ETH vs. SOL: A Professor's Take | Omid Malekan

Omid Malekan, an adjunct professor at Columbia Business School and author of multiple books on crypto joins us. Omid shares his insights on the evolution of blockchain, the concept of digital scarcity, and the future of decentralized finance. Drawing from his experiences in both traditional finance, his teachings, and the crypto industry. Omid also discusses how blockchain offers a fundamentally new way to build trust and redefine property rights in the digital world and his best arguments for why ETH is better than SOL. ------ 🎬 DEBRIEF | Ryan & David unpacking the episode: https://www.bankless.com/debrief-omid-malekan ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2 ⁠ 🦄UNISWAP | BROWSER EXTENSION https://bankless.cc/uniswap 🪄MAGIC EDEN | HOME OF WEB3 https://bankless.cc/MagicEden 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🤖0G | MAKING THE IMPOSSIBLE, INEVITABLE https://bankless.cc/0G ------ ✨ Mint the episode on Zora ✨ https://zora.co/collect/zora:0x0c294913a7596b427add7dcbd6d7bbfc7338d53f/81?referrer=0x077Fe9e96Aa9b20Bd36F1C6290f54F8717C5674E ------ TIMESTAMPS 0:00 Intro 5:52 Omid Malekan’s Crypto Background 9:31 Transitioning from TradFi to Crypto 14:51 Explaining Blockchain to Crypto Newcomers 21:10 The Fear in Crypto Transactions 24:53 Blockchain as a New Financial Architecture 28:07 What New Crypto Users Get Wrong 32:06 Not All Blockchains Are Equal 39:25 Qualitative & Quantitative Block Space 41:49 Lessons from Traditional Finance 46:36 Modular Design in Blockchain Systems 1:01:30 Envisioning Crypto's Endgame 1:09:25 Ether's Value Proposition and Role 1:20:28 Opportunities for High-Quality Liquid Assets 1:23:38 Ether as the Money of the Internet 1:36:55 Settlement Assurances and the Future of Ether 1:44:07 Crypto Cycles and Future Gains 1:45:29 Own Podcast? 1:46:22 Closing & Disclaimers ------ RESOURCES Omid Malekan https://x.com/malekanoms Omid's Books https://www.amazon.com/Re-Architecting-Trust-History-Markets-Platforms/dp/1732027331 https://www.amazon.com/Story-Blockchain-Beginners-Technology-Understands/dp/1732027307 ------ 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

  Well, the only way to do it is to own ETH.

• 0:05Ryan Sean Adams?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Calm down. Ethereum is fine. This is basically the message of our guest today. He's Professor Omid Malekan. Formerly, he worked in TradFi. He's a current professor at Columbia, and he teaches courses on crypto, basically. I'm sure a number of his students will be tuning into this episode today. David, there were a number of questions we wanted to ask the professor today because his Twitter timeline is just fantastic, full of lots of hot takes. And I think both you and I detected that he sort of shared many of the bankless fundamental takes.

• 0:47Ryan Sean Adams?

  So we want to ask him current event type questions, like, why has ETH been underperforming this cycle? Why is the price so low? What's the value accrual properties for Ether, the asset? Are Ethereum layer 2s parasitic? All of these questions are in the current meta of crypto at the time. But in order to get there, we had to ask him fundamental questions like, what are blockchains even good for? Like, why do they exist? What does he think about Bitcoin? What does he think about Ethereum? Is one chain's block space the same as another chain's block space? Are these all commodities? And he was able to answer these questions with a depth that I think few guests on Bankless have been able to answer them.

• 1:23David Hoffman?

  I think Omid has approached some of the answers about, like, why blockchain? Why crypto? What are we doing here? From his own first principles perspectives. And he also draws lessons from TradFi of where he once worked to point towards crypto. And it's like, oh, well, this is how TradFi works. This is how we built the TradFi system. Understanding those patterns will allude to some answers about how we are going to build crypto systems. Omid is very well versed in deep nuances of crypto, while also being able to extend those things coming from TradFi. We get into the conversation of what a high-quality liquid asset is and whether or not that that is money. That was a pretty fun conversation, as well as all the execution layers that we see around the crypto space

• 2:08David Hoffman?

  and how that relates to the other execution layers that came before them, like Visa and wire transfers and all of these parallels that we have. So it's always very refreshing to get a professor's take who it's his job to get down to the basement of things and explain these things from first principles, because I'm assuming his students are always asking, but why? But why? But why? And when you are faced with a thousand graduates always asking you why, you learn to explain things in a pretty effective way and you learn things pretty deeply. And so that's kind of the knowledge and value that we got out of Ameen today.

• 2:43Ryan Sean Adams?

  One of my favorite bull cases for Ether the asset, actually, in this episode, one of my favorite that I don't think Bankless listeners have heard yet, although you've heard David and I talk about Ether many times. This term that you were just mentioning, David, high-quality liquid asset. So stay tuned for that near the end. We'll get right to the episode, but before we do, we want to thank the sponsors that made this episode possible, including our recommended exchange to get your high-quality liquid assets. That is Kraken. Go create an account.

• 3:10David Hoffman?

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• 3:55David Hoffman?

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• 4:39David Hoffman?

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• 5:24David Hoffman?

  as revolutionizing decentralized AI.

• 5:29David Hoffman?

  Bankless Nation, super excited to introduce you to Omid Malekan, professor at Columbia Business School, where he has been lecturing on crypto since 2019. He's written multiple books on crypto, including Rearchitecting Trust, which EF researcher Donkrad says is one of his favorite books about crypto blockchain tech and Ethereum. Omid, welcome to Bankless.

• 5:49Speaker 00

  Thanks, guys. Very excited to be here.

• 5:52David Hoffman?

  Omid, you stumbled on our radar, mine and Ryan's radar, from some banger tweets that we enjoyed and also your books that you've written. But I think my introduction to you can only do so much justice to who you are. Maybe you can kind of take the reins here and just illuminate a little bit more about yourself, what you do and kind of your perch in the crypto space.

• 6:13Speaker 00

  Sure. My very much self-appointed title is as the explainer in chief of crypto. So the thing I enjoy doing most is grappling with all of the complicated, exciting issues on the frontier as we head west, like you guys like to say, and then digesting it, processing it, and communicating it to everything from people in crypto to normies. I was almost forcibly introduced to Bitcoin by a friend 10 years ago, who asked me to help her buy some. And she actually ended up also participating in the Ethereum ICO. So my claim to fame is I actually went through the process of doing that, but did not invest any of my own money.

• 6:59Speaker 00

  It's okay. The experience was well worth it. People forget fun things like the fact that your private key was emailed to you.

• 7:09Speaker 00

  Wow. Yeah, but I have a TradFi background. Like in a past life, I worked in various roles on Wall Street. I was a trader, did a bunch of other things. And what mesmerized me about crypto from day one was just how fundamentally different it was. And even going back to that first Bitcoin transaction to a wallet on my computer, where I literally had no idea what I was doing. I think I just followed a YouTube tutorial. But I had a sense, I was like, this is crazy and different. And I had this intuition in the back of my mind that in the future, this technology and way of doing things, way of building trust, will one day impact far, far more than what Bitcoin was doing.

• 7:53Speaker 00

  So then with when Ethereum came out and smart contracts and tokens and DeFi and everything, that vision has sort of been realized. I've been working professionally in the industry for something like seven years. So you mentioned I wrote a couple of books. I worked as a in-house crypto expert at Citi Ventures, which is a part of Citibank for like three and a half years. And that was an awesome experience. I actually think everyone in crypto would be really well-served if they spend some time in a TradFi context for two reasons. One, if you want to disrupt something and replace it, you are going to be a lot more effective if you do it from a place of knowing and understanding

• 8:37Speaker 00

  as opposed to a place of like, we're just going to tear it down and build something better.

• 8:42Speaker 00

  The other thing is there's a lot that TradFi actually gets right. And a lot of knowledge and experience that's beneficial to us as we're trying to build a decentralized, open, permissionless financial system. So I did that. And now, other than teaching and various other academic pursuits, I do consulting, almost like randomly with ideas and projects that come my way for crypto firms, law firms, trade groups, TradFi firms that are still trying to wrap their arm around this thing. And usually my area of expertise is that sort of like the intersection of the two. How do we take this brand-new frontier

• 9:26Speaker 00

  and combine it with existing knowledge to just build something that's better?

• 9:31David Hoffman?

  The Venn diagram of people who were in TradFi in like the old world, but then that were also early to crypto, I think it's actually really small. I think TradFi people tend to need to have this extra step of getting into crypto, which is like unlearning a bunch of things before they can then learn crypto. And so I want to kind of just like double tap on that part of your experience, being inside of the TradFi system before crypto was even built out in the world of infrastructure and payments and DeFi and all this stuff, just like early Bitcoin transactions, you know, Ethereum ICO. Can you just kind of like, did you have like an aha moment? Or just something that clicked in the early days of crypto that you can kind of share and illuminate, just to kind of further illustrate your perspective here?

• 10:15Speaker 00

  Absolutely. It was actually, I can tell you, I don't remember the exact date, but I can tell you the moment, which is that my friend was like, I want to buy a couple of hundred dollars worth of Bitcoin. This is when Bitcoin was worth like a couple of hundred bucks. So I don't know, one or two Bitcoins. And I didn't know anything about it. In fact, before this, my understanding of crypto was sort of like what a lot of the no-coiners say today, which is like, it's weird internet money that only appeals to drug dealers. But she was like, please help. And I was like, okay. And I opened a Coinbase account, funded it with her bank account, bought the Bitcoin. And at this point, I was like very disappointed. I was like, this is like Coinbase interface circa 2013, 14.

• 10:56Speaker 00

  I'm like, this is just a really poor version of what I was using in TradFi a decade earlier when I was a professional futures trader. But then I was literally like, okay, well, what does one do with a Bitcoin? So I probably Googled, what do you do with a Bitcoin? And this was also around the time of Mt. Gox. So the one thing that came up is like, don't keep your coins on exchanges. You gotta transfer it to your own wallet. Which I, like I said, I followed a tutorial. I had no idea what I was doing. I don't have a technical background. I knew nothing about cryptography. I'll never forget when I first went to withdraw from Coinbase and it was like, enter your Bitcoin address. I was like, what's an address? Is it like [email protected] or something?

• 11:40Speaker 00

  And then when I looked it up and I saw that it's, you know, the, the alphanumeric string, I'm like, but this is ridiculous. That's never gonna work. Like, people are not gonna use this. But I withdrew the coins to some old, original Bitcoin wallet on my desktop. And then after whatever number of minutes, it said, your coins have arrived. And this actually blew my mind because even though I didn't know much about it, what I knew was all the ways in which I could screw up. Like, just what I'd read, I was like, man, if I put in the wrong address, Bitcoin gone forever. If I didn't back up my wallet, I didn't even know what a private key was. I just knew like you had to back it up.

• 12:24Speaker 00

  Coin's gone forever. And at the same time, I'm like, oh, but keep it on the exchange. Exchange gets hacked. Coin's gone forever. And put together, something started in the clicking, clicking in the back of my mind when I was like, wait, nothing I've ever used in TradFi ever works like this. You just don't worry, right? Like, if you have a brokerage account, a bank account, you don't worry about this kind of thing. And back then, a lot of people would say, oh, look at this stupid crypto thing. Like, it can be lost, it can be stolen. But somewhere in the recess of my brain was this idea that, wait, isn't that true for every historical store of value? Not even store of value, anything that has value, right? Like, it's true for gold.

• 13:07Speaker 00

  It's true for a rare piece of art. It's true for a $1 bill. And in all those contexts, the fact that it can be lost or stolen is not a bug. It's a feature because that's what makes it scarce. Even though I didn't know how any of this blockchain stuff worked, I was like, this is the first digital thing that has physical properties. And in fact, I think in my first book, came out like 2018, that's how I describe blockchain. It's a technology that gives physical properties to digital items. And now contrast that with my experience of TradFi, going back to your question, which is like, you kind of know you never own anything.

• 13:49Speaker 00

  You have accounts, you have balances, but you just know that there is like eight intermediaries between you and the actual asset. And the worst case scenario is like the 2008 financial crisis where the intermediaries blow up and your asset just goes away. But even on any given day, there's censorship. And even when there isn't censorship, those intermediaries have so much power over all of us. Now, there are regulations and laws about what they can do, but you know, they can raise prices and decide who they want to serve and who they don't, which happens to be the opening line of the Bitcoin white paper. So that was my genesis. I didn't even have the vocabulary to call it digital scarcity, but I was like, that's cool.

• 14:34Speaker 00

  And then as far as infrastructure is concerned, whatever's happening with this Bitcoin thing and later Ethereum is unlike how TradFi works. And then I developed this thesis that in the future, this is going to impact everything. And you know, 10 years later, I'd say we're well on our way.

• 14:51Ryan Sean Adams?

  I mean, this is very resonant with, I think, how David and I came into crypto and like what we see as the value proposition of this space. And I love that you call yourself kind of like an explainer in chief because I think you maybe have a way of explaining this to TradFi. You also obviously have your students you explain it to. You know, there's a new cohort to kind of explain all of this to, and that is every single cycle that we see in crypto, every single like vintage year, we have a new crop of crypto people who come to the space for various reasons. And like you can almost see the vintage year of every single person that comes into crypto based on why they came, what their belief system is.

• 15:31Ryan Sean Adams?

  And so for the like the first cyclers, for maybe the crypto youngsters out there, I think a lot of them actually haven't heard the story of why crypto is important. I mean, maybe they haven't even heard the case that you just gave of like bearer instrument, digital scarcity, property rights. And so let's start with maybe the explainer, Omid. Do you use your powers of explainer in chief, if you will? And like maybe target, not TradFi yet, like, but maybe target the, the new crypto natives who have, they just purchased some meme token, or they're like using a wallet for the first time. Can you get to the fundamentals of what blockchains actually do?

• 16:15Ryan Sean Adams?

  Like, if you were to explain this, maybe the perspective of trust is kind of your book, verifiability, integrity. But how do you explain this to somebody who's new to crypto? They're curious about it, but they just don't have the, you know, like the 10 years in the space and they don't have these, these values really reinforced. So like, what is blockchain?

• 16:33Speaker 00

  Continuing from what I said, the blockchain is a technology that gives physical properties to digital or virtual items. Let's break that down. So for like the history of humanity, people have needed things that are considered valuable. Either they're valuable either because they're productive, like they're a commodity, or they're valuable because they communicate status, like jewelry. But that's just foundational. Everybody can relate to that. And until very recently, the vast majority of things that were valuable were physical. And when something's physical, it has inherent scarcity. Now, obviously, like, you know, gold is more scarce than aluminum.

• 17:17Speaker 00

  But even like aluminum has inherent scarcity because if I have aluminum and I give it to you, I don't have aluminum anymore. Like, we get caught up in crypto with the technical jargon of the double spend problem. But physical items don't have a double spend problem. You can't just make more of them, you know, unless you're like in the world of Star Trek or something. And that's been foundational. And then with the scarcity usually comes fundamental property rights. And I'm not even talking about where property rights, like what's enshrined in the legal system. But you know that saying, possession is nine tenths of the law, right? What that means is whoever possesses something is the owner to begin with.

• 17:59Speaker 00

  And then there are laws as to things like, well, we need deeds for property. Somebody could come and steal your aluminum or jewelry. And then there's a way that you can go get the state to force them to give it back. But these aren't even things that economists talked about, by the way, because this is just like how life works, how the world works. But what's happened in the last Century, even before the internet, was that more and more of our assets have become things that are virtual.

• 18:29Speaker 00

  So if you think about like capital markets, like stocks and bonds, right? They don't, they no longer, there were once actually in many places bearer instruments. Like you had a certificate that said, this is a stock. And that was it. Whoever owned the stock was the rightful owner. There was no database or registry anywhere.

• 18:48Speaker 00

  But for whether it's capital markets, if you think about intellectual property like brands and patents. And then like fast forward all the way to the digital age where you have your followers on social media or the items that your character has collected in a MMO video game. These are all things that are valuable. Nobody questions that. But the problem is that our system of preserving scarcity and property rights don't work in that context, right? Because we no longer have like physical atoms that you can't just copy. We now have bits of data. And data is the least scarce thing on the planet.

• 19:30Speaker 00

  Data is unbelievably easy to copy, to edit, to delete, to destroy, whatever. So what we did until January 3rd, 2009, as the newspaper cover indicates, is like we took the old ways of trying to preserve scarcity and property rights and applied them to virtual items. So we had like banks and brokerages and we had regulators. And then more recently, we have social media corporations, we have video game corporations. And it's just not working, right? It's like we've taken the old way of doing things and thrown new sorts of value into it.

• 20:12Speaker 00

  To me, the fundamental appeal of blockchain and crypto is that we can sort of go back to the way things were. And my epiphany When I did that first Bitcoin transaction was that this fear that I have of something going wrong is good because it means that this asset is scarce and it means that there are certain inherent property rights that cannot be violated, right? The downside of that is of course if I screw up, I can't just like a credit card, call the company and say, hey, can you send me more Bitcoins? But that's how value has always worked. So putting it all together, I think blockchain is just a better way to build trust in a digital economy.

• 20:56Speaker 00

  And even though it's underneath the hood extremely complicated, the net result is elegant. I have a wallet, like my physical wallet. It has assets in them and I control their fate.

• 21:10Ryan Sean Adams?

  That's so fascinating. I've long sort of felt that, but I don't think I've ever put that into words. Like when you send your first Bitcoin transaction or an Ethereum transaction, that fear that you get, you know, that that time where you're like checking, then double checking, then then triple checking the transaction because you know if you're going to, if you send this transaction, it's irreversible. You know, I used to, I used to play more games than I play now. It was a RPG game called Diablo, Diablo two specifically. You could, there was a mode setting, like regularly, normally when you play Diablo, you sort of, you die and then you respawn somewhere and you're a few levels back, but you kind of like work your way back to where you were, right? You could also set up Diablo for something called hardcore mode.

• 21:55Ryan Sean Adams?

  Okay. And in hardcore mode, when your character that you've leveled up, you spent hours grinding these dungeons to get to kind of like level 30, level, level, you know, 40, whatever, you're a necromancer. And let's say they die in hardcore mode, they don't come back, they're gone, it's over. And what I, what I found in, when I played Diablo two on like hardcore mode is like the game style was like very different. Everyone played like much more cautiously, the stakes were higher, it all felt a lot more real. And I think that's kind of what, what you're saying is just like, you know. Know that it's decentralized, you know that it's bankless. You know that there's actual digital scarcity because the stakes are high.

• 22:38Ryan Sean Adams?

  If you don't feel that fear, like when I go pay with my credit card, I'm not terrified that somebody's going to take my money. It's all irreversible. It's like, whatever. But like, you know that it's real because you feel that level of fear. I don't think I've ever thought about it that way, but that's like a perfect articulation.

• 22:55Speaker 00

  Thank you. And the thing to remember is that I'm not arguing for like, we move to a world where all assets are bearer assets and everyone does self custody. I actually, this is one of the things I disagree with a lot of like the Bitcoin maxis. If you look at going back to the history of the economy, even in the societies where people relied on bearer instruments like gold coins, they would still enlist the help of professionals to help them protect it. It's just like common sense. You don't want to be walking around with all of your like net worth in your pocket because then someone has an incentive to murder you and take it.

• 23:34Speaker 00

  But to me, what's special about crypto is that optionality. The fundamental default state is bearer assets that people own and control and access is censorship resistant. But if you, or more likely, like if you're a big corporation or institution or something, you want to hire a custodian to help you protect that asset, you can. And I would advise you should, because again, like if we all want to be in the world where like every pension fund owns billions of dollars worth of crypto. But what we don't want is a world where the CFO of the pension fund is walking around with like a ledger nano in his pocket, holding all the fund's assets. But the optionality is really the special sauce of crypto.

• 24:18Speaker 00

  Because not only does it mean that if, when you want. Self-sovereign ownership, you can have it. But it means the service providers have to fear you opting out. So I think the future of crypto will actually, in some ways, look a lot like TradFi. We'll have banks, we'll have custodians, we'll have large companies like a Coinbase, whose job it is to help people protect their assets. But they're going to be so much better than the TradFi equivalent. Because we will always have the optionality to say, you know what? Forget it. I'm going to push a button, take my assets back and give them to your competitor.

• 24:53David Hoffman?

  I do really appreciate this idea that the TradFi system is trying to virtualize a lot of the old world assets. Like, in the modern day and age, the logic of our Wells Fargo bank account, the logic of Visa, all kind of collapses back down to this first principle notion is that somebody put their gold in a bank somewhere in order to trust the bank. And then the layers of intermediaries were all created to make that an easier process and abstract away all the complication. Like, a bank note, I think, is the first abstract, the first virtualization of something. Still virtualization in the real tangible world, like it's still a physical object.

• 25:36David Hoffman?

  But that's just like the first step to make it virtualized on the internet for later when we would invent the internet. And a blockchain is just wiping the slate clean of all of that layers of intermediaries, where I think Taleb, Nassim Taleb, would love to tell us about all the different, like, long-tail risks that come with layers and layers of intermediaries to allow for the virtualization of value to show up on the internet. And then the blockchain just allows us to kind of just like clean slate and put the virtualization natively into the internet, where we all exist in today's age anyways. Using that perspective, Omid, I want to kind of pick your brain about like how you think a blockchain ought to be designed.

• 26:19David Hoffman?

  Using this frame of reference, what makes a good blockchain a good blockchain? If this is what blockchains are for, if this is the true north for what blockchains do, how should we think about good blockchain architecture?

• 26:31Speaker 00

  Good blockchain architecture starts with...

• 26:35Speaker 00

  Fundamentally valuing decentralization. And I don't mean that as some kind of like ideological rah rah corporations or governments are bad. I think both will play a major role in the blockchain world in the future. But that's literally the only thing that makes a blockchain special. And we take it for granted that in our world, we make major sacrifices to achieve it, right? We sacrifices in terms of performance, the user experience, complexity. But if we're going to do that, then we should really do it right. Otherwise, please, please, for the love of God, just use a database. We have great databases. They're unbelievably efficient, fast, no cryptographic bloat.

• 27:18Speaker 00

  But I think a good blockchain system has the basic properties. And this is actually what my classes are a lot about. It's about these, just these first principles, like it has to be permissionless. Participation in running it has to be open. It has to be transparent. It has to be distributed. It has to be public. And as far as the performative features of it, just to like drill it down, the three things it must have is what we call safety. But that just means it protects everyone's property rights. What we call liveness, but that just means that it's resilient and just not it doesn't never go down. Nobody has the power to take it down, even if they wanted to.

• 28:01Speaker 00

  And then what we call censorship resistance, which is just it's open to anyone who's willing to play by the rules of the system.

• 28:07Ryan Sean Adams?

  Okay, so that's how you would characterize decentralization. So I want to ask you, you know, I was talking earlier about this, this new generation of crypto users. And like every, every year you get sort of a new generation. Yeah, sometimes David and I call the kids, right? You know, so the kids, let's talk about them for a minute. What's something you think the kids get wrong about crypto? Something that they don't appreciate, maybe this new generation of users that's using just like, we could scale it to infinity TPS. What do you think they get wrong? What do you think they're missing?

• 28:41Speaker 00

  Can I first start by talking about what the kids get right? If that's okay, just because, so in my class, which they're not kids, but they're on the younger side. I've, every year I've done this, I've asked them before class starts, they have to write a paragraph on why they're taking the class. And like And what's the class called? I mean, It's called an introduction to blockchain and cryptocurrencies. A very bland name that's designed to mask just how awesome and exciting.

• 29:07Speaker 00

  What's the demand for that class? Like, Very high. Very high. Yeah. And How many, how many students in the class at once? Just the limit, the school sets is 75 students. It has to do with classroom size and more often than not, it's close to maxed out and there's a waitlist. And the reason why is really interesting. So I started doing this in 2019. There was some interest, but like, I'd say a third of the students who, when they filled out the survey, they were like, I think this is all a scam. And that's why I want to take this class, which by the way, to this day, those are my favorite kind of students. Cause I think it's the height of intellectual integrity. If you think it's a scam, but you decide to go through the process of taking a graduate level course.

• 29:53Speaker 00

  There are people who would take the class and I would ask them at the end, I'd be like, do you still think? At the end, no one ever said, oh yeah, it's a scam. But there were people who said, I still don't believe in it. And I love them. That like informed skeptics are my favorite people. I like them a lot more than uninformed believers. But anyway, what happens now is that the typical student who takes my class does so because they think this is inevitable. And they think I teach at a business school. It's going to be a part of the business world. Some of them actually want to go and work in crypto, which is very exciting. A bunch of my former students currently do, which is deeply rewarding. But for the average Columbia Business School MBA student, they say, I want to go into VC. And I think it's important to know how to do web three VC.

• 30:38Speaker 00

  I want to go into finance and banking, and I think that tokenization is going to be a big part of finance and banking. And the other thing I've noticed is this is the kids thing. We're now seeing the generation that grew up on the internet, more or less. The question of like digital assets is not a question to them. To them, it's like, of course, they're going to be digital assets. And of course, we're going to have to have ways that protect people. And Ryan, a lot of them, like, they come from the world of playing video games. And you spend a lot of time as a gamer. You might not be able to intellectualize it the way we do, but you know that you spend a lot of time, energy and money collecting assets. But that there's some opaque database behind it.

• 31:24Speaker 00

  And what if the gaming company goes bankrupt? Assets gone. What if they decide that your country, people of your country are now sanctioned and can't play anymore? Assets gone. So that's what the kids get right.

• 31:37Speaker 00

  To go back to question, I think the biggest misnomer of the current crop of people coming into crypto is that they think of layer one blockchains as just networks. And they're like, oh, it's a network and the network needs to be really, really fast. And the network needs to have like insane throughput. And of course, a network is going to be going to run out of like the best, most connected data centers and have the most sophisticated hardware. I think that's a very dangerous design philosophy for any blockchain.

• 32:07Ryan Sean Adams?

  Okay, this goes to a tweet I want you to get into from just your recent timeline, which I just love. You just like shoot some bangers out here. So you said this, in the years to come, the greatest false belief that'll be invalidated is the belief that all on-chain settlement is equal and fungible. Bitcoin, Ethereum, Solana, high-performance change with heavy concentration, et cetera, et cetera. If you believe all of these things are fungible, you don't believe in crypto. So what you're getting there, we're using words like fungibility, but by fungibility, you mean interchangeability. I think what you're basically saying is, hey, not all block space is created equal here. Maybe that goes to what you were saying, the sort of the part that the kids get wrong is they think that, oh yeah, let's just like make it faster.

• 32:53Ryan Sean Adams?

  And if we can make it faster, then it's obviously better than the slower thing because it's just a network. But I think what you're saying here Here is, hold on a second. Not all blockchains are created equal because of your framing of of property rights and settlement guarantees. Can you talk about that more?

• 33:09Speaker 00

  We live in a world of trade offs, going back to like the the difficulty and complexity of building these systems. And I'm not even gonna, we can get into it later, but like governance is a whole other regard moral. But I think a Bitcoin block is the most secure thing on the internet by an order of magnitude. And you know, Bitcoin, I've been accused of being an Ethereum maxi, but Bitcoin is my first love. And you know, you never forget your first love, even when you start dating other people.

• 33:37Speaker 00

  But Bitcoin, just by virtue of being proof of work, by virtue of being like almost entirely just inflation based distribution. Not a dollar was raised because by virtue of the fact that we don't know who Satoshi is, and I doubt they're still around. All of these things give Bitcoin some of the best security, decentralization, liveness, safety, censorship, resistance guarantees. The problem with Bitcoin is you can't do much with it. You can transact Bitcoin, you can do a few other things. I'm very excited to see what happens with like ordinals and Bitcoin L twos, but I'm just skeptical that much of it will work. Because the other thing about Bitcoin is it's simple.

• 34:20Speaker 00

  Yeah, once we get into like how smart contract platforms Ethereum Solana work Bitcoin and proof of work, there's an elegance to it.

• 34:28Speaker 00

  But it does one thing, it does it really, really well. I think that one thing is going to be huge and very important for the world. But to say that like, oh, there's that. And then there's some new Ethereum L two without fraud proofs and a centralized sequencer. Or some new high performance L one where insiders own 70% of the token supply. And you need hardcore bandwidth to validate it. To say that these things are equivalent, I think, is just fundamentally a mistake. It's similar to saying like, well, I got a little safe in my closet.

• 35:06Speaker 00

  That's just as good for protecting my valuables as a vault inside a bank that's 10 feet, 10 stories underground. Like nothing in in life works that way. And Blockspace certainly does it.

• 35:19Ryan Sean Adams?

  Okay, so not all block space is equal. Some block space is basically Fort Knox. And like some is just like, you know, it is safe in your closet in your bedroom. It's just like, not very secure. I think where some people get wrapped up a little bit is a word that you used earlier in the episode, which is the word decentralization. And you did define it in some ways. You gave it kind of like three attributes. But even in those three attributes, like, how much is enough? How much security? How much liveliness? How much safety is actually enough? I don't know if you have a way to explain this to your students when they ask that question? Because sometimes the word decentralization can almost be a purity test, let's say, in certain communities. And like, everybody wants it.

• 36:04Ryan Sean Adams?

  So Justin Sun is like, you know, Tron is DeFi. Tron is decentralized, right? And like, we don't have maybe the data set or the metrics to like, sort of push back on that and spell it out. It almost seems somewhat subjective. Do you have objective ways to measure these things? When people ask the question of like, well, how decentralized is it? You just said that Bitcoin block space is some of the best, best settlement guarantees. How do we know that? Versus like some alternative layer one with higher TPS?

• 36:33Speaker 00

  I have to admit, I don't have as objective of a measure as maybe I should. And I think partly like this is the fun of like the science of crypto and blockchain to come, that maybe people more sophisticated or smarter than me will come up with it. But there are things we can say about Bitcoin that we cannot say about any, almost any other chain. One is we can say that it's been around for a long time. And that it has almost never changed, for better or for worse. We can say that the censorship resistant property has universally held true. Bitcoin has never been down. Now, Trade offs, Bitcoin has variable block times and probabilistic finality.

• 37:18Speaker 00

  So, these are the things I can say. I can also say the hash rate for Bitcoin is extremely high. And the cost of attacking it, because the hash rate is high and because ironically, you would need to get a ton of ASICs that would then become useless after you succeed in attacking Bitcoin. And Bitcoin governance is resolved, by which I mean like Bitcoin governance is do nothing. When in doubt with Bitcoin, do nothing. That has downsides, like there might be great upgrades worth doing in Bitcoin that'll never happen, but the good news is you don't have to worry about governance being corrupted or like politics ruining Bitcoin. Now, move over to Tron, it doesn't have any of these features.

• 38:01Speaker 00

  We know that there are individuals or entities that control enough of the token supply in a proof of stake blockchain to do whatever they want. Importantly, I don't think there's like the optimal level of decentralization. And I think this is the second thing that kids get wrong when they think of networks. I think because it's something desirable and valuable, like everything else in the economy, we should have different tiers of decentralization for different use cases. Right? So obviously, if you're El Salvador, if you're a country that's going to put like your national foreign exchange reserves in Bitcoin, you want that bulletproof security and you don't care what 10 minute block times, I don't care.

• 38:45Speaker 00

  The fact that like fees could be high, who cares, right? Like this is my national savings and I want the vault. Bitcoin is the vault. But if you're trading a $5 meme coin, that's wasteful. It's completely overkill. That you can go do on some high performance chain or a not so decentralized L2. And both are fine, right? Like I think it's a mistake to say this is better than this. It's also a mistake to say this should be the same. It's just that we're going to have different kinds of on-chain activity for different amounts of value and economic importance, and they're going to need different levels of decentralization.

• 39:25David Hoffman?

  I think the, maybe the way to frame this is we're talking about the qualitative side of block space. Block space has different qualities and we can judge blockchain space on the nature of the quality of their block space. And then there's also the quantity side. I think something that we absolutely learned in 2021, and we've always kind of known, is that we also need to increase the quantity of block space. But there's also like, you know, path dependencies here. The choices for how we actually supply more block space also matters. And I think it's highly related to, you know, the use cases that you're talking about. Like, we can, we can have less quality block space in terms of like decentralization and trustlessness for some things. But we also definitely need

• 40:08David Hoffman?

  more block space because we do not have the whole entire world on chain. So, Omi, do you have like a perspective on the correct way to supply more block space to the world?

• 40:18Speaker 00

  Yes. I think a, we call it modular, but really like a tiered or hierarchical way is the most efficient. And I contrast that with the monolithic, right? The monolithic, which is the vision of Solana and the other high performance changes, we have to scale it so we can do everything here. One network, one chain, billion dollar payments, $5 meme coins, all right next to each other. I think that's impossible. I think it's inefficient. And I think it's just like flies in the face of common sense because nothing in life

• 40:59Speaker 00

  works that way. TradFi doesn't work that way, but like our lived experience doesn't work that way. So if you guys are celebrating a birthday and I want to send you a $50 Amazon gift card, I'll drop it in the US Postal Service. Not the most secure, reliable, but who cares? It's 50 bucks. If I'm sending you like, I don't know, a $50 million work of art, I'm gonna hire an armored truck and dudes with guns to deliver it to you, right? It's far more expensive, less convenient, probably slower.

• 41:30Speaker 00

  But it's a $50 million work of art. And if you want, like, I can get into the architecture of TradFi, because all of TradFi is hierarchical. To me, like, we need a way to say, okay, you get, if you need the most security, you're in the L1 or the L2 or the L3, and have a system where people can go up and down as they desire.

• 41:49David Hoffman?

  I do want to get those lessons out of TradFi, because we built financial systems before crypto. And so what did those financial systems look like? What lessons can we pull from TradFi to kind of illustrate this point?

• 42:02Speaker 00

  So let's take the two favorite examples of people in the world of Solana and other high-performance chains. And by the way, let me just say, like, I love Solana. I think Solana has some of the best people in crypto. I am very grateful to people like Toly, because I think they've really introduced the new element. They've also just personally been very generous with me when I try to learn from them.

• 42:24Speaker 00

  But I do fundamentally disagree with when they talk about NASDAQ and Visa. I feel like those are the biggest false idols in crypto right now, because NASDAQ and Visa are not settlement systems. Like, from our perspective, NASDAQ and Visa are like trusted messaging layers, or to put them in a modular context, are like the L3 of the TradFi world. So let's do credit cards first, like Visa, MasterCard, whatever.

• 42:55Speaker 00

  You go to a coffee shop, you swipe your card. They do not get money.

• 43:00Speaker 00

  Instead, they get a promise from the credit card scheme, like Visa, that eventually they'll get money.

• 43:07Speaker 00

  Now, it's a pretty reliable promise. There's regulations, they've been around forever, yada, yada, yada. But if you ask the coffee shop, "Did you get my money?", as in, like, "Can you turn around and take the $5 and use it to pay your employee right now?", they cannot. Instead, what Visa does is, throughout the day or days, it accumulates, I don't know, tens, hundreds of thousands of these transactions. It batches them. And then eventually, it resolves them with like a single payment to the bank account of that coffee shop. And that might happen in a couple of days, it might happen in a couple of weeks. I'm going to generalize here, because credit cards are somewhat different in different countries, but... The credit card swipe is like an L3 transaction, right? It's good enough.

• 43:51Speaker 00

  But if you notice, you do not use credit cards to do really important things like pay rent or buy a house. And that's because the settlement assurances are very weak. So then, when credit card companies pay coffee shops, they usually do so through the banking system. So they usually do like an ACH payment. That's like the L2 of dollar payments, right? It's much more reliable and secure settlement than the L3 credit cards. It's still reversible, though. Like, credit card transactions are very easy to dispute. ACH transactions can be reversed, which is why, like, if you use ACH to fund your Coinbase

• 44:35Speaker 00

  account, they don't say, "All right, start trading and you can withdraw now." They're like, "We're gonna wait a week." And then, the ACH transactions, the way those work is there's delays. They all get batched and netted, and eventually, they get settled through Fedwire. So in the US and in most countries, the central bank-run payment system is the L1. That's like the most secure, bulletproof, irreversible payment. Central banks can't fail, because they can print money. But the way it works is it's all hierarchical, because the Fed doesn't want me and you as a customer buying coffee. Right? They're like, "I don't want..." They don't want my mother as a customer, because they're like, "She's gonna forget

• 45:18Speaker 00

  her password and like, call the New York Fed, and they're gonna be like, 'We can't help you reset your password.'" What the Fed wants to do is facilitate the most important payments that usually happen between... There's only a few hundred institutions globally that get access to Fedwire. And most of the payments that they make are massive, but they're like the batched and netted result of all the L2 and L3 payments. And this is like an efficient provisioning of settlement, because everybody gets what they need. Now, it's not ideal, but there's a reason why it works that way. Because it would be, you know, like, it would be dangerous for me to use the post office to send someone a valuable work of art.

• 46:03Speaker 00

  It would be overkill for me to use the armored truck to send you a gift card. So that's just the payments version. And by the way, fun fact, 95% of all payments, like if you track individual payments in the US, they happen up here with things like credit cards. But 95% of the value gets settled down here at Fedwire. Like, the big banks are, as we speak right now, sending each other multi billions of dollars. A single big correspondent bank like a JP Morgan will do trillions of dollars in payments through the Fed today.

• 46:36Ryan Sean Adams?

  Two thoughts on this. One is to kind of complete the thought of where you're going with like an alternative layer one, you like something like super fast, like, you know, NASDAQ on chain, which is like sort of a moniker for Solana. Are you saying, Omid, you see that more as sort of like a layer three? It's not good. It's not the Fedwire. It's not the layer one. It's not, does not have the settlement guarantees and property rights of a layer one, like a Fedwire. But it's very fast. It's kind of a visa. And so you sort of prefer the modular design of something like an Ethereum, or even like Bitcoin, if it was able to have expressive layer twos that are trustless. Because that

• 47:18Ryan Sean Adams?

  emulates what we're doing in traditional finance. It's like a modular approach where you have the layer one being a Fedwire and the strongest settlement guarantees basically irreversible, unless you're like, you know, Jerome Powell and like, you know, the Treasury and those folks. And you have kind of the layer two and then the layer three. So the modular design really makes sense to you because you're approaching this from a strength of settlement guarantees perspective. Is that what you're saying?

• 47:41Speaker 00

  Yeah, I think it's actually an insult to Solana to say it's going to be NASDAQ on chain. Because NASDAQ is not a settlement system. DTCC in America is the settlement system. All of the securities ownership and actual trading and transfers in the US happens inside their golden ledger. Which is kind of crazy, by the way. Like, I get into that in the new book that, people don't know this, but every share of a public company in America is owned by a single corporation. We don't own Apple stock. Seed and Company, which is a subsidiary of DTCC, owns Apple stock for benefit of a clearing member or custodian who owns it for benefit of Robinhood, who owns it for benefit of me and you.

• 48:26Speaker 00

  But again, it's that way for a reason. Because if someone's just trading five grand worth of meme stocks back and forth, that doesn't need to be settled inside of DTCC. Like, a broker like a Robinhood is good enough. But when the major financial institutions are trading shares back and forth, on behalf of their customers, they need greater settlement assurances. So I fear that the high-performance chains like Solana, because they are worshiping this false idol, are just headed in this wrong direction, where they're like, we're just going to need more and more capacity, right?

• 49:06Speaker 00

  Because the millions or billions of shares that trade on NASDAQ or Visa's doing 50,000 TPS. But I don't think they realize that those systems are not, they're not settlement systems, or they're not what you want to be if you're an L1 blockchain.

• 49:21David Hoffman?

  I mean, what about the counter example here? The idea that, hey, like, this is actually a brand-new system. This is a brand-new structure. We have a blank slate. We have software. We have cryptography. We can actually put like one second, one penny microtransactions next to $1 billion stablecoin transfers. And why can we do that? Well, because everything is software now. Like, all the costs of these things collapses to zero. There's network effects. There's strengths of settlement assurances. And the cost of providing the world's strongest settlement insurance to a one penny transaction is actually the same as it costs to settle $1 billion. And it's because we have this new substrate, and the rules are different now.

• 50:05David Hoffman?

  Well, why doesn't this perspective hold water for you?

• 50:08Speaker 00

  So it's true to a certain extent. Certainly even L1 blockchains should be performative by traditional standards. And I think one of the other good things that, like, Solana has done is it's reminded the Ethereum community that while I fully subscribe to the modular L2 roadmap, we should continue to upgrade the L1, too. There's no reason not to. But... They're trade-offs, David. Like, you know, at the end of the day, latency is always going to be a thing. Consensus takes time. If you say we want to reach perfect consensus in a fraction of a second, it's not going to be as reliable as when you take five seconds to do it. There are hardware requirements.

• 50:53Speaker 00

  I think the bigger problem for the performative chains is there are bandwidth requirements. Now, the counter to that usually comes like, oh, hardware gets cheaper, bandwidth gets faster. But to me, that's like disrespectful to the power of crypto. Because if we achieve what we want to, the demand for block space is always going to grow far faster than the hardware costs will fall.

• 51:16David Hoffman?

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• 52:01David Hoffman?

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• 52:45David Hoffman?

  So go and download the Uniswap extension today by clicking the link in the show notes.

• 52:49Ryan Sean Adams?

  Just another way. I mean, this goes back to sort of like every blockchain wants to say they're decentralized. And sort of how do you define decentralization? And I think you did a pretty good job when you were talking about Bitcoin block space versus Tron earlier. I've sort of taken to going through your approach, which is like really looking for the acid tests. And like one of the acid tests that you mentioned is like, how long has it been in existence without sort of a transaction that's been in reverse? Right? So it's kind of the Lindy effect. You know, this is sort of like Bitcoin. It's been in existence for a very long time. Another acid test that I like to use is censorship resistant. Like, is the block space filtering out transactions that a nation state just like says no to, basically?

• 53:34Ryan Sean Adams?

  So if you go to the MEV watcher website, right? You could see that the percentage of blocks that are built that just screen out all, you know, like OFAC sanctioned things versus, you know, those that kind of let them through. And I would contend that Ethereum is basically the one that's sort of passing that test. It is still censorship resistant. Some of the block space goes through and it's not OFAC sanctioned. I'm not sure that you could say that for any kind of like layer three type of system or an alternative layer one. Like you haven't seen it, it hasn't passed that acid test. And that's important as well. So I've, I've taken to go and also like, you know, liveliness guarantees. Has your chain gone down? Like, how often does it, does it go down? These are some of the hard metrics that I've started to use to assess decentralization.

• 54:19Ryan Sean Adams?

  I want to also comment on the kind of the broader point of like, this is how kind of TradFi works and it's all, you know, intermediated. And it's, you know, it's got all of these layers of custodians and complexity. And it goes back to something that David and I have talked about on Bankless since inception, which is like you, you can build banks on top of bankless systems, but you can't build something bankless on top of banked systems, intermediaries, right? You can build something that's centralized on top of something that's decentralized, but you can't do the reverse. You can't build something that's decentralized on top of something that's centralized. I mean, this should be basically self evident to everyone. It just doesn't work that way. And I think about a conversation I was having with, do you know Patrick McKenzie?

• 55:04Ryan Sean Adams?

  He's kind of a TradFi guy. He's got a blog. I know Ozcaim, yeah. He is a fascinating individual. And I was just like, I was writing a check the other day, Omid, I was just like, an actual checkbook. This was like to pay my taxes or something. They're the only, they only accepted checks, okay? And I went through and I was looking at the numbers and it was asking the, the website for the state of New Jersey or something, was asking for my, like, my account number and my routing number. I'm like, oh, cool. It's like here on the check. Everyone has written a check in the US. He's that. I was like, oh, my God. This website's just, you're asking for it. And with social security, my social security number verification, it just accepts the payment and it yoinks money out of my account, an ACH transfer out of my account. I was like, oh, my God. My private keys are written on the outside of this checkbook.

• 55:48Ryan Sean Adams?

  Like, that can't be right. Is that really how the system works? So I go and I asked Patrick McKenzie. I'm like, hey, are there, you know crypto a little bit, you know, you know, TradFi, obviously, our account, like, check, checkbooks, really? Do they, do the checks have private keys on the outside? He was like, yeah, that's basically how it works. I was like, okay, how is there fraud not everywhere? And he's like, well, actually, there is, and there would be, except we have AML KYC over everything. And the entire banking system is set up to detect fraud, so that if you're writing a counterfeit check, like, good luck. You know, authorities are coming to your house. They'll catch you. They'll throw you in jail. That's kind of your proof of state. And it brought to mind how inefficient that system is with all of kind of the different

• 56:32Ryan Sean Adams?

  checks and bureaucracy and departments and fraud detection and all of that. And the reason we've created that type of a system is because we don't have digital bearer assets. So there are all of these, one thing I guess I would say the kids don't appreciate is like, how revolutionary crypto actually is. It's not just another fintech platform. It's not just like, you know, we're like a faster Visa. We are going down to the root level and we're disrupting the settlement layer that, by the way, you don't even know exists. It's called Fedwire. And we're even going deeper than that. We're disrupting the fiat system. So Jerome Powell can't even reverse your transaction or Janet Yellen can't. So if anything, my, my objection to like, what the kids don't understand is actually

• 57:17Ryan Sean Adams?

  how revolutionary this shit is. They don't appreciate that.

• 57:21Speaker 00

  Well, yeah, to your point about fintechs, I joke with my students that in the first class that fintech to me is just lipstick on a pig. We took the same architecture of literally like, but you know why they call it a wire transfer?

• 57:35Ryan Sean Adams?

  I have no idea.

• 57:36Speaker 00

  Because the telegram was what enabled for you to have remote payments. Like literally you would go and Western Union, which we now think of as a remittance provider, was once the biggest telecommunications company and one of the biggest companies in America.

• 57:54Ryan Sean Adams?

  Are you talking about like telegraphs, like, you know, even before?

• 57:57Speaker 00

  Like you would go to a Western Union location and you would say, I want to send 50 bucks or so on, so on, this other city and they would, you know, Morse code, b b b b b b. But that, that in, in 17, whatever, early 1800s, that was a revolution in the world of payments. They have not changed much since. There's actually not that much that's different from that to what PayPal does or Venmo, right? It's just, I mean, it's on the cloud now and there's bundling and rebundling and maybe they use, they use mobile. But at the end of the day, it's like you have different ledgers and then there is like just incessant endless messaging. That's what SWIFT is. SWIFT is just a communication system.

• 58:42Speaker 00

  It's not a settlement layer. And then like every bank has its own ledger within the bank. They have many different ledgers. They don't know what's going on in their own ledgers. Nobody knows what's going on in the bank to bank ledger. And then settlement happens through this like very, very, very complicated system of debits and credits. It's almost miraculous that it works as well as it does today. And it's all like programmed in COBOL. But yeah, when you move to the crypto world, it's like, well, instead of having 18,000 different ledgers, let's have one ledger, but let everybody keep their own copy of it. But that's insane. That's amazing.

• 59:23Speaker 00

  Like if, if two copies of something important is good, then 20,000 copies of it is a thousand times better. And that's what we have with with mature networks. And I do think like having a lot of independent nodes for blockchain, Bitcoin, Ethereum is very important. Right? Because it's transparency and you're like the ultimate line of defense if something goes wrong. Other things, your point about like, let's use public key cryptography, which did not exist when the banking system as we know it was architected. Um, and like instead of messaging in order to transfer assets,

• 1:00:03Speaker 00

  just transfer the asset. This was one of the things when I worked at Citi, I realized like, because they were like, I don't understand. How does this work? How does a stablecoin work? I'm like, you know how like in TradFi, you communicate, communicate, communicate, communicate. Eventually you settle in an asset. They're like, yeah, I'm like in crypto, the message is the asset. And they were like, wow, you just said one message and that's the money. And it, yes. I mean, obviously it's more complicated than that. But all of this, the other way to think about it, I think this is actually taken for granted. Unlike fintechs and banking and Stripe and like the stuff that the Patrick McKenzie's of the world deserve a lot of credit for building. Bitcoin and blockchain and crypto is invented for a world where the internet was a given.

• 1:00:49Speaker 00

  The banking system was not. Fintechs were not, right? Like the original fintechs, go back to the nineties. That's when PayPal and them over founded. And you end up building a completely different model of the financial system. If it's a given that almost everybody on the planet has one of these things. And there are many places where people don't have bank accounts, but they have one of these things.

• 1:01:15David Hoffman?

  Phone right now.

• 1:01:16Speaker 00

  Oh, I'm sorry. Yes.

• 1:01:19Speaker 00

  And and you will like design a completely different financial system. You'll borrow some of the learnings from the TradFi system. But like architecturally, it should be different. And one of the differences is that you don't disclose your private key every time you want to do a transaction.

• 1:01:33David Hoffman?

  I think one of crypto's favorite pastimes is talking about what the end game looks like. And of course, if you, depending on who you ask, you get different conclusions. Ask a Bitcoiner what the end game looks like. They'll say something like hyper Bitcoinization. What is your perceived endgame of the underlying plumbing that we're building out here? Like, if we fast forward 10 years, we've exhausted research and development in cryptography. We've deployed everything that we've researched, and this thing is like well underway. What does that look like to you? Where do you think we're going here?

• 1:02:04Speaker 00

  I think Bitcoin just becomes like the world's backup money. I don't believe in hyper Bitcoinization. I just think it's very impractical. And again, like a lesson of Tri-Fi, building your entire society on hard money has some significant downsides. It's kind of ironic that now like the populace in America are like pro gold and pro Bitcoin because 120 years ago, they were the exact opposite. For people who don't know, one of the most famous political speeches in American history is a rant against the gold standard.

• 1:02:37Speaker 00

  So that's Bitcoin. Unbelievably important, though, because I think every government, corporation, individual will just want to hold some of it. Because when all goes to hell, whether through inflation, confiscation, war, your banking system fails, whatever, you can still use your Bitcoins. They are scarce and they're censorship resistant. Beyond that, I think we will have a modular or hierarchical stack of L1, L2, L3, whatever. Most people and users will live on the higher stacks because, you know, like I'm not that rich or that important, so I don't need Fedwire-grade security.

• 1:03:18Speaker 00

  Some of this will actually look exactly or similar to how like you think of like your fintech account. But the backend will be tied to some chain, which will then settle to a more secure decentralized chain, which might then settle to the L1. I think all assets will be tokenized, by which point we'll just call them assets. I'm old enough, when I first started trading, there was this battle between electronic trading and non-electronic trading. Like, that's kind of a ridiculous debate. It was a debate. Now it's like, you just trade, and of course it's electronic.

• 1:03:54Speaker 00

  And then we'll have classes of new assets, like what, you know, a native cryptocurrency is, NFTs, DAOs, governance tokens, all of that too.

• 1:04:06Speaker 00

  And the world will be a better and more trustworthy place.

• 1:04:12Ryan Sean Adams?

  Amina, I don't know if we've ever had a guest on that I've agreed with more in terms of the vision and philosophy, as you're going through the way you think about settlement assurances and the properties of money in the financial system that's important. I've found myself just being like, yup, that's pretty much what I believe. So now we get to test that. I'd like you to maybe bring out, test this on Ethereum, rather, because I want to talk about some current discussions that are going on in crypto right now, particular to maybe the Ethereum, but just all of crypto, and see how aligned you are on these types

• 1:04:53Ryan Sean Adams?

  of things and what you think. So there is a discussion about Ethereum losing the plot, doesn't know what its North Star is anymore. Worried, people are worried about Ethereum. A lot of people will say, well, it's just price action, Ryan. Okay, well, let's discard that for a minute. It is true that other ecosystems are gaining, let's say, in mind share at least. You wrote a tweet thread, which begins with Ethereum is fine. I won't go through the rest, because I'd rather have you explain this and articulate it. But what's your take on Ethereum itself? Is it losing its way? Is it getting disrupted by

• 1:05:36Ryan Sean Adams?

  faster alternative layer ones, the Solana, Sui's of the world? Or do you actually think it's fine? And if so, what's your justification for that?

• 1:05:45Speaker 00

  I think it's fine. That tweet was actually inspired by a friend of mine, a former student who works in the industry, when he said, you know what's funny, is if, other than the price action, like ETH versus BTC or versus Sol, if that wasn't the case, if you just looked at the metrics on Ethereum, you'd be like, wow, this is going great. Fees are very robust. Stakers are earning a positive yield, which is rare. That actually doesn't exist in almost any other chain, meaning inflation is very low, but you can still make 3%, 4% from transaction fees in MEV. So that's great.

• 1:06:19Ryan Sean Adams?

  The only other train that's doing that is Tron.

• 1:06:22Speaker 00

  Is that right?

• 1:06:23David Hoffman?

  I think that's right, yeah. It's Ethereum and Tron.

• 1:06:26Speaker 00

  Well, Justin's son is doing well then, I guess. But and then like, so let's compare those two, right? Like, then you look at like, OK, staking diversity, client diversity, these are things that like, you know, Ethereum has this culture of decentralization that I know some people are down on right now because it's slow. And it doesn't give you the instant gratification of like, ah, yeah, we're just pushing a new update every month. And this is, I think, part of what attracts the kids to a network like Solana where like someone tweets and complains something and then Mert responds at like, all right, great, we bootstrap the solution for it. But like, it's and credit to him, right? They're awesome, but like, it's not in the protocol. It hasn't been researched. It hasn't been tested.

• 1:07:11Speaker 00

  Nobody really knows how any of it works. I am amazed, sort of like Trant, I'm amazed that Solana works because when I get into it in the weeds with people involved and I'm like, how does this work? How does that work? They're like, well, I'm not sure, but you know, it kind of works.

• 1:07:29Speaker 00

  And the L2, I do think, just this past week, we had Uniswap announced Unichain. And I think this is the other appeal. So let's get away for a second for like the cryptoeconomic security settlement assurances of the modular stack. I think the other underrated thing is that

• 1:07:51Speaker 00

  if you're a monolithic L1, you have to go all in on one tech stack. You have to go all in on one virtual machine, probably just one programming language, you know, possibly just one or two wallet providers, yada, yada, yada. And this is something I was actually, I got from some of the other like, people like Donkrad or Anskar at the EF, that they said, you know, one of the reasons we pivoted to the rollup-centric approach is we realized that we at the L1 can't decide everything. We don't want to be the ones who have to decide that the EVM is the perfect, you know, the best virtual machine for the future global settlement layer. Maybe it is, maybe it's not. So the other thing that I think very exciting about Ethereum is that,

• 1:08:36Speaker 00

  and it's very early, like I think we're now going to see a Cambrian explosion of L2s. Some of them, like the uni-chain, they're really trying to optimize for actual decentralization of the L2, right? However, we define that. Others won't at all. Some of them will be for people that want to play games and do meme coins. Some of them will be for DeFi. It's actually kind of annoying that most of them are EVM so far. I can't wait till like the SVM and the parallelize and the yada, yada, yada rollups go up. And at this stage in the game, that's what we want to see. We want to see that experimentation. We want to see segmentation. And in all these regards, when I look at Ethereum, you know, other than the price,

• 1:09:18Speaker 00

  but you are not, we've all been around long enough to know like price is the least informative thing in crypto. It's doing fine.

• 1:09:25Ryan Sean Adams?

  So let's talk a little bit more about price and maybe not in the sort of the months range, but in kind of the years range, because I think even some of the ETH bears, Ethereum bears, I would say, would concede. I mean, okay, yeah, the metrics look great. Layer two is going, going just fine. The rollup centric roadmap, apparently it seems to work. But whoopsie, there's a problem there because L2s are actually parasitic. They're parasitic to not Ethereum necessarily and the idea of a network, but they're parasitic to Ether the asset. You take all of the, the DeFi off of the Fedwire and you sort of like move that up into the kind of the higher layers, the layer twos and the layer threes. Then what's the value proposition for Ether the asset?

• 1:10:09Ryan Sean Adams?

  And so I want to ask you this because I think you've, you've got some insights into Ether the asset and why, why is Ether the asset valuable? Can you talk about that? And, and I think you've used this word or this term HQLA, high quality, I think, liquid asset. Maybe talk about that and you'll give us some analogues in the TradFi world.

• 1:10:31Speaker 00

  Yeah, sure. First of all, as I tell my students, much to their chagrin, not investment advice. I have no idea what ETH is going to do next week or next year.

• 1:10:39Ryan Sean Adams?

  I bet they ask you though, all the time. Give us the token picks.

• 1:10:42Speaker 00

  They are very disappointed. And then I once got booed by my own students because I had a guest speaker. And one of the students was like, hey, the professor never tells us what to buy, but can you tell us what to buy? And I just cut it off. I'm like, sorry, we can't talk about it. And the whole class was like, boo.

• 1:11:02Ryan Sean Adams?

  How many of your students will be listening to this podcast, though?

• 1:11:05Speaker 00

  I would have sent it to them because I'm a big fan of the show. Yeah. So I have to, I have to be careful here and not share the, the, the cat meme coin that I think is the next trillion dollar asset. Kidding. But HQLA, so yeah, this is a term I borrowed from TradFi. And the reason why is that if we're going to build a better, more decentralized financial system, we need a really good asset to build it on top of. This is just how all financial systems always work. Was, was gold at some point. It's probably US treasuries now.

• 1:11:42Speaker 00

  HQLA, this is actually a regulatory designation post 2008 for like, how much treasuries and treasury-like things banks need to hold. But in high quality, as in like universally recognized as valuable, there's not a lot of credit risk or default risk. And then liquid, as in like, if you have a lot of it, or somebody else has a lot of it, and they have to sell, it's not going to kill the price. The market can absorb that. And I think DeFi needs this. I think DeFi needs a HQLA asset for you to have borrowing, lending, leverage, more decentralized, stable coins, better perps, right? Like if you're trading perps, I mean, a lot of them use a stable coin.

• 1:12:25Speaker 00

  But what happens if like the US government and the, the federal regulators who are now very against most crypto, go after Circle and say like, we don't want USDC used as an enabler of this illegal

• 1:12:41Speaker 00

  perp market or poly market or something. It's a risk that we have to, like, today's okay. I don't think it's going to happen tomorrow, but if we're going to build the global financial system on top of. In DeFi, we don't, we can't take that risk. So we need an asset. And the first candidate for like the crypto native HQ LA is Bitcoin. I just don't want to get into a Bitcoin versus ETH debate, but it's more valuable and it's more liquid. It's significantly more liquid. I don't think anybody disagrees with that. The problem with Bitcoin is you can't do anything with it natively. So if you want to use it as collateral or to trade perps and stuff like that, you can only do that in a trusted fashion. You have to, you know, actually lend your Bitcoins to somebody

• 1:13:25Speaker 00

  or like deposit it at a crypto exchange. Maybe someday Bitcoin L2s will work and we'll have stable coins on Build 2 and then we can revisit this conversation. But for now, it can't be Bitcoin. Which means the AQLA asset really has to be the token of a L1 smart contract platform. It's not going to be a DAP token. It's not going to be a governance token. It's not going to be a L2 token. I don't, I think we all know why in terms of how like they're just not as secure, not as liquid, too much governance risk, et cetera. And ultimately today, it comes down to ETH versus Sol.

• 1:14:06Speaker 00

  Because there's no other L1 smart contract blockchain token that's close to these two in terms of value as in like market cap, liquidity, or even decentralization. And when I wrote that post, I really thought about it. I was like, just ETH just wins on multiple metrics. If, let's go through it, right? One is that ETH ownership is pretty widely distributed, certainly more than Solana or Sol. Because Ethereum launched as a proof of work blockchain and for years. And proof of work is much better at distribution of ownership than proof of stake. It's just a fact of life.

• 1:14:50Speaker 00

  It's really hard to launch a new proof of stake chain. Because how do you get tokens into the hands of the people who are going to stake? And not have them be like? Just a handful of VCs and insiders and the foundations. I actually don't know what the answer to that question is, but I think it's a problem. Ethereum skipped all that because it was a proof of work chain. So the distribution is good. The foundation barely owns any. Also good, there's no affiliated labs that has influence or control on the network or owns significant tokens. That's, that's good for HQLA. It's bad for other things. Like if there was an Ethereum incorporated that had more money, they could fund more things and do more grants or whatever, but trade offs.

• 1:15:33Speaker 00

  ETH is more widely held than Sol. It's more liquid than Sol. It has lower inflation. And that's important for this conversation because inflation is like the cost of capital for DeFi. If you own ETH and you want to go and use it in AVE, you're going to forego staking yield. But it's not, that's okay, right? Because you're foregoing like three, four percent, but you're not being diluted.

• 1:16:04David Hoffman?

  That's actually not necessarily true because I, I have staked Ether in AVE right now. Uh, and so I'm accruing the staking yield of the Ethereum protocol as my collateral deposit inside of AVE. Now I'm using a less liquid derivative than I am of Ether itself, but I am getting the yield.

• 1:16:22Speaker 00

  Yeah, yeah. So obviously if you have like Lido stake Ether Rocket Poolers, yeah, but you're taking more risk, right? Like all else being equal, Lido stake Ether, which I also own, by the way, is, is, has some risk. It's not a risk free thing to go through a, a staking provider and it's less liquid.

• 1:16:41Speaker 00

  And the, the challenge in Solana is that Solana has a lot more inflation. So that means it's naturally going to have a higher staking participation rate. So there's less of it around. I think Solana's staking participation rate is double Ethereum's.

• 1:17:00David Hoffman?

  Yeah, it's like seventy-five percent or something.

• 1:17:02Speaker 00

  Yeah, which I mean, it's like five point something percent inflation. You'd be crazy not to. And it's easier because they have, you know, delegation of staking. But the cost of capital for DeFi is real. And I actually looked this morning, like if you go on AVE right now, native ETH, you can, you know, the deposit borrow rates like two, two and a half percent. Native soul in Solana DeFi is like five, six percent, which makes sense, right? Because if you're going to lend out your soul on Camino natively, well, you're not staking it. You're not making five percent. So people are going to have to pay you more than that in order for you to make your asset available as collateral in DeFi.

• 1:17:45Speaker 00

  So what this means, to put it in finance nerd terms, is that the nominal yield for soul is higher than ETH. And that's actually problematic because you're competing with staking for DeFi. And then the ultimate thing, and this is where it gets really like interesting and ironic, is that Ethereum has higher fees. And that's good for AQ, HQLA consideration because we always think of fees as being a cost to users, which it is, but it's a revenue to stakers. In Ethereum, because inflation is very low, but fees are actually high,

• 1:18:27Speaker 00

  you have a very positive real yield, right? Like, so just to review, the real yield is the actual yield you earn in any currency above the inflation rate. And in Ethereum, it's actually a pretty impressive thing that it's like currently in the, what, three to four percent range? I guess, well, we subtract inflation, it'll be like three, two and a half. But then when activity is high, the real yield is even higher.

• 1:18:57Speaker 00

  And then you have a burn mechanism. There's a few other nuances that like if ETH has a higher convenience field for the same reason, people want to hold more of it to pay future gas fees compared to Solana. So ironically, if your fees are too low, then and your inflation is too high, which every single one of these high performance chains is going to have that problem. One, they're young and two, if your state validation requires sophisticated hardware and expensive bandwidth, you have to pay people for that, right? It becomes a little bit actually like how proof of work works,

• 1:19:39Speaker 00

  which is like proof of work, all else being equal, always need more inflation than proof of state because you got to pay the miners. They got high electric bills and hardware costs. So Solana and all the other high performance chains are going to have this problem where they're going to have negative real yield for the foreseeable future. Now, to be fair, Solana inflation ratchets down every year. And even though they keep optimizing the network to maintain low transaction costs, maybe there's enough demand that shows up that in aggregate, stakers end up earning more. But for now, as far as like a pure asset that people want to hold and use as collateral for financial activity across all of crypto,

• 1:20:25Speaker 00

  to me ETH is the standalone HQLA.

• 1:20:28David Hoffman?

  For HQLAs, I want to ask about just what doors open up for the assets that cross the chasm into being an HQLA? There are certain opportunities that are open to assets that have this status versus others that don't. What are those opportunities and how does it kind of create like a feedback loop of the the nature of the HQLA?

• 1:20:51Speaker 00

  So ultimately, it comes down to the fact that it's an asset that people want to hold today because there's more you can do with it today and tomorrow. So going back to the TradFi context, like the reason why everybody in the world wants to hold US Treasuries, because that's the HQLA, is, one, they they sort of trust the US government, they trust the Fed, they don't think we're going to have like runaway inflation. But two, there's just so much you can do with it. Like, if you have a Treasury bond, and you need to sell it, you can sell it. You can sell a lot of it, and you're barely going to move the market. Or you can borrow against it, right? So there's this massive, it's called the repo market, where trillions of dollars a day, where there are people who are literally like, I have a Treasury bond, I need dollars till tomorrow, here, you you

• 1:21:36Speaker 00

  get my bond, I get your dollars, interest exchanged. And then it's great collateral. Like, you want to do a deal, you need to put money in escrow, you want a bank to put on some kind of a structured lever product for you. So bringing back to the crypto context, I think as institutions come into it, and this is how institutions think, right? Like, individuals tend to think like, what chain do I like, what coin do I like, what's going to go up more next week or next year? But when institutions come in that have these five, 10-year horizons, they're going to want some Bitcoin, because that's the world's backup money, but then they're going to be like, man, I can't do anything with this

• 1:22:20Speaker 00

  Bitcoin, right? Like, I can lend it, but how am I going to lend it? I have to go through an intermediary. It's no longer, it's decentralized.

• 1:22:26David Hoffman?

  You can lend a Bitcoin ETF pretty well.

• 1:22:28Speaker 00

  Yeah, that's a good point. And people will. But again, it's like you're taking multiple layers of trust assumptions, both with the ETF issuer. And frankly, like, not everybody, you need a brokerage account in a developed country, mainly the US, to get access to the ETFs. There are ETFs in other countries, but do we trust the issuer, yada, yada, yada. So these institutions, I think, are going to be like, ETH, ETH, obviously, they want to go long crypto, like, that's a requirement. But they're like, hey, ETH? ETH is special because it's actually a very rare thing that even US treasuries don't have, which is it's borderline deflationary in terms of total supply. Sometimes it is, sometimes it isn't, but it pays interest.

• 1:23:12Speaker 00

  And I think a lot of institutions are going to say, I want to hold this because like, well, today I'm earning yield and I'm not being diluted via inflation. That's good, but then tomorrow, if I need to sell it, I can. If I need to borrow dollars or Swiss francs against it, I can. If I want to go to another financial institution that believes in crypto and say, hey, I want a loan, I want you to do a derivative trade for me, they will accept my ETH as collateral.

• 1:23:38David Hoffman?

  With the United States like treasuries and other very liquid bonds, there's this notion of cash and cash-like instruments. And these cash-like instruments are effectively treated like cash inside of this context, right? Like whether you own 10 US dollars or you own 10 US dollars worth of bonds, like many institutions will basically count that as the same because of how liquid the bond market is. And I think that's kind of what you're alluding to here. And there's a definition of money out there. Money is the most saleable good. It is the easiest to sell wherever you are in the world without any sort of like loss of its value. And so what you're kind of alluding to is kind of what me and Ryan are saying, why we say ETH is money.

• 1:24:23David Hoffman?

  This is where I kind of think that this conversation is pointing to. I wonder what you think about the idea of, yeah, this is what money is. And Ether is pointing towards being the money of the internet.

• 1:24:37Speaker 00

  So I struggle with the money point because-

• 1:24:40David Hoffman?

  People get hung up on the money word all the time.

• 1:24:43Speaker 00

  Yeah, and let me tell you why I get hung up on it. So in the years I've been trying to learn about money, either for my own reasons, for my books or for my class, it never ceases to amaze me how like, the more you study the history of money, the more nuance there is to it. And while you can, you know, there's the academic stuff that I teach in my money lecture, the properties of money, the characteristics of money, the types of money, yada, yada, yada. But really like- Anytime you come up with a rule that says money is this, you can probably find a society, a major global important society somewhere, that that was definitely not their money. And maybe their money was something that today we wouldn't consider money. And just money is such a social thing.

• 1:25:26Speaker 00

  At the end of the day, it's like we all know Yuval Harari. It's the ultimate social technology and human invention. It's so hard to put brackets around social things. Like I also joke with students that like if someone asks me, what is money? I ask them, what is art? And then it's like, you know, art is whatever ends up being art. That's my definition of art. And a lot of times, like what one generation says is definitely not art. The next generation is like, that's absolutely art. And I think money could work that way. So I think ETH has very strong moneyness properties. But I think the easier question to answer, David, is what's an asset? The asset question is like you bringing it down to earth.

• 1:26:10Speaker 00

  It's not as much up in the ether, pardon the pun. And I think ETH is going to be the major asset. If we project everything forward, now a lot could go wrong, right? It's still early. It's possible that the Ethereum community and the roadmap takes some wrong turns. It's possible that I'm wrong. I've been wrong about things before. But if we project forward and the few requirements that I said come true, one is like on-chain is better than off-chain. I think most people in crypto would agree with that. Two, that hierarchical settlement is better than monolithic. Let's say that the base 50 50 right now.

• 1:26:54Speaker 00

  And then three, that all assets eventually get tokenized and moved on chain. We're going to need something that's the glue that holds all of this together. And that's like the role that dollars and treasuries play in the global economy today. Right? It's not just that. Like we think of dollars as a reserve currency. Other countries keep their reserves in dollars, yes. But the dollar is also the greatest source of credit. Like there are other major currencies that central banks hold as foreign reserves, but like people don't go and borrow in them. Like one of the reasons the dollar perpetuates itself as the global reserve currency, even though you could argue we as America are doing things that's going to harm that

• 1:27:39Speaker 00

  status, is if you want to go and borrow, you got to borrow in dollars because just the liquidity is there, the interest rate is low, a lot of capital available. I think ETH is currently the best candidate to be that in a DeFi centric world to come.

• 1:27:58Ryan Sean Adams?

  I still haven't heard anything, Omid, I disagree with in this entire episode. To me, that's money.

• 1:28:04Speaker 00

  Well, yeah.

• 1:28:05Ryan Sean Adams?

  Yeah.

• 1:28:05Speaker 00

  You should keep going then.

• 1:28:07Ryan Sean Adams?

  Yeah.

• 1:28:07Speaker 00

  It's scary if we agree on everything.

• 1:28:09Ryan Sean Adams?

  What I think is really interesting is that this idea of high quality liquid asset is basically you're saying if you're betting on DeFi, like truly decentralized finance across all of these different layer two economies, right? And you're not relying on an intermediary. And if that comes to fruition, then you're going to need a collateral asset. Justin Drake has come on, we've called it economic bandwidth before. You could call it money, high money-ness if you wish, or a high quality liquid asset, and that's going to propagate. And I want to get back to what's so interesting about that is once you have this, you could call it an internet bond, right? It sort of serves as almost a, the way treasuries do, the way T-bill does, where it's like,

• 1:28:51Ryan Sean Adams?

  you know, the risk free rate is, you know, whatever treasury is paying out. Well, the risk free rate of capital on the internet could be the ETH staking rate, which would be really interesting if you get the depth of liquidity here and you can really see how transformative and powerful that this concept could be. What one sacrifice in this whole modular design that we're sort of making and the emphasis on kind of like the settlement layer is some of those transaction fees are going to layer twos, which are able to capture at least right now, some portion of MEV and some portion of like, you know, block inclusion fees, right? And so in the short run, we're actually seeing ETH less performant as A capital asset, an ability to kind of like throw off cash.

• 1:29:36Ryan Sean Adams?

  And this goes back to the question I was also asking, which is like, are L2s parasitic? I mean, I think my answer, let's see if we agree here. My answer to that would be like, in the short run, sure, if you're just looking at ETH from a, from a cash flow perspective, right? L2s are going to consume some of that cash. But by the way, that's not really sustainable for L2s. I, I think at the fullness of time, MEV goes to apps, not, not L2s themselves, but more MEV flows to apps. And then after that, like, it won't be sustainable for the apps to capture it all. It'll flow to kind of like users, right? And we'll have this downstream effect. So I don't think any transaction fees for any blockchain are like infinitely sustainable for all time.

• 1:30:16Ryan Sean Adams?

  Like the, the take rate is going to get lower and lower as this Cambrian explosion of competitive pressures like propagate. And so all you're left with is money. So if your layer one asset is not a good money, it ain't worth nothing. It's kind of my, like, taking the fullness of time. Of course, that's a hyperbolic way of saying it, you know, but I, I sort of believe that. Anyway, back to the L2s are parasitic approach or take. My take would be that L2s might look somewhat parasitic in the short run in that they're, they're taking some of the fee capture from Ethereum. As Ethereum, the base layer is expanding blocks, block space. But what ETH gets in return, ETH the asset that is, is monetary premium, is more status as a high quality liquid asset across,

• 1:30:59Ryan Sean Adams?

  propagated across all of these layer two economies that are just in their infancy, but are going to be absolutely massive. And that's how I value ETH, almost similar to Bitcoin. It's like a monetary asset, right? What's your take on that? Do you like the L2s are parasitic question? Do you think they are?

• 1:31:15Speaker 00

  No, I, I think that goes back to that tweet of mine that you mentioned that that's the only, if you believe that, you think that a almost fully centralized block space and an almost fully centralized roll up is just as good as on ETH L1. Right? I mean, first of all, actually before that, just financially speaking, if you're trading meme coins on base and paying, I don't know what the fees on base are right now, but it's sub one cent probably per transaction. And the same trade. On L1 would cost $2. They cannot be parasitic because there's a lot of people who it wouldn't make sense for them to pay $2 to do the trade on the L1.

• 1:31:57Speaker 00

  Right? So that's this idea you guys have covered before. It's induced demand. When you have the L2s, you get new users doing new kinds of activity that's just literally not possible on the L1 because it's not economical. The other thing is this provisioning of security. I think there are a lot of cool ways that L2s can become secure and decentralized and inherit the decentralization of the L1. You guys have done a great job of covering all that, especially in the beginning when like the rest of us are like, wait, what's an optimistic roll up? And how's it different from a ZK1? But at the end of the day, they'll never be perfect. They will never have the same safety, liveness and censorship resistance properties of the L1,

• 1:32:42Speaker 00

  partly because they're not going to optimize for that, right? Coinbase is not going to optimize for that. It shouldn't optimize for that with base. So there's this debate of like, oh, if people say, oh, Uniswap generates whatever in fees on Ethel one today. It's the number one consumer of gas. All of that, it's going to move to uni chain. I'm not going to do that, right? Like if I'm, you know, the bulk of my assets today live on Ethereum, my ETH-based assets. And when I do a trade, I'm okay paying high gas fees and waiting 12 seconds, et cetera, et cetera, because I want those settlement assurances. Now, forget me, I'm not important.

• 1:33:24Speaker 00

  What's that pension fund that owns billions of dollars worth of crypto going to want to do? They're not just going to go to some L2 because it's, oh, it's cheaper. Okay, sure. They're actually like, I do think this is a future state that institutions are going to have entire risk departments whose job it is to study and categorize the decentralization and settlement properties of different chains.

• 1:33:50Speaker 00

  Because that's what institutions do today. They they look at the infrastructure they use. They look at the counterparties that they use. And they're very, very methodical and sophisticated about it. I think in the future, they will do this. And they will say, well, we are big fish doing big things. We're going to live on L1. So I don't think DeFi, by the way, will ever leave L1. Because there are always going to be whales. And some of these institutions, by the way, like King Triatfly. What they're doing is batching and netting for like 10 million retail customers, right? Maybe they're a fintech and they're using L1 DeFi as their wholesale settlement layer. Like they're Fedwire or DTCC. So in that regard, it's not parasitic.

• 1:34:31Speaker 00

  Are there some people today that are like, oh, yeah, I was I was trading dog coins or whatever on Eth L1 because I had to. And now I'm moving to the L2 because it's cheaper and makes more sense for me? Sure. But that's just efficiency. It's not parasitic. And I do think the last point I'll make about, yes, I do think L2s will ultimately improve the quality of ETH, the asset or the money, however we categorize it. Let's zoom out for a second and set the financial aside. At the end of the day, I think one of the very novel things about blockchain networks is that the only way to capture the network effects is through the coin.

• 1:35:16Speaker 00

  This was another epiphany I had with Bitcoin. Bitcoin is one of the most valuable networks or platforms, if you will, on earth. But there's no Bitcoin Inc. that owns it. And that's unprecedented, right? Every other valuable network, whether it's Visa, NASDAQ, WhatsApp, Twitter, whatever, there's a corporation that captures and extracts network effects. But with decentralized crypto networks, because they're decentralized. The coin becomes the only way to capture all the network effects. And that's this beautiful flywheel idea that Satoshi innovated that, oh, if the coin is the thing that secures the networks and the thing that captures the network effects,

• 1:36:00Speaker 00

  then more activity means higher coin value, means more security, means more activity, right? And ultimately, like, TradFi people will come into me and be like, I want to invest in Bitcoin. Should I buy mining stocks or like a crypto exchange? I'm like, no, you should own Bitcoin.

• 1:36:16Ryan Sean Adams?

  Totally.

• 1:36:18Speaker 00

  And if we get to this world that I think we will, particularly because the L2 approach gives flexibility. Right? So I think we're going to see more and more TradFi firms do their own L2s. I think we're going to see like gaming companies and media companies and chat apps all do their own L2s. All of that is going to really strengthen the network effects of Ethereum and five years from now, when some TradFi late cover comes to me, be like, how do I invest in the success of the network effects of Ethereum? I want to be like, well, the only way to do it is to own ETH.

• 1:36:54Ryan Sean Adams?

  I completely agree with that. And I do think it's, you know, settlement assurances are the, like, the reason. And even when you look at the, the other high quality liquid asset that's in the world, we're in a post gold world for that, you know, have been in some time. It's, it's really T-bills and treasuries. And you think about, how did, what are the, how did the US get to become the high quality liquid asset of the world, like, and create Fedwire? And then all of this stuff on top and, and have the risk free rate and it's, you know, T-bills? Well, had to win a war, like, you'll fight a world war for, for that level of security and settlement assurances. And then 70 years of just like killer economic output and creating this, this security shield and trade network across the world.

• 1:37:36Ryan Sean Adams?

  That's how the settlement assurances of treasuries are basically preserved and, and propagated. So it's like, even with treasuries, it's like settlement assurances all of the way down. And I think if ETH is going to attain it, it will be kind of the way the US did. Of course, it doesn't need to like have a money printer. So it's not fiat in that way, but it'll be the strength of its economy. Economies that's it's launching the the L two economies built on top of it. It'll be the trade networks that it essentially creates. It'll be the credible neutrality of all of them. It will be having a a grade A security force like a military to shield all of these and to preserve the property rights. That's kind of the path I see for for Ether. Maybe to close this out, Omid, sort of a last question here.

• 1:38:18Ryan Sean Adams?

  Maybe we'll finally find something that we we disagree on, which is like crypto cycles. OK, I'm not sure what your take is here, but like, do you do you believe that we are in a bull cycle right now? I think maybe you have some contrarian takes about the recent Fed rate cuts and how like this may not play out this like same way it is played out previously. I'll put my cards on the table and I'll say I'm pretty bullish on 2025 for for crypto. But also, David and I are not macro experts. So anyway, is there any daylight between us on this issue? Like, what do you think about the current cycle that we're in? If you have any takes here and by the way, Omid's students, not financial advice, do not listen to this next section.

• 1:38:58Speaker 00

  One of the most important lessons I learned when I was a trader. Actually, the most important lesson I learned when I was a professional trader is that I am not a good trader, which is why I don't do it anymore. And thank God for that. But the second most important lesson I learned is that markets never repeat. They will often set you up to make you think they're doing going to do the same exact thing as the last time, whether that's like a year ago or a decade ago. And then they don't because markets are a discounting mechanism. There's reflexivity, people are too smart for that. So what I was, you know, there's a lot of people who think, oh, the last time we went into a Fed cut cycle, X, Y, and Z happened, right?

• 1:39:42Speaker 00

  Everything ripped, huge bull market, 2021, etc. I I'm doubtful. The fact that if high interest rates did not kill the economy or asset price, I most assets are at all time highs, were at all time highs, just. A month ago, in a world where US interest rates were the highest they've been in decades.

• 1:40:06Speaker 00

  So there's probably more going on and like I'll defer to people far more sophisticated than me on this like the Lynn Allins of the world that I do think. The whole interest rate theory was based on this idea that central banks control the creation or supply of money by moving interest rates up and down. The problem with that model now is that the single biggest borrower on the planet is rate insensitive. The US government does not care if it's actually issuing more debt when rates are at 5% than when they were at zero. And the one thing that both presidential candidates running for office agree on is we need more debt.

• 1:40:48Speaker 00

  So I I'm concerned that like the macro situation is not going to play out as it did before. Doesn't mean we're going down, but doesn't mean I'm bearish. I do own crypto as I have for the last 10 years and I just plan on holding it. Cause long term, I do think it will be a superior investment for all the reasons we've talked about here.

• 1:41:12Speaker 00

  But I think obviously the election is going to matter. Because of of the regulatory situation in the US, I have no idea who's going to win, so we'll set that aside. I think we're at the point now for crypto that if we want to get a sustainable market, we need adoption. Right? Bitcoin hit that partly because of the ETF, because the main thing people want to do with Bitcoin is hold it.

• 1:41:40Speaker 00

  And the people who want to own it through the ETF are actually betting that other people will want to hold it natively, purely on chain, whatever. Everything else in crypto, whether we are talking about L1s or DeFi tokens or blockchain gaming or what have you. We need sustained adoption. We've seen that with stable coins. I think our mutual friend Nick Carter has done a great job. He comes to my class every semester, talks about Bitcoin and stable coins.

• 1:42:08Ryan Sean Adams?

  He was just there, right?

• 1:42:09Speaker 00

  Yeah, yeah. He's he's very generous with his time and my students always appreciate it.

• 1:42:17Speaker 00

  So I think stablecoins are really going to take off in the next year or two. And that's going to be awesome because they're going to do it in a way that actually reflects back on some of the things that we're talking about. And fintechs or users are going to make choices or use Tron, or use Ethereum, or use Base, or use Solana, and that'll be fascinating to see how, but it's adoption, it's net positive. I think something like a polymarket is pretty cool because polymarket is very much a crypto native story. People have been trying to do decision markets for decades. But the scale at which polymarket has succeeded is only possible on a global 24/7 censorship resistant crypto network. And then the other stuff to come.

• 1:43:02Speaker 00

  And this part is maybe wishful thinking on my part, but I also think that we as a community are going to grow up and start valuing assets based on actual metrics and fundamentals. And just stop with this.

• 1:43:18Ryan Sean Adams?

  I've heard that before.

• 1:43:21Speaker 00

  That's one of the things I've been wrong about, as my sagging DeFi token bags would tell you.

• 1:43:29Speaker 00

  But I think it's still an immature market and I think like the next bull market will require maturation, which might actually come from like more TradFi types showing up and being like, wait a minute, these coins have no inflation and accrue value and revenues and stable governance. Here's some new hot new thing where like three entities own 70% of the supply and it's going to have 10% inflation.

• 1:43:56Speaker 00

  That's a good investment, that's not.

• 1:43:59Speaker 00

  So that might take some time though. So maybe this is what we disagree on, that I'm not expecting like an imminent bull market in crypto.

• 1:44:06Ryan Sean Adams?

  Yeah, I might lightly disagree there, but I'm not at high conviction disagreement with respect to timing on that one. I like, who knows? I think your take on this is like, hey, the every four years crypto gets a bull market just like might not play out, don't count on it. Maybe this time we actually need kind of the apps and the economies to grow up a little bit. Before we sort of quote unquote deserve our, you know, like bull market and our gains here. So, um, yeah, I can vibe with that, Omid. This has been a great conversation. I mean, you have a number of books that you've written. One called The Story of Blockchain, that's from 2018. The other that David mentioned in the intro here is called Re-Architecting Trust.

• 1:44:48Ryan Sean Adams?

  Don Crad's favorite book, as I understand, like, uh, yeah, I was asking around about you a little bit. And he said, yeah, it's like just a fantastic book. So, or for those links will be in the show notes for Bankless listeners. And did I hear you say something about, are you writing another book? You got something else in you, Omid?

• 1:45:05Speaker 00

  Uh, no, no book now. You know, the trouble with books is they take a long time to write. And then by the time they're published, they're already dated, particularly in a fast moving world. There's some of the stuff in my first book that's like a little cringe worthy when I look back on it. You're like, oh, man, I really like wrote about a little bit like in the appendix about Ripple and Cardano. Oof.

• 1:45:29Ryan Sean Adams?

  Have you considered a podcast, sir? Because, you know, it's a fast way to get your ideas out there quickly.

• 1:45:34Speaker 00

  I have, and I do not have the discipline and work ethic that I know it requires. Like I told you before we went live, like God bless you guys. I just, having done stuff around media in the past, I just, it's like, you know, for every hour that the user hears, it's like 10 times as many hours of prep and post and stuff.

• 1:45:56Speaker 00

  So, no, I mean, I'm happy actually like doing the various random kinds of writing I do on Twitter and Medium and in other places, just because it helps me flush out my own ideas and teaching, of course.

• 1:46:08Ryan Sean Adams?

  Well, you're also a fantastic follow on Twitter. So if that's where listeners want to consume their content, we can definitely link your Twitter account in the show notes as well.

• 1:46:16Speaker 00

  Great. Thanks, guys, and always happy to. Come back here and continue this conversation.

• 1:46:22Ryan Sean Adams?

  We can't wait with our explainer in chief. This has been fantastic. A lot of great takes on today's episode. Got to end with these typical disclaimers, especially for those students of Omeed. Crypto is risky. You could lose what you put in. None of this has been financial advice, but we are 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.