ETH to $22k by 2030? | VanEck's Matthew Sigel

In this episode, David Hoffman is joined by Matthew Sigel, Head of Digital Assets Research at VanEck, to unpack VanEck's groundbreaking ETH 2030 report. They discuss the $154,000 bull case, $22,000 base case, and $340 bear case for Ethereum, and the factors behind these predictions. Matthew dives deep into the role of ETH ETFs and shares insights into ETH's evolving narrative in institutional portfolios. He also provides interesting analogies and comparisons between ETH and Web 2.0, explaining how VanEck will help traditional investors understand and invest in ETH using these narratives and real market data. ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/16 ------ 📣STAKEWISE | LIQUID SOLO STAKING https://bankless.cc/Pod_StakeWise ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⚡️CARTESI | LINUX-POWERED ROLLUPS https://bankless.cc/CartesiGovernance ⚖️ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum 🌐 TRANSPORTER | CROSS CHAINS WITH CONFIDENCE https://transporter.io/ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo ------ TIMESTAMPS 0:00 Intro 7:16 VanEck Vibe Check ? 8:11 VanEck ETH 2030 Price Prediction Report 12:31 Last Year’s Report vs. Present Report 15:10 Ethereum Narrative For Retail 19:14 Pitching ETH To Customers 25:15 Parameters For Bear, Base & Bull? 28:49 What If ETH Reaches $154,000 32:31 ETH’s Most Bearish & Bullish Scenarios 33:40 Solana’s MEV vs. ETH’s MEV 41:28 BTC & ETH Allocation In Portfolio 45:59 Can Data Help Matthew Convince Customers? 49:30 $15B In ETF Assets 50:30 Closing & Disclosures ------ RESOURCES: Matthew Sigel https://x.com/matthew_sigel VanEck https://www.vaneck.com/us/en/ https://www.vaneck.com/us/en/blogs/digital-assets/matthew-sigel-eth-2030-price-target/ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures ⁠

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  Everyone who owns a 6040 portfolio has exposure to Meta, and that stock fell 80% peak to trough in the bear market, which was like more than Bitcoin. And in our view, if we are correct that Ethereum is the open source app store, then it is going to directly attack the margins of a lot of these centralized Web2 companies through a combination of technological innovation and a different regulatory regime.

• 0:34David Hoffman?

  Bankless Nation, can ETH get to $154,000 by 2030? That is the number for the bull case for ETH that is in VanEck's ETH 2030 Price Target and Optimal Portfolio Allocation Report, which VanEck is sending around to all of its Wall Street and banking clients in order to inform the world of TradFi why it's beneficial to include not just Bitcoin, but specifically also ETH into their typical investment portfolio. Now, in addition to the 154,000 bullish scenario for ETH, there's also the 22,000 base case and the $340 bear case for ETH. And I asked Matthew on the show to unpack the calculus behind each of these scenarios.

• 1:15David Hoffman?

  What does Ethereum need to do if it wants to earn that bull case valuation? What are the factors that go into these numbers? And also, what about the macro markets? How are they factored in? And also, lastly, why it's rational, according to VanEck, for all 6040 traditional portfolio investors to include up to 6% of their portfolio in a 5050 mix of Bitcoin and ETH, now that these things are available to them in their ETF form? Before we get into the conversation, our friends and sponsors over at Stakewise want you to know what they're up to in the world of liquid staking on Ethereum. If you're a solo staker, but your ETH is locked up in a liquid because you're solo staking, you can continue to be a solo staker in the Stakewise protocol while also being able to mint OS ETH

• 2:00David Hoffman?

  in order to use your solo-staked ETH in DeFi, on Layer 2s, in IGA Layer, or anywhere else across the Ethereum landscape. You get to keep your rewards that your node Is earning while doing more with your ETH. And if you're not a solo stakeer, Stakewise is introducing a vaults marketplace to choose perks that you want to add on to your staked ETH between custom MEV strategies, DVT, insurance, API boosts, all things available through the Stakewise Vaults Marketplace. There is a link in the show notes if any of this stuff piqued you. One thing to note while we get into VanX 2024 report on ETH is that they also had a 2023 report on ETH where the base case for ETH was $11,800.

• 2:41David Hoffman?

  In this report, just one year later, the base case for ETH by 2030 is $22,000. So almost 2X more. One of the conversations that we have in this episode is how did that change? What changed? Hint, it's a little bit something to do with Dankun and Danksharding. There's also the conversation of the ETF. VanX is one of the people in the race to issue the Ethereum ETF. So we get his perspective as to whether or not there's going to be outsized demand for the Ethereum ETF, undersized demand for the ETH ETF and why people might like it. And of course, we're getting into one of the many conversations that we've had on Bankless recently, which is how to actually pitch ETH. What is Ethereum? What is ETH? Why is it useful to have in a portfolio for somebody who doesn't really necessarily understand it?

• 3:26David Hoffman?

  One of the most crypto native financial institutions that's out there that definitely knows how to speak crypto. That's why we've had Matthew Sigel on the show multiple times before and why we're having him back again today. But also he talks to traditional clients. He talks to banks. He talks to Wall Street. So he spans both worlds. So he's always very useful to get him on the show and get his perspective, which is what we are doing here today on this episode. So let's go ahead and get right into it. But first, I'm going to talk about some of these fantastic sponsors that make this show possible. If you want a crypto trading experience backed by world-class security and award-winning support teams, then head over to Kraken, one of the longest-standing and most secure crypto platforms in the world. Kraken is on a journey to build a more accessible, inclusive and fair financial system, making it simple and secure for everyone, everywhere to trade crypto.

• 4:10David Hoffman?

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• 4:55David Hoffman?

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• 5:40David Hoffman?

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• 6:22David Hoffman?

  Transporter also provides real-time tracking throughout your transaction with its newly engineered user experience, so you'll never have to second-guess the safety. Or location of your assets ever again. And the best part, Transporter makes it simple. Whether you're a blockchain beginner or a seasoned trader, Transporter's intuitive interface lets you execute cross-chain transactions with just a few clicks. No additional fees, just a low cost for using CCIP, which can be paid in link or your blockchain's native gas token. But don't just take my word for it. See for yourself why Transporter offers a stress-free bridging experience. Experience the future of token bridging at transporter.io and just send it. Bankless Nation, excited to introduce you to Matthew Sigel, Head of Digital Assets Research at VanEck. Matthew is responsible for formulating the company's digital asset strategies,

• 7:07David Hoffman?

  also sits on some of the investment committees for several of VanEck's private funds. Matthew has been on the Bankless program before. Matthew, welcome back to Bankless.

• 7:15Speaker 00

  Hey David, how are you?

• 7:16David Hoffman?

  Good, good, my man. It's gotta be a pretty interesting time to be you. VanEck is entering into the world of crypto more and more and more these days, especially as the SEC is opening that door. Overall, just like five check, what's it like to be at VanEck these days?

• 7:32Speaker 00

  It's awesome, David. We've had great performance over the course of this bull market. We've introduced a lot of new products. We're building some crypto-native applications like a stablecoin and an NFT platform. We're hiring, so growth is always better than the alternative.

• 7:55David Hoffman?

  That's what we like to hear, my man. Yeah, it's just an exciting time to be in the space of crypto, and especially right at the intersection of both being crypto-native, which I definitely would say VanEck is, but also being very fluent in trad, fluent in Wall Street. So definitely an exciting time. And definitely also out of the world of VanEck is this report that you guys wrote, which is going to be the subject of today's podcast. Report titled ETH 2030 Price Targets and Optimal Portfolio allocations. And as soon as anyone opens up this report, you see some pretty bullish numbers for ETH, the asset. There's a base case, a bull case, and a bear case, of course. And the bull case goes all the way up to $154,000 Ether by 2030, which are like me and Ryan are pretty bullish here at Bankless, but that's a large number.

• 8:39David Hoffman?

  So we kind of want to unpack this report, like talk about how you actually came to these numbers. And also, like, who is this report for and what is its purpose? So maybe you can start with that. What's the why behind this report? Like, why produce these things? Who is this report for? What's the point?

• 8:54Speaker 00

  Yeah, well, now that the SEC has at least theoretically approved spot Ethereum ETFs to trade, it's obviously important to explain the investment case for this asset. Overall, there's a bigger market for income-producing assets than there are for inert assets like Bitcoin. So it's not impossible that, you know, in a decade, the market for an Ethereum ETF could be bigger than Bitcoin. But in the meantime, we have to educate traditional finance market participants as to why this asset matters. There's a lot of analogies that have been attempted, and the one that we've honed in

• 9:37Speaker 00

  on is open-source app store. So, you know, we think that Ethereum is a productive asset that lets anyone open a storefront on this network, and they can do so at a lower take rate than big tech currently charges. So it's an open-source app store with payments functionality bundled in essentially for free. And we wanted to explain the mechanics of how that works and put some numbers around the P and L, the profit and loss statement of Ethereum. So we went through this model with you guys, maybe it was about a year ago, and now we

• 10:20Speaker 00

  have updated it to consider, I guess, two major changes. The first is that we have increased our overall penetration rates for open-source databases, and we expect that in aggregate, these open-source digital assets can intermediate about 7% of the current top line of financial applications like payments, borrowing, and lending. And that's up from 5% in our previous model. The basic idea is that the political backdrop has improved, and block space demand is somewhat higher than we initially anticipated. The other

• 11:04Speaker 00

  Changes that we increased the take rate that we expect the Ethereum ecosystem to earn from all of this application activity from 3% to 5%. These are still quite small numbers in the context of what, say, the Apple App Store charges or Google Play. So those are the major changes that get us to this $22,000 base case. It still assumes, the model still assumes, and we do this for all of our Layer Ones, that in order to achieve the base case, the project has to achieve about a 70% market share

• 11:45Speaker 00

  of all Layer Ones. So we have this kind of guiding light that these networks have a lot of winner-take-all characteristics, and one or two platforms are likely to capture the majority of that, and we're trying to own these call options and then probability weight the chance of achieving that, that 70% market share. So that part is unchanged, but for context's sake, Ethereum's market share over the last 12 months is 58%. That's market share of fees paid by users. So there is-

• 12:21David Hoffman?

  Two networks, two protocols.

• 12:23Speaker 00

  Correct. So there is some lifting to do to execute on the scaling roadmap and get folks actually using these L2s.

• 12:31David Hoffman?

  So yeah, just you brought up some of the previous contexts here. A year ago, you guys had a pretty similar report where you had a base case of $11,800 by 2030 for ETH. In this report, that base case has gone up to $22,000, so basically 2Xing. I just want to unpack that change between your guys' analysis last year versus this year. Was that because of you guys are getting more increasingly bullish on crypto, the category, or Ethereum, the network, or a little bit of both? Maybe you can unpack that a little bit more.

• 13:03Speaker 00

  Yeah, it's a little bit of both. So the two parts of the model that we changed that had the biggest impact on the price target. The first is that we take a look at the end markets that open source databases might go after, and we basically segment them into four. The first is finance, banking and payments, so traditional financial sector applications. That is by far the largest. The second is marketing, advertising, social and gaming. So I'd like roughly call that Metaverse. The third is infrastructure applications and the fourth is AI.

• 13:47Speaker 00

  And we have penetration rates for each of those four sectors that we think crypto can achieve. The one sector that we increased was finance from 5% to 7.5%. Part of that is just realizing that we're in the middle of a bull market that we think is going to accelerate with the November election of President Trump, hopefully. That should increase the overall available market for crypto assets. And then for ETH specifically, the first model was made before the Dan Kun fork.

• 14:28Speaker 00

  So recognizing some of the scaling progress that ETH has made, that accounts for the larger take rate that we have for the Ethereum network overall, which goes from 3% to 5%. I guess if there's a third, it's the, we introduced our AI estimates into this piece, and we have a separate report on how AI and crypto intersect. But that's a relatively small adjustment. The biggest is the penetration rate of finance.

• 14:59David Hoffman?

  Okay, cool, great. As soon as, I want to get into the actual calculus of the 22,000 base case and 154,000 bull case. But one last thing that I want to bring up that you mentioned. Ethereum, ever since the ETF was, like you said, theoretically approved, there's been a broad conversation about like, all right, how do we pitch this thing? Bitcoin has this luxury of being very simple. It's digital gold. That's what it is. It's the first crypto asset and that's all you really need to know about it. It doesn't really go too further down than that. People, I'm assuming, are buying the Bitcoin ETF without like... Truly deeply understanding the nuances of crypto technology. It's like, oh, you just own digital gold. ETH doesn't really have the same luxury. And so different people are explaining Ether and Ethereum differently.

• 15:45David Hoffman?

  You have said that it is an open source app store for financial apps. And this has been definitely resonant with some of the other perspectives that I had. The developer platform, the app store platform is, the tech platform is definitely something that people have circled around on as a good angle for ETH and Ethereum. It's not the only one, but it's definitely one that people have circled in around. Maybe you can just unpack a little bit of your analysis as to how you guys came to that particular narrative for ETH and Ethereum. Why is that one the best one?

• 16:16Speaker 00

  Yeah, it's a challenging mental model because we think Ethereum is a novel asset and there are few parallels in the non-crypto financial world. So we're sympathetic to the idea of ETH as digital oil because it is consumed by engaging an activity on Ethereum. We're sympathetic to the analogy of programmable money because Ethereum assets, activity using Ethereum assets can occur automatically without an intermediary. And we're also sympathetic to ETH as a yield-bearing commodity because you can earn yield by pledging

• 17:00Speaker 00

  ETH non-custodally to validators who govern the Ethereum network. But overall, we think the simplest mental model is ETH as an open source app store. This, I guess, digital mall would be a comparison to open source app store. And we look at the number of monthly users, 20 million. And then we look at the revenue per user annually. And Ethereum users on average spend more than $170 a year in consumable gas on the Ethereum network. That compares to Twitch at

• 17:42Speaker 00

  $120, eBay $75, Facebook $45, Instagram $25. So you basically have a very wealthy and active user base, building applications. And the Ethereum network itself generates a take rate from all this activity. And when we compare that take rate to what Google Play and the App Store earn, we measure that the current Ethereum take rate is about 24%. So it's not a 10x improvement at all versus App Store and Google Play. But that take rate goes down.

• 18:24Speaker 00

  It's currently 14% for non-DeFi apps. And for simple payments, as you know, on Ethel 2s, it is fractions of 1%. So our thesis is that as this open source App Store gains scale and Ethereum itself proceeds on its scaling roadmap, that the overall take rate, ETH's take rate, will drop to 5% to 10% over the next 18 months as the activity shifts to the less expensive Layer 2s, where take rates are 25 to 30 bips. And we think that both entrepreneurs and investors

• 19:07Speaker 00

  will gravitate towards these lower take rates and permissionless environment.

• 19:14David Hoffman?

  Beautiful. Okay. And the nice thing that I enjoy when I come to talk to you, Matthew, and all the people at VanEck is that you guys get to come on Bankless because you can speak crypto, you're very fluent. But then you also, I'm assuming, are not generating these narratives and these explanations in a vacuum. You guys also have customers and clients at VanEck, who I'm assuming you guys are bouncing these pitches or narratives or explanations off of. Like, when you give this explanation, this pitch for ETH, to your customers, to the people that are clients of VanEck, how does it land? How do they react?

• 19:47Speaker 00

  I'd say it's very, very early. Our largest customers tend to be the bank-owned brokers like the Morgan Stanleys, Merrill Lynch's, UBS's, and they really are still in the beginning stages of introducing Bitcoin ETFs. The advisors are not allowed to buy those products unless the customer demands them. So these assets are still not integrated into the holistic investment philosophy, which is generally set by like a chief investment officer who has some type of 60-40 model portfolio

• 20:31Speaker 00

  and then is like adjusting tactically around the edges. And we're optimistic that some of those models are going to include Bitcoin over the course of the next year in the kind of 1% to 3% range. And we're trying to get kind of ahead of a potential diversification play by framing the Ethereum thesis. I think our traditional customers are still some distance away from buying that, but that's what we have the next couple of months, I guess, to educate them. But like I said at the onset, overall, the market for productive assets is bigger than the market for kind of inert commodities.

• 21:13Speaker 00

  And when we look at the type of performance that, and this really gets to the second part of the piece that maybe we'll talk about, but when we look at the performance of Ethereum either versus Bitcoin or in a 60-40 portfolio, the type of return and risk that it introduces, there are some powerful diversification benefits. And the impact on the portfolio drawdown, meaning like how much you can lose, is relatively small. So I like to introduce this comparison to Facebook stock ticker META, which is about a 2.5% weight in the S&P 500. So everyone who owns a 60-40 portfolio has exposure to Meta.

• 21:57Speaker 00

  That stock fell 80% peak to trough in the bear market, which was like more than Bitcoin. And in our view, if we are correct that Ethereum is the open source app store, then it is going to directly attack the margins of a lot of these centralized Web2 companies through a combination of technological innovation and a different regulatory regime. So we try to kind of compare the performance of Ethereum with the performance of things that our clients already own. And when they're presented with that data, the light bulb can kind of go off. And it's like, oh, this is not necessarily more risky than some of the things I already own.

• 22:39David Hoffman?

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• 23:23David Hoffman?

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• 24:52David Hoffman?

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• 25:36David Hoffman?

  So, to say that's bearish is like, almost kind of an understatement. The bullish scenario is $154,000, which is more bullish than I think I've seen most people articulate in my spheres. And then the base case is kind of around, like, more or less my base case, which is $22,000 by 2030. What's some of the... Like, you guys aren't just like licking your finger and sticking it up to the wind and like catching a vibe. You guys are like backing into these numbers via some calculations. Maybe you can like unpack for us, what are the parameters that really are producing the bulk of these numbers here?

• 26:08Speaker 00

  So the parameters are the size of the markets that Ethereum can disintermediate. And so that starts with like just the top line revenue for these sectors, finance, marketing, advertising, infrastructure, AI. And that sums currently to about 13 trillion in addressable revenues that Ethereum can go after. The second parameter is the market share for crypto overall. What percent of those revenues can they actually disintermediate? And those numbers, depending on the sector range, between 5% and 20% in our base case.

• 26:53Speaker 00

  So this is not a scenario of mass adoption. Even in our base case, the penetration rates for crypto are relatively low. The third parameter is Ethereum's market share, which we assume for all of our base cases, because this is a kind of winner take all world, that the number one chain gets about 70% market share in the base case, 90% in the bull case. The next parameter is the value capture. So how much does the Ethereum ecosystem actually keep of all of that, call it transaction value?

• 27:36Speaker 00

  That number is between 5 to 10%, depending on the sector. And then, you know, we have to pay away some costs to validators. We assume that all of the profits are taxed at 15%. We have to arrive at a terminal ETH supply, which is kind of tricky to do. Our base case is 100 million. And then we apply a terminal multiple of earnings, or in this case, free cash flow, that an investor would pay. And we use about a 3% free cash flow yield, so 33 times.

• 28:18Speaker 00

  Free cash flow, which is comparable to a reasonably fast growing software company. So those are the parameters. What that ends up with is that we forecast that the Ethereum network will generate $66 billion in free cash flows that accrue to the ETH token. And when you multiply that by 33 and then divide by the 100 million coins, it's 22,000 per coin.

• 28:46David Hoffman?

  Okay, beautiful. Okay, so maybe highlight some of the most important parameters here that are in this calculus. Maybe they're all like equally important, maybe some are more important than others, but like say, for example, ETH did get to that extremely bullish number of like $154,000 per token. Like what were the things that Ethereum, the network, did that got it there? Like what were the success stories, would you say?

• 29:09Speaker 00

  So in that case, ETH would be capturing 90% of all smart contract value intermediation. And they would be collecting, let's see, in the bull case, so the penetration rates get get pretty chunky. So Ethereum essentially accounts for 15% of the total financial markets. And then 50% of the advertising market hosted on open source blockchains and between 20 to 25% of IT infrastructure and AI going through to open source blockchains. So I'd say in that

• 29:52Speaker 00

  world, probably emerging markets are doing very well and the US dollar is doing extremely poorly. And the US regulatory state has either like fully embraced open source digital assets, which I think is unlikely, or completely ceded them to other countries. And then in that bull case, Ethereum is capturing a pretty sizable percentage of the value. So remember the take rates that I told you about right now, it's about 24%. We think they're going to fall to 5 to 10%. In the in the bull case, they're still in the kind of 8% range. So there, I guess we'd say that Ethereum in the bull case manages to hold on to its pricing.

• 30:36David Hoffman?

  Understood. And a lot of the calculus that you emphasize here, it's measuring against the current size of a very real pie that's out there, like real industries with real revenues. You guys aren't like hypothesizing or like extrapolating out like what could be, but this is like taking real data that we have about industries that are adjacent to Ethereum, that Ethereum is attempting to penetrate and looking at that size of that pie, which is massive across all of these different industries that you've talked about, right? Like business services.

• 31:06Speaker 00

  Yeah, exactly. Like we haven't, we have, one of the questions I got, we got on Twitter on this is like, does this assume some type of hyperinflationary US dollar scenario? Like, wouldn't we get to 150K really easily? And our, for our economic forecast in this model, we just use like the CBO data. We basically assume that the economy grows at 3% forever with no recession and that there's no hyperinflation. But I should point out that Jan van Eck currently ascribes a 10% chance to what he calls a disorderly US dollar devaluation. And he's

• 31:45Speaker 00

  looking at the need to reform social security, which needs to get done next year in 2025. Because if, generally, we only do big government policies in this country the year after an election. And if we don't get it done in 2025, then 2029 is kind of too late. And that's where the market could get, you know, very unhappy with the US dollar. But that is not accounted for in this case. We're sticking with like the 90% chance that everything goes relatively smoothly.

• 32:17David Hoffman?

  Right. Okay. So if like the listener has an opinion about the future macro state of the globe, the US dollar, the United States financial system, that's, that opinion you can layer on top of this analysis. It's not inside of this analysis.

• 32:30Speaker 00

  Exactly.

• 32:31David Hoffman?

  Okay. So the 154,000 bull case to the $360 bear case is like a pretty wide range. That's like starting to encompass like most possible numbers for ETH. Can you talk about just like, how is this, is like, the 154,000, the most bullish possible scenario, like the 1% bullish scenario? And like the $360 ETH price is like the 1% most bearish scenario? Like, how should we think about this, like, pretty large range between the cases that you guys have presented here?

• 33:03Speaker 00

  That's a good question.

• 33:07Speaker 00

  I think the, you know, the bear case is like a 5 to 10% chance. It would require a really negative regulatory environment in the US and probably some sort of technical glitch that causes Ethereum to lose a massive amount of market share. So we think that's quite unlikely, you know, base case in that like 50 to 60% range. And then bull case, you know, 10 to 20%.

• 33:40David Hoffman?

  And then I remember, Matthew, we had you on a year ago about this one particular report. And then we also had you on at the end of the year for more of this, like a kind of a market summary. And I think if I can remember correctly, you talked about Ethereum's growing pains as a result of his like lack of scalability. And then you've also highlighted the introduction of Dankun in this report as Ethereum like winning back some of that potential like market share that it might have lost. And in that same report, it was like the year reflections, you also talked about like potential outsized growth for Solana, which definitely happened as like both during and also post that report. Maybe you can kind of just like walk us through your own journey of just like your perception

• 34:24David Hoffman?

  over the crypto arc over the last like 12 months or so. A lot of things have happened, right? We've seen the resurgence of Solana. We've seen the introduction of data availability into the Ethereum network. We've also seen the launch of other networks like Celestia and the introduction of Eigenlayer and restaking. Maybe you can like zoom out and like reflect upon like where you hoped crypto would be going over this last year and where it's actually gone and any sort of like sentiment that you have about that.

• 34:50Speaker 00

  One of the reasons that we were so bullish on Solana and remain quite bullish is because of the ability to extract M A V. So in the wake of the totally Justin Drake debate that you guys hosted, you know, there was considerable conversation online about.

• 35:15Speaker 00

  Whether Solana's larger MEV earnings are intentional, sustainable, et cetera. And I should have mentioned that the MEV take rate is one of the parameters in our ETH model. And we currently have it at about 0.1. That's the kind of take rate. And when you look at year to date, how much MEV Sol and ETH are generating, it is true that Sol is generating about 2X the amount of MEV as ETH on a percentage basis.

• 35:54Speaker 00

  So it's 0.16% on Sol and about 0.08% on ETH. So that's kind of the trade off is the shorter block times, the slightly higher degree of centralization on Solana creates more prospects for MEV and it makes short term trading more attractive. And that's why Solana has a kind of higher chance of becoming the NASDAQ of crypto in our view. And that thesis, I guess, is playing out along our expectations. If you read our report on Ethereum L2s from like a month or two ago,

• 36:36Speaker 00

  we, the precursors to this report are in here, like the Dankun fork lowering transaction costs dramatically clearly has opened up a lot of white space for L2 applications. And the take rate that they're paying to Ethereum has gone down a lot. We just haven't really seen the demand materialize to soak up all of that new supply. And the MEV that's being generated is less on like a dollar for dollar basis than on Solana. So there's still kind of more work to be done, I guess I would say.

• 37:18Speaker 00

  But we're impressed by the execution on Dankun at least.

• 37:25David Hoffman?

  Certainly. One data point that I've been hoping somebody can put together, and maybe you have a notion of this, is some notion of MEV efficiency. The Ethereum MEV supply chain has become very robust. There's many intermediating players. There's a lot of bots that are going after pennies. Margins are super compressed in the MEV supply chain in Ethereum to create what I'll call some sort of notion of MEV efficiency, efficiency of MEV per transaction. Whereas in Solana, I don't think it has that level of maturity in the MEV supply chain. There's a lot of slippage that's on Solana DEXs, and this is where I think a lot of the amount of Solana MEV comes from.

• 38:10David Hoffman?

  And so there's more MEV per transaction is my intuition inside of Solana, simply because that MEV ecosystem hasn't had that time to mature that it's had on Ethereum. I'm wondering if you've done any sort of investigation or research in just the efficiency of MEV to compare between these two ecosystems?

• 38:33Speaker 00

  I mean, MEV is kind of a double-edged sword because one person's slippage is another person's arbitrage opportunity, and it's the arbitrage opportunity that drives market makers into the space and creates dynamism. So Justin Drake, on your debate, kind of pinpointed the issue here, which is that there's like 7,000 Ethereum blocks a day. There's 216,000 Solana blocks a day. Each block gives you these ordering rights, and winning the blocks is easier if you are really close because you have this information advantage and you get to have the last say in that block bidding.

• 39:18Speaker 00

  But that advantage only works for the very last portion of the transactions hitting the block, say, like the 100 last milliseconds. So if you look at the size of each block for Solana, a quarter of the block offers this latency advantage. And for Ethereum, it's Like one one hundredth. So you get more surface area on Solana to get this latency sensitive MEV and more chances to get it because you have more blocks. And so I think the so what is that the short block times give lots of instances where someone with great latency can take advantage to better rearrange the blocks. And that has a somewhat

• 39:58Speaker 00

  centralizing impact because the best builders win. And I think it explains why MEV is such a larger percentage of our revenue line for Solana than it is for Ethereum. So in our sole price target, MEV comprises roughly two thirds of the revenues. And for ETH, it's closer to one third or 35%. And that's by design. Like, one is not necessarily better than the other. It's it's trade offs.

• 40:29David Hoffman?

  Is this like bullish for Solana, the network, when it comes in to have its turn with some of these this calculus? Is it bearish this Solana network? Just because like, maybe this inhibits some of the growth and user adoption if users are feeling like they're getting extracted from like, do you have an opinion here? Or does the calculus just not care?

• 40:46Speaker 00

  I think it's bullish because it attracts market makers to the space in order to invest and build and try to establish that advantage at the latency level. So yeah, I recognize the trade offs, which is that it creates this kind of oligopoly of MEV extractors. But oligopoly might be too harsh a term, because I think that number is not going to be two or three players who have 90%, but some larger number. And the end user will benefit from the cheap transaction costs. It's just that you'll have a handful of kind of high MEV earners.

• 41:28David Hoffman?

  I want to get into one of the sections back in this ETH 2030 price target. Number three, optional BTC and ETH allocation in a crypto-only portfolio. And then also the next one, an efficient frontier when including crypto. I think the gist of this section is just like the returns profile that you get when you have a Bitcoin portfolio, an Ether portfolio, a mixed portfolio. And I'm assuming this leads into some sort of like advice or perspective that you can give your customers about like maybe how much crypto do they want to include in their portfolio. Maybe you can kind of just give us the punchline of like what people need to know out of these sections.

• 42:05Speaker 00

  Sure. So what we wanted to do was give our clients some examples of how BTC and ETH together have impacted a traditional 6040 portfolio. And we want to look at the trade offs between return and risk. So for each additional amount of volatility that a higher crypto allocation introduces to a portfolio, how much extra return do you get? And so we performed that analysis with more than 150 sample portfolios and we introduced

• 42:48Speaker 00

  incremental additions of crypto exposure, starting with 0% and moving up to 6%. And what we found was that each time we add more crypto to this traditional 6040 portfolio, the portfolio's sharp ratio, which is a measurement of return divided by risk, continues to increase. So the max 6% allocation produced the best risk-adjusted return. And the really surprising part was when for investors who can tolerate relatively

• 43:30Speaker 00

  high-risk portfolio allocations, so something like a 20% annualized volatility.

• 43:38Speaker 00

  And for perspective, the S and P 500 is about 10%. So that is a significant increase. But if you're willing to stomach a 20% annualized vol, which is not crazy for a young, healthy, working person, then an allocation of up to 20% in crypto keeps improving that risk reward. And that's a, that's a pretty chunky number that I think might, might surprise people. And then the other thing that we did is that we did a, a measurement of BTC and ETH volatility adjusted. So what's the best weight to own of those two assets that combined, which will provide the best risk adjusted returns?

• 44:23Speaker 00

  And on that, we see roughly a 70 30 weight of BTC and ETH as providing the highest sharp ratio. And then the last thing that we did is just to make sure that we, this exercise was not too dependent on the starting point, because Ethereum started in, you know, 2015 and has gone from, you know, zero to $400 billion in the first few years. We're not liquid enough really to introduce into an institutional 60 40 portfolio. We ran the same analysis with moving the starting point forward by one quarter. And we found that that favorable impact on risk adjusted returns was true no matter the starting point, even if we started in 2021.

• 45:08Speaker 00

  So it was a very positive result from this analysis. And we're hopeful that it's going to convince institutional investors that Ethereum does provide some diversification, especially if you own it in that kind of two to one mix BTC to ETH.

• 45:27David Hoffman?

  So the two points that I think I want to emphasize here is that adding crypto to your portfolio, adding Bitcoin to your portfolio, improves your sharp ratio, improves your more returns versus the added unit of risk. And adding Ether also does that to your, to your crypto portfolio as well. So if you're 60 40 bonds, bonds and stocks, and you add Bitcoin. Your risk to reward by adding Bitcoin is like proved to be better by this analysis. And then adding Ether on top of that does the same thing as well. I'm like reminded Matthew of that movie Moneyball, where we had the manager of the baseball team come on and make some very like

• 46:09David Hoffman?

  non-consensus management decisions over his team, his baseball team. And like the other like more call it like trad fi version of like the managers of baseball team were like, why are you making these odd decisions? Like nothing, these don't really make sense. This is not what you do when you manage a baseball team. And he would always go back to like the math. It's always the math. It's the stats, it's the statistics. But also part of that story was illustrated by like, he actually couldn't convince the whole entire baseball league to switch their ways until they won the World Series. So like it had to actually be proven out in the market before people actually like changed and adapted to this new way of doing baseball, this stats driven baseball. And so I'm wondering, can you, Matthew, in your role,

• 46:52David Hoffman?

  convince the market before? Can we actually like accelerate some of this by using math and statistics here in this report? Or do you think you're just actually going to have to like prove it out by having the people who do decide to take this additional crypto exposure? And then also outperform the market? Like, how far do you think we can move the needle versus with data like this?

• 47:14Speaker 00

  I think that this story of open source app store is going to resonate with investors who are over allocated to the FAANG stocks and worried about either some combination of technology and regulation disrupting the very high margins of big tech. And the numbers that we've provided in this report are going to help them justify that allocation. And the ones that really stand out to me is just the max drawdown. What's the most you can earn, you can lose in a down cycle? And when you own a 60 40 portfolio over the last 10 years, the worst drawdown that you've had is roughly

• 47:58Speaker 00

  Twenty one and a half percent. And the sharp ratio of that sixty forty portfolio is like point seven five. All right, if you introduce three percent BTC and three percent ETH into this sixty forty portfolio. So you bring the equities down to fifty seven, you bring the bonds down to thirty seven, you've got the six percent crypto allocation. The max drawdown goes from twenty one and a half percent to twenty three and a half percent. So you know, two hundred basis points of additional losses. But the sharp ratio doubles. And the compound annual growth rate of that blended portfolio is almost twice as much. So it's a no brainer for someone who can stomach the volatility and who understands the use case.

• 48:42Speaker 00

  And it's up to Ethereum to continue to, I think, print these earnings. It's super helpful to be able to go to a fund manager and explain that this is a novel asset that has twenty million monthly active users, four trillion dollars in settlement value in the last twelve months. Ethereum has facilitated almost six trillion in stablecoin transfers. And the centerpiece of that financial system is this ETH token. And we think the ETH token is going to compound at an annual growth rate of thirty eight percent over the next five years to achieve our price target of twenty two thousand.

• 49:25Speaker 00

  Some of these investment advisors are going to buy that story. And we think that the ETH ETFs collectively should have, you know, fifteen billion or so in assets by the end of the year.

• 49:39David Hoffman?

  Fifteen billion in assets by the end of the year. Would you say that that is going to exceed most people's expectations, most people in the crypto world? Or is that like kind of a base case? Like, how would you frame the size of that, those inflows?

• 49:51Speaker 00

  The range that I've seen is 10% to 40% of the Bitcoin ETFs. The lack of staking at the onset will probably be a headwind. But that 15 billion is right at the 25% level. Current BTC ETFs have about 60 billion. So I'd say it's kind of a base case. But this is kind of like throwing a party when you don't know how many people are going to show up. So it's not like blockchain where you know exactly who the holders are instantaneously. We have to wait for these quarterly filings and some of them are obfuscated, the beneficial owner.

• 50:30David Hoffman?

  Well, like we said at the intro, definitely an exciting time to be in the world of crypto right now. And also, like I said, right at your position where you get to peer into our world and see what we're doing and you get to peer into TradFi and see what they're doing. So I think this must, from your perspective, Matthew, feel like a slow motion collision course, which brings with it a bunch of fireworks too. So thank you for doing what you do and thank you for writing this report and also thank you for coming on the show today, Matt.

• 50:54Speaker 00

  Thank you, David.

• 50:55David Hoffman?

  Cheers. Bankless Nation, you guys know the deal. Crypto is risky, DeFi is risky, but you know, sharp ratios and stuff, you can lose what you put in. But we're headed west. This is the frontier. It's not for everyone, but we are glad you are with us on the bankless journey. Thanks a lot.