SotN#22: BONDING! w/ Collin Myers (ETH Internet Bond Market, Staking Returns, ETH Needed to Retire?)

For this particular State of the Nation, the video is very helpful. Especially when we discuss the calculator and staking returns: 📺 WATCH: https://youtu.be/FkxrTXCRUOo _________ 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- 📢 DEFI BUILDER? APPLY TO FILECOIN ACCELERATOR FOR $20K GRANT http://bankless.cc/filecoinapply ----- GO BANKLESS WITH THESE SPONSOR TOOLS: ⭐️LEDGER - BEST HARDWARE WALLET TO SECURE YOUR CRYPTO https://bankless.cc/ledger-20 🚀ARGENT - GET THE MOST SIMPLE AND SECURE DEFI WALLET https://bankless.cc/argent 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ SotN#22: BONDING! w/ @StakeETH (ETH Internet Bond Market, Staking Returns, ETH Needed to Retire?) The Internet Bond: https://bankless.substack.com/p/eth-the-internet-bond Whitepaper: https://drive.google.com/file/d/13-s15SvCIUBukhSZiNkpd0sTff3izQ5G/view Calculator: https://docs.google.com/spreadsheets/d/1LTv8c-9nfq225bV-esv-JXmb0K-nM_z6qbmVooTAUUo/edit?ts=5f730135#gid=13834492 Ryan's: 7 Lessons for Crypto Pioneers https://bankless.substack.com/p/7-lessons-for-crypto-pioneers-market Bankless Guide: How to Become a Validator https://bankless.substack.com/p/-guide-how-to-become-a-validator CodeFi, Collins project! https://activate.codefi.network/ ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- 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. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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

• 0:00David Hoffman?

  The.

• 2:10David Hoffman?

  The.

• 4:20David Hoffman?

  The.

• 6:30David Hoffman?

  The.

• 8:40David Hoffman?

  The.

• 12:36David Hoffman?

  If you want to live a bankless life, you need to get a hardware wallet. There is no alternative for storing your crypto in a self-sovereign fashion. That's why I have four ledgers that I use to manage my different crypto assets using the Ledger Live account as well. Ledger Live is like your home base for managing your Ethereum DeFi and crypto accounts. It does a really good job of aggregating all of your different Ethereum wallets. If you are the type of person that uses more than one, but you can also add other cryptocurrencies like Bitcoin or Cosmos, or whatever your preferred blockchain is. And then it will display an aggregate portfolio of all your accounts at the main page.

• 13:19David Hoffman?

  One thing that Ledger is doing a really good job of is enabling all the money verbs that me and Ryan talked about with the Bankless Skill Cube enabled in the Ledger Live app. So right now in the Ledger Live app, you can buy, sell, lend, swap, and stake your crypto assets, which is doing a really good job of fulfilling all of the money verbs in the Bankless Skill Cube. Something that's new to Ledger Live is Ledger Swap, where you can swap assets one for another directly inside the Ledger Live application, ensuring trustlessness in your financial activity on Ethereum and on Bitcoin. If you want to learn more about what you can do with a ledger, go to the blog post "The Power of Ledger Live" on the Ledger website, where they share some of the more advanced things that you can do with your ledger that you might not have known about.

• 14:03David Hoffman?

  There's a link in the show notes that will take you to the Ledger shop, where you can get your preferred Ledger hardware wallets. I personally like the Ledger Nano X, but I also have both. They're both great options. When you own a ledger, you own your own assets in the way that they have been designed to be held by the user and the user alone. So go get your ledger today to make sure that you are as self-sovereign as possible. The Bankless State of the Nations are brought to you by YARN. YARN is DeFi's first self-building, community-run project, which I just get really, really excited about. YARN is a system that seeks out yield in DeFi, and it does that in a number of different ways. A very aggressive way is with the vaults, where you can deposit your preferred asset of choice,

• 14:48David Hoffman?

  and different DeFi experts will come in and generate a strategy for what to do with your deposited token, right? And so it'll go find ways to get yield in that deposited token in DeFi. For those who want to just earn yield on their stablecoins, the Earn system is for you, where you can deposit your preferred stablecoin, and YARN will go and figure out which money market on DeFi. And DeFi is producing the best interest rate, whether it's DY, DX, it's Compound, or AVE. It looks around DeFi to see where the yield is coming from, and it directs stablecoins automatically, so you don't have to. Check them out at yarn.finance to get started. And also check out the stats page to see what other people are doing as well.

• 15:30Ryan Sean Adams?

  Welcome everyone to the Bankless Nation. This is State of the Nation, episode number 22. David and I are coming at you on YouTube Live. We release these every Tuesday on YouTube. We also release them on the podcast on Wednesday, so you can check it out both ways. David, how are you doing today?

• 15:50David Hoffman?

  I am just so excited about what's to come. Now that the deposit contract is live, there are so many things to talk about that we've kept in our back pockets that we are now able to talk about, which we are going to start talking about them today in today's State of the Nation.

• 16:04Ryan Sean Adams?

  All right, well, let's talk about what we're talking about then today. So we're talking about ETH as an internet bond, and some folks from Consensus and Bison Trails put together a fantastic article, and not just an article, some fantastic analytics around this that we're going to talk about today. We've got one of them coming on to talk about this with us. But this new paradigm of ETH as an internet bond, I think, is going to be super important for institutional investors to understand. So that's the first part of what we're talking about today, right, David?

• 16:35David Hoffman?

  Yeah, absolutely. And like I said, there's just so many layers to peel back. This is a first ever in crypto. This is a first ever in hard money. There's never been a bond market around hard money. And so like, learning about what that is, I think is going to be a really fun adventure, and I'm excited to learn about it with everyone in the nation.

• 16:56Ryan Sean Adams?

  Awesome. So we've got an expert coming on to do that with us. We'll introduce him in just a moment. The other question we're going to answer, probably in the second half of this, is the question of how much you can really make staking? It's a question I'm sure is in your mind. And then maybe more immediately for David, how much ETH is it going to take for you to retire, my friend? Are we going to answer that question today?

• 17:19David Hoffman?

  This is a question I've always been asking myself. Like every once in a while, I pull out my calculator and go 32 times, like two, 32 times four. Like if there's like 5% interest, you know, 8% interest. As somebody that, you know, got into the world of Ethereum, just like thinking about like, okay, how many miners do I need to have versus how much? And moves into how much like stake validators do I need to have in order to sovereign, you know, dependable income. The cool thing-

• 17:45Ryan Sean Adams?

  You're all about that passive income, huh?

• 17:47David Hoffman?

  All about the passive income, yeah. Like, the, the whole cool thing about securing the Ethereum protocol is that like, there's no bureaucracy, like, trying to like, figure out who need, like, do we, do we pay this guy like this month, or maybe, maybe we pay him next month? Like, no, there's no intermediary between you validating the Ethereum blockchain and you being paid by the Ethereum blockchain, right? So it's a dependable source of income. And I don't know where else you can get that in the world, which is why this is so valuable.

• 18:16Ryan Sean Adams?

  It's a non-sovereign, hard-money, productive asset that pays you in ETH as dividends, which is also a hard money in it of, in and of itself. This is gonna be exciting to, to dig into, and you're in luck, David, because we not only have the calculator that's gonna help you figure that out, we've got the guy who designed the calculator that's gonna help you figure that out. So, uh, you know, let, let's figure out how much you need to retire, how much ETH you need to retire on with this whole new staking thing.

• 18:46David Hoffman?

  Yeah, let me know.

• 18:46Ryan Sean Adams?

  Uh, all right. Uh, lastly, if we have some time, we'll talk about some thoughts that I put out earlier this week. Uh, seven thoughts for crypto pioneers. So it's gonna be a jam-packed episode. But before we get to the episode, um, talk about, uh, introduce our guests, let's talk about a few things that are new going on in the nation. David, yesterday, we put out this episode on the Bankless Podcast with Raul Paul. Our best episode ever?

• 19:12David Hoffman?

  Yeah.

• 19:12Ryan Sean Adams?

  I don't know, some people are saying that. It's definitely our most downloaded episode ever-

• 19:16David Hoffman?

  In 24 hours, not our, not our most-

• 19:17Ryan Sean Adams?

  In 24 hours.

• 19:18David Hoffman?

  Yeah, 24 hour, yeah, download limit. It's, it broke the record on that.

• 19:22Ryan Sean Adams?

  Well, what do you think? Was it our best episode? What do you think?

• 19:24David Hoffman?

  Yeah, it was, I was one, one of our, one of our better ones. Maybe not our, maybe not our best, but like, people are really into the world of, or the conversation of like, you know, Ryan, you and I are like, we are deep crypto native, right? Like, we live, breathe, and die for, for Ethereum. Raul Paul, he's not like, he's not so, so like that. He's bullish on crypto for all the right reasons, but I wouldn't really consider him like, a tribal member of like, the crypto world, right? Like, he doesn't, he doesn't, you know, he's not-

• 19:53Ryan Sean Adams?

  Doesn't bleed bankless?

• 19:54David Hoffman?

  Doesn't necessarily bleed bankless, right? Like, he's not a crypto native, he's just bullish on crypto. And so, having two people, two parties that, like, represent each side, I think is really important. And I think that's why that episode was so popular.

• 20:08Ryan Sean Adams?

  It was super cool. It was bankless thesis meets macro thesis. And there's this interesting Venn diagram where the two things tie together and we have some common investment narratives there. So check out that episode. Came out yesterday. Should be on the podcast right now. We've also doing some cool things. We're bringing in Andrew Keys tomorrow, who is at Dharma Capital. And he's going to help answer the question, are the institutions coming to Ethereum staking? He's also got a pretty cool announcement about getting some liquidity while you are staking ETH and how that works. So that's going to be a Meet the Nation episode on YouTube only, YouTube exclusive. And then next week, Michael Son and Shine is coming from Grayscale. And this is funny because we recorded this episode, David, like two weeks ago with Michael.

• 20:57Ryan Sean Adams?

  And at the time, I remember saying in the intro, wow, Grayscale has seven billion assets under management. And like each week that that went by since then, it's gone up by another billion. So now I think we get to, we get to title the episode like 10 billion in Grayscale, something like that, and be pretty close to accurate on that. So it's been some amazing growth. That's going to be about the bridge to traditional finance, particularly with with Grayscale. That's going to be a cool one, right?

• 21:28David Hoffman?

  Yeah, absolutely. And in kind of in the same vein as like, you know, Grayscale represents like the macro world, right? It's kind of similar to Raul Paul. Like Grayscale isn't like the DeFi native, right? Like Grayscale, Grayscale can't go bankless. They are more or less like very, very bank friendly. But it's about the macro, like creating the world and creating the bridges to get into the world of crypto and the world of DeFi, the world of Ethereum. And, you know, something that I'm that I'm paying attention to is, you know, we saw, at least on DeFi Pulse, it took us like 18 months to get to a billion dollars locked in DeFi. And then it took us like three months to get to $3 billion in DeFi. And then it took us like three more weeks to get to like 11 or 12 billion in DeFi. And I see that same acceleration happening in Grayscale, except that's with Ether in Grayscale, right?

• 22:12David Hoffman?

  And so I just want to know like, how, how soon is that? And how soon and how fast are those numbers going to really start ticking upwards?

• 22:21Ryan Sean Adams?

  The growth is nonlinear. It's something closer to logarithmic, which is really cool. It's hard for humans to think that way. All right. Lastly, on the announcements list, before we get to the the main event, I've got to mention the Filecoin Accelerator. So guys, Banklist is super important. DeFi is super important. We also need decentralized storage in order to make these systems, these DeFi systems censorship resistant. So there's a Filecoin Accelerator. This is targeted at entrepreneurs and DeFi devs. That is happening. You've still got five days to register and apply for this, but they're giving out a 20K grant. They're also giving up to a million in follow-up funding. There's a link in the show notes. If you're a DeFi dev, you've got an idea,

• 23:05Ryan Sean Adams?

  you want to use Filecoin's distributed storage layer, which we highly encourage you guys to check out and do. There is a link where you can apply. David is going to be a mentor as well, so check that out. David, I want to get to the question I ask you at the start of every episode, my friend. What is the state of the nation this week?

• 23:24David Hoffman?

  This one's so good. The state of the nation is bonding. We are bonding, right? We are bonding our ETH to the proof of stake phase zero chain. If you go to the ethereum.org Launchpad site, you can get your nodes up and running, deposit your 32 Ether and be part of the genesis of Ethereum by bonding your ETH. But not only that, like many states of the nation, it doesn't mean just one thing. We are also bonding as a community, right? And so I'm working-

• 23:52Ryan Sean Adams?

  Wow! Whoa! Double meaning?

• 23:54David Hoffman?

  Yeah.

• 23:55Ryan Sean Adams?

  I did not anticipate the double meaning.

• 23:56David Hoffman?

  Yeah, double meaning. So and this is something that's baked into the core values of Ethereum. Consensus of the L1 is supposed to be done by many, many people, by everyone, by us, right? And it is a way to generate community. And we're in, we're in, Ryan, we have something going on in the in the background at Banklist that we're going to start pushing out like next week. I'm working on an article right now that kind of starts, starts off with like how I started mining Ethereum and how that made me part of the Ethereum community. And that is what and how I came to be in Ethereum, how I made my Ethereum friends. And it started with mining at the consensus layer, right? And this is what we are doing with proof of stake. We are enabling everyone to validate Ethereum.

• 24:40David Hoffman?

  And so we are bonding our Ether and we are bonding as a community because that's what happens when you have decentralized consensus. So today's state of the nation is bonding.

• 24:51Ryan Sean Adams?

  David, that was excellent. I didn't anticipate the double meaning. It's incredible you brought that in there. Also, this would not be a digital nation without a propaganda department, of course. And so you are bringing some of that propaganda in that article next week. I'm just going to show two quick clips of this. This is some of the propaganda we have in store to encourage the Ethereum nation to start staking, secure the network, run a minority client. If you can't see this because you're listening to the podcast, check out YouTube. This is a wartime poster, folks. You gotta check it out. Here's another one I'm gonna show. We're gonna release a whole bunch of these. They're fantastic. They're amazing. And I think should spread the meme of staking a little bit further. So that's gonna be super exciting.

• 25:36Ryan Sean Adams?

  All right, bonding is our topic, friends. And so we want to bring on an expert in that topic. Want to introduce you guys to Collin Myers, who is the Global Strategy Lead at Consensus Codify, doing all sorts of things in the staking department today, and also responsible for some of the fantastic ETH as an internet bond white papers that you've seen, and also the ETH calculator that we're gonna go into. Colin, how are you doing, sir? Welcome to the Bankless Nation.

• 26:07Speaker 02

  Hey, everyone. Happy Tuesday. Stoked to be on. And I like to think that the best is always yet to come. So maybe we can make this the most downloaded episode. So

• 26:19Speaker 02

  stoked to be here with you guys today. And thanks for having me on.

• 26:23Ryan Sean Adams?

  Well, this is a super cool topic to do it. And Colin, we've been wanting to have you on for quite some time, ever since you helped put out the first ETH2 calculator. But we were always like waiting for staking, you know? It's like, it was always like, okay, three months away, you know? Like in three months, let's talk. But now it's here. So we're super excited to have you on. You know, the first half of this, we really want to talk about the concept that you've been preaching here lately. The concept of Ether when it's staked as an internet bond. We've said before that crypto is

• 27:00Ryan Sean Adams?

  Almost speed reading, uh, speed running through the history of development of money, right? So like we've gone from like, uh, like hard monies like gold and now we're, we're doing these early collateral based lending markets. And some of these things are, are new to DeFi, but like these things have happened through the course of financial history and, and, uh, through financial progress. And now we finally arrived at this super cool thing, which is an internet bond market. We have digital bonds now like ETH. But first, before we get into that, for people who aren't really familiar with bonds, can we start with some foundations? So what is a bond market in traditional, in the traditional finance world, Colin? What does that look like?

• 27:44Speaker 02

  Yeah, so, um, I think I agree with you guys, one, on kind of the, the speed at which things are moving. And, and I think now we're beginning to see, uh, new, uh, primitives with new functionalities and different things that, that actually will begin to create new financial products. And kind of what we've seen today is recreations and now we're getting into that new financial product world.

• 28:10Speaker 02

  When, when most people think of bonds, it's mostly associated with debt.

• 28:17Speaker 02

  And a promissory note for, for someone to give funds to someone in return for some type of cash flow or some type of future promise.

• 28:26Speaker 02

  When dealing with normal debt as well, there's, uh, probably one of the greatest risks that, that you have to deal with is credit risk. And also, uh, prepayment risk as well, if, if you're on the bank side of the equation. Uh, it's also important to note that bond debt markets by debt were at a, were at a point today where, and that was kind of one of the, the purposes of the internet bond that Mar and I wanted, wanted to get across. And at least advance the conversation around is, uh, beginning to develop macro indicators of network health. Once the world's largest blockchain finally switches to proof of stake, which will really, we believe, change the foundation of the risk return premium and an ecosystem of rewards.

• 29:10Speaker 02

  That can be earned not only at the base layer by participating in consensus, but then all the other stream of rewards and risk, technical and whatnot, that you can take on on top of that base layer for staking.

• 29:22Speaker 02

  And what we want to do is try to create common terminology, um, common understanding, draw conclusions from the world that we understand today, but then also at the same time, let people know that these are, these are hybrid instruments. These, these do not look like securities at all, uh, and, and they operate in a completely different world and, and the best way to describe them are digital work agreements in the web three era.

• 29:49Speaker 02

  So the goal of it is to, is to bring it all together. Uh, we've seen a lot of different proof of stake networks launch in the past year and a half, all of which have, have different bonding terms or bonding flavors or bonding styles. But we've been preparing on our end for ETH two now for, for a while, almost two years. And now it's time to, to get the idea out there. It's time to standardize valuation methodologies for internet bonds. It's time to standardize the way that we look at them. Um, there's other things that need to be sorted as well. They're more advanced, which we highlight at the end of the paper. Rating methodologies, uh, and different things of the nature. But yeah, um, I'll stop there or I could just, you know, keep rambling for hours.

• 30:34David Hoffman?

  Standardization and making sure everyone's on the same page about like what these things are, are, are super important. But, but let's back up and, and talk about like bonds as an architecture in the, in the first place, like why, why do bonds exist? Like why, who gets to issue bonds and, and why would they do that?

• 30:54Speaker 02

  Yeah, I mean, bonds, bonds, like let's say I'm a company or a government, uh, or, or some, some, some type of entity. I would utilize a bond to get resources to grow. So I would give up some of my, uh, you know, future growth for short-term growth, uh, by, you know, borrowing money from someone.

• 31:16Speaker 02

  We found that the contractor license bond, uh, which is a type of Surety bond is is, you know, a bit different than what people think of, you know, bonds, which most people think of corporate or sovereign debt. Um, so what we've learned through the surety bond and through examining what what what happens at the base layer of the Ethereum network. Is is that, you know, the definition of a bond should be broadly expanded and it should be generalized as uh, a financial agreement between two or more parties. Uh, you need two parties to set up the agreement and you can have more than one party involved in this agreement. But it's it's a work agreement for compensation is probably the best way to to think about a bond.

• 32:01Speaker 02

  Uh, with a surety bond, you know, you are you are putting capital on the line. You're also putting reputation on the line. Um, and that is also similar to to what you're doing as a validator, you know, you're you're there and you're there to prove your reputation. You are rewarded based on your future reputation, uh, and you're setting up an agreement between uh, three parties, but the network acts as two of the three parties. Uh, which is which is quite quite interesting as it guarantees your cash flow streams are received. Um, because it comes from a pool of tokens, uh, which can be minted, uh, as the network grows.

• 32:37David Hoffman?

  Right, right, right. So so wh- why are bond markets so big? Like, it's one of the biggest, if not, maybe it's the biggest market in the world. And and I was doing some some research before this, um, for the stream and I and I learned that like there's twenty trillion dollars in United States government treasuries. Like, that's a really big number. Why is this number so big? Why do people like bonds as an asset?

• 33:00Speaker 02

  Yeah, I mean, huh, this is a deep question. Um, but essentially, I mean, our our entire global economic scale is based on our credit system. Um, prior prior to working, um, on Wall Street for six years and I spent all my time in the corporate debt markets.

• 33:20Speaker 02

  This is a small frequency of the deals that go on and and just just the sheer number of what takes place and how how that system works, but um, it's a much larger, larger structural design consideration for global growth, uh, which today is fueled on credit cycles, uh, which is fueled.

• 33:44Speaker 02

  You know, interest, so many levers that monetary policy can pull and utilize. And one of the main ones is playing with interest rates as a result of being a

• 33:58Speaker 02

  So, you know, debt's a good thing.

• 34:02Speaker 02

  I think that debt can be a bad thing, but if you use debt correctly, it's how we've experienced our, most of our human growth over time. I mean, debt's existed since the beginning of recorded history, if you will, from what we know today. So it all comes down to debt and debt is what people use to grow things. And it's the way that the global economy is structured today.

• 34:25Ryan Sean Adams?

  Hey, Colin, do you know off the, off the top of your head, how large the, the bond market is in general, like sovereign bond market and then plus corporate bond? Just curious.

• 34:34Speaker 02

  Yeah, I would say sovereign bond market, there is public data for that. Corporate bond markets, there's not a whole lot of data, honestly, unless you're digging through a Bloomberg. But I mean, it's in the multiples of trillions, you know, it's huge.

• 34:47Ryan Sean Adams?

  Yeah. So what I think is really interesting from sort of, you're describing ether just at a high level for folks, just at a high level. So ether, once it's staked, is like a bond and you're describing it has elements of a surety bond because you're actually, as a sticker, you're actually having to provide some labor. It's not just you just park the money. There is a labor component in terms of responsibilities of running a validator. So there's that surety bond component as well. David and I like also love to talk about how Ethereum is almost like a nation in some ways and how if you think of ETH as a, as a money, as a value asset as well, it's to

• 35:32Ryan Sean Adams?

  become a bit more like a sovereign bond in some ways, except it's not governed by a central bank or a sovereign nation state. It's a decentralized bond. So it's almost like a non-sovereign bond. It's almost like a decentralized T bill. And I always find it funny that crypto. Often talks about benchmarks is like, what's going to be the total aggregate size of crypto, right? And people are like Bitcoin, right? Okay, gold is eight trillion in outstanding like value in the world. So what if Bitcoin got to eight trillion or surpassed gold or took 50% of the market share? That's often the the benchmark here. Well, what if ETH takes 50% of the sovereign bond market market share?

• 36:18Ryan Sean Adams?

  Right? Like, then you're in the tens of trillions of of dollars. I'm not saying that that happens overnight, but like introduce that concept into your brain, because we have just created something pretty unique, which is a non sovereign bond. It has elements of a of surety bond, but it's also completely decentralized, backed by a decentralized economy similar to a nation state. That's where I think things get really interesting. And by the way, ETH as a limited supply, hard money, that

• 36:53Ryan Sean Adams?

  becomes very interesting as well. So like, just like, okay, nine trillion, that's cool. I mean, but like, sorry Bitcoiners, you guys shooting a little low, because we've got like 40 trillion in sovereign bonds. And maybe a portion of that market size is is the market we should be going for here. I just want folks to to see that framing of the world. Again, this is not going to happen overnight, folks. Like Ethereum has to grow a nation state sized economy before that is possible. But I just want you to see that this is sort of the the financial, the financial instrument that's just been unleashed. I just wanted to say that, Colin, mostly.

• 37:32Speaker 02

  No, we're aligned on the meta-ness of it, right? And something that that I've been, I've been waiting for for ETH to launch now for two years. And I've been spending pretty much all those two years on on the economics, right? And then as the more the meta thing, like what, there will be a reward rate that will come out of the network, right? So once this thing goes live and it gets bootstrapped and we surpass phase zero, we get to Genesis, and then we move through the life of ETH two, there will be some consistent reward. Reward rate that is public for all people to observe. And that reward rate will become something extremely meta. Uh, exactly what? Who knows? Uh, it will be the risk-free rate of a new decentralized financial economy.

• 38:16Speaker 02

  And it will be the benchmark of, you know, what is the cost of creating trustless transactions? Or, you know, what is the cost of, uh, just providing trustless infrastructure as a public good? Or there will be, there will be some type of benchmark, like a risk-free rate, uh, which will come off of the Ethereum network. And, and I do believe that, that once that gets put in place, we will see a lot of different things change, um, within our current stack of risk reward and scales that we see on top of Ethereum today. There's all these staking mechanisms, right? That are built everywhere with their different reward structures and the different things.

• 38:59Speaker 02

  But the thing they're built on doesn't have a proper reward structure that has similar barriers to entry that the things built on top of it do.

• 39:07Ryan Sean Adams?

  Yeah.

• 39:07Speaker 02

  So now when you got the lower layer, you redo it, you create a reference rate. Uh, and then the reference rates that you are getting on top of that layer will have to fundamentally change somehow or be anchored to it in some way. So I think it's one of the final loops for us in DeFi to bring a holistically connected system together as we will have a, a reference rate of sorts.

• 39:31Ryan Sean Adams?

  Totally agree.

• 39:32Speaker 02

  Taking risk in a certain ecosystem, what am I rewarded for, for taking risk? Uh, and then there will be a series of rewards put on top of it. So I don't think we know exactly what, what it'll look like, but, but we do know that that reward rate will be an anchor to a much larger financial ecosystem.

• 39:50Ryan Sean Adams?

  Yeah. I mean, what we're talking about is ETH could, ETH staking, uh, yield could become the risk free rate for DeFi. Basically in this entire decentralized economy, similar to the way the T bill, as you were saying earlier, is kind of the risk-free rate for traditional finance. Uh, super cool to think about that.

• 40:06David Hoffman?

  So the current macro environment kind of changes up what, in my mind, what the risk-free rate is, right? And Andreas Antonopoulos, I think, made this made this claim in one of his Internet of Money speeches way back when, where Bitcoin changed the game on like what immutability is. Like, whatever immutability was before Bitcoin, Bitcoin just added a new end of the spectrum for something that's much more immutable. And I think that's coming as well for whatever we call the risk-free rate in traditional finance, because, and especially during times of COVID and money printer go burr, like, one of the reasons why there's a risk-free rate is because the entity behind the assets

• 40:46David Hoffman?

  that are guaranteeing the returns can print money to pay you back on your bond, right? And so like, yeah, it's a risk-free rate, but you're also inflating the currency. And there's, and Ryan, you you talked about like compare how Bitcoiners compare Bitcoin to gold and using gold as a benchmark. But if I were to put my Bitcoin or hat on, I would say like, you know, gold is like the minimum. We are going for for a gold 2.0, that's an evolution on gold. It should be orders of magnitude more than gold. And I think we can say that same thing with Ether and the bond market. Like, yes, we are reconstructing the bond market. We can use the bond market as a benchmark, but we are able to provide much stronger assurances

• 41:29David Hoffman?

  about the bond market of Ether, because we have some things baked into the Ethereum protocol that prevent, you know, an overly irresponsible money, like issuance of Ether, right? Minimum viable issuance. So what happens when we get a bond market that also has an entity that is restricted in issuing the the currency itself? That's something that's really interesting to me.

• 41:54Speaker 02

  Yeah, the, I mean, the the issuance of ETH2, right? And there's, and that's some of the stuff that we baked into the model for the Internet bond, like, in the earlier days of ETH2, before we get to phase 1.5, which, which for everyone is where the ETH1 chain is folded into a shard on ETH2. And that's when Ethereum will officially move from proof of work to proof of stake. There's, there's, you know, going to be ongoing issuance going on on the ETH one chain. So, so we'll have kind of like rewards split between two things. Right now, I believe the annual, like the average annual issuance for Ethereum is around five percent.

• 42:38Speaker 02

  Whereas, once we get into the mature ETH two world, we're looking at one percent or under. And it's a very, uh, it's emission is based on its participation. Which is quite interesting, which then ties to its economics, which are

• 42:56Speaker 02

  designed in a way that, uh, they're capacity based essentially. So if there is more ether needed to be staked in the network,

• 43:06Speaker 02

  then it will over incentivize for that. If we're have too much security or there's too many people involved, then the rate of reward will drop and it'll reach its equilibrium state. So it's ETH two is really meant to be this, this fluid moving dynamic system. And it's, and it doesn't have a fixed supply. Uh, and I personally think that that's probably one of the greatest things about its design. Uh, especially being a smart contract platform, whereas how can you expect to have a fixed supply when you don't actually understand how large it could actually get?

• 43:39David Hoffman?

  Right.

• 43:40Speaker 02

  And by having a dynamic cap on the supply, it's how it's to be designed, I guess, is the way that I've looked at it.

• 43:49Speaker 02

  So when it comes to issuance and how that transitions over to ETH two and how it compares to Bitcoin, it's a lot of interesting stuff going, going on there. And there are a lot of people who will argue that the so not having a supply cap is a bad thing. But to be honest with you, uh, ETH two is probably one of the like most complex things uh, that I've ever tried to dissect. And there's still loads that I need to learn, uh, after doing it for two years. But one thing I can say is that not having a supply cap and tying the economics to its issuance and usage is a very interesting thing that I, I can't wait to see play out.

• 44:24David Hoffman?

  Yeah, absolutely.

• 44:25Speaker 02

  Yeah.

• 44:25David Hoffman?

  Colin, can you, in order to really figure out like what this thing is, can you maybe compare and contrast like a traditional bond market or bond issuance to like what we are seeing coming on Ethereum two point O? Like, how are they alike? How are they different?

• 44:42Speaker 02

  Yeah, so I think I'll focus on one, one point, which is really, really interesting, and that has to do with maturity. Um, so, and that's also one of the unique properties of an ETH2 internet bond and, and how it works. You know, beyond the earlier phases, which, which has some restrictions, which are outlined in the paper, and then we can also discuss them as well. But there's this perpetual nature of participating inside of this, um, you know, this global uh, plumbing layer, if you will, uh, when purchasing bonds or participating in traditional bond markets, um, their valuation, their yield, how they're sold, uh, and many things are anchored to a maturity date.

• 45:22Speaker 02

  Uh, yield to maturity, uh, different types of calculations like this, there's a fixed parameter inside of that. One of them is being what is the maturity of this, and the other one is what is the par value? So then you have instruments that are kind of free-floating anchoring to these two items. Uh, when it comes to a perpetual ETH2 internet bond, the big difference there is, is that there is no maturity date. Uh, you are free to come in and come out of it whenever it is that you would like. And par value, uh, has no barriers as to where it can go up and down. Uh, an ETH2 internet bond par value is thirty-two times the market price of whatever Ethereum is currently at.

• 46:05Speaker 02

  Um, and your maturity is there, there is no maturity. So when you look at who issues perpetual bonds, they are only usually, uh, sovereign nations, essentially. And when those sovereign nations historically have issued perpetual bonds, um, they have a fixed rate of interest, whereas Ethereum is dynamic. And there is a call option that as the holder, you, you, you, you don't have any right around it, which means that that authority or that central body that issued that perpetual bond that guaranteed you this interest rate into perpetuity has the right to pay you back whenever they want. Right? So that means that you could lose rewards inside of that structure.

• 46:52Speaker 02

  Which is again how ETH2 is different, but but it's fairly similar. So just to just to highlight that. Two of the major differences here are that Internet bonds are designed, or at least in the Ethereum sense, are designed to be perpetual. You can come in, you can come out whenever you want, and you are not subject to those rewards ever ending, because the protocol wants to, you know, take some money off the table, if you will.

• 47:17Ryan Sean Adams?

  Yeah, Colin, one caveat to that is during the the this initial phase zero, you can't come out whenever you want, right? And I think you you guys highlight that in your paper, how at first it has a little bit of a different structure, because during the phase zero, basically, you don't have the ability to exit from the bond. Can you talk about that for a minute?

• 47:40Speaker 02

  Yeah, yeah, of course. So what what we focused on in the paper, so like I guess kind of long, long story short is is that we built this perpetual valuation model and spent time looking at ETH2's Internet bond from a perpetual perspective. But we were looking too far into the future. So then when we wrote the first draft of Internet bond, we backed up into, okay, what's going on in the earlier phases of ETH2? Because there are some fungible properties and technical restrictions that result in this perpetual bond actually looking like a deferred rate coupon instrument, based on its different properties. So in the paper, we decided to nail down deeper into phase zero to phase 1.5,

• 48:25Speaker 02

  instead of doing phase 1.5 and beyond, right? Because that's the the majority of how an ETH2 Internet bond will be valued and the way that it'll trade is 1.5 and beyond. Whereas, you know, 0 to 1.5 is this 18 to 24 month time period. Again, maturity unknown, but its properties are very different. So in the earlier days, the way that the process works today is, I want to be a validator on ETH2. I head over to the ETH2 Launchpad, I generate my keys, I deposit my 32 ETH, I get my documentation and everything to spin up the client of my choice, and also my ETH1 node of choice. And once I enter that system and and I make that deposit, I make a one-way deposit to the ETH1 chain,

• 49:08Speaker 02

  which again is in the ETH1 chain until the ETH1 chain is folded into the ETH2 chain, into a shard on ETH2, which is phase 1.5. So I send a one-way transaction, which is effectively a burn if the system doesn't work out. And inside of that, I accrue rewards, but but I can't do anything with them. Right? So I'm still earning rewards and I own these rewards, you know, the sovereignty of the rewards belongs to me as the validator who deposited, but I don't have any liquidity on them and and I can't really do do much with it aside from watch it accrue. So during during this, you know, this time period, the properties are very, very interesting.

• 49:50Speaker 02

  Um, there's lots of different types of risks that uh exist at the beginning and exist through its lifetime, but lessen. And then there are some risks that completely fall away. One of the major risks is not having liquidity on my base assets, which is my principal, which doesn't exist in the bond market. Pretty much all bonds have some degree of liquidity. They may be highly illiquid, but I still have the technical ability to trade it to someone or sell it if I'm uncomfortable with the situation. Um, so what we have come up with for the earlier phases of phase zero to 1.5 is that an ETH2 internet bond should be valued and probably will be valued like a discounted

• 50:29Speaker 02

  instrument, where from its initial conception to its change in its fungibility properties, it will continually move towards its par value.

• 50:42Ryan Sean Adams?

  And that's that's this graph that we're looking at here, Colin. I think this is from your white paper, right? The the bottom line here is the the in red is the market value. That's what you're talking about. The discounted value that it would trade at, whereas this top line is the the face value. And what you're seeing, I think, um, the the sort of the the um, the the axis at the bottom is basically months over time and the transition from phase zero all the way to this phase 1.5 and beyond and how all of the the the market value and the face value and the present value all converge ultimately.

• 51:18Speaker 02

  They, yes, they, I mean, in theory, um, uh, which is what, what we expect. I think it's important to note that in a fully mature ETH two, like these internet bonds, which are, you know, chunks of thirty two staked ETH.

• 51:33Speaker 02

  These could trade at a discount. These could trade at a premium. Um, I suspect a world where there's a long queue for people waiting to become a validator. At which point you may, there was a point on Madaja where people had to wait two and a half, nearly three weeks to actually enter the network and get a chance to earn rewards. So there's, there's this environment where over time it will definitely be a par value. And how do you assign that par value? And then as its properties change and the network changes. Uh, it will trade at a premium or it'll trade at a discount. Uh, in the earlier days, we suspected to, to trade at a discount for two reasons. One of them being

• 52:12Speaker 02

  just the natural time value of money and the fact that the rewards that you earn, you can't have today. And then there's some other economic benefit that you could be doing with those money. So that's, uh, that's a fairly basic, um, present value, uh, you know, evaluation. And then the other market rate is we applied manual discount rates for illiquidity. Uh, and a few other things as they would change, change over time. So one thing I think that's worth noting is that in our analysis, we had to use a maturity of twenty four months. Uh, it was difficult for us to derive a valuation of an ETH two internet bond without creating some type of fixed variable.

• 52:51Speaker 02

  And in ours, it was basically laying it out over a twenty four month time period from phase zero to phase one point five. Twelve months from phase zero to phase one, twelve months from phase one to phase one point five, which is definitely on the conservative timeframe.

• 53:09Ryan Sean Adams?

  Yeah, agreed. I mean, we talked to Danny Ryan. It's possible some of this could ship in, you know, twenty twenty one, at least phase zero. And who knows about one point five, but yeah. So one last question, we're going to get to the second part of this, uh, to help David answer his question. Just a minute, but one last question, just to tie this off, right? So. You guys wrote this fantastic internet bond white paper that sort of models out how ETH is similar to traditional bonds. What does this do for the typical institutional investor who's familiar with the traditional bond world? Does it help them understand it? Does it make them more warm to the asset class? What do you expect from this?

• 53:50Speaker 02

  Yeah, I suspect, well, first and foremost, those that are on the regulatory bodies and the institutional people, like, they definitely have gotten more up to speed on what Ethereum is in the past 12 months, which I think is like, super, super great. So the only network that they have the chance to understand what proof of stake is. If you give them a Tezos, if you give them a Cosmos, or if you give them any of these other chains and say, hey, take a look at this, like, it's most likely going to be more confusing for them to understand what proof of stake is. So now I think that proof of stake is finally a reality inside of ETH2.

• 54:32Speaker 02

  They understand Ethereum, they're comfortable with Ethereum, they see the value, they see the things being built on it. They're more knowledgeable about it. Now, they take a look at, okay, so I have all this ether, what can I actually do with it? Or I'm interested in purchasing ether, what can I do with it? Because it is a utility token, so what type of utility does this token have? And today, for the first time, that token has its own utility within its own ecosystem, which it was, you know, historically to pay for gas fees, but now it is the main asset used to achieve consensus, which is a self-reinforcing cycle of value. So I do believe that now people are ready to understand staking. And I believe that staking is easy for them to understand,

• 55:17Speaker 02

  but they need to look at staking through a lens of a network that they trust. And finally, now it's time for Ethereum to be that network that, you know, staking is here and people understand Ethereum. So I see this really cool mashup of getting these more people involved. I can tell you, just I just spent a lot of time on ETH2 research, that the illiquidity part of ETH2 is an institute.

• 55:41Speaker 02

  There's absolutely no doubt about that, but I also know that there are custodial for working on solutions, help institutions get involved. I don't think there is any, there's not much left selling on what is blockchain that they need to see. They just need to have mandates in place, one of them being liquidity. If you're locked into an asset that's no good and you have LPs, like you're going to need to get out and in an ETH zero to 1.5 setting, that's not a property that they're used to experiencing.

• 56:16Ryan Sean Adams?

  It's so cool. I mean, some people will think about liquidity as well, that blocks institutions, but at the same time, I'm like, well, you know, it's good for the decentralized of the network, decentralization of the network, that this is a bit more hobbyist and institutional blocked from the get-go.

• 56:30David Hoffman?

  They get to come after I fill my bags.

• 56:33Ryan Sean Adams?

  Exactly. After David retires on his passive income, which we'll talk about in a minute. But so, but like, I think what you're saying here is, this is what's so cool about this is if you guys zoom out and are listening to what we're saying about this internet bond thing. Five years ago, institutional investors did not understand Bitcoin, right? They didn't understand it. And over the last five years, we've seen the education of Raul Paul, Paul Tudor Jones, Stanley Druckenmiller, right? Like, like, these people are now like, oh, I see store of value. It's like digital gold. That happened over the past five years. Five years ago, when I entered this space, that wasn't the case. They didn't understand this. They thought it was criminal drug money.

• 57:11David Hoffman?

  I think that happened over the last two years. I think it was even shorter than that.

• 57:14Ryan Sean Adams?

  So what I think will happen over the next, I'll be conservative and say five years, is that institutions will start to understand internet bonds as a financial instrument, the way they understand Bitcoin as digital gold. And next thing you know, Paul Tudor Jones will talk about the ETH, the staked ETH he's just invested in or started validating. And I think that is the next chapter here that you have helped unlock, Colin. So thanks a lot. Do you have some time to stick with us so we can help David retire on his passive ETH income?

• 57:47Speaker 02

  Yeah, of course. I'd like to know what these numbers are like too, so I can set some more personal benchmarks.

• 57:52Ryan Sean Adams?

  Right. We're gonna do that in just a second, but first, we want to talk about some of our fantastic sponsors that made this episode possible.

• 58:00David Hoffman?

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• 58:45David Hoffman?

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• 59:25David Hoffman?

  which is creating one of the most safe environments to hold your assets in, which is why people have put millions and millions of dollars into the Argent wallet that they use on their device. In order to see the Argent wallet in action, go to argent link slash bankless and download the Argent wallet on iOS or Android today. We're also brought to you by Monolith. Monolith is your cool new DeFi account, your DeFi savings account, your DeFi checking account. Except the cool thing about the Monolith DeFi account is that it gets software updates, right? You actually get to increase the usefulness of this over time. So here are some of the features. Monolith is a smart contract wallet with a lot of the features that you would expect if you've come to know DeFi and what it is. You can, you can add money to it.

• 1:00:09David Hoffman?

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• 1:00:51David Hoffman?

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• 1:01:06Ryan Sean Adams?

  All right, Bankless Nation, we are back with Collin Myers and David, of course, and he's going to help us answer a very important question. Of course, we talked about on Bankless, what is Bankless about? It's about freedom, financial freedom, freedom from banks. And David has the question, probably the same question that many of you have, which is how much ETH is actually required in staking to earn a decent passive income off of this stuff? An income source that is denominated in self-sovereign bankless money, ETH native source. David, I think that's the reason you started to get into this space. Is that correct? That's always been the dream?

• 1:01:46David Hoffman?

  Absolutely. And this is something that really gets me excited about Ethereum 2.0 is because we're about to do this all over again. Like I got in. To Ethereum because I started mining on my gaming computer, finding out like I can make $5 a day on my GPU. And then I scaled that up into like 24 GPUs, like spreading different corners of my dad's house. But then, but then like in the bear market, the bear market came, and then, you know, ASICs kind of dominated the Ethereum landscape. And so I see this this migration to proof of stake as a resurgence of some of the original core values that brought people into Ethereum in the first place. The ability to mine Ether and get Ether dividends in your home is really powerful. And like, we are going back to that world with proof of stake.

• 1:02:31David Hoffman?

  That's always been the point of proof of stake is getting money paid to you at home in a self sovereign way. And so I want to know, like, how much Ether do I need to stake so I can like, have a comfortable retirement? Like, that's

• 1:02:43Ryan Sean Adams?

  All right, well, let's find that out.

• 1:02:44David Hoffman?

  It's been my question for three years.

• 1:02:46Ryan Sean Adams?

  You know what? Collin Myers designed, we've got him on right now, he designed the perfect calculator for you then. We're going to go through it. And I don't think David is the only one, by the way. I've talked to a lot of ETH holders

• 1:02:56David Hoffman?

  Definitely not.

• 1:02:56Ryan Sean Adams?

  Through the bear market. And part of the reason they kept the faith and kept holding is like, why? I'm waiting for proof of stake. I'm waiting for this to be a semi passive income source for me in the future. I believe in Ethereum. I believe this is possible. So David is not the only one. And if you are watching, you are listening, I bet you have some interest in this too. So I am pulling up the ETH2 calculator, designed by Colin, Mara, some other folks, and the team at Consensus, and partially Bison Trails. This will be linked in the show notes. There's also a guide that we will link. It's already linked. There's a guide we will link in the show notes too, that we designed that will help you through it. It has some variables

• 1:03:37Ryan Sean Adams?

  we're going to go through and help answer David's question today. So we've got first, this whole category under the ETH2 calculator. Let's start here. The current cost to become an ETH2 validator is $14,293. That is the cost of essentially 32 ETH, owning 32 ETH. Is that correct, Colin?

• 1:04:00Speaker 02

  Yeah, that's your, that's your raw cost, if you will. That's your asset acquisition cost.

• 1:04:06Ryan Sean Adams?

  So that's your capital outweigh. That's almost the equivalent, David, to your GPUs, basically. You've got to buy the GPUs, you got to buy the ASICs. That's what the ASICs are in this new model. We have to get a certain amount of validators and stake on board to launch the chain. I'm assuming we get that. I still have full faith, especially after our ETH war effort next week, David. We're going to hit those numbers. Not going to be a problem. Let's talk about some of the variables here. So one variable, Colin, is the ETH price, of course, right? So this calculator autofeeds into the ETH price. Another variable that you could adjust up or down is the total amount of ETH at stake. So this model right now, in the default, assumes about a million.

• 1:04:48Ryan Sean Adams?

  But is it correct, Colin, if I adjust that amount up to, say, 2 million, or 3 million, or 5 million, that indicates more ETH of the total stake that the rewards will go down for David? Is that correct?

• 1:05:02Speaker 02

  Yes, yes, correct. So it's, we're going to start off earning rewards at 524,288. That is the genesis threshold. And then as more validators get added, you will see between phase 0 and phase 1.5, when there is no liquidity, you'll see a uni-directional decreasing reward structure, where in earlier epochs, you'll receive the highest, and then as more stake gets added to the network, you will receive less.

• 1:05:32Ryan Sean Adams?

  We'll keep it at a million for now. That will probably go up in other phases over time. It's hard to know. ETH circulating supply, that feels fairly certain. I think the assumption of all of the other validators on 95% of the time feels pretty safe. But let's, so let's get to the validator specifics. So David, do you already have an internet router, my friend? Can I say yes to this question?

• 1:05:55David Hoffman?

  I got, I have an internet router, yes. That's how we are doing this stream.

• 1:05:59Ryan Sean Adams?

  Okay, good to know. Good to know we're not using your cell connection. All right, so infrastructure. What kind of node are you going to run? So you have kind of two options here, right? So you could either run your own hardware, or you could run in the cloud.

• 1:06:15David Hoffman?

  No, hardware, hardware, staking at home.

• 1:06:19Ryan Sean Adams?

  All right. So you want actual physical hardware.

• 1:06:21David Hoffman?

  Yep.

• 1:06:21Ryan Sean Adams?

  Inside of your residence, where you live. And what are we doing for infrastructure choices? I'll give you, uh, I'll give you two here. That's what the calculator says. You go the bare minimum requirements or you do recommended. All right. So here is, I think, um, let's see. The minimum requirements are something like this.

• 1:06:40David Hoffman?

  Mm hmm.

• 1:06:41Ryan Sean Adams?

  Four gigs RAM.

• 1:06:42David Hoffman?

  Oh, yeah.

• 1:06:43Ryan Sean Adams?

  Storage SSD.

• 1:06:45David Hoffman?

  I definitely got that. Yeah.

• 1:06:46Ryan Sean Adams?

  Mm hmm. Okay. So.

• 1:06:48David Hoffman?

  So, so for people who are, who are looking at this, like I'm going to be staking on a 2018 MacBook Pro. And that is more than enough. Uh, I, I think I have an I7 in it and an Intel I7 chip. Maybe that's a little bit higher than average, but an I5 is going to be just fine.

• 1:07:05Ryan Sean Adams?

  Okay. So you've got the recommended requirements. You're above minimum requirements. And then Colin, what's interesting is David just answered the question like he has the internet. He has a router. He has broadband. That's all you need broadband. You don't need some super like fast fiber connection, like your, your Comcast connection.

• 1:07:20David Hoffman?

  Yep.

• 1:07:21Ryan Sean Adams?

  If you're in the US works. Is that right? All right, cool. All right. So, uh, David, how many, how many validators are you going to run? May, maybe we'll say like base case here first, and then we'll, we'll work towards your dream retirement passive income.

• 1:07:33David Hoffman?

  Yeah, I'm gonna, I'm gonna only put in 32. I'm going to put one validator through, uh, in phase zero. And then I'll, I'll get the rest of my ether over, uh, you know, all, all 332,000 of them over, uh, you know, later, you know?

• 1:07:47Ryan Sean Adams?

  Okay. So this is you at first, you're being conservative. So you're like, you're not ready to start retiring on this passive income. But we'll set this to one, one validator. So that means you're putting 32 ETH in. And again, 32 ETH is about 14K in capital. So not insignificant, guys, right? And again, we put out a, a, a meet the nation video about Rocket Pool. If you have less than 32 ETH, there are other ways to stake.

• 1:08:10David Hoffman?

  Yep.

• 1:08:10Ryan Sean Adams?

  And there will be other ways to stake, but, um, David's running his own validator. Uptime, 95% it's set at.

• 1:08:17David Hoffman?

  I'm better than that. I'm at 98%. Give me 98%.

• 1:08:20Ryan Sean Adams?

  I'll just give you a flavor. Here's an SL, like a calculator, uptime calculator. So 95% means, um, you could be down up to 18 days a year.

• 1:08:29David Hoffman?

  Mm hmm.

• 1:08:29Ryan Sean Adams?

  Right? That's 90, 95%. So what did you say? 99%?

• 1:08:33David Hoffman?

  98. Give me 98.

• 1:08:35Ryan Sean Adams?

  98.

• 1:08:35David Hoffman?

  I'm a good boy.

• 1:08:37Ryan Sean Adams?

  All right, that still gives you, even as a good boy, like that gives you the ability to be down seven days a year.

• 1:08:42David Hoffman?

  Right, so when I move apartments, I can close my laptop, carry it from one apartment to the another, set up Comcast, and that's my like five to seven day break, then that's okay.

• 1:08:52Ryan Sean Adams?

  Exactly, exactly, that's reasonable, as long as Comcast isn't out for like two weeks, or like some sort of disaster hit. So I'm gonna set you at 98%. Cost of computer, hardware, I think that's already been put in, useful life, everything else is put in. So, I think, Colin, am I looking at the right place? This is David's annual profit with these variables in play. So that's an annual profit, if you can't see this, of $1,777 at a net validator issuance. So he is making annual returns of 12.43% on his 32E. So on his 14K, denominated in US dollars, he's making a 12.43% return. This is after the cost of hardware and internet.

• 1:09:37Ryan Sean Adams?

  Am I reading that correctly, Colin?

• 1:09:39Speaker 02

  Yes, that's correct, and for specificity purposes, that means that that epoch that he participates in, with the network state at 1 million ETH staked,

• 1:09:54Speaker 02

  on an annualized basis, he would earn 12.43%.

• 1:09:59Ryan Sean Adams?

  Very cool.

• 1:10:00Speaker 02

  So that's an annualized number, and it's based on the snapshot of the state of the network at 1 million ETH staked, which over the course of the year will change, you know, it'll only increase. So his actual annualized reward will be less than what the metric is that you see here today, as it's annualized at a snapshot point in time.

• 1:10:21Ryan Sean Adams?

  Got it, so as the stake increases, that could go down a little bit, and that would be annualized up to that amount. So David, I guess, one question. So if you were to park your funds in, say, the equivalent sovereign bond market, like what would you do on a T-bill, right? Like, do you know T-bill rates off the top of your head?

• 1:10:40David Hoffman?

  T-bill rates, especially right now, I'm pretty sure are like 1% to 3%, maybe more, maybe, yeah, that sounds about right to me.

• 1:10:48Ryan Sean Adams?

  Right, yeah.

• 1:10:49David Hoffman?

  And specifically 1% to 3% on the US dollar, which is not a hard money.

• 1:10:54Ryan Sean Adams?

  Which is not a hard money. It's between 1 to 3% and dropping. I wouldn't be surprised if we saw zero. Some people talk about with the central bank digital currency negative. And then in the background, the Fed is inflating your money, inflating the money supply. Right? So this is, uh,

• 1:11:12Ryan Sean Adams?

  I mean, yeah, this is, this is a totally different paradigm here. It's, it's a different source, but there are risks here, of course. So, um, let's talk about other places you could put your ETH. Is there anywhere in DeFi that you can get this kind of return at the moment that you're aware of?

• 1:11:26David Hoffman?

  In wire, you can submit your ether into a Y ETH vault and then it will draw die from Maker DAO and use that die to get a yield. And that is earning something like four to 6%, but that also has some risks involved. Because if, um, your ether drops, you actually might end up having to sell your ether because you are taking out leverage to get that done. And so like, while that is four to 6%, that is not a risk free four to 6%, that is a risk on four to 6%, which is a very important difference.

• 1:11:59Ryan Sean Adams?

  And it also has, um, other like DeFi risk, uh, you're trusting die, you're trusting wire and you're trusting maker smart contracts. Whereas this, and guys, when we say risk free rate, somebody chewed me out on Twitter one time, somebody in DeFi, because I said like ETH stake will be risk free rate. And he's like, it's not risk free. There's tons of risk. I'm like, yeah, I know there's risk, but it's, it's protocol risk. It's the base layer risk. That's what you're incurring here, but you're not taking all of the other layers on top, right?

• 1:12:28David Hoffman?

  Importantly, in Ethereum staking, there is no counterparty risk, right? You are not loaning out your money. There's no one receiving it. The, the thing that is receiving your ether is Ethereum, which we can all trust. Otherwise it wouldn't work.

• 1:12:42Ryan Sean Adams?

  Okay. All right. So, so you're, you're putting that in, but like you're getting $1,777, which is a, which is a good start, right? For, uh, some passive income for you, but, um, that's probably not going to be enough to retire on, right?

• 1:12:56David Hoffman?

  Yeah. Retirement, that's a pretty slim retirement.

• 1:13:00Ryan Sean Adams?

  All right, so let's, let's, let's talk about some of your dreams, David. So we've got a few variables that we can adjust here. All right, just for fun. One variable, of course, is you could put more ETH into this thing. You could go buy more ETH and go risk it in this risk-free rate of ETH to protocol risking. So you have that option, my friend. Another option that we might see, and you know, despite what people might, might think, Dave and I do not control the price of ETH. It ebbs and flows on its own, but if the price of ETH goes up, what's that going to do to your return?

• 1:13:34David Hoffman?

  Well, in US dollar value, it's going to pump that number up, absolutely.

• 1:13:39Ryan Sean Adams?

  In US dollar value? Interesting, but not in ETH-denominated.

• 1:13:42David Hoffman?

  Your Ether-denominated returns will stay the same, independent of the dollar price. But if the dollar value of Ether goes up, then the dollar value of your Ether dividends also goes up.

• 1:13:54Ryan Sean Adams?

  Okay, so let's say that, what, what numbers do you want to adjust then, David? Let's let you play the scenario out. So we could adjust ETH price, we could adjust how much ETH you want to put in. What's kind of reasonable for your retirement passive income dreams?

• 1:14:08David Hoffman?

  Yeah, so Chris Bernuski, who is a person I, I trust, tweeted out recently about his projected returns based off of Bitcoin, Ether, and DeFi mid to small caps. And he estimated that Ether at the end of this cycle is going to do a 10x, where he thinks Bitcoin's going to do a 5x, Ether's going to do a 10x, and then DeFi mid caps are going to do a 20 to 50x. So let's go with what Chris said. And so that would be put Ether at roughly $4,500 at a, at a stable end of cycle price.

• 1:14:38Ryan Sean Adams?

  Wow, $4,500. And when he was saying cycle, any idea what the timeline was he was talking about?

• 1:14:46David Hoffman?

  I don't think he gave a timeline, no.

• 1:14:47Ryan Sean Adams?

  Okay, so he's saying probably in the next three to five years, two to, two to five years-ish.

• 1:14:51David Hoffman?

  Yeah, two to five, yeah.

• 1:14:53Ryan Sean Adams?

  So we are jacking, we are 10x-ing the ETH price right now, which is not crazy for a bull market cycle. Okay, and then are we keeping your, you just want to run in one validator with 32 ETH?

• 1:15:05David Hoffman?

  Yeah, let's, let's keep one validator for now, and then we'll see what number that gives. And then we will go and change that number after I see with the number that it gives.

• 1:15:12Ryan Sean Adams?

  All right, Colin's magic calculator did all of the calculations for us.

• 1:15:16David Hoffman?

  But I think we have to tweak one more number because I think if we are assuming that ether price is going to be $4,500, I think there's probably going to be more ether of being staked. I feel like that's a likely outcome. So let's go from 1 million to, let's go to, let's go to 4 million. 4 million ETH staked.

• 1:15:33Ryan Sean Adams?

  4 million ETH staked. We'll keep the other variables the same. Of course ETH circulating supply is going to be up a little bit, do you? But maybe we, we ignore that for now.

• 1:15:43David Hoffman?

  That's an unknown quantity.

• 1:15:45Ryan Sean Adams?

  All right. Anything else you want to adjust?

• 1:15:46David Hoffman?

  No, I think that's right.

• 1:15:48Ryan Sean Adams?

  All right. So your annual profit right now, you're doing 10K a year. So you went from, you just basically 10xed your annual profit, right?

• 1:15:55David Hoffman?

  No, no, it was at $1,700 and now we're at $10,000.

• 1:15:58Ryan Sean Adams?

  Exactly. So less than 10x because the issuance, your net issuance annualized went down from what, 12 to 7?

• 1:16:06David Hoffman?

  Yep, right. And so we previously, when there was only 1 million ETH staked, we were receiving a 12% issuance rate, 12% interest rate on our ETH. And since we bumped that 1 million total ETH staked up to 4 million, it went down to 7.4%.

• 1:16:22Ryan Sean Adams?

  Okay. Is that going to be enough to retire on, my friend? 10K a year?

• 1:16:24David Hoffman?

  We're getting closer, but still like 10K. Like I have a pretty bougie diet. I eat a lot of steak. So I think we, I think we're going to have to add some more validators, Ryan.

• 1:16:35Ryan Sean Adams?

  All right. So what do you want to do?

• 1:16:36David Hoffman?

  Well, okay. So if I'm making $10,000 a year on one 32 ETH node validator, my retirement goals are $50,000 a year. So I think we should 5x 32. So 5 times 32, which that number is, hmm, quick math.

• 1:16:54Ryan Sean Adams?

  5 times 32 is 160 ETH staked and the calculator does it for you, my friend.

• 1:16:59David Hoffman?

  Fantastic.

• 1:17:00Ryan Sean Adams?

  And then that gets you to your annualized profit of 54K per year, a comfortable retirement. And that would mean, that would, that would mean that you are, and this is by the way, like some people talk about like FIRE, financially independent, retire early. This is around the benchmark that they use for that sort of thing, personal finance world, right? Like 50K annualized. Some people feel comfortable enough to retire. What that means is basically you've still got a lot of capital here if you're doing that. Cause that 160K is all your capital. That's like your net like capital. But it's throwing off 54K a year in profit for you. And that's paying for all your stake and your bougie lifestyle.

• 1:17:40David Hoffman?

  Yep.

• 1:17:42David Hoffman?

  No, that's right. That's right. Yeah. Fifty five. You know, it's not, it's fifty five thousand dollars a year as a salary is, is, you know, a modest salary. Like, you know, some people would really appreciate fifty five thousand dollars a year. On retirement, like, that's not the, it's relatively slim, but I guess your consumption in retirement goes down. But like, you're, you're, you're still gonna have to like, you know, do some things, right? You, you don't get to just like, you know, buy a jet and start flying all over the world.

• 1:18:09Ryan Sean Adams?

  You know what it does do, though, is it gives you the ability to go pursue hobbies, like even income making hobbies, like, you know, like the stuff that we do often, I'm just like, it's fun. It's like stuff I'd be doing if I didn't have to work, right? So you get to do that and you don't have to be a slave to the, uh, the wage, right?

• 1:18:27David Hoffman?

  Yep.

• 1:18:28Ryan Sean Adams?

  So that's what that income can do for you.

• 1:18:29David Hoffman?

  Yeah, that is fifty five thousand dollars in, again, issuance of dividends to you coming from a protocol, not a counterparty. There is no dependencies on me receiving my fifty five thousand dollars a year retirement, right? And so it's actually, as a security, as a, as a, as a safety net, it's pretty strong.

• 1:18:52Ryan Sean Adams?

  Yeah, absolutely. And this is, uh, hopefully will emerge as kind of the, the risk free, like the TMs essentially of crypto. So this is less risky than, say, depositing your, your, um, your ETH into the Yamfarms way back when we used to do that kind of thing over the summer.

• 1:19:10Ryan Sean Adams?

  Very cool. All right. Did I question?

• 1:19:12David Hoffman?

  I need a hundred and sixty ETH in order to retire, assuming that ETH or ten X is in price. So I got some work to do with my stack.

• 1:19:20Ryan Sean Adams?

  Should we do some Anthony Sisano predictions and just jack this up to ten K?

• 1:19:24David Hoffman?

  Let's see what happens at ten K. Let's do ten K thirty two ETH deposit rather than one sixty. Let's go back to one validator.

• 1:19:32Ryan Sean Adams?

  Okay. All right. So one validator at ten K ETH. This is the Anthony Sisano prediction. You're doing twenty four K a year from seventeen hundred a year to twenty four K a year.

• 1:19:42David Hoffman?

  If Anthony Sisano is correct, which I, I trust the guy, he, he's, he's pretty, he's pretty correct, uh, quite frequently. And so that means one validator node with thirty two ETH gives you twenty four thousand dollars a year. That is insane.

• 1:19:56Ryan Sean Adams?

  Not too shabby, my friend. And then five, if we increase that to five, you're doing, so this is again 160 ETH staked. On a single validator, you can do this. It's 122K a year in relatively passive income.

• 1:20:10David Hoffman?

  Okay, but that if that's going to be the case, we have to bump up the total staked to 12,000 or 12 million ETH. We gotta do that because that's just too, too good return.

• 1:20:19Ryan Sean Adams?

  All right. You don't want to live in fantasy world. I don't know if it'll ever get to 12K ETH. What do you think? Like, yeah, six years, excuse me, 12 million. What do you think, Colin? Do you think it's going that high? Because at a certain point, like it kind of trails off and you're just diminishing returns as far as the returns go, right?

• 1:20:35Speaker 02

  Depending on the price of ETH, uh, net like nominal yields do, do turn negative.

• 1:20:43Speaker 02

  If he doesn't like Moon really hard, once you get about past that 10 million mark. I personally think that through phase zero to phase one, we see about a million and a half to 2 million. I think phase 1.5 people, sorry, phase one to 1.5, more people begin to step in. And then by the time we fold ETH one into ETH two, I think we're around that 5 million mark. Which is like phase 1.5 and then it's kind of, you know, it's ongoing state. Once it gets into phase two and then with what we know today, it's, it's pretty mature on its fungibility properties. But things may change. Uh, I see 10 million as being the economic barrier.

• 1:21:26Speaker 02

  That it may not make sense for people to want to participate. Given the skills required to do so on your own and the rewards that, uh, that you're offered. But 10 million ETH stakes plenty for security of the network. But, but I personally see 10, 10 million probably being, being that ceiling. Because there are negative yields that could be experienced based on where the price of ETH is.

• 1:21:50Ryan Sean Adams?

  All right, 10 million. You're doing 77K a year, David. And then, by the way, that's plenty. That's a pretty decent retirement if, if some of our Ethable friends are right. And then, by the way, how, is there a way to see how much Colin, like, at a 10K price ETH, at some of these variables, 10 million staked, how much economic security does Ethereum have? Is there a chart on that in this calculator?

• 1:22:18Speaker 02

  Yeah, there's no, there's no security measures and benchmarks set inside of this, just kind of relative issuances. If you scroll to the right, though, a little bit, one, one interesting thing is this chart with the three descending, which is validator issuance, network at home and using a VPS. So this is the scale, it's the top right chart. So if you go up a little bit and then scroll a little up to the right, yeah, this one right here. So if you take a look at this, this is Genesis to 10 million ETH staked,

• 1:22:52Speaker 02

  with the price of ETH set at around 400. So, so it is, you know, relevant. So assuming you're seeing prices there, this is your, this is your gross from 19.8% to 4.5%. And then when you begin to layer in costs, there's two different cost factors as we've gone through. As you can see, once you begin to use your VPS and you get out here and you're only staking one validator into the 5 million range, your yields actually turn negative. Whereas if you're validating at home, you're, you're pretty close to break even at 10 million. So I think it'll, it'll come down to the cost of the validator setup as to, as to where that break even point is.

• 1:23:37Speaker 02

  But I think this is probably relevant for users to take a look at. It explains the reward structure and how, how it's related to the amount of ETH staked.

• 1:23:46Ryan Sean Adams?

  And that's interesting because it could, it should kind of collapse to, to sort of something close to the marginal cost, right? And like risk of, of staking, similar, similar to the way proof of work does, where it's like, like energy plus ASICs, like marginal cost.

• 1:24:02Speaker 02

  Yeah, it'll, I mean, doing a break even analysis is probably what most larger people will do when deciding whether or not, you know, whether or not this is a good use for their ETH or whether or not they could, they could earn more rewards someplace else.

• 1:24:16Ryan Sean Adams?

  Very cool. All right. Well, we've got David on his retirement plan, Colin. This has been fantastic. Guys, Bankless Nation, we've got guides, we've got calculators. You can see if staking is right for you and if it makes sense and how to get on the passive income train if it comes to pass. Colin, just thanks a lot for your time and thanks for putting all of this stuff together, right? Devs are super hard at work. Also, like people like you to help educate the community on staking and the potential internet bond. It's just like instrumental. So like, thank you for all the work that you're doing here.

• 1:24:51Speaker 02

  Yeah, absolutely. This is my, my ETH2 effort is, is my, uh, my 15% of my time commitment at Consensus that is, that is, you know, meant to, to give back in a non-profitable manner. So it's been a very exciting two years. It's been a great experience for me to go through, go through the whole thing. It's, it's me giving back to the community that's, that's given a lot to me over, over the past three years. So, I appreciate you guys having me on today to, to walk through the calculator and also to help get more, more people educated about, you know, ETH2 staking, what, what internet bonds would look like, and also to leverage the community that you guys have to kind of drum up a good conversation.

• 1:25:30Speaker 02

  I'm, I'm really hoping this kind of gets, gets people's gears grinding, thinking about becoming a validator, thinking about the different abstractions that could be built on top of staked ether, as, as there's a lot of different things that could be built on top. So, hope that the paper serves as a fundamental viewpoint and can't wait to get back on with you guys once, once Genesis goes and then we actually start seeing some data as to how these things are valued and, and if it's relevant to, to some of the projections that we did. So just to just to close it out, for those of you who who want to check out the the Internet Bond paper that Mara and myself put together, there's been a couple of good Twitter posts by the

• 1:26:13Speaker 02

  Bankless team, and then we also collabed on an article as well. So feel free to check those out and head over to the PDF. And and last last shameless plug for me would be for everyone to go check out Activate. Activate's a project that consensus that I spend most of my time on. We collaborated with the Ethereum Foundation to build the ETH2 Launchpad. So it's kind of the big thing that we're trying to to promote people to come into Activate, learn more about Phase Zero. We have an FAQ, we have an interface built on the calculator there, and we also have a secure link, most importantly, to the ETH2 Launchpad. So you can ensure that you're not getting phished by coming through Activate. As we built, we helped the EF

• 1:26:55Speaker 02

  build the platform. So we're excited about Phase Zero. I'm stoked that Genesis is around the corner and doing things like this will help it become more successful. So I appreciate what you guys are doing, as it's extremely helpful.

• 1:27:08David Hoffman?

  Likewise, Colin. One thing I've been hammering on lately is I've been watching the the macro world really learn how to place Bitcoin in the world around it. And there's nothing more bullish for Bitcoin than being understood. And when it comes to Ether and staking Ethereum and proof of stake and advertising like this Internet Bond market, that's what I see you doing with this calculator for Ethereum, right? Like really putting it into digestible and knowledgeable mental models for people to understand what is actually going on here. And so that's just one thing that really just makes me really excited about, you know, staking my own ethers. Like, people are going to figure out what this thing actually is, and it's going to be on the the shoulders of your effort and Mara's effort and and everyone

• 1:27:53David Hoffman?

  else who's trying to to push this conversation forward. So thank you for everything you're doing.

• 1:27:59Ryan Sean Adams?

  Awesome. Thanks Colin. Take care.

• 1:28:02Speaker 02

  Cheers guys. Talk to you.

• 1:28:04Ryan Sean Adams?

  See you later. Bye.

• 1:28:07Ryan Sean Adams?

  Wow. Oh, super good, right?

• 1:28:09David Hoffman?

  I mean, I know we always say it and I've probably said that we always say it last time, but like I'm bullish.

• 1:28:17Ryan Sean Adams?

  You know what you said there that was super cool is the most bullish thing for Bitcoin is being understood. Right? Same thing. The most bullish thing for Ethereum is being understood. And I think we're going to see like both of these things happen in the next cycle. Well, cool. Man, this this situation is going along, David. Do we have?

• 1:28:35David Hoffman?

  We got time.

• 1:28:35Ryan Sean Adams?

  Some more time?

• 1:28:36David Hoffman?

  We got time.

• 1:28:36Ryan Sean Adams?

  We got time?

• 1:28:37David Hoffman?

  Yeah, I know you've got some thoughts, Ryan, that you put down on paper. And so I want to I want to hear them coming out from out of your mouth today. So let's get into it.

• 1:28:45Ryan Sean Adams?

  Well, like, at the risk of getting a little ranty here, and I don't want to get ranty. I was just thinking over the weekend, David, about some lessons I've learned on the journey. Like, you know, so I've been in the space about six years. So not like super long.

• 1:29:01David Hoffman?

  That's pretty long.

• 1:29:02Ryan Sean Adams?

  There at Bitcoin Genesis. Yeah, you know, so and I picked up a few things just from watching mistakes that I've made and being like, oh, that's how that works. I shouldn't do that again.

• 1:29:13David Hoffman?

  Right.

• 1:29:13Ryan Sean Adams?

  But also like watching mistakes that other people have made on people. I've seen people flame out. I've seen people quit crypto. I've seen people totally lose it. And exit the space prematurely. And so I just offered seven lessons for crypto pioneers in the market Monday post. You want to go through these?

• 1:29:31David Hoffman?

  Yeah, yeah, absolutely. People like lists, so.

• 1:29:34Ryan Sean Adams?

  Yeah, lists. Lists are fun.

• 1:29:35David Hoffman?

  Let's go to number one.

• 1:29:37Ryan Sean Adams?

  All right. So crypto natives, crypto pioneers, we are definitely, as Chris Berninski said, the podcast we did with him, exploring the infinite white space of this new digital country. But we're also bearing the brunt of of danger here. And so here are the seven things I I just want to convey to folks on this journey. The first is this crypto is in price discovery mode for the next decade at least. Price discovery mode for the next decade at least. You know what this means to me, David, is there's no rush.

• 1:30:13David Hoffman?

  Yeah.

• 1:30:14Ryan Sean Adams?

  Like the ups and downs that we see on a daily basis and the crazy volatility and China slams the door, or there's some hack on an exchange, or there's some DeFi contract hack, or there's some extremely bullish news. It's all noise, guys. The market is figuring this space out. The price is in discovery mode. This is going to take decades. You're early. Expect the market to be irrational. This is going to take years to figure out. And it's going to take years for the market to figure out even the things that you already know now. So just be at peace with that. Just have a long-term orientation. That, to me, is the most healthy thing that you can do as you're thinking about getting started in crypto.

• 1:30:59David Hoffman?

  Yeah, I totally agree. And crypto moves so fast, so it's hard to keep a macro perspective when there's, you know, so many, every single week, there's something micro to pay attention to. Like, oh, PayPal, you know, integrated Bitcoin, and then Bitcoin pumped 10%. Like, but then that, then you are paying attention in a very narrow way to what's going on. One of my favorite perspectives to take is, and I can't remember who said this, but like, it was probably in the middle of 2018, 2019 bear market. I think it was Eric Voorhees who said this, like, we're not in, Bitcoin isn't in a one to two-year bear market, it's in a 10-year-long bull market.

• 1:31:35Ryan Sean Adams?

  Yes.

• 1:31:36David Hoffman?

  That is the right perspective. And the one thing I try and tell people who are, you know, normies who are trying to get their head wrapped around, you know, cryptocurrencies and Bitcoin and Ethereum is, is, they say like, oh, isn't it super volatile? And like, you know, Bitcoin goes up like 20,000%, and then it crashes. And I tell them, I give them the metaphor, that like, think of Bitcoin or cryptocurrencies like as a plant, right? And it grows out of the ground. And you have this little sapling plant that's like six inches, six inches tall. And then next year, you come back and it's like four feet tall. Like, it just grew like 20,000%. I don't know, insert the right math here. Like, so, so like, when people see that, they're not used to those numbers showing up on the stock market, right? Stock markets, assets on the stock market

• 1:32:20David Hoffman?

  don't go 20,000%. But VC funds, they are used used to those numbers because they were able to get in before everyone else, right? And so like the the whole like Bitcoin moved or Ethereum moved like fifty, five hundred percent in a year. Like, that's just numbers that we're not used to, but the world itself, the universe is used to those numbers. And we are in the middle of the universe figuring out how to price these things. I totally agree.

• 1:32:45Ryan Sean Adams?

  Totally agree. And sometimes you get to trip out your psychology a little bit, right? Because humans aren't meant to deal with this level of volatility. But, you know, we do it to ourselves when we go and check our block portfolio ten times a day, right? Like, I know people, yeah, right? I I know people in crypto who'd like to gain perspective. You're having trouble with this? Stop checking price.

• 1:33:05David Hoffman?

  Yep, yep.

• 1:33:06Ryan Sean Adams?

  I mean, you could check price quarterly. This is a that would be enough if if it's true that we're in price discovery mode for the next decade. So, anyway, perspective on that. The second, you ready for the second?

• 1:33:18David Hoffman?

  Yep, let's do it.

• 1:33:19Ryan Sean Adams?

  All right. I have never seen a patient investor lose money in crypto.

• 1:33:26Ryan Sean Adams?

  Never. If you're patient, you won't lose money. If you buy and you hold, you don't lose money over the long term. I tweeted something like this out on on Saturday and someone responded, yeah, like, but what about the guy that bought EOS? Or like the guy that put all money into, I don't know, some other coin? Just like, the fact that you went and looked for another Ethereum or another Bitcoin or another short term project shows that you weren't patient, that you saw somebody else getting rich, you had FOMO, and you did a bad thing. Patient investors don't lose money in the space. How easy is that? It's almost like foolproof, just like.

• 1:34:07David Hoffman?

  It's really hard, actually.

• 1:34:09Ryan Sean Adams?

  I know it's hard. It's hard, but like, it's hard, it's difficult, but it's simple. Buy, and if your time horizon is five to ten years. It'll work out. You'll be fine if you're not buying short-term stupid assets, right?

• 1:34:22David Hoffman?

  Yep. Yesterday, we saw the stock market pump on vaccine news, like it did something insane like 10 to 15%. And then we saw crypto sell. We had a sell-off because people went into stocks, right?

• 1:34:36Ryan Sean Adams?

  Yeah.

• 1:34:36David Hoffman?

  And so like, there's two market participants. There's people at the base foundational level who are patient, who are never selling, who are have their theses and have placed their bets. And then there's the people on top of those people that, you know, FOMO into something every 24 hours. Right? And those are the people making the market movements, like the daily plus 5%, minus 5%. But it's the bottom substrate, the foundation, that really is the reason why we are in a 10-year bull market, right? And so be part of that cohort that doesn't FOMO, right? Just place your bets and sit on your hands.

• 1:35:10Ryan Sean Adams?

  Crypto is a device for transferring money from the impatient to the patient. Warren Buffett said the same about stocks. It's also true for crypto. Some of this is just good personal finance advice, guys, but it applies in a different way in crypto. All right, you ready for number three?

• 1:35:24David Hoffman?

  Let's do it.

• 1:35:25Ryan Sean Adams?

  Okay, this might be like some tough love for you guys. 95% of you listening right now should stop trading and just hold. You should stop trading because you're losing money relative to holding. 95% of you are not good traders, not great traders. And you don't have to be to do 10x's in crypto. You can just hold. If you don't want to spend hours a day developing your trading skills and competing at that level with like the SBFs of the world and our friends at Three Arrow Capital,

• 1:36:09Ryan Sean Adams?

  like the desks that are doing this 24 hours a day and spending 80-plus hours a week on it, like, just don't. You don't even have to be in that game.

• 1:36:19David Hoffman?

  They are better than you. Full stop.

• 1:36:20Ryan Sean Adams?

  It's like, it's right. It's like, everybody thinks they're gonna be in the NBA, right?

• 1:36:24David Hoffman?

  Yep.

• 1:36:25Ryan Sean Adams?

  And like, to get in the NBA, first of all, you have to have a certain like natural-born talent and like physique and athletic ability, and then you have to work really hard.

• 1:36:39Ryan Sean Adams?

  95% of you shouldn't be playing that game at all. You should just hold.

• 1:36:43David Hoffman?

  Yep. I would add one corollary onto this. Like sometimes, you know, people go to the casino even though they basically more or less intend on losing money. Like the casino is still fun. So like if you are finding yourself compelled to do that, separate your stack into two stacks, two separate stacks. Heavily weight one stack to be your hold stack and then allocate like 2 to 5%, some low number, just to get your like gambling itched, itched, right? Just to do it, just to say you did, and then you can leave your whole stack. If that's, if you can't, you know, control yourself, moderate yourself.

• 1:37:18Ryan Sean Adams?

  I totally agree with that, and that is a sensible strategy, David. All right, number four. I am responsible for everything that happens to me in crypto. Repeat that to yourself. I am responsible for everything that happens to me in crypto. Not somebody on Twitter, not the builder who built the smart contract, not the dude whose newsletter I read, not the person whose YouTube I subscribe to, or the token that promised me the moon. I am responsible. That is an attitude that I have tried to uphold for myself in crypto. Because that is a growth attitude. You have to take accountability for the decisions that you make in crypto.

• 1:38:03Ryan Sean Adams?

  You can't blame other people. It's not helpful to your progress as a crypto investor do that. But David, I see it a lot. And whenever I see it,

• 1:38:17Ryan Sean Adams?

  I see a mark of immaturity. And like people, when I've said this before, people, people say things like, "Well, you're just letting, you know, scammers off the hook." Like, no, I'm not. Both of these things can be true. I mean, I totally reject scammers and people who are trying to take other people's money or hack and steal.

• 1:38:37Ryan Sean Adams?

  But for you, As an investor, the best advice is to take accountability and responsibility for the decisions that you make in crypto. That is how you'll get better.

• 1:38:47David Hoffman?

  Yeah, these systems treat users as admins. Like, everyone who has an Ethereum wallet, that Ethereum wallet treats them as admin. As in, no, that Ethereum wallet is not going to do anything that you explicitly didn't say yourself. That's why we are a self-sovereign industry. That's why we have some of the core values of Bitcoin, Ethereum, bankless. Like, you have complete control over your assets, which means that if you lose your assets, you did something. Like, you probably violated rules one through three in some particular way, right?

• 1:39:17Ryan Sean Adams?

  Yes.

• 1:39:17David Hoffman?

  And, you know, I think that's really, you don't get empowerment and self-sovereign finance without also being responsible for your actions, right?

• 1:39:26Ryan Sean Adams?

  Yep. Or you see some crypto influencer tweet about something, some token you absolutely have to buy?

• 1:39:31David Hoffman?

  Yep.

• 1:39:32Ryan Sean Adams?

  And you go buy that, right?

• 1:39:34David Hoffman?

  Quote-unquote, "Aping into a token."

• 1:39:37Ryan Sean Adams?

  That's on you. I mean, should the crypto influencer do that? No, that's a separate thing. But the fact that you are jumping into a position that you don't know anything about. Like, would you jump into an empty pool? Like, I mean, look down, look at what you're doing before you go and do it.

• 1:39:56David Hoffman?

  Yep.

• 1:39:56Ryan Sean Adams?

  Um, I think that's what we're saying here. All right.

• 1:39:58David Hoffman?

  Absolutely.

• 1:39:58Ryan Sean Adams?

  Number five, you ready?

• 1:39:59David Hoffman?

  Yep.

• 1:40:00Ryan Sean Adams?

  Own more crypto than the financial experts recommend, and doubly so if you're young.

• 1:40:06David Hoffman?

  Some prescriptive advice, huh? All right, why this?

• 1:40:09Ryan Sean Adams?

  Let me, let me, uh, let me say, none of this is financial advice, as always, risks and disclaimers.

• 1:40:15David Hoffman?

  Also, see number four.

• 1:40:16Ryan Sean Adams?

  Right.

• 1:40:18Ryan Sean Adams?

  But, um, I think that the traditional financial experts, people with CFAs, people who are financial advisors, they are selling typewriters in the age of the PC, right? They don't understand this asset class and therefore can't give you good advice on this asset class. So even the ones that are semi-pro crypto would be like, "Yeah, you know, you should take 1% of your portfolio and gamble with it."

• 1:40:46Ryan Sean Adams?

  That's not enough.

• 1:40:47David Hoffman?

  Right.

• 1:40:47Ryan Sean Adams?

  I mean, I get like 1%. Okay, depends, depends what your portfolio looks like, depends what age you are, depends on your risk tolerance, all these things, I get that. But jet in general, I think the financial experts aren't going to weight you as high as you probably should be in crypto. And I think this is most important if you're young, like the 1 to 3%. If you're young, is that all you want of your net worth exposure into crypto? It's not all I want.

• 1:41:14David Hoffman?

  Where's the other 97%? What are you doing with that?

• 1:41:18Ryan Sean Adams?

  You're buying boomer stuff.

• 1:41:19David Hoffman?

  Boomer stuff, yeah, you're getting dumped on by the boomers.

• 1:41:23Ryan Sean Adams?

  So I'm not going to prescribe a certain amount for you. It's like, but it's probably more than your financial experts, the guy at your brokerage is going to recommend to you.

• 1:41:33David Hoffman?

  Absolutely. And like, so Anthony Pompliano is a big fan of the phrase, like get off zero, right? Like he's going on the crusade of trying to encourage funds to just put 1% in, just put a half a percent in. And like, part of the reason why that number is so low is because like, you need a number to convince people, right? And so like, like i- if you say like, you need to put 15% of your portfolio into Bitcoin. Well, to the, you know, funds that people are talking to when they say these numbers, 15% of their portfolio is like half a billion dollars, right? Or it could be. And so like, in order to maintain legitimacy, you, as somebody who's going off and pounding, like put 1% into crypto, you need to be, have a low number because any other number other than that, than that seems crazy.

• 1:42:15David Hoffman?

  But if you are the type of person who's like Anthony Pompliano, who's saying like, go put 1% into crypto. Anthony Pompliano has way more than 1% of his.

• 1:42:24Ryan Sean Adams?

  It's over 50%.

• 1:42:25David Hoffman?

  It's definitely over 50%.

• 1:42:27Ryan Sean Adams?

  He said it, I've heard him say it.

• 1:42:28David Hoffman?

  Yeah, so like, yeah, so do, do, see what people's actions are, not what they're saying.

• 1:42:33Ryan Sean Adams?

  Yeah, absolutely. And of course, he is talking mainly to like funds and large pensions institutions on that one. So, all right, this number six is a little spicy, David, you ready?

• 1:42:42David Hoffman?

  Yeah, I love it.

• 1:42:43Ryan Sean Adams?

  All right, don't take crypto advice from someone who's never used Uniswap.

• 1:42:49David Hoffman?

  Yeah, that's a great one, that's a great one.

• 1:42:51Ryan Sean Adams?

  I, I just think there, there are a lot of like crypto experts, VCs, pundits, thought leaders, who talk the talk, but don't actually use crypto. Like, if you haven't used Uniswap, if you haven't taken out a maker loan, you don't know what that is. If you haven't used DeFi. How can you possibly have a strong opinion on Ethereum or DeFi? That does not compute to me. You have to use this stuff in order to be knowledgeable and to provide advice about it. So this is a heuristic. It could change over time, of course, but like right now, if somebody is talking smack about Ethereum or DeFi, or all this stuff saying it never works and they've never used Uniswap, I call bullshit dude.

• 1:43:35David Hoffman?

  Yeah. Yeah, it's one of those things that you can only be bearish on DeFi if you haven't tried it, right? And I think the reason why you use Uniswap is because it's kind of like the nexus of all the other apps. Like if you're going from AVE to Compound, you might have gone through Uniswap in order to do that because for whatever reason, right? And so as a litmus test is you can almost can't use Ethereum without using Uniswap at some point in time. So like almost, it's almost to say like, if you haven't used Uniswap, you almost haven't used DeFi itself, right?

• 1:44:05Ryan Sean Adams?

  Yeah, I mean, it's kind of like, what does Uniswap require? Well, it requires like you to self-custody your private keys, right? So that's something you to get familiar with a DeFi wallet like MetaMask and you to make a trade. That's it. And if you haven't completed those checks, you don't have a valid opinion to me on DeFi. All right. Number seven, this is something Naval says a lot. Surround yourself with long-term people playing long-term games. I think this is so important and I'm not just talking about people here.

• 1:44:37Ryan Sean Adams?

  As individuals, though that is also true, it's communities, it's projects, it's also individuals. But like those people who are playing long-term games draw those close because there's a lot of folks in crypto who are playing short-term games that you don't want to be around. And they'll all say they're playing a long-term game. So you gotta watch their actions, not their words on this. But if you are surrounding yourself with people who

• 1:45:05Ryan Sean Adams?

  I would say from an investor perspective, I think somebody like Chris Berensky, like that's a dude who's playing a long-term game. Like he's reputation oriented. He knows he's going to be in this space for 10 years. He's even instructed his entire VC fund to be that. Not a hedge fund trader. There's like no exit, right? Unless his LPs are successful. That's somebody who's playing a long-term game. I think of like Vitalik and some of the design decisions that Ethereum has made as a project. Right? They could have scaled much faster by taking shortcuts. They're going through this like long, arduous process of sharding and proof of stake because they think that they want to preserve decentralization and the neutrality of the network. Right?

• 1:45:48Ryan Sean Adams?

  That's another person who's playing a long-term game. If you surround yourself with those types of people and those types of projects and you yourself are a long-term player and keep your reputation intact as your strongest, as your most valuable asset, you will do very well in this space over the long run. That's why I've seen everyone who's doing it.

• 1:46:11David Hoffman?

  Yeah, man, I have, I have so much to say about this and I can't remember. It was a book I was reading where the author was illustrating the father at a kid's soccer game. And you have one father who is like yelling at his kid, score, score, score, you know, do whatever you need to do. And then another father is like, you know, have fun, right? Because there's two rules here, like there's, you can either play to win or you can get, or you can play to get invited back the next time. Right?

• 1:46:38Ryan Sean Adams?

  Wow, yeah.

• 1:46:38David Hoffman?

  And that's what you are. As an individual who is learning how to engage with others and be friends with others, the goal is to not win. The goal is to get invited to play second time. And this is also true with trading, right? Like if you just do decide to trade, like you, the goal is to always be able to play the game. Like, don't ever position yourself that gets you cut out of the game. And, and this is something I tweeted out not too long ago where I said, like, you know, there, there are theses in crypto that are pretty decently defined. And I think we've defined like the bankless thesis and the protocol sync thesis and the ETH, the triple point. Asset thesis and we haven't swayed from that Ryan like and I'm pretty proud of what we've done here at Bankless.

• 1:47:20David Hoffman?

  If any listener has knows of a time that we've pivoted from one of our theses, let me know. But I think that we have been on the same beating the same drum ever since this podcast started, ever since this YouTube channel started, ever since you started the newsletter. We haven't pivoted, right? And you know, there's a bunch of other people in the ecosystem that just have not pivoted. From what they think this crypto industry is about, you know, Anthony Cezano is one of them, DC investor, anti pro synthesis. As many Bitcoiners hate that guy, he has been beating the same drum over and over and over again. So you should surround yourself with people that don't, don't change up what they're saying based on the times of the day. And I didn't, didn't want to bring this up when we got into the state of the nation today, but I recently tweeted out.

• 1:48:04David Hoffman?

  If your cryptocurrency project has a, an army of green frogs behind it, you should probably rethink your strategy. And because we need people that are playing long-term games. And so you need real people behind your network, right? You need a real community of real humans, not just an army of green frogs. So absolutely, I'm totally aligned with this one. Play long-term games.

• 1:48:27Ryan Sean Adams?

  Yeah, I think what you're alluding to there in like, I know you got like Twitter mobbed about it. But I think what you're alluding to, like I think what you're alluding to though is like reputation.

• 1:48:37David Hoffman?

  Yep.

• 1:48:37Ryan Sean Adams?

  Is one of the most important long-term games that we as human plays. That play, right? And I think there is insane amounts of value in creating sort of a pseudo anonymous account. Some sort of reputation behind it and you can accrue that over the time. At the same time, right? Like by putting your name out there. And by, yeah, right? That is your, that is your reputation. That's your skin in the game. That's some steak and that counts for something too.

• 1:49:06David Hoffman?

  Yep.

• 1:49:06Ryan Sean Adams?

  So regardless, guys, those are the, the seven thoughts for crypto pioneers. If you're on the journey. Cryptos in price discovery mode for the next decade at least. Be patient, because if you are, I've never seen a patient investor lose money in crypto. Probably if you're listening to this, you should stop trading and just hold. Remember that you, as an individual, are responsible for what happens to you in crypto. Don't blame others. That is the key to growth accountability. Own more crypto than the financial experts recommend. Don't take crypto advice from someone who's never used Uniswap. And then lastly, surround yourself with long-term people playing long-term games.

• 1:49:51Ryan Sean Adams?

  That's it. Round off.

• 1:49:52David Hoffman?

  Ryan, I'm seeing the YouTube comments. Give a big fat thumbs up to your list. So, nice job.

• 1:49:58Ryan Sean Adams?

  All right, cool. Well, good. We made YouTubers happy. Green Frogs don't like us, but YouTubers are happy. We'll take that as a win. All right, David, with that, we should probably sign off. We've covered a lot of territory today. We'll probably chop this into some smaller videos for your viewing pleasure. It's been fantastic to be with you guys. Risk and disclaimers, of course. ETH is risky. So is the internet bond that we talked about today. So is Bitcoin. All DeFi protocols are as well. But this is the frontier. We're glad that you're with us on the journey. Thanks for joining us. This has been State of the Nation. What number, David?

• 1:50:34David Hoffman?

  Thirty-two. Twenty-two, twenty-two.

• 1:50:36Ryan Sean Adams?

  Twenty-two. All right.

• 1:50:38David Hoffman?

  Bonding. We're bonding as a community, because we're playing long-term games and we're doing it together.

• 1:50:43Ryan Sean Adams?

  Happy bonding, guys.