132 - Polynya's Crypto Thesis

This conversation has been a long time coming. Polynya is a pseudonymous writer, investor, and crypto researcher. Polynya coined the term “modular blockchain” and has been influential on 100 different crypto topics, most notably on rollups, though they’re quick to point out that rollups are no longer their main focus. This is a unique episode, in which Bankless DAO’s Eureka John acts out Polynya’s voice based on a 5-hour text-based discord interview. Tune in as we explore Polynya’s fascinating mind, covering their broad crypto thesis, EIP-4844, and the future of Ethereum Scalability. ------ 📣 Forta | Help Make Web3 a Safer Place https://bankless.cc/Forta ------ 🚀 SUBSCRIBE TO NEWSLETTER: https://newsletter.banklesshq.com/ 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ ------ BANKLESS SPONSOR TOOLS: 🌱 LENS | ACCESS CODE: MINTME https://bankless.cc/Lens 🚀 ROCKET POOL | ETH STAKING https://bankless.cc/RocketPool ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🦁 BRAVE | THE BROWSER NATIVE WALLET https://bankless.cc/Brave 🌉 JUNO | BRIDGE FIAT TO LAYER 2 https://bankless.cc/Juno ⚡️ ZKSYNC | THE LAYER 2 SCALING ENDGAME https://bankless.cc/zkSync ------ Topics Covered: 0:00 Intro 9:00 Polynya the Anon 13:45 Polynya IRL 20:05 Cautious Optimism 25:35 Polynya’s Crypto Thesis 29:58 Accruing Value at the L1 31:54 Bitcoin vs Ethereum 33:30 Alt-L1s and Decentralization 35:10 Everything is Finance 38:10 Layer 2 Value Capture 41:33 Rollups vs ETH 45:30 Increasing L2 Demand 47:40 Layer 2 Tokens 52:45 A Symbiotic Relationship 56:08 Cosmos and Alt-L1s 58:45 App-Specific Chains 1:00:30 All Just Chains and Bridges 1:02:14 Why Cardano Rocks and Sucks 1:04:23 Cults and Tribalism 1:05:20 Changing Crypto 1:06:54 Changing the World 1:07:35 Polynya’s Message 1:08:30 Thank You Polynya ------ Resources: Polynya on Twitter: https://twitter.com/apolynya?s=20&t=4Cws8vmOo7v2mRmI8mGyfw https://twitter.com/apolynya?s=20&t=4Cws8vmOo7v2mRmI8mGyfw Polynya’s Writing: https://polynya.medium.com/ Modular Blockchains: https://newsletter.banklesshq.com/p/ultra-scalable-ethereum Eureka John: https://twitter.com/EurekaJohn1?s=20&t=ws5GNZKUSZtegsJQkvcuAg https://twitter.com/EurekaJohn1?s=20&t=ws5GNZKUSZtegsJQkvcuAg ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research.

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

• 0:00Ryan Sean Adams?

  And this conversation has been a long time coming.

• 0:06Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman and we're here to help you become more bankless. Guys, we have a special episode for you today. Palenia's crypto thesis. Palenia is a crypto anon. David and I have called this individual Paulinaya in the past. Turns out that is not how you pronounce Paulinaya's name. It's Palenia. And we did this, we did this conversation in kind of a unique way. Do you want to describe that before I get into some of the takeaways here?

• 0:42David Hoffman?

  Yeah, we've always wanted to host Palenia, as one does who has a podcast with a writer who's writing very informative, technical literature. Also, definitely one of the most in-demand podcast guests that's out there. But we could never have them because they were so anon that even their voice is too far doxed. So Ryan and I spent about five hours across two days in Discord with Palenia doing a written interview as if it was spoken. And then we turned that into a script and we got a voice actor to come and speak and give Palenia a voice. So that is what you're about to listen to here on the episode today.

• 1:23Ryan Sean Adams?

  Some takeaways for you. Number one, who is Palenia? This crypto anon, what is it like to be an anon in crypto? And why did they choose to become anon? Number two, Palenia's investment thesis. I was particularly interested in this, David. Where will the value accrue? The layer one, the layer two, different tokens, alternative layer ones. And also Palenia tells David and I what Bankless got wrong in the thesis, a little kind of correction and a change. Number three, the long-term relationship between Ethereum, the layer one and its layer twos and rollups. Is this a parasitic relationship or is it symbiotic? We talk about that. Number four, Palenia also steel man's Cardano.

• 2:07Ryan Sean Adams?

  An argument for why maybe Bankless shouldn't give Cardano such a hard time. We get into the puts and takes of that as well. David, there's some implied knowledge coming into this episode that I feel like when we start to bandy about terms like L1 and L2, that's maybe easier for most Bankless listeners. L1, of course, is like the Ethereum layer or the blockchain layer of things. L2 is sort of the rollup and we use these terms, L1, L2. But there's some other things that are maybe less common knowledge, even for seasoned Bankless listeners, such as EIP 4844, this term proto-danksharding, and this other term danksharding.

• 2:49Ryan Sean Adams?

  David, could you give us a quick explanation of some of these terms and why they're significant? Maybe how they relate to Ethereum's roadmap?

• 2:58David Hoffman?

  Yeah, I think really the thing to emphasize here is EIP 4844, which is the thing that we talked about the most with Polynya. And this is, of course, is a part of Ethereum's rollup-centric roadmap philosophy. EIP 4844 really enshrines rollups as a first-class citizen on Ethereum. And you can actually kind of see in the moment where I have this like aha moment, like personally, about like what 4844 does. And that's really, there's like this link between layer two usage and layer one usage in Ethereum's current state. So like your transaction on Arbitrum or Optimism or whatever shows up somewhere with block space demand on the block on the layer one. So block space demand on layer two does carry over, does translate to block space demand

• 3:42David Hoffman?

  for the layer one, not at a one-to-one relationship, it's like a 10-to-1 or 7-to-1 relationship in rollups' current forms. With EIP 4844, it a little bit breaks that relationship in that transactions can scale on rollups without there being too much more data going on to the layer one. So rollups are like relinquished from their bond to the Ethereum layer one. And like there can be 10 times more transactional activity on a layer two that doesn't actually put a larger footprint on the Ethereum layer one. So 4844 really takes the brakes off of layer two scalability and allows them To really just go wild and that's with this call data op code. But really it's the idea that

• 4:24David Hoffman?

  layer twos are free to scale without having a larger and larger gas costs on the Ethereum layer one.

• 4:28Ryan Sean Adams?

  One way to think of it is it makes it ultra cheap for layer two transactions to post onto layer one like massively more cheap 100x we're talking about. So or 1000x even and EIP 4844 is also called a proto Danksharding because it's a skinny down minimum viable product release that is tentatively scheduled for the next maybe release after the merge. We don't know yet, but it could possibly be coming in 2023. And this is all part of Ethereum's big push towards scalability.

• 5:08Ryan Sean Adams?

  And seems very achievable. I mean, it's not a massive undertaking to implement this. So we actually expect it to come relatively soon. And again, this is an order of magnitude increase in terms of roll up transaction throughput or cost decrease. You think of it that way too of like roll up transactions costing a small micro fraction of a penny rather than, you know, 10 cents or 20 cents as it costs today.

• 5:35David Hoffman?

  Proto Danksharding, of course, is actually a name coined between Proto Lambda, who is a person in the Ethereum space and Dankrad, who is all that works at the EF. But the name actually works out because it's proto as in like, you know, early Danksharding. Later comes full Danksharding, which is just a full manifestation of this full vision. And you just add another order of magnitude of scale onto rollups. So much scale that like, we can't even comprehend the level of scale that it's going to bring. But that is, don't hold your breath for Danksharding. It's not happening anytime soon. 2024 and beyond. But this information is just going to be really, really useful to understand as we go into this episode with Polynya. Because this is what they focus on. And so that having this in your brain as you go into this is going to be useful.

• 6:20Ryan Sean Adams?

  So with that, let's get right to the conversation with Polynya. But before we do, we want to thank the sponsors that made this episode possible.

• 6:27David Hoffman?

  Lens Protocol is an open-source tech stack for building decentralized social media applications. It is the new era for social media. We all have toxic relationships with our Web2 apps. We want to break up with them, but we can't. These applications own our digital lives and all the relationships that we've made. We need to break through to a new paradigm of social networking applications that we control, rather than them controlling us. Lens isn't a social media app, it's a protocol to let a thousand Web3 social apps bloom. Lens is a permissionless and transparent social graph that is owned by the user. In crypto, we say "not your keys, not your crypto," and on Lens, we say "not your keys, not your profile." With Lens, your followers go with you to whatever social media application you want to use, and instead of being trapped by an algorithm chosen by that app, Lens lets you choose the way you want to experience your social media.

• 7:10David Hoffman?

  Lens is the last social media handle that you'll ever need to create. So in order to get started, there's a secret code word in the show notes. Enter that code word in the Google Form links, and you'll be well on your way to entering the world of Web3 social. Rocketpool is your friendly decentralized Ethereum staking protocol. You can stake your ETH with Rocketpool and get our ETH in return, allowing you to stake your ETH and use it in DeFi at the same time. You can get 4% on your ETH by staking it with Rocketpool, but you can get even more by running a node. Rocketpool is the only staking provider that allows anyone to permissionlessly join their network of validating nodes. Running a Rocketpool node is easier to set up than running a solo node, and you only need 16 ETH to get started. Why would you do this? You get an extra 15% staking commission on the pooled ETH, so your APY is boosted.

• 7:52David Hoffman?

  So if you're bullish ETH staking, you can increase your APY and get some extra tokens by adding your node to the decentralized Rocketpool network, which currently has over 1,000 independent validators. It's yield farming, but with Ethereum nodes. You can get started at rocketpool.net, and also join the Rocketpool community in their Discord. You can find me hanging out there sometimes in the chat, so I'll see you there. Arbitrum is an Ethereum Layer 2 scaling solution that is going to completely change how we use DeFi and NFTs. Some of the coolest new NFT collections have chosen Arbitrum as their home, while DeFi protocols continue to see increased liquidity and usage. You can now bridge straight into Arbitrum for more than 10 different exchanges, including Finance, FTX, Huobi, and Crypto.com. Once on Arbitrum, you'll enjoy fast transactions with cheap fees, allowing you to explore new frontiers of the crypto universe. New to Arbitrum, for a limited time, you can get

• 8:36David Hoffman?

  Arbitrum NFTs designed by the famous artists Ratwell and Sugoi for joining the Arbitrum Odyssey. The Odyssey is an eight-week-long event where you can play on-chain activities and receive a free NFT as a reward. Find out more by visiting the Discord at discord.gg/Arbitrum. You can also bridge your assets to Arbitrum at bridge.arbitrum.io and access all of Arbitrum's apps at portal.arbitrum-one in order to experience DeFi and NFTs the way it was always meant to be: fast, cheap, secure, and fiction-free.

• 9:05Ryan Sean Adams?

  Bankless Nation, this conversation has been a long time coming. We're super excited about it and we're thrilled to introduce you to our next guest, Paulina. Paulina is a pseudo-anonymous writer, an investor, a crypto researcher as well. They call themselves a crypto hobbyist, but I'm pretty sure I've learned more about blockchain scalability from this crypto hobbyist than I have from 99.9% of the so-called experts in the space. Paulina coined the term modular blockchain and has been super influential on about 100 different crypto topics, most notably on rollups, where I learned most of my rollup knowledge from Paulina. And is also quick to point out, though, that rollups are no longer their main focus.

• 9:50Ryan Sean Adams?

  Paulina, welcome to Bankless. It's great to have you on.

• 9:53Speaker 02

  Hello there, Ryan, David. Delighted to be on Bankless.

• 9:56Ryan Sean Adams?

  All right, we gotta get this out of the way and talk about the meta of the podcast. So this is the first time we've done a podcast in this format for Bankless listeners as well. So to preserve your privacy, you're anon right now and we are having this conversation through a written chat log, but your voice is being reenacted right now by a member of the Bankless community. Thank you, Eureka John, for doing that. Is it cool that we're doing it this way or is it kind of weird, Paulina?

• 10:22Speaker 02

  I've written dialogue for fictional characters, but never autobiographically. So this will be an interesting experience. My personal experiment would be I'd try to write it as a screenplay. It's something new for you too, isn't it? And what do you think? Well, autobiographically was the wrong word, but you know what I mean.

• 10:40Ryan Sean Adams?

  Yeah, this is certainly a first for us, but the crypto world always throws fun curveballs and we like to be flexible here at Bankless. Just curious, in an ideal world, who would play you as a voice actor? Anyone like either fictional or non-fictional?

• 10:52Speaker 02

  Huh, let me think. I'd say my ideal choice would be Maggie Chung.

• 10:57Ryan Sean Adams?

  Okay, so I'm looking up Maggie Chung right now. For the listeners who aren't familiar, who is she?

• 11:01Speaker 02

  Well, you got to check out our work. Maggie Chung is an actor from Hong Kong. Some of her best work is In the Mood for Love, Irma Vep and Hero. Interestingly, some of Maggie's best work is in the silent moments where a lot of the emotions are conveyed through subtle gestures and movements. I suppose that's why I'd like to hear more of her voice. Should say her voice is pretty captivating too, but excuse my simping. By the way, she had a cameo on Tarantino's Inglorious Basterds, infamously cut from the final film. Okay, sorry, I'm done.

• 11:33Ryan Sean Adams?

  Okay, well, we have some new movie recommendations to check out as well. So thank you, my friend. We're going to talk about crypto, but first we kind of want to talk about you, the Anon, because this is super fascinating to us. Why did you decide to be an Anon in crypto? And is it hard?

• 11:49Speaker 02

  Sure. This is one of my many pseudonyms. There are many reasons to go in on. It's mostly a clean separation from my various hobbies. Going back, this is actually my third Anon in crypto itself. The wonderful folks from RE Finance will know my other crypto Anon, which I also used on Steam since 2016. I kind of messed up there, you know, crossing wires between the two Anons. Specifically for Polynya, it was a pretty simple objective to raise awareness about sustainable scaling strategies. It comes from a time when the prevailing narrative was something like Cardano will release smart contracts soon with 1 million TPS and there'll be a mass exodus from Ethereum overnight.

• 12:30Speaker 02

  I could barely believe what I was seeing and decided it would be fun to do my little bit and to bridge the massive information asymmetry. The plan was to write a few posts and then disappear. Obviously, that didn't quite pan out, given I'm here rambling on about... So yeah, it's just difficult to cover different hobbies and then move on to the next one without any baggage, if you will.

• 12:52Ryan Sean Adams?

  Yeah, but this has to be difficult, juggling different lives, switching back and forth. Is it hard?

• 12:58Speaker 02

  The trick is not to juggle too many lives at the same time, but to move between them. Most posts on my blog were written in Q2 and Q3 2021. At that time, this was my primary hobby. Since Q4 2021, I barely have one blog post a month, so I can move on to other things. I'd say at any given time, I only have two or three active Anons. It's not too difficult if you plan it out and remember to be strict about the time you spend on each. Each Anon in community has its own challenge. I'd say for crypto, it's not sure how to put this, but the general hostility, you know? I mean, I've never had an Anon on some heated religious or political venue,

• 13:41Speaker 02

  but it's, it's pretty fascinating how angry people are on Twitter.

• 13:46David Hoffman?

  Yeah, certainly. We're all, all too familiar with it on our side as well. So, Pelinia, I've gotten a hint that you've actually got this very rich life outside of crypto. You've apparently written dialogue. You, I think you might be a film or TV connoisseur. Obviously, you've played some games on Steam. I know you're Anon, but can you cast a little light on the life that's behind the Twitter profile?

• 14:07Speaker 02

  All right, without giving too much away, my primary interests are in the field of arts, entertainment and culture. Also happen to be my primary day jobs, so to speak. But just like my Anons, I keep moving between different projects in my work. Moving to 32-hour work weeks has been tremendously more productive and also, at least for me, I know 32 hours may seem absurd for some, but, but yeah. Also, it gives me more time to indulge in my hobbies, of which there are many. I'm generally more inclined towards humanities-related topics, but I have no idea myself what may interest me next.

• 14:47Speaker 02

  So, so I'm making it up and playing it by ear and trying to make the most of my meaningless existence.

• 14:54David Hoffman?

  I think you've definitely left some breadcrumbs of your strong interest in culture and arts on crypto Twitter and our on our ETH finance. But to hear that you work a calm 32 hour work week with a seeming intent on experiencing the many facets of human culture that the world has to offer. It seems to be at odds with the very technically adept persona that we find on crypto Twitter. So how did you become so technically minded and why bother with the drama of crypto Twitter when you could be out touching grass?

• 15:23Speaker 02

  Ah, my my persona is a bit of an illusion of Fugazi. Back in 2020, when I first started writing comments on our ETH finance and RCC. I used a completely different tone, more of a curious observer, more of a neutral tone. But at some point in summer 2021, again, I realized crypto calls for a more unique strategy. I decided to create a new blog with a new name and go on the offensive with hyperbole, bombastic statements. It worked too well and the posts went viral within a matter of days. In reality, I'm not technically minded at all. I couldn't write a line of code to save my life. Heck, I couldn't read a line of code to save my life.

• 16:08Speaker 02

  So I suppose the skill I'm employing here is understanding a topic that I actually have no idea about or qualifications for. And churning a narrative out of it. Crypto Twitter drama.

• 16:23Speaker 02

  I kind of regret that one. I stayed away from crypto Twitter for the longest time, focusing mainly mostly on my Medium blog and Reddit. But got so many requests, eventually buckled under pressure and the account grew quickly. And I stayed due to inertia and many asking me to. And I could see my presence there was not making not an insignificant impact. But anyway, I think I've had enough now and lately I've only been on Twitter a couple of times a week.

• 16:56David Hoffman?

  Okay, so maybe you're not technical, but you have this insane ability to synthesize highly technical content and make a mental model out of it. From our perspective, the reader's perspective, the listeners' perspectives, it feels extremely technically well-informed. It makes you appear that you've worked in related fields prior to crypto, something like computer science, hardware architecture, distributed systems design. Where did all of that come from? Are you just one of these like really smart types that can absorb information extremely fast?

• 17:25Speaker 02

  I'm not sure. I think it probably comes from being curious about different topics and moving between them. I definitely don't have an innate talent, probably just experience in identifying the important points to get an overview of the situation, I think. I've observed that everything we do is complex. Some things like computer science may seem more complicated and extremely technical than something like, I don't know, woodworking or something. But despite appearances, once you're interested in a variety of things, to me, it seems everything is more or less equally complex. One thing, obviously, there

• 18:07Speaker 02

  are some incredibly complex projects like building Apollo 11 or Burj Khalifa that needs millions of people to collaborate. But I mean, what an individual can process, whether it be the chief architect, the chief scientist, there's always a broad overview that one person can understand relatively easily.

• 18:26Ryan Sean Adams?

  You know, I think the other thing people like about your voice is that it feels like non-tribal. It's almost scientific in its approach. So you come at things from a neutral perspective. You're building on first principles. And these are economic and technical. And I think people find that refreshing, the fact that you're not a crypto shill. You almost seem to have this like love-hate relationship with crypto, and you appreciate its virtues, but you're also quick to call out the vapor and the fluff. Why do you have this love-hate relationship with crypto?

• 19:00Speaker 02

  Well, I wouldn't say it's a love-hate relationship. I just have a different opinion on things in crypto. Some things in crypto are very cool, while most of it is embarrassing, really, which is what you would expect. I mean, it may seem refreshing because crypto is deafened by very, very loud chills. I mean, do you feel the same?

• 19:21Ryan Sean Adams?

  Oh, I definitely have a love-hate relationship.

• 19:25Ryan Sean Adams?

  Crypto, I feel like it's attracted some of the best and most genuine, most human forward people in the world. Like, we've got some of the biggest brains of our generation legitimately. But it's also attracted these cult leaders, scammers, like these short-term thinkers. And sometimes I'm embarrassed to even be part of this industry. And other times, I couldn't be more proud to play a part in it. But I guess I would say the reason I'm still here is because the good outweighs the bad. At the base level, I think that's especially true. The protocol level, the cryptography level, crypto is a technology that I think will bring tremendous freedom to the world. It's probably the most important thing I feel like I could be doing with my time. And maybe that's

• 20:09Ryan Sean Adams?

  where we should turn the conversation next, Baliana. Let's turn the conversation to crypto.

• 20:14Speaker 02

  Yeah, I hear you, though I'm probably a bit more on the neutral side than you are. Also, not sure if the good outweighs the bad in its current state, but cautiously optimistic, if you will, in the long term.

• 20:27Ryan Sean Adams?

  Okay, let's start there then, because that's a distinction that's probably worth talking about. David and I, as listeners know, we're ultra optimistic about crypto over the long run. And I want to hear your bear case for the space. Like, in what ways could this crypto experiment go wrong? I'm not talking about the current state. We both agree there's a ton to build and lots to do. But in the far future, how do you think this whole crypto thing could turn out badly for us?

• 20:52Speaker 02

  Crypto is a blank slate that can be used for good as much for bad. I know that's kind of an abstract opinion, and also satisfying our innate gambling instincts can be looked upon as a productive, valuable use case. But subjectively, in my humble opinion, thus far, crypto hasn't really done enough, or as Vitalik once asked, we haven't earned it. Simultaneously, fintech and banking continue improving. And in some developing countries, you have solutions like Alipay, M-Pesa, or Paytm, which are ridiculously simple and convenient. I mean, it's not just fintech or banking, it's pretty much everything.

• 21:35Speaker 02

  Thing really, like y'all said on a roll up recently bullish humanity. A majority of humanity is not actually on crypto, but in democratic institutions, public corporations, cooperatives who are doing their very best to improve things. And they're no less well intentioned, motivated and talented than other crypto people. We live in a prosperous time in history by many a measure. And it's quite possible we get to a point where I'm not sure why crypto is needed. My bull case is that crypto seamlessly integrates into the traditional venues and fills the holes. Not not holes, but let's say gaps, which in certain niches in crypto is uniquely qualified.

• 22:19Speaker 02

  I'm not sure if that makes sense, but my idea is something like not bankless, but better banks. In the very far future, I'm so bullish humanity that I think will solve our trust issues and get rid of trustless solutions. Trust is inherently highly efficient and scalable, and that's what's got us to this place. Achieved remarkable things. And in the first place, the best optimization is better trust, not trustless. I sometimes joke, okay, the half joke Ethereum will succeed when it's no longer relevant.

• 22:55David Hoffman?

  Okay, so what I'm hearing is that crypto is currently neutral at best. When it comes to the value it's bringing for humanity. But we're still early, so there's still potential there. Meanwhile, our tradfi banking system is actually getting meaningfully better over time. And actually providing new value to the world, banking the unbanked, connecting people financially. And we share this idea that crypto will become the backend to the current financial system that we have. But I fail to see a world where the banking system becomes systemically superior without crypto. Crypto, it's like tugging the banking system by force to become better by its mere existence. And now that crypto exists, banks must compete with it. And only in crypto can you codify can't be evil.

• 23:37David Hoffman?

  So it forces banks to not be evil because there's this can't be evil alternative. I don't see a world in which we like produce a bull market in human trust. That isn't supported by this underlying trustless system. It's the fact that we have the option to run trustless systems at the base layer is what creates a flourishing of human trust on layers on top of it. Do you agree with all that?

• 23:59Speaker 02

  Generally agree, but.

• 24:02Speaker 02

  I don't think crypto codifies can't be evil in quotes at all. So far, we've seen a hell of a lot of evil things happen, tons of scammers, grifters, opportunists. The traditional systems have checks, balances and protections, but there's none in crypto. So I'm not sure I really understand what you mean here.

• 24:21David Hoffman?

  Yeah, yeah, yeah, yeah. Okay, so definitely not all of crypto obviously can't be evil. Upgrade keys, for example, means that the window of still doing evil is very, very open. But some parts of crypto have been elevated into a can't be evil status. I'd put Uniswap there, other DeFi protocols there. That's what's got people so excited about Uniswap in 2019. We all realized that there was this can't be evil liquidity primitive that would be in our DeFi toolbox for like the rest of time. So our idea is that the can't be evil toolbox grows and grows and grows exponentially. And that is something that the banking layer will have to contend with by exactly what you said, becoming better banks.

• 25:04Speaker 02

  Ah, that I agree with. I definitely think technologies like Uniswap can improve banks, exchanges and such. And I don't think we're focusing nearly enough on these proven valuable use cases.

• 25:17Ryan Sean Adams?

  Yeah, so I actually think we're fairly aligned on that part. Like maybe Bankless Veer is a little optimistic in tone sometimes, right? No one has ever accused David and myself of being too bearish on anything in crypto. But I actually think we arrive in much the same place as what you're talking about, Paul and Iya. Okay, so philosophy aside, what I love about you is that you're also an investor. And as an investor, you've got this value accrual thesis for crypto, as do we. And I think your thesis, your value accrual thesis is unique and it's kind of contrarian for many others I've heard. So let's get right to that. What is your thesis for crypto?

• 25:55Speaker 02

  Uh, yes. At the end of the day, all of us want to see greater financial inclusion and options for all, but mildly differ on what might be the best way to achieve it. I don't have a strong thesis. I'm also not much of a crypto investor. My first impression of Bitcoin was that it doesn't make any sense as a medium of exchange. This was back when it was the main narrative, but I thought it's the greatest Ponzi the world has ever seen. You see, the fatal flaw of Ponzi's before is they had a perpetrator. Maybe Ponzi is too harsh, but I mean, it was the first, how should I put it? Let's, let's call it the first non-productive collectible without a perpetrator.

• 26:39Speaker 02

  So my thesis was pretty much, we love to gamble and this is the best one yet.

• 26:46Speaker 02

  That was a while ago. I haven't owned any Bitcoin for years for a variety of reasons. For the longest time, I was out of crypto markets, but I got kind of interested again in 2019 with the rise of DeFi. Combine that with EIP 1559 and proof of stake, and there was actually something new and interesting here. An alternative economy anchored by a productive asset. Of course, I was watching Bankless from day one, since I found out about it on REIT Finance. Aside from Ether, I really don't find any asset in crypto investable. And even ETH is far too volatile for my taste. So sure, plenty will make a ton of money on speculation alone.

• 27:29Speaker 02

  But making money is the least interesting thing about investing for me. And investing aside, my actual ideal, let's call it a wish, is to see protocols blossom without tokens or governance. Just, just immutable protocols that exist as a public good for all.

• 27:48David Hoffman?

  Wait, hold on. If, if investing isn't about making money, that making money is the least interesting part of investing, then what about it do you like about it then?

• 27:59Speaker 02

  Well, there's no way to say this without sounding like a pretentious knob. So I'll say it. It is about efficient allocation of capital in what matters most to me.

• 28:09David Hoffman?

  As in to say, the future is a better place when we can allocate capital more efficiently? And you intend on allocating capital to places that you think are good?

• 28:17Speaker 02

  Yeah, pretty much. I mean, good according to me, anyway. As far as I mentioned earlier, my focus is in areas of culture, arts, entertainment. But there's a deeper layer to it. It's in independent forms of art and entertainment that are innovating. A curious thing about these fields is there are pioneering works that often go underappreciated because they're kind of far ahead of their time. But they make an impact indirectly on society at large. Well, getting off topic here, but my point was investing in such works gives me a lot more satisfaction, even if I barely break even, than a sure shot trade like, say, shorting Luna or something.

• 29:00Ryan Sean Adams?

  Oh, my God, David, we found someone who's in it for the tech.

• 29:02David Hoffman?

  Oh, thank God.

• 29:05Speaker 02

  There's definitely a context to it, and I'm obviously speaking from a position of privilege. I mean, that's a relative thing. I don't have any extravagant needs, so I can afford to invest my money in things that matter to me. Just wanting to get rich is absolutely fine.

• 29:20David Hoffman?

  Okay, back to the tokens and governance thing. Do you see a possible universe where Ethereum has a blossoming app layer that doesn't involve tokens or application governance? And how would you see this future coming about when we have so clearly seen the coordination power of tokens work its magic for better or for worse? Like, how would you see this app layer, this governance-free app layer manifest?

• 29:42Speaker 02

  Um, as much as I'd like to see more experimentation on that front, I doubt it's going to happen. People like tokens. I think they're here to stay for better or for worse. Maybe we'll see some protocols do very well without a token. We shall see.

• 29:59Ryan Sean Adams?

  All right, so personal investing aside, I guess, why don't you tell us your best guess for like, how all of this plays out, all layers of the stack? How do you rank order parts of the crypto tech stack on what captures the most value? And I think we can start broad here, Polly and I, like L1 assets or the app layer. Maybe we'll start there. L1 assets or the app layer, which will accrue more value and why?

• 30:24Speaker 02

  I expect the app layer to capture the most value with one caveat. Money is the best application. If the L1 asset is great money, then it's likely to capture a ton of value. The thing is, aside from Bitcoin or Ethereum, most L1 assets are abysmal money, often by design. Some of them are even proud of this, so it's probably going to be more of a case by case thing. It's also important to clarify that the app layer does not necessarily mean the app token. We've seen recently Uniswap capturing more value than Ethereum, but none of it goes to the uni token holders.

• 31:04Ryan Sean Adams?

  Okay, let's quickly make this about Ethereum just for a second. Which captures more value? ETH, Ether the asset, or the aggregate Ethereum app layer?

• 31:13Speaker 02

  It depends on how the Ethereum economy shapes up. If it's largely financial in nature with all the high value settlement happening on L1, then there's a good chance that ETH captures a ton of value, rather more or less than the aggregate app layer is hard to say. But it's hard to imagine it'll be much more, if at all. An alternative outcome is most value is through consumer activity on rollups, in which case the aggregate app layer definitely captures more. I have no idea how it's going to play out, but thus far it seems crypto's lasting use case is DeFi. So by current trajectory, there's a decent chance ETH becomes a very valuable asset.

• 31:54Ryan Sean Adams?

  All right, so the money piece. Money, you said, is the killer app, and you mentioned Bitcoin was the best Ponzi game you'd ever seen. So between Bitcoin and Ether, which is better money?

• 32:06Speaker 02

  That's an easy one. More challenging question, please.

• 32:09Ryan Sean Adams?

  Ah, okay, you are a bankless listener. But, but seriously, like, tell us why you think that. I'm assuming you think ETH. Is it the same reason that David and I think that?

• 32:19Speaker 02

  Yeah, pretty much. I mean, your listeners know it well, so I have nothing to add. Or, okay, maybe. Let me attempt a devil's advocate. Let's say there is a chance that a bunch of wealthy people continue to believe in Bitcoin, and it remains the most valuable asset. But I guess that doesn't necessarily mean it's better money, no?

• 32:40Ryan Sean Adams?

  Yeah, I mean, I guess they're tackling the money problem in different ways. Bitcoin through maxim ossification and the memetic narrative around all that. And Ethereum by making its block space more valuable and generating this internal economy for ETH demand. And I definitely know which one I'm betting on. But why do you also say other layer ones suck at being money? Like, do you think that changes over time? I mean, there was a time when ETH was a much worse money than it is today.

• 33:07Speaker 02

  Oh, yeah, definitely. I'm sure any L1 that builds a strong social layer will focus on economic sustainability eventually. Four years ago, ETH was pretty much where most L1 assets are today. The ultimate goal was to be money, the economic bandwidth, whatever. But you're not going to be good money in the first place if the asset has high inflation and no viable plan for economic sustainability.

• 33:31Ryan Sean Adams?

  I mean, we also believe that a decently high amount of decentralization is needed for an asset to become money, at least on the layer one. And like, do you agree with that? And do you think alt-layer ones passed this decentralization test yet?

• 33:44Speaker 02

  Depends. How do you define decentralization here?

• 33:48Ryan Sean Adams?

  I would say anti-corruption resistance. Like, an inability to tinker with the dials around issuance and block rewards. That's important. Having a large group of block producers that haven't turned into a small group of powerful cartels. Even like the ability for the average Joe Techie to run a node to validate the chain as a check on block producer power. All these are important. It's censorship resistance, it's uptime in the event of catastrophe. You gotta have a reasonable distribution of supply, and more distribution is always better. I also think you need DeFi on the base layer. Because a decentralized money with a centralized banking layer isn't very useful at all. And this is one of our main criticisms of Bitcoin. There's no DeFi. There's stuff like that.

• 34:34Speaker 02

  That's an interesting question. I definitely agree. All of those are very desirable properties. And some of them may be required for good money, like, like, say, uptime. But I'm not sure if some others, like the average Joe running a node, has any direct correlation on being good money. Or if there are big cartels running the show, it may not matter if the average Joe thinks the cartels are trustworthy. I mean, indirectly, I can see that it makes for a more resilient network in extreme conditions. And thus, the base asset is better money. But yeah, I don't have much of an opinion about it right away.

• 35:12David Hoffman?

  Polen, a second ago, you said, "It depends on how the Ethereum economy shapes up if it's largely financial in nature." That "if" word sticks out to me. Ryan and I have this thesis that all financial transactions will push out all non-financial transactions by their very nature. Like, financial transactions are worth something, and therefore, these transactions can afford higher gas fees than non-financial transactions. So the idea is that Ethereum, or any crypto-economic network, really, naturally concludes as a financial system, no matter what its initial state is. Because, you know, limited blocks place supply, the ones with higher gas fees push out the ones with lower gas fees. And the ones that have higher gas fees will be financial in nature by their very nature.

• 35:53David Hoffman?

  So it seems to us that Ethereum is destined to become financially dominated in its on-chain activity. Like, financial stuff will be the significantly dominant block space purchaser. Do you agree with this idea, or do you see a place for other block space consumers that aren't finance stuff?

• 36:09Speaker 02

  I agree with the idea. I think it's inevitable high-value financial transactions price everything out. I'm looking at a scenario where DeFi remains a niche category, and there's maybe something else. Some novel applications on rollups, let's say, which achieve mass adoption of a billion users. In such a scenario, it's possible these applications accrue more value than the finance stuff. That's more of a hypothetical. I think everything we have seen so far points to financial apps being the dominant use case anyway.

• 36:42David Hoffman?

  Ah, okay. So like, maybe DeFi dominates on the app layer as the majority consumer of block space on the on the layer one, but maybe something like gaming takes off on layer twos, and then it's layer twos that compete with the DeFi layer one to consume block space. So maybe it's like, the aggregate level of gaming on a layer two actually does compete with DeFi layer one block space consumption. Is that a strong possibility?

• 37:06Speaker 02

  Important to note that after EIP 4844, rollups are no longer competing with L1 applications. They have their own dedicated space and fee market. So let's consider the example of a game that has its own rollup. It has, well, it's actually a volition, but anyway, it has its own consumers, and it's a multi-billion dollar business that makes more money than all of DeFi combined. It pays Ethereum some negligible amount of that, but that's about it. Come to think of it, SoRare is kind of like this. They pride themselves on their "web two-like" in quotes, "experience," and their customers pay with their credit

• 37:46Speaker 02

  cards and so on, and many don't even know what Ethereum is. Like I said, after EIP 4844, it won't be competing with L1 apps either. I don't think this is likely, though. It does seem like financial applications are the lasting, sustainable product market fit for Ethereum dApps that will accrue most value long term, but there are other possibilities worth considering.

• 38:10David Hoffman?

  Okay, so, and getting back to the original theme of this, which captures more value, the Ethereum app layer or ETH, let's talk about layer two value capture, execution layers. How strong is layer two value capture potential when compared to the Ethereum layer one or the Ethereum app layer? And maybe this answer changes as to whether it's a generalized rollup like Optimism or Arbitrum, or a specialized rollup like SarkX, which is what SoRare is, versus a ZK rollup, etc. How do you think about this stack?

• 38:38Speaker 02

  Ooh, there are a lot of different dynamics at play here. Well, let me try to boil it down. Basically, the highest financial transactions will accrue the most value, and those are going to remain on L1. Likewise, the L1 dApps will do the bulk of the high-value stuff. Since financial apps need generalized composability, it's probable whichever L2 focuses on DeFi also accrues significant value, mostly through MEV. But you could have a different L2 with a thriving ecosystem, but lots of low-value transactions with very little MEV or transaction fees. Specialized rollups are going to be very efficient and capture no MEV and very little fees,

• 39:22Speaker 02

  but they may be very lucrative on the strength of the application's revenues alone. And then you have ETH being used as money on L2s and all L1s alike that could capture a fair bit of value, too. This is where I'll probably cop out and say this is a complex topic with many possibilities. So it depends on the nature of the L2s, their app layers, and nature of the space and so on.

• 39:47David Hoffman?

  Okay, so let me see if I can summarize this. If there's a generalized Layer 2 that focuses on DeFi and it becomes the DeFi Layer 2, that's probably pretty valuable because it comes with high-value paid-for its gas fees. It comes with MEV potential. This is probably the highest-value flavor of Layer 2 that's possible. And after saying this, it kind of sounds like this Layer 2 is the closest fractal from the Ethereum Layer 1 itself. So that kind of just makes sense. And maybe there's a Layer 2 that's mainly about like social applications or something, like whether it's a generalized or app-specific rollup, it doesn't really matter because these social transactions, whatever they are, don't come with MEV potential. So that Layer 2 can't capture MEV because there is none. And a chain like this sounds like it captures little to no value.

• 40:31David Hoffman?

  And then there's like these application-specific chains where perhaps the chain itself captures little to no value, but the application itself does. But then it becomes dependent upon the nature of the application itself and what it does and how much value it can capture. Is this all right? And also, does this equation change when it's an optimistic rollup versus a ZK rollup?

• 40:51Speaker 02

  That sounds about right. In reality, it's probably going to be a mix and match of all of the above and a lot more. There's also a dark horse scenario where an L2 builds an awesome money that is genuinely innovative and the L2 asset becomes the primary collateral in its ecosystem instead of ETH. I think WorldCoin is attempting a pure money play as an L2. There are also some scenarios possible where L2 is basically free to use, but each smart contract on it pay a small commission to the L2. So there's a lot, a whole world of possibilities here. I can't think of why the equation would change, whether it's an optimistic or a ZK rollup.

• 41:33Ryan Sean Adams?

  All right. So this is important. So in the past, David and I have been really bullish on L2 demand for Ethereum block space as a driver for ETH value accrual. And that's the simple idea that the burn leaderboard, which charts the Ethereum apps that buy the most block space on Ethereum. So the idea is that the top block space consumers on that board will no longer be the Open Seas and the Uniswaps of the world, but they'll start to become the Layer 2s, like an optimism, an arbitrum, the ZKs. But I think you've said this idea could be completely wrong, that after proto-dank charting in EIP 4844, which could come as early as next year, by the way, Ethereum block space purchases by rollups could drop down towards zero. In other words, it'll be extremely low cost

• 42:14Ryan Sean Adams?

  for rollups to use Ethereum and purchase Ethereum block space. And this is great for rollup users, of course, everything gets cheaper, but it also removes a source of value accrual for ETH asset. Can you go into that idea a little bit more?

• 42:27Speaker 02

  Okay. So I think many disagree about this. So take everything I say with a grain of salt. Today, the arbitrums and optimisms may appear on leaderboards because Ethereum is not designed to support rollups. It's still in a monolithic state, if you will. So rollups have to pay unnecessarily high fees due to high-value DeFi or NFTs or whatever that's bidding up the global gas price. Basically, EIP 4844 introduces a dedicated data layer to Ethereum with its own fee markets that can 1,000 X the current utilization of today's rollups. Put another way, basically rollups can expand 1000x capacity all the while paying Ethereum a quite negligible fee.

• 43:12Speaker 02

  Now, once this 1000x is saturated, the 1559 like mechanism kicks in and it gets bid up. But it's still expected to stay negligible. And then Danksharding comes and expands that capacity by 20x. And through the decade, Danksharding continues expanding 100x over the next decade as bandwidth and storage gets cheaper. And not to mention, you have off-chain data options for Valiums like Data Layer or ZK Porter that are targeting some very high data bandwidths to basically millions of TPS. Yeah, I know, TPS is a pretty useless metric, but you get the idea. So in short, there's going to be an abundance and ever-increasing data capacity.

• 43:57Speaker 02

  So one silly and a hyperbolic analogy would be data layers are like a vast ocean with rollups as cruise liners on top. You'd expect the water to be pretty cheap and the cruise liner will capture much more value. But there's more to it. You have the settlement layer, the L1 we know and love, which will interoperate and bridge assets. And that's going to capture more value. In the long term, though, the real driver of value accrual would be ETH's use as money on all these L2s. And indeed, also all L1s, sidechains and others, and maybe even meet space someday. But yeah, like I said, many disagree, so make of it what you will.

• 44:37David Hoffman?

  So this is actually pretty divergent from how we've been saying on bankless. We've been saying that as people migrate to the layer twos and layer twos begin to dominate, that layer twos will become the dominant buyers of layer one block space. And what you're saying is almost the opposite of that. That EIP 48404 and then later Danksharding makes layer twos consumption of L1 block space largely negligible, even as layer two block space demand goes up. So L2s won't be dominant consumers of layer one block space, in your opinion?

• 45:09Speaker 02

  Yeah, yeah, pretty much. Meanwhile, you'll still have the high-value financial transactions that'll remain on L1. They'll continue to dominate L1 transaction fees. It's possible, years or decades down the line, the L2 data fees aggregate it to be something substantial, but it's probably going to require a different paradigm.

• 45:29Ryan Sean Adams?

  Okay, so you're assuming that L2 demand doesn't increase by a bunch of orders of magnitude after it becomes so much cheaper. And I gotta ask the question, is that a valid assumption? Because it seems to be the case with technologies, whether you're talking about bandwidth, or processor speeds, or energy, that whenever something we like gets cheaper, we just find new apps to use it. So why wouldn't BlockSpace be like that? It's kind of like people in the 1990s saying, "Oh, my 56K modem is fine. What would I ever do with broadband? Like, there's not enough apps for it. And I get everything I need with that 10 megabits per second connection. I'm fine with my 56K modem."

• 46:09Speaker 02

  Oh, no, no. I'm assuming that L2 demand does increase by several orders of magnitude to match the increased supply. Like I said, post-EIP 4844, rollups can expand their capacity by 1,000x of today's activity, all the while continuing to pay negligible fees to Ethereum. It's only after this 1,000x capacity is saturated does the 1559-like mechanism kick in. But by then, we'll be ready to expand the capacity again with full DANK sharding. But there are deeper factors at play here. I don't know how deep we want to get into this, but basically,

• 46:50Speaker 02

  it's much, much easier to scale data on a data layer than execution on the rollup. Assuming there are no other bottlenecks, you simply add more data sampling nodes and your data capacity increases. This is very much unlike execution layers, where adding more nodes actually reduces throughput. Bandwidth, which is the chief bottleneck for data layers, also increases much faster than compute, which is the chief bottleneck for rollups. Though I actually had a thread about the dynamics on how compute advancements are slowing down on a cost basis. So there are many factors at play here, which ultimately result in data being the relatively abundant resource.

• 47:30Ryan Sean Adams?

  Okay, so let's assume all that is true, that L2s do not produce high fee revenue for Ethereum, since data in this world is so plentiful in post-Dank sharding. So does that mean that L2 tokens themselves accrue all of the value? And if so, is this bearish for ETH asset?

• 47:47Speaker 02

  I think we're going to see some innovation with how L2 tokens accrue value. The obvious candidate would be congestion fees plus MEV. But I have a hunch that in the long term, the most efficient fee markets and MEV mitigations may leave an L2 with a competitive advantage. I mean, an advantage versus other L2s where users pay a high cost, both in congestion fees and MEV. It could be that some L2s build strong network effects, or have other special features or higher security where users are happy to pay a bit of premium. Then, there's also the alternative mechanisms. Like I mentioned earlier, maybe you have an L2 that has no transaction fees,

• 48:29Speaker 02

  but instead takes small commissions from the DAPs deployed on it. So I can see this go a lot of ways. And some L2 tokens become valuable, especially the ones with network effects and a thriving financial ecosystem. Worth noting that while data may be abundant and not that expensive, there'll be larger entities bridging in and out. Rollups will be interoperating with each other, and so the settlement layer will probably remain pretty busy. Definitely not bearish for ETH, as ETH will be the primary money used across most of these L2s. Some will definitely push their own assets, but ETH just has a much larger economic capacity, and any rollup that outright shuns ETH will be at a massive competitive disadvantage.

• 49:13Speaker 02

  It's also important to note that rollups are entirely additive to the broader Ethereum ecosystem, actually. I've also previously argued, so are alt-L1s and sidechains. They induce new demand that wouldn't have otherwise existed, given Ethereum's limited capacity. It's kind of like the budget airlines boom, you know? People were worried that budget airlines like Ryanair would kill Air France or whatever, but in reality, they just ended up expanding the overall demand for air travel, including the premium carriers.

• 49:44Ryan Sean Adams?

  Okay, so you just said that ETH would be the primary money in Layer 2s. Why? Like, why not stablecoins? Or why not Layer 2 native assets, the tokens? Or why not Bitcoin?

• 49:56Speaker 02

  Straight away, not Bitcoin. Because currently, there's no secure way to bridge Bitcoin. I've seen some designs for trust minimized bridges to Bitcoin. But what I've seen, it's mostly going to be a one-way bridge. Definitely a good idea for rollups to build this and start swallowing some of that Bitcoin. But ETH is much easier, natively secured by rollup bridges. Like I mentioned, ETH just has a larger capacity. So it's just a better economic collateral than anything in this industry barring Bitcoin. But yeah, maybe a rollup comes up with a brilliant money design and it gains serious value. I do expect to see stablecoins play an important role, but the USD may be an awesome medium of exchange, but it's quite a poor store of value.

• 50:38Speaker 02

  Also, the standard unit of account, but again, a poor store of value. So for a lot of the use cases, we expect in DeFi, we need something more sound like Ethereum or Bitcoin.

• 50:50David Hoffman?

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• 51:35David Hoffman?

  ZK Sync has combined the power of zero-knowledge rollups in the Ethereum virtual machine, enabling developers to build the greatest Web3 projects possible, ones we haven't even seen yet. Crypto needs its killer applications to onboard the world, but crypto killer apps need ZK Sync as a platform to build on first. It's generally accepted that zero-knowledge rollups are the conclusion of crypto blockchain scaling technology. And ZK Sync is leading the charge into the final frontier of crypto economics. So if you're a developer who wants to build your app on a future-proof foundation, which gives your users the best UX possible, check out ZK Sync's website at zksync.io. And yes, there's also going to be a token. So give them a follow on Twitter, too, @ZKSync. The Brave browser is the user-first browser for the Web3 internet, with over 60 million monthly active users.

• 52:19David Hoffman?

  And inside the Brave browser, you'll find the Brave Wallet, the secure, multi-chain crypto wallet built right into the browser. Web3 is freedom from big tech and Wall Street. More control and better privacy. But there's a weak point in Web3: your crypto wallet. And most crypto wallets are browser extensions, which can easily be spoofed. But the Brave Wallet is different. No extensions are required, which gives Brave browser an extra level of security versus other wallets. Brave Wallet is your secure passport for the possibilities of Web3 and supports multiple chains, including Ethereum and Solana. You can even buy crypto directly inside the wallet with Ramp. And of course, you can store, send, and swap your crypto assets, manage your NFTs, and connect to other wallets and DeFi apps. So whether you're new to crypto or you're a seasoned pro, it's time to ditch those risky extensions, and it's time to switch to the Brave Wallet. Download Brave at brave.com/bankless

• 53:04David Hoffman?

  and click the Wallet icon to get started. Okay, I want to zoom out and integrate all of this, because this is actually new for me. The bankless thesis has been that Layer 2s are bullish for the Layer 1, because aggregate block space demand for Layer 2s translates into block space demand for the Layer 1. With 4844, this becomes not true. And necessarily so, it becomes not true, because if there was a relationship between Layer 1 and Layer 2 block space consumption, if that relationship was preserved, this actually limits Layer 2 scale. So we need to decouple the relationship between Layer 2 and Layer 1 block space to fully take off the brakes of Layer 2 scalability. But then that begs the question: How do Layer 2s remain aligned with Layer 1s? If Layer 2s are only consuming the minimum amount of Layer 1 block space,

• 53:48David Hoffman?

  therefore contributing the minimum amount to Layer 1's security, meanwhile, they are hosting this massive burgeoning GDP on top of them, and the Ethereum L1 doesn't have a share of that, does that make Layer 2s parasitic to the Layer 1s? And your answer is no, because first, Ethereum will be money inside of these Layer 2s. Ethism money network effects are too strong for a single Layer 2 token to penetrate. And two, trade between these Layer 2s will route through the Layer 1s, either directly or indirectly via bridges. Am I understanding this correctly?

• 54:19Speaker 02

  In most cases, it's going to be a symbiotic relationship. It's notoriously hard to...

• 54:26Speaker 02

  Build large economic security, economic bandwidth and liquidity across many assets to the point only Bitcoin and Ethereum have succeeded. Although some may argue that they are both pretty negligible in the grand scheme of the global economy. By paying a negligible fee to Ethereum, the rollup gets fully secure access to all this liquidity and security. It's a huge win. Meanwhile, Ethereum also wins because it wouldn't have supported any of this activity anyway. But there are definitely edge cases to consider. Let's consider a scenario like you mentioned, where you have a massive L2 and its token

• 55:06Speaker 02

  is some significant fraction market cap of ETH, let's say 20% or so. There's two ways to look at this. Firstly, this is activity that Ethereum is unable to host anyway. So there's no real loss there. From the other side, the rollups perspective, they're paying such a negligible fee to Ethereum that it doesn't make any sense for them to risk losing access to all the security and liquidity that brought them so much success in the first place. But on the other hand, if they contributed a significant amount, let's say 50% of its fees to L1, then they would be well justified in spinning out their own

• 55:45Speaker 02

  L1. So it may turn out that low value accrual from L2s is actually for the best. Look, I think at the end of the day, all this is a bit of a red herring. And any activity outside of the Ethereum L1 is net additive to the industry at large and the broader Ethereum ecosystem in specific, because Ethereum L1 wasn't going to host this activity anyway.

• 56:08David Hoffman?

  So there's this frequent meme or critique out of some of the alternative ecosystems out there. Cosmos, definitely, I think, but also others too, that the Ethereum model forces Layer 2s or ecosystems to pay rent to the Ethereum overlord, or more specifically, more nefariously, Ether holders themselves. Does the 4844 model take the wind out of the sails of this critique?

• 56:32Speaker 02

  Okay. This whole pay rent in quotes thing is quite absurd. Ethereum provides the highest quality settlement services and rollups bid for them. It's as simple as that. By the way, I'm pretty sure with Cosmos, you have chains paying some portion of their fee to Adam, no? I'm pretty sure I saw some chain planning to pay 25% of their transaction fees to Adam. Anywho, 4844 is explicitly designed and later full dank sharding too, of course, designed so rollups pay as little fees as possible. I'd expect a busy, successful rollup will pay less than 1% of its fees to Ethereum long term,

• 57:17Speaker 02

  though you may also have ghost chain rollups that pay a lot more because they fail to accrue value themselves.

• 57:24David Hoffman?

  In this world where the majority of crypto economic GDP is hosted on layer twos, what does the layer one look like? Is Ethereum just like a marketplace for liquidity and trade across these various layer twos? What would remain on the layer one?

• 57:38Speaker 02

  What remains on layer one is the majority of the crypto economic GDP, of course. The world is highly unequal and this is very directly reflected in crypto. Come to think of it, I'd even argue crypto will remain even more unequal with the absence of any social welfare or redistributive mechanisms. So basically, the top 1% entities will be responsible for 99% of the GDP. Financial institutions, billionaires, governments and the like will always choose the most robust, the most secure space and that'll always be Ethereum L1. When you're transacting millions of dollars, you couldn't care less if the fee is one cent or $100.

• 58:22Speaker 02

  So even if you have 99% of normies on L2, it could be that 99% of the economic activity in dollar terms or ETH terms remains on L1. It's also important to remember the L1 itself will keep improving and expanding capacity with one of the splurge roadmap items being upgraded to an enshrined ZK EVM rollup.

• 58:47David Hoffman?

  So you think that the current DeFi blue chips like Uniswap, Maker, AVE, won't have to uproot themselves and find new homes? Their primary headquarters will always be the Ethereum layer one?

• 58:58Speaker 02

  Yeah, you can definitely think of Ethereum L1 as their home base, their headquarters. It's where their protocols and most of their liquidity will live. The challenge then is seamlessly making all of this available to the various L2s. I've seen some interesting ideas from the likes of Maker and AVE in development to address this, and I'm sure more will come. Another possibility is they deploy their own rollup and make that their headquarters while still being fully secured by Ethereum, of course. But this will only be possible for some protocols where atomic composability isn't a big deal.

• 59:35David Hoffman?

  What kind of DeFi app do you think would be most suited to have its own app-specific layer two, like the uni-chain, for example? Are there certain kind of DeFi apps in which this would make sense?

• 59:45Speaker 02

  I haven't really thought about it, though I actually, I've actually discussed this with a couple of DeFi protocols. The main thing you lose is atomic composability with other Ethereum L1 DeFi protocols. Although this is only partially true because technically you can have a ZK rollup that settles every slot that can compose with L1. Well, at least one way for now. I'm not sure if a uni swap chain makes sense, though, because it's atomically exchanging assets that already exist. But I just now realized that a uni swap chain might make sense where it connects assets from all L2s in one place, maybe? I don't know. Clearly just a shower thought.

• 1:00:29Ryan Sean Adams?

  All right, so to tie off the scalability and value accrual topic just now, in a recent podcast we had with Olaf from Poly Chain, he's an investor, of course, he said this, and it kind of stuck with me. "It's all just chains and bridges," is what he said. And what he meant was Ethereum is nothing special. It's just another chain. Any chain has a path to become an L1-like Ethereum, and he expects many to start to follow Ethereum's path. Ethereum is not. Special in this way. Even expect Bridges to start to have smart contracts into the value accrual game, starting to compete with Ethereum on that level. And this is very different from the Bankless thesis. The Bankless thesis believes we're more likely

• 1:01:10Ryan Sean Adams?

  to see a power law winning chain as a settlement layer with a globally significant monetary asset at its base. And currently, we see Ethereum as the primary contender for this role, though the Bankless thesis is completely open to others taking that role and taking that throne. And in this world, there are many chains and many bridges. It's still a multi-chain world, but only a few of them get to become a global monetary asset and serve as the world's settlement layer. Maybe not even a few, maybe just one, maybe two. And I believe that these are the tool dueling ideas in crypto, maybe from crypto's inception. You have chains versus bridges. You have that thesis versus the crypto money thesis

• 1:01:54Ryan Sean Adams?

  on the other side. It's kind of like Cosmos versus Ethereum, the core thesis for the space. Which do you see as more correct? Or is there some space in between these two?

• 1:02:03Speaker 02

  Why not both? I mean, that's, that's what Ethereum delivers, the best money and the best chains and the best bridges.

• 1:02:09Ryan Sean Adams?

  Thank you. Pauline, yeah, let's get into some fun stuff. Can you steel man the Cardano ecosystem? What are the best properties of Cardano?

• 1:02:21Speaker 02

  This one's easier than you may think. It's, it's, it's by far the largest L1 outside of Bitcoin and Ethereum with a strong philosophy of inclusive accountability. I'd even argue they skew closer to Bitcoin than Ethereum as to how cheap and easy running their nodes should be. They have a very enthusiastic, very engaged, and probably third best social layer generally. Okay, I'll just say it. L1s are basically cults. And, and the Cardano cult is pretty dedicated. Their validator distribution is the best in the industry, better than Bitcoin and Ethereum in its current state. And they also have strong teams working on rollups like Orbis and Milcomida, and probably the most activity happening around

• 1:03:05Speaker 02

  next gen scaling solutions outside of Ethereum and Tezos. I'd say Cardano is the best position to be the number two settlement layer for rollups after Ethereum, but no idea if they can pull it off.

• 1:03:16Ryan Sean Adams?

  Have we on Bankless been unnecessarily mean to Cardano?

• 1:03:21Speaker 02

  Nah.

• 1:03:26Ryan Sean Adams?

  Okay, okay, why not?

• 1:03:28Speaker 02

  A lot of it is definitely well deserved. Hoskinson's a bit of a bellend and their shills are obnoxiously loud. Well, at least during the bull markets. I'll have to say, as obnoxious as crypto Twitter generally is, some of the most polite discussions I've had were with Cardano people. They sincerely believe in their mission of maximizing decentralization, keeping nodes easy to run and following on from Bitcoin while avoiding Ethereum's mistakes. At the same time, making Cardano the laughing stock is undeserved. They are a real project with real research and development and they have a strong community. Now, personally, I'm very skeptical it'll ever amount to anything.

• 1:04:12Speaker 02

  So anytime an ADA shill makes some bombastic statement, please don't hold back.

• 1:04:19Ryan Sean Adams?

  All right, fair take, but I'm going to wait until I see some block space fees at least.

• 1:04:23David Hoffman?

  Let's talk about cult in crypto. Obviously, this industry is especially tribal, of course. Would you say that tribalism in crypto is a bug or a feature? What do you see as the role of cults in this industry?

• 1:04:35Speaker 02

  I mean, what else is there?

• 1:04:37Ryan Sean Adams?

  So everything in crypto is a cult?

• 1:04:39Speaker 02

  I mean, I think there's definitely a clean distinction to be made between productive and unproductive assets. And there's definitely assets that are not PonZies and communities that are not cults. So far, there's nothing in crypto where a vast majority of its value isn't derived purely from being a cult. I mean, the whole all L1 mania was driven purely by an expectation to accrue as little value as possible. I mean, would you, what would you call this if not a cult?

• 1:05:06Ryan Sean Adams?

  I mean, but maybe that's what society is built on, cults. Most of our earliest institutions probably started that way.

• 1:05:13Speaker 02

  I'd say there's still a distinction to be made, but let's move on.

• 1:05:17David Hoffman?

  As we wrap this up, let's zoom out a little bit. And this will be a two-part question. If you could snap your fingers and change one thing about crypto, and you can't just like delete all the scams and the short-termism, what would it be?

• 1:05:30Speaker 02

  Uh, it feels to me like there's this general delusions of grandeur. Um, you know, people think that they can reinvent the wheel from scratch or whatever. This is rather naive as we've have for millennia evolved and developed systems and done so in an extremely diverse and decentralized manner. Too often, we see crypto protocols throw away these basic learnings only to fail miserably and then to start to incorporate some of this wisdom in a haphazard manner. I think crypto would be a lot better off to be more humble and pragmatic. Take from traditional avenues what works and build on them, improve them, and of course, to integrate with the traditional avenue where it makes sense.

• 1:06:12Speaker 02

  You want to build solutions that work for everyone, not just a few holy warring purists.

• 1:06:18David Hoffman?

  So you want us to get practical?

• 1:06:19Speaker 02

  Pretty much, or at least don't do stupid things that have been proven time and time again to not work through the eons.

• 1:06:26David Hoffman?

  Yes, I love this. We often say on Bankless, we're speedrunning the history of money and finance and human organization. And we're not saying we're speedrunning all of that only to throw it all away.

• 1:06:37Speaker 02

  I'm saying no need to speedrun it. Let's just start from where we already are. I mean, imagine how incredible our accomplishments as a species has been. That we can build something like a blockchain in the first place. I mean, don't throw it away. Build on the shoulders of giants.

• 1:06:54David Hoffman?

  Okay, the second part of this question is to zoom out even further. If you could snap your fingers and change something about the whole entire world, what would it be?

• 1:07:03Speaker 02

  Probably a terrible answer, but I wouldn't change a thing.

• 1:07:06David Hoffman?

  Damn, not even world peace?

• 1:07:08Speaker 02

  I mean, sure, I can point at 100 different things that are bad, unfair, or even selfishly, everything that causes me suffering personally. But this is the human experience. It's an absolute miracle we exist. We shall grow, learn and improve together.

• 1:07:26David Hoffman?

  Well said. The human experience is irreplaceable and life is an absolute miracle. And it's been a pleasure to share this miracle in space and time with you, Palenia. Last thing then, we want to open the mic to you. This is the first time you've been on a podcast. You now have a human voice and the entire crypto community is listening. What do you want to say to them as we close?

• 1:07:46Speaker 02

  Oh, I don't have much more to say. Okay, okay, maybe just enjoy yourself. Make sure you're entertained. The pleasure's been mine. I'm eager to see what Polynya sounds like outside of shitposting on Twitter.

• 1:08:04David Hoffman?

  Well, from the perspective of the listener, it would appear that you've spent about 45 minutes with us chatting, but in actuality, it's been about five hours in Discord together. So Polynya, thank you so much for your time.

• 1:08:13Speaker 02

  I would be shocked if it were only 45 minutes.

• 1:08:17David Hoffman?

  Ryan and I are currently in debate as to how long this transcript will actually turn into audio length. It sounds like I'm taking the underside to you both.

• 1:08:24Ryan Sean Adams?

  Yeah, I think this is over 60 minutes easy, but we'll see. I really have no idea, and that is the fun part. So let's wrap this up. Polynya, thank you for joining us on Bankless. And also, I want to take a moment to give you my personal thanks. You taught me something brand new about Ethereum in 2021 and stretched my understanding of crypto through your modular blockchain thesis. We made an entire podcast about this. Thank you so much. I really appreciate it, and I hope you stay with us in the years ahead.

• 1:08:51Speaker 02

  Thank you and for everything you've done to educate us. By the looks of it, there's a whole lot of educating still left to be done. And I'll be cheering from the sidelines.

• 1:09:01Ryan Sean Adams?

  All right, action items for the Bankless Nation. Some education, of course. We'll include a link to our modular versus monolithic blockchain show in the notes. This is a digest of everything Polynya taught us about blockchain scalability and rollups last year. Go listen to it. I consider this required listening if you want to understand Ethereum and rollup scalability. We'll also include some links to Polynya's top articles. Make sure you read them to understand their full thesis. Hey, Polynya, it's time for me to do the risks and disclaimers, but would you like to do them instead?

• 1:09:31Speaker 02

  Wow, has anyone done this before?

• 1:09:34David Hoffman?

  You'll be the first, but it's a thing that we're going to start doing.

• 1:09:37Speaker 02

  I'm honored, or at least whoever is Polynya's voice. Okay, risks and disclaimers. Crypto is risky. You will definitely lose your mind.

• 1:09:48Speaker 02

  Just kidding. Okay. Risks and disclaimers. Crypto is risky. You could lose what you put in, but we're headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.