Unchained - The Chopping Block: The Ups-and Downs of Crypto since 2020 and where we are now! - Ep. 619

Episode Date: March 14, 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. In this week's episode the squad asks: Is MakerDAO setting a new precedent for DeFi protocols with its emergency rate hike? How significant is the role of meme coins in the crypto market's volatility, and what does Solana's prominence tell us about the future of blockchain platforms? Can Ethereum maintain its position as the backbone of DeFi amidst the growing competition from layer 1 and layer 2 solutions? This episode delves deep into the whirlwind discussions surrounding MakerDAO's sudden monetary policy adjustments, scrutinizing the balance between stability and adaptability in DeFi's fast-paced world. We explore the fascinating, yet often speculative, universe of meme coins, highlighting their impact on network activity and public perception of cryptocurrency's value. The conversation also navigates the evolving landscape of Ethereum as it faces challenges and opportunities in scalability and functionality. Join us as we tackle these thought-provoking questions, armed with Robert Leshner's expertise, to peel back the layers of complexity surrounding DeFi strategies, the meme coin craze, and Ethereum's strategic positioning. Tune in for a captivating session aimed at decoding these trends and offering insights into their potential to redefine the contours of the crypto ecosystem. 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 🔹 MakerDAO's Monetary Strategy Shift: Exploring the implications of MakerDAO's emergency rate hike and its potential to redefine monetary policy in DeFi. 🔹 The Meme Coin Madness: Diving into the dynamics of meme coins in the crypto ecosystem, focusing on their impact on market volatility and investor behavior. 🔹 Ethereum's Position in the DeFi Ecosystem: Analyzing Ethereum's challenges and opportunities as it continues to be the backbone of decentralized finance amid rising competition. 🔹 The Crypto Evolution and Reflection: Reflecting on the progress of the crypto industry by comparing current discussions to traditional banking models, highlighting the maturation of the sector. 🔹 Solana's Influence in the Crypto Market: Investigating Solana's growing prominence for meme coin activity and what it signals about blockchain platform developments. 🔹 DeFi Protocols as Financial Antidotes: Discussing the role of DeFi protocols in offering alternatives to traditional financial systems and their potential to disrupt. 🔹 Intellectual Property Rights in a Digital Age: Speculating on the future of IP rights in the era of digital creation and AI, questioning the sustainability of current legal frameworks. 🔹 The Crypto Market's Bullish Trends: Analyzing the current bullish trends in the cryptocurrency market, including Bitcoin and Ethereum's price movements and the factors fueling optimism. 🔹 Governance and DAOs in Crypto's Future: Delving into the significance of decentralized autonomous organizations and governance models for the future of cryptocurrency and blockchain technology. Hosts ⭐️Haseeb Qureshi, Managing partner at Dragonfly  ⭐️Tom Schmidt, General Partner at Dragonfly  ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Robert Leshner, Founder of Compound Disclosures Links Bitcoin Is Hitting All-Time Highs Around the World (CoinDesk) https://www.coindesk.com/markets/2024/02/29/bitcoin-is-hitting-all-time-highs-around-the-world/  Learn more about your ad choices. Visit megaphone.fm/adchoices

It's so interesting that, like, today we're having this, like, wonkish conversation about MakerDAO setting rates. Like, they're the fucking Bank of Japan. And, you know, like, it just kind of shows how far we've come as an industry. Not a dividend. It's a tale of two pawn. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways. Unnamed trading firms who are very involved.

I like that ETH is the ultimate pump. D5 protocols are the antidote to this problem. 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. The quick intro, first you got Tom, the Defy Maid, and Master of Memes. Hello, everyone. Next to you got Robert, the Cryptoconassur, and Tsar of Superstate.

Good morning. Then we've got Tarun, the Gigabrain, and Grand Puba at Gauntlet. Aloha. And finally, I'm received 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. We see Chopin Block. That XYZ for more disclosures.

So, Robert, you were telling us that you heard a great joke that you wanted to share with the pod. Yes. This is for the listeners out there. And I heard this today for the first time. What do you call four professionals who work in crypto? What do you call them, Robert? A podcast.

Yes. I said that was a three out of ten, but I'm not sure. maybe it's actually worse than that. Now I've heard it the second time. You're biased? I do think it ages better. Now that we're all four of us are here in this call together, you're saying it's a fine wine,

it's now a four out of ten? Exactly, exactly. I think it's a great check. It's gotten better the second time that I've heard. I know it is, it is, okay, we're full on bull market now. To the extent that we weren't before, Bitcoin finally crested all-time highs.

As a press time, we're above 70K. Ethereum is hovering around 4,000. It broke through 4,000. It's been kind of moving up and down. But a lot of stuff is ripping up and down the market. Gaming is doing really well. Obviously, the AI tokens, as always, Worldcoin, Avax, NIR, a bunch of stuff is just going nuts. And the interesting thing.

So I asked what people wanted us to talk about. A bunch of people were pinging me. They want us to talk about NIR. I think they might know we're big NIR investors. The funny slash embarrassing thing is that NIR is ripped. because Ilya is speaking at a conference on the same panel as Jensen Hwa. I mean, that's a good reason. That's a good reason for a part of the coin.

The Jensen meme coin was hilarious. The Jensen meme coin also crashed 85% in an hour like yesterday. It was like I really, I really fell down the rabbit hole of some of these Solana shit coins. I mean, mean, coins, whatever, it depends on your prerocative of what you call them. But people have made all sorts of crazy apps to just like watch meme coins being made. And like people have these little betting markets on like, will this meme coin be able to have greater than 50K market cap for more than 30 minutes? I mean, just betting on the meme coins is not enough volatility.

Now you need like meta volatility. I honestly am like astonished at the sheer level of degeneracy. But the interesting thing is almost all of it like seems to be on Solana. I did see a couple ETH meme coins, but honestly, other than Zinn, it has not really, there haven't been so many that have been growing as fast. It's too expensive. You know, if the velocity of meme coin deployment, you know, stays like this, like, it's who can be unsustainable from a fees perspective.

So I think Solana has found PMF in meme coin, shit coinery. I think the like liquidity fragmentation piece on L2s definitely kind of hurts also, because like this is the first time my life. Usually it's like people asking me like what crypto they should buy. And I'm me always saying like don't, don't buy what you don't haven't done research on. I know the old school Bitcoin or DIYR thing. But like this is the first time my life. I'm getting all these people who I haven't talked to in years suddenly being like,

hey, have you bought poopie Jensen Huang coin 59? And I'm like, what the fuck are you doing? right now. This is unreal. Like, people from like high school that I, you know, like I, I actually do think this meme coin thing is like way more wide ranging. It feels like NFTs in like 2021. And like we're like people who were just not into crypto at all somehow. And like the only thing they know in crypto is phantom. They don't even know what Metamask is. So it's like it's kind of an interesting thing because of that. Yeah. It is definitely the analog of NFTs where it's, It is this mass market thing.

You can play with a small amount of money. You don't really need to know very much about crypto in order to actually play this game. Very short term. It's very fast feedback cycles. It doesn't feel to me, yeah, I mean, we've talked about this before, but I think I see more and more people lamenting that this is kind of the financial nihilism of this cycle.

There's a way in which that was true for NFTs, but NFTs had more of a cover story, which is, oh, no, this is like a. about social status and about the metaverse and there's like the artists, we're supporting the artists and it had more of a defensible. There's more of a cultural cachet than, you know, like, whereas like the meme coins don't even try to have any, any, they literally are going. It's like the Scooby-Doo meme where like you take the mask off the villain and it turns out, oh, it was all just, you know, rank speculation.

this idea that there's speculation on how long the market cap will stay up is one of the crazier that is like the true degenrecy i think i don't think i've seen that's the most degenerate because it shows how short-term in nature the life cycle of these assets is like these are not like you know memes with an expectation that they'll be around years from now their memes where people question whether they're going to be around hours from now it all feels very uh euthanasia coaster you know, yeah, the meme that flips around. The cycle is getting slowly smaller and smaller. And I feel like that way with meme coins where it's like, yeah,

at this point there's like 100 people trading a single meme coin. I want to show you one of these sites that is focused on these how long will this market cap last? This is a king of the hill games. What are we seeing? What are these? This is called pump-dun. These are new meme coins launched and the market cap they start with.

And the king of the hill is the one that has. has the largest market cap in the last like two hours. Oh, wow. Okay. This is amazing. Honestly, I spent 20, I spent 20 minutes and many lost neurons watching this yesterday, but I felt like I learned a lot. Oh, geez.

Wait. What's the URL so that pump dot fun? Okay, I'm going to have to do some academic research later. Okay, great. All I'm saying, hold on, hold on. People I went to high school sent me pumped up fun links. And they're like, ha ha, isn't this fun? I turned $500 and $5,000 because I liked a bunch of pepas.

I'm like, you know what I mean? Like, it's just like one of these things. Okay, look, here's one thing that I want to clarify because I think a lot of people listen to the show and they don't, they're not necessarily monitoring markets all the time. So one thing I think also that we should make clear substance to each other. The Munecoin stuff is fascinating. It's also a very small part of what people are doing on chain because almost all of this is on Salana.

And Salana right now, obviously Salana has a lot of activity. You know, it's like maybe chain number two or three by total activity, which means that if you look at the top ten chains, most of the stuff happening on there is not this kind of crazy meme coin mania thing that is happening on Salana. And part of it is, of course, the unique nature of Salana makes it well suited for this kind of thing of like somebody coming, you know, some guy you went to high school. with playing with $10 and trading random dog coins. But it is also something that it certainly seems that Solana has this cultural kind of

position in the market that it really worked for these low-value NFTs in the last cycle. And now that's transitioned into these low-value meme coins. Of course, in absolute terms, the big meme coins, dogecoin, Shiba, flokey, all this stuff. Obviously, you know, there is bonk on Solana. But there's, you know, the big meme coins are not on Solana either. So the thing is, the biggest meme coin in them all. Bitcoin? Bitcoin.

Oh, you're, okay. I mean, Bitcoin is, too. Yeah, I know. I mean, Bitcoin is the OG asset that's based on social consensus to create its value. And so, you know, obviously there's two camps, you know. Are you seriously arguing that Bitcoin is the same financial nihilism as all these mean coins? No, I did not say financial.

But it is definitely a distant cousin of financial nihilism in that most of its original value preposition of those who very early on became believers in Bitcoin came from the same initial tendencies that lead to financial nihilism, which is a distrust of existing financial instruments and assets. It is a distrust of government. It was very loudly a distrust of fiat currency itself. it's all of the things that make you want to give up on the existing system were the sort of ingredients that catalyzed Bitcoin. And it's those same ingredients that I think are leading to financial nihilism in faster, cheaper, more fun, more me, me, more jokey assets, like these made up 30 seconds ago assets on Solana.

And there wasn't this, you know, ability to create so many assets in the advent of Bitcoin. there was one asset. It was the OG. It was the original. It was the only asset, the only blockchain really standing alone for quite remarkably long time. Even when there were new blockchains, there were forks of Bitcoin. I think if Bitcoin were founded today, it would be very different. And I do think it's related, the same energy that feeds Bitcoin is related to the financial nihilism that exists of these, made up just now salamatoids. Okay, so let me take the other side of that, because this is interesting, and you've got my mental juices flying.

So in some sense, okay, let's say that you're, I don't know, Turun's high school friend, and you're coming on board to trade meme points, right? And obviously the meme coins are stupid, and they have, you know, frogs and dogs and whatever random bullshit on them, or the misspellings of politicians. But it's not that different in kind, right? if there's what you're actually doing day to day, it's not that different from what you were doing when you were flipping NFTs. And it's not that different from what you're doing when you were trading random ICOs. The difference is that the NFTs and the ICOs had a story.

There was some story that was remotely plausible about why these things had intrinsic value. And with the meme coins, there's no longer any story of why these things have intrinsic value. But, but, and here's the counterpoint I would make to that, is that, like, the game that fundamentally these people were playing was similarly cynical through every cycle, right? When you're flipping ICOs, when you're flipping ICOs, when you're flipping NFTs, it's all the same feeling that you have, which is you don't believe any of this stuff. You might think someone else believes it. And that's why you're flipping this, you know, random fucking, you know, IOT, ICO that you did in 2017. But you're assuming that somebody else is that greater fool that's actually buying this genuinely thinking it's real, right?

And in some sense, perhaps that was never true at all. Perhaps there was nobody who actually thought at the IOT ICO in 2017. I really love that you hate IOT so much. I'm not talking about Iota. To be clear, they were a successful ICO. I'm talking about sort of the bottom of the barrel. I think we've got to get Eric Wall on here if you're going to call Iota successful. All right.

All right. So what I'm hearing is this is a two-dimensional axis. And then on one dimension, there's financial nihilism ranging to trust in the existence. system. And the other access, there's, we'll call it seriousness versus, you know, jadedness. And Bitcoin is in the financial nihilism plus seriousness camp. And to these made up 30 seconds ago- I don't know that Bitcoin is financial nihilism. I think Bitcoin has a, there's a nihilism about high finance, maybe. But I don't think that's the same as financial nihilism, right? Financial nihilism is that real value is bullshit.

Nialism about finance is not equal to financial nihilism is what you're saying. Exactly. Exactly. Yes. Yes. I think you can be skeptical about the edifice of finance, but not be skeptical that there's such a thing as real value or there's such a thing as cash flow. There's such a thing.

Like if anything, the bitcoins are, you know, they're Austrian economic. Like they're very loud about the fact that no, no, no, no, no. The financial edifice you've built is insecure. Whereas a financial nihilist would say, who cares what's secure and secure? Nothing matters. It's all just meetings. I will say I'll give you, I'll give you one other example about meme coins versus NFTs. That's actually a data point in which they're like objectively different, which is NFTs were all about like capping the collection size that like this like fixed almost socially agreed upon 10,000 number.

Don't I, you know, I don't even know why 10,000 other than Cryptopunks chose it. But, you know, there's, whereas all of these meme coins are like supplies that have a billion doing all these kind of like small size bias. type of games where it's like, oh, we really don't care about the value of this thing. Ha ha, I can give you a billion of it. You know what I mean? Whereas like Bitcoin and NFTs are actually very much about like, hey, you only get a small, you know, you can't. Absolutely.

And this is what a Bitcoin maximalist would point to immediately in terms of proof of work and that Bitcoin was forged out of actual effort versus any of these coins, which no effort or cost goes into their manufacturer. And it's a product of its time. I mean, props to Solana, the fact that transactions are so cheap that people can make hundreds of new tokens per hour. I mean, you were just watching live, right? Right. That was like live, like live new shit coins.

No, that was live. We were watching a live feed of just new coins being created. I mean, AIs are going to create millions of these per hour at some point, you know, hoping to break through. Wow, hot tape. AI is on BitTensor. That's going to be the new site. The Tedzer Salana collab? Yeah, like the reality is like this is like, you know, 10,000 new penny stocks being created every day.

It's like, you know, normally though, like to create a financial asset, there's like people and they have to organize and they have to like do something or like come up with a story. And these brand new meme coins on Salana have none of that. There's no work required. And so there's almost an infinite supply of these tokens. Yeah. Completely true. I guess the question in my mind. So, I mean, when people look at this, they're like, okay, so this is just laying bare

what we thought all along, which is that crypto is just a giant casino. And there's nothing here but just people speculating and kind of, you know, this like p-to-pee, just idiots throwing, you know, shit at each other and hoping somebody comes out on top. Well, I was going to say, like, it's not strictly P-to-P or zero-sub. And the reason why I say that is, even amongst this, like, jungle of thousands of new salon and meme coins, right? Some of them sustain or survive long enough to have a market cap that continues to grow. Dog with hat is an example in that the aggregate wealth that's been created and the aggregate market cap of these salina meme coins is non-zero. There have been ones

that break out and you can say like in absence, like the total, I don't know that I can agree that there's a positive sumness to meme coin. Even if they grow big, like yeah, they they can be sustained. But is that positive sum? Yes. Like they had to sell something else to like put money in the points. Yeah. What's the what's like ultimately.

In fact, in fact, we create value in society through productivity. You could argue it's arguably negative because all it is is a tax the validators against the day. That's true. The validators are wasting their time making me. The validators are the one.

I mean, we should talk about the Gito thing maybe also, right? Oh, that's. Yes. Yes. Great. Great segment. Okay.

Cool. All right. So it's interesting because we're talking about Solana being this meme coin engine. And so there's this protocol called Gito. I believe Robot Ventures is an investor. We are investors. We are. Disclosure. We talked about their megairdrop, which was the thing that kicked off the Salana Bull Run. And we had the Gito. There's sort of the founder on here on the podcast. Yes, we did. So it's sort of like the flashbots of Ethereum. They kind of run this sidecar that people can run on their validators in order to extract MIVE, essentially, from Solana blocks. And so it turned out that a lot of people who are trading meme coins were getting ruthlessly sandwiched in GTO blocks.

And the sandwich attacks were getting very, very intense because, of course, when people are trading meme coins, they're retail, they don't really know what they're doing, they're not setting very strict slippage limits. And so there was a lot of money being made by people capturing MV by essentially front-running, back-running, or essentially sandwich-attacking people who are trading meme coins. So sandwich attack means you front-run and then you back-run to... like sell out so you're not taking any risk. And so the Gito team announced that they were going to be shutting off their mempool service, their public mempool service, which is, you know,

Solana doesn't normally have a menpool. Gito sort of exposes a, you know, quasi-memm pool such that people can see what's happening that's a pending transaction and go, you know, package up a bundle around it and front-run it or back-run it or sandwich it. And they announced that they were shutting this off so that the experience on Solana was going to be improved for users and they weren't going to be frontrun as aggressively. This was largely lauded in the Solana ecosystem. But it seems to have been in response to the fact that so much of Solana at this point is a story around people trading meme coins.

And the MEV extraction was getting to be such a big issue for people trading on Solana. Now, you guys are investors in Gito. This seemed really bizarre to me that, you know, it's kind of the ultimate. opposite of what FlashBots has done. Flashbots has kind of said, hey, we're accelerationists. This is the end game. Obviously, MVV is going to be extracted at scale, at equilibrium. So let's find the best way to do it. Solana, as far as I can tell, Salana Foundation more or less knocked on their door. I was like, hey, yo, this is bad for the network. Please turn this off. And they were like,

okay. And then they turned it off. What is your guys take of the story here? I think, you know, I don't think that's 100%. Like, I can see where that interpretation comes from. But I think the correct way to think about it is Gito still runs their auctions for slots. So if you look at their bundle, bundler, it's the bundler still running. That was their main product initially. The MMPL was actually the second product. I think one of the issues is more that in Solana, it's just hard to do this MMPL-like thing while meeting the latency constraints without revealing a ton of public

information that makes it even easier to sandwich more people. Whereas in Ethereum, you can actually do a lot of stuff to kind of like delay encrypt things encrypt things in certain ways that might take a lot of time, but then people have a harder time front running you. And this kind of transparency that has happened at high, at low latency, you know, makes it just easier for a sandwich box. So to give you some context, like Gito on the last day it was running this had 10K salana in tips. So that's sort of fees paid to validators to include your front run and

background transactions in, which at, you know, current prices is like over a million dollars a day, right? Like in just fees to validate, which is like that is really quite high. That's like 500 million. It was like 500-ish million annualized per year. So like that's a lot of fees going to validators. And you could see the steady increase right when the memes, mean coins really took off. But to be fair, we actually saw a similar thing in Ethereum when Jared from subway.eith and Pepe were very popular, right? And you saw like this huge increase. So I think it's just a natural thing that these types of assets just generally attract unsophisticated noise trading type of behavior. And so like it's just easier.

And so I think, I don't think that they're kind of like, oh, we're never going to do it again. I think it's just they have to get an implementation that makes sense. But so, Tarun, I mean, you've always been the accelerationist among us, and you've also been the person who's like, MEV cannot be removed, it's always there. Right. And so it sort of looks like they are trying to remove some MV from Solana by removing this feature that obviously somebody else could go in and create a,

you know, another version of or something. I think they're trying to buy themselves time for coming up with a better solution. So I and I would I would argue that like Ethereum sort of has done similar things in the past right like when they had the centralized flashbots auction effectively bought them time until the merge. And I think effectively MEV because it's like this dynamic game, especially in a permissionless environment where someone can introduce a new smart contract, it gets a lot of liquidity and all of a sudden all the MEP migrates from one type of strategy to another. You kind of have to when you're designing the system, you have to be a little more flexible because you might

make some design tradeoffs that in production don't actually do it. But FlashBots had a different problem than this problem, right? This problem seems, like, FlashBots was trying to enforce that people, you know, basically stayed within the auction, didn't go out of the auction. Whereas here, it seems like the problem is the whole M. M.EV extraction that's happening, period. Well, I think it's more, a little more like. the order flow auctions in MEV share or MEV protect, right, where you can send your order flow to these protected memples, sometimes encrypted. And so people can't see all of your order flow.

They get some information about the aggregate order flow before deciding to make their transactions. And I think in, you know, when you have lower latency constraints, like you have to wait longer for blocks, you can actually run those more efficiently and make them more private. I think there's just a lot of design constraints, engineering-wise, that you have to be very cognizant of. And I generally think, like, if your philosophy is, like, we have to have low fees and good user experience, perhaps at the detriment of validators, like, they have to run a lot more. You know, I think, you know, over time, I've come to the following kind of pithy oversimplification. But I think it's sort of a thing where I think I think can give a listener who might not be super familiar with this stuff. easiest, you know, like ELI 5, which is Ethereum, the protocol has users.

The protocol views its users as validators, right? Like, it views the validators as the users of the protocol. Like everyone should run one or everyone should participate. Whereas Salon views the user submitting transactions as the real users. And I think Ethereum, you know, has this kind of tension between like, who's our real user, the validator or the end user. And Salon is philosophically like we, the validator is just a, service provider, we don't really kind of care that much about them, to be honest.

And I think when you have that kind of philosophical objective, you get these different design decisions. But at a very high level, I think, you know, when you really care about maximal decentralization, maximum security, then it does make sense that your network is built around the validators or the customer in some ways, the protocol. And so I think this different different philosophy also is kind of a thing that bleeds into this discussion. But I do think, I think like there will inevitably be solutions figured out. I think actually, in fact, I think with a little more engineering work and design, I actually do believe that you could get to reinstating it, but in a way that like doesn't leak as much information.

So like like, and I think that's kind of the thing to look forward to is like they're getting to that. But okay, so if you get to a place where this auction is not leaking as much information, is that going to change the experience of the Geobotin meme coin trader who's still sledding huge slippage limits? It should. Still going to get ruthlessly sandwich? It just means that the sandwich attacker is taking on risk, right? They're doing a statarb strategy versus a pure like, hey, we're guaranteed profit.

But like right now, I mean, in meme coin mania, like it seems like it would more or less end in the same place. That's a good question. That's a good question conjecturally. Even on Ethereum, we saw when Pepe was crazy. We kind of saw the same type of thing. It just wasn't as severe. And I think it's also just because Ethereum just didn't have as much demand.

Like the users were trading much larger size versus in so long as it's like very small size, but like, you know, huge amount of addresses, 100K addresses. Yeah. Right. So I think the design tradeoffs are also kind of different. it's almost like this like latency bandwidth type tradeoffs thing that, you know, is where it, you know, bleeds into this. And the vast majority of Ethereum transactions still go through some sort of like public mempool type of thing.

I don't know what sort of the ownership or the market share percentage looks like for like, not quite a mempool, but sort of like this Gito pre-block kind of option. But like, you know, there's a future where basically everything goes to, you know, Gito, even though some doesn't have a men pool. And like, that would obviously allow them to sort of enforce the characteristics of a block-based option that they want to enforce. Right. The fundamental problem comes from the fact that people are broadcasting their orders or intense before they get settled in blocks.

And it gives an opportunity for anyone to come along and profit. And the only true solution is either reducing the amount of information that's being disseminated or change the structure of how blocks are created. And if you put everyone through a pre-build that has a different information flow, then yeah, it can solve the problem. But as long as the majority of orders are still being broadcast broadly, there's always going to be MEP. And there's more MEP when the transaction costs are lower. You know, if transaction costs are one cent, you can rip off a user for 12 cents. Yeah.

So, well, speaking of the fees, Ethereum is going through its own fee. upgrade at the moment through what's called Denkoon. So Denkoon is supposed to be scheduled for Wednesdays. I think by the time this podcast is out, it should be post-denkun. But it's going to be one of the biggest upgrades for Ethereum in a while. There are two upgrades that are happening simultaneously, a bunch of code changes. But the main thing that's going to be happening is what's often called proto-dank sharding, which is going to include the introduction of blob storage.

So this is the big thing that's supposed to make roll-ups cheaper. everybody is, not everybody. Weirdly, people seem to be kind of sleeping on it now. It doesn't seem like a lot of people are talking about it. But I remember, like, six months ago, it was all anybody could talk about was how excited they were, that roll-up costs were going to get cheaper. But there's now people who are increasingly concerned that, especially now with, as you mentioned, meme coin mania and the amount of gas that's being spent on things that are not

laertus. I think actually six months ago, more of the gas was spent on Ethereum was layer twos and, you you know, DA. And now increasingly, it's more just people trading, you know, random stuff on Uniswap. And so there's, there's increasing consensus that this may not have that big of an impact on fees. It may lower the fees for layer twos, but it's not very likely to have much of an impact on the fees for everyone else on Ethereum.

Any thoughts or predictions about how this is going to affect the layer two game? And of course, you know, by the time that this is launching, there's external DA, there's Celestea, there's Avale, there's Neer, there's. Igan DA. So there's a lot of different DA solutions now competing for people to post their role-up data there. I delegate my prediction to Turin. I think the prediction markets are quite optimistic. I believe they're pricing things pretty low. I think still quite a bit higher than Celestia, but quite a bit lower than the main net right now, probably. If I were to guess, and I'm not 100% sure.

I think there's like a factor of five to 10 difference between the sort of like Celestia and prediction market prices. If that comes to pass, that'd be pretty good. Yeah. The Celeste is like a factor of a hundred or more less expensive. Yeah, that's why I'm not sure if the prediction market is like overly optimistic or not. But because like I do think there is kind of this, you know, If you build it, they will come type of aspect of 4844 where there's like a ton of people who are like,

oh, I'm maybe building a L3, which is something that posts to an L2. Or I'm building something else. And like, oh, if it actually is really cheap, then I start going to Mainnet and I move to Mainnet, right? Because it's easier UX for the end user in a lot of ways. So I don't know. I think it'll definitely be positive. I think it'll push the DA layers to like really have to. optimize. But I don't think it's as big of a deal as people claim. I think there was a really good

analysis a while back from Alex from ZKSync about how the net bandwidth increase is not really that much in the current state versus like the full dank charting version. And I think the cool thing about the Alt-D-A layers because they all actually are taking different approaches. Like if I compare eigen avail and Celestia, is that they all are making different, like latency versus bandwidth tradeoffs in terms of like how much communication has to happen versus how hard it is to reconstruct blocks versus like whether I use a commitment scheme or not. And I think all of those things are going to be the experiments that show you which one users prefer and which ones like the users here meaning developers, developers, developers of roleups.

and hopefully from those experiments, Ethereum can kind of take the best combination and add it to mainnet, but it'll take a while. So I think it's sort of not as impressive of a thing right now than it was before all these Alt-D-A layers came out because I actually think like they,

when you look at, say, like, an application that has a lot of users that's its own roll-up, say like Avo, which disclosure, I guess we're all investors in, Avo is like something where they had real users and the difference between the 5x and or 10x more in fees is huge because there are perps decks and like volume is everything for them right and I think it's going to be a question of like are do we have these apps that are like Solana shit coin meme coin trading type of stuff like where yeah you need you need to be able to handle tons of volume like Avo or are they going to be slower things? And I think 4844 is sort of in

this middle ground of like it's good for these slower things. It's not necessarily going to be the best for say like something like an Avo. And you know, say if Ethereum wants, I'm not saying like Ethereum as a community has a collective desire to want this or not, but let's say they want meme coins back. You know, they want to relive the Jared from Subway.Eath days. Then I kind of think 4844 is not. going to be sufficient. There's certainly a ton of like, you know, people on Twitter trying to be like, oh, like all the Solana stuff will come back once we have 40, 44. And that part I'm much more dubious about. Yeah, I do agree with you. It feels, especially in this environment,

now that so much infrastructure has been built off Ethereum and the integrations have been built. And, you know, there's just, there's just a lot more willingness for people to realize, look, if I put my DA somewhere that's not on Ethereum, not only do my users not care, they will reward me for it. They will actually be like, yeah, awesome. Thank you for making my application cheaper. The users of these applications expect Solana U.S., right? They don't expect, they've never used, they've never made a crypto transaction before in their life until they downloaded Phantom and bought poopie, poopie Biden 27. And I'm trying to make up names, but, you know, that was, there's probably a new token with that name.

Yeah, but that's the thing that's crazy, right? Like, it's, it's like those people I think could not care. They could not care at all. I don't think those people are the ones who are coming to trade on Avo or using Ethereum. No, I don't, I don't. And I'm giving Avo as an example of like a standalone application has a lot of users, has kind of like a good ecosystem where they still value Ethereum liquidity, right?

But they, they care about their U.X enough to go to Alt-D-A. And like, that's, that's a tradeoff that I think a lot of rollups will make. I think certainly not the like arbitram one or, you know, OPE mainnet type of rollups. But certainly these, I think the other rollups will inevitably kind of have to make that decision. And I do think the Solana UX attracting a lot of new users is going to be very compelling for roll up developers. They're going to be like, how do we replicate that? And I think that's the story for the.

D-A layers because 484 isn't quite enough, you know. So I don't know if that's a prediction, but I, that's... Yeah. Let me, okay, let me ask you guys this. I'd love to get just very, very quick predictions. So obviously, proto-dank sharding, also known as EAP 4-844, it took a while to get here. I mean, people have been talking about this for years, and now finally, by Wednesday, hopefully it should arrive and maintain that without a hitch.

It's not that much bandwidth, as you were saying, to ruin that, you know, how many, how just megabytes per second can you actually send through this thing? Once we do have full sharding, full dank sharding, which is, you know, we have many, many different streams, highly, you know, you can just imagine many, many different blob streams or many different 4844 is working in parallel. Then there'll be a lot more bandwidth on Ethereum. What's your over-under on how long that takes to arrive, Tom? I'm going to go three years.

Three years. Okay, so 2027. Yeah. Okay. Robert, what do you think? Four years. 2028. Turin, what do you say?

Three and a half years. Oh. That was a sandwich attack the opposite direction. Yeah, yeah, yeah. All right. I'm going to take three and a half in a day. This is going to be my bed. Oh, M-E-V.

M-E-V. Yeah, I think that's right. I think that DA is, external DA is going to be for a fucking while, I think. And even like, I mean, blob storage is so much simpler than full, like part of dang sharding is so much simpler than full on dang sharding. By a long shot. Like, yeah. Yeah, I don't know. Implementation complexity is very high.

Yes. Yeah. Four years might be actually. But the reason I think, so the reason I think it won't be that much longer than that is all of the AltDAs are basically doing all the R&D and engineering work for testing all of the different. They're doing the R&D, yes. I don't know about the engineering whether Ethereum will actually import any of their engineering

work. I totally think they. I think it's actually quite a bit of technical duress, both on the cryptography side of getting the commitment scheme is working correctly and handling all the edge cases for inputs. There's going to be a ton of code that I think will get borrowed. I'm sure maybe it'll get rewritten, whatever, different language. But I guarantee you, like, a lot of those lessons learned from the alt-de-as will be the thing that goes in. It won't be like, oh, we're-

But I mean, it has to get implemented in all these different clients, like, you know, and it has- For sure. And that's the hard part. But I think the R&D part historically for a lot of Ethereum upgrades is the part that took a while, if you think about how long it took to do 1559. I think the implementation was actually not as crazy as the R&D and research time that was spent on it. So I kind of think if we're outsourcing that, then maybe it's a lot easier. I think there's also just consensus on the roadmap.

I think we forget how often Ethereum's roadmap has changed over the past five years in terms of what they see in terms of the future of scalability and how these things are going to work. And so it feels like in the very least there's a clear vision and consensus around dang sharding being sort of a future for Ethereum than a lot of the other proposed upgrades in the past. I don't know. I would put a 20% chance that Ethereum just literally gives up on dang sharding. And they're like, look, all DA has won.

It's like big enough that, you know, I don't know, why bother? Let's just like do other stuff. I am not sure about that. It's one of those things where I feel like you really do lose your like, we are the provenance. and settlement of everything if you give it up completely. I mean, they gave up execution on shards, right? I don't think it's that much more to give up to just be like, well, you know, in 2027, like the future is, you know, Cagillion rollups and all these L-1s and Solanas,

the meme coin factory. And, you know, if all these DA layers that are already sharded and already doing all this stuff, do they really need us to do this? Interesting thing about roll-ups is you made charting pseudo-permission list, right? You don't care what gets executed, which. Right, right, yeah. Arguably it's more towards the philosophical ideals. Yeah, and once you have DA layers that are restaked and they're kind of like,

isn't that, isn't that more or less what we meant when we said we were going to do, you know, proto-dank charting? Like, I think there's a non-trivial chance that they just say, never mind. Okay, what do you, what you say 20%? Does anyone else have a prediction on that chance? Yeah, I think it's way lower that they give up. I mean, frankly, like, I think they see it through. It's just a matter of time.

Like Tom, what would you say? Yeah, I mean, at that point, like, what does it through really have? Like, I think Bitcoin gave up a lot of upgrades a long time ago because, you know, it had its sort of an own story to sort of rely on. But, like, you know, at that point, like, what is this thing supposed to be? You can't tell the story around it being, you know, immutable and sort of digital gold, like, like Bitcoin. It's like this weird sort of like hybrid execution DA layer, but it's not really the best of

either of them. Like, I just think that feels like a weird in-between spot to be in the market. I don't know. I don't think dank sharding is that integral to Ethereum story. I think it is, it was integral to like the idea that we're going to scale through rollups, but now the rollups are scaling and they're working. And, you know, if eigenlayer and restate security and whatever, it's kind of like, well, you know, it's, it's kind of like community run dank sharding in the same way that rollups are community run sharding. Yeah, I guess it just depends on how competitive it would be in that market. Like, who knows, maybe this is going to be sufficiently good. But, you know,

it feels like the rest of the markets continue to evolve beyond what we have today. I do actually think that having too much fragmentation across Alt-D-A layers is a little bit like liquidity fragmentation across many roll-ups. And like there is going to be some reason to go here. Is it, I don't think, I don't think it's that similar to liquidity fragmentation across roll-ups. I don't know. I mean, it's not user.

Like, it doesn't impact your U.X as a user. Yeah, I guess it's true. I feel like, but it's like you care about these like worst-case guarantees. when you think about DA, right? Like, oh, like, if this fraud group was valid. Right, which is why Ethereum says, look, if you need that worst case security, here is a blob stream,

will slowly increase the bandwidth every year, you know, like by 12% or something. Like, I feel like that, I mean, again, I think more likely than not, they actually do it, but I do think there's a very non, a very non-trivial chance. For the record, I'm a little bit in your camp a little more. I could see that.

it's totally conceivable that that happens. I agree. Talking it out like this, I'm, I feel like you're actually convincing me a little bit. I was so much more like philosophically, no one would agree to it. But laziness is the laziness always beats philosophy.

That's what I've learned in life. Yeah, especially when you're winning, right? If it turns like, look, we're still number two. Like, we're still worth the cajillion dollars, you know, it's impossible to pay fees, but someone's doing it. And you are, you're not changing your level of decentralization. You're just making recovery from an attack slower and so much.

Right, right. Right. Yeah, exactly. Exactly. It's like, look, if you absolutely must, you know, post it onto the blob stream or even, you know, post-call data, we're not stopping. I don't think they're going to stop trying for a while. I don't think the theorem found.

Agreed. I think there is. I think this is like a 20-27 thing. I think this is a 20-27 thing. Yeah, I think your claim is like, if we get to four years and it's not launched, like, will continue. Yeah, I think by 2027, they're like, we're not even close to like starting implementation. And like, we're still arguing.

Do you think gang charting and plasma will both be in the same sort of regard? I'm more like execution environments, you know, like it's just sort of like it sounded so good on paper. But then like, look, there's so much risk and like what if maintenance goes down and like, you know, all the teams are fighting and, you know, the, like, the, like, the, like, the, like, seems to be fun. Like, is it really that central to our story that we're like the magical DA layer as well as, you know, the world's computer?

I don't know. Anyway, all right. This is besides the point. There are a couple of other things I wanted to get to today. We've been talking a lot about the bull market. One of the interesting stories this week has been from the land of MakerDAO. So MakerDAO largest decentralized stable coin, they have, historically, they had $5 billion. that was in total reserves in MakerDAO.

And MakerDAO started freaking out because very recently, amidst all the bullish sentiment in the market, the die reserves ended up dropping precipitously from $5 billion to $4.4 billion a week. Now, why did that happen? The answer is that die savings rate right now is only 5%. And people are like, yo, I can go make a lot of money taking this capital out of MakerDAO and going and farming

and doing this and that and blah, blah, blah. And so MakerDAO announce that they were going to do an emergency fee hike to raise the die savings rate from 5% to 15%. Basically meaning that now it's going to be significantly more attractive to hold dye. You're going to get paid more. And the interest rates, the stability fees, which are the industries you have to pay to borrow, were increased also very significantly to basically make it look, the cost of capital in crypto has gone up. There's a capital shortage because everyone is farming and doing all this, you know, mean coin trading and whatever. And so all of this happened very suddenly, very, very quickly overnight. This caused the value of MKR to go up, actually I think it went up like 15% or something,

overnight on realizing that MakerDAO is now going to make a lot more money. But a bunch of people are also upset at seeing how quickly all of a sudden, you know, the rate governance has moved without much notice to dieholders or to MKR. It all seems like very reactive, which I think is freaking people out. This is also very close to the four-year anniversary of what you might remember was the DPEG that happened in March of 2020. Today is the four-year anniversary. Oh, today is the four-year anniversary. Oh, damn. Yes, March 12th is the four-year anniversary of March 12th, 2020. Yes. I saw a lot of people were posting about what they remembered four years ago when that was the day that every market dropped 50% was also the day that Dye had a huge shortfall.

So what's your guys take? Obviously, you guys are, Tarun and Robert. You guys are different sides of the defy wanks. And of course, Tom, you probably have strong opinions, but this as well, being the Defy Maven. What are you guys thoughts on MakerDAO jumping in and crazy runarounds on the interest rate? Yeah, well, a couple points. I agree with your sentiment that this hike from five to

15% both in borrow cost and stability fees seems incredibly sudden. You know, I feel like, you know, a good process or good governance would have seen this increase from 5 to 15% in a staggered rollout over a couple actions as opposed to immediately. I mean, to me and to most people on crypto Twitter, this was a shock how rapidly rates were raised. And there was a lot of warning signs that rates would have to raise. I mean, we've seen, you know, and this goes circling back to prior conversations, Because things like Athena, there's interest rates of like 30, 40, 50, 60 percent across the

crypto ecosystem right now. The basis trades for the cost of capital are showing that markets are valuing capital right now at still far above 15 percent, right? The fact that like you have these basis trades yielding like 60 percent shows you that like right now the market itself wants to be levered long because of how rapidly asset prices are rising. And so, you know, one perspective is that 15% is not enough. And we've seen weeks of higher interest rates across the entire crypto, you know, market structure.

And so, you know, first off, one, way too sudden, this could have happened sooner and it could have happened more, you know, incrementally, even if they were getting to 15%. And two, I think the, you know, side effects of this aren't that well known. I think it's going to be really interesting to watch how this unfolds over the next couple of days and weeks. But putting your base rate at 15% is quite remarkable. And it is funny that it literally is four years to the day after Black Thursday. For anyone listening to this call who doesn't even know what that is, let me give you a quick synopsis of it. Asset prices fell by 50% everywhere.

And a lot of MakerDL CDPs were auctioned off. And because Ethereum and the MEPO was so congested, nobody was able to bid on the CDPs or these vaults that created dye. And so all of this MakerDAO collateral was auctioned off for $0,000, and it created pandemonium. And today, MakerDAO actually looks very different than the way it looked Black Thursday four years ago. Today, you know, the system is not how most people remembered. It's not a system where all dye is created through vaults owned by individuals. users, that it's either collateral or at Bitcoin collateral. And if the prices go down and it gets auctioned off, most die is backed by what was called

the Pegg Stability Module. And this was created as a response to Black Thursday four years ago. The Peg Stability module said, hey, if there's a market dislocation and people want to get out of die, we can't assume that there's enough bid in the market to assume. to soak up that dye. Why doesn't MakerDal the protocol have a big bucket of USDC so that when you want to sell dye, you're basically selling it back to MakerDal the protocol for a dollar of USDC. And you don't have to have organic market demand to buy dye the second you want to sell it. And you don't have this synchronicity between supply and demand for die, the stable coin itself.

And the PSM has done a phenomenal job over the past couple years creating die price stability. you know, unlike Black Thursday four years ago, you know, the price of dye has been basically a dollar since then. Why? Well, no one really wants to pay more than a dollar for a die. And there's more than enough USC to sell it for a dollar. And so the price has basically done a phenomenal job being pegged to USC. And really what's causing this dislocation is that the PSM is being drained.

And so when you visualize what is makered out of the system, it's almost like it's slowly returning to its roots of like, hey, there's not that many states. stable coins backing this that are owned by the protocol. Instead, it's mostly, you know, volatile collateral. I mean, it's not like a black and white thing, but, you know, this problem of having to raise rates comes from the fact that like they can't let it return to market forces on the price of die, like, especially when there's like, you know, a decreasing holder base that want to hold die. And so it's a fascinating system to watch a play out. And And honestly, like, these are slow moving trains.

And I think, you know, MakerDAO can watch them in motion and take more predictive actions than what got us here with this 5 to 15 hike over the last couple of days. Tom, let's your take. No, I think you said it right. I think people don't appreciate how much the interest rate environment in crypto has changed in the past two months. So in the post where they talk about sort of the emergency changes that they're making, they cite sort of AVE tether borrow rates as an example of interest rates.

And like, just for reference, beginning of February, seven-day average to borrow tether on AVE was 4%. Even before this Maker Post went up on March 8th, the interest rate to borrow tether on Avey was 15%. And so, yes, you know, I think people obviously expect Maker to change rates more slowly as they have in the past. but like the market is being very volatile and makers just reacting to that because they don't sort of have this you know bonding curve type type mechanism or AMM type mechanism that most of these on-chain lending markets do. Yeah, I mean, I think this is just kind of like yeah, you know, yeah, the rate, exactly, like the rate environment being kind of compressed.

The fact that even just like the general cost of capital and crypto has gone up so much. The opportunity cost of holding certain assets is also quite high. So it's just sort of this natural crunch. I agree with Robert, though, that, like, yeah, was a bit thudden. Given Maker's history, I feel like they're usually very gradual, prudent. This felt a little, like, a little, like, rushed. But I also at the same time kind of get the, the, no one wants to be in the position liquidity is that when they're kind of have.

their redemption event issue. And I sort of think like, yeah, they're being proactive about that. And that's like a thing where it's like the relative rate impact your stability. Yeah, I mean, I think it will be interesting when, you know, if the market kind of calms down. And like, how do you gradually lower this down? that's to me the on the way up is it's kind of easy it's always easy to tell people that story I think the on the way down is the part that is me the the like you know if they did this the other direction I would be much more like what the fuck happened on the way up I kind of it kind of makes

well that's why ruin wants to put an AI in charge of governance right so I it's this is a bit of a departure from the sort of financial analysis conversation you guys are having. But it just, because I was remembering, Robert, I completely forgot about the broken MKR bots that weren't liquidating in 2020 that caused this whole, the whole under collateralization. Obviously, I mean, it was more of a bug. It wasn't that literally nobody could get into the moon pool, but rather that their bots couldn't get into the mempool because they were misconfigured because of how expensive the gas prices were at that time.

And I don't know, just hearing you to recount that story, I just kind of had this like twang of emotion. You're going to cry on air. You're going to cry on air. I can't. I'm too hearted from all these cycles of grip. If there's a day to do it, it's the March 12th and first. It's true. It's true.

It's true. Yeah, but like there wasn't, there was really a moment when we thought in March of 2020 that like maybe all of this is over. Like we had a good run. We built all these like. little kind of things out of sticks and glue. And we were like, oh, look, maybe it'll stand. And we're just like, nope, fucking the world showed up and knocked over your little, you know, Lego thing.

And no one cares that you guys are trying to build this decentralized financial thing. And they went in there and they auctioned off the stuff and some people bought it and like they made it back. And now we have like, and now we're like complaining about Maker Dow monetary policy moving too fast. Like it's kind of a trip when you zoom out, you know? Yeah, for the record, I'm not saying they made the wrong decision by any means. I just, I do agree it was kind of historically out of line with their,

totally. I think it's the right decision. They should have made it. Yeah, yeah, yeah. I'm not saying whether they should have made it. It's more like it's, it didn't learn the lessons of history's past. It does always make me a little bit sad about that aspect of crypto and that like people just like completely forget the lessons learned from the past almost immediately.

They like see number and or liquidity. go up and they just like are like rah-rah, let's try again. And a lot of it just comes from like not doing much background research, which is a little bit even more sad than some way. That's true. But you do also kind of need some of that in the world of people who are not going to hew too closely to like the mistakes of the people who came before them and say, look, I mean, look, when you're doing it with other people's money, it's a different story. Yeah, I think that's more. I don't endorse that too much. I don't endorse that too much. That's the point. I'm kind of getting. Yes, yes, yes. But you remember,

you know, Bit Shares came before MakerDow. MakerDow was like, look, we think Bit Shares did it wrong, and we think we can do it better. And they didn't let themselves be dissuaded. They were literally inspired by Bit Shares, even though Bit Shares... No, no, no, I'm not saying that particular. I'm just saying, like, there's a lot of times, especially when the market goes up, that people start just like pitching you on ideas or projects or whatever for like things that have clearly blown up or not worked in the past. and they clearly did absolutely no research and they think they came up with everything themselves

for the first time that humanity's ever heard this idea and I'm always like, you know, it's like the opposite of like, you know, academia and so way, right? Where everyone's like too afraid to even say an idea because they assume someone else already like came up with it. And crypto, people have this like arrogance that's like, oh, of course I'm the genius who came out, which I don't know.

Maybe that comes with the nature of the game, but kind of one of these weird, meta observations. Well, no one on this call will forget March 12th, 2020. No. It's sad that there's a lot of people who weren't around for it

who are part of this generation of users, I remember I was half listening to this maker emergency call and half trying to like buy toilet paper and Oh, I remember those. Yeah, it was during the pandemic. It was like the first day.

Oh, geez. Oh, man. it was such an insane time. I will say anybody who's listening to this, who is a, who wants to get deeper into DeFi or wants to understand more, like I wish I had something to recommend. I wish somebody had like,

if I wish there was a book or like a documentary or something, I think in this, in some sense, this is the issue with our industry is that, yes, all this stuff is happening out in the open, but there's such a shortage of people

who are kind of documenting it and articling it and making it legible to people. Like, you know, all this stuff happened out in the open. There's probably YouTube clips of those governance calls. But, you know, can you really trawl through, you know, three hours of like random people on a Zoom freaking out about, you know, what they should do about the auctions?

So someday, you know, when the four of us are retired, maybe we'll like work on some fucking crypto history textbook memoir or something. But yeah, until then. It has to be a series of TikToks where you have to reenact each scene in. I don't know about that. Otherwise, I was going to watch it. I was going to watch it by the time. By the time we're retired, it's going to be all in your Applevision Pro

and you're going to see us. 30 seconds or less. Okay. We will, yeah. AI models that we write the prompts for that generate the video. Maybe that's, yeah. Like Sora videos of this. Yeah.

Yeah. Perfect. We'll license our likenesses and then some AI will create the film for us. I don't think there's any licensing of likenesses in the future. Hot take. I think that's too. we're going to be too far gone. Property rights are going to collapse,

and it's just, we're going to be in this, like this big point state of anarchy. IP for things like, like movie and music rights might be just like completely destroyed. Like the current legal system can't handle it. You can get tokenized it so the AI can buy it. That's the secret.

IP nile, yes, I'm an IP nile. How far is it going to go, Tarun? Oh my goodness. All right. All right.

I think we got a wrap. Thanks for listening, everybody. We'll be back next week.