Unchained - The Chopping Block: L2 Strategy Debates, Prediction Market Innovations, and Ethereum's Vulnerabilities - Ep. 692

Episode Date: August 22, 2024

Welcome to The Chopping Block – where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest news. This week, the boys discuss Ethereum's current standing in the cryptocurrency ecosystem, comparing it to the United States regarding capital concentration despite fewer users.  They also dive into the dynamics of prediction markets, focusing on Polymarket's role in predicting election outcomes. The conversation evolves into an analysis of potential changes to the Ethereum mainnet, driven by competition from Solana and other factors, including block time reductions and gas limit increases. The episode concludes with predictions about Ethereum's possible upgrades in the next six months and a bet among the hosts about the outcome. Listen to the episode on Apple Podcasts, Spotify, Overcast, Podcast Addict, Pocket Casts, Pandora, Castbox, Google Podcasts, TuneIn, Amazon Music, or on your favorite podcast platform. Show highlights 🔹 A focused discussion on the utility and accuracy of polls versus prediction markets, particularly highlighting the insights from prediction market platforms like Polymarket. 🔹Exploration of Nate Silver's analytical methods and their application to understanding market dynamics and voter behavior forecasts in the crypto context. 🔹Examination of liquidity issues in crypto prediction markets, referencing platforms like Drift Protocol and their impact on market behavior and reliability. 🔹Analysis of how Solana’s advancements are pushing Ethereum to evolve, particularly in the areas of Layer 1 and Layer 2 scaling solutions. 🔹Discussion on the economic strengths and potential vulnerabilities of Ethereum, likened to the Dutch Disease, where reliance on a dominant resource can lead to broader economic issues. 🔹Speculative insights into the possible future changes in Ethereum’s protocol, including adjustments to block times and gas limits, and their potential impact on the network’s efficiency and user experience. Hosts ⭐️Haseeb Qureshi, Managing Partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly ⭐️Robert Leshner, CEO & Co-founder of Superstate ⭐️Tarun Chitra, Managing Partner at Robot Ventures Disclosures Links On the Edge: The Art of Risking Everything a Book by Nate Silver: https://www.amazon.com/Edge-Art-Risking-Everything/dp/1594204128  0:00 Intro 01:52 Polls vs. Prediction Markets 08:04 Nate Silver's On the Edge 15:37 Prediction Markets and Liquidity 22:31 Solana's Influence on Ethereum 25:32 L1 vs. L2s Updates 32:13 Ethereum has Dutch Disease 44:12 Predictions for Ethereum Learn more about your ad choices. Visit megaphone.fm/adchoices

I'd say it is more like Ethereum is the United States because Ethereum still has $60 billion of TVL, has way more capital than any other chain, has, in terms of the dollar amount of economic activity on Ethereum, it is still bigger. Now, that doesn't necessarily mean that there's more users. There's obviously fewer users, but those users are very, very wealthy, right? The U.S. has 4% of the world population. There's not a lot of Americans in the world, but the overwhelming just mass of wealth in the U.S. is so big that's concentrated in a relatively small number of people. That feels more

appropriate to me. That's not D.C. D.C. is a decision-making apparatus for the U.S., right? It's like the brain, essentially, or the brainstem that connects up to this gigantic body. That's not Ethereum. Ethereum doesn't make decisions for the L-2s, and it has no governance control, right? If anything, O.P. is D.C. for the ones that are part of the super chain. So Ethereum has Dutch disease, but for Ether. It's just... You know, not a dividend. It's a tale of two Kwan. Now, your losses are on someone else's balance.

Generally speaking, air drops are kind of pointless anyways. I'm named the trading firms who are very involved. D5.8 is the ultimate puns. DFI protocols are the antidote to this problem. Hello, everybody. Welcome to the chopping block. Every couple weeks, the four of us get together and give the industry insider's perspective on the crypto topics of the day.

So quick intro us, we got Tom, the Defy Maven, and Master of Memes. Hello, everyone. Next we got Robert, the Cryptocon. Asaer and Tsar of Superstate. GM, everybody. And we've got Tarun, the giga brain and grand poohbaugh at Gauntlet. Yo. And finally, I'm Haseeb, the head hype man at Dragonfly.

We are early-stage investors in crypto, but I want to caveat that nothing we say here is investment advice, legal advice, or even life advice. Please see chopping block that X, Y, Z for more disclosures. So I think it's been relatively quite weak. For once, we've got nothing that much going on. There's a lot of political pageantry. D&C is happening. the Democratic National Convention.

So there's a lot of just, you know, kind of trotting out the Democratic ticket. And the crypto otherwise has been pretty muted. It doesn't feel like there's been a lot of big moves lately, and we're kind of in a low volatility period. Now, one of the things that has been getting people more excited these days has been the increasing focus on prediction markets and polymarket in particular, of course, being the biggest one of them. We're seeing more and more news coverage that involves mentioning polymarketing.

as a primary venue on which to look at the real-time prices of these things. We just said on CNBC, they were mentioned people talking about, oh, you should look at Polymarket. It's like the biggest market for betting. And it seems like maybe they're ahead of the curve on some of these things. And on Twitter, you see a lot of conversation about the fact that most of the models. So if you look at, for example, Nate Silver, who is a very well-known modelist for the polls, he right now has the race in pretty close to a dead heat, but he has Kamala having a slight advantage over Trump.

And a polymarket also reflected that there was roughly a, you know, call it 53 to 47 kind of margin between Trump and Harris. That has now flipped, for the first time in a while, Trump now has a slight advantage over Kamala. And this has, now, for whatever reason, Twitter is like freaking out like crazy over very small changes in market. Like who's slightly ahead? It's like, oh, Trump's going to win because now he's 51, 49 instead of, you know, 49, 51 the other way. I don't know why people care this much, but there's just a lot of testosterone that seems like is riding on who is slightly ahead in the polls.

Yeah, I think it's because people, and I think you're guilty of this just now, confuse polls and a prediction market odds of winning an election. Polls are generally raised or thin, right? if you look at like general election polls of what is going to be the popular vote, it's never really going to deviate beyond roughly 50-50. So if it was 55-45, the race would be completely over. A prediction market is a forecast of the outcome of an election and can swing wildly. 55-45-45, sure, 50-50, sure, 45-55, sure.

And I think a lot of people confuse the two. And so a lot of people are using these two things interchangeably. one is the probability of a certain outcome and the other is a whole of a very evenly divided United States of America with two parties that are equal size that generally are 50-50. And so I think there's a little bit of confusion there at the root of why people are like overreacting to a polymarket market going from like 4852 to 50-50, right? Assuming that this means there's been a major shift in national sentiment when in reality it could be a microscopic shift in polling or platform or reactions or just the flow of technical funds of

more sellers than buyers or more buyers and sellers or whatever. So I think there's confusion as to why people over-emphasize prediction markets. Well, the other thing, I think prediction markets, by their nature, they incorporate more factors than some of these static models. So I think one of the things has been driving Trump's outperformance in the prediction markets in the last couple of days has been. increasing reports that RFK is going to drop out. And like there is, so if you look at the prediction market for RFK dropping out,

you can actually kind of measure this in real time because the prediction market for RFK dropping out is now at like 65%. Seventy-five. As of this show. Well, because Nicole Shanahan went and said like, hey, we might drop out also. Okay, well, that's pretty good evidence. And also there's a rumor that he's also going to endorse Trump. I think that's also part of one of the markets for it.

That was something she also said. That's something she also said. Yeah, something she also said. So I feel like that killed me the market area. One other thing I think that's worth pointing out when you mentioned the crypto-twitter thing. I think there's kind of this non-monitone effect for gamblers where, you know, if I ask a gambler, I give you a roulette wheel where you have a 20% chances of winning versus a. 80% chance of winning.

Which one do you want? They'll say 80. But if I ask them if they want something that's 47% or 49%, they may actually say 47 because they like the variance more versus being very close to. There's a very weird psychological effect. So there's a funny study that people have done on roulette wheels of like choosing the correct number of whatever. I don't know what the name of the socket is in a roulette board.

wheel. And then they did a bunch of these behavioral economics things where they got a bunch of gamblers and non-gamblers to play roulette. And then like they found very distinctive differences near 50%. And I feel like crypto Twitter is all gamblers. So they're like, you know, they're susceptible to this side. This sounds like a very overreaching conclusion from a study that probably I just think you're pointing this asymmetry right where the like 5347 Kamala, oh, polymarket is wrong. like everything is broken. 51-49 Trump, everything is great, like, bed it all in the house. You know, like that, it has that flavor of these old behavioral economics things.

I think it's more that people do not understand probabilities, right? So, like, they think that 53, 47 is like, oh, Trump's going to win. It would be weird if he didn't win. Like, even, you know, the famous, the Hillary versus Trump election when, you know, Nate Silver gave the odds for Trump to win. at 30% and people now still hound Nate Silver over the fact that he, you know, oh, I can't believe that Trump was. Yeah, 30% things happen 30% of the time. It's extremely common for 30% events to happen. One other thing is Nate Silver actually, since you brought him up, his new, you know, I was maybe, I feel like 2020 to 22, Nate Silver is a little insufferable. But his 2024 self,

I think he, or 23, end of 23, I guess now that he's, he's, he's, he's, uh, he's, uh, He's embraced the gamblers is really good. So he's this, there's a book, I forget what it's called, that has a green cover that has the, that basically divides people into two camps and there's a little profile of SBF in there also, which is there's the, the river, which is like the people, the river, yeah, who are the gamblers and then the village, which is like the, like, I went to Harvard and got an MBA and I'm working government, whatever, like I go to Supreme Court. And the idea that the interface between the two of them is, you know, one of them believes only the polls and, like, is only focused on, like,

exact features, which is the village. And then the river is, like, the only thing that matters is the ability to continue gambling. And I feel like his framework for this does really feel like it feels a lot like this whole discussion of the polymarket versus, um, kind of polling. Like, like, almost to the, like, I feel like he's had the. Like, I feel like he's had the lived experience of starting in the village and then like, you know, and being on the pole side and then kind of like finding his way down river literally. Yeah. So the village is people who like defer to authority. They want to see very legible mechanisms that give them a worldview and kind of inform their perspective. Whereas the river sounds like they're the gamblers, they're the business

people, they're the folks who are kind of out there and they're much more willing to rely on markets and uncertainty and probability. Is that? Is that a good description of the framework? Okay. I mean, there's a little more, there's a little more to it in that like the, the river has this idea. There is a nihilism aspect. Like, you know, when we talk about financial nihilism, there's sense of which the river's view is that it's very myopic. Like it's like a one-shot game.

Like, oh, okay, I got to bet it all now. And like, if it doesn't work, it doesn't work. Right. So the river is not just thinking probabilistically. they're also kind of degenerate. A little bit. They believe in their ability to manage their own risk at all times.

Whereas the village is like, no, no, no, we must follow the rules, you know, like, if that makes sense.

Okay, so there's also like a paternalism kind of axis here as well between the two, I see. Yeah. And I think he makes, he also makes a juxtaposition

between like VC versus private equity where private equity is kind of the village and VC is more of the river. But really? Why? Well, because I guess in the sense I project is everything about modeling out everything like, oh, I need a particular cap rate and IRA for me to make an investment

versus VC's like vibes based risk-taking. I agree with the analogy. No, I think it's a good book. My point is a lot of the discussion we were having reminds me just, you know, I'm still reading it. But it's great. I mean, there's also obviously like this

my intuition basically, you know, people in crypto, people who are trading on polymarket skew more right wing. They're mostly more young men and obviously crypto has sort of this right wing element right now. And so I think, you know, I want to sort of have this vision that, yes,

like, you know, the polymarket traders are pure capitalist market minded, always correct. But in reality, it's like, okay, when Trump's winning on polymarket, yes, we should listen to polymarket and That's always correct and the polls are wrong. And then like Trump was going down, you know, a week or two ago. And they're like, oh, well, the Democrats are manipulating polymarket to, you create a new cycle.

There's a whole threat about it. It's like, isn't that the whole point of the prediction market that you can place money? Like if you think, you know, Trump is underpricing, you should be buying more Trump. And so it's like, I don't know, a little bit of, I think also just this maybe just more human nature of people want to be with their tribe and have, have it reflect with their own beliefs. Yeah. I find this juxtaposition interesting. It also, of course, anytime somebody writes a book that says, okay, there are two types of people.

Obviously, it's like one type is better than the other type. And like you should want to be the river type, which I'm very clearly part of the river. But it does seem to be. I don't think he's written like that, though, because he started in the village and then he just kind of went to the river and then he came to the river. Right.

So it's like his own personal transformation is really. But I think that's actually, at least you get the dialectic. It's not just like, oh, this is good, this is evil. Like, you know, I feel like that. Right, right, right. One evolves from the village to become part of the river and go to take more risks. And then maybe go backwards because it's too crazy. Yeah, I was thinking people go from the river to the village when they retire.

You know, I'm not, I still have to read more of the book. So I haven't finished it. Okay, finish the book next week on the show. shopping block. We will. Yeah, yeah. Chopping block book club. This is a good idea. So let me maybe bring this framework in and see if we can bring, you know, sort of superimpose

this onto crypto. I guess there are elements of crypto that are more village and that are more river, right? So like pump dot fund, pure river. Pure river. Something like Coinbase Village, right? Halfway. Yeah. Is it, what makes it halfway?

I mean, I feel like, and again, there's a spectrum here. So maybe it's like three quarters of the way to village, you know, 25%. All right. So super state is like full village. Yeah, it's very villagey. Okay, very villagey. And I guess maybe this is one way to articulate the two different forces that are pulling crypto in different directions, right?

One force is, hey, let's embrace the kind of full, you know, be your own bank. fully libertarian vision of, you know, caveat and tour, everybody just be out there for yourself and try to make things work with full self-custody. And then there's the other vision we're just, oh, let's like bring crypto into the financial system. Let's make it more legible. Let's make it more regulated. Make it safer for people to use. Let's put it in these nice, easy to understand structures. So I guess this is one way that you can conceive of these things. But it does feel to me like, again, it's kind of collapsing a lot of different dimensions into one framework, which I guess,

you know, any framework does that. But I guess the question I have that maybe we can answer next week once you read the actual book is, sort of what is what is his claim that, okay, given that you have this framework, here's how you should treat these two tribes differently, or here's how you should navigate between those two tribes.

I guess, and you don't know the answer to that. I, yeah, I'm kind of still early. I just, I just, the reason I brought it up is like, it just feels very relevant to, as like a framework for thinking about this precise polymarked versus pole thing because it really feels like, and like it's coming from this person who started in the pole side and then kind of moved and around between the two. And I, I feel like it's clearly the right thing. Like, it's like the right thing for the zeitgeist right now. So, okay, so interesting. We've also seen the launch of a lot of folks trying to create new prediction markets in response. to polychain, or so into a polymarket.

I keep calling a polychern. You know, there's too many things that start with the world. Olaf, all I have to tell you is you gave Haseeb the best brainworm ever. Olaf's getting a lot of free marketing on the show. I'll tell them that much. Anyway, so one example is drift market. Drift market created a drift protocol. Create a prediction market called BET.

They currently have about, I guess, $300,000 live on the U.S. prediction market. We've got a bunch of other ones that I know of that are just, you know, different people trying to launch this thing and get it live. We talked last time about some experimentation about trying to create, for example, more capital efficient prediction market such that the money that's being bet can be put into tokenized treasuries or can sometimes, you know, get yield to ameliorate some of the opportunity costs of that capital. Anything else you guys are seeing in terms of innovations or new ideas that people are trying in some of these newer prediction markets? Here's the one thing I'll say, and I will pre-disclose that we are investors in

drift and polymarket and will probably be investors in more prediction market platforms in the future, right? I think liquidity is incredibly hard to get when it comes to prediction markets. And the difference between a prediction market with a lot of liquidity and a prediction market with medium or low liquidity is night and day. And I think one of the reasons why probably markets so far has been successful is that it's liquid enough for people to take it seriously as a tool for observing reality. And I don't think you can have 10 winners here. I really don't. I think at the end of the day, like liquidity will centralize onto whatever platform wins. And I don't think there's room for like 10 prediction markets unless like,

One of them is like hyper niche where it's like, oh, it's like a science prediction market or something. You know, or like a, you know, Hollywood prediction market. I think in general it's going to be really hard for new entrants. And, you know, I think that goes to some of the success that PolyChina's had, which is they were... Polymarket. See, I've never made that mistake. It's only because we're talking about it. They're very close.

Olaf, you've created the greatest name ever. That's all I. I got to tell you. In crypto, I feel like people missay polychain for anything that has poly in front, no matter what it is all the time. Polyhedron. I've heard people. It was like 2017. Yeah, exactly. I went to call Leanna the other year, you know, and I called it a poly chain. There you go. Polycule. Polycule. Yeah, SBF was going to the polychain. That's a tough one. That's a tough one. But, but anyway, sorry, not to interrupt that it was funny. Yeah, not to get distracted. But, you know, I think it demonstrates a lot of like the hard work that's going to do polymarket to actually build the quitting.

Because like the reason why it's exciting and it's getting talked about is because this is the first election cycle that there's real size bending on these markets. In prior cycles it was like $19,000 on in trade. Like who cares? Like it's not relevant. Like it's too illiquid. It's too manipulatable. Maybe it's completely accurate and it does reflect the honest odds. But like it was of insignificant size.

And so I think Polly Market has been the first to succeed. And I don't think there's room for a lot of competitive prediction markets that fragmentically. There's not that many people who are speculating on this stuff in general. You can bring to the incentives. But I mainly agree with that. I think the drift market is kind of interesting because especially at a time where like there's a lot of capital outflows from meme coins that is on chain already. a natural place for that capital to go without going across a bridge. And especially because some of these users are like, well, Phantom is, I traded meme coins on Phantom, right?

They don't even view Solana as the place they're trading. They're like, the wallet is the thing they're trading on. And having something native for that, I actually think there's a ton of reasons that liquidity might not have migrated. So it makes a ton of sense in that case, especially because you already have a product that's live and has liquidity. I think bootstrapping from nothing is really hard. I think someone who already has another product that offers some sort of differentiated way user base yield and liquidity can attract a different area. I think that's like the only nuance I would add is like.

Yeah, I believe the FTX election market was bigger than polymarket in 2020, right? Because they also had a US election perps market. Do you remember that Trump win resolved positively though in 2020? for a tiny bit of time. On FTX? Yeah, there was like one of these crazy, crazy bugs where they like, they resolved it incorrectly for a system. So I'm trying to remember.

I do not remember this was bigger than Polymarket? By what metric? I'm guessing open interest. I saw this cited recently. I did not remember this. Maybe I just memory hold that. That's crazy. Yeah.

Yeah, there was also like, there was like a bunch of problems with how the market. resolved too, which I, you know, I guess in hindsight, you can just be like, oh, Alameda fucked over people or something. But there was like there, in fact, actually, I think when, when FtX and Alameda went bankrupt, one of the main things on the balance sheet was like the Trump lose token. So they somehow like did not kind of resolve the market. So I'm not sure the volume there was totally organic also. There's like those numbers could have been. Wait, wait, hold on, what does that mean? Yeah, they had on the balance sheet. The Trump lose token was their own. It should have.

It should have just resolved and converted to stable coins, right? But for some reason, they didn't. It's like it was in the, you know, in their balance. It was in the mislabeled cash account, negative $8 billion. Yeah, it was. But this is like a claim against themselves that they have on their balance sheet. But they, I guess they're counting it as an asset. I don't know.

There was some sort of bizarre accounting going up. Does that even work? That's insane. Yeah. I guess my main point is. I don't know how much I would trust those volume numbers, whereas like I feel almost 100% certainty in the polymarket numbers. So I don't know how much I want to compare that. Yeah. Okay. Yeah. All right. I guess when you have like, you know, coked up account,

like coked up interns during your accounting, it's probably not necessarily the best way to do apples to apples comparison. But okay. All right. So another story that I think is increasingly interesting You were kind of looking at a little bit of what's happening in the meme coin ecosystem and the rise of Solana that's really been one of the big stories this year. On the other side, of course, you have Ethereum. Ethereum has been kind of languishing. Price has not been super strong. Despite the launch of the Ethereum ETF, many folks in the Ethereum ecosystem are now soul-searching a little bit and trying to think about, hey, what are we doing wrong that Ethereum is not doing as well as we might have imagined it would in the light of being the second ETF to launch. And so there's been a kind of a tide shift within Ethereum that more and more people are talking about Ethereum L1 optimizations,

meaning that they're thinking about how can we improve the underlying base chain itself, where before last year, most of the conversation was about how do we optimize the L2s and move a lot of the focus away from Ethereum layer one. So just some kind of interesting notes in this conversation. One is that, you know, increasingly we've seen since the launch of day, Dengoon, on-chain fees are very low. We've also, of course, seen the data availability fees have also become very, very low. So L2s are not paying that much in fees anymore. So the overall fee spend on Ethereum is very, very low. We've seen Solana massively outpacing Ethereum fees

lately in large part because of all of the pump.combe fund meme coin volume that's been driving a huge amount of demand there. It seems like a lot of this has been a response really to Solana. So there's talk now about pre-confirmations, which would basically give users the ability to know very quickly whether or not their transactions are getting included, talk about, of course, increasing the gas limit, so allowing more throughput, potentially lowering the block times, as well as even going so far as to this multi-proposer thing that allows you to have multiple leaders at the same time being able to include transactions simultaneously. So it feels like all of a sudden this conversation has gotten very vibrant, where before it didn't really seem like people were

seriously considering doing a lot of alterations to the Ethereum roadmap. How do you guys interpret this moment? How realistic do you think any of these changes are? And which of them are you excited about, if any? So I think like an interesting, yeah, I would say certainly a lot of it comes from Solana. I think like certainly people are spending a lot of time analyzing like usage of the L1 and obviously looking at the base feed. Even if you don't see anything else, it's obviously clear that.

the blob market kind of cannibalize the main market. You can argue that that's like sort of a good thing in the long run in that, hey, Ethereum proposers aren't taking away all of the application revenue, which is sort of the dream of this type of stuff. But it does also just mean that there's sort of Ethereum the asset has sort of, it can be viewed very differently in terms of long term accrual. I think the interesting thing is there was a lot of denial, I feel like, about maybe like six months ago about the idea that, hey, maybe we still need to make L1 updates and not just like updates to off-chain infrastructure around the L1, so meaning like MEP auctions and things around of that nature. And then, and in fact, there was a lot, there were a lot

of things that were like, you know, I think when Aiglanger actually first started, one of the ways Shriaram's the founder of Agenlar would describe it is, hey, it's a way to, you know, it's a way to test out adaptations to the L1 via restaking applications. And then once you get them mature and they work, you can upstream them into the protocol, right? Like things like dank sharding, things like these kind of complicated operations. The idea is like you would be able to test with a smaller validator set, but still using sort of main at stake. And then eventually you could upstream. So there was already kind of this thing of like, hey, maybe we maybe L1 changes are hard. We should move them. We should do them kind of slightly away somewhere in between a test and the

real thing first before they're upstreamed. And then I think there was kind of this, I don't know how else would put it then like attention siphoning that happened from the L1s, sorry, but like everything moved to the L2s and then it really just became this kind of thing of like, hey, more chains means more utility, right? And so far we haven't quite seen that, right? Like the end user is probably not getting more utility for more chains, unless they're an intent solver or an M-EV searcher. In some ways, they're the biggest beneficiary. But, you know, I recently... Before you go on, let me ask you this.

Do you think Ethereum made a mistake in pursuing dank sharding and, you know, cordoning off blob storage to be separate from the main execution engine? Do you think that was a mistake? I don't think it was a mistake for Ethereum the technology. As a technology, I think it actually did need to separate and move to multidimensional resources. Like that's been true for that's true for Solana too, right? Like having to change how the fee markets work based on resource usage, having to kind of change what the relative read and write fees are, things like that. That's kind of common to both of them.

I think the main thing is that a lot of the benefits of the L2 Roadmap only really make sense when you have good interoperability. Otherwise, you're just kind of like on the one isolated chain forever. And if it doesn't have all the features of main net, then or all the assets of mainnet, then, you know, you have to somehow move. And I think this realization that shared sequencing is actually quite difficult or like has a lot of extra overhead that might not get you all the way to, you know, Solano level UX, as well as the realization that, hey, if we actually made blocks faster or had multiple proposers, we are able to offer sort of more native interrupt where, you know, like the rollups could, you know, the valid, you know, the whole base rollup movement is

built around the idea that the validators themselves provide interrupt. That's like sort of the 10,000 foot version. Now, please don't assail me anyone who is fighting in ether research about the definitions, but, you know, I just, I'm trying to make a user-friendly definition. And on the other hand, you have a lot of people who are like, we're going to build our own custom interop between our roll-up stack, you know, like the OP stack has their own introp, arbitram roll-ups have their own interop. And there's just so much, there's almost this abundance of choice aspect that is like not only hard for a user, but just like hard for developers to figure out where to point their, you know, where they should spend time.

And I think improving the L1 does decrease that overhead, which is sort of where we are right now. I just think it's still, you know, I think it's a good admission that, you know, I think, yeah, other chains have made some decisions in this direction that really benefited their usage. And, you know, it's always good to see Ethereum play catch up. Like the state that as someone who's been in Ethereum land for a while that I feel like you really don't want to get to is you really don't want to get to the Bitcoin development state where basically things just get voted down because like there's the sclerosis to change not because of usage or the chain itself, but because like the oldest whales just don't want to change anything. And then the miners don't have to change it. It's like kind of this very tragedy of the comments type of thing where, you know, the net beneficiaries are the oldest holders, not the new, and the new users don't get any, you know, kind of share. It's sort of feudalism. And so I think like in order to avoid this like perpetual feudalism, you really do need to to improve your base chain continually. Tom, what's your take here? And also, what do you think is a likely outcome of this conversation?

Yeah, I agree with some of that. I think obviously the interop bit is part of it. I also think the, you know, landscape looked different a year ago where it felt like the number of L2s, which is continually up into the right. And it's like, great. Well, we, you know, bring down our basically per roll-up revenue, but we make it up on volume by having a zillion L2s. And that's how it kind of works. And I think in practice that hasn't really worked out, like, you know, really concentration is focused on a smaller number of L2s and a lot of them are just kind of dead. In some respects, it kind of reminds me of the conversation around housing where you want housing to be like both an asset and something that like people have to live in.

And these two are kind of conflicted where like you want ETH, maybe number go up because that's where your security comes from. But you also want a ton of people to be able to use Eith. And the way Ethereum, you know, plan to solve this was well, you know, we, we make up fees at scale through all these L2s. And so I think the move to a lob storage was sort of necessary. Like you kind of have to cannibalize yourself and you want this thing to be usable. But, you know, now the downside is you sort of see what happens.

to like, you know, existing homeowners and that, well, like, you know, this is no longer as attractive of an asset. So, um, I don't know. I think like, yeah, there obviously can be some improvements made to the core I won, but it's almost kind of more of like a vision thing of like, well, what is this going to be used for? Is it going to be used for execution? Is it going to be just for DA? Like, I think kind of splitting the baby right now feels like a weird, um, in between, which is, which is kind of what we're seeing. I actually, I really like this analogy with real estate because, you know, very often, there are many countries that their real estate market ends up becoming a huge part of their economy, which is usually a sign that, like,

there's either underbuilding or overbuilding, right? Usually that's a sign of something is going wrong if you're investing a huge amount of your capital into real estate. And there's a sort of sense in which, like, okay, that's true for Ethereum, but what really is the North Star for Ethereum or for any blockchain? I think it has to be some sense of GDP of just a total amount of economic activity happening on this chain. And if you constrain the amount of block space, it's like, okay, well, now housing costs are really high, basically. And people are spending a lot on housing. And there's like some housing, there's a land tax, basically, a real estate tax. And that's how the country monetizes. These are very obviously kind of, sort of brutalized some of the language

here, but whatever, you'll let me get away with it. And. Hey, I said feudalism earlier. So we're on the right path. Sure. Yeah, yeah. We're all, we're all kind of. really stretching these analogies to try to capture some, the same fundamental idea. But it does seem like, okay, there was this housing shortage on Ethereum. There wasn't no space for everybody. We built a separate space that, you know, it's just like super efficient and everybody's kind of in these skyscrapers that are just packed to the brim with people. And now that is massively lower costs. That's great. Now there's a shortage in tax revenue for Ethereum. And everybody's now hemming and hoeing and saying, oh my God, you know, what's gone wrong? And in a sense, like, this is

the perfect response, which is we got to increase demand. We got to make more people want to live here, right? Like, oh, we're not making it up on the real estate taxes anymore. So we could either, one, introduce new taxes, which is not really super possible for something like Ethereum. I mean, I guess you could just increase the price of op codes, but that's kind of gross as a way to try to solve this problem. And so the much better way is like, oh, we just got to make more people want to do stuff, not necessarily to live here, but to do stuff in Ethereum. And that feels to me like, yes, that is the correct response to this problem, not to sort of go back and say, aha, we made a mistake.

We should like go back and try to restrict the housing supply again. Yeah, I agree with his, Steve. Like the goal for any platform should be to get as much activity on top of the platform as possible and nothing else matters. Right. So now my trepidation here, and we've had this conversation before, is that I don't know that Ethereum will do any of these things, right? These are all great conversations, and obviously everybody loves arguing about it on Twitter.

But the Ethereum Foundation, or not the foundation, let's say, the Ethereum Protocol's reputation for actually shipping big upgrades is so bad. And they're so slow and so late and so just like decisions get made by committee. And these are, some of these upgrades are just massive decisions. Some of the relatively straightforward of, you know, increase the block time or decrease the block time or, you know, change the gas limit. Those sound great. Yeah, those can be done, you know, in a weekend if the political will is there. But some of these other ones sound, you know, very unlikely to happen from my perspective. I think like there's something you have to admire about Ethereum done one way,

which is in a normal company, you would not, like, you know, imagine if AWS, you know, when AWS started, right? Like there are all these companies that built on it. A lot of those companies that built on it, built all these features that were like, we're a database built on top of AWS. And next week, they are like, here's Redshift on AWS. You don't need to use these companies that built on top of us, where they like, you know, the platform cannibalize the customer. And there's something admirable or different in some ways of like the opposite happening where the customer is sort of cannibalizing the platform, which is the customer here is the L2s. If you follow the, if you believe in the kind of view that like, hey, the value,

value of Ethereum Maynett is to be data availability for the roll-ups or to be coordination cost for the roll-ups. There's sort of this sense in which it did do the opposite of cloud computing. It's just that there is still a sense in which Amazon, that analogy, again, these are all strained analogies. So I know I'm going to get pilloried on Twitter already just from making them. So I'm disclaiming that. But like, you know, Amazon's biggest issue wasn't actually.

necessarily competing with the users of Amazon. The biggest issue over time was that they had to compete with Azure and from Microsoft and Google and whatever and their market share went down, right? And I think that's sort of the argument for why the L1 should improve because it needs to compete with the equivalent

opposition, so to speak, right? And I think the cloud computing wars are like kind of give you an idea of how to think about those, especially when you think of like the idea that decentralization and censorship resistance are features that people are differentiating themselves on on the spectrum, but UX is still potentially the most important feature. And somehow, like, you know, you're always kind of juggling those three in kind of different proportions. And I think

the theorem community has made certain decisions. And, you know, I hope that they continue to not be like Bitcoin where they're willing to eat their crow, right? Like the fact that the sharding roadmap went way, despite it being, like, touted for years, I think, like, it's a sign that at least there's some maturity that people can eventually change. Now, the question is, will they change fast enough? And that's, that's, to his point, not obvious. Yeah. I mean, why do you say that that's a sign of maturity? That seems to me more like a sign of sclerotic kind of, like, things are just too broken over there. Well, no, no, I, look, I said it's eventually consistent. I didn't say it was inconsistent, you know, like, they eventually found the right answer.

But the timescales are the relevant part when you have platform competition. If you think about it like cloud computing, right? So you always have to juggle a lot of different metaphors in your head. I feel like when reasoning about this industry, like you have to have these economic metaphors of countries and nation states and whatever. Yeah. Well, there's also the-Chalmani argument. Yeah, there's also the Kausomani argument that analogies are evil and they will force you

to think stupidly and make bad decisions. And this also comes back to an age-old debate within crypto that we've also talked about on the show, which Kalsamani also very much believes in, which is RL2's cannibalistic to Ethereum. It does feel like now there is an increasing sense of dread within the Ethereum ecosystem that maybe actually it was true, that the roll-ups were cannibalistic, maybe not in an obvious way or in the way that people were initially anticipating, but in that they sort of fragment the U.X and create this, they sort of created a trap that Ethereum kind of walked into. I've always been skeptical of the story.

I do think that at the end of the day, anything that you do that, you know, Altus I sort of think of as like these almost vassal states that, you know, if there's another country out there that's using the U.S. dollar and is under the U.S. sort of influence, both politically and economically, then ultimately it's good for the U.S. But wait, can I ask you a question? Yeah, go for it. So, like, you know, I've seen people actually debate this, the notion you're saying on Twitter, and I'm kind of curious what you think about the opposite side,

which is the L2s are the U.S. states and Ethereum is D.C. Or like, you know, versus like, oh, the L2s are like a country that's using the dollar. You know, like I don't know how to think about the deletion. Well, I think of it as like countries using the dollar because they can stop using the dollar if they want to, right? Like in a lot of cases, they're using it because it's mutually beneficial. It's easy. it gets them into a secure and stable place right out of the gate, right? There's so many reasons why they do it.

But they don't have to stay built on Ethereum, right? Whether it's like in terms of their message, whether it's hosting data to Ethereum for security, whether it's doing whatever, it's like they're temporarily allies. And for almost all of them, they're allies and for most of them, they'll stay allies in a sense. But what do you think about the Texas secession movement? Yeah, exactly. It's worth making the point. No, it's worth making the point that there's two things that tie most of these roll-ups to Ethereum, right?

Which is one, they're posting onto Ethereum. They have the data availability and the bridging, but also they use ether as the native asset. And it seems increasingly like the second factor is actually more important than the first one, right? It's sort of like they're using the U.S. dollar as their currency, which expands the reach and the total GDP that in which the U.S. dollar is circulating, that seems to be more significant than obviously the DA fees that they're paying now are basically going to zero, assuming that the person is directly their Puerto Rico. You're saying they're Puerto Rico. Yeah, yeah. I think that's a good way put it. Or, you know, just any other, I mean, that's explicitly U.S. territory, right? But there's a

bunch of other countries that use the U.S. dollar that are fully dollarized, but, you know, are not explicitly under the domain of U.S. government. In this analogy, is Solana Singapore, then? Like, what does Solana in this kind of? I think Solana is a nation. is entirely other superpower. Yeah, I mean, it's like, you know. It's like China. It's the Soviet Union, China, whatever. I mean, obviously these have a negative valence,

which I don't think is what I mean to say with respect to the EU. Let's say it's India. Yeah, it's one of the ones that doesn't have the same level of, you know, a program attached to it. But this question of like, okay, what is Ethereum that? Is Ethereum D.C. or is Ethereum the United States? And these are all external countries. I'd say it is more like Ethereum is the United States because Ethereum still,

has, you know, whatever, whatever, is $60 billion of TVL, still has way more capital than any other chain, has, in terms of the dollar amount of economic activity on Ethereum, it is still bigger. Now, that doesn't necessarily mean that there's more users, there's obviously fewer users,

but those users are very, very wealthy, right? The US has 4% of the world population. There's not a lot of Americans in the world, but the overwhelming, just mass of wealth in the US is so, big that's concentrated in a relatively small number of people. That feels more appropriate to me. That's not DC, right? DC is a decision-making apparatus for the U.S., right? It's like the brain, essentially, or the brainstem that connects up to this gigantic body. That's not Ethereum.

The theorem doesn't make decisions for the L-2s, and it has no governance control, right? If anything, OP is DC for the ones that are part of the super chain. Agreed. So Ethereum has Dutch disease, but for ether. It's just, you know, this currency is so great. That's kind of funny. That's funny. That's an interesting way to think about it. That's an interesting way to think about it.

Yeah, maybe so. Sorry, Tom, do you want to define Dutch disease? Yeah, Dutch disease is this phenomenon where a country becomes so, or a industry in a country becomes so dominant that they sort of rest on the world become totally, you know, dependent on this particular industry. Usually oil is very common. And then obviously it sort of discourages investment in other industries. And so when oil goes down or there's an issue with that, then you're kind of screwed.

And so maybe there's a similar analogy with Ethereum. Yeah. So maybe it has become a little bit of a resource curse for Ethereum that Ether is so valuable that has led to this underinvestment in Ethereum itself as opposed to just the advancement of Ether as an asset. But of course, the foundation doesn't really do that. I mean, the foundation is weird in a lot of ways. So maybe it's not the relevant locus. But yeah, it's interesting. And I guess let me just real quick going around the horn.

What do you think is the probability? Let me ask you this. What do you think is the most likely change that happens to Ethereum within, call it the next six months? Robert, what do you think is most likely changed? Oh, six months is a very short time frame. Like, Ethereum doesn't move in six months. Ethereum moves in three years.

I think it's possible that some of these things can happen in six months. Okay, my wager, controversial. I'm sorry, nothing major happens. Nothing major. Okay. Turin, what do you say? Six months? I think Vitalik has said a bunch of times he's much more open to faster block times

and node operators are sort of more open to it. I think there's an interesting question of like now that there's multiple clients, can you actually guarantee the same quality of service across all of them and the same latency. And I'm sure there's testing, a lot of testing, the nuance to this, to be totally honest. But I think that is the simplest thing, because technically code-wise, it's a very simple change. So, you know, I think if the testing is successful for that,

like barring no change, which is obviously the highest probability event, I think the second highest is, I think. You think it's more likely that nothing changes in six months? Six months. Okay, let's see. Where's six months? Post-devCon. Okay, no, I think something will change by I think there will be at least, okay, I take it back. There's probably a gas change, like a resource pricing change, or a block time change. Because those are like, I'm changing a parameter.

Those aren't like I'm changing the main code very much that I believe could happen. Don't what we say. I have no idea. I mean, it seems like there's some political momentum behind MCP, but I don't think that really meaningfully changes kind of like the L1 experience for most people. It's kind of more like a, you know, MED mitigation, decentralization kind of thing. So I don't know. I think, yeah, maybe you'll mess with the block time or the gas limit a little bit. But again, that doesn't really meaningfully change the experience of doing execution on the L1.

Oh, actually, I take it back. There's one other one that was going to have, which is the withdrawal from staking directly, which is the EIP that I feel like will much more likely to get through. So there's a bunch of EIPs to like allow users to exit. That's pretty minor though. That's pretty minor. But that's a change. You said a change. Yeah, but like one of the changes we're talking about, not like just a change.

But okay, but fine. I would say I think it's actually quite likely that Ethereum will both increase the gas limit and decrease the block time within six months. I think I think Ethereum is starting to really feel the pressure in a way that I think it wasn't before and it does feel like there's this sense that we have that like the Ethereum Foundation or the Ethereum intelligentsia is like this, you know, like the Senate that just is above all worldly concerns and doesn't care about price and doesn't care about sentiment and it's just trying to build this World War III engine thing and World War III resistant engine. And I think we are waking

up a little bit to reality of with Solana breathing down its neck. I think Ethereum is going to start just doing things that it's like, okay, yeah, that. this is kind of bad for homestakers and maybe this is like slightly less decentralization with respect to the total amount of, you know, node providers and clients that can operate at speed. And they'll say, fuck it. Like, let's just, let's just do it. And start eroding a little bit, I think, some of this puritanical devotion to, you know, prioritizing home stakers above everything.

But I guess we'll see. I guess we'll see. Let's check back in six months from now is, what is that, February? Like end of February? Yeah. Yeah. Yeah. We'll check back in end of Feb and see.

Yeah, let's talk about it in to Feb and see if there have been any major changes that have been introduced to Ethereum. The next chopping block case of Red Bull challenge. Yeah. Should we put a case of Red Bull on it? Yeah. Wait, do we all have different, do we all make different predictions? I guess we did, yeah?

Yeah. I said nothing. All right. So you said nothing. Tarun, you said three things. You said gas fees. I said basically either gas fees or lower block time, one of the two. Okay.

So exclusively, mutually exclusive, one of the two. Yeah, one of the two. I don't think one of the two. You think one of the two will happen. Okay. Tom, you also seem to think nothing will happen basically? Gas limit maybe. I mean, it seems like pretty not controversial.

Gas limit for two. Okay, you're the only gas limit. Okay, I think both. I think they'll both do gas limit and block time. All right, we have a good collection of wages. Yeah, okay, excellent. All right. There's a case of Red Bull riding on it.

We'll check back in at the end of February. The irony is that this is just such an unfair contest because to everyone else, there's basically zero utility whether they win or not. But to me, there's zero utility if I lose, but quite a high utility if I win. Listen, Turin, I will share my sugar-free rainbow with you if I win. Oh, that's very sweet. That's very sweet. Thank you. Well, it's got to be, you can't pre-commit that.

Otherwise, that's, you know, you got to at least give someone certainty about where the Red Bull's going. otherwise the bet's no fun. Okay, we'll settle this in February. Yeah, we'll see. We'll see how it feels. If you treat Robert well between now. We're going to play some roulette. We're going to play some roulette on every can.

It's like. Okay. Perfect. Perfect. 47, 49. There you go. Nice. However that works.

Excellent. All right. We got to wrap. Yes. With that, we got a wrap. Thanks, everybody.

We'll be back next week.