Unchained - The Chopping Block: Web3 Dies, L1 Valuations Clash & Crypto Burnout - Ep. 977

Episode Date: December 11, 2025

Welcome to The Chopping Block — where crypto insiders Haseeb Qureshi, Tom Schmidt, Tarun Chitra, and Robert Leshner chop it up about the latest in crypto. This episode starts with Farcaster’s pivot and Tarun’s claim that “Web3 is dead,” at least the A16z-style ownership economy. With Web3 social struggling, the crew digs into why spam, airdrops, and weak network effects keep sinking these apps — and why prediction markets may be crypto’s accidental social network. We then jump to the L1 valuation fight. Haseeb recaps his debate with Santiago over whether chains are wildly overpriced or simply early, sparking a broader discussion on PE ratios, L1 “premiums,” and how many chains the world can realistically sustain. Next up: Ken Chan’s viral “I wasted 8 years in crypto.” The team unpacks burnout, sugar-water loops, and why nihilism tends to hit founders right as the market turns. And finally, Tarun walks through his ADL research and how October 10’s cascading liquidations exposed major flaws in current systems. Markets evolving, narratives collapsing — let’s get into it. Show highlights 🔹 Farcaster pivots; Tarun calls A16z-style “ownership economy” Web3 (NFTs, own-your-posts) officially dead. 🔹 Web3 social stalls — Twitter clones drowned in spam, airdrop farming, and weak network effects; prediction markets emerge as the real crypto social layer. 🔹 Users’ revealed prefs — People claim to want decentralization/privacy but consistently choose convenience and incumbents. 🔹 RIP “Web3” — Term traced from Gavin Wood to A16z marketing; panel agrees it no longer reflects where crypto is actually succeeding. 🔹 L1 valuation battle — Santi’s PE-ratio critique vs Haseeb’s long-horizon “onchain finance will be huge” thesis; debate centers on how to value chains post-ICO/NFT era. 🔹 How many L1s survive? — Tarun expects activity to concentrate in a small set due to issuance, liquidity, and coordination costs; L1 “premium” still props up dino chains. 🔹 Burnout + disillusionment — Ken Chan’s “I wasted 8 years” resonates but feels mistimed amid strong fundamentals; panel contrasts sugar-water casino loops with real infra building. 🔹 ADL failures exposed — Tarun’s research shows October 10’s cascading liquidations revealed outdated ADL assumptions; better algorithms could’ve saved hundreds of millions. Hosts⁠ ⭐️Haseeb Qureshi, Managing Partner at Dragonfly ⭐️Robert Leshner, CEO & Co-founder of Superstate ⭐️Tarun Chitra, Managing Partner at Robot Ventures ⭐️Tom Schmidt, General Partner at Dragonfly  Links Ken Chan’s “I Wasted 8 Years of My Life in Crypto” 🔗 https://x.com/kenchangh/status/1994854381267947640  Tarun Chitra’s Autodeleveraging: $653 million lost to a greedy heuristic? 🔗 https://x.com/kenchangh/status/1994854381267947640  Disclosures Learn more about your ad choices. Visit megaphone.fm/adchoices

I think this is the end of Web 3. I think Web 3, as per 816C's definition, is dead. Defined Web 3. What do you mean? It's the end of Web 3. What is Web 3 in your mind? This idea of like ownership, economy, NFTs, own your social posts, whatever bullshit, like that type of stuff. I think this is definitely the end of that. Not a dividend. It's a tale of two quond. Now, your losses are on someone else's balance. Generally speaking, air drops are kind of pointless anyways.

I'm in the trading firms who are very involved. of the ultimate top. 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 perspective on

the crypto topics of the day. So quick control. First you got Tom, the defy maven and master of memes. Hello,

everyone. Next we've got Robert, the cryptic connoisseur and czar of Superstate. Robert? Good morning.

There you go. Then we got Tarun, the Geobrain and Gran Puba at Gauntlet. Yo. And finally, I'm a seed that hype man at Dragonfly. We are early-stage investors in crypto. I want to caveat that nothing we say here is investment advice, legal advice, or even life advice.

Please see chopping block. That XYZ for more disclosures. So, gentlemen, it looks like there's a little bit of breath of life in the crypto markets. It looks like we are not going down forever. I attribute most of that to the hat that Robert and I were wearing last week. She got a lot of hate. I got a lot of hat hate on the TL in the comments. I was just getting roasted for the hat.

Robert, you seem to be spared. I mean, sometimes you have to A-B test. Yeah, yeah. They didn't like your hat. They thought that you were just covering up for being bald and that you were showing shame, which... What? No one knew his sheep was bald.

Yeah. Yeah, no one did the hat really... Big reveal this week. Azeeb's bald, turns out. What do you know? You know, it's kind of like I take the Scooby-Doo thing off and it's like, oh my God, he was bald. Right.

The only criticism I got, and it might be because I'm a hat rookie, is that it was falling off throughout the... It was moving around a lot. It was suspicious. Yeah. It was suspicious. That was susque. It did seem alive.

But I would say, I think the hats saved crypto. It looks like now things are back on the upswing. But it's been a busy week, actually. There's been a lot of news this week that is more kind of micro news rather than this macro news. So we want to talk about one of the big stories of yesterday year that we talked a lot about previously on the show, which is Farcaster. So Farcaster is,

the decentralized social media platform. They raised a ton of money over the years, over $150 million led by Paradigm in A16Z. And they've been building for about four and a half years, founded by Dan Romero's early at Coinbase. And they announced this week that they were basically not pivoting, but like kind of pivoting,

away from focusing on purely the social media. So in their words, look, they shipped the social media product, but the social media product is not growing. They've been kind of stuck at around 25 to 30,000 daily active. and they haven't been able to really get a growth flywheel beyond this kind of crypto insider contingency that seemed to be the primary users of Farcaster. So they decided like, hey, we're going to focus more on the wallet product

because the wallet product seems to have product market fit, it seems to be growing. And they described it as a comfort-the-tool, save for the network kind of strategy. Now, many people took this to say, hey, this means Web3 Social is dead. This means that it's almost impossible to make anything work in crypto. That's not financial in nature.

and of course, you know, Farcaster, although they had these early green shoots with things like Dgen and, you know, some of the meme coin drops that were happening. And remember frames, there was a lot of excitement around frames, which was mostly then used for buying and selling crypto tokens. But many people use this as a kind of broader sign of the times that maybe the social stuff is not really working. So, Dune, you can see the daily active users have kind of been stuck around 25 to 30,000. I took a look also at Blue Sky, which is not quite fully on chain in the way that

Farcaster is, but Blue Sky also has a kind of decentralized-ish. You know, they use activity pub. They use some like crypto-like primitives, although it doesn't have a token. It doesn't want to have a token, as far as I know. Blue Sky has also been edging down. They were at about 2 million daily active users at the beginning of the year. They're now down to about a million. So it does seem like it's really difficult for these crypto products to break through

in non-financial use cases. So, guys, what do you think? Is this the death knell for crypto-social? or is this just, hey, maybe these guys couldn't quite crack it, but they're going to try another angle. How do you guys see what happened with Farcaster? Well, I don't think this is the death now. I think we don't have a winner yet, right?

I don't think there's a death now until somebody actually builds something so compelling that nobody can compete with it. I think we just haven't seen yet the thing that's so much. You don't think that's like the existing social networks? Is that not the thing network it could compete with? I mean, existing social networks are huge, right? But there have always been new approaches and things that have disrupted that have come around.

Yes, they've gotten bought and merged in. But like, you know, the stories of the Instagrams, you know, the stories of the Snapchats, you know, everyone said back in the day, oh, social is solved. Facebook solved it. But that's never really been the case. And so I don't know. I don't think that social plus crypto is over by any stretch of imagination. I just think that nobody has really figured it out yet.

I think there's still going to be at-bats. And I think there will be someone who inevitably cracked. it's just hard, right? This is not an easy problem, but the combination of token incentives, the bootstrap growth, plus the fact that everybody in crypto is so hyper online 24-7 anyway, this will get solved by somebody we haven't seen yet. Turin, I feel like you were probably the biggest forecaster user as well as like maybe Farcaster Bowl. What's your read on this strategic capitulation from Dan? I think as someone who went from like trying to use it to try to really

understand the product and over time just starting to kind of like find it annoying because it was like it was like even more of an echo chamber than people consider other social networks in my opinion I think this is the end of Web 3 I think Web 3 as per A16 Z's definition is dead defined Web 3 what do you mean? mean it's the end of Web 3. What is like this idea of like ownership economy and FTs own your social

posts whatever bullshit like that that type of stuff. I think this is definitely the end of that because I think we already have the crypto social network that is actually a social network that people are ignoring which is polymarket and you know depending on your definition of crypto call sheet in the sense that these platforms have insane usage right in terms of monthly active viewers, not traders. That's the key. Their numbers are going up, right? I mean, Polymarkets like third after Coinbase in some recent ranking of like FinTech apps and FinTech kind of webpages. And I sort of view the interesting thing about Polymarking Colchie is you don't need that much trading volume as an incentive for people to participate in the game. But then it becomes

a sort of like social slash news network that people read and like consume content as if it's like a media outlet. And that's like, to me, that's like an evolution of social networks to this like new form of media that's like constructed by people trading, not constructed by people making posts or videos or whatever. Right. And I think fundamentally, the prediction markets are the thing that is the new modality of social network, in my opinion, where like people read it, use it to read, like, I open polymarket every day to like understand something about the world, the way I would read Twitter. and I'm not trading, right? But I'm still getting this like social network style value out of it.

And so I just think like all the people who tried to copy pasta existing social networks just kind of had no chance in reality, right? The network effects are too strong to vampire attack or drag or whatever. And in Farcasters case, I even felt like the UX was like extremely like Twitter cloned. Like Farcaster and Blue Sky made basically zero attempts at like novel U. X relative to Twitter. Like, yeah, I find there's some, like, tiny things. There's like some programmability, whatever, open graph.

But no one monetized the open graph. No one gave a shit about the open graph except AirDrop people, to be honest, right? They were the only ones who found a realistic monetizable use case. And no one gave a shit about owning their own posts, right? That's fundamentally been true in all of these things. It's like there's a little cabal that's like, oh, yes, obviously we want to own our own post. But then even those people just leave, right?

like the biggest. So you give no credit to things like frames or, what was the Salon of thing? Blinks, right? Blinks or, you know, for blue sky, they had the ability to modify your own algorithm to like basically say,

oh, I want, you know, more of this, less of this. You don't think those count as meaningful limitations. Yeah, I think I kind of just watch those things either get bastardized.

And like the only thing they were used for is like figuring out who to air drop to or add a swapping function. So it's like, okay, if it's really just like D5 with more steps, why do the more steps? Like, you know, it's like kind of, it seems kind of dumb to do the more steps. I think it's interesting that it took them this long to figure it out. But I also do think it's kind of weird to pivot to just wallet only because like there's five million competitors.

They're all like you're getting new competitors who are like every fintech app in the world. My understanding was that they're not like dropping the existing product. They're just like focusing on the wallet. wallet integrates with... But I think that will be the end of it. Social networks, I feel like if you're not constantly evolving them a little bit, like your users get bored and leave. Like, that's like...

I don't know. Like, I think there's a bunch of like social wallets that I mean, FOMO just raised and like, you know, there's... I would say like moonshot and bags and some of those are also quite social. I mean, social trading's been a thing forever. I think maybe it's a tougher pivot coming from Farcaster, but like... You raise $120 million. You raise $10 times or more or whatever, 200 million.

you raised much more than 10 times a capital of everyone combined. Yeah. And I don't think that was raised solely on like the product and product traction. I think that was in large part also raised on Dan and his ability to ship product. And like everything, I'm like, look, look, people are clowning on them on Twitter. But I'm like, everything I think executed this pretty well. Like I think everything of all the other past examples in crypto, people trying to do this, they always took like the wrong turn.

It's like, oh, we just build the protocol. and everyone else builds a client. And then, of course, that doesn't work because you get shitty clients. And then, you know, it's like just a bad incentive alignment. So, okay, great. They built their own client. And then people are like, oh, they should have launched a token.

And it's like, no, no, no, no. You don't launch a token pre-PMF. That's how you distort everything. And the whole thing doesn't work. And so they had really good product discipline and like iterated quickly. And I don't know. And it's also like a tough decision to decide to like wind down something that's kind of working, but not really working.

And I think not enough founders, especially in crypto, are willing to make that call. A lot of people wanted to keep nursing something. thing that's not really working because it's not a zero. So I don't know, I mean, props to them for making a tough decision. I do also wonder if this is going to impact like the base app strategy, because I know there was some beef around like the base app, what, like using Farcaster, but like not being our Farcaster client or it was some sort of like weird, you know, non-canon issue. And so now it's like, and obviously the base app is also being oriented around social and owning posts and trading post and now it's like funny to see the thing that you're kind of drafting behind,

choose to take a totally different turn. And you're like, oh, shit, do I keep going straight or do I also turn? And so I will see. Well, I mean, they're definitely competing with BASAP effectively now, right, to some extent. But I think it's funny that BAS was very much leaning into the social angle and our forecasters like actually like fuck that. We're just going to be a wallet. I mean, good for them. Good for them. I actually support this 100% as a founder and investor. And to your point about people clowning on them, all the people clowning on them are like anons and people who are. have not built something before.

But the most part, I haven't seen any, like, genuine, well-thought-out critique of this besides, like, oh, no, like, product go away. You must suck. Like, I think this is great. I think this is what a team should do. If they inevitably are not seeing the metrics and the success

that they have in their current strategy, they should iterate, right? And so I'm excited to see it. The more experimentation we have to try to reach, popular widely adopted things, the better. Robert, you're an investor and forecaster? Nope. Oh, okay.

So I would say I agree with this, although I do sort of think like when base started trying to encroach, I feel like that was the time to pivot, if that makes sense. It's like they were like part of the ecosystem and then they kind of got like, you made this, I made this kind of. And like to me, that was like, okay, that's like, this is like the end for this thing. because like someone else is just like with better distribution is trying to basically vampire attack you which is the beef ton song around

so so maybe they made this decision back then but I thought that was like to me that was a clear sign of like warning death near I think as a user I like opened it and like recently and like I just only had all sorts of nonsense token spam of hey click my post and I'll air drop you five five hundred whatever bullshit NSFW token

and my DMs were just filled with all the spam. And it was like, this reminds me of like Discord in 2021, except it has like one, one hundredth the users. Like the spam versus real usage thing was also very out of whack. And I think that's what just made me stop using it. I couldn't open it without just like five million spam things.

And like that... That sounds like exactly the thing that happened to... What was the one that got acquired by Tron? Steam it. Sounds like exactly what happens to steam it. Is it like, okay, maybe you can start with this early cohort. of true believers and these intelligentsia that come on to this thing for enlightened reasons

or then eventually when it actually is the like, you can own your post and there's real money running through this thing, you just get this like agglomeration of kind of quick money scammer type people. The thing that I think about a lot with Farkaster, because I honestly have very mixed feelings about Farkaster because probably out of everybody, I think probably out of the four of us, I'm probably the most bearish on Web 3 social.

And I've been bearish for a very, very long time. If you look at our portfolio, we've never done anything in Web 3 social. And I mean, part of the reason why is that I just don't believe. Fantasy top doesn't count. I mean, that's a game. That's very different. Yeah, but it had some social.

I don't know. It's like on the border. That's social aspect. Yeah, yeah. I'm not bearish on social aspects to other things, right? But like, my thesis has always been that the beating heart of crypto is about finance and money. Right. That's where Bitcoin started.

That's where Ethereum emerged from. And the further you get away from that, the more that you're kind of smelling your own farts and not actually giving people something that they asked for. I've never heard anyone ask for decentralized social media. I've heard people talk about how they think it might be good. Wait, what do you mean? You've heard A16 and Z ask for it. Yeah, exactly, exactly.

That's what I was going to say is that I think in a way, like, Farcester played a very important role for the industry. And I think in particular, for the narratives that particular VCs, particularly A16 and Z, was telling about the industry. I think that Farcaster was kind of almost like a Mott and Bailey for the industry, which is that they were saying that, look, this Web 3 is super, super, super important because it allows us to democratize the world and make a fair financial ecosystem and blah, blah, blah, and like, well, what do you mean?

It's like, oh, look at Farcaster. Don't you hate Facebook? Don't you hate Twitter? Don't you hate, mostly Twitter, I guess, because it's kind of a Twitter thing. And Farcaster was like the thing you could point at, is that like, look, at least these people, are doing this and we gave them a bunch of money and like they're trying their best and in exchange for doing that we can now go invest in the actual stuff that makes money which is maybe less palatable right which is like okay let's go invest in perp dex's and um maybe it's not a great example because

he hasn't done perp dexas but but you get the idea you know is that like the stuff that actually makes money doesn't sound like utopian kind of pie in the sky stuff like oh we're going to decentralize the world and decentralize all the social media companies that sounds really good Nobody has ever shown they want that. I think that there's a, there's a like millennial wealth factories and Web3 existed, which is like all these people got rich off Defi and ETH and Bitcoin over like a 2017 to 2020 period.

And then like in every industry, right, when like someone gets rich, like, okay, what is my next thing? It needs to be more grand and whatever. And like you see this like repeatedly, right? Like, and I kind of think that that's the thing that led to the delusion of a lot of the website. And I say this as someone who, like, tried to want to believe it.

You know, like, I, I feel like I gave it a good, like, true college try. I, like,

really wanted to, to fucking believe it. But then, yeah, using this stuff, it's just, like, it inevitably just became a spam thing.

And I'm like, if I'm going to get spam and not get paid for it, like, I'm out, bye. Yeah, I think it's,

like, the reality, and this is something I say a lot about, a lot of things in Crypto, is that people, you know, you can't, like one of the things that you learn as an entrepreneur

or you learn as an investor investing into entrepreneurs is that you cannot just listen to people in what they tell you they want. You have to have them show you what they want because people will tell you all sorts of horseshit

that they don't actually mean, right? So one of the, one of the, I think the piece of horseshit that people will tell you is that I hate social media. Is that, you know, it's so terrible for me, I'd love to use something else. You know, I want to get off of TikTok,

I want to get off of Instagram, blah, blah, blah. And you say, oh, great, well, here's a thing you can turn this thing off. You can block yourself from your phone. You can like do all sorts of stuff to like get away. You can, you know, and people don't, they're like, oh, that's great, but I, you know, I don't want to miss. You know, I have my friends on here. What am I going to do?

And, you know, all the stuff that people say about privacy, I think is also of the same vein. It's like, oh, yeah, I don't trust all these social media companies. I don't trust, you know, blah, blah, blah. And then you can see from their behavior that actually they value this extremely small amount, even a slight amount of inconvenience. And they're like, you know what, yeah, whatever, you know, whatever.

They're going to read my stuff. What am I going to do? So I think this, in order to break through this barrier, you need a much better product, a much better product. And it's very hard to have a much better product than Twitter. It's very hard to have a much better product than Instagram.

It's just, it's not just like, okay, great. It's decentralized, therefore it's much better. And that's a lesson that I think, as an industry, we keep relearning.

We learn it for different things. Dated versus revealed preferences are a bitch. That's just the fact. Exactly. So, now look, I won't say never because, you know, like I don't know what I don't know. But, you know, again, I do think that the core superpower of crypto has always been around money and finance. And if you're doing, you know, okay, a social network or some other thing and you don't

have like some monetary juzge on top of it, it's probably not going to be sufficiently different than a Twitter or an Instagram, then you're going to have a shot in hell of being able to supersede them. So if that's not the lesson, then I don't know what is. I mean, Instagram and Twitter and all these things have like two decades each

of effort that have gone into them with thousands of engineers and product designers and like two decades building up a network effect, right, and a user base. And like these are gargantuan products at this point. Yes, to your point, they will be extremely hard to dislodge unless somebody thinks about this from a completely different angle and just nails it. And that different angle is money.

And I think prediction markets are weirdly a totally different angle to make social network. That's like, that's my hot take is like I love this take. It is a bit of a stretch to call prediction record social network. But I just feel like I feel like people talk about prediction market. No, I agree to it. People talk about prediction rates and they talk about posts. It's like, it's like, I agree. I agree they're social. But like the social network sort of extends, you know, most of the people who are at this point consuming polymarket are actually on Twitter, right? Like the polymarket Twitter account is like crazy, has got crazy, crazy reach every single day. So it's like a broader phenomenon than just like, okay, it lives inside of the polymarket comment section. Yeah. I think the future, just to go back to last week's chopping block conversation about prediction markets and the long tail and the social networks, I think the future is you go to the high school basketball.

basketball game and the prediction market app, it's like all the people in the stands with you are like chatting and betting on the game and it just happens automatic. 100%. 100%. I think like stuff like that is going to be more of a social network than any of these kind of crypto social things that try to be a social network. So if you're building that. Tom, you used to be a PM at Instagram before you came into crypto.

So you you came from the inside of the beast. do you think there will ever be a successful social app within crypto? Not like social trading, like social social social. I mean, I think I more or less agree that like the interesting thing in crypto is the financial component. And I think it's also extremely difficult to displace any incumbent like beating them with the exact same product with small tweaks, which I think is how every other approach has had.

And it's true even in traditional social media. I don't know. I think there's probably something like ultimately. I think whatever form factor is just going to look totally different than anything we can imagine today and it's going to get ridiculed at the start. But I can see something, something financialized, like a prediction market taking off. I, not quite crypto-y, but we had a portfolio company launched this week, Two cents, which is a very different flavor. It's kind of like the opposite of a good idea is also a good idea. And so they do, it's an anonymous social network, but

your sort of handle is your verified network so they can take in your crypto wallet, or you can link up your brokerage. And so it'll say like this person's worth $100,000. And that's it. And then you can just comment and post and poll. And so you like really interesting, fun content that like feels very, I don't transgressive. Like you're not supposed to talk about your net worth and you're not supposed to have like,

you know, how much your rank in the feed ranked by network or your poll ranked by net worth. But like it produces really interesting content that you're just not really getting anywhere else. So this app sponsored by a wrench company. Yeah, right. It's anonymous. It's right local privacy, privacy preserving.

Privacy. Yeah, don't publish your research, or your address, rather. But yeah, anyway, just different than when you normally expect. To your point, I feel like there's some very weird niche social networks that I still use, despite the fact that I don't think the user accounts have grown years, like arena and stuff like that, where it's like, all these crypto ones seem like that. They're not like venture businesses. They're more like cottage industry, social networks for like some niche group, right?

the only one that seems to transcend society is prediction markets where everyone loves to talk about them regardless of where you are in society now. I feel like, and that to me, that's like what you need to have a social network, that amount of buzz around you. Yeah, it's interesting

because I do think there was a moment where basically if you created, not even like a social network, but almost like a forum, like an old school like, you know, bulletin board type forum, but you just had super rich crypto people on it, you could get venture funded

just because there was a sense that anything, that was close enough to the heart of crypto wealth was somehow worth enormous amounts of money. And I think, yeah, the industry and I think investors have also grown up a little bit and realize that like, hey, it's actually really hard to create sustainable businesses.

Yeah, I haven't heard that. I don't hear the word Web3 from anyone except people who work in AI who are like, how's that Web3 stuff going? Well, I mean, I guess it's time to retire the term. Can we put it the rest? Okay. Hey, we didn't make the term.

I think that was an A16Z original. Yeah, that was. Well, actually, It technically was a Pocodod foundation. That's right. It was Gavin Wood. And then Aizik-Sin-Z co-opted it to make it into a broader phenomenon. And look, to be clear, we owe a big credit to the Web3 meme.

Because I think it, like the set of people to whom the Web3 concept appeals is so much larger than the set of people to whom crypto appeals. And, you know, the whole read-write-owned philosophy is beautiful. You know, it's a pain to the idea that like, hey, you know, the small guy, little tech. It's like a really just, it's easy for everybody to get on board with that story. It's a lot harder to get on board with the story of like, hey, you know, let's go fund some perp-dexes and trade a bunch of crazy shit.

But, you know, here we are, 2025. Okay, so switching gears, let's talk about me. So there was a big debate that I did last week with Santiago. Santiago is a founder of a protocol called inversion. He's a big investor in the space, one of the most actual angel investors in crypto. And we talked last time about an article I put out called In Defensive Exponentials, where I basically defended layer ones as a category. And Santi was very like, hey, yeah, look, this is really nice to say.

It's very highfalutin language. But come on, let's look at these P.E ratios. Ethereum is trading at, you know, P ratio of 380. It's absolutely absurd that people think that these valuations are justified. You know, Solana is trading at like almost 50. You know, why is anyone paying this? That's the reason why price are going down is that people are waking up to the fact that all these chains are overvalued. And so I argued with him and I said, no, this is bullshit.

Like this is not the right way to look at this. And we ended up doing a debate on Thread Guy's show. That debate ended up getting a huge amount of play and really kicked off a larger firestorm about how should layer ones be valued. You have people on one side, on Santi's side basically saying that like, hey, we're past the stage of just looking at these things like early stage startups and, you know, closing our eyes and just. just kind of swallowing these horrendous metrics and the lack of year-over-year growth. And then you have my side, which is, you know, hey, like, these technologies take a long time to develop. And if you look at, if you compare this to the internet, you compare it to e-commerce,

these are trends that took a long time to develop. And markets are forward-looking. They're not present-looking. And, you know, if you look at the profits of these companies, whether it's Amazon or Uber or Google or whatever, none of these companies have profits even 10 years in. And Ethereum is 10 years old. So that was my side of the argument. Curious, I don't know if you guys saw any of this hubbub coming around,

but it seems to have triggered a broader set of conversations. What's your guys take on the L1 valuation debate? Do you guys think L1s are overvalued, undervalued, and where do you fall on the side? Or where are you sympathetic? Well, I'll preface by saying, I did not watch your debate. I don't even watch our content.

But you don't watch our content. No, I see the clips that the chopping block social media in turn posts. and they're incredible. And I see like, you know, the new content that gets made. And I see like the hat memes and all of that. But I've actually never watched or listened to an episode of the Chopin Black. Can I ask why don't you listen to our podcast? I don't want to relive the psychic trauma from each episode.

I just, you know, let it be. Do you listen to other podcasts that you do? I'm very interested by this. This is actually really interesting. Actually, no. This is a weird fun fact. I've actually never listened to a podcast that I've done before. If you listen to a podcast that I've done before.

What does that make you feel? What does that make you feel when you listen to your own podcast? You know, I don't do it because I'm a, I'm not like a judgey person, but I judge myself, right? So if I'm listening to a podcast, I'll listen back and I'll be like, ooh, I don't like that answer or that take. You know, I just don't do it. I just don't want to start that one's in there. There's like a mental health thing. I agree.

So I listen to all of our podcast and I'm always like taking notes about, oh, I should have cut this off sooner. I should have done this, should have jumped in there. But I get it. If it's like, oh, man, I fucking hate how I did on this podcast. Those are painful. If I really fuck up on a podcast, I'm like, you know what? I'm going to take the L. I'm not going to listen to that one.

Just move on. I hate listening to my own voice, so I'm not going to listen to this. Luckily, our listeners don't hate listening to your voice. Yeah. I just like, I hear it. I don't want to listen. Okay. Okay.

Well, back to the question. Yeah. Okay. So L1 debate. I don't think that they're too overvalued, but I think they are slightly overvalued. And the reason why I think that they're slightly overvalued that is underappreciated is that there's always the possibility of making new ones.

And I think that whether it's next year, two years from now, five years from now, 20 years from now, I think you're still going to have smart teams, whether they're like three guys in a garage or whether they're striped saying we're going to launch a new L1 because we want to do things differently. We want to have our own token. We want to have our own thing. And so I think they're overvalued from the basis of competition. If you looked at the ecosystem, you said, if there was never a new L1 that was launching today,

are they fairly valued? I would say, actually, probably, frankly. Because I do think the pie is right-sized, but the distribution is sort of misallocated. I think the pie is right-sized. I think when you think about the value of the transactions that we're processing and what that security should cost to validate those transactions, it doesn't feel out of whack to me. What feels out of whack is the fact that the competition's never going to end for that pie.

And, you know, I think the current market is going to continue to be diluted by new tokens, new issuance, almost in perpetuity. Like, when does that game stop? Right. When do people say like, oh, we solved all ones, right? There's nothing new that we should build. Come on, there's always going to be new entrants. And so, you know, I think the total pie is probably correct, right? I don't think it matters that it's like, oh, well, value it based on 300 price to earnings.

It's like, whatever. No, it's like, what's the value of the security for like computation of economic value flying around? That seems fine to me, right? I just think that the current crop should potentially be worth less relative to the future. And you think that's like Ethereum? Do you think that's like the deeper down? Yeah, I do. I think it's Ethereum.

I think it's everything. If it was up to me, I'd probably knock 50% off the market cap of, you know, all the 50% off of everything. That means you think half the value will be captured by some new guy. Yeah. Roberts Black Friday. This is like Roberts Black Friday sale.

Guys, I'm not a trader. Okay, I can be way off here. But like, yeah, when you add up the value that all... Are you long L-1s then? Generally a little tiny bit, but not really. Okay, so yeah, yeah, all right. So, yeah, your money's already. I mean, by the fact that I'm in like an LP and other funds

that are long, all the L-1s, yes, I'm long all that ones. Yeah, fine. I mean, they're obviously run by idiots if they're long, these overvalued L1s. Right. And again, I think there's a differentiation between Bitcoin and computation platform L1. So let me just say that. Sure, sure, sure.

Yeah, we're talking about, we're talking about smart contract platforms. Smart contract. What's your take? I actually think over time, I am slowly agreeing a lot more with Anatoly from Solana on this issuance aspect of like L1 issuance probably could be way lower. but there's a bound that is not like purely the operational infrastructure bound. There's a bound that's how much activity do you have on your chain that like needs to be secured in some way, right? And like valuing that.

And I think the main problem I have in the long run with L1 valuations is like, do you really believe activity will uniformly spread across all of them or will it concentrate to a small number? Because if it concentrates to a small number, then it's like there'll be a rich getting richer philosophy, right, where liquidity is only going to stay on some small number of chains. And then, like, there's, there's a feedback loop. Like, the reflexivity of these tokens, I feel like comes from, like, they're being used and valued in the long run, not like, obviously short run can be kind of crazy. But there is like a monetary pyramid that comes from people wanting to store valuable

shit that is not necessarily the chain asset itself on the chain, right? Like storing tons of stable coins, storing tons of RWA, storing whatever, right? And I just don't sort of see a plan for a lot of L1s for that. Now, I'm not saying it can't happen, but it does feel like there's like a coast theorem type of thing where it's like there's a cost for each new L1 and it's like cost is worse when they're the nth L1, their cost to catch up is like worse than the N minus first.

And like that thing is increasing. And it feels like it's increasing multiplicatively. So like the carrying capacity of L1, to be pretty small. That's sort of my sort of back of the envelope type of like if I tried to give you some some economic rationale of like I think about the inflation issuance costs that they perpetually have to pay. I think about the activity and liquidity costs. And then I think about you know, revenue they might generate, right? And like if I look at that, I probably get some like number of you can kind of back into a number like Costa and style like how many L1s are. And I don't

think it's like that many relative to the total transaction. volume. That's sort of my, I'm not saying it's one, right? I'm not saying it's three, but I'm not definitely not saying it's like it scales with the number of users or transactions. I think it's extremely, it's like constant. Like it might be like 10. Tom, what's your take? I think, I mean, I think the L-L-in valuation stuff gets so heavily scrutinized because one, you have these dino chains from like 2016 that are still trading at like billions of dollars. And I think that perplexes people, which I totally get. And I think to To Roon's point, it does get substantially more difficult to enter this market over time. Like, I think in the

past few years, we've seen like a number of L1s basically get rejected by the market, which I can't even imagine. Like it's like new teams with, you know, good capital, interesting tech. And then the market's like, no, no, no, we want random crap chain from like 2016, 2017 instead. And like, that's perplexing. And then two is sort of this like L1 premium meme. And it's like, you can have the same product. And it's like, oh, if it's a token for an app or a DAP, gets valued at such and such a, you know, level. And if it's a, but if it's a chain, it gets transmuted and it has some other property. And now we're going to give it some 10x multiple.

And like, you kind of see that a little bit in the market. And I think that's, there's a meme for a reason. I think the kind of, Santi's point, I think it's also kind of talking past each other a little bit is like valuing L1 tokens like equities, which I think is like not the kind of point, right? The point is, hey, within the space, how are these valued relative to other forms of investment? And I think it's not like an equity, it's not a commodity, it's maybe a third different kind of thing. In which case, like, yeah, I kind of don't really agree with that perspective. Like the market is very forward-looking.

Maybe all is equal. I think there is probably misallocation of capital, over-allocation of capital to L-1s versus applications. But I think that's been correcting over the past few years. So I don't know. I'm also just inclined to believe the market price unless you have some extremely outsized information or view or you know that there's something substantially different that the market isn't really pricing in. And like, this is kind of the price of the market.

So actually, in terms of framework, I mostly agree with Santi. I think there was once upon a time when the right way to look at layer one tokens is that they were these kind of hybrid. Well, is it a commodity? Is it a currency or is it an equity? And it had really hybrid characteristics of all three because if you look at Ethereum, a lot of demand for Ethereum in the early days came from the ICO boom of being the reserve currency of ICOs.

and then after that, becoming the reserve currencies of NFTs, and of course, for Seoul being the reserve currency of meme coins. Now, a lot of that has really fallen away, right? It's become an increasingly smaller part of the demand for these assets. And as that happens, I think it, like, likely the steady state is actually that the commodity usage and the monetary usage just do, just get dominated by the third, which is just the, like, the equity of the chain. And so I actually think he's right that in the limit, it's probably not going to be that

we're going to be pricing a bunch of things in ether. And it's probably not the case that most of the demand for ether comes from commodity usage of just using it to pay gas. I think it is probably correct that the value of ether comes from the demand for the chain and the demand for the chain coming from some kind of burning or just fees going to validators. I just think that, like, I mean, it's not zero, but it's like, you know, 85, 90% of the kind of sum of parts valuation is going to be the sort of cash flow equity component. I just think that it's going to be, it's going to a long time to get to steady state. And in that long time, like, this stuff is just going to grow a lot.

It's going to grow, like, really, really, really fucking big. When you have less than 1% of M2 that's on chain, growing to, you know, like Scott Besson is saying that he thinks 15% of the money supply is going to be stable coins by the end of the decade, that's really, really big. And right now, you know, it's basically crypto assets and, like, some stable coins that are on Ethereum. If that continues to grow and more and more financial, like, valuable financial assets on Ethereum, like, it's just the answer for the internet was always you cut the fees and you make it up on scale, right? Same thing with all these AI companies. Like, all these tokens are getting

cheaper and cheaper and cheaper every single year at an insane rate. And yet revenues are increasing. And so I think that has to be the answer. If you believe in this exponential kind of saturation story, this thing just starts to eat more and more finance, like that's genuinely what I believe. Yeah, more and more of the values are going to get captured by these chains. Now, is it Ethereum? Who knows, right? I'm not confident that it's going to be Ethereum,

but I think obviously Ethereum has, you know, it's the game to lose right now in terms of being the frontrunner. Taru, you were laughing in the middle of my answer. Do you want to tell me what you were laughing at? I guess, like, I'm just laughing because, like, I'm just thinking a lot about how L1 valuations really just depend on the whims of traders in Korea and Turkey more than

a lot of other things. You should look at TRY pairs for some of these assets. Sometimes we'll be trading way higher than all the USD. But Laley, it's been mostly

U.S. markets that have been driving. No, no, no. But my point is all those traders seem to not be around buying these things comparatively.

Which is why I think the prices. But I mean, but look, I mean, ether is holding, I mean, relative to alt, right? Alt have gotten destroyed.

Ether's at 3300, right? I mean, it's like, it's up over the last six months by a pretty large margin. So obviously, you know, it's down quite a bit from 4,900. But, you know, it's not, it's not like crazy off from where Bitcoin retraced as well

in percentage terms. So, okay, so beyond this L1 valuation, like, hey, our L1's overvalued, there was another injection of doomerness into the zeitgeist, which was this viral post by this guy, Ken Chan, who actually, you know, I think actually we had Dragonfly know pretty well because we actually backed his company, which was AVO. And so Ken, he wrote this piece called, I wasted eight years of my life in crypto. And this piece went super viral, beyond just crypto Twitter,

went sort of viral more broadly within the tech industry. And basically what he argues is that, look, I got into crypto because of these libertarian, kind of Randian, cypherpunk beliefs. I thought that crypto was going to create a new decentralized financial system. But instead, what did we get, but just gambling and speculation loops with, you know, dexes and memes and,

NFTs and all this stuff. His claim is that the industry rewards zero-sum games and narratives over real products and that he thought that ultimately he had made the world worse by building what he ended up building. He made some money and he's like, but look, I don't really feel good about what I did and, you know, maybe I wasted my eight years that I spent in crypto doing all this stuff. So got a lot of different responses. I wrote a response that got some play talking about how, you know, crypto's always had casinos from the very beginning. If you look at Satoshi dice was the first viral game on Bitcoin. King of the Etherhill was the first viral game on Ethereum. And there has always been stupid games. If you can allow people to do anything with money,

first thing I'm going to do is learn how to gamble. But nevertheless, there's a lot of real stuff that's happening in the industry. And I think for people who are disillusioned or who just built something that didn't work, you know, Avo obviously has not been successful in the broader scheme, it's important for those people to move on and to kind of leave the space for the rest of us to to build stuff. And I think actually, I really like the post by Chain Yoda, who said, I'd like the president of cryptocurrency to compensate this person for the eight years of their life they could have wasted outside of crypto instead. Anyway, kind of a bit of a dump, but I thought that was really funny. Yeah, good post. Curious, what you guys are sponsors. I'm sure you guys,

I'm sure this came across your feed, if not just the kind of fallout in this post came across your guys' feeds. How did you guys feel about this, the sentiment that I think many people echoed when they read this. Like, yeah, I'm feeling that same way. I feel like I might have wasted eight years of my life in crypto, too. How do you guys feel? Trudeon, did you waste eight years of your life in crypto? You know, I've certainly had on and off thoughts of that whenever people, other people

tell me that from outside. Because, like, you know, like I said, like the, sometimes talking to people outside of crypto, they're like patting your head. How's that Web 3 thing doing, buddy? You know? Dude, you have really shitty friends. I just have to say, like, every. Every show we get like a glimpse into you getting bullied by your friends.

I mean, because like all of them think and generally do not kind of think it's like a scam. So it's, you know, it's like I feel like I've just trudged through. But I would say I think I can see where that disappointment came in for Ken. I mean, we also invested in Evo. And I feel like they had a chance, you know, there was kind of in crypto, something funny about crypto is that despite they're being low barrier to entry for a lot of markets. Like anyone can start a new perps exchange with like kind of low amount of capital in theory, right? Like you have the thing where like there's like extreme concentration effects.

So like two players. You see this in like MEV markets. You see this in perp sexes. You're starting to see. You can kind of see like the distribution of OI in perplexexes. Spot is kind of weird. I guess because it's like there's like geographic. reasons. It's weird, but there's like lots of markets in crypto. And I think like if you

have spent a long time building a product that works is pretty good and then suddenly lose all your users one day to someone and then they just don't come back. Yeah, it feels shitty. Right. Like usually you either pivot or kind of move on. And I think in their case, they just really stuck with it because it is a big market. There's not going to necessarily. be one winner. But I do think, like, yeah, it can be grinding. I think 2023 in particular was like obviously a tough year for a lot of people. And Ken's been lived through that. And I think, you know, if you look on the outside and you see things in AI or bio or nanotech or whatever that are like exciting, you might be like, okay, well, should I miss? Right. There's all this opportunity

cost. Now, the weird thing is that it does feel like crypto market fundamental is just going to be expanding as, I mean, yeah, like, as if there's no tomorrow. So it's sort of, there's kind of, you have to have this dialectic in your head. Yeah, I feel like this is a weird time to say this, right? It's like maybe after FTX collapsed, like that's, yeah, I felt that. Like, I was talking about that. But I'm like, that was like the time I felt it the most. Right now. That was the trough of disillusionment for sure. Yeah. It's like, right. Totally. Totally. So like, I mean, like, I mean, I mean, like, I love Ken and obviously, yeah, we backed Avo, but I'm like, bro, you, you decided to pivot into a preptex.

Like, that was your decision. Like, if you, if you did not want to build a casino, don't build a fucking casino. That's literally your choice. Yeah, that is a literal casino. Yeah, I don't know. Tom, what's your, what's your take? Yeah, I mean, I think I agree with a lot of the sentiment. I think there's this like pattern that happens a lot in crypto.

I mean, it happens in general tech, but it's like, I think the most, one of the most painful paths for founders is also like being early, but missing on timing or execution and then just seeing someone else lap you and kind of seize the crown. And it's like, you feel like, you feel like entitled to have the crown because I was here first. I saw the thing and I did the thing and like I should be here. And there's many, many teams and companies and protocols that this could be applicable to. But I'm sure it is also painful to like have been building in crypto for so long. He said, build to be early to perptex have a thing that was, you know, working and had users and have volume and then feel like like, like actually I don't, I don't have

this thing even though I was, I was, I was right. And so I don't know, I, I, I think I empathize, but I agree to it. It's like a weird time to publish this when it's like, I don't know, it feels like overall sentiment. It's like pretty good and fundamentally like a month and you're just like, oh, I wasted eight years in. It's like, yeah, this seems like a weird time to have that realization just because ETH is down. Robert, what's your, what's your take on the piece? You're the, you're the builder, defy guy. Yeah. I mean, I do think that a lot of ideas have been played out. I think people are learning or have learned, right, that there's two types of crypto. There's sugar, water, crypto, and there's build real things crypto, right? And yes, there was an era where

there was a lot of sugar water crypto, where it was like, oh, let's have points and then turn them into tokens and then use the tokens and the points to incentivize the thing that has not that much fundamental value besides the fact that there's points and there's tokens and that's a thing that goes in circles. And most of the time people are happy and some of the time they're not happy. And we're not trying to achieve anything new. We're playing a merry-go-round with sugar water, right? That has always existed, right? There's been a lot of that. There's also people People who are saying, crypto is amazing. This technology is useful.

We can build things that have never been possible before with it. Right. And that power can be used for fun games and sugar water, or it can be used for transforming the way that assets move and transforming the way that social consensus occurs and transforming the way that, you know, incentives work to like align cooperation, right? Come get a job at Superstate. If you want to build real shit, come work at Superstate. Yeah, like, if you want to build real shit, come get a job at Super State.

But there's a lot of companies that are our peers as well that are like building real shit that are like, hey, we're here to make financial markets faster, cheaper, better, more efficient, more awesome, right? We're here to make things more fair and more transparent, right? So that like people can't get scammed in the same ways. You know, it's like there's a million incredible use cases. You can choose to work on those. You can choose to work on sugar, water, merry, go around.

Like, I get it. Like, I also can see getting burned out easily on that stuff, right? And anyone who does has a choice, leave or find the pockets of, like, really cool use cases and work on them. But, you know, crypto is a massive umbrella. It's so wide. There's so many subsections to it. There's so many different niches and verticals within crypto itself. Like, it's very easy to get bored of one thing and find excitement in another corner of it.

So I don't know. I agree and I disagree. Like, I get why he got burned out on it, right? There's a lot of people that have gotten burned out in this space, right? There's always the joke where it's like, meet so-and-so. Like, he's been in crypto for a year. And it's like a gray-haired old man. It's like 24, you know, it's like this space can be brutal.

But I think any new technology, any new market's brutal. I bet the people working in AI are like, this is brutal. Like, I work so hard. And like, you know, read blog posts people talking about. to work in AI. Yeah, I was just an S-F last week. And I can tell you, all my friends were just, like, had dinner and they were all like timing.

There were time to leave to go back to work. It was like, I was like, wow, this is, we're back to that era. I haven't seen this in a while. So I don't have too much sympathy. I'm sorry for him, but. Look, Roder, I will just say, I have enormous respect for the fact that you have always dedicated yourself to working on like the really big ideas. within crypto, right? So whether it's like compound, decentralized money market, the first of its

kind to do on-chain lending, or now with super state of like, hey, we're going to take all financial assets and securities and tokenize them and allow them to be freely tradable. Like that's big fucking shit. It's hard. And like, you're right. It's not as easy as the sugar water stuff that like, you know, boom, launch the next thing. And there's nothing wrong with perp-dex is. Obviously, we're investment in perp-dexes. But there's, like, you need people who are going to go tackle the big hairy shit. That's the zero-to-one stuff. Yeah. Like, this is a, crazy technology. It's not even that new. It's a crazy technology that we have like the good fortune and luck of being alive and like old enough to be able to innovate with before others do.

It's like the thing that I always wished watching from the outside, so I was a little bit too young for it was like I saw like the dot com era. I grew up as a kid in like the 90s and it was like, oh my God, if only I could have been like a little bit older when like the internet was new. And like incredible things could be built for the very first time with it. And it was all about just saying like what can we do with this crazy new technology? That's it with crypto. Like we're here right now. Like if you're an adult of the proper age and skills, it's like we still haven't like

figured out all the incredible things you can do with this yet. There's still so much room to take this like magical new technology and do something like important with it. So like, I don't know. If you're not in crypto yet, come in now. it's a great time to build. That's great. Okay, we have a, we have to, we have to drop shortly, but Tarun, last thing I want to talk about is you.

You recently put out a paper, speaking of sugar water and playing stupid games. Well, I was going to say, like, you know, my, my Rizond to Etra is like finding all these niche problems in crypto. There's always a new one. Okay. That's right. That's right. Deep in the sugar water, he's like reaching into the recesses of the sugar water pool and pulling something out. interesting. So give us one minute explanation of the paper that you put out on auto de-leveraging on ADLs and how to do ADLs better. Yeah. So basically, I think I actually, yes, I think I actually have talked about it on kind of around the time when we had the episodes around the time. I had this sort of intuition that one of the weird things about this ADL algorithm

is like it was clearly made when people assumed it was never going to happen much and also isolated events. Like there's not going to be 20 ADL events in a row. We're just going to clear out the bad debt once and then the market will recover, right? October 10th was particularly bad in that we had a bunch of repeated ADL events where it's like we tried to clear out bad debt, more bad debt came in. We try to clear out bad debt, more bad debt came in, right? Like the flow of bad debt was faster than like the recovery. And that, I think the assumption hidden in all these things historically was like, hey, if we reach this bad debt state, it's like a one-time one-off thing. It's never going to cascade.

And I think what we saw was it cascaded. And so basically I tried to formulate, you know, like, what's the math behind this? And like, from the math, can you kind of say like, hey, are there more strategies than what people have done? And Arthur Hayes actually put out a really good blog post on November, like around Thanksgiving that talks about the history of ADL of why it was invented. And it was sort of invented as like a hack in some weird way. Your minutes coming up. You're just coming out. You got a wrap.

And so, yeah, I just focus on, like, how do you improve it? And empirically, it seems like you could have saved hundreds of millions of dollars on October 10th. Hundreds of millions of dollars. So if you are trading on your neighborhood perp decks or your neighborhood centralized exchange, tell them, check out this paper. If you're interested, Tarun's got it. Just look up his Twitter, look up his blog. And learn yourself up. Learn yourself up about some ADLs.

So that somebody can build Tarun Dex. that doesn't. There you go. I think all the existing ones will, I think the existing ones will just improve over time, right? Like, like, I think it's actually a good thing because you,

I think for years, we never knew that this stuff was not working because the data wasn't public, right? Binance, when they have an ADL event, you could see yourself getting ADL. You couldn't see the whole order book. So you don't really know how it's cascading. The hyper article is the first time you could see everything.

And so I think that opens the door to like new innovation, right? And like, that's the stuff I think in crypto that motivates me. You can find these kind of crazy things. Very good. Well, appreciate you doing the work, Tarun. We got a wrap. Thank you, everybody. And we will see you all next week.