Unchained - How Traders Are Thinking About the Merge -- and a Potential ETHPoW Chain - Ep. 395

Episode Date: September 13, 2022

Kevin Zhou, co-founder of Galois Capital, and Evgeny Gaevoy, founder and CEO of Wintermute, discuss how to trade the Ethereum Proof of Work fork, what the market is telling about the Merge, and whether the Merge affects Bitcoin.    Show highlights: what will happen at the time of the Merge according to Kevin and whether there’s uncertainty when the ETH Proof of Work chain will emerge and how that affects trading opportunities the mistakes of the ETHPoW team, like repealing EIP-1559 what percentage of ETH market cap ETHPoW will accrue what the first few blocks of ETHPoW will be like what the strategies are to earn the ETHPoW airdrop and what the on-chain activity looks like whether there is an “up-only” monoculture in Ethereum what stETH is, how it should be priced and what the futures market indicates where the value of a chain comes from and the likelihood of ETHPoW failing catastrophically how to protect from replay attacks the price action of ETH after the Merge how ETH becoming deflationary affects Bitcoin’s narrative as digital gold how the ESG-friendly image of Proof of Stake could affect the narratives of ETH and BTC   Thank you to our sponsors! Crypto.com Ava Labs a16z Kevin: Twitter Evgeny: Twitter   Episode Links   Previous Coverage of Unchained on the Merge: Preston Van Loon on Ethereum's Merge and His Lawsuit Against Treasury Arthur Hayes, Former Ethereum Skeptic, on Why the Merge Makes Him Bullish on ETH  With the Merge, Will Ethereum Take Over Bitcoin’s Title as Digital Gold? Why Kevin Zhou Believes Ethereum Will Have 3 Forks After the Merge Post-Merge, If Lido Becomes Dominant, What Does That Mean for Ethereum? ETH Proof of Work: ChainID missing; and the request from Coinbase Kevin’s analogy CoinDesk article ETHPow Token  Summary of Kevin’s thoughts ETHPoW team’s promise to abolish EIP-1559 ETHPoW first blocks Tether supports PoS Circle (USDC) supports PoS   ETH Trade Ether’s backwardation Eth-Flexive by Arthur Hayes Whether Ethereum’s Merge is priced in Gauntlet’s view on the Merge BTC correlation with stocks   ETH Post-Merge Dynamics: Onchain Wizard post Cumberland on the Ethereum dynamics after the merge  Miles Suter on the implications of the Merge Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey everyone. The merge is upon us. After this show is published, Ethereum's merge, which will transition the blockchain to proof of stake, will likely happen within about two days. Earlier this summer, Kevin Zoe of Galois Capital raised the ire of many people in Ethereum when he talked about the likelihood that an Ethereum proof of work chain would come out of the fork. And in recent weeks, it does look like there's a movement behind this so-called Ethereum proof of work or ETH POW fork, though how successful or how smooth it will be is anyone's guess. In this episode, Kevin and Hvgeny Guy Voy of Wintermute, a large market maker in crypto, discussed different ways the merge could play out. Honestly, they said so many things that surprised me,

and we got to cover everything from the potential ETHPOW chain to Bitcoin, to Heath itself, to DeFi, we talked about NFTs and more. Lightcoin, Dogecoin, and Shibh even got a mention. I hope you find this episode as thought-provoking as I did, and also that you have a happy merge week. When I catch you Friday, we should be in an Ethereum proof-of-stake world. Enjoy the show. Hi, everyone. Look and Unchained. You're a no-hype resource for all things crypto. I'm your host, Laura Shin, author of The Cryptopians. I started covering crypto seven years ago, and as a senior editor at Forbes was the first mainstream meter porter to cover.

cryptocurrency full-time. This is the September 13th, 2020 episode of Unchained. Every other week, Unchained hosts The Shopping Block, where Crypto Insiders, Hesip Koreshi, Tom Schmidt, Robert Leshner, and Tarun Chitra chop up news in digital assets. Catch the latest episode now on YouTube. Harness the full power of the Avalanche network with Core, your new Web3 command center. Built by Ava Labs, Core is more than just a wallet. It's a non-custodial browser. extension engineered for users to seamlessly and securely experience Web3 like never before. Explore Avalanche DAPs, NFTs, bridges, subnets, and more today. Whether you're crypto-curious or a C-suite decision maker, you have to check out Web3

with A16Z, the chart-topping technology podcast about the future of the next internet. Listen to Web3 with A16Z on Apple Podcasts, Spotify, or wherever you get your podcasts. With the crypto.com app, you can buy, earn, and spend crypto in one place. Download and get $25 with the code Laura. Link in the description. Today's topic is Trading the Merge. Here to discuss are Kevin So, co-founder of Galwa Capital, and Evgeny Guyvoy, founder and CEO of Wintermute.

Welcome, Kevin and Evgeny. Yeah, thanks for having us. Yep, really nice to be here. So as we just mentioned, Ethereum's long-awaited merge will arrive very soon, most likely a day or two after this podcast comes out. Probably the only other Ethereum Hard Fork that was as closely watched as this one was the Dow Hard Fork back in 2016. Kevin, your views on the merch are somewhat known, but let's have you give a short recap of what you think will happen at a high level for people who either missed your earlier interview with me or haven't seen

your tweets. What do you think will happen at the time of the merge? Yeah, happy to talk about that a little bit. I think just overall, really sort of the contention that I have right now is that it could be a lot messier than I think a lot of people expect. And, you know, I just kind of wanted to surface that with the community. And I think for the most part, a lot of these kinds of scenarios have already kind of been playing out in the market, you know, when the futures curve backwardated a lot less now than before. And, you know, I think that there's a lot of risks that are surrounding possible technical failure. on the merge, other kinds of weird griefing attacks by, you know, maybe certain actors within the space, whether that be like maybe some kind of third fork or exchanges behaving badly. Now, I think for any single one of these things, the probability I think is very low. But I think when you add all of it together, at least at the time, it seemed like that there was, you know, that I think that that wasn't really being priced in properly. And I think since then, you know, the market's kind of played out, you know, STEath and Heath widened.

That spread widened. You know, the futures went backwardated. And then since then it's actually come in a bit the other direction. So, you know, it's interesting to see the market dynamics there. But I think overall, you know, not everybody I think is so sure now, I think that the merge is going to do what it's supposed to do. And I think at least having a little bit of that uncertainty in the air, I think is healthy for the space. Evgeny, as a crypto market maker, how are you looking at the merge? What do you think will happen at that time?

Yeah, so for us as a market maker, it's a pretty interesting event, obviously, and it's even more interesting given how deep we are in defy in general, not just in this area, but all kinds of Feltus and, yeah, all kinds of scalability solutions, like whatever you call it. And so for us, it's like three problems we had to solve. So first we needed to make sure that we don't, miss something and losing a lot of money, which is probably the main thing for any, like, trading shock in the space. And it has to do with, I don't know, replay attacks. It has to do this.

In general, like, where we store our EFC 20 assets and how we store them and, like, what can potentially happen, you know, upgrading our Gnosis saves, for example, like all those, like small and big things. Second is basically any kinds of opportunities. And that's primarily, I would say, on proof of work chain part, like, well, the ones that supposedly will, like fork effectively, however you call it. And like in the most basic sense,

it's basically once the merge happens, or once the fork happens, actually, try to sell all the assets, which we think will be worth zero, primarily stable coins, into the Ethereum proof of work, and basically trying to get like a lot of free,

just three of this new And the third bit is it has to do with our defy operations. It's actually understanding how MAB space, like how blow-building space will change post-merge. And that's also, well, that's actually also a really interesting topic. And that's what we are primarily looking at now, because like a lot of those issues that we initially identified through the last couple of months, they kind of subsided. Like some of them are still there, but like we don't, we don't really see that many, as many issues that. can lose us money, namely like none, I would say. Opportunities-wise, I don't really say it's going to be an amazing opportunity in general.

Like I think a lot of it, just like Kevin said, a lot of it played out in the futures market over the last couple of months already in Stakedes. So it's all about, yeah, like if you can be the fastest during the first couple of blocks, when they're going to be like a lot of mess potentially. And also how do you manage your inventory on all kinds of centralized exchanges, which will close down or shut down or deposits in these drills for quite some time, I can imagine. But that's kind of like normal stuff for us. It's our bread and buy.

Okay. So, yeah, let's dive more into this proof of work, Fork, because I see so much chatter about this. Obviously, it's funny because I do think the longer-term impact really will be around ETH. But at this moment in time, you know, this is what a lot of people say. seem focused on interestingly, or maybe not surprisingly, actually, I see a number of developers that are deriding this potential ETH proof of work chain. In particular, they're sort of making fun of the team for not having yet, for instance, switch the chain ID or leaving it missing or basically telling them that they're trying to change it the wrong way, like they're saying,

they're implying that these developers don't even know how to change it. As Evgeny alluded to, some people are saying the chain probably won't even be ready until sometime after the merge. So it'll basically be a fork of the fork, which is fascinating. Or I'm not sure exactly how this works. But obviously then, on the other hand, we have traders like yourselves or other community members who are writing up whole newsletters and blog posts and tweet threats on how to trade this ETH proof of work fork. So, you know, again, I flash back to what happened to the Dow where it basically seems like the developers see things one way. They see, you know, back then, they saw that Ethereum Classic chain is not being useful, the traders were like, hey, that's free money.

So I was just curious for your take, given all these technical issues that the Heath Proof of Work team seems to be having, do you expect that chain to emerge right at the time of the merge or afterward? And how do you expect any technical difficulties to affect how it plays out? Yes. For us, you know, I think we've heard all sorts of different opinions about this, whether it'll be on time or not. You know, we're trying to prepare for any situation. You know, certainly if the fork is on time, there's probably going to be a lot more training opportunities.

And I think it's also because of, you know, these kinds of revelations about the chain ID, you know, or about, you know, whether or not it's going to be ready on time, which is why kind of the future's basis closed in. And maybe this is also why a lot of people are right now dumping their ETH POW ahead of time. So I think, you know,

generally there's been a couple of things that, I think the ETHPOW community did that I think was not strategically advantageous to them. So I think things like, for example, beyond just the repeal of 1559, this idea of creating a multi-sig to fund development, I think it's a bit double-edged. I personally think that it's not the best idea. It's sort of like, you know, you're introducing this kind of layer of centralization on that chain and there's like a small group that's in charge of some kind of dev treasury. I think it would have been better for them to play more along the lines of, you know, ideological purity,

especially given the tornado cash revelations. But at the same time, I understand why they're doing that. And it's because, you know, they don't really have an Ethereum foundation on their side to go back development and, you know, bring new apps to the chain, that sort of thing. So I think it's, you know, it's a really tough situation for them. I don't think it was a good idea to introduce any whiff of corruption or that it's, you know, that it's a really tough situation for them. being a money grab. I mean, everybody already thinks that it's a money grab. So like to introduce more of that where, you know, people can point fingers and people can, can accuse them of doing that even more. I think that, you know, that that's not the PR that they need. But, you know,

I think all those things, you know, taken into consideration. I think the market's already reflecting these kinds of new expectations. You know, I think Polo yesterday traded down to like 1.8% from like roughly it was hovering around like 3, 3.5%. You're talking about. the Eath proof of our IOUs on, okay. Yeah. So yeah, so I think that, you know, that's already come in quite a bit. So, you know, we'll see where the marketplace is things. You know, certainly the, the size that's being traded on, you know, Bipfinex's chain split tokens and on Polo, you know, with their split tokens is very shallow. So there's not, there's not that much price discovery. And, you know, there could still be really large players, you know, obviously Ethereum Foundation,

a lot of large whales that haven't dumped yet, but who do want to dump, but the size is just too big. So, you know, I think we really need to see all of that kind of play out and wash out, I think, within the first week or two, maybe even quicker than that. And then afterwards, then we can come to some kind of equilibrium price, at least in the short term for ETHPOW. And then what happens in the long term really depends. I think the POS guys think that it bleeds out to zero. You know, that's probably very likely. Also, there's also possibilities of it just randomly pumping for other reasons. You know, they do some kind of deal with some group or, you know, POS companies. completely fails for reasons unrelated to POW. So, you know, there's all sorts of, you know, it can go anywhere from there. And I think it's really, we're just trying to figure out what should we do before the merge? What should we do during the merge and immediately right after it in the next few blocks? And then what should we do maybe about a week or two out? And then from there, we don't really care too much, you know, because I think for these longer

timeframes, it's just not as interesting as sort of like the mechanics of trading these kinds of special sits and one-off situations. Okay, one thing I want to clarify is just when you talked about repealing one 559, it's because that drastically reduced what the miners were earning. So by repealing it, then they would sort of boost how much they're earning because that was burning part of the fees. But then I wanted to ask you, so explain how this works for the ETH POW tokens that are available on some of these exchanges. So for people that are trading these, does this mean that the exchange we'll just give them some, you know, whatever the same number of actual ETHPOW tokens are that are available after this new chain survives? Or how does that work?

I imagine that's the case. You know, I don't have any special insight there. I imagine that there must be some exchange out there, maybe one of the smaller ones, that just completely messes it up and continues to accept like deposits of ETH POW as if there were, ETH POS. I mean, there's all sorts of like weird edge cases. And I wouldn't put it past somebody to mess up somewhere. But according to plan, though, it would be that each token becomes two tokens. Exchanges would give it to their customers based on right before the snapshot what the ownership split work like. Okay. So, and Evgeny, are you, how are you thinking about like, obviously Kevin just mentioned that there's potential for it to be live later than the actual merge. What are you sort of either betting on or how are you thinking about this uncertainty? Yeah, I guess what they communicate so far is it will be almost exactly at the merge, which will make things quite fun for a lot of people and quite difficult for a lot of people as well. I think ultimately that's most likely that will happen actually because they're just looking at the way.

you did mention a few developers having problems with them on East Pole side and I've seen Coinbase has been not very happy with them as well, I think today about not pushing through the chain ID or something

which obviously is a prerequisite for replay attacks being potentially possible. So like they still have like less well they have like a week and they still need to deliver on a lot of things. So I think the right play for them would be actually to maybe delay it and get it done properly.

I didn't argue. Like to me, the whole, to me the most curious thing is why wouldn't they just launch a new chain altogether without inheriting of the Ethereum mess? Like, well, and by mess, I mean like all the smart contracts, all the, well, this is the whole Ethereum state. That to me is the most, the thing I just don't understand. Like, why not just, you know, for as a serial classic, give yourself some tokens and go over there just like so many chains that they launched over the last couple of years. All right. So out of curiosity, what would you both expect the value to be of these ETH POW tokens afterward? Is it going to be less than 2% of the current value of ETH as the IOUs on these exchanges seem

to be indicating? You know, I think in my opinion right now, I'm going to go with the market. And I think that, let's say, after the first period of like, past, anemoneum and dumping, I think it maybe just equilibrates to about maybe 2%. That would be my guess. But for myself personally, I'm not that interested in buying at fair value, I think, or at least short-term fair value. You know, I think I might be lightly bid at like one to one and a half percent. And then much stronger bid, I think, between like half a percent and one percent. And that's not to forecast anything about, you know, the super long-term future. But that's kind of.

kind of, you know, levels that I'd be interested in maybe taking a swing at it. Wait, and when you say that, you mean before the fork? I meant, like, after the fork. So, like, after this initial period of, like, defy panamonium, mostly on the POW side, but maybe a tiny bit on the POS side. And then once that period ends, and then everybody who wants to have dumped POW has dumped it, then I think some kind of natural short-term, you know, equilibrium price, maybe around 2%. seems pretty fair. You know, obviously it could just be wrong, could just be way higher than that, could be like way lower than that. I don't know, but, you know, that's kind of what my expectations are,

you know, just as comparables with like ETC and like, you know, things that had happened before, other types of forks that have forked off of other tokens. There's not too much to go off of, but that would be sort of finger in the air kind of guesswork there. So this is fascinating to me because from the way you're talking and maybe I'm wrong, it sounds like you're not interested in buying those ETH POW tokens before the merge until after people begin to dump them once the chain goes live. Is that what you're implying there? That's generally my thought. But I think if it dumped ahead of time to a low enough level, I would still be interested in buying it. It's just that I don't want to get in front of other

people's selling. Even if I wanted to buy it, I'd rather buy it at a cheaper price rather than a more expensive price. So, you know, I'm fine to wait for everybody else to go first. Oh, I wonder, you know, I'm not a trader, but given everything that you've said earlier, I find that surprising, I would have thought that you were looking to, you know, dump in the first few blocks. But while we're talking about that, for both of you, what do you think will happen in the first few blocks? Like, you know, I saw Dan Robinson a paradigm appears to be figuring this out as well. He's asked on Twitter, if the ETH POW fork happens, what will be the first few blocks be like? Give me your opinion for both of you.

Maybe we can ask you if any first. But I just wanted to clarify one thing, which is that what I was saying about these sort of price levels I'd be willing to buy, it's not related to stuff that we're going to be doing like on chain and, you know, maybe like doing some MEP to like race for certain blocks and to, you know, dump certain types of ETH POW, ERC20. for other ETHPOW, EURC-20s or ETHPOW itself. You know, that's like a different set of strategies. I meant more for like in the midterm where I saw fair value.

That's sort of what I meant. All right. So first few blocks on the ETHPOW fork. What do you guys think? If it happens like it happens so fine, and basically they don't freeze up all AMMs, for example, like they wanted to do, and I think it's quite possible that a few people will rush and try to sell.

also, well, value less assets, let's call it like this. I think it will take a few more blocks than just first couple of blocks, because I think those first three blocks will be very, like, busy. And I think we'll see a lot of competition. This competition will be even more interesting

because we wouldn't see normal players, like flashbots, for example, helping out. We wouldn't see a lot of this infras that will suddenly just stop working on footwork. So people will have to go back to the old ways figure out how to actually submit it, how to pay miners properly to do all this stuff. And I don't think a lot of companies can actually figure it out properly.

Like, it's quite possible proof of work. Defts will not do something properly as well, and that actually will be delayed. So I think there's a slight pandemonian will continue for way more than two blocks, actually. Also, like, important part is you can only, like, let's say you have USDC on proof of work, You can only sell your USDC.

So if you have, let's say, 100 million USDC and you want to dump it into proof of work, Ethereum, okay, that's all you can do. But you can sell somebody else's USDC. And they can still do it a bit later, for example, for like really big payment pools, which still might have opportunity like this later on. Yeah, I definitely agree. And, you know, maybe to add on to that, you know, I think that, you know, you're already starting to see some of this being reflected.

Well, you know, on the sort of like bar and lending pools where, you know, Ave compound oil, they're all coming out with different statements about what they're going to do. They're all going to treat things a little bit differently. Now, some of it is just that people want the fork token. That's why they're borrowing ETH and, you know, eth, borrow rates are going high. But I think also some of it is that people want to pre-collateralize their defy debt in a lot of these stable coins, which cannot be duplicated across two chains. Right. So like a lot of people already kind of setting up. for this kind of stuff. I would also say, there are some relative value trades. So, like, let's say that there's, like, the first period

where everybody just, like, dumps everything for HeathPau on the ETHPau chain. But then, like, maybe later, once everything has already kind of been dumped to all these ERC20s

have been dumped to nearly zero. Now, like, maybe there's some kind of interesting plays that you can do between the ERC20s, right? Like, for example,

if I asked you, do you think that CRV1 or Uni1, or like, let's say, CRV POW or UniPOW has more value. At some point, like both are dumped so low that both are kind of like, you know, free options, right, or very, very cheap options. But even then between them, you know, you can make certain arguments about why one, I won't say what I think there, but why one might be worth more than the other, right? So like once all, like the eighth power has been taking out of the

system, people are just kind of waiting for the exchanges to open up deposits to go and sell it. I guess some people would hold on to it just to be fair. Then, you know, what's left to do on chain? Maybe there's like a second period after the initial panamonium, which is like a reshuffling of the relative values of all of these coins. I think I did a poll and most people thought that as a ratio of the POW version to the POS version, they thought that SHIB would be worth the most, right, compared to some of these other coins. I have some differences of opinion there, but it's possible.

I mean, at least with SHIB, it's just not a very fancy token. There's not a lot of knock on effects with defy. So it's possible maybe they're right about that, right? But at least it gives us some things to play around with while, you know, after the initial way of ETH POW, everything being traded into ETHPOW on the on the on the on the on the on the on the power chain. This is interesting because I'm just realizing that I had never thought about what kind of token ship was, but I'm just realizing it's an ERC 20. So we've been referring to this throughout, but let's just dive into this a little bit further. What have you been seeing people do or are doing in advance to either obtain this air job or trade it in some ways? Some of the things we've been talking about have been the ERC20s.

I've seen people talking about, you know, moving money from layer twos, moving them from centralized exchanges. You know, you were talking about the futures and how that, those have treated. What are some of the kind of bigger signals that you've seen in terms of like how the market is thinking about this fork? So I think maybe just answer it in two different ways. The first thing is about whether or not the people preparing for this stuff have a lot of risk appetite or not, right? So if you don't have much risk appetite, probably, the safest thing to do just to dodge as much chaos as possible is to, you know, pull all of your assets from the L2s, pull all of your assets out of defy, whether that's in an AMM or in a

lending pool, and kind of like not have to deal with it, right? That would be the safest thing to do. Now, I do imagine that that will happen at least to some degree in that on-chain liquidity will get a bit more shallow. And if that does happen, then there's also all sorts of knock-on effects, right? It means that, you know, as liquidity gets thinner, then liquidations become more likely. And as long as there is enough fall, just naturally induced by the merge, right? So it doesn't even have to do with eithpal forking, but just from, you know, Ethereum itself, you know, on the proof of stake side, if the merge is successful or it's a failure, there could still be a lot of all, right? Because even on success, some people say, oh, this is a sell-the-news event. Some people say,

oh, you know, now more money is going to pile in, right? So there's going to be a lot of disagreement in the market. And I think ball itself will be a bit on the higher side. And this can just cause, you know, normal day-to-day vol, you know, maybe won't cause that much in liquidations, you know, because it's less and liquidity is bigger and thicker there. But now with liquidity shallowing out and vault increasing, you know, we can see all sorts of things.

We can see all sorts of assets trade really far away from kind of, short-term fair value. That's, I think, something to keep in mind. And the curious thing is, you also have the whole macro on top of it, which is still pretty big thing in crypto. So to me, the most challenging bit was like, it's close to impossible to separate the price of Ethereum

as it moves on the match news from, well, all the macro stuff that's happening outside. And so, I mean, Ethereum can go up 50%, or can go down 50% for all kinds of reasons post-merge. And so from that perspective, I think people will get liquidated anyway. It's kind of like, yeah, it's already a destiny because, yes, the volatility will be really

massive either way. And maybe it will all cancel out and it will stay like this. Maybe it will go up. Maybe it will go down. I don't know. But it's going to be very volatile in general. Yeah. And maybe just also add to that, too, you know, some of the other things that I've heard

people doing in preparation for the merge. And I don't want to say exactly what we're doing, but some of the things that I've heard, you know, it's like some people think that it makes a lot of sense to borrow up as much ETH as possible and, you know, collateralize it with stable coins just for kind of like this fork value. But other people are saying, well, maybe doing the opposite is better where I'm just lending ETH because, you know, the borrow rates are so high. I'm getting compensated a lot just by lending people who want to make this play.

my youth, right? And then it goes into like how our compound and are they going to handle it? Alva is saying that, you know, they're just maybe going to pause our lending. Compound is saying, why don't we make the maximum interest rate. Maybe I got them confused, but, you know, one of them is saying maybe make the maximum interest rate, you know, a thousand percent annualize, you know, instead of capping out like 100%, for example, right? And then Euler finance is saying maybe the best course of action is just to do nothing and let things play out. Really, really hard to say. You know, at least now it does seem like the Heath Pau team is saying that they are not going to freeze things on the DFI side on their chain.

Which I actually think that's actually a pretty good idea because even though they have to go through all of this like crazy pandemonium and a lot of like liquidations, like it's better to kind of like rip the bandaid off. right because like you still have the same problem even if you freeze things because like what are you going to do you're just going to put it into withdrawal only mode like forever or at some point you're going to like reactivate it i mean you're just kind of postponing the problem and i think it's better just to like flush everything out as quickly as possible and if they they do think that there is some hope that it works out in the long run then might as well just you know get beyond this chapter first all right and the miners have to take maybe some losses early on uh just to mine it uh but you know at least you tend to kind of like get over the,

the, the forehead. But I mean, they wouldn't take any losses, right? Because, well, it's actually in their favor to allow this, because then people will actually do stuff on proof of work chain. Like, if you freeze everything,

like, what are people going to do anyway? Where's they going to make their fees? But now they suddenly have people, like, competing for those executions, paying a lot of, like,

that's how they can actually make a lot of ease proof of work for themselves and, well, increase their. this world chest later on. So to me, that makes perfect sense. Sure.

Yeah, I think that's definitely possible. Yeah, I think what I meant by taking losses is that I imagine that maybe some of them were also maybe financing the development of ETHPOW. You know, maybe they're like taking losses in the sense that they actually do believe that their chain will be worth.

Maybe not that much, but like more than what the market is showing at 2% right now, right? So for them, it's like they would maybe mine at a loss given the current price and then try and hold it to like maybe 4% or 6% or something like that. Right. But I agree. I mean, I think in some ways it is more beneficial to them in that there's a lot of activity. I think it's a bit compounded. I don't think it's obvious whether or not they have to do a little bit of like loss leading or whether it's still just like over on that positive.

Because like even if they freeze it, eventually when they unfreeze it, they still get that activity later. right. So it's like probably it's worth more now than later, but it also depends on their own expectations of how they're going to do. Right. And how are you seeing Defi users trying to play this? Like I don't know if you've been watching any of those movements, but do you see that there's certain movements in Defi where it looks like those people are trying to get the tokens or jump them or whatever on the EFPOW chain when that emerges? Well, I mean, I think until it Until the fork, it's hard to say what people will do because they can't really do it right now. The only thing that they can do right now is split their eth and pre-sell eith pal.

But for all the on-chain stuff and all the tokens, you know, we just kind of have to wait and see. I figure. Okay, but you're not seeing any movements like, for instance, liquidity pulls drying up or just, yeah, a lot more being created or anything like that that would indicate there are certain ways people are trying to pull. play that. What I would say is we've noticed some things. I don't want to say exactly. We're so close to the merge. Maybe we can, I'm happy to always come back on later after the talk to talk about things. Okay. Okay. Well, you know, this actually leads me to another question that I had for you, which was that, as we mentioned earlier for the Dow Hart Park, it was just totally different. Like, the community was totally blindsided by the Ethereum Classic chain. And the fact that now you have been

so open about this, like you even mentioned that you feel that now the community seems very well prepared for this. But I was just wondering, why were you so open about it? Because didn't that sort of cut into any potential profit you might have made from doing these trades in a more kind of like stealth way? Yeah. So I want to say that there are a lot of trades that I'd never talked about that we did make. one involving light coin actually using that as a hedge but that's a separate thing but and there's also I think a lot of more sort of mechanical plays um that I didn't really talk about um the reason that I did talk about a couple plays right so like two are kind of the same which is like the STEth basis widening the spread widening and then the the backwardated um future basis that was

because like I think overall I thought that the the risk of the merge were greater than zero Meaning that initially when I was first talking about it, it seemed like nobody even believed that there would be an eighth pal, right? And then now I think more the consensus is shifted to there will be, eventually it will be worth zero, but there will be at least some youth pal, and at least it will have some short-term value, right? So I think, you know, part of it is just doing a little bit of sort of like raising the alarm,

that it's a bit alarming that nobody is even talking about this. And the second thing is that I don't think that, we as a firm could take up all of the value there on that trade, right? There's a lot smaller trades where it's sort of like, I need to be a little bit more careful about because there's not that much money to be made anyway, right? So it's not really great to share. I think for this one, I don't think we could have absorbed everything ourselves. So it wasn't very costly for us to talk about it. So that's like the first class. And then the second one was about just shorting ETH against Bitcoin. and basically we shorted it for about two weeks or so.

And that was just because, you know, we thought that ETH really just kind of were, they were, you know, over their skis a little bit in terms of just how bullish they were about, about ETH. I later thought that maybe Doge would have been a better hedge than Bitcoin because I also have some concerns about, you know, the Goss Coins being released. I mean, it really is just a bad time for Bitcoin, right? Like on one hand, the government wants to regulate, you know, from in and, the ESG way, you know, this, the mining stuff. And then, like, ETH is going through this merge narrative. And then, you know, on top of that, the Coxcoins are getting released, right? So, like, idiosyncratically, like, normally we like using Bitcoin as a beta hedge to the

crypto space. But I think this time around, like, you know, maybe I coin would have been better or Dogecoin would have been better, you know, even though there's all sorts of, like, idiosyncratic behavior there too. So, you know, for that trade, we also close it out after two weeks. And I also thought that that was something that, you know, we couldn't take all of the alpha ourselves. And I thought, you know, it was relevant to also say that it's, it's not just about, it's not just about Heath Powell, right? Like, the fact that Heath Powell will exist, I thought was not being properly priced in by the market. People should know. But also, I think the fact that everybody's super bullish into the merge, I thought was also a little bit

scary. And I think it's a lot healthier now, which is why I actually closed out the position. It's because at least people are talking about that it is possible that the merge is not ultra bullish for ether, right? And I think really I just wanted that kind of concession, right? It could still be, but I think like if all of the chatter on Twitter and the entire narrative is like 99% of people are talking about how this is just going to be up only, that is very dangerous and it's a little bit reminiscent in flavor to the narrative surrounding Luna. And I don't want to make it sound like Ethan is anything close to Luna. I mean, Luna is like infinitely worse, right? But at least this kind of like group thinking consensus like this like monoculture of up only feels very very dangerous and

you know and obviously eat this less reflexive and less bad than loo overall but still it's just it had a similar flavor and i thought that was dangerous yeah a lot of insight there um which you know i agree and that's why i run the kind of show that isn't just pro any particular coin in the space but anyway okay so there's a lot still that i feel like it was trying to I'm going to ask you guys that we didn't get to unpack. We're going to unpack that. Also talk about things like replay protection or replay attacks and that go into EF itself because that is the major asset that will be affected by the merge.

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Download the free core browser extension from Google Chrome's App Store today. Curious about the world of crypto and the future of the next internet? Then check out Web 3 with A16Z, the chart-topping technology podcast from the Mines at Andresen Horowitz, the go-to destination for discussions on tech as it changes our world. Whether you're a crypto-curious person looking for signal versus noise in the day's headlines, or a C-suite decision-maker seeking to understand Web3 as part of your business strategy, Web3 with A16Z is the podcast for you. Tune in each week for leading insights from the top scientists and makers in the space

through carefully curated conversations with acclaimed podcast host Sonal Choxi, former showrunner and longtime host of the A16Z podcast, along with frequent guest appearances and hosting by Chris Dixon. Listen to Web 3 with A16Z today on Apple Podcasts, Spotify, or wherever you get your podcasts. Back to my conversation with Kevin and Evgeny. So we've referred to these things a few times now, but I just want to make sure we explain this to people. So Kevin, you mentioned this, Steeth price widening, I guess, you know, in relation to ETH. Can you just talk about what you saw there and why that, what that indicates about how people are thinking about the merge?

Yeah. So I think that spreads actually come in a little bit. We still do have that position on. But the original idea on why it would widen is that, like, what's the difference between ST. ST. And Eth and Eth, right? Like, one is that STEth gets some kind of like staking yield.

Two, it's more illiquid. And then three, it's not going to get the proof of work for it. So those are like the three main differences, right? Now, on the proof of work side, that's just whatever the value of the proof of work. chain is, right, which is the market is saying like 1.8% or, you know, whatever it is today, I haven't looked. And then on the sort of yield versus the liquidity side, you know, I was pricing that roughly at like 2%. So I think like STEth should be like the sum of 2% and whatever the FH fork, Heath Pout fork is worth, right? And that was kind of my baseline like mental model

of what the fair value of STEath is. Evgeny, do you want to talk about what you were seeing with the futures market and what that indicated about how people were thinking about trading the merge? I mean, ultimately, just like Kevin said, it's all the markets are pretty efficient, like state is discount, reflected, the futures markets and what we see as like interest in other, it's also highly correlated to that we've even seen people smashing the fountain on perpetuals, even though it doesn't make as much sense because it obviously can change significant more and will much closer to the merch.

So, like, it's just stuff that happens in a trading world that must happen. So it's not esoteric by any means. It just must happen. Like, I think with Stake the theorem, like, there was a bit of effect on top of it that, like, there are other steak products and there is often like a relative value play buying some of them, some of them, like Coinbase just released their stake product as well. So there are quite a lot of plays that can be done with it. And I think also one thing that I wanted to touch upon is like this idea,

I find like really interesting this idea that, okay, let's say it's 2%. Let's say proof of work is here and it's 2%. I don't think it's such a big deal to a degree primarily because I don't think there is a bit in all this. like, okay, there is a bit of a bit, I don't know, maybe Kevin will be like 0.5%. Wintermut will beat like 0.25% because why not? Like some other people will bid as well. But ultimately, all of us are doing it for like really short term.

Like, and at some point it will, like, if it goes to 10%, that's where you will see Syrian Foundation selling. That's where you will see a lot of exchanges selling. That's where you will see a lot of market makers selling. So currently, there is this. massive and visible offer, which will not disappear primarily because it just doesn't make sense for most people to sell 2%. It's just not worse. It's almost a free option you're getting. Okay, it costs you 2%, but the upside is there, so it just makes sense to wait it out.

And it's especially true for all this like CRV1 or Uni1 tokens, which are also like, I know, Kevin asked me as a day, like, yeah, can I show him an offer? Like, it doesn't really make sense for us to sell them at 10 basis points or 5 basis points because, okay, if they can't go to 1% of uni, because some people saying they have value for whatever reason, that's the value we can potentially make. And so it really doesn't make sense to sell your, so you sell your assets like basis point on the dollar. It just makes sense to wait, but it also creates this fake illusion of something having value, which it actually doesn't. Yeah. So, you know, I think I mostly agree with with,

if Gennie said, but I would have a different opinion about what constitutes something having value. You know, as we've seen just in the past two days, Luna classic pumped like crazy. I would certainly say that this chain has virtually no value.

You know, overnight it kind of just pumped like 100%. And now Luna, uh, two basically, Luna itself is pumping. That also doesn't have too much. Right.

So, and then, you know, just in, in the history of crypto, how much value is there in a lot of these coins, right? I think a lot of it is just kind of like belief in a thing, like in a game stop kind of way, right?

And I think a lot of it is also pulling very speculative future worlds to the present, right? Like it's sort of like, let's say almost all the value of ETH POW is now maybe contingent on ETHOS, completely and utterly failing and then them having a really strong narrative or maybe not even that strong, but much stronger than now kind of narrative, right? Like if the chance of ETH POS completely failing is like, let's say, and I'm talking about like catastrophic problems, not like minor bugs, they'll probably have minor bugs. It'll all be fine, right? But like really just like, it just doesn't work. They have to roll back the chain or there's like really critical consensus failures or some kind of double spin or the network itself completely works.

and requires meat space coordination to resolve properly. Maybe that's like around like, let's say three to five percent. And then like if that happens, then let's say the narrative for Heath Powell improves like, let's say five X, right? So like that's a road for them to get to some kind of meaningful percent, at least in the medium term. Because, you know, when all of a sudden done and after Heath Powell has been completely hollowed out, it's basically like how Heath is today.

Right. And I think that they can make that as a much more convincing argument if the narrative all of some shifts to that the Ethereum Foundation for eight years have been building this thing. And in the end, when they delivered, it didn't work. Right. Like if the narrative really, and because like when people get pissed on Twitter, they get really pissed. And when the when the mob gets awoken, they break out the torches. So, you know, we've seen former sort of like leaders of projects have their entire community turn on them and kind of get burned at the stake and crucified. I would not put it past that to happen in ETH if something really, really bad happened, right? Not some kind of minor problems. So I do see that first that this is kind of a massive call option on possibly something like that happening. And then the second is that if we actually look at what it is, it's basically unforked Eith and how it works today, but where a lot of stuff has to get dumped and liquid in hollowed out. So kind of like, like what you were saying, againy, like it's like it's like starting a new chain, but there's no there's no like kind of like foundation treasury and you have you have to

deal with a lot of pain in the short term. But it's kind of like a vampire attack because you put the coins into the hands of the people who were using the product in exactly the types of ways that they were using it before. And they get exactly the kind of ERC 20s that they had before, right? So it's almost, and I don't even think it's particularly bad for the Ethereum Foundation in that it's almost kind of like an insurance policy, right? In case like things are catastrophic, then there is something there. Now, obviously, I think they would just roll back the chain. Like, I'm not actually particularly worried about, let's say, like, STE in the long run, right? There could be some liquidations in the short run, because like we've already seen

social consensus work with in that, like, Keith kind of beat out ETC, right? Like, ideological purity didn't matter that much. Social consensus mattered more. Devs mattered more. Right. So, like, their strongest and most true believers are the ones that have STE. They're not going to let those guys take losses on their bags, right? If something that's really bad happens, right? And they're going to bail them out, right? And I think at this point, it's a lot less bad than I think the classic days. Because, like, the first kind of change to code is like not law is like much more Boolean, I think, then like the second one, because it's already done been done in the past, right? And I think it makes sense for them to do that. If I was them, I would definitely do that, right?

So, you know, I think there's like a lot of these kinds of considerations. I have to say, I think the main way that I would differ from you on that is the percentage at which you think there will be a spectacular failure. So we'll see what happens. You know, they've had so many successful tests. So, and they have multiple clients. So we'll see. But one thing I did want to ask you, before we get into things around just, you know, ETH itself. So we talked about how there might be replay attacks. Can you just talk a little bit about, so if there are people out there who, you know,

are thinking about trading this, what are you seeing that they're maybe doing to either protect themselves? Because, you know, at this moment, it looks quite likely that there will be, given that this EF POW team hasn't really done the necessary technical work to, to split the chains. So are you seeing people, you know, protect themselves in one way or another? Or, you know, or how are you guys doing it? Well, just like with the Dow of work,

it's like the main players who can be affected by the long time exchanges. And I think they are prepared for it. Well, all the big, like tier one, tier two ones, I would say are definitely prepared for it. and they will simply not going to, well, they'll be very careful with their withdrawal functions, basically, simply because of that. But another one, and it's a really interesting one,

an aspect of replay attacks that we looked on our side, is basically related to basically all this pandemonians that will happen on proof of work chain. Basically, what can potentially happen is, let's say I have 100 million USDC, I sell it all into East Proof of Work, and go and sell it on Poloniacs. later on. Great. I made, maybe I'll make like a few hundred K. Who knows?

But what happens if the chain ID is the same and replace attacks are possible is somebody can, like if I have the same state on proof of stake chain, somebody can replay that and screw me over big time because I will suddenly sell 100 million of real use DC against Ethereum proof of state. And then suddenly I'm doing like a really bad trade. potentially for me because I'm doing something really big that will potentially move the price. And that's that that can be scary. Can I just ask you? I don't understand your example because like USD Circle or USCC already came out and said that

they're not going to support the Eath proof of work chain because obviously since it's backed by real assets like you can't just magically suddenly double all those. So did you, were you just making that up as an example or I didn't understand how this could be an example? No, it's more like, so if if I. do this transaction of proof of work, trying to basically give this free Ethereum proof of work from my very last year's DC. This transaction will have like transaction that has and like everything. So somebody can use the same transaction and replay it on proof of stake chain and execute exactly the same

transaction. Right, because yeah, because there's no replay protection. Oh, I get what you're saying. And that basically, so profiting from it is kind of more difficult, but you can make, you can screw a lot of people potentially. And let's say, I don't know, let's say I sell 100 million of Uniswold, for example, into Proof of Work. That will move Uniswold price a lot. And you can position yourself on the other side, buying this Uniswap really cheap on Prove of State program. So that can be like one fun thing to do. and it can be one fun saying that people can on one hand try to profit from, or if they're like really, really malicious, just trying to, I know, bankrupt, like, big trading companies, for example.

So for us, it was one of those, like, what can go really, really, really wrong if this stuff happens. And you can protect yourself against it, but it's, yeah, it's quite a fun one. How are you protecting yourself against it? Well, it's the most easy way to protect yourself is not to do this transaction on proof of work chain in the first place. That's probably the easiest. Well, that's because then there is nothing to replay. Other ways is because it's a state, right? So the state should be the same.

So basically if you during the first block, you move all your USDC from wallet to another, and then during the second block you sell this USDC and proof of work chain, nobody can replay it because you don't have any use DC on proof of stake anymore. So that's like another way you can do it and protect yourself. And would this apply also to NFTs? It can apply to anything, really, yeah. Yeah, because like OpenC said they wouldn't support the EF proof of work chain. I just imagine there might be some people who in the NFT world,

they may not know what a replay attack is. Hopefully they'll figure it out and not do anything that would cause them problems. Yeah. Maybe just to also add to that, there's a way of splitting your coins pre-fork to, like there's certain contracts out there that they haven't been audited. I'm not vouching that they work or not. But basically they figure out a way that on-chain you can detect which chain you're on. and for each side of the two split coins to be only valid on.

And it's basically a contract that allows you to split your coins beforehand. Okay. Yeah. And I just want to make clear nothing we're saying in the episode is advice for anyone, financial or trading investment advice for anyone. Okay, so we've been talking so much about the potential trading of the proof of work for. And meanwhile, ETH really is the asset that will probably be most affected by this. So let's, you know, zoom out and let's talk just generally about what's going to be happening here.

You know, Kevin, you have actually talked about how, you know, you are long, if you, you know, believe in Eve. I think that's why a lot of people were, you know, not really happy with your comments. But why don't we just sort of talk generally about, like, you know, what kind of price action do you see around the merge? What, you know, do you think will happen in terms of potential issues around selling the news? and then long-term, you know, where do you think the price of Eath will go because of this news event, assuming it's successful? Yeah, so I think it depends on a couple of things. And I just want to clarify, yeah, so I do hold a little bit Eith myself that's just been there for a long time.

But that being said, there have been periods that as a firm, we have both been long Eath and we've also been short ETH and also most of the time just flat Eath. So, you know, I just wanted to clarify that. Overall, if the merge is successful, I think that initially probably, just from the hype and just from the celebration, you know, probably a little bit more money is going to pile in. But I think right now, anybody who really likes Heath is already kind of in heat, I find there to be very few people kind of like on the sidelines

that are kind of like neutral about this. I want to see how it plays out and then to go along. I think from the most part, people even on the fence have mostly bought into the narrative. And then there's like a set of detractors who will just never buy this thing no matter what happens. So I think really, you know, the lines are kind of drawn already there.

And I don't really see the price getting bought up to really crazy heights. Now, there are some counter arguments to this. Like, for example, that, you know, the inflation supply issuance is going to get reduced by a lot, you know, 99%. 90%, you know, and, you know, that will help things on the supply kind of overhang side. But, you know, I think a lot of price action is mostly driven by demand anyway. So really the question is like, who are going to be the new buyers? We know that there's a lot of people who are like kind of like, it depends on like the demographic of like true believers and who can be converted to be a true believer after the merge successful versus how much mercenary capital was piling into the long merge trade to begin with who will then look to exit for new opportunities in whatever the new narrative is. So if the former is greater and the price should go up, if the latter is greater, then the price should go down.

That would be what my guess is, you know, on whether this is a selling news event or not. Evgeny, what do you think? Yeah, I mean, it's in general quite interesting that we are both here because our firms are both trading, but we kind of doing very different things in a way because if you listen to Kevin, like it's, I don't know, long, Ethereum, short, dodge coin, like all those kind of place. Well, for us, it's much more on the automation side, just making sure that we are, that we can just provide markets continuously throughout the day. Like, we typically don't hold long-term views on things.

we do hold some tokens as part of our venture portfolio. We do hold some tokens like Ethereum and Bitcoin as part of our treasury, effectively. It's not something that can ever make us go bankrupt or even like Joe Paradise operations, but it's something we felt was right thing to do. Also, it didn't really work out last nine months or so. But we have a okay. But I think for us, the interesting thing is just how to react to different things as it happens. We are much more preparing, we are not really positioned ourselves to go longies or shorties or doing things like this, but we are thinking, okay, like how us and our algorithms will react to certain things.

And for example, like one saying that we've been debating internally is, are we going to be looking at proof of work, Ethereum price? And what we kind of decided is not really, because like it's, well, first of all, like, nobody can say what isyrian theoretical price is. at any moment because there's just so many variables, but like if proof of work goes to 10% of ease, it's not going to be like a selling signal for us for Ethereum because we we do see proof of work as much more of meme coins than anything else at this stage. And I mean, like the trade that we would be doing with it

would be looking at trading against the Syriam Classic, for example, or maybe against some other chains. But in terms of positioning, it would be, yeah, wait and see, but position ourselves for for my possibility basically for the first few months and just like I mentioned, focus on how the MED game will change, provided that the marriage happens successfully. Yeah, and maybe I could just add something to that.

You know, I think a lot of what I've been talking about recently has been more about like sort of these long short trades, mostly hedged some directional, sort of like mid-frequency, you know, maybe fundamental type plays. that's actually mostly not what we do actually. We actually also do quite a bit of Algo trading and not to the extent that Wintermute does. I mean, I know that Wintermute is, you know, one of the big behemots in Algo trading across, you know, Defy and CFi. I think you guys have like two of the top 30 accounts on FTCS in volume.

For us, you know, we're much smaller. We're at maybe about top 80 right now on FTCX. but we also do have a lot of stuff where we're also doing market making we're also doing a little bit of HFT trading but you know that I figure that's not going to be as interesting for you know the topic at hand so I wanted to sort of just talk about things maybe that are more relevant to the viewers and you know things that they might be you know they might want to think about and not financial advice but maybe some things that might impact them and that they would think about but I'm also happy to also talk about like you know order books I dynamics and like, you know, Q positions and tick sizes and that sort of thing, too. We're going to take it in a different direction because we're sort of running enough time. And I did want to ask, you know, there's, we kind of talked about the narrative around Bitcoin and how there's a lot of news that, you know, has been challenging for Bitcoin recently. But in addition, ETH's issuance will go way down after the merge.

It may even become deflationary. So how do you think this affects the narrative around Bitcoin, which traditionally has been, thought of as digital gold, it has this digital scarcity. And so if ETH is even more deflationary, you know, how does that affect Bitcoin? Yeah, you know, I think I wanted to say, I wanted to draw the Luna classic example, but I'm not sure what side this supports, right? So like on one hand, Lutasi basically is introducing an on-chain transaction tax, right? Making it actually deflationary. And I made the joke on Twitter that, oh, Lunacee must now be ultrasound money. Well, you know, obviously the point that I was trying to make is that, you know,

just because something's deflationary doesn't make it sound, right? Like, if you tack on like a 1.5% transaction tax on Lunacy, I mean, does it really make it that much better? I mean, this thing is kind of garbage, right? But that being said, what the market said is that really liked it. And actually, Lunacy like just pumped on that news, right? I don't know how much of that is sustaining. I think it's, you know, falling out. a bit since then. But the market really like that news. The idea of just like imposing a 1.5% transaction tax on chain, right? So like on one hand, I do feel like, you know, fundamentally this makes no sense. You can't just move around some numbers just because something is deflationary

doesn't mean that, especially something that is so in crypto in general that is so demand driven doesn't just make it, you know, pump in price. But on the other hand, the market is actually saying, well, maybe just this cosmetic change is actually really good for the price. So I actually have very mixed feelings about it. I think before the whole lunacy pump, I was thinking, well, you know, I think maybe it goes up a little bit, you know, because of the supply effect,

but maybe not too much. But now I'm actually, you know, maybe I'm kind of revising my opinion now, just given what's happening with Luna C and Luna, you know, really hard to say. I'm constantly kind of re-evaluating what the market is telling me. Whether I think that that's sensible or not, I mean, doesn't

matter as much. You know, I think it's more about what does the market believe and I need to figure out how it's thinking about it. Right. But so but how do you think this will affect Bitcoin? Do you think that ETH will, you know, the price will be boosted and to the detriment of Bitcoin? I think at this point, there's not that many new people to be won over from the Bitcoin camp to the Eith camp. Like the camps are basically set. I don't think there's many people on the fence. And things have already gone very polarized. So I don't think that it's to the detriment of Bitcoin per say in the short term. In the long term, it could be. I think just.

as a competitor to Bitcoin. But I would still say that right now, the thing that probably impacts Bitcoin the most is its own idiosyncratic events, right? So things like the gox coin overhang, right? Like if that wasn't there, then I think that's a much bigger primary effect than what's going on with Ethereum.

But I do think in the long term, especially in like maybe like a bull market or a couple cycles down the line, they're going to have to battle, right? Like once like everybody has adopted, crypto, then along the borders, there's a lot of like, there's a lot more fighting for territory, right? And this is, this is sort of why bear markets are very PVP, because everybody sees the pie shrinking and there's no way to get a bigger pie. So everybody tries to take everybody else's

pie, right? But in a, in a bull market, that's not the case. The pie itself is growing. Generally, there's like less infighting, everything grows. But eventually it grows to a point, right, in the success case of crypto, that there's like full adoption, you know, worldwide adoption. And at that point, finally the lines are drawn. And then there has to be a lot of like this kind of competition. So that's kind of how I see things in the different timeframes. Evgeni, what about you? What do you think about how this affects Bitcoin?

I'll say very similar. I don't see people switching from Bitcoin to Ethereum. It's more like the narrative can change so much that the future people will more likely buy Ethereum than Bitcoin. So it's more about that. It's about all the new people that will eventually buy one and not. because you cannot buy both. You need to make a choice.

Or maybe they will buy Solano. Maybe they buy something else that is not issued yet. So it's all about this. But I don't think this here will replace Bitcoin, like completely. I think like they're still playing very, very difficult, very, very different use cases because Bitcoin is all about the most basic blockchain algorithms there is, which works, which is, well, arguably the most decentralized. cryptocurrency out there compared to pretty much everything else. And it works.

Like, right? Like, so many external shocks like, I don't know, banning Bitcoin mining in one country and other, like all kinds of things. It still works. People are still buying it. And yes, we can have Mongox. We can have, I don't know, sailor being liquidated because of that. There can be a lot of fun events happening. But ultimately, I think it has a brand. Like, it is the first cryptocurrency that was. And just because of that, I think it will have like pretty consistent value. And so Ethereum is just different because it's, yeah, this virtual machine, it has defy on it. It's, I don't, I don't really understand like, well, I guess for me personally,

I don't understand why people saying Ethereum can be such a great store of value. It's more like oil to me, I guess. However, cliche as this is a sound. So it's like oil to Bitcoin gold, I guess. I just want to say I completely agree with. the guineas sentiments there. Okay. Yeah, Arthur Hayes was saying similar things when I interviewed him recently. And last question, I wanted to ask about this news that the White House recently said they're concerned about the environmental impact of proof of work mining. And I wondered, again,

how you thought this could affect that kind of, I don't want to call it a competition because I agree with you that Bitcoin and Ether are actually just different things with different purposes. But obviously, you know, as you said, people will come into the space, especially newbies, they're going to be kind of looking at them, maybe more just like as investments or whatever. And so I wondered how you felt that the, you know, change in the Ethereum Consensus algorithm towards something that's more environmentally friendly would affect, again, the narratives between these two coins. Yeah. So I think it really depends on how the ETH people want to play it and whether or not they're going to take this as an opportunity to try and take market share

from Bitcoin because I do think that the narrative on this favors them, you know, pretty strongly with, you know, obviously proof of stake requiring a lot less energy, especially during a time where energy, you know, there's energy issues around the world. And, you know, you can make a case that maybe that energy would be, quote, unquote, better spent on, you know, heating homes and, and, you know, growing food or whatever, all these other things, right? So I think, you know, I think the ball's in their court on what they want to do. I don't particularly, mind the moral argument, like if they were to say that, you know, ESG is just better for the planet. It's good overall. I think I don't, what I don't particularly like is if they would try and

I always consider a lot of the disputes within crypto to be like family affairs, right? Like for the most part, you know, we all disagree with each other. But at the end of the day, we're all like crypto sheds together, right? And you know, against the outside world, against like fiat money, that sort of thing. So, you know, I think that overall, like, you know, I've supported, you know, tornado cash and the developments that are going on there. I don't think that, I think that whether or not ETH is a security, I don't think that the Bitcoiners should go down that road, right? And I also don't think that the Ethereum guy should go down the road of trying to have state actors in force against proof of work. I think the best situation is just to have an open market, have everybody just fight on an equal playing field, and then, you know, may the best coin win.

I think you can make moral arguments. I don't even mind, you know, Ethereum guys doing that. I think it's just, it's another thing to kind of have like an appeal to a great authority, you know, with a monopoly on violence, to try and enforce against your competition and to try and limit the scope of,

of their competition. I think that that would be less healthy for the space in the long run. And I, and I think that it's, it's important that at a time like now, that at least there is some level of camaraderie within the, the crypto space, which is also why I think tactically for the ETH guys, it's better for them to focus on the tech

thesis and then subvert Bitcoin on the money thesis much later rather than fighting Bitcoin on the money thesis while already having won the tech thesis, causing a lot of reaction from the Bitcoin maximalist to then go attack Ethereum. I think it's a lot better to have some kind of truce there so that a greater war can be fought and then later on can deal with that issue. I mean, Ethereum can always make the argument that U.S. equities are in total worth more than gold, right, than the market cap of gold. I think that is a perfectly fair argument to make. If they want to say they want to have like U.S. equities plus, you know, the market capitalization of gold,

I think that that is fair, but I don't think that that's tactically correct. Yeah. Interesting. O'Genny. Yeah, look, I'm pretty much 100% agree. Like one thing, I guess I want to say for the right. Yeah, I mean, it's totally political. what's going on.

Like, and it's just part of continuation of this ESG narrative that has been there for quite some years now. I personally, I'm personally hoping for the record that this ESG narrative will be there and die because I think, like, the way it's implemented, the way it's affecting, like, how people invest their money in midspace, I think it's very stupid. And there are, like, way more smart ways how you can affect the change on the, well, with business environment and everything. And Ben and Bitcoin is not the way to approach it.

Benin Bitcoin is not going to make our planet greener. If you think about it properly, you'll understand that. So I think, yeah, I fully agree that as crypto community, we should go and get together and just not use those kind of occasions to destroy our opponents. It's like very, very simple. Okay. Well, this has been a fascinating note to end this conversation on, given that I do think certain members of the Ethereum community would say that you are, you know, fomenting chaos for them. But anyway, before we go, where can people learn more about each of you and your work? I'm on Twitter. At Galois underscore Capital.

Yeah, I'm on Twitter as well. It's my first name, last name, Yvgeny Gayway. And that's mostly when I'm writing stuff. I sometimes write articles, but it's not as frequent as I would like to. All right. Well, this has been so fun. We will see what happens next week. I'm definitely excited for The Merge. Thank you again. It's been a pleasure having you both on Unchained.

Yeah, I really appreciate it. Thanks for having this. Thanks so much for joining us today. To learn more about the Merge, check out the show notes for this episode. Get exclusive access to even more of my content, including all the links in the weekly news recap through Bulletin. visit laura shinn dot bulletin.com slash subscribe. Unchained is produced by me, Laura Shin, with up from Anthony Yun, Matt Pilchard, Juan Aranovich, Pamajimdar, Shashonk, and CLK transcription.

Thanks for listening.