Austin Federa: Is SOL Money?

Bankless hasn’t had the most coverage of Solana, the network, and SOL, the asset, but in this episode that changes. Our guest, Austin Federa is Head of Strategy at the Solana Foundation and is the host of the Validated podcast. David was recently a guest on Austin’s podcast where they went back and forth on some of the cultural and philosophical differences between the Solana and Ethereum projects. Today is a continuation of that episode. Despite some differences in community perspectives, Austin brings a fresh perspective on the design philosophy that relates Solana the network to SOL the asset and so much more. ----- 🏹 Airdrop Hunter is coming soon! Become a Citizen for full access: https://bankless.cc/HuntersGonnaHunt ------ 📣 STADER LABS | ETHX LIQUID STAKING https://bankless.cc/Stader ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE ⁠https://k.xyz/bankless-pod-q2 ⁠ https://feeds.flightcast.com/%E2%81%A0https:/k.xyz/bankless-pod-q2%C2%A0%20%E2%81%A0 🦊METAMASK PORTFOLIO | MANAGE YOUR WEB3 EVERYTHING ⁠https://bankless.cc/MetaMask ⚖️ ARBITRUM | SCALING ETHEREUM ⁠https://bankless.cc/Arbitrum https://bankless.cc/MetaMask ⁠ 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle ⁠ 👾POLYGON | VALUE LAYER OF THE INTERNET https://polygon.technology/roadmap 🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/Toku ----- TIMESTAMPS 0:00 Intro 6:50 Programmable SOL Values 8:10 SOL’s Story Arc 12:25 SOL’s Architecture & Utility 17:30 SOL’s Economic Sustainability Model 19:20 SOL’s Triple Point Asset Thesis 25:15 Solana’s LSDs 28:48 Solana’s MEV Philosophy 33:56 End Game of Solana MEV 40:00 Ethereum vs. Solana 50:00 Market Cap, Values, & Layers Debate 1:00:15 Closing & Disclaimers ----- RESOURCES Austin Federa https://twitter.com/Austin_Federa 157 - Will Solana Make It with Anatoly Yakovenko https://youtu.be/zlx64JjXlgQ Solana is Launching a Phone? | Co-Founders Anatoly & Raj https://youtube.com/live/9wfNeVTtBz0 The Philosophy of Ethereum According to Bankless' David Hoffman https://solana.com/validated/episodes/the-philosophy-of-ethereum-according-to-bankless-david-hoffman ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. 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

  I think as we go into the future, no one can really say what's going to happen here. We all just need to figure out what are the best defense mechanisms to prevent the sort of bad scenarios from happening that we don't want to have happen.

• 0:16David Hoffman?

  Welcome to Bankless, where we explore the frontier of internet money and internet finance. And today on the show, we've got some bonus content for you, Bankless Nation, an episode diving into the nature of Sol, the asset, and the economics of Solana, the ecosystem. We haven't done too much Solana content on Bankless before, so little. In fact, I'd say that it's actually kind of a meme that Bankless just doesn't produce Solana content. We've had Anatoly and Raj on once to discuss the Solana phone. We had Anatoly himself exclusively on earlier this year, post-FTX collapse, to give us the Solana story. And then I also went on the Validated Podcast, which shorthand is just the Solana Podcast, hosted by Austin Federer, the guest on this episode. So that's the entire spectrum of Solana content coming out of Bankless.

• 1:00David Hoffman?

  But on this episode, we're having Austin Federer on to discuss the design philosophy that relates Solana, the network, to Sol, the asset. And it's really Sol, the asset, that has been the thing that has hung up me and Ryan the most while trying to understand the Solana ecosystem. The investment thesis behind Sol has never really been salient to us. If you know the Bankless thesis, you know that we think that there are very strong technical bonds between the design architecture of a Layer 1 and the nature of the native asset that it produces. And tinkering with the properties of one impacts the properties of the other. We think that a Layer 1 that prioritizes decentralization and censorship resistance at the base layer produces downstream strong store value properties in its native asset,

• 1:42David Hoffman?

  where a high-throughput Layer 1, for example, sacrifices the hardness of its money by compromising on its issuance schedule and the properties of censorship resistance. This has always been the Bankless thesis that has guided us in our investing and our content. It makes sense to us, so it's the frame of reference that guides our thinking across other areas. And it's how Bankless has gotten the brand of being an Ethereum podcast, even though we're not, we're just a Bankless podcast. We've got our theses. It happens to land. And up with Ethereum and therefore for all intents and purposes, we're an Ethereum podcast. I see how people come to that conclusion. Sometimes, though, perhaps most of the time, the Solana community doesn't accept that. And Bankless is a subject of a lot of hate out of the Solana community. And it's also impossible to tell what signal and what is noise here.

• 2:27David Hoffman?

  Crypto tribe is gonna crypto tribe. And the loud members of tribes often just drown out the quiet and contently satisfied parts of crypto. But nonetheless, Austin has always been a treat to converse with. If you haven't listened to my episode with him on his podcast, Validated, I highly recommend it. If there are any listeners out there who have been following my path through crypto ever since my POV crypto podcast days, my podcast before Bankless, these conversations with Austin feel a lot like my conversations with CK, my old Bitcoin co-host, which is where a lot of early development of my thinking in crypto began. And like Bankless, where both me and my co-host learning and content producing in tandem, which is what I think that you will experience here with this episode with Austin about Solana and sold the asset.

• 3:10David Hoffman?

  So without further ado, let's go ahead and get right into that conversation. But first, I want to talk about some of these fantastic sponsors that make this show possible, especially Kraken, our preferred exchange for 2023. Whether you're an ETH fan and you buy your ETH, you're a Solana fan and you buy your Solana, or you're a Bitcoin fan and you just want to dollar cost average into Bitcoin, we can all meet in common ground, which can be the Kraken exchange. If you don't have an account with Kraken to dollar cost average into your favorite assets, perhaps consider clicking the link in the show notes to get started with one today. Kraken Pro has easily become the best crypto trading platform in the industry. The place I use to check the charts and the crypto prices, even when I'm not looking to place a trade. On Kraken Pro, you'll have access to advanced charting tools, real time market data, and lightning fast trade execution, all inside their spiffy new modular interface.

• 3:53David Hoffman?

  Kraken's new customizable modular layout lets you tailor your trading experience to suit your needs. Pick and choose your favorite modules and place them anywhere you want in your screen. With Kraken Pro, you have that power. Whether you are a seasoned pro or just starting out, join thousands of traders who trust Kraken Pro for their crypto trading needs. Visit pro.kraken.com to get started today. Introducing Polygon 2.0, the value layer for the internet. For too long, the limitations of blockchains have held back app development and stifled user adoption. The internet allows anyone to create and exchange information. What's missing is a value layer that lets anyone exchange, store, and program value. That's where Polygon 2.0 comes in. Polygon Labs has unveiled a series of innovations that will radically alter the Polygon ecosystem and Web3 as a whole.

• 4:38David Hoffman?

  By leveraging groundbreaking ZK innovations such as Polygon ZK EVM, the next iteration of the best-in-class Plonki2 proving system, and a first-of-its-kind ZK-powered interoperability layer, Polygon 2.0 will give users and devs unlimited scalability and unified liquidity. Right now, there is a Polygon improvement proposal regarding a potential ZK-powered upgrade of Polygon Proof of Stake. If approved, Polygon Proof of Stake would become a Layer 2 ZK EVM, Velidium. So make your voice heard on this proposal by joining the Polygon Discord today. You have a chance to help the Polygon community give the internet the value layer it deserves. Are you planning to launch a token? Is your token already live? And are you granting your employees and contractors vesting token awards? And are you trying to figure out how to take care of taxable events for your team?

• 5:21David Hoffman?

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• 6:06David Hoffman?

  or click the link in the description below. Bankless Nation, I would love to introduce you to Austin Federa, Head of Strategy at the Solana Foundation, host of the Validated Podcast, where Austin and I, not too long ago, went back and forth on some of the cultural and philosophical differences between the Solana and Ethereum projects. Today, on the show, I want to continue that conversation with a focus on the native assets behind these two ecosystems, ETH and Sol, with a specific focus on Sol, of course, because the rest of Bankless focuses plenty on ETH. Because the focus on Sol, I think I would say, is the biggest hang-up that both Ryan and I have about being able to integrate Solana, Sol, as an investment thesis. What actually is Sol? I don't actually know the answer to

• 6:49David Hoffman?

  that question. And so hopefully, we can start to get around the contours of what Sol actually is here today, here today on the show with Austin's help. Austin, welcome to the show.

• 6:58Speaker 00

  Hey, thanks for having me on. This is gonna be fun.

• 7:00David Hoffman?

  Yeah, so Austin, that was my preamble. And we did a show on the Validated Podcast, which if any Bankless listeners out there is looking for the intersection of Solana and Bankless, that would be the show to listen to. And Austin, I had a ton of fun in doing that. And I think we can just keep on going with that conversation, like I said, specifically with a focus on like the native assets behind these ecosystems. I think there's a very deep integration between culture and asset in this space. And that's one of the cool things about programmable money, is you can program values into your assets. And I want to know, from your perspective, what is programmed into Sol, the asset? And sometimes I speak

• 7:42David Hoffman?

  in these words, and I'm not sure everyone totally understands it, but I think you totally do. Are you ready to get into this conversation?

• 7:49Speaker 00

  Yeah, let's do it. I mean, I think one of the analogies that helps people sometimes is the architecture of a network is sort of thought of as a city zoning, that New York is very different than San Francisco for many reasons, but one of them is literally just what the zoning is of different parts of the city and what you're allowed to build there and what the sort of innate characteristics of these rules and frameworks set up. That's a pretty good analogy for non-technical people for blockchain architecture, that the architecture of Bitcoin is based on allows a very different set of things to be done on that network than what can be done on a network like Solana or Ethereum.

• 8:22David Hoffman?

  Sure, sure. And any longtime Bankless listener will know that Ryan and I have developed like models over time. And one of the big stories of Bankless, it runs in parallel with the story of Ether, because Ether in 2017 is not the Ether of today. It's had a story arc. We had to truly fight for the understanding of ETH as money, ETH as collateral, ETH as like triple point asset, which now is ultrasound money. And this was a story arc that's developed. And would you say that the Sol token is going through a similar story arc? Because that's my frame of understanding for these things. And I'm wondering like how to think about the story arc of Sol, the asset?

• 9:04Speaker 00

  So I want to get into, I want to get into that. I think one of the things that's useful, sort of like a, just a quick overview of like what Solana is trying to do from like a network architecture perspective.

• 9:14David Hoffman?

  Sure.

• 9:14Speaker 00

  So the thesis of Solana originally was, you know, basically NASDAQ at, or BlockChant NASDAQ speed, right? Was the idea that you could build one global state machine that was going to be as fast as traditional financial markets. And it was a pretty narrow thesis in the beginning. There wasn't sort of NFTs involved. There wasn't sort of social tokens. There wasn't all this other world that we now consider the broader part of Web 3. But that core thesis was that Ethereum was right about one very important thing. Everything is better in one global state. And when you start fracturing the state up into sidechains and L2s and sort of like even the approach that Near takes with sharding, you reduce

• 9:57Speaker 00

  the developer experience, you hurt the user experience, and that if you can keep things in one global state, that is better. Now, there are downsides of keeping things in one global state, right? It's, an Ethereum node is a very light operation. It's computationally very easy to run. It's bandwidth wise, very easy to run, because Ethereum only does about 20 things per second, right? And so that is a decision that's made to keep those requirements super light. Solana, the requirements are heavier, right? It takes about $3,000 of hardware to run a validator on Solana that will keep up to the tip of the chain. What that also lets you do, though, is things like keep one global state and have a steady state of 4,000 transactions per second.

• 10:40Speaker 00

  And so these are all just different architectural decisions about how to do things out into the future. I have a whole bunch we can talk about, about like how ETH is actually going to get much heavier and much more difficult to run, especially as we start talking about tracking L2s and rollups and getting a full state of Ethereum. If now, as you've said yourself, if Ethereum is optimism and Arbitron and Hermes and all of these other types of things, you suddenly need to run 6, 7, 8, 12 nodes to actually get a full snapshot of the state of Ethereum. But just to sort of start out, that's kind of the basic grounding principle of Solana is that keep the network as fast as possible, keep the cost of transactions as low as possible, and sort of the the model that Ethereum has gone for of sort of artificial

• 11:24Speaker 00

  scarcity on the base layer and then offloading the scaling onto L2s and rollups and sort of things like that. The design decision on the Solana network is to flatten that into one stack. And this flattening goes even further, right? So on Ethereum, you have the EVM and you have Nakamoto consensus that run beneath it. Like if you look at a stack, there are two separate layers there. That is part of why if you run Geth locally, you max that at about 400 TPS. Like there's limitations there that are from a software architecture, not necessarily a network architecture perspective. Solana flattens that into one layer. So the VM and the consensus layer are basically all running in the same spot. One of the trade-offs of that is if you have a crash in the VM, you're going to actually have a crash in the consensus protocol.

• 12:07Speaker 00

  Whereas what you saw with Ethereum is when the VM crashed, for lack of a better term, earlier this year or twice, the network was actually able to continue. Now, it couldn't reach consensus, it couldn't finalize transactions for an hour or so, but that was a totally different type of experience than what you saw in Solana in 2021, where you'd have a an outage where it wasn't a finality problem, it was a block production problem.

• 12:32David Hoffman?

  Now, how does all of this architecture start to couple with the conversation of the nature of the Layer 1 asset?

• 12:38Speaker 00

  Yeah, so if you go back to, gosh, even 2020, there was no burn mechanism in Ethereum, right? That whole idea that the way Ethereum was going to deliver value over the long term was it was going to implement specific economic policies designed to create deflation, right? It was designed to reduce supply over time. That was, what, four, five years into Ethereum mainnet?

• 13:05David Hoffman?

  Yeah, the proposal was made in 2019, so yeah, four years, yeah.

• 13:09Speaker 00

  Yeah, so that was very long into the mainnet. Now, we're basically four years into Solana, well, less than four years into Solana mainnet. It was March of 2020 that mainnet launched. So, there is this sort of thing where we're seeing a pressure on all networks to accelerate, right? It took 10 years for Bitcoin to get to the place that it got to. Ethereum got there in maybe four or five years. And so, these networks need a little bit of time to figure out what are the innate characteristics of the network and what are the economic models that in some ways get backed into the value of where that network comes from. Now, a good analogy here, and I really don't mean to offend any Ethereum folks with this, is there was a time and place where the way software was sold was 10 to 50 million dollar

• 13:54Speaker 00

  contracts with massive companies. These were contracts by IBM, these were contracts by Sun Microsystems, they were contracts by Oracle. And suddenly, this crazy thing came along, which was cloud and software as a service, and it said, instead of signing a 50 million deal with one company and becoming like the provider for X or Y or Z company, we can actually sell Slack. We can sell it to hundreds of thousands of companies all over the world, and it'll cost $10 a month. And in aggregate, we are going to actually have a much larger market and potentially a much higher profit on that than you get from this traditional contracting model. That didn't kill Oracle. That didn't kill IBM. Oracle is still around today. The stock is still a pretty good performer. There's tons of people who are employed by that company

• 14:37Speaker 00

  making lots of money. Ironically, I believe Amazon still runs on Oracle as its backend database for its store, because these migrations are hard and people know the systems they know and that works great. But this is a little bit of an analogy for what we might be seeing in the blockchain space, too, that the rise of Amazon Web Services and cloud providers didn't kill Oracle. It just created a whole new product category where the needs of those types of products and services are very different than what you can necessarily build with Oracle. And we could see a world here where Solana's cheap transactions and massive throughput, that ends up being something very similar to SaaS for blockchain, where on an individual transaction basis, yes, the fees are miniscule, but when you have

• 15:21Speaker 00

  100 million people per day transacting on the network, which, to be fair, no blockchain has anywhere close to that today. But in that future where you accelerate out and you say, okay, we're going to see priority fees, we're going to see basic transaction fees, and we're going to see network capacity increase to a point where you have functionally similar economics to Ethereum on an aggregate level, but the individual microeconomics are very different.

• 15:45David Hoffman?

  Okay, so how we get there is different, but the resulting conclusion is the same?

• 15:49Speaker 00

  Potentially, yeah. I mean, there's one other key piece of utility for Sol introduced in the last 12 months, which is this idea of stake-weighted QoS. And so there were three pieces of tech that were shipped over the last year and a half to really address some of the reliability issues. One, pretty boring, Quick is just a new networking standard as opposed to using raw UDP packets to send data around the network. The advantage of Quick is basically it lets a validator say, this IP address is spamming me, I'm going to close the socket connection, which is not something you can normally do on UDP. The other one was these local fee markets and that's kind of one additional area where

• 16:28Speaker 00

  you see changes in economic value on the Solana network because now suddenly you don't have an incentive to send 10,000 spam transactions, you can just pay 10,000 times as much for the transaction and be pretty sure you're going to land that arbitrage. Basically, this was kind of addressing what ETH went through with Shanghai attacks back in whenever that was, a long time ago, where someone just basically bought up all the block space.

• 16:53David Hoffman?

  Right.

• 16:54Speaker 00

  The last one is this stake-weighted QoS and what this does is it's basically a guarantee for quality of service. This is if I'm running a node that has 0.1% of the stake of the network on it, I have basically the right to transmit 0.1% of the blocks. And this is not necessarily on, like normally, right, you'd say on Ethereum, well, if I control 0.1% of the blocks, or of the stake, I'm going to be building 0.1% of the blocks. So from that perspective, stake-weighted QoS is basically a guarantee that says, every block, I have the right to put in my stake weight worth of transaction. Now, I don't have to do that, but if there's controversy around what fits into a block, my transactions coming from my validator, which is stake-weighted, is going to outpace

• 17:38Speaker 00

  your transaction coming from Phantom going through a public RPC with no stake attached to it.

• 17:43David Hoffman?

  All of these things that you're describing seem like the marginal utility of Sol rather than like the base, right? These are like extra little add-ons that do impact the economics, but only in, only in more extreme situations or more marginal situations. And so I think we've actually accidentally skipped to like the long tail of Sol token economics. Let's start with the base, like the very simple questions of like, what does Sol do? Why will people buy it? Why will people, why will the price go up? Because like the Ether model for this is the triple point asset or ultrasound money. Like what is that for Sol? What is the economic sustainability model for Sol?

• 18:25Speaker 00

  Yes. So it's very similar to Ethereum in the sense of the utility of the Sol asset is a civil resistance mechanism, the same way in any proof of stake network. That's why you have stake and then is to pay transaction fees on the network.

• 18:39David Hoffman?

  Right.

• 18:39Speaker 00

  Those transaction fees on Solana take two components. One is a base layer fee, which is 5,000 Lamborts, which is quite low. It's like .00025.

• 18:49David Hoffman?

  What's a Lampo? Is that like a way?

• 18:51Speaker 00

  Yeah, it's a subdivision of a Sol.

• 18:53David Hoffman?

  So, okay, cool.

• 18:54Speaker 00

  Yeah, it comes from Leslie Lampo, the computer scientist.

• 18:56David Hoffman?

  Sure. Okay. For completion's sake, way comes from Wei Dai, who's a cryptographer. So like, you know, we got nerds.

• 19:06Speaker 00

  All of the people who were originally involved in all these networks are just massive nerds who love every blockchain.

• 19:13Speaker 00

  But, you know, the fundamental point of the sole token is to pay gas fees on the network.

• 19:19David Hoffman?

  Right.

• 19:19Speaker 00

  Right? And to help secure the network from a civil resistance mechanism. That's it. That's the base structure for any L1. It's not like Polkadot where you use it to reserve state or something along those lines. It's very similar to Ethereum in that fundamental architecture.

• 19:34David Hoffman?

  Can you just like map on the triple point asset thesis onto Sol? And then change the economics, right? Like the unit economics, but really the triple point asset thesis does map to Sol pretty well?

• 19:46Speaker 00

  It does if you believe that blockchains are going to be higher demand than they are today. I think one of the things that the Ethereum community and the economic modeling did very well is they basically created a system that said, we don't really need much more adoption of Ethereum for the effects of deflationary pricing to take effect, right? Ethereum has always had about a 1.5% inflation rate. That's just like since Genesis. Solana's inflation rate began at around 7% and it decreases by 1.5% every year until it ends at that sort of steady state of 1.5%, right? And so, you know, from that perspective.

• 20:26David Hoffman?

  1.5% in a vacuum, as in without any transaction burn from demand? Or is it always?

• 20:33Speaker 00

  Yes.

• 20:34David Hoffman?

  Okay. So if no one is using the Solana blockchain, it inflates at 1.5%?

• 20:39Speaker 00

  Assuming it's building blocks, yes, right? As long as the network is building blocks, there will be inflationary rewards distributed the same way on Ethereum. If everyone stopped using Ethereum, it would still produce 1.5% of inflation per year.

• 20:52David Hoffman?

  Okay, okay. And then so the whatever burn is on top of that 1%, 1.5%.

• 20:56Speaker 00

  Yeah, exactly. Now, today, I think it's closer to like 6% just because it's on a, it's on a schedule where it steps down.

• 21:04David Hoffman?

  But you know- So what was the schedule of that? Once, once per year?

• 21:06Speaker 00

  1.5% per year on a fairly linear decrease. Basically, it's adjusted automatically at the end of every epoch, which is a three day period.

• 21:15David Hoffman?

  So it's not, it's not a Bitcoin happening event, it's much more smooth?

• 21:17Speaker 00

  Yeah, yeah, exactly. Cause like the happening is like, you know, look like no one knew what they were doing when we had Bitcoin, but like it is, it is just like such a big media enterprise for no reason, right?

• 21:28David Hoffman?

  Yeah.

• 21:28Speaker 00

  I will say that like, it's probably pretty good PR and like, I don't know, maybe more networks should think about having big flashy moments.

• 21:34David Hoffman?

  Something to talk about every four years.

• 21:36Speaker 00

  Yeah, exactly. Besides ordinals, right?

• 21:42Speaker 00

  But as we kind of step through this process, right? It, the, the thesis of Solana is that blockchains are going to be incredibly widely used. And if that's the case, that the base layer transaction fee needs to be kept very low. And so even when you saw, you know, the price of Sol hit its all time high, the cost to transact on the network was still extremely low. And a lot of that original economic modeling of sort of what is a cost per transaction was actually based on much lower numbers, right? The, the original economic modeling was sort of in a like $1 to $10 range for a price of, of Sol. I don't think most people thought that these networks were going to pop like they did and the user adoption was going to come and we'd have, you know, thousands of developers

• 22:25Speaker 00

  building stuff on the network in 2021, right? Like that, that knew to when the network actually launched. So as you go through that process, all of this sort of has to compound over time, right? You, you need enough demand for block space that you actually need a network like Solana. And we're kind of seeing that already today in that the developers who chose to build on Solana in 2020 and 2021, and to some extent 2022 as well. They couldn't build what they wanted to build anywhere else. It was technically impossible to build it on another blockchain because the speed and performance wasn't there.

• 23:00David Hoffman?

  They were specifically just building applications that needed the massive speed that Solana can provide.

• 23:07Speaker 00

  Yeah, and that is not to say those applications are better or worse than the applications you see on Ethereum.

• 23:12David Hoffman?

  It's just the nature of them.

• 23:13Speaker 00

  It's just very different, right? Uniswap is built for large trades. Uniswap is more expensive than Coinbase and more expensive than any other centralized exchange if you're trying to do 100, 200 bucks. If you're trying to do $50,000.

• 23:27David Hoffman?

  It's not Uniswap that is more expensive. It's the Ethereum blockchain that makes Uniswap more expensive.

• 23:32Speaker 00

  But from a user perspective, it's no different.

• 23:34David Hoffman?

  Sure.

• 23:34Speaker 00

  Right? Like the economic effect of using it.

• 23:37David Hoffman?

  But the Uniswap on any Layer 2 is going to not have the gas fees

• 23:40Speaker 00

  Totally.

• 23:41David Hoffman?

  of Ethereum Layer 1.

• 23:42Speaker 00

  Well, maybe, we'll see. But the question there is when you start fracturing the state.

• 23:47David Hoffman?

  Right.

• 23:47Speaker 00

  Is there enough liquidity on Ethereum, on a Layer 2 built on Ethereum with a Uniswap deployment? Like if we have 14 versions of Uniswap deployed across a bunch of different OP chains, a bunch of different rollups, there's one on Polygon, there's one on fill in the blank, you've suddenly taken your liquidity and you've had to fracture it. And if you're shuffling liquidity back and forth via bridges, that is either time-consuming, transaction-consuming, because most of those still clear through the L1, or you, and you also introduce a lot of trust assumptions into the mix there. So it can work, but it's just a much more complicated architectural system to get it there, right? That's sort of the pitch and value of Solana is that you can do this all in one L1. And that's not to say the stuff you're, again, not the stuff you're building on Solana is

• 24:32Speaker 00

  better or worse than Ethereum, but like you can't do helium on Ethereum. It's just too expensive and there are not enough transactions.

• 24:41David Hoffman?

  Sure.

• 24:42Speaker 00

  And that's just a different architectural system. Like you don't have central limit order books built on Ethereum L1. You have DYDX, which went to Cosmos for.

• 24:49David Hoffman?

  Right. Okay, so in the triple-point asset thesis, collateral is one pillar, one of the three. The other one is the burn, which we've talked about, and the other one is staking yields, which we've talked about. I think we can just strike collateral, because I don't think there's any differences between Ether and Solana on their respective networks about collateral. I don't think the network's architecture of these things changed the nature of collateral inside of these systems. So these things are kind of like going to be the same out of the box, correct?

• 25:17Speaker 00

  Yeah, I think the only difference is that there's less of a single player in the liquid staking market on Solana.

• 25:23David Hoffman?

  Yeah, so that's where I was going to go with next with yield. And so how is the LSD ecosystem on Ethereum? I don't know if you guys call LSDs on Solana.

• 25:32Speaker 00

  We do.

• 25:33David Hoffman?

  Yes, okay, so what does the LSD ecosystem on Solana look like? Like, is staked Sol going to be as strongly permeated as staked Ether is assumed it will be on Ethereum?

• 25:48Speaker 00

  So, let me start by kind of a little bit of a scene set for Ethereum. There's a few architectural decisions that I think were largely economic decisions on Ethereum that pushed folks into things like Lido. The first is a requirement for 32 ETH to be able to stake. Also, if you have 33 ETH, you couldn't stake that last one unless you went through a liquid staking system, right?

• 26:09David Hoffman?

  Yeah, but there's also now an EIP that changes this, that eventually it's going to get approved.

• 26:14Speaker 00

  Right, but like on Solana, you can create a stake account that has one Sol in it, right? And so what that means is that initially-

• 26:22David Hoffman?

  With your $3,000 of hardware, or is that-

• 26:24Speaker 00

  Or with someone else's.

• 26:25David Hoffman?

  Okay.

• 26:26Speaker 00

  Right, so because again, Ethereum, like, the term validator on Ethereum is not actually a validator, it's just a 32 bundle.

• 26:32David Hoffman?

  We screwed up that language.

• 26:33Speaker 00

  I mean, someone screwed up the language, it could have been everyone else, too.

• 26:36David Hoffman?

  Yeah, the whole industry.

• 26:38Speaker 00

  I know, right? If you go to like nodewatch.io or one of those websites, you can see there's about 7,000 physical computers around the world that are actually Ethereum nodes slash validators in the way that everyone else calls a validator.

• 26:52David Hoffman?

  Sure.

• 26:53Speaker 00

  So, the analogy here is like on Ethereum- A validator is actually a stake account. And those stake accounts have to be 32 ETH. On Solana, they can be any size, like they can on many proof of stake networks. So there was less of an economic incentive in the early days to go with a liquid staking protocol as opposed to just saying, oh, I'm going to stake to the Bison Trails validator. I'm going to stake to the Blockdemon validator, you know, the Bankless validator, fill in the blank there. Today, there is actually a stake pool contract, which is like the one that most folks on the network use. And then there's a whole bunch of different liquid staking providers. So Lido is on Solana. Marinate is something called M-Soul. There's Gito Soul, which is a MEV optimized, basically stake pool.

• 27:36Speaker 00

  And so there's a pretty robust liquid staking ecosystem. Today, there's a little bit of fractured liquidity because of the withdrawal periods being like three days on that stuff. But there's a group UnStake It that are actually doing a common liquidity layer for all liquid stake tokens on Solana. So I think we're getting to a place where like the ecosystem on Ethereum is a little bit more robust, but you're seeing the same sort of system develop on Solana. But it is developing in a little bit of a different way because again, the network architecture has different advantages and disadvantages.

• 28:11David Hoffman?

  Right, okay. But in the resulting conclusion is like you still have staked soul and that staked soul will be collateralized in Solana's DeFi applications in the same way like staked ether, Rocket Pool ETH is staked in Ethereum.

• 28:25Speaker 00

  Yeah, exactly. Like there's actually, there's actually programs now that you can say, I have a stake account that has, let's say, 100 soul in it. I'm going to transfer the authority on that stake account to a stake pool and it will instantly mint me the equivalent of that liquid stake token. I don't have to unstake and transfer. I just have to reassign authority on who owns that stake account.

• 28:44David Hoffman?

  So that would be like if I have a 32 ETH node that I'm solo staking and then I like sign it over to Lido or Rocket Pool and all of a sudden that protocol mines me our ether or staked ether in return.

• 28:55Speaker 00

  Exactly. It's a very, very similar architecture to the way Ethereum works from that perspective.

• 29:00David Hoffman?

  Okay, cool. Okay, so that's the stake to ETH conversation. I want to talk about MEV because MEV and then MEV burn is like a pretty strong part of Ether economics. So is there a philosophy that Solana has about how it approaches MEV and how it wants that to impact or not impact the sole asset?

• 29:20Speaker 00

  So GTO is the group that has built the MEV client for Solana. They have done a bunch of work to basically build a relayer and all that sort of thing with, you know, a bidding system where you, it's very similar to what Flashbots does on Ethereum for that perspective. As an aggregate number of transactions, though, the MEV on Ethereum is actually pretty small. It's usually a single-digit percentage of transactions that are actually getting searched and getting chosen and getting packed. That's partially because of the transaction costs, that you need a larger delta for that to be possible. You see the MEV bots on Solana going after like $2 opportunities because the transaction fees are so low.

• 30:00David Hoffman?

  Right, they have to, right? Because MEV on Solana versus MEV on Ethereum, it has to be so much harder because the blocks go so much faster and the margins have to be so much slimmer. It's gotta be a much more fierce competition on Solana, correct?

• 30:15Speaker 00

  It's actually even worse than that because we don't have a mempool. So it's not even like there's this big pool of potential transactions you can pull from to pack. You have to actually, basically, it's much more, like, MEV is sort of like fishing in a barrel on Ethereum, right? It's like you can see the fish and you can go in and you can grab it.

• 30:33David Hoffman?

  Yeah, high school students are collecting MEV right now.

• 30:36Speaker 00

  Yeah, yeah, exactly. Like, on Solana, it's a much faster process that's kind of more equivalent to like a bear trying to grab a salmon out of a stream.

• 30:46David Hoffman?

  Right.

• 30:46Speaker 00

  Like...

• 30:47David Hoffman?

  Right. It's a little bit more like the high-frequency trading.

• 30:49Speaker 00

  Exactly.

• 30:50David Hoffman?

  Like the Flash, the original Flash Boys.

• 30:53Speaker 00

  Yes.

• 30:53David Hoffman?

  Stuff.

• 30:54Speaker 00

  Yes, exactly. And so it's much harder to do. The opportunities tend to be very non-consistent, right? You will see times when, you know, there's like a very small earnings for a day or two and then it spikes up because there's lots of market movement or something like that. It's much more dependent on market movement or other on-chain activity than it is just sort of your steady state. Oh, here's a bunch of people trying to do something similar. If I order them correctly, I can make some profit off of that.

• 31:22David Hoffman?

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• 32:05David Hoffman?

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• 32:50David Hoffman?

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• 33:32David Hoffman?

  Own Layer 3, giving you access to interoperable, customizable permissions with dedicated throughput. Whether you are a developer, enterprise, or a user, Arbitrum Orbit lets you take your project to new heights. All of these technologies leverage the security and decentralization of Ethereum and provide a builder experience that's intuitive, familiar, and fully EVM compatible. Faster transaction speeds and significantly lower gas fees. So, visit arbitrum.io where you can join the community, dive into the developer docs, bridge your assets, and start building your first app with Arbitrum. Experience Web3 development the way it was always meant to be. Secure, fast, cheap, and friction-free. So, the Ethereum philosophy, or just like approach, stance towards MEV is eliminate it.

• 34:16David Hoffman?

  Like, do your best to suppress it, do your best to democratize it. Obviously, everyone knows, has realized that there actually is no eliminating MEV. You can only push it to a different place.

• 34:25Speaker 00

  Correct.

• 34:26David Hoffman?

  But the place that we want to push it towards, the philosophy of Ethereum, is into Ether the asset because it's perceived that Ether the asset is actually one of the most decentralized components of Ethereum. And so, rather than letting one central party own the MEV stack, like, capture MEV and own it themselves, and they are just the MEV service provider of Ethereum, and they're, they're jump capital collecting all their MEV. No, you, you take it from the large players and democratize it by just putting it into Ether the asset. And the holders of Ether the asset, again, the most decentralized component of Ethereum, are actually the thing, the people, the party of people that benefits from this. Does Solana have some sort of philosophy or strategy as to where it wants MEV to go?

• 35:10David Hoffman?

  Or what, what is the end destination of Solana MEV?

• 35:13Speaker 00

  I think that's a slightly rosy interpretation of what happens on Ethereum. There are still, like, one of the core principles of blockchain is brutish self-interest. Economic forces drive good results for everyone. And so, there's definitely still a lot of people on Ethereum that are, are doing MEV that is not sort of as a public good, but as a personal enrichment activity, right?

• 35:34David Hoffman?

  This is like the long-term desire, and with appropriate mechanism design, this is where it goes. Like, we don't have MEV burn yet, but in, in the final conclusion, this is like what the Ethereum stance towards MEV is.

• 35:47Speaker 00

  Yeah, I'm skeptical if we'll get there just because human interest is to steal as much as humanly possible. And so you have to, like, that, like, one of the really interesting things about, just as a slight deviation on the Ethereum community, is there's a lot of folks who hold a ton of Ether, who are very actively involved in building things like the MEV infrastructure. I am skeptical that that's going to survive Ethereum going mainstream. That you're gonna have, like, the same way that, you may have people now who are like, "I'm running these searchers and what I fundamentally care about is Ether, the asset going up, because I have 100,000 ETH on a wallet somewhere." Eventually, that economics is going to change. You're gonna have new people coming in who

• 36:32Speaker 00

  are basically like the equivalent of the people who sell you gadgets on Instagram that are like, "I don't have a storefront. I don't have this, like, backhaul legacy of ETH in my wallet that I can use to, that I'm trying to enrich. I am personally trying to accrue as much money, Ether, USDC, whatever we're talking about at this moment, as humanly possible." And so I'm skeptical that that economic system is going to work in the next bull cycle, when we see a large expansion of the number of users of blockchain. But we will see. So on Solana, like, the approach for democratizing this is stake-weighted QOS. That is the counterpoint to MEV. Like, on Ethereum, the only way that you can be guaranteed that your transaction is going to be included in a block is to be building the block yourself.

• 37:17Speaker 00

  Right? On Solana, there is this approach with stake-weighted QS that says, like, if you're a DeFi application and you decide to run a validator and you have 0.1% of the stake, that may be enough to make sure your most important transactions and your most important users are always able to be included in a given block. And so that's sort of that counterpoint there. The MEV clients on Solana are all sort of open source and about 27% of the network is actually running on the GTO client nowadays. So there's a pretty serious percentage of the network that is actually using this stuff on a daily basis now. But the way it works is like, I opt my validator into being a part of this. There's rewards based partially to that. But the answer, instead of driving value

• 38:00Speaker 00

  back to Ether, like you're talking about over the long term, this is where something like GTO Soul comes in, which is a stake pool token where you're basically saying, "I'm going to give you my stake." And then in exchange for that, you're going to give me a significant portion of your MEV revenue in addition to the normal staking rewards you'd receive.

• 38:20David Hoffman?

  Okay, so instead of it being burned and going into ETH or the asset, it is just directed into this one particular sole LSD token?

• 38:29Speaker 00

  Yeah, it's sort of like if Lido decided, we're going to run MEV clients on all of the validators that we run for Ethereum, and then we're going to take those returns and bring them back. Now, I actually think that's probably much more likely to be what happens in Ethereum than people are like, I'm a good Samaritan, I'm just going to return it back to the network, because I haven't seen a good proposal on how you can enforce MEV burn, because it's not protocol level, it's application level. But maybe we'll see that in the future.

• 38:56David Hoffman?

  No, MEV burns at the protocol level. It's got this mechanism of an implied oracle that can tell the Ethereum Layer 1 exactly how much MEV was extracted and how much MEV needs to be burned in order to make that block valid.

• 39:10Speaker 00

  Yeah, but that's still functionally an off-chain system analysis, right? I think that's kind of the piece that like, I'm skeptical. Every time we bring in oracles, those are like...

• 39:18David Hoffman?

  It's not an actual oracle, it's an implied oracle. It's a market-derived number that I can say is an oracle, because it's external data coming into the Ethereum Layer 1, but it's not actually an oracle in the same way that chain link is an oracle. It's an implied one.

• 39:31Speaker 00

  Yeah, but it's like how ETH slashing can do up to six, like there's a six-month lag up to in terms of like a slashing event, and that gives room for human intervention, right? That's not because it takes six months to compute whether a slashing event occurred. So I think we'll see, right, is the answer here. Now, what we could potentially see is that like, the council of people who, the brain trust of Ethereum basically says like, we are going to socially punish people who are not burning MEV, right? By saying, we know your accounts, we're going to actually institute like a social consensus burn or slashing of some of your tokens.

• 40:08David Hoffman?

  I think that would be a massive violation of the Ethereum social contract. I do not think that that would ever happen.

• 40:13Speaker 00

  I also don't think it would happen, which is why I'm not sure we're going to see MEV return to Ether. But only the future will tell.

• 40:20David Hoffman?

  Okay, so this is falling into the category of people who are making claims that Ethereum won't actually execute the proposal that it's saying that it will execute, which usually if you say that Ethereum is going to be late, you'll be right. But if you say Ethereum's never going to do it, you've never been right. Bitcoiners betting against Ethereum shipping the updates that it's saying that it will have never been right.

• 40:44Speaker 00

  I'm going to challenge you a little on this, because what I would say is Ethereum ships updates. They are very often not the updates that they say they're going to ship.

• 40:54David Hoffman?

  If you want to specify in very granular details, "Hey, you promised this, but we got this," then yes, there's differences there. If you go back to the beginning of Ethereum and also understand the Ethereum, again, like philosophy and purpose and generalized architecture rather than the granular details, everything that Ethereum has shipped is 100% in alignment with its original roadmap. And I don't think that's a hot take.

• 41:20Speaker 00

  So you go back to fall of 2020. The architecture of ETH 2 was supposed to be shards. It was supposed to be execution layer.

• 41:28David Hoffman?

  Yes, and now we have rollups, which those are different, but also the same.

• 41:33Speaker 00

  Well, so this is where like, they're different and also the same, but also kind of worse, right? Because a shard and executional layer shard. So the original vision, right, in 2020, like that white papers were coming out about, people were writing about, was basically that we were going to have, instead of one beacon chain, we were going to have multiple shards. Each shard was actually going to be able to run and execute smart contracts. Every 20 minutes, those shards would sync up and you'd basically get a global state checkpoint every 20 minutes.

• 42:05David Hoffman?

  Which is like, which is like a step closer between what Solana is and what Ethereum's rollup-centric roadmap is. Like, it's a middlegram between these two things.

• 42:13Speaker 00

  Now, I-

• 42:14David Hoffman?

  And so, just to, for bank listeners, because we haven't talked about the rollup, the sharding roadmap to Ethereum in forever, because we've moved on from it. But like, think of rollups, like Arbitrum, Optimism, Polygon. Think of those as like, actually being enshrined in the Ethereum Layer 1, and each of them are execution shards. And they're actually more controlled by the actual Ethereum Layer 1 protocol, rather than being controlled by these Layer 2 teams with independent choices. And so, every single execution shard is like a rollup, and then the Ethereum coordinating beacon chain just forces consensus between these two- and forces is probably a better word, and forces coordination between these execution shards

• 42:55David Hoffman?

  every 20 minutes. And so, these rollups all sync together every 20 minutes. And then, but we went even, Ethereum progressed even more in like a laissez-faire way, where they say like, "You know what? We can just have one chain, we'll stop with the execution charge, and we can just let rollups be these execution environments that can move asynchronously rather than synchronously."

• 43:15Speaker 00

  Yes. Now, what I would say is that there's a real compromise on decentralization that took place. That original vision would have kept Ethereum just as decentralized as it was on a proof-of-work system.

• 43:27Speaker 00

  Every L2 is highly centralized, every rollup is highly centralized.

• 43:31David Hoffman?

  The Solana ecosystem would love for this to be true.

• 43:34Speaker 00

  It is true. You can't run a permissionless Layer 2 system. You can't become a node-

• 43:40David Hoffman?

  I'm categorizing this as one of the things that like, Ethereum critics will say is true about Ethereum, but will also not give credit for the fact that Ethereum has never failed to execute on its roadmap.

• 43:51Speaker 00

  These are two different things that you're talking about. And I get why you're trying to bring them together. But if we look at a world where ETH2 had actually done like, L1-native rollups, we wouldn't have a bunch of L2 tokens that have no economic value in existing, right?

• 44:06David Hoffman?

  That's not true either, bro!

• 44:07Speaker 00

  Sure you would, you would have-

• 44:08David Hoffman?

  You would definitely have the tokens, but they had totally high economic value. Sequencer fees, man, sequencer fees.

• 44:14Speaker 00

  Sequencer fees are paid in ETH. Right?

• 44:16David Hoffman?

  That's to the layer twos.

• 44:18Speaker 00

  You could have every L2 just have fractional transactions in Ethereum that would mean you wouldn't need all these different tokens every time you want to be on a different roll up or different network, you could just use Ether everywhere.

• 44:29David Hoffman?

  Wait, you only for optimism, Polygon, Arbitrum. The only thing, the only gas token that you need the layer two of is Starkware. And it's like the most Ethereum unaligned layer two of the ones I just, I just mentioned.

• 44:42Speaker 00

  It's also the only one that allows you to run a permissionless node, but yes.

• 44:46David Hoffman?

  Yeah, because they have the benefit of having to be, they can get to create their own ecosystem from the ground up. All of the permissionless validation that were participating, like Arbitrum just, just induced, introduced permissionless validation this last Friday.

• 45:00Speaker 00

  And so, yes, but it's the sequencer problem still continuing.

• 45:03David Hoffman?

  So, yes, and it's the next thing on the roadmap. They're gonna do it, dude.

• 45:08Speaker 00

  Yes, but, but you and Ryan are constantly being like, oh, man, like, Solana is so centralized, right? Like, that was like a whole thing coming from a lot of the ETH brain community for a while. And it just didn't, it felt very dishonest because.

• 45:22David Hoffman?

  Yeah, I know.

• 45:23Speaker 00

  Right? Like, it was this, it was this transition from saying like Ethereum was, depending on how you counted, the first or second most decentralized network. And the entire scaling roadmap collapsed that down into extreme centralization. And this is not to say that it will be that way forever. I actually do think that over time, we are going to see L2s decentralized. People are going to figure out a way to have permission. People are going to figure out how to have more than one single sequencer on a roll up or an L2. And then they're going to figure out how to have decentralized sequencers eventually. I just think we're several years away from that and we'll get there, right? But there's this innate faith that you have.

• 46:01David Hoffman?

  Yeah, right.

• 46:01Speaker 00

  And that others have, that Ethereum is the only network that's going to figure it out. And I just don't see, like, I think if you look at the pace of new technology shipping on the Solana network and like where the network's come in the, in the three years that it's been live, you'd say, wow, that's like an insanely high pace of innovation and change. This reminds me of how Ethereum relentlessly innovates on its core idea. And the, the point here is not to say. Like, oh, Ethereum is super centralized. It's that like, what you have seen over your engagement with the network is that you have a faith that is going to figure it out.

• 46:35David Hoffman?

  Right. We give Ethereum the benefit of the doubt and then we give Solana whatever is the opposite of that.

• 46:41Speaker 00

  Yeah, yeah, yeah, exactly. Yeah.

• 46:44David Hoffman?

  But also because Ethereum has a track record and Solana is a newer network. And so if Solana still has to earn its stripes, you know, this is like what I've been calling the L1 hazing of the last bull market.

• 46:56Speaker 00

  Totally.

• 46:56David Hoffman?

  Is like, you're illegitimate until you make it through the next bear.

• 47:00Speaker 00

  I would say at this point, Solana has been through at least as much hardship as Ethereum has.

• 47:09David Hoffman?

  Solana's certainly been through a lot of hardship. And if we were to speak- There are different hardships.

• 47:14Speaker 00

  There are very different hardships.

• 47:16David Hoffman?

  Like the Ethereum perspective would be like, well, Solana sold its soul to the devil with its cosding with SBF, right? Ethereum's hardships were, we almost ran out of money for two years straight.

• 47:28Speaker 00

  I mean, that also, to be fair, that also happened to Solana. There were, the Solana Labs, you know, in 20, in the fall of 2020, had actually, they cut their staff by 50%. They were almost totally out of money. So like, there has been that sort of thing too. Let alone, obviously, the collapse of FTX was just like a, such a punch to the ecosystem.

• 47:49David Hoffman?

  The difference though, when Ethereum ran out of money is that it had independent client teams that were all grant funded, rather than the Solana Foundation being this one like monolith of an organization supporting the network. And so like Ethereum as a movement had already decentralized and we needed like a pretty decent amount. And we needed grant money to support open source client developers who were not a part of the EF and were just like doing things of their own accord. Like this is where the famous Vitalik YOLO tweets came in and sent like 100 ETH to Prismatic Labs, which allowed Preston Van Loon and a few others to quit their jobs at Google in the middle of a bear market to go build the first like Layer 2 or Ethereum 2.0 client, right?

• 48:29Speaker 00

  Yeah.

• 48:30David Hoffman?

  And so yeah, Solana also like ran out of money, but it was different because it was, Solana was like a startup, whereas Ethereum was a movement at this point.

• 48:39Speaker 00

  Well, then, that was also, to be fair, that was nine months into mainnet, right? That event you're talking about did not happen nine months into the Ethereum mainnet.

• 48:46David Hoffman?

  Right, that was four years, three years afterwards, yeah.

• 48:50Speaker 00

  Right. So today, right, the Solana Foundation has given grants for multiple validator client. There's four validator clients in active development. The one by Solana Labs, FireDancer by Jump, there's Sig, which is a Zig client implementation, and there's Gito, and there's also TinyDancer, which is a light client. So there's, you know, depending on how you count, there's four or five in development. And this is where like, you're totally spot on that Solana is younger than Ethereum. It does not have the same ecosystem built out yet. I just see us as on a very similar trajectory, and that is not, I don't, I don't see this as a zero-sum situation at all, actually.

• 49:31Speaker 00

  I'm kind of surprised that sometimes there is this like hostility towards like, oh, Solana's a threat to Ethereum. I actually don't think Solana is a threat to Ethereum any more than Bitcoin is a threat to Ethereum. Or Filecoin is a threat to Ethereum.

• 49:48David Hoffman?

  Yeah, they're like all of, my philosophy around Layer Ones is that all they are, if you're a Layer One, you compete with other Layer Ones. You can all grow the pie as well, we can all grow the pies, but all Layer Ones want to eat as much of the pie as possible.

• 50:03Speaker 00

  I don't think Ethereum's competing with other L Ones. I think Ethereum's competing with nation-states.

• 50:07David Hoffman?

  I think Layer Ones compete with nation-states.

• 50:10Speaker 00

  Yes, but I think the primary opposition to Ethereum today is not Bitcoin, and it's not Solana, and it's not Polygon, and it's not...

• 50:19David Hoffman?

  Because we run circles around Bitcoin, except for the market cap, which we one day get there.

• 50:22Speaker 00

  Sure, but like, the market cap is like the most boring thing about crypto, right?

• 50:26David Hoffman?

  But it's also like, the point.

• 50:30Speaker 00

  Do you think it's the point?

• 50:32David Hoffman?

  Yeah, I think Layer Ones are supposed to be money. And Layer Ones and like market cap and fighting nation states are like very similar. And like, like we, like we said at the beginning, uh, we have the Power Smart contracts. We can encode values into our native currencies. And if you encode good values and the native currency goes up, that means you are literally scaling values. And so a lot of the values that make up the Ethereum ecosystem, like pluralism, decentralization, power to the individual are all, in my mind, comprised, imbued into Ether, the asset. And in order to scale those values to the world, we need Ether to have a higher market cap.

• 51:08Speaker 00

  So here's my, here's my criticism of that, is that you're not gonna be able to reach, to be egalitarian, to reach the world, to allow people to go bankless, if the transaction fees are $20.

• 51:22David Hoffman?

  Yeah, but it won't be.

• 51:24Speaker 00

  Yeah, but, but here's the thing, if ETH is money, and the idea is everyone transacts, there's a really big logical jump there to say like, like, the layering of Ethereum up to L57s at some point in the future, is basically a rebuild of the traditional financial ecosystem. Where you start with the Fed, and then you go out to the commercial banks, and then you go out to the lending banks, and you go out to the retail banks, and you go out to Venmo, then you go out to the eBay store, then you go out to the person selling the thing on eBay. And each step in that line is a potential taxation and value capture point.

• 51:58David Hoffman?

  I don't disagree with that, but I don't also think you get to say that they are equivalent. The topology of the networks definitely lines up. Like first you have the global settlement layer, which is the Ethereum Layer One, which is the Federal Reserve. And then you have the commercial banking layer, which is the, which are the Ethereum Layer Twos. And then you have like the Stripes, which are the, the Layer Three payment chains. Like that topology definitely maps, but you also have core, unique properties that are also added to this whole stack, which also just changed the way that these things are expressed. And mainly, the, the new innovation here is cryptography. And we, and cryptography can take and scale parts, the properties of the Ethereum

• 52:40David Hoffman?

  Layer one all the way to L 59 69 that whatever you want, right?

• 52:44Speaker 00

  Sure.

• 52:44David Hoffman?

  And so like, yes, and so like, to me is like, yes, the topology wasn't created by the Federal Reserve, Commercial Banking Layer, Stripe, etc. That was created by nature. Nature created that. And Ethereum is also mapping on to nature, which is the same thing that the old traditional financial system also mapped on to, but Ethereum is doing it with better tools that allow for minimized taxation and maximized value transfers, transference across networks.

• 53:13Speaker 00

  Potentially. The other version of that is you introduce a lot of security hops. You introduce a lot of bridges. The things in crypto that got hacked right now are bridges.

• 53:23David Hoffman?

  Right.

• 53:24Speaker 00

  And so every time you're going.

• 53:25David Hoffman?

  See, this is our narrative too.

• 53:27Speaker 00

  Yeah, totally. But every time you go up or down a layer, you are introducing a point of risk.

• 53:32David Hoffman?

  Right.

• 53:32Speaker 00

  And there's a, there's a, there's an attempt to say that there's no risk involved in settling a transaction to the base layer one. And that is just not true. There is a lot of amazing work that's been done to reduce that risk dramatically. It is not zero. And I think that's just like worth, worth noting here that like, there is, there is a amazing egalitarian, beautiful future where the Ethereum stack and all of its layers ends up being something that feels much more integrated, feels much more fair, feels like it delivers much of the value it would as if it were in one global state, like the original ETH2 design. There's also a potential future where, you know,

• 54:13Speaker 00

  as people cycle out of the Ethereum ecosystem, as more people come into the Ethereum ecosystem, the value, there's nothing, to use your terminology, there's nothing natural about the values of Ethereum. The values of Ethereum are actually fairly weirdly anti-capitalist from a perspective. And it's great, right? It is actually this amazing social experiment and there's so much amazing stuff that's been made possible here. I just, I'm not sure that. Those values can survive contact with JP Morgan and Raytheon. And what we've generally seen is that when extreme multinational corporate capitalism gets involved in systems, it extracts value.

• 54:57Speaker 00

  Like what the private equity firms have done to the healthcare system in the United States is like not accidental. It's incredibly intentional. And I think when we're thinking about system architectures over a many, many, many year horizon, reducing the points of potential capture and interference, I think is a really good objective to have. And so to bring this back to Solana, right? The view there is that the socially safest thing to do is to keep everything in one global state. And that's not to say Ethereum can't be successful in its drive to do this, but we've already seen from a lot of other L1s that they're already, like, parachains are already facing capture problems, right?

• 55:40Speaker 00

  There's a lot of other things and maybe Ethereum is big enough and mature enough and sort of, you know, has the resolve, for lack of a better term, to escape that and to be able to actually get past it. Statistically, there's only a few countries in the world that have ever done that. Most countries fall prey to resource capture. Most countries are authoritarian. Most countries have really unhealthy economic systems. And maybe Ethereum can get past that, but like, that is a big bet to make that anyone else can play that move. And so that's kind of where, from a philosophical standpoint, Solana is choosing to do a zag where Ethereum did a zig. And that doesn't mean that it's better or worse. It just is, I think, two very different expressions of trying to end up in a similar place.

• 56:23David Hoffman?

  Yeah, we're definitely, I would definitely agree that that is the correct articulation for like what we're doing here and why we're designing the networks in the way that we are designing them. The Ethereum perspective will flip it around and say like, the Ethereum Layer 1 is deeper than any sort of corrupting influence, corrupting corporation will ever be able to get to it. It's too deep in the stack. It's too, it's very, very like metaphysically low. And so like, we have this old thesis called the Protocol Sync thesis, which

• 56:52Speaker 00

  Yeah.

• 56:52David Hoffman?

  the most socially scalable and the most legitimate protocols sync to the bottom of the stack. And if you are a corrupting influence of Raytheon, like capitalist interests, whatever, like the layer, the rollup-centric roadmap of Ethereum.

• 57:05David Hoffman?

  Like a big, big old, not old, big ships, big like container ships. If they like run into ground or they run into an iceberg like a modern Titanic. They're like compartmentalized, right? So like water will get in, but it'll only get into like one small cell of the hull of the ship and it won't spread. And that's, that's how I would consider the rollup centric roadmap to Ethereum. Like they can try and like, we have the JP Morgan chain Quorum or whatever, which is like a Geth fork that no one really uses. Like they can make their own rollup and they can corrupt that as much as they want, but they can't, it won't spread. It won't spread to the other chains in that because of the power of cryptography. And so like in getting deep, getting down to the layer one and impacting Ethereum governance, super hard. That's the hardest thing that you can do because that's when you also you start to

• 57:50David Hoffman?

  fight the social consensus as well, not just the cryptography. The Ethereum perspective on Solana is like, it's only one network. You have one point of insertion. If you get that thing, then, then the whole, the whole system is corrupted. Like there's only one cell to puncture and all of a sudden you, you have the entire stack. And so like Jump Capital making their client, that gives Ethereum people the heebie jeebies. Like that I don't want Jump Capital making a client and then I will not download that software. And so that, that would be like the re-articulation from, from the opposing perspective.

• 58:23Speaker 00

  Yeah, I guess like when we're looking at like market cap capture, right? Like the, the thing Elon Musk did with Twitter, right? Buy up a bunch of stock in secret, in dark, and then suddenly come out and say, hey, I own 10% of Twitter. I want to buy the whole thing or I'm going to ruin your life. That's not impossible to do on any L1, right? You, you, you could, the Ethereum market cap is only $224 billion today, right? That is a lot of money. That is not an amount of money that is in opposition to potentially over time. Larger and larger chunks getting bought up, right? We see already with the trusts that exist and sort of the centralization of some custody,

• 59:05Speaker 00

  it's not an Ethereum problem, this is sort of across the space, that the proof of stake is much more resilient than proof of work to capture, but it is not immune from it. And so, the idea that you're spot on that like, yes, like if Polygon gets taken over by a bunch of like, you know, private equity firm folks, you can just sort of cut off that tree and say, all right, Polygon's dead, we're gonna, we're gonna not build on that thing anymore. The base layer is still, is still not immune to capture, even if there's stuff on top of it that can be lopped off. And I think the place you see this, which is sort of a counterpoint, is Solana validators are pretty hard to run, right? And what that means is they're not run on AWS.

• 59:47David Hoffman?

  Right.

• 59:48Speaker 00

  And if you look at the percentage of ETH that's on AWS, it's quite high compared to something like Solana. Now, Solana, like, there's lots of other downsides, right? One of those downsides is that you have to run these things bare metal, that's harder to do. That is one of those things that like, is a counterpoint to that capture problem. Now, it's a very different solution to the capture than what Ethereum's done, but I think there are very spiritually similar approaches to preventing those sorts of problems from happening. But yeah, like, I think as we go into the future, no one, no one can really say what's going to happen here. We all just need to figure out what are the best defense mechanisms to prevent the sort of bad scenarios from happening that we don't want to have happen.

• 1:00:27David Hoffman?

  Well, Austin, this actually went in a different direction than specifically focusing on solely asset, but I think that was actually probably the logical conclusion of where this goes, because of, the point of talking about what is solely asset is to talk about what are the values of Solana, the ecosystem. And so, I think this conversation did a fantastic job of peeling back the layers for a lot of people who haven't been too exposed for that in the Bankless audience, because we just don't talk about Solana too much. So, Austin, thank you for helping me navigate this conversation.

• 1:00:55Speaker 00

  Hey, thanks for having me on. It's always fun to chat with you.

• 1:00:58David Hoffman?

  So, Bankless Nation, if you like this conversation, you want more of that, let us know on Twitter or in the Discord. But in the meantime, crypto is risky, Ethereum is risky, DeFi is risky. Two's are risky. Solana is also risky. You can lose what you put in. But we are headed west. This is the frontier. It's not for everyone, but we are glad you are with us on the Bankless journey. Thanks a lot.