeed a little bit less than I want Salano to succeed now. But this is something I predicted. I said in August of last year, like, hey, Ethereum has a real competitor now, credible competitor. This was long before Solana had higher volumes, was smashing every metric except TBL and stable coin. So we were basically now smashing every metric back then, smashing.

no metrics, but it was obvious to see the outflow when I attended Breakpoint, for example, it was like, I talked to some guy, oh, yeah, I used to be building on E, and now I'm building on Salana because it wasn't fast enough. Or I couldn't figure out which roll up to build on, so I just decided to build on Salana, and there's a lot of good energy here. And conversation after conversation was that. And then I was just in Dubai last week, and a lot more conversations like that than even I had at Breakpoint were coming up, where people who had successful or many successful projects on Eath, we're now looking at Solana as the place to build their new thing. And so you could see it happening back then, which is why I started ringing the alarm bells.

And that was the first domino to fall in this eventual pivot, was me basically ringing, along with a few other people, ringing the alarm bell that, hey, you can't just do nothing for four years, give a subsidy to Coinbase and check out. Like, you have to actually keep building a blockchain, or people are not going to want to keep building on your blockchain. And so I would say it's downstream of failures in the technical, and it's hard to say because, you know, these things are incredibly volatile and speculative and who knows why anything is worth what it is. The multiples don't make any sense. But at the end of the day, ETH was sold as the smart contract platform and people no longer want to use it as a smart contract platform. Then the part of the valuation that was, hey, ETH is the future of smart contracts is going to go to zero.

And maybe that's all of it, maybe that's only some of it, maybe that's the part that's gone to zero so far, and the rest is the meme of ETH. Who knows? But it's very clear that part of the evaluation was based on maybe ETH is the future base layer of all this activity. And the probability that that will happen is now much, much, much reduced from the perspective of like a forecaster in the market than it was a year ago. Because the metrics just aren't there. People are moving and you can't faster over that. with a new narrative about BlackRock putting more assets on shape? I think the only thing I would say is I think Ethereum, yeah, I agree with Max's point

that Ethereum's price, the causality is reversed. It's like because there was nothing new to do, it kind of made the value proposition of using the base token kind of go down. and I don't think It's so funny you said base token Yeah sorry sorry I mean like I mean like ETH not yeah I meant ETH itself

But like I think there was also this kind of misguided Economic view that like hey By having all the rowups use ETH as our gas token it will make people Buy ETH more And like that was like if you look at the order of magnitude of gas difference

In terms of the amount people are buying it's not like You can't be like we're having cheap fees, but also like, hey, everyone has to buy a ton to, to spend on gas, right? Like, there's no way to have it both ways. So I think, again, there was a lot of, like, economic optimism on roll-ups that I think people maybe over, it was just like a simple story, but it was kind of, yeah, this kind of like just so story, Kipling kind of type of thing. I would say that Ethereum's token price, if I want to reverse the causality and like think

about things to do. It's mainly like you have to keep application developers. And you also have to think about statistics like application developer retention, liquidity retention, user retention. And like these are all things that usually like centralized companies think about. Right. Usually like this notion of like, you know, if you go into like any tech company, it'll always be just like this huge dashboard of like here are our current metrics on on our users. And I think for ETH price to go up, there needs to be militant focus on that. And if there's not, then it's going to be a really hard hill to cross. And I think, again, there's a way to do that in a way that I think is still credibly neutral enough. And I think,

to Max's point, a lot of the economic changes of the base layer are fundamentally not really very neutral. And that's fine. You just have to admit it, right? And I think... But that's what I'm curious about. Like, how would you change ETH's crypto economics, if you could? Like, do you feel... Because I... So... Oh, you're asking more about, like, the ultrasound type of thing? Well, it could be, you know, like, so, okay, so there's a few different sort of iterations that we've seen. There's, yeah, EIP-1559, where it was this concept, like, the more the chain is used, the more the value of Eaths should go up.

You know, that's sort of like the ultrasound money thing. I did see Brian Sean Adams of Bankless had a long tweet where he said, Ethes commodity money backed by an economy. And the way he described this was, and he was comparing like Ethereum to the United States. So he said the protocol rules equals constitution. Base fee burn equals taxes. Roll up bridges equals trade routes. Validators equals defense.

Smart contract ownership equals property rights. On chain fees plus MEP equals GDP. Users plus devs plus DAWS equals citizens. And ETH is the reserve asset. So that's apparently a kind of a new idea floating around. But if you could make Ethereum's crypto economics better, like how would you do it? I mean, tariff, the L2s first off, like you should be getting economic value back from them. I think like this analogy that's just made is exactly the,

the problem. It's that I'm exporting tons. In fact, the U.S.'s decisions on tariffing are maybe very different than this. But Ethereum has an infinite trade deficit with the L2s. It's like basically giving away everything it has for free and taking back peanuts in return, like really peanuts. And that basically means it went from something where the fees that were being collected were usage-based, like volume and flow-based, to effectively fixed price. You could effectively view the prices that the L2s are paying for Bob's fixed price, not dependent on their usage, and they're keeping all the surplus. And it's all public, right?

You can look at the sequencer fee. And no country can actually really sustain itself in that analogy that was made. If it's just giving away, it's like completely giving away all of its goods in GDP for free and not really getting anything in return. And I fundamentally think, like, there is going to be a day of reckoning if you are not able to bring back economic value from the roll-ups. And one way of doing that is to make the L-1 a competitive roll-up, which is almost like being an enshrined roll-up in some ways, right? In some ways, that's what the make-the-L-1 better is doing, right? It's going to create, hopefully, demand.

But if the roll-ups are continuing to generate all the economic activity and pay a de minimis fixed fee, like, there's just no, I don't think you can come back from that forever. Yeah, I mean, it's worse than a trade deficit of negative infinity because a trade deficit is I give you $100 of goods. You give me $100. That's a trade deficit. If I don't also, you know, get $100 of goods back and pay you back to $100, that's a trade deficit. In this case, it's like, I give you $100 and you give me back $0. I give you back $10 goods. I give you the minus $27,000, $12,000.

I give you nothing back. And that's basically what has happened over the last year. I mean, people are going to fact check. I look forward to the fact checks, by the way. I'll happily quote tweet and blast you on Twitter and fact check. So Christine Kim, looking forward to it. But the thing that's going on is worse than a trade deficit. I suggested actually a change that was basically how would you actually go about tariffing the L2s?

And one way to do that is you basically let anybody blow up their contract and do whatever they want with it. If they pay some amount of fee to do that. And then if you want to make that line of like protection line where they have to pay say $10 billion to blow up your L2, then you have to pay more as rent basically. So you're going to pay the L2. The L2 will pay the L1 for security. And so if you want 10 billion of security because you're securing 10 billion of assets, then you need to pay for $10 billion worth of economic security

in the same way when you hold E, you're getting inflated away. You have to pay for the security on your E, but you don't have to do that if you're holding USC on Arbitron, for example. And so this was a way to do it. I'm not sure if it's practical or not, but there needs to be some thought about it. I mean, one thing you could do is just blacklist all the L2s, just like hard forked out all the L2 contracts and just say you're not allowed to post studies anymore. I don't really understand why you would not do that.

If you would took over Ethereum today as a company, this is what you would do. You just say, like, hey, your guys are not posting tests anymore. You're not using us anymore. We're not doing this alignment games. We're going to freeze all the assets. You have to pay us to get them out. And let's do a hard reset.

And that would probably be a good idea. But of course, it will not do that. That would be very bad for heat if they did that. But that's what you would do if you were a company that, that inherited the situation. Wow. Again, I think there's some level of extreme extremities there, but I do think the fact that you used to get variable upside from your users

and you gave that away and you're now getting a fixed small fee, that was like the worst fixed, that's like the worst interest rate swap agreement in history, right? And that's basically what Ethereum did with the L2s. Then I think until the L2s actually return value to the L1, it's going to be extremely hard. And the L1 is not competitive with them. It's going to be extremely hard. There's no amount of chicanery you can do with a token that large relative to the overall market cap of the ecosystem that will help you.

I think changing inflation curve, all that stuff is that's like moving the deck chairs on the Titanic. That's not going to help you. You really do need to get your variable upside back. If you don't, if you don't generate value proportional to usage across the entire ecosystem, then the other chains are basically there on L1, more or less. Yeah. And if you try to tariff them, the issue is if you actually put a tariff in place, say we charge Arbitrum 1% a euro on its TVL,

which is actually about what Heath gets charged on its Ethereum TVL because of inflation, right? So if you charge Arbitram 1% a year on their TVL, then they would leave. why would they stay? They would just go to post on Celestia. They would go to post on Eigen Lear, Igen, DA, or some other thing. Maybe they would make their own because it's not worth 1% of year

because you can't really compete with Solonopang 1% of year. So at that point, I think the ship has sailed. It had to be dealt with up front. It's very, very hard to deal with it now because if you try to put on a huge tariff, then they're going to leave. Yeah. I think like I give them more charitable versions. I think they may not leave if you do it quick enough because the RWA, like I'm including stable coins and RWA here. Issueers, they're very slow. Like they're not going to like insta migrate. They will migrate eventually. But they're not going to just like move all their float quickly. And I do think you do have a bit this cudgel of like, well, if you want access to these.

assets you basically have to pay us. Now, you know, like the U.S. and it's unsuccessful so far trade deals. I'm not exactly sure how well that will work. But conceivably there is some hope of that. I wouldn't say it's like all lost. I do think there's a little bit of Nileism. It's already over. It's not true. And like the number one roll up is base, which is the second part of the word Coinbase, right? And I, you know, Coinbase has a notoriously strained relationship with Circle. It would be very difficult for them to get them to issue native USDC on Coinbase, right? Oh, of course not. Actually, they have the best relationship with Circle of any company in the entire industry, better relationship with Circle even than Ethereum does. So I think

they could get the USC to fork them out immediately, right? I just sort of don't. Like, I kind of agree with you, but also there's some sense in which, like, they can't, you know, it's, it's their users stable coins, right? Like, they need the users to migrate. Like, and I would say, like, people will migrate eventually, right? Like, if the yield spread is high enough for long enough, people will move, right? Like, there's no doubt about it. And that's the bet Salonnas making, is that it can create that spread for long enough that all those assets migrate. I'm, if I take the other side, I view it from the Ethereum side, I basically think there is this time window

that we have the assets now and you have to negotiate and play hardball. Now, this is obviously not the strong suit of anyone at the Ethereum Foundation or working in Ethereum for the most part.

But I do think you do have, there is like a, there's a time window in which this kind of tactic will work. But yeah, I do agree with you that. In the long run, if it stays in the current stasis,

then it's like, really hard it's like impossible to revert right like there's really no incentive to me yeah yeah um it's like you know i mean it's just like any negotiation anywhere um if you show up and you offer all the things that you could compromise on then like you're going to lose or not lose but the the you know final result is not going to be good and so in this sense that they're starting in this position where they've already given away everything they could have negotiated on and they have to let claw back it's just a lot harder. But I did want to ask because, you know, here we are just talking about all these things that Ethereum's doing and whatever. But the thing is like, you know, what really matters

is what are the users going to do next? Where will the next craze be? What will people be interested in doing? And that's not controllable. It's so much more organic. I mean, in this, in this scenario, we've been talking about like Ethereum versus Salonah for most of the conversation. but obviously there's all these other EVM competitors or just other kind of L1s that are trying to get in on this competition here. So is there anything that you have seen in the quote unquote pivot that increases the chances that this new craze, whatever it ends up being, organically arises on Ethereum or in the Ethereum ecosystem, I guess we need to say, yeah, what do you think the odds are? that happens now because of the pivot. I think it changes the next phrase at least. It changes almost nothing because the next thing will be something which is already in development, has been in development for six months. And it's like kind of the Chinese trade that they're talking about now,

right? Where the boats left China a month and a half ago and they get to the East Coast right now. And so we are just starting to see the end of the pipe where these things are getting here or not getting here because of the terrace. And so what's happening is for a long, long time, you have not wanted to build your app on Ethel 1 because if you hit a home run, Heath will not be able to scale with you. And now with Shankrad's EIP to his credit, they're forecasting a four-year timeline of very aggressive scale. And so if you're a new builder today, you can look at that and say, well, I could build on Salonzei, which is working and has 100x each performance already in terms of capacity. Or I can make this bet that ETH will scale 100x. And maybe this changes your mind and you say, I'll go to the ETH one.

But for people who are building six months ago making that decision, who one of them is going to be the next craze that we see probably, they're working right now. they already made that decision and they already chose to build on Talana, probably, although they may have chosen to build on some other chain, but they chose somewhere that can scale with them. And so I suspect it's very unlikely that the next craze of retail inflows and activity on a chain is happening on ETH or even on any of the ETH2s. I will take, I will say my answer is, my belief is sort of some superposition of what Max says and sort of another thing. The other thing that I think is actually extremely worth pointing out is the sheer dominance in market share of hyperliquid. And that being sort of, I wouldn't call it explicitly ethelined, but adjacent enough, given that,

they do have an EVM. And their first bridge was Arbitrum, and they sort of arguably vampire-attacked Arbitrum in some sort of indirect way. You could call them, you could really call hyperliquid, the pure example of the anti-salon a trade, which is financial products may actually do a lot better in Ethereum ecosystem while the assets are there. Now, this means you have to ruthlessly prioritize only these financial applications in some ways. And I think this is kind of the rock and a hard place for Ethereum. Ethereum really wants

to be a place for, for lack of a better word, everyone, right? Like not financial applications, social things, whatever. And unfortunately, I would say due to all of the things we talked about today, the number one competitive advantage it has is in the fact that there are these assets there and people can build quickly things around managing those assets, getting leverage on those assets, trading those assets, et cetera. But if those assets leave, then game over. So you need to basically actually build, you know, the banking system on there, on Ethereum that like keeps people locked in. Like it increases retention. And you have to kind of ruthlessly focus on that as your growth area. I think that is sort of a different version of

the world. And Hyperliquid is a great example of showing that, hey, maybe that if people actually prioritize that, you can completely demolish on market share statistics and use of statistics. And so I would say, like, there is a world, again, where Ethereum's number one leverage and negotiating chip is these assets, but there's only a limited time and duration that can use them as leverage and that's the gambit. But you have to be willing to make that trade of like, we want these financial apps to be successful, which I kind of think people have, you know, to the points we're talking earlier, have kind of been reticent about with Ethereum because they want these other things that like have no usage, right? Like I think Max once had

some tweet, if I remember correctly, about how like a lot of Vitalik blog posts feature protocols to have two users. I forget exactly. You were more incendiary than the way I just said it. But, you know, like, that, there is some truth to that. That means that, like,

they don't care about the ones that do have users, right? All right, you guys, we're at time. This has been such an amazing and really interesting. And, yeah, Trun, I feel like you took some different positions from maybe what I've heard elsewhere. So that was good to offer a counterpoint to Max. I guess just before we sign off,

is there anything that I didn't ask you guys that you think we should definitely touch on? I think I'll just say that we are doing some really, really cool things on Solana. And we don't have like these big hard forks so it doesn't get announced to the public, but we've shipped almost 50 feature flags so far this calendar year.

And we're shipping more like every epoch. And eventually those things add up and multiply it together. And we have some big, feature flags coming this year as well. So I'll just give a shout out to everybody who's kind of in my first six months of Salana helped me learn the ropes and giving me some shit so that I can improve myself as well. Everybody who's on Salana's terrific and I'm really happy that I made the shift over.

And I want to say for each people like I wish you all the best. I really wish you guys would shorten the block time. And I'm glad that you guys are finally on the Max Resonick roadmap. But there's some things you could shift that would be even more max resin curve map, and you'll probably realize them in six months, or you could realize them today and save yourself six months. I would just say focus on the data. Not like neutrality also involves keeping your eyes open to know what is happening.

And I think the data does show the financial use cases are dominant. No matter how much people want to make social apps happen, they are not the real generators of value for eth the token. No matter how much people want to make privacy apps happen, they're not the real generator of value for eth the token. So if you want the token to go up, maybe you should focus on the users who are actually there. All right.

Where can people learn more about each of you and your work? Twitter. It's just my name. Or I'm on unchained also. I'm on chopping lock. Yeah, you can find me on Twitter at Max Resnick 1. and you will not regret it for sure, unless you do, in which case you'll block me. That's okay. Many people have done it before.

And if you want to learn more about what we do at Anza, we develop the core agave client for Samana, so we make IBRL happen, and you could find us at ansa.x. Perfect. Well, it's been a pleasure having you both on Unchained. Thanks for having me. Thanks so much for joining us today. To learn more about Tarun, Max, and Ethereum's pivot, check out the show notes for this episode. Unchained, it's produced by me, Laura Shin, both of a Matt Pilchard, Wanda Ranovich,

Macon Gavis, Pamma Jundar, and Marka Coria. Thanks for listening.