Introducing RSOV: A Better L1 Valuation Metric than REV | Jonah Weinstein

How should we value L1 tokens in crypto? Today’s guest, Jonah Weinstein of Skycatcher, introduces RSOV—“Realized Store of Value”—a new metric designed to fundamentally rethink how we evaluate Layer 1 assets like ETH, SOL, and BTC. In this episode, we explore why traditional models like DCF and REV fall short for monetary assets, how RSOV works, and why it may be a better way to understand crypto’s total addressable market. Tune in for a fresh perspective that could change how you analyze L1s forever. ------ 📣SPOTIFY PREMIUM RSS FEED | USE CODE: SPOTIFY24 https://bankless.cc/spotify-premium ------ BANKLESS SPONSOR TOOLS: 🪙FRAX | SELF SUFFICIENT DeFi https://bankless.cc/Frax 🦄UNISWAP | SWAP ON UNICHAIN https://bankless.cc/unichain 🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle 🌐SELF | PROVE YOUR SELF https://bankless.cc/Self 🟠HEMI | BTC & ETH, ONE NETWORK https://bankless.cc/hemi ------ TIMESTAMPS 0:00 Intro 0:23 How to Value L1 Tokens 7:18 REV 20:32 L1 Tokens are Money 27:11 Payments vs SoV Use Case 36:13 TAM for Digital Money 41:45 BTC: Special Snowflake? 45:31 RSOV 1:03:17 REV vs RSOV 1:12:07 RSOV Valuations 1:18:27 RSOV Drivers 1:34:10 Future of RSOV 1:36:43 Skycatcher 1:38:55 Opportunities to Watch 1:40:46 Closing & Disclaimers ------ RESOURCES Jonah Weinstein https://x.com/_Jonahw RSOV Deck https://docsend.com/view/mb2v6k3yr38gpfwm RSOV Dune Dashboard https://dune.com/sc_research/rsov RSOV Template Financial Model https://docs.google.com/spreadsheets/d/1IH0IX0yal7raqhO8SWzcVGK-TAH-b7avRlZ3pxR0krc/edit?usp=sharing Skycatcher https://skycatcher.xyz/ ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

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

• 0:00Speaker 00

  You want to recognize that your L1 token is money and accrues value like money. It's less about whether or not we decide as analysts to value it. And our view is more that this is what drives value, whether or not we recognize it.

• 0:20Ryan Sean Adams?

  Jonah Weinstein, welcome to Bankless.

• 0:22Speaker 00

  Thank you for having me.

• 0:23Ryan Sean Adams?

  Okay, every Layer 1 blockchain has a native token. These tokens are commonly called Layer 1 tokens. The question is, how do we value these Layer 1 tokens? And before we get to that question, I think the bigger context is, why is this question even important in the first place?

• 0:44Speaker 00

  Yeah, so for this question, you know, we as investors, we want to know what drives returns, generally speaking, so we can evaluate risks against that potential and basically know the bet we're making. With L1 tokens, really with any asset. And so, you know, for valuation, it's important to have a framework that gives us as analysts, basically, a perspective on something, whether or not it's over or undervalued.

• 1:09David Hoffman?

  And we also want to be able to compare blockchains. We want to be able to compare Solana, Bitcoin, Ethereum, talk about these things in like the best apples-to-apples way possible, too.

• 1:19Speaker 00

  Yeah, you want to be able to have informed discussions and you want those discussions to be rooted in what's actually driving value to these tokens and what's driving returns. And so it's an important discussion and important to know what that is.

• 1:33Ryan Sean Adams?

  I mean, speaking of value, right? Let's all, let's all remember the vast bulk of like value. What is the total crypto market cap right now, guys?

• 1:42David Hoffman?

  3.5.

• 1:43Ryan Sean Adams?

  3.3, 3.5 trillion? Yeah, it depends on the day, right? A little bit, but in the, in the above, north of 3 trillion range, okay? And let's just remember, the vast majority of that is actually Layer 1 tokens.

• 1:54David Hoffman?

  Yeah, like 95% are Layer 1 tokens.

• 1:57Ryan Sean Adams?

  Yeah, like we've got, so Layer 1 tokens, Bitcoin is a Layer 1 token, guys, all right? That's like the OG. That's, that's throwing off 2 trillion or so, maybe it's 2.3 trillion. It's like 63% of that. But then we also have number two, which is Ethereum, you know, 350 billion or so. We've got Solana, we've got Sui, we've got BitTensor. So the way we quote unquote "value" Layer 1 tokens, that's essentially the entire crypto market, isn't it, Jonah?

• 2:23Speaker 00

  Yeah, it's a majority share right now. I think there's other segments that will be sort of continue to grow in share, but all of those applications, for example, that are built on these platforms are really levered to the value that these sort of base layers are accruing. And so, yeah, we need to understand what's driving that.

• 2:41Ryan Sean Adams?

  I always feel like it's kind of the founding question of Bankless too, right? Like, we're always trying to figure out, okay, so how do we value these new monetary money systems with Bankless? Like, what's the, what's the metric for this?

• 2:52David Hoffman?

  I mean, it's quite literally the trillion dollar question. How do you value cryptocurrencies? Because we know how to value things in other contexts, and we like to extend those things to crypto, but it doesn't quite work. There are other variables and other dynamics than what like valuation method, you know, traditional investors would leverage in non-crypto contexts. And so, that mysterious question of like L1 token valuations is still, I think, plagues the industry to this day, where we still don't quite have this figured out.

• 3:24Speaker 00

  Still early, still a lot of debate, for sure.

• 3:27Ryan Sean Adams?

  Can we, can we go down history, memory lane a little bit? So, I remember a number of different ways people have tried to answer this question in the past, to varying degrees of kind of success. Do you guys, and Jonah, do you remember the days of MV equals PQ? Was that like around your time and kind of entering the space? What was that?

• 3:49Speaker 00

  That's like a monetary theory about people using money supply for payments and centering the valuation of money on the velocity and basically the rate of spending or velocity must always equal price times output or nominal GDP. It's a traditional sort of theory in economics and people are naturally looking to apply that sort of in the crypto context.

• 4:12Ryan Sean Adams?

  We were pretty excited about that back in like, you know, 2016, 2017. I know old Chris Bernitsky posts were writing about this theorem. It's kind of fallen away as the value, as the way to value L1 tokens. We've also seen stock to flow. Bitcoiners kind of popularized this, which is like based on this assumption that just scarcity, measured by the ratio Of existing supply to annual Bitcoin issuance. That's what directly derives value. And there's a lot of regression lines that you can make. And it's all about the having that's celebrated. That's a stock to flow valuation metric for Bitcoin, at least.

• 4:46David Hoffman?

  And highly comparable to gold, right? Where we can talk about demand for gold is not met with an increasing stock, an increasing flow. And so that makes gold very price sensitive. And the same relationship is found in Bitcoin, where if demand for Bitcoin 10x is, the inflows of new Bitcoins into the market does not 10x, because that's just not how it works. And so.

• 5:08Speaker 00

  Now you're kind of getting somewhere, right? But these, it's really about the demand picture, I think, in our view. And you got to look at both of those. Stock to flow on its own is, I think it really just assumes like infinite persistent demand. It's a very supply side focused metric. And so, you know, the relative valuation and starts to get a little bit closer to what's driving demand here.

• 5:28Ryan Sean Adams?

  It's interesting you say relative valuation, because when I think about Bitcoin now, the stock to flow is not as popular, hasn't kind of held up. The regression lines haven't held up so well. No one's talking about MV equals PQ. They are sort of talking about non-stoverned store of value. And look at the, look at the TAM of gold right now, right? What is it, you know, 18 trillion, something like this, right? What's the value of gold right now? And if Bitcoin captures X amount of that store of value, nation, non-nation state store of value status, then, you know, it'll be worth X trillions of dollars. And so kind of the relative metric is, look at gold and then Bitcoin. What percent of that can Bitcoin capture? And that's where you get the number for Bitcoin.

• 6:11Speaker 00

  Yeah, and I mean, I think that's more directionally, the sort of line of thinking. You're looking, you're looking at traditional analog assets and trying to make some assumptions around inflows, sort of value from that inflow relative to the analog valuation. So I think we can get more specific in that context around layer one assets.

• 6:30David Hoffman?

  And then Bitcoin bulls will go so far to say, when does the digital version ever not have more value than the analog version? So why would digital gold, why would Bitcoin have only 50% or 40% or even 60% of the value of gold? Why wouldn't it be 2X, 3X, 4X, the value of gold? That's what like Bitcoin bulls would say.

• 6:52Speaker 00

  Well, it's interesting because I don't know that there's ever been a case where the analog incumbent that is being disrupted by the digital disruptor has remained bigger than the digital disruptor. Exactly. And so I think that line of thinking, again, we can extend to other layer one assets. I think we should do that.

• 7:09Ryan Sean Adams?

  And I want to talk about that in a second, but let's flash to where we are, I think, in May 2025 with respect to valuation. It seems like, and I'll give maybe a consensus version of sort of analysts, talented analysts in our industry, they will agree, the consensus is they agree Bitcoin can be measured on something like gold. It is a quote unquote "special snowflake." That's actually a phrase that's used for Bitcoin. It's special, so it gets this status. All of the other layer one assets should be valued based on something else. Okay? This something else, some analysts, I think Blockworks has popularized this, is called REV. We could define like what REV actually is, but basically it's kind of a discounted cash

• 7:54Ryan Sean Adams?

  flow of block space sales. So maybe you could kind of explain REV to us and just that the framing of this is Bitcoin is special. It gets to be valued based on a monetary store of value, reserve asset, as a percentage of gold or whatever that could be. And then there's all the other layer ones and those assets are discounted cash flow based on this metric called REV. Can you explain REV to us?

• 8:20Speaker 00

  Yeah, so REV is effectively a metric that measures how much fees users are paying to L1 validators or how much value those validators are capturing from transaction activity on the chain. And I think to your point, there is a cohort of analysts who are interpreting this metric as company cash flows like they would an equity company. And so they're using that metric to sort of feed a DCF model and argue that, you know, these layer one tokens can be valued like companies.

• 8:56Ryan Sean Adams?

  DCF model.

• 8:57Speaker 00

  Discounted cash flow.

• 8:58Ryan Sean Adams?

  Okay.

• 8:59Speaker 00

  Yeah, so the present value of a given asset is the sort of sum of all future cash flows. And then you incorporate some discount rate.

• 9:08Ryan Sean Adams?

  It's interesting, the history of DCF, right? So I mean, the stock market's been around for a while. Actually, the discounted cash flow way of valuing equity assets, stocks, didn't come to being until 1938. And this was in kind of like a niche textbook, really. It wasn't popularized. It wasn't consensus. And then over the years, it sort of became consensus. And now it's taught in business schools as, hey, if you want the proper way to evaluate the value of a stock, you use discounted cash flows.

• 9:40Speaker 00

  Yeah, and for companies that basically compound or grow a balance sheet of like not, you know, of currencies, of like fiat currencies, like this makes sense. You can, you know, own 100% of the shares of Apple, for example, like as if Apple does not trade on any market. And any given share of Apple is still worth its pro-rata share of the sort of discounted cash flows of that company. Right? And so that is a fundamentally sound and real metric. And it's not just our crypto analyst community. It's the broader financial community, you know, uses that to understand what is a company worth today.

• 10:20Ryan Sean Adams?

  And to be clear, you can do this with blockchains too. So blockchains produce some sort of revenue in the process of selling blocks, right?

• 10:31Speaker 00

  I don't think you can. I don't think you can do this. And this sort of gets into the problem of trying to use this model to value layer one tokens. And the issue is that these tokens are not company shares. They don't accrue value like company shares. So I think, you know, historically, people have looked at, or, you know, people have talked at like, you know, is this money? Is it a company? And like the biggest criticism with money. You know, viewpoint has been that there's nothing real to measure. People will say like it's non falsifiable. And I think we've put together a framework to to show that that's not the case. But but the real issue with this DCF approach is that validators don't collect revenue in some non-native currency. They're not earning staking yield in USDC.

• 11:16Speaker 00

  They're earning more ETH or SOL or what have you. And so, you know, the traditional DCF metric says, I have this asset, stock of Apple, and I know what it's worth regardless of what the price of Apple is because it has, it compounds a non-native asset. And so because these L1 tokens are not earning non-native assets, it's, they're just earning more of their own token, like it's very circular reference. So you need a non-circular fundamental driver to measure so that you can value this asset in in dollar terms.

• 11:49David Hoffman?

  One of the reasons why REV is like so relevant right now is that there's just a debate forming around it. And to give REV some credit, it is a naturally pure metric. It's just measuring the total dollar value that anyone making a transaction on a blockchain, the aggregate value that people are paying to make transactions in a snapshot of time. And Jonah, what the point is that you're making is that with these users making these transactions, they are paying ETH or SOL or BTC. They're paying the native unit of account to make these transactions happen. Typically, what REV people are doing is they're actually measuring the value in dollar terms,

• 12:32David Hoffman?

  even though that it's not denominated in dollars. And then this turns into an input for people to do a DCF model. The argument that you're saying is that because there actually are no dollars in question, because the the way that you make a transaction on Ethereum is you use ETH, the way that you make a transaction on Solana is you use SOL, this implied conversion into dollars is an extra step that is muddying the waters about the effectiveness of REV as a metric. So that's kind of like the critique of REV. And then I'll still say the Pro of REV is it is still a great snapshot window into the current demand to use a blockchain by the aggregate users.

• 13:15David Hoffman?

  And so you can still kind of compare REV across chains if you if you swap it into a shared currency, which is the dollar. And so you can compare REV on Solana to REV on Ethereum by swapping it to dollars, using the currency of dollars and kind of comparing those things. And that's a useful tool. And then you're also saying, but it's still nonetheless incomplete in a global valuation metric because of this like currency conversion that's happening.

• 13:43Speaker 00

  I would say there's one thing that you said I would disagree with, which is that I don't think it is a complete measure of the demand to use the chain. I think it's one very specific measure of like using the the L1 token for payments, right? For like a very for transactions, but there's a whole other area of demand for these assets that it is missing. And I think it's important to dive into that. I mean, valuing these on like a DCF, you know, valuing the layer one token, using sort of Rev as a DCF for the, you know, that's captured by the validators is like trying to value Apple on how much Apple shares it collected from its own users. Like it fundamentally is not an intrinsic valuation metric.

• 14:24Speaker 00

  And and and there's a sort of like mental, like quick test you can do to understand whether or not you should be using a DCF model. And that is if one person, if one account, one bank account, one wallet owned the entire supply of shares of Apple. Like I said, it wouldn't change the value of Apple. But if one person, one account, one wallet owned the entire supply of ETH, of Sol, of BTC, of Ton, of BitTensor, of whatever, right? The value of that would be zero because there's there's no one paying fees, there's no doing anything, right? There's only the entire supply is in one wallet. And so that sort of shows you that it's something going on here more than a DCF.

• 15:06Speaker 00

  There's, you know, money is a network. There's something about relative valuation here that needs to happen. And I think a framework that needs to sort of be developed that. Takes that more holistic view.

• 15:17David Hoffman?

  Yeah, this is like Raoul Pauls and other people's leveraging of Metcalfe's law.

• 15:20Speaker 00

  Hundred percent.

• 15:21David Hoffman?

  Where like the analogy here is like, say, we're spinning up like telephone lines. Well, say one person owns every single endpoint of every single telephone in a telephone line system. If you, that one person picks up one telephone, it's the same person on the other end of the telephone. It's just one person. Well, then the value of that network is zero because you actually can't do any sort of communication. And I think you're kind of extending that to like crypto assets where if one person owns all the Bitcoin, then Bitcoin is valueless. Now, there's also one thing that I want to say here where like you're saying like, okay, do we use a DCF model or do we use a different model? Something about cryptocurrencies and blockchain networks is, in my opinion, I want to get your opinion on this, Jonah, is a synergy of multiple valuation inputs.

• 16:06David Hoffman?

  Rather than an either or, it's a yes and. And so you have to consider REV, you have to consider Metcalfe's law, you have to consider MV equals PQ. There, it's more of just like a balance between many valuation methodologies rather than choosing one at the expense of others. How do you feel about that take?

• 16:27Speaker 00

  Yeah, I think from our perspective, we wanted to put together a framework and a metric that is rooted in sort of what we believe is driving long-term value. Like as investors, we want to know the bet we're making so we can make an informed decision. What is driving potential returns? Where are the risks? All these questions need to be grounded in some understanding of what is driving fundamental value here. And I think, you know, in the case of REV, it is a fine way to measure how much value validators are capturing from transaction activity on the chain. But it is, in our view, it's, there's a much bigger sort of driver, secular value driver here happening.

• 17:12Speaker 00

  And we wanted a metric that sort of... Measures that in its entirety.

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• 20:10Ryan Sean Adams?

  So we are, we're creeping up to the metric itself, or SOV. And what, what we're saying, what Jonah, I think you're saying is that Rev and this discounted cash flow is a secondary input into the bigger story, which is RSUV realized story value.

• 20:28David Hoffman?

  We're all blind feeling the elephant. Five different people feeling the elephant in different ways.

• 20:32Ryan Sean Adams?

  Absolutely. No, no, Jonah's got the whole elephant, man.

• 20:36Speaker 00

  We've got a basic outline of what we think is an elephant and we love elephants.

• 20:40Ryan Sean Adams?

  He may not have the trunk. He's wrapped around all four legs.

• 20:43David Hoffman?

  We've got most of the elephants around him.

• 20:47Ryan Sean Adams?

  Okay, okay. So one more thing I want to establish for REV, because I think we'll, spend the rest of the episode probably knocking it down in the context of measuring L1 assets, is you're only using this RSUV metric for layer one assets, okay? All of the DeFi protocols, let's say, all of the apps that, you know, generate, the AOVs of the world, let's say, that generate cash flows, those should be DCFed. Those are REV. You're not, you, you love, see, some of the analysts listening to this episode, they love REV. And by the way, we love REV and discounted cash flow metrics because it has helped bring us out of the dark ages. So the dark ages of crypto were back in 2016, where any kind

• 21:30Ryan Sean Adams?

  of like narrative could be hyped up by a cult leader. And prop to like multiple hundreds of trillions of dollars, multiple billions of dollars, just on kind of a story. And there was nothing, I'm gonna use the F word, fundamental. There was nothing fundamental about crypto assets. And so the analyst class goes, hey, if you want to be serious about this whole asset class, you gotta, you gotta look at traditional ways to value assets, the way Wall Street does it. Okay? And so I guess what I'm saying is you're still a proponent of REV and DCF when it comes to non-layer-one assets, right? The DeFi tokens of the world, the other assets that should be throwing off cash flows.

• 22:12Ryan Sean Adams?

  And it's great that you can measure that on chain. So the scope of the conversation here is just layer-one assets that have some sort of kind of monetary property around them.

• 22:21Speaker 00

  Yeah, absolutely. Again, the litmus test is if I owned the entire supply of AVE, AVE is still generating, generating revenue and I'm still collecting, in this case, the entirety, or if I own 10%, 20% of AVE, 10%, 20% of that revenue, of those earnings. Because it's compounding non-native, it's not earning revenue in, it's not earning income in AVE. It's earning income in other monies that my AVE token is basically has a, has a pro and a claim on. So those metrics are sound.

• 22:53Ryan Sean Adams?

  Okay.

• 22:53Speaker 00

  It's L1 tokens here where, where we need a new, a new framework.

• 22:56Ryan Sean Adams?

  All right, the L1 tokens, because, because, so, so, so here's kind of a thesis is L1 tokens are money to you, right? They're not like stocks, they're not like assets. Tell me about that.

• 23:07Speaker 00

  Yeah, so I think, again, one of the main criticisms when people start talking about layer-one tokens in this monetary context is that it's not very specific, it's not definitive, it's hard to measure.

• 23:17Ryan Sean Adams?

  Money is so squishy.

• 23:18Speaker 00

  And so I wanted to sort of at the onset, make very clear, and sort of what's clear to us is that these tokens, layer-one tokens are money, because money has a very specific definition. Money is any asset that's primarily used to make payments and is a store of value. So even copper, for example, if people start hoarding copper and using it as a store of value, to sort of hedge against monetary debasement or something like that, copper becomes money. If people start using it for payments, if there's a country that forms, you know, it becomes money. And so. You look at fiat currencies, they fit this definition explicitly. It's used for payments to buy off-chain goods and services, like coffee and consulting services and all these things.

• 24:02Speaker 00

  And it uses a store of value. People store their wealth in bonds and in bank deposits. And similarly, when you look at Layer 1 tokens, they are used for payments for on-chain services and goods. So all of the transactions on all of these chains are paid for in the native token. That's payment. And there's NFTs and stuff on the margin, but that's the large, primary payments use case. And there's no transactions on any of these Layer 1 tokens that can be confirmed, that can happen in any other token other than the Layer 1 token itself. So it's used for payments, and it's used as a store of value. Again, it's used for stake, to stake, take a little duration risk to earn a yield, just like bonds, and as a deposit asset in DeFi.

• 24:44Speaker 00

  And so we can test that Layer 1 tokens are money because they fit the precise definition of money.

• 24:50David Hoffman?

  The money word really, it's got a lot of subjectivity to it. And I think when people see the word money, they're like, okay, it's the thing in my wallet. It's the cash money in my wallet. It's a nation-state fiat currency. That's money. Everything else is something different. And I think we're using a little bit more of an expansive version of the word money. You talked about like, well, people are storing wealth in copper and they're transacting on copper. Well, then copper is money. And I'll kind of call it a commodity money, which I think a lot of people would agree with that. It's a commodity money. And anything like a commodity has money-like properties. There's something, I think like crypto networks, Ethereum and anything that's a smart contract network, is actually something, splitting the difference between a nation-state fiat

• 25:34David Hoffman?

  money and a commodity money like gold or copper. Because Ethereum does have an economy. There is a GDP of Ethereum. You do have to pay taxes to Ethereum in order to get your transaction through using the unit of account. And so there's something in the middle, crypto Level 1s, or something in the middle between a nation-state fiat currency that issues its own currency and a commodity money with scarce resources found in the outside world. And so like L1 tokens are like, are money, they're like commodity money, something in the middle, something in the middle.

• 26:05Speaker 00

  Absolutely. And I think you make a great point. Just to be really specific here, it's about the actual usage. So we want to be focusing on ground truth facts and then trying to understand what's actually happening and what that means, right? And so copper today is not money because people are not using it as money. They're not using it to store value. They're not using it for payments. Dollars, US dollars, yen, all that, people, it's money, not just because someone says, because the government said, but because people are using it as money. And so when we look at these layer one tokens, it's the actual usage that we know is really happening that mean they constitute money.

• 26:41Ryan Sean Adams?

  Another way to substitute the word money, because as you guys are saying, money has this baggage attached to it, is you could short circuit it and just say store of value, if that's better for people. Because while these assets are used as payments, I think Jonah, part of what you're saying in your thesis is that the big bulk of value created is more on the store of value use case, right? And when people think about like money in the real world, they think about what's the thing that I can buy my coffee with at Starbucks? That's money, right? And so they gravitate towards fiat. But the bigger use case here for all money is what's the thing that you're actually storing your value in, okay?

• 27:24Ryan Sean Adams?

  Across time, that's the dimension, it's the Bitcoiner concept, right? That's the dimension of money that we're talking about here and is more important. Would you agree with that, that for crypto layer one assets, the store of value use case for money is bigger than the payments use case for money?

• 27:42Speaker 00

  Yeah, absolutely. And I think even in fiat money context, right? The dollar is the world reserve currency because people who make money in other economies store, you know, sell the wealth that they create and they, you know, they earn in other countries in other currencies to store their wealth in dollar-denominated assets. And that's what drives US dollar strength. So that highlights the sort of relative value concept, you know, the sort of relative value flows as driving a sort of valuation for money that we're talking about here. Now, in the case of L1 tokens specifically, that aspect, the store of value use case is...

• 28:22Speaker 00

  Really, the meat of the sort of value driver, we argue, it constitutes the majority of the value accrued to these L1 tokens, more so than the payments use case. And I think there's another slide here after this, or the one after, maybe not. But the reason is, the reason we focus entirely on the store value use case, and we basically discount the payments usage entirely when valuing layer one tokens, is because blockchain scale really quickly, like 100, 200, 300, 500% year over year sometimes. And so the cost of, you know, the primary service that people are using for payments is transactions, and the cost of transactions just continues to deflate

• 29:03Speaker 00

  at that rate of scaling. Now, and so that deflation basically negates whatever, you know, growth adoption from payments is happening here from a value accrual perspective. But with SOV, you know, the supply of ETH inflates, you know, 0.5% a year, actually 0% if you're staking, right? If you're a staked, if you buy and stake ETH, your share of the network doesn't get deflated or diluted at all. So, demand for the store value use case here can grow 2, 3, 400% a year, and the token supply, even if you're not staking, grows, you know, half a percent year over year. And it doesn't change if the store value

• 29:45Speaker 00

  demand increases. So, with transactions, demand growth is met with more supply growth. In any commodity, supply growth is the enemy of price. But in the SOV use case, demand growth is not met with more supply, so price goes up.

• 30:00David Hoffman?

  I think the way I'm hearing what you're saying, Jonah, is that the number of REV for every, every network will approach zero as time continues on. And there's like debate about this too, is like, will it actually hit zero? Probably not, but it will approach zero. Fees will compress for all blockchain networks, as all blockchain networks are going to scale. So even though REV is still like a technically sound measure, it's just, its input into the global valuation metric, whatever, whatever that is, is just going to reduce over time. So, the thing that does not reduce over time, the thing that is forever, is the inherent store of value of the layer one. That's forever. REV is fleeting, store of value is permanent.

• 30:42Speaker 00

  Sort of. I would, the broad statement I've seen people make is that RAV in aggregate is going to trend to zero, and I actually disagree with that. I just think there's nuance around what is a durable driver of Rev. For example, priority fees and transaction ordering and sequencing transactions, and that's, I think this is a really important distinction, versus things like DA, which are not going to be a durable driver, we don't believe, of Rev long-term. And the reason is because, again, it's about supply, right? It's as demand for DA increases, supply, there's no fundamental constraint on supply. The network can just continue to scale it in order to meet demand and maintain market share. And that is what we see with many commodities, like eggs, for example, that don't have a fundamental constraint on supply. However, with transaction ordering, I mean,

• 31:26Speaker 00

  like until we live in a quantum world where there's many timelines at once, right, there's a fundamental limit on time. One transaction has to come in front of the other, and so therefore, there's a sort of a durable supply constraint, and that can be a durable driver of Rev. The important point, though, is that Rev just needs to be taken in the monetary context. It needs to be considered for what it really, truly is at the bottom, sort of ground-truth level, which is it's a native yield paid in the native asset. And that's what stakers earn when they stake it, that's what users pay when they pay it. And so, I think, in aggregate, if you look at staking yields across these layer ones, I would definitely

• 32:06Speaker 00

  argue that, over time, as demand for non-government money increases, as the risk, you know, that the market sees in non-government money relative to government money decreases, we can expect those yields to compress over time that are paid to stakers. But it's almost more because we're going to see more inflows, more store value demand compress those yields, right? The demand for those yields are going to increase because people are going to look at these as more credible store value assets, less so because, you know, transaction ordering is going to generate less revenue or less income.

• 32:42Ryan Sean Adams?

  Yeah, okay, Jonas. So let me, let me throw this back to you and you tell me if this sort of makes sense. So what you're saying basically is the payment, there's the payments use case and then there's a store of value use case for these layer one assets and those two are separate things. The payments use case is generally driven by purchase of block space. That's what you're paying for, you're paying for block space. Of course, it's other things like NFTs and such, which are dominated, but primarily a large driver is the purchase of block space. The store of value use case is you're purchasing the underlying asset itself. So you're buying Bitcoin, you're buying Ether, that's the store of value use case. You go to the payments use case and you look at supply of block space, again, the thing you're purchasing, and look at all the networks that are scaling, okay?

• 33:24Ryan Sean Adams?

  The supply of block space, I mean, we were just talking about Ethereum this morning and if kind of the, you know, ZK dream comes true for Ethereum, the supply of block space on just the Ethereum layer one is going to 100X, it's going to 100X in terms of supply. And that's not to mention all of the other block space and all of the layer twos and everything else, right? And so you have a massive supply expansion of block space, again, the thing you're paying for. Then you look at kind of the store of value side of things and you look at the supply of ETH, right? Well, what's the supply of ETH doing? It's going max plus 2% per year and generally that's going to ebb and flow between like, you know, negative 1%, ETH could be deflationary again in the future to 2%.

• 34:06Ryan Sean Adams?

  It's a very small range, it's not going to 100X, it's very tiny in terms of its supply, right? And so it's, it's, it's kind of this dichotomy of you've got block space that's expanding, payments are going to be kind of more of a commodity type use case, but store of value and the supply of ETH or Sol or Bitcoin, that's very, that's very small in terms of percent increased supply per year, that's what you're saying.

• 34:30Speaker 00

  Yeah, and I think we just need a fundamental metric or a way of measuring the holistic picture of what is driving value to these tokens. And so, you know, even the priority fees, you know, generated from transaction sequencing that, you know, might boost the yield or increase the yield paid to stakers, you know, if stakers are just Basically, you know, collecting that yield and selling it for dollars is kind of like in one and out the other of the network. And so what we're looking for is a metric that measures all of the different drivers of value. And when I say value, like inflows of dollars into the network that are staying in the network. Right? We want, you know, the dollar goes up

• 35:11Speaker 00

  when people sell other currencies to buy dollar denominated assets. We want to focus on fundamental drivers that we can take a long term bet on, you know, as investors and a forum bet on as investors that measure these inflows into the native token that are durable and that will persist and like, you know, that are secular because then we can sort of take a future view on them.

• 35:31Ryan Sean Adams?

  One last establishment of like, why this whole debate is important and why this is the whole enchilada.

• 35:38Speaker 00

  Yeah.

• 35:39Ryan Sean Adams?

  Yeah, this is the total addressable market for digital, non sovereign money. Jonah, maybe you could explain this, what we're showing on the screen and then the next slide.

• 35:49Speaker 00

  So the headline here is you want your L1 token, you want your favorite L1 token to be valued as, I mean, valued as money. I say valued as money, like, you want to recognize that your L1 token is money and accrues value like money. It's less about whether or not we decide as analysts to value it. And our view is more that this is what drives value, whether or not we recognize it. I think it's good for many reasons to recognize it, least of which is, I mean, the TAM is pretty exciting. So, so this is the, this is like the most conservative way of comparing, I think you're looking at TAM, right? But on the left, you see digital crypto money. And on the

• 36:30Speaker 00

  right, you see analog and government base money. So the total TAM of layer one tokens, or the total market cap layer, layer one tokens on the left, and gold plus the base money values of fiat currencies. And base money, in this case, is defined as basically what is physically available for settlement. So physically printed cash and like real bank reserves. It's not all of the duplicate, you know, the, the money multiplier.

• 37:00Ryan Sean Adams?

  It's not like M2 and up the stack.

• 37:02Speaker 00

  Exactly. You could, I think you could make arguments for looking at that, at that way, but we wanted to have a more conservative. View on this and you can see, I mean, it's a 20x upside just on this.

• 37:14Ryan Sean Adams?

  Yes, what we're seeing is we're seeing $45 trillion in analog and government-based money that's kind of available. And right now, digital crypto money is 2.5 trillion.

• 37:27Speaker 00

  Yeah, and it's funny, we're really, Bitcoin is about 20 years old, ETH is a little bit less than that, like, we're really early, 10 or 15 years, we're really early into this transition. And so, in many sense, you know, it's taken a while just to get here. And you can see the sort of valuation of these, or the value of these Layer 1 tokens relative to the analog, physical, sort of base monies for fiat and for gold. And so, I think we look at this and we say, it's still early. It's taken this long to get here. And I think Bitcoin is really just a Trojan horse. Over the next 10, 5, 10, 20 years, I would not be surprised. Like, we think the market is going to increasingly see these digital

• 38:12Speaker 00

  crypto monies as increasingly credible stores of value relative to the fiat alternatives, which, by the way, are going through their own sort of periods of crisis here. And those, the drivers of that crisis seem to be accelerating, not decelerating. So you have this new digital sort of autonomous, you know, programmatic money that is disrupting the physical analog version. And I've never, like we said at the beginning, I've never known an analog sort of incumbent that is being disrupted by the digital disruptor to sort of, you know, remain bigger, right? The digital disruptor always tends to be, to become larger than

• 38:52Speaker 00

  the physical incumbent, and so the analog incumbent. And so, I think over a long enough timeframe, we could totally see that happening. And again, the opportunity here, when you look at these Layer 1 tokens relative to their physical counterparts, is pretty exciting.

• 39:06David Hoffman?

  So what we're looking at on the slide right now for the listeners is the TAM for digital non-sovereign money and it's comparing Bitcoin, Ether, Sol, TON, Tau to gold and also fiat currencies. So gold is the big one at 19 trillion, followed by the United States dollar at 5.6 trillion, followed by the euro at 5.3 trillion, followed by the Chinese yen at 5.1. And like, we could be in theory, like hypothetically, looking at a, an alternative slide that's like the TAM for DCF-based assets. And then we would start being comparing these things Bitcoin, Ether to like Apple and Nvidia, and that would look different. The numbers would be lower. It would be a smaller like TAM that we are comparing to. And so what we're, I think what we're saying here is like,

• 39:50David Hoffman?

  if we want to be bullish about crypto as an industry, we want to look to the digital non-sovereign money comps rather than DCF comps. Do you agree with that?

• 40:03Speaker 00

  Well, yeah, what I would say is we want to, like, the argument for this valuation framework that we'll get into the details on, from our perspective, is more rooted in what is actually happening with the tokens and how they're being used and what drives value and what drives returns, more so than anything else. And so we want to start there.

• 40:21David Hoffman?

  It's not just what we want, it's what's actually happening.

• 40:23Speaker 00

  Yeah, it's not what we want. No, that's, man, in the water's warm. Like, this is a better outcome. You know, maybe be a little bit more open-minded.

• 40:31David Hoffman?

  So if you're, so like, the message, takeaway that I'm getting from this is like, anyone who's like pushing DCF or REV as like the metric, the priority metric, they're bearish. They're a bearish person because they don't see the 10 times larger TAM that could be for the crypto industry.

• 40:50Speaker 00

  Yeah, I'd say there's, they're missing the forest in the trees in a really, really big way. Yeah.

• 40:53Ryan Sean Adams?

  Well, but there's also another interpretation, back to kind of the consensus view right now, which is like Bitcoin is the special snowflake and Bitcoin's gonna eat all of it, like Pac-Man's gonna eat all of these other, like, your currencies and store value assets. And then there's layer ones, which are REV, DCF, other layer ones.

• 41:12David Hoffman?

  Bitcoin gets to acquire the TAM for digital non-sovereign money. And only Bitcoin gets to acquire that and everything else is relegated to an REV DCF valuation metric.

• 41:24Speaker 00

  That's the consensus.

• 41:25David Hoffman?

  That's the current like state of crypto Twitter, which is like downstream of current market pricing, which is Bitcoin is priced like that and everything else seems to be collapsing towards an REV valuation.

• 41:36Speaker 00

  That seems to be consensus on crypto Twitter. I have a very good friend and mentor, a colleague as an investor, who said to me one time, Jonah, I want to be buying reality and selling the dream. And so what you have here, and I love that line, it really resonated. What you have here is the reality, which is that all of these tokens accrue value in the same way. And when I say all of them, Bitcoin, ETH, Sol, Ton, all of these circular reference assets that are used as money, that do not compound non-native value, that only collect the native yield, accrue value, we argue, in the same way, which is as money, you know, net inflows,

• 42:18Speaker 00

  specific store value, you know, sort of demand use case that we're measuring in this framework that we introduce, these are all accruing value in the same way. And that reality, you compare that relative to maybe what is consensus here, I mean, that's alpha, that's opportunities for investors, and that's what it looks like to buy reality and sell the dream. So I think we're early. I think Bitcoin is first because there's this whole, right, there's this whole wave of demand for non-government money, non-government store value, because of, you know, changes that are happening with government money systems, and those changes are creating risks for investors, and investors are wanting to diversify away from those risks.

• 43:03Speaker 00

  And so as a result, you know, they're looking to gold and Bitcoin and real, whatever, non-government store value assets. And Bitcoin is a very, is the sort of first. Crypto that gains those inflows that is able to meet that demand because people view Bitcoin as the coin that changes the least. And so there's this change happening in the fiat world, changes that they're sort of seeing as risks. They want to diversify away from those changes that are creating risk. And so they see this thing like this changes the least out of all crypto, like I'm going to start there. But that, in my view, is really just the beginning. And that's Trojan horse, because when you really take a look at all of these other crypto assets,

• 43:45Speaker 00

  ETH and the whole down the line, and as those things mature, this will increasingly become the case, that these are in many ways more reliable, less sort of counterparty dependent, you know, management dependent, human dependent monetary system. So they're digital and they're increasingly programmatic, they're increasingly more transparent, they're increasingly more autonomous in how the supply is managed and what you can measure. And so in those ways, right, they're liquid 24/7, all of these different reasons that monetary attributes that these assets have, that when you compare them to fiat, begin to look increasingly interesting

• 44:26Speaker 00

  and sort of offer very similar value proposition to what Bitcoin with, you know, other changes as well that are interesting.

• 44:32Ryan Sean Adams?

  Okay, it's time. Let's buy some reality here. All right. And so for the analyst class who's listening, they might say, well, all that's cool. We've heard the monetary story before. Show us the data. Show us the numbers. Show us the reality of the situation. And here's where we introduce a metric that you are, you think tells a good chunk of this story. Again, like four legs of the elephant here. It's called RSOV. I think that stands for Realized Store of Value. Jonah, could you define Realized Store of Value for us?

• 45:06Speaker 00

  Yes. So this Realized Store of Value metric tracks the two primary drivers of SOV use or demand for these Layer One tokens. So again, we want to be measuring ground truth, real usage and real metrics. We picked two that for us are the biggest primary drivers that we can track and measure the actual demand.

• 45:34Speaker 00

  And that is the realized value of layer one tokens staked and the realized value of layer one tokens in DeFi. This is a metric we apply across all layer one tokens and realized value is inspired by the sort of realized cap metric that people might be familiar with with Bitcoin on Glassnode. It's effectively a sort of net daily inflows metric and it uses the US dollar value of that day. And by summing these two realized value metrics, the RSOV, you get this sort of total sum monetary value that is accumulating to the layer one token. And so this is a fundamental

• 46:18Speaker 00

  measure of the net inflows that any given layer one token has. And for us as investors, we want to be very specific about what's driving these inflows. We want to understand it to be a very fundamental driver because we want to be able to use it to make some forward, you know, develop some forward view on a potential investment. And so, you know, staking and using the token in DeFi, both to form yield, both, you know, as collateral, as a monetary hedge, these are very fundamental drivers that we can measure.

• 46:53Ryan Sean Adams?

  There's store of value use cases.

• 46:55Speaker 00

  Absolutely.

• 46:56Ryan Sean Adams?

  Store of value drivers.

• 46:56Speaker 00

  People buying the token and holding it. And so that's the, that's the key behavior that we're measuring here. In 2017, John Pfeffer, who was a super successful investor in his own right, penned a paper that was very popular at the time. And it basically outlined that this, hey, money is, has a, has a real definition. Anything primarily used for payments or as a store of value. And what it means to be used as a store of value is to be hoarded, basically to be hodled, to buy and hold. For whatever reason, but that behavior, and then he went on to make other conclusions, but that behavior is what defines store value use. And so we sort of inspired our framework.

• 47:41Speaker 00

  Our framework here is inspired by that paper. And it says, hey, when people are buying and staking, and when people are buying and putting in DeFi and using it for liquidity, or using it as collateral and a loan, that is people buying and holding. And so we want to measure the realized value, the net cumulative inflows in dollar terms into the token that is accumulating over time for those two use cases.

• 48:02David Hoffman?

  I want to deconstruct the definition here. So our SOV, I think, comes downstream of that metric that you measured, that you mentioned in Bitcoin, which is realized cap. Now, this is different from Bitcoin's market cap. Bitcoin's market cap is, of course, the number of units times the price of the units. This is different. Realized cap is the last time a Bitcoin moved on the Bitcoin blockchain, a transaction of Bitcoin, a transfer of like one Bitcoin from one address to another, at the price it was transferred at. And so the implied assumption here is that somebody is making a sale of Bitcoin at a particular price. And so Bitcoin, in theory, could jump from $100,000 to $1 million per Bitcoin, but with

• 48:46David Hoffman?

  very few Bitcoin transfers actually happening on the Bitcoin blockchain. And so while Bitcoin price could do a 10x, realized cap moves much more slowly, and it takes into account the correlation between the price that Bitcoin moves, and then also how many Bitcoins move. And that's the super simple way to think about it, because Bitcoin is so simple, there's no smart contracts here. And this is like the foundation that our SOV stands on when we start to apply this to a smart contract platform.

• 49:17Speaker 00

  Absolutely. So this realized cap for Bitcoin, as you explained, is really a proxy for the aggregate cost basis of the entire network. So the total supply of this asset, what is the aggregate cost basis? And that can go down when there's net outflows out of the Bitcoin network into FIA or whatever, and that can go up. Up when there's net inflows into from fiat into the Bitcoin network. And so in the case of this RSOV framework, we took that as a sort of first principle. And we sort of formed an adapted version where we're measuring the cost, the aggregate cost basis,

• 49:57Speaker 00

  not just of the whole network, but specifically for these two sort of use cases of the of the token. So it's not just the last time the tokens move, but more specifically, because again, we want to, we want to bet on something that's very fundamental as investors and a core use case. And so because it's a smart contract platform, it's more expressive, we can have a more definitive use case that we can define. And so this is an adapted version where we're measuring the aggregate cost basis over time of value staked and value in DeFi.

• 50:30David Hoffman?

  Okay, so the two metrics, realized value of L, of the L1 token being staked. And then the realized value of the L1 token being deposited into DeFi. And so if I take 10% of the Ethereum supply, Ether supply, and I stake that at a $5,000 price, that is going to impact RSOV. And you know, since you know ETH price is at like 2,000, whatever, it's going to make RSOV go up because I take 10% of the ETH supply and I stake it at a much higher dollar price. And so realized value goes up. And what you're saying that implies is that a bunch of money came in to buy a bunch of ETH and hold it for a long time. And that is the realized value of this token going up.

• 51:13David Hoffman?

  And since we are a smart contract platform, this also works for depositing Ether into AVE, into MakerDAO, into Uniswap, into Morpho, into Pendle, really anything that has like a TVL number. And this is actually like reminiscent of, I think, our early days in Ethereum with this DeFi Pulse Locked In DeFi metric that so many of the Ethereum people just loved to look at is like how much ETH is being locked up in all of these smart contract platforms. And it's just illustrating the reservation demand, the total demand to buy and hold. Eath in these supply syncs. And so if we want to go back and talk about one of these early like metrics that we talked about, we talked about MV equals PQ, which has some amount of usefulness.

• 51:58David Hoffman?

  If we take like 50% of the ETH supply and we put it into Ave MakerDAO, Uniswap Pendle, Morpho, we are reducing the velocity of Ether and making it stay stagnant in holders by holding it, hodling it. And so as a result, realized cap goes up. Any comments on all of that analysis?

• 52:19Speaker 00

  Yeah, I think, I think sometimes the best way to simplify things from a mental model standpoint is to think in absolute extremes. So if a trillion dollars came into ETH staking contract, right? Like, you know, someone had a trillion dollars of USDC or whatever, and they bought ETH and put it into, you know, the, the value of ETH would be a lot higher. The number of ETH tokens outstanding would not change. Now there's just a huge inflow into the, into the staking contract that is, obviously has a huge impact on, on, on sort of the value of the network and on the price per token. And, and so, and then vice versa. Today, you know, if $100 billion left ETH staking contract,

• 53:02Speaker 00

  those outflows you would want to, you would want to know about. That, that reduces, that pulls value out of the system. So again, it's back to this framework around what drives the value of money and why supply and demand is really important because supply and demand is for everything. But, you know, in the case of money, it's all relative valuation. So are people selling their dollars to buy ETH or Sol or Ton? And, and we need a, again, we need a way of measuring that behavior that's grounded in a fundamental use case because we want to bet on it in the future. And we don't want to, you know, we don't want to count people just speculating and opening some short-term position on a centralized exchange. We want to look at, okay, like this is an on-chain economy. This is an open, accessible platform.

• 53:45Speaker 00

  We want to be grounded in a real fundamental use case here so that we can understand the trends, we can analyze it, analyze potential risks to that trend, develop a forward view. But yeah, again, like the left curve version of this is, you know, when people buy the token, the price goes up. So like, let's figure out why people are buying and holding the token and measure it.

• 54:04Ryan Sean Adams?

  Okay, this is also, the intuition here is this is also a proxy measurement of the store of value use case for the underlying L1 token. So again, we'll take ETH as an example, right? If I have some Ether at $2,500 right now, and I go and I decide to stake that Ether, okay? MSOV is going to go up and it'll be the realized cap of that staked Ether. So it'll be at $2,500 at that point in time. Or if I take that Ether and I deposit it for a collateral loan in something like AVE, even on a Layer 2, it doesn't matter. It doesn't matter if you're Layer 1 or Layer 2. I think it's all in like in DeFi in your metric.

• 54:48Ryan Sean Adams?

  Then I am by definitionally, I am using that Ether as a store of value asset in order to take a loan out against it. It's the monetary, it's the store of value use case. That is effectively the intuition for why realized staking? And why realized in DeFi? Is that right?

• 55:09Speaker 00

  Yeah, absolutely. And two important points here. The first one is unrealized value. In your example, you know, if you buy and stake a bunch of ETH, or you stake a bunch of ETH today, $2,500 per ETH, the realized value of ETH goes up, of ETH staked increases, RSOV goes up. And then if next week, the price of ETH goes up by 30%, the RSOV, the incremental RSOV from your, like, doesn't change, right? It's about the price when it happened. It's a cost basis metric. And so RSOV can only increase when there's actual, like, real on-chain transactions, real inflows that we're measuring here. And it's not about future price.

• 55:54Speaker 00

  And it's not affected by future price in that sense. The second thing is on Layer 2 is that, you know, there's a lot of debate on fees and revenue and DCF and extractive and parasitic or supportive net growth and like...

• 56:09Speaker 00

  Certainly, it is the case that in the current form, the early version of L2s that were introduced began sequencing transactions, sort of displaced the Layer 1 blockchain for Ethereum as the provider of sequencing to the open market. And we've seen ETH staking yields compress as a result of that. But in the context of RSOV, what's also happening, and this is the long-term driver here, is that people are buying ETH, buying Sol, buying whatever token, and depositing it into DeFi. And so, we are measuring, it doesn't matter what chain, we are measuring people buy,

• 56:51Speaker 00

  net inflows, cumulative realized value changes for these tokens regardless of what chain. So if people buy ETH and use it in DeFi on Base or on Arbitrum, that grows the realized value of ETH.

• 57:04Ryan Sean Adams?

  Yeah. Okay, okay. So basically, a Layer 1 wants its RSOV to go up because that sort of starts to represent a bottom floor of, quote unquote, "how this network should be valued." And we'll talk about that a bit more. But what you're saying is this whole debate, are L2s parasitic? Are they synergistic? That's almost a discounted cash flow rev-type debate because it's about, are they going to purchase block space? It is unequivocally the case that if you have a Layer 2 that is importing all sorts of Ether, and that Ether is being used inside of the lending platforms, or even as trading pairs inside of the L2 network, that's going to increase your MSOV.

• 57:45Ryan Sean Adams?

  An increase in MSOV is net good because that's kind of a, represents sort of a bottom floor on how these networks should be valued from a RSOV perspective.

• 57:56Speaker 00

  So I think there's nuance here.

• 57:58Ryan Sean Adams?

  Okay.

• 57:59Speaker 00

  Yes. And, like, the first version of these Layer 1s, of these Layer 2s, they displaced main net as the primary, like, in terms of sequencing transactions. And as a result, staking yield on Ethereum shrunk, it compressed.

• 58:19Speaker 00

  And so, again, viewing Rev in the monetary context, viewing staking yield for what it truly is, a native yield, that lower yield discouraged inflows into staking, whereas a higher yield incentivizes inflows. It's like when the dollar had much higher yields, when rates shot up in 2022 and 2023, the dollar had its dollar milkshake moment. You saw a bunch of inflows and that drove the dollar to be much stronger than other currencies, relative to those other currencies. And so, in the case of Ethereum, this next wave of Layer 2 infrastructure, people call them base rollups, right? Where applications on their own,

• 59:04Speaker 00

  you know, Aave can launch its own base rollup just for the Aave application, still use the Layer 1 for a hefty part of the sequencing sort of services. The Layer 1 itself is, you know, be scaling as well. That's where you get both benefits, where the Layer 2 sort of UX experience allows more people to buy ETH and use it as an MSOV, but also it doesn't dilute the native yield. And so, when you have a higher yield and you have that ability to sort of onboard new capital, right, get people to sort of buy and use ETH as a store of value, that's when you get both benefits. So, there's nuance here. There's nuance here.

• 59:44David Hoffman?

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• 1:00:28David Hoffman?

  Finance that actually belongs in 2025. Explore Mantle at mantle.xyz or follow mantleofficial. Mantle, bridging TradFi and DeFi so you don't have to. Have you ever imagined Bitcoin and Ethereum truly working as one? Unlocking the full potential of Bitcoin, DeFi and more? Meet Hemi, a groundbreaking modular network designed precisely for that vision. Co-founded by early Bitcoin core dev Jeff Garzik. Unlike other Layer 2s that treat Bitcoin and Ethereum as separate silos, Hemi connects these giants into a single, powerful super network. With Hemi, users gain unprecedented asset portability and possibilities, combining Bitcoin's security and value with Ethereum's versatility. Hemi's unique innovation, the Hemi virtual machine, integrates a fully indexed Bitcoin node directly into an EVM, enabling dApps that seamlessly interact with both networks.

• 1:01:13David Hoffman?

  And with Hemi's proof of proof, or POP consensus, users benefit from truly decentralized, censorship-resistant Bitcoin-level security. Since its recent mainnet launch, Hemi has rapidly ascended the ranks as one of the top Bitcoin chains. With a thriving global community and robust ecosystem support, Hemi isn't just building a network, it's shaping the future of Web3, DeFi and beyond. Visit hemi.xyz/banklist to learn more, discover ways to interact, participate in the leaderboard program and be part of the community that's uniting Bitcoin and Ethereum. I want to bring up the conversation of REV again because our SOV has REV incorporated inside of it, like almost automatically, just naturally. Absolutely. There's a tweet from John Charbonneau

• 1:01:54David Hoffman?

  that he compares the numbers of Ether and Sol respective all-time highs. Ryan, if you could click that graphic on the left. And also when they were correlated with the all-time highs of REV. And so Ether's all-time high of $4,800 happened in November and it had, that's also when its REV was the highest. And then Solana had its all-time high in January post-Trump meme coin launch and that's when its REV was also the highest. So John is making the correlative statement that REV is highly correlated to price. If REV goes up, price goes up. What's hidden here is our SOV as a metric is also in this all-time high calculation.

• 1:02:37David Hoffman?

  And John is just focusing on the REV metric, but our SOV is also here too, he's just not calling it out. So maybe you could give your analysis of when Solana and ETH hit their all-time highs. What was REV doing or our SOV doing in that moment?

• 1:02:54Speaker 00

  Yeah, so I would, John's super smart, but I would just say on that correlation does not equal causation. And so what we're doing with RSOV is trying to think in first principles and saying, what is driving long-term value? What is driving price appreciation and then sell up? Like, what is the bet I'm making as an investor? Fundamentally. And when we think about it in first principles and we look at, you know, hey, this is accruing a native yield. Hey, people are using this token for payments and as a store of value. This does not earn, you know, doesn't collect earnings like a company does in non-native asset. It's very circular reference. It's a network. Other people have to join the network for it to increase in value. It used to just to go up.

• 1:03:39Speaker 00

  When we think in those terms, we say, okay, something more like RSOV measures the actual causation of long-term returns. That's what the bet we're making is that people are selling their dollars to buy this asset, not just use it as a payment, but as to use it as a store of value. And so one of the really interesting things I think about RSOV is that it very elegantly captures rev in that when people, you know, transact on a network and pay in the token and as long as validators are buying and, you know, are not selling the token, right? They're basically compounding, they're holding the rev that they capture and using it to compound their returns.

• 1:04:20Speaker 00

  The realized value of that token stake also increases, right? Because the cost basis of the token being added to that staking contract is increasing. You're adding more value to the staking contract. So

• 1:04:32Ryan Sean Adams?

  Oh, right. Yeah, like one block at a time, you're adding more.

• 1:04:34Speaker 00

  One block at a time, rev grows RSOV. One block at a time. So I think in that context, again, rev in the monetary context is how we think about it. There's a bigger story here. Than just like a company cash flows. And RSOV, we think really elegantly captures the rev part of this bigger story.

• 1:04:54David Hoffman?

  So if I'm buying an NFT on Ethereum in 2021, when there's like $500 gas fees, or if I'm aping into a Solana meme coin and I'm paying like a 20% slippage tax to the validators. When REV is very, very high, what we are actually measuring is a hastening transfer of Sol or ETH, the L1 asset from spenders to stakers, where it is showing up in RSOV. Because if you're staking, if you're staking Solana, if you're staking Ether, you're inherently the supply sync. And you are the thing that is hodling the Layer 1 asset. And so what REV does is it measures the rate of transfer from spenders to savers.

• 1:05:40David Hoffman?

  And when REV is high, that transfer is happening higher. And that's how REV is incorporated into RSOV, like kind of in this technical on-chain way. But I'll also add some additional color that we can just know from this story of when Ether was at all-time highs during the NFT mania, and then Solana's at all-time highs during the meme coin mania. You can go look at the Solana Pump Fund bonding curves and the radium pools. And for every meme coin that exists, there is somewhere between like 100 and 100, the valueless meme coins, all the thousands and thousands of valueless meme coins. There's somewhere between like $50 to like $1,000 to $5,000 of Sol, locked up in these bonding curves, just abandoned in these radium pools. And so in addition to like all of the execution fees that Solana is getting

• 1:06:25David Hoffman?

  that is showing up in the REV numbers, there's also just this inherent supply sync of Sol going into the meme coin economy. And that same thing was happening with Ether and its NFT mints, where somebody's like, oh, I really want this Azuki thing. I don't really care about all these other NFTs, but Azukis really speaks to me. So I'm going to go buy $10,000 of ETH and then send it to the Azuki team, who now has a treasury of ETH. And that shows up in RSOV. Also REV, there's also gas fees. There's also the ETH burn that we were all getting very excited about. Now that burn's not so much here anymore. But what's still here is the numbers implied in the RSOV by both the meme coin mania and Ethereum's NFT mania.

• 1:07:07David Hoffman?

  And so like, I think people will, in this day and age, look at the absolute cash flows that Solana is printing from execution fees. And they'll say, this is why Solana is doing so well. But we are still missing the inherent unit of account denominator of all meme coins, which is Sol. So Sol is money, is the reserve asset for the meme coin economy, which defined the 2024 year. And so we're feeling up the elephant, like the REV are feeling, we're feeling the elephant. And they're like, oh, look, clearly it's the cash flows. But we're missing the whole entire other side of this story, which is the RSOV side. It's Sol is money for meme coins.

• 1:07:46Speaker 00

  Yeah, absolutely. And I think when you think about the meme coin, you know, frenzies or the NFT frenzies, or even the ICO frenzies, right? Or the LST farming frenzy. I think what you see is the value of these base layer assets going up, not because, you know, David, you, me and Ryan are passing them around amongst ourselves, right? But there is a increase in the amount of people that are putting their dollars into these currencies to do, you know, to whatever, do stuff with it. And some of that stuff is short term. And so we have a framework that ignores that. And some of that stuff might be long term, like buying stake, right? And we have a framework that measures that. But the fundamental activity of people moving their other currencies, right?

• 1:08:28Speaker 00

  Their US dollars into Sol, into BTC, into ETH, whatever, means that the Sol USD price, the Sol or the ETH USD, you know, BTC USD, those pairs go up. And that's fundamentally the bet we think we're making as sort of long term investors.

• 1:08:44Ryan Sean Adams?

  Yeah, I don't know if we explicitly mentioned this other driver that seems obvious to me. If you think about it is so the relationship between RSOV and REV again, right? So the more that REV increases, the more yield to stakers, the more people are going to want to stake. And the more people want to stake, the more you get that kind of realized staking, which increases. RSOV. So of course, Rev is related to RSOV. It's like inherent.

• 1:09:11Speaker 00

  And then, and then I think part, you know, you can see the bigger picture there as well, too, because when Rev increases, the staking yield increases. You know, with liquid stake tokens, right? You now you have a higher yielding asset that can be used in DeFi. And so people are looping it and people are farming it. And you get inflows into DeFi as DeFi activity picks up, right? The inflows, the same inflows that people are moving their dollars into ETH or the Sol to stake it. Now people are moving their dollars into ETH to use it in DeFi. The, you know, you could take out at 70% LTV, $4,000 loan instead of a $3,000 loan. Right?

• 1:09:52Speaker 00

  So it's, there's a bigger, there's a, there's a, you know, there's a bigger forest here and the trees. And it's not just Rev and it's not just staking yield. It's, it's, it's staking, it's Rev in the monetary context. And then the aggregate inflows across these two fundamental drivers here that are certainly, you know, it's very interrelated, but there's a big picture here. There's an aggregate value that is flowing into the network and we want to measure that aggregate value.

• 1:10:18Ryan Sean Adams?

  Okay, let's look at some numbers here then of what RSOV actually looks like here. So I'm showing a chart of the RSOV realized store of value of Ether, Ethereum right now. Right? And so there's a orange, kind of like a deep orange line here. And then there's also, and that represents the value, the realized value of ETH stake. And there's like kind of a lighter orange here, kind of a cream color, which is the realized value of ETH deposits in DeFi. And together that amounts to, I don't know, it depends on what the time, the time of recording, right? But let's call it $120 billion. That's the realized store of value for Ether right now is $120 billion. And we know the market cap is different than that. There's a delta right now.

• 1:11:01Ryan Sean Adams?

  So it's trading on a premium to a realized store of value. What's the market cap, guys? Are we at like 350 billion, something like that? Really am. Okay, I don't check every second, but we'll, we'll say in the 300. So there's a, there's a delta there between the realized store of value and the market cap of ETH. Right? And you could also do this for Solana. You could also do this for Tau.

• 1:11:25Speaker 00

  Any layer one.

• 1:11:26Ryan Sean Adams?

  You can do this for Bitcoin, right? Well, wait, can you do this for Bitcoin?

• 1:11:30David Hoffman?

  Realized cap.

• 1:11:30Ryan Sean Adams?

  I guess that's sort of... The realized cap is the approximate equivalent.

• 1:11:34Speaker 00

  This is the adapted realized cap for smart contract platforms, right? So it's the same core principle and you can absolutely do it across all L1 tokens. And that's how we evaluate all L1 tokens. We want to know the bet we're making and the bet we're making, we think, is inflows.

• 1:11:50Ryan Sean Adams?

  Is this premium, like, I guess there's multiple ways to interpret it, right? Is this premium of market cap to RSOV a good thing? Or is it a bad...

• 1:11:58David Hoffman?

  Do you want a large gap or small gap? What's better?

• 1:12:00Ryan Sean Adams?

  Yeah, what do we want?

• 1:12:01Speaker 00

  Well, you know, as analysts, as investors, the main thing is we want, we want to have a framework that not just measures the core value drivers, but then allows us to understand what's priced in relative to, you know, this current value driver, right? So we can compare the current market cap to the current RSOV total and say, okay, that gap, that $176 billion gap is how much future growth effectively that the market has currently priced in. And then from there, we can decide, okay, you know, maybe we're really excited about, like in the case of ETH, real-time proving and, you know, base rollups and what that's going to do to staking yield and how much value that's going to attract.

• 1:12:45Speaker 00

  And maybe there's a market understanding of monetary asset that's going to catch up with Bitcoin and like, we think there's way more than $176 billion that are going to, you know, sort of accrue in incremental inflows for ETH. And man, it's really undervalued over the next, you know, one, two-year timeframe, right? But, but that's up to each analyst. That might be my view and our view, but the point is now we have a framework, a tool that every analyst can use to measure what's currently priced in and make, you know, develop that view of their own.

• 1:13:18David Hoffman?

  So we're looking at a chart here with Bitcoin, Ether, Solana, Tau, Aptos, Ton and Sui. And each one of these, we have the price to RSOV ratio here. One of these is standing out in a very big way. You know, Bitcoin and Ether, 2X price to RSOV, Solana 6X, Tau 7X. You get to Sui and you see 185X. So the price of Sui is 185 times larger than its RSOV, its realized store of value. What is that telling you as an investor?

• 1:13:49Speaker 00

  Yeah, so my interpretation of that is that the market cap of SUI is much higher than the actual sort of usage of SUI, the asset as a store of value asset. There is a lot of future growth priced in. And again, we, our view is that these inflows are the bet we're all making here with Layer 1 Tokens because the value of money is relative and this is money. And so we need to measure these inflows. And there's a lot of people holding SUI. There's not a lot of people who have staked the SUI or who are using it on chain. And, you know, I think that's what this multiple shows.

• 1:14:27David Hoffman?

  So investors are making a very large bet that SUI's demand for SUI inside of its own depository apps, its DeFi apps, or also SUI staking, they're willing to pay a very high price because they're very bullish on the growth of the usage of SUI as a store of value, either in SUI staking, or in SUI DeFi, or in any other like, application cases. And so maybe it's, maybe they're not incorrect. They're taking a position that the SUI price was undervalued compared to its future RSOV growth.

• 1:15:00Speaker 00

  Yeah, that's right.

• 1:15:02David Hoffman?

  But then also you can look at that right now and be like, hmm.

• 1:15:04Speaker 00

  That's expensive.

• 1:15:05David Hoffman?

  That's expensive. As a store of value, a lot of store of value properties are being baked in now that has, have not actually shown up in any sort of like on-chain analysis.

• 1:15:16Speaker 00

  It's certainly a lot more expensive than the other tokens out there.

• 1:15:20David Hoffman?

  Yeah.

• 1:15:21Ryan Sean Adams?

  You're assuming a lot of growth, I suppose, in RSOV. For every dollar that's expressed in RSOV, for SUI, you're assuming that's, you know, 180, you're paying $185 for that.

• 1:15:32David Hoffman?

  And we're using the same growth word in RSOV as other people would use in their DCF. So if we're doing a DCF model on a Layer 1, and it's like, the multiples are very high, you're saying, okay, we're assuming a lot of growth in cash flows in order to justify this.

• 1:15:48Speaker 00

  It can be used in a similar way, right? But like, you know, traditional equity investors use the DCF, and crypto investors investing in or evaluating equity-like tokens, or tokens that compound a non-native asset like AVE, or Pendle, or Hyperliquid, certainly can use a DCF to evaluate the value. But again, it's funny, you know,

• 1:16:12Speaker 00

  Traditional investors also invest in all sorts of commodities. There's a whole commodities markets that people are active in. So there was frameworks that those people use. And I think when you go to those people, you can sort of get some inspiration for how we should view these layer one tokens, which again, just fundamentally how they're used and like what we're looking at the ground truth here, these are commodities.

• 1:16:30Ryan Sean Adams?

  Okay, so if people at this point in the episode are now starting to believe in the RSOV view of the world, again, maybe it's not the full elephant, but we got a larger chunk, okay, let's say somebody believes that.

• 1:16:44Speaker 00

  You got no line.

• 1:16:44Ryan Sean Adams?

  Now, as an investor, you have to start thinking through kind of the drivers, the implications of this. And so you have to start thinking about, okay, what are the things that help RSOV? Because again, you want more RSOV because that's sort of a bottom floor. And let's say the market cap was trading below RSOV. And by the way, this is realized cap. This is, you know, like, there's so much history for realized cap in Bitcoin, where if the market is valuing Bitcoin below the realized cap. It's always a buy. It's a screaming buy. It's always a buy. Buy, buy, buy, buy, buy, and you're going to make money, right?

• 1:17:14Speaker 00

  And we evaluated L1 tokens at the same time.

• 1:17:16Ryan Sean Adams?

  Right, right, right. So, so, okay, so if the, you want the realized cap to increase for your L1 network because that kind of represents the floor. So the question is, what are the things that help increase RSOV for a layer one? And then also, what are the things that hurt RSOV for a layer one asset?

• 1:17:34Speaker 00

  Yeah, so again, it's, it's really these core drivers that we've identified in the, in the formula. But, you know, things that grow SOV or RSOV are inflows into staking. And so that can come from higher staking yield that attracts more inflows. Like we said, the sort of dollar milkshake theory where dollar strength, higher yields, stronger dollar, more inflows relative to other currencies. It can also just be the, the market changing their view on the asset and increasing the demand for the yield. So if the yields, if, you know, ETH yield today is 3.5% and like the rev, it's capturing does not change, but, you know, the market like, you know, inflows basically buys an

• 1:18:17Speaker 00

  additional 100 billion of ETH staking and the yield goes from 3.5 to 2.2 or whatever, that's. RSOV positive, right? It's just the market saying, we actually perceive this to be lower risk. Like, we like the deal at 3.5%. We're gonna buy it at 3.5% and we're gonna buy it all the way down to 2.2%. So it's really, you know, higher staking yield is one way of expressing the incentive to stake, but you know, it can also be just the change in how the market views the asset relative to others. And so positive inflows grows RSOV. And the same thing is true in DeFi, right? It's positive inflows into the asset, you know, using the asset as a deposit asset in DeFi

• 1:18:59Speaker 00

  for collateral, for liquidity, more usage, higher yields to incentivize that usage, all help RSOV. And the other two things here are derivative of this framework, which is growing asset issuance across the network, right? Because to be used in DeFi, it has to be paired with another asset. It's the same principle as, you know, the value of the money is zero if one person owns it. If more people own it, it can become more valuable. ETH has to be paired with stable coins, with tokenized BTC, with, you know, Bittle, tokenized money market fund. It has to be paired with these assets in DeFi to become valuable. And so as more of those assets become available on chain,

• 1:19:43Speaker 00

  that can't, that's a sort of leading indicator of potential future use of the asset in DeFi. And then the last thing again is like reliable issuance policy, hardened protocol rules, an ease to verify chain. These are what I would call monetary attributes that highlight the strengths of digital crypto money relative to analog, physical government money.

• 1:20:08Ryan Sean Adams?

  Okay, so I mean, the bottom line for RSOV, it's specifically, it's an on-chain, it's a measure of on-chain store of value use of the layer one asset. So it's not really measuring off-chain stuff that we can't see. For example, if there's an ETH collateralized loan somewhere in Coinbase or somewhere in, you know, God forbid Celsius, like back in the day, or BlockFi, that's not going to be captured in RSOV, that's off-chain. But what we're Really measuring is because these are smart contract platforms, other L1s that aren't Bitcoin. We're measuring kind of growth of the layer one asset inside of the on-chain economy. So what you want is more growth. You want more ETH DeFi pairs or sole DeFi pairs, like depending,

• 1:20:53Ryan Sean Adams?

  or collateral loans backed on it. You want to grow the economy and that's the primary driver, but not the only driver. The other driver is sort of, do people in general want to store their value and their wealth inside of these assets as they do with Bitcoin today? And Bitcoin is certainly solidified, you know, that case because you think of it from a staker perspective, right? If you are staking your ETH, the yield really doesn't matter, does it? Because it's ETH denominated, it's only a few percent per year. Well, you're really taking a position on how valuable is this ether going to be in the future? If you're making three or 4% per year.

• 1:21:31Speaker 00

  You're getting to some, for sure.

• 1:21:33Ryan Sean Adams?

  But you know, the value of ETH decreases 90%. Like, what are you doing here?

• 1:21:36Speaker 00

  Your 4% worth, absolutely. That's the risk reward. That's why we focus on staking and that's why we focus on DeFi use, right? Like, if you think about staking, someone buys ETH and they, you know, they're staking it to collect the yield. They're expressing a monetary view, right? They own this monetary asset and they're holding it for the long term. They're throwing their wealth in it and their risk reward is not, they're not doing that because like, they're not earning 4% in dollars terms, right? I mean, that's the cost of capital right now. Anyway, they're doing it because they think the aggregate demand for this asset, which is fundamentally a money, meets the definition of money, is going to grow. And specifically, what we're focused on is the store value demand, because that's the long-term demand that like accumulates in the network over time.

• 1:22:19Ryan Sean Adams?

  Well, it's almost like this, Jonah, that with these layer one blockchains, we've created kind of two products, right? We've, we've created Blockspace as a product and that's expressed in DCF and Rev as we've talked about. But then we've also created another product, which is a uncensorable, non-state, non like sovereign store of value asset. And it's like those two products kind of have their own like different supply. Demand dynamics, and this should not really be a surprise because it's completely obvious that that's how it works in Bitcoin. Bitcoin has a massive amount of demand for its asset, for Bitcoin the asset. Okay, it has a very small amount of demand for actually the Bitcoin blockchain.

• 1:23:04David Hoffman?

  So the point of it might be a problem.

• 1:23:06Ryan Sean Adams?

  It's, yeah, to the point, it's security budget, it could be a problem at some point in time, but no one tries to do a rev DCF of Bitcoin. And I guess if we have these two products, and that's kind of the worldview that RSOV sort of has, but you know, part of my question is, you know, it may not be the case, right? I would think, Jonah, that all layer ones will cross the chasm of becoming valuable from an RSOV perspective. So just yesterday, earlier this week, we saw a hack on the Sui chain, again, a layer one asset. And what it ended up happening, so the hacker goes and actually withdraws $60 million of Sui, brings that to ETH, market buys ETH, right?

• 1:23:51Ryan Sean Adams?

  And is on the Ethereum blockchain, you know, in an effort to protect the hacker's wealth. Okay, this is a hacker use case, it's not great, but to, you know, protect its wealth. And what did the Sui validators do? They basically froze the remaining hacker wealth on the Sui blockchain. Okay, that to me does not meet the criteria of a non-stovern store of value. And so maybe something like Sui, if it's centralized, should be valued on a DCF rev model.

• 1:24:19David Hoffman?

  And you can take that same occurrence with a Sui, like this, the Sui validators censored the use of the Sui currency by an attacker. And we can take this to the invasion of Russia into Ukraine. And what did the United States do? It censored the holdings, the United States Treasury holdings of Russia. And Russia started to have to figure out how to navigate around that censorship by the Federal Reserve. And then China looked at that and I was like, ooh, I don't like that, especially in the context of Taiwan. And so now I'm going to sell United States Treasuries and buy gold. And so you can see that same level of censorship, causing, I don't know if we can use RSOV in

• 1:25:01David Hoffman?

  the international treasuries, reserve asset context, but you can see the same thing happening there, where like, okay, like, there was opinionated censorship of this asset, maybe I shouldn't store my value in it.

• 1:25:14Speaker 00

  So I think, David, you said it, which is it's the sui currency. And you know, the question here is, just because if the US censors, you know, some actors access to the dollar or dog, does that mean the dollar is no longer a currency? And I think the answer to that is of course not. So sui, the validators censor transaction activity. Sui is still currency because of how it's used and like the role it plays on the blockchain. But the fact that it can be censored maybe just means it's not very good money. Doesn't mean it should be valued on a DCF because it's still a currency. And what drives the return here is people buying it with their other currency. It's the inflow.

• 1:25:56Ryan Sean Adams?

  So that's you're saying.

• 1:25:57Speaker 00

  It's still money, it's just bad money.

• 1:25:59Ryan Sean Adams?

  It's still RSOV, but it will probably lead to a decrease of RSOV.

• 1:26:05David Hoffman?

  And I think this also kind of illustrates the tribal dynamics inside of crypto Twitter where Bitcoin and Bitcoiners have always been a fan of like stripping all utility out of the Bitcoin blockchain. They actually want revenue to go down because they prefer their Bitcoin, the value of the Bitcoin to be as a close to 100% RSOV emphasis as possible with zero coming from the DCF. They think any amount of like cash flows into Bitcoin dilutes the monetary base of Bitcoin. And so they've stripped utility out. And then on the opposite side of things, you look down the market cap stack, down towards Solana, which is a big fan of REV as an ecosystem. And then even further down, you see more emphasis on trying to get revenue, trying to get demand for block space,

• 1:26:48David Hoffman?

  trying to grow fees for the block space, the further down the market cap stack you go. And so on Bitcoin, you have the realized cap maxis. Down the market cap stack, you have like the REV DCF. I'm not going to call them maxis, but people who emphasize this. And this has always been the thing about Ethereum where Ethereum has tried to always do both. It's tried to generally speaking, be a synergy of many things in crypto. It wants to be a layer one store of value. It also wants to have the burn. And so this is where the valuation metrics, where people want to pick a tribe, like I am in the REV side of things. I believe REV is good, or I'm in the like. Layer ones are digital gold or Layer One SOV camp. And Ethereum is always trying to do both.

• 1:27:30David Hoffman?

  And I think that fact kind of breaks people's brains because they want things to be simple and they want to pick one. But Ethereum has always tried to go for both. We do want the burn. The burn is good for our SOV. Our SOV is also good for the burn. And so it kind of works both ways. And I think that like ties a knot in people's brains because they can't really accept both at the same time.

• 1:27:51Speaker 00

  Yeah, I would say all these chains in the SOV view like accrue value in the same way. It's about people selling dollars to buy the token and hold it long term. And so when you have a higher staking yield, right? You can you can you increase the incentive for doing that. And you increase the incentive for using it in DeFi and creating all these DeFi opportunities. And having the smart sort of DeFi developers create new market mechanisms and like, you know, sort of yield money making opportunities and all these things. But so these all accrue value fundamentally in the same way, which is it's about net inflows. And one way you can think about sort of, again, because the yield, the staking yield for any given chain, really there's two drivers.

• 1:28:36Speaker 00

  There is the value being captured by the validators from transaction activity. And there is the net like the realized value, like the net inflows, right? Like it's how many tokens are staked. And so the that value being captured can be flat. But if the net inflows increase and the yield goes down, just like a bond. So, you know, one way to interpret the yields as they exist today on all these L1 tokens and then Bitcoin with no yield, right? Actually, could you could also look at it as negative yield because you're being diluted as a Bitcoin holder? And I know there's only 21 million, but for the next You know, 100 years, there's emissions.

• 1:29:17Speaker 00

  So one way you could look at these yields on the L1 token relative to Bitcoin is that it's how the market, it's not just how much value they're capturing, it's how the market is valuing that yield. It's the demand for that monetary yield, the rev in the monetary context. And a lower yield indicates lower monetary risk. Chain has to pay a higher yield to attract inflows because, again, the lack of realized value there indicates that the market does not express the same demand for maybe something like ETH or SOL. So, so higher yield also means market is perceiving higher risk.

• 1:29:58Ryan Sean Adams?

  There's one other thing I think analysts say when you talk about L1s, and it's basically this idea, if there's a cash flow, it should be valued based on cash flows. And so I think what's happening in Wall Street right now is they see cash flows with everything aside from Bitcoin, and so they start valuing these crypto layer one networks based on cash flows. What would you say to that?

• 1:30:22Speaker 00

  I think that's such a lazy assertion. Because if you ask anyone on Wall Street, like, if you show them a validator, they're gonna be like, okay, I'm getting paid in more ETH. Like, you're not getting paid in dollars, you're getting paid in more native token. So that is not cash flow, like a company compounds non-native cash. That is something else. That is a native yield. And the assets used as money, it's valueless if you own the entire thing. So I think, you know, you can't argue that this thing, that the staker yield is cash flow, and then when I say, okay, the thing that is being used to pay the cash flow is money, is cash, and you're like, no, that doesn't make sense. It's like, if you call it cash flow, then it's money. Because you're only getting paid in more ETH, SOL, whatever.

• 1:31:07Ryan Sean Adams?

  Yeah. And let's remember, there's a lot of-

• 1:31:09Speaker 00

  I think I understand why people want to cling to that because for equities, DCF is obviously the right way to do it. It's the fundamental value. And that, I think, is, we want to be trending towards more fundamental valuation here and analysis and discussion 100%. But I think you're trying to fit a square peg in a round hole when you apply a DCF to an asset that is money.

• 1:31:35Ryan Sean Adams?

  Traditional investors should remember as well, there's tons of traditional assets that can't be valued based on DCF. Try to DCF gold, try to DCF oil, try to DCF the euro. Guys, there's a lot of other assets that can't be DCFed. World is bigger than equities. Yeah, you're making the argument that L1s are one of those assets as well. Jonah, this has been great. Okay, so hopefully, we're getting the idea of RSOV out there. I think maybe you could give us your perspective on what you hope happens next because this is almost like a V1 version of RSOV. I'm sure the metric could be improved in various ways. What do you hope analysts kind of take away from this? And where do you hope RSOV goes from here?

• 1:32:20Speaker 00

  Yeah, so there's two things I think we're hoping for. The first is absolutely, this is a framework. This is an outline of the elephant. And we want more input from more analysts, particularly around identifying store of value usage that maybe this framework does not capture, that we can still measure. So maybe it's ETF inflows or something, right? Maybe there's another behavior on-chain usage of this asset as a store of value that we missed and that we can measure. And so in the show notes, there's a link to this Dune Dash where you can see the RSOV that we track for a whole basket of Letter One tokens. You also see there in the right-hand side section about RSOV framework, and we're including

• 1:33:05Speaker 00

  this in the show notes as well, there's an Excel template. So you can download it, you can experiment with it, you can sort of see how this works from a valuation standpoint. And again, the hope is for analysts to make optimizations, improvements. Add me, sort of tag me on Twitter, DM, email. We want to continue this conversation and we want this to be a conversation that sort of improves. The second thing is You know, the, the community of data scientists and providers of data services in this industry, the Artemis, the Blockworks, DeFiLama, like, we got this data through a lot of our own hard work. You know, DeFiLama was, was helpful. They gave us an API, you

• 1:33:50Speaker 00

  know, for token usage and we used that to sort of build out some of this data and, and, you know, but otherwise we had to do a lot of sort of first-person research. And it would be great if the sort of data platforms of the industry can help us improve the quality of the signal we have here, can help, you know, sort of help mature the signal or the data that we have and the data pipelines and make it easier for other people to access this and make it more reliable.

• 1:34:17Ryan Sean Adams?

  That's the call to action, everybody. So all of, all of those Dune dashboards, a way to contact Jonah, his Twitter, all of that will be in the show notes for you guys to, to go connect with him. Last thing, Jonah. So I think some people listening to this on the Bankless Podcast might assume, all right, well, it's Bankless. Of course, they're, we want to popularize this new metric because it's, you know, they're ETH bulls and they love ETH. And maybe Jonah is kind of an ETH maxi. And so he came on to like, you know, do that. Tell us about Skycatcher, because I don't think you guys are, I mean, you invest in a variety of crypto layer one assets. You know, tell us how you came up with RSOV. Was it sort of tribal and maximalist? Or was there another vantage point here?

• 1:35:01Speaker 00

  No, we're, we're Channagnostic. So I can give you some background on Skycatcher, which is an investment firm really focused on bespoke opportunities at the internet frontier. And we're across asset classes. So public equities, private, crypto, you name it, you know, it doesn't matter. We're across asset classes. And so we run a very concentrated strategy. We're super obsessive about our research process. We're very data-driven. And we're really all in with this. Like, we're all in with our net worth, mostly investing partner capital, you know, select few limited partners. But, you know, we're building a super high-performance boutique investment firm. That's how we do this. And that's our, that's, we wake up and do that every day. And so I joined in 2022 to lead our crypto strategy. So our view has always been very data-driven, very fundamental-focused.

• 1:35:48Speaker 00

  Very chain agnostic, right? And so a lot of our crypto investing is at the app layer where we can do DCF and it makes sense. And as we sort of work down the stack into the infrastructure, into the L1 tokens, we had to do a lot of real sort of research and first principle thinking about what really makes the most sense here, what is the bet we're making? And so we came up with this framework, we shared about, you know, we shared it a little bit of it last year and you picked that up and you know, super really appreciate you guys reaching out and having the opportunity to share sort of our thinking on valuing layer one tokens.

• 1:36:23Ryan Sean Adams?

  Okay. And then last question, because I just want your subjective opinion here, right? So, so when you look through the lens, crypto assets, through the lens of RSOV, what looks attractive to you? Because some might still say Bitcoin's this special snowflake, it's going to get all of the RSOV. What do you say?

• 1:36:41Speaker 00

  Yeah. Well, again, we can be impartial and then as investors have really strong views. And so, you know, when you look at Ethereum relative to Bitcoin, it's 15% of Bitcoin's market cap or something like that. And I think the probability, our view, that it surpasses Bitcoin or even reaches sort of, you know, equal level of inflows as a monetary asset, it is much higher than 15%. It could be 40%, 30% plus. And then when you look at the sort of bottoms ups, that's the big picture. And then the individual like product level catalysts here, you know, real time proving, coming to market, that opportunity is super exciting. Like I said, the base roll up opportunity where the layer one is doing more work, you've

• 1:37:23Speaker 00

  got real conversations, you know, with the leadership change around scaling the layer one, making it more capable, shortening block times, all of that could very, you know, all of that could lead to a huge jump in ETH staking yield, which could attract a number of inflows. And I think when you look at ETH relative to everything else, it is clear, like it really differentiates itself on these monetary attributes that it's not, you know, censorship persistent, it's very low inflation, it's, I think it's like 85% of on-chain finance can be built on, on EVM where ETH is sort of accepted as a base asset. So again, relative to Bitcoin, which relative to finance or fiat monies overall, like it just looks really, really undervalued.

• 1:38:06Speaker 00

  In our view, and so we're pretty heavily concentrated on that ecosystem.

• 1:38:11Ryan Sean Adams?

  There you go. Jonah's saying there can be more than one snowflake, though every snowflake is special in its own way. Jonah, thank you so much for joining us and continuing the conversation with this metric.

• 1:38:21Speaker 00

  Thank you for having me.

• 1:38:22Ryan Sean Adams?

  Bankless Nation, gotta let you know, of course, crypto is risky. None of this has been financial advice. You could lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.