SotN#25 - Road to Ethereum 2.0 w/ Ryan Watkin & Wilson Withiam of Messari

Get the report: https://messari.io/road-to-eth2 ----- 🚀 SUBSCRIBE TO NEWSLETTER: http://bankless.substack.com/ ✊ STARTING GUIDE BANKLESS: https://bit.ly/37Q17uI ❤️ JOIN PRIVATE DISCORD: https://bit.ly/2UVI10O 🎙️ SUBSCRIBE TO PODCAST: http://podcast.banklesshq.com/ 👕 BUY BANKLESS TEE: https://merch.banklesshq.com/ ----- GO BANKLESS WITH THESE SPONSOR TOOLS: 🚀 ZERION - INVEST IN DEFI FROM ONE PLACE (download it now!) https://bankless.cc/zerion 💳 MONOLITH - GET THE HOLY GRAIL OF BANKLESS VISA CARDS https://bankless.cc/monolith 🤖YEARN - YIELD-SEEKING MONEY ROBOT THAT FARMS DEFI FOR YOU http://bankless.cc/yearn ------ State of the Nation #25 The Road to Ethereum 2.0 With Ryan Watkin and Wilson Withiam of Messari Ryan Watkins and Wilson Withiam lead the effort behind Messari's 'The Road to ETH 2.0' report. Both Ryan and David agree: this is the best piece of literature that has ever been produced about Ethereum, ever. This report will serve as an accurate guide to the uninformed as to the nature of Ethereum and the types of economies it can support. Get the report from Messari here: https://messari.io/road-to-eth2 We bring Ryan and Wilson on to discuss the production of this report, and some of the decision-making that went on behind the scenes. ------ Don't stop at the video! Subscribe to the Bankless newsletter program http://bankless.substack.com/ Visit the official Bankless website for resources http://banklesshq.com/ Follow Bankless on Twitter https://twitter.com/BanklessHQ Follow Ryan on Twitter https://twitter.com/ryansadams Follow David on Twitter https://twitter.com/TrustlessState ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time we may add links in this channel to products we use. We may receive commission if you make a purchase through one of these links. We'll always disclose when this is the case.

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

• 0:00David Hoffman?

  The.

• 2:10David Hoffman?

  The.

• 4:20David Hoffman?

  The.

• 8:01David Hoffman?

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• 8:46David Hoffman?

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• 9:29David Hoffman?

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

• 10:14David Hoffman?

  and you can also swap through Uniswap. What was cool with Monolith is that they will send you a very sexy Monolith Visa card that connects to your Monolith smart contract wallet on Ethereum. So it's a really awesome tool to live a bankless life with a savings account that gets software updates. So this is something that you're never going to find out in the real world, but you can still do real world things with real money, like buy your groceries. So that's just fantastic. Coming soon to Monolith, actually already here to Monolith, is now you can buy, die, and get it sent to your wallet directly, right? So it's also being an on-ramp. So you don't have to go through your centralized exchange like Coinbase or Gemini or wherever.

• 10:56David Hoffman?

  You can just go straight from your bank account right into your Monolith checking account smart contract wallet. So check them out at monolith.xyz.

• 11:09Ryan Sean Adams?

  Bankless Nation, welcome to another State of the Nation. This is number 25. David and I have already had a very full day, but it is an exciting day. This is the day that ETH2 launched. We are going to talk about that. We're also going to talk about probably the best report we've ever read on Ether in this space. And we're bringing on the analysts who actually wrote it, Ryan Watkins and Wilson Withiam from Messari Crypto. First, I want to ask you, before we get to the guests, before we get to the agenda, David, how are you doing today, man? Are you a little tired? You had to wake up pretty darn early to see the launch.

• 11:45David Hoffman?

  Yeah, I woke up at 3:00 in the morning because the ETH2 launched at 4:00 in the morning. But I went to, I was smart and I went to bed at literally 8:00 PM last night and somehow I managed to make that work. So I'm actually just like a bundle of energy right now. Like today's the day. Like today's the day that ETH2 is here and, and you know, thank God it got out the door with all systems, all systems go. It's like all the blocks were green. Everything went out without a hiccup. And so, you know, today's just a good day.

• 12:10Ryan Sean Adams?

  That was awesome. It was a lot of fun to livestream that. Guys, if this is your first State of the Nation, we do these every Tuesday. We stream them live on YouTube at 2:00 PM Eastern Time. We drop that in YouTube as well, but we also put it on the podcast so you can listen to it. And our goal here is to talk about what's happening right now. And right now, the story is all about ETH2. So today, we're going to be talking about this analyst report. It's called ETH2.0, the next evolution of the crypto economy, written by the folks at Messari Crypto. We'll introduce them in just a moment. But I think for me, David, this was like the first analyst report that I've read,

• 12:51Ryan Sean Adams?

  where I'm like thumbs up on the whole thing. I mean, most analyst reports about Ethereum that have come out over the years have been like... Garbage, like really

• 13:02David Hoffman?

  Wrong.

• 13:02Ryan Sean Adams?

  Miss, wrong, like, bad take. Don't, doesn't make sense. Uh, this one nailed it for me. I don't know. What's your take?

• 13:10David Hoffman?

  Yeah, and thi- this one nailed it not just on like the technical details because like even that is to generating a report on the technical details is a monumentous task in of itself. Not only because like understanding Ethereum 2.0 and the different phases to how to get there are is like, that's a hard ask. But also it always changes at the same time. And so, uh, so the, uh, Mizari has done a really good job of making, producing a report that actually like keeps up with all the changes. And in addition to that, there's also just conversations of like the social contract and the political philosophy. And, and kind of got pretty meta with about the philosophy of Ethereum and, and this, the ethos of Ethereum, which I really, really enjoyed.

• 13:51David Hoffman?

  And it's integral to understand what that is to, to understand Ethereum. And they did a really good job with that.

• 13:57Ryan Sean Adams?

  Yeah, we are going to dig into it. Also, a few things that are new, of course, our ETH2 livestream that we're just talking about, David. That happened at 3:30 your time this morning. That is now archived on our YouTube, but, um, a lot of, like, a lot of folks tuned in for these livestreams. So we had a livestream on Bankless, ETH Hub had a livestream as well. There's some, the Reddit ETH Staking Community. And it felt like between all of those livestreams, there were like 6,000

• 14:24David Hoffman?

  Yeah.

• 14:25Ryan Sean Adams?

  Plus attendees, participants who witnessed the launch of ETH2 Genesis Live.

• 14:30David Hoffman?

  Yeah, that is the largest single event, at least Ethereum event, based on viewership that I've ever seen. Like, I've never seen like six, five or 6,000 people all like watching the same thing. And that was just the people that were watching on YouTube, right? Like, other people were watching it from, like, just watching their own nodes at home, right? And so like, as far as events go with Ethereum, biggest event ever.

• 14:51Ryan Sean Adams?

  It was super cool as well. So that is archived. If you guys want to check it out, we'll put in the show notes. Also, our Balaji podcast came out on Monday. Man, that that was hot. Dude, I remember recording that and I was doing it like it's like after it was like between 12 and 1 o'clock in the morning my time. And we just kept going because the conversation was so inspiring and so interesting. What what was your big takeaway from that?

• 15:15David Hoffman?

  Yeah, the recording that was was a ton of fun. We actually had to record with Balaji twice because like we recorded about an hour and a half, except we still had so much left to go and he had a meeting to get to. And so he went to the meeting and then he came back and we recorded to finish it off. So and I think I got this line from you, Ryan. So I'll steal it. Back in 2010, it was crazy to like, consider Bitcoin as like a new money, right? And so like, even if you believed it, like, speaking about it to your friends was like harebrained. It's a harebrained idea. And so like, but now Bitcoin's money. Now Bitcoin is just like understood by the world. So what's the crazy harebrained thing in 2020? And Balaji has an answer to that question. It is, let's make a country. Let's make a nation. First, let's make a nation in the cloud, and then let's figure out how to make it real in real life.

• 16:01David Hoffman?

  And so we had a two and a half hour like epic conversation with Balaji about like, how are we going to go from just like a group of people who are interested in this project to like actual real land somewhere, building a real country? So that's I think that's like the the new crazy topic of the decade that I think maybe in one decade from now, this will be a normal conversation.

• 16:22Ryan Sean Adams?

  That's the teaser. And Balaji brings a lot of credibility to it because he tends to see these things about 10 years in advance. It's like he's from the future. Also, David, speaking about the future, tomorrow, you've got a Mazzari event. Are you guys going to be talking about this report as well? Or what's that event about?

• 16:40David Hoffman?

  Yeah, I think I think we'll talk about this when when the boys come on in a sec. But I think the gist is like, there's just so many different things that are new with Ethereum 2.0. And so Mazzari is throwing this event tomorrow, which I'm speaking at with Kami Russo and I'm forgetting her name. Oh, no, the who wrote the who wrote the with Colin, the Mara Mara Schmidt.

• 17:05Ryan Sean Adams?

  Yes, Mara, absolutely. She's fantastic. She wrote the Ether Bonds paper.

• 17:08David Hoffman?

  Yes, right. Yeah. So that's just gonna be a really fantastic conversation, like kind of trying to get a grasp on like, how does how does new economics work in Ethereum 2.0? Really important conversation.

• 17:19Ryan Sean Adams?

  Awesome, man. Okay, gonna introduce the guest in just a moment, but first I've got to ask you the question we always start with, David. What is the state of the nation right now?

• 17:28David Hoffman?

  The state of the nation is launched, past tense, past tense, because it already happened. It happened this morning. We are launched, right? So Ethereum 2, it's launched, like, we don't, there's no double meaning here. This isn't that creative. The state of the nation is launched.

• 17:44Ryan Sean Adams?

  And that is pretty exciting in and of itself, right? A lot of these sorts of things fail on launch. We've actually seen a number, like, one of the major test nets. Just kind of the rocket died on the launch pad and tipped over and exploded, right? But this time, for main net, the rocket took off, it cleared the atmosphere.

• 18:03David Hoffman?

  When it mattered.

• 18:04Ryan Sean Adams?

  We're on our way to the moon, I guess, somewhere. Destination unknown. We'll call it the moon. All right, awesome. State of the nation has launched. Now, we want to bring on our guest to talk about this epic report. How many pages is this? We're gonna have to ask the guys when they come on. Seventy-page report, all of it is gold. We'll dive right into it. We want to introduce our guest, Ryan Watkins, because there's two Ryan on the podcast, we're gonna call him just Watkins, if he's okay with that. And also, Wilson Withiam, these are the brains, the analysts behind this epic Ethereum report. Gentlemen, are you with us? How are you doing today?

• 18:43Speaker 02

  Hey, what's going on, guys? You doing well?

• 18:47David Hoffman?

  Hey, guys. Welcome, welcome.

• 18:49Speaker 02

  Yeah, yeah, excited to be here.

• 18:52Ryan Sean Adams?

  It is great to have you. Awesome. Well, we're gonna dig into it. So first, we just want to say, like, nice job on the report. If you didn't hear our intro, we're big fans. Like, you did a fantastic job. I'm just curious, how long did this take you to put together? Was this something that was like, like, months in progress? Or, you know, did you, did you finish it on, you know, the weekend before?

• 19:18Speaker 03

  Yeah, well, we definitely finished it the weekend before.

• 19:20Ryan Sean Adams?

  Okay.

• 19:21Speaker 03

  But, but yeah, we, we worked on this for, for probably about two months now. Uh, I guess originally we were working towards the kind of like November sixteenth ish, uh, launch date for the Decon chain. Uh, but then, you know, once I got pushed back, actually, you know, lucky enough gave us some time to, you know, put in a little bit of thought to report and, you know, end up taking about two months. So, uh, you know, by far the most research I've done on anything in crypto, which is a ton of fun.

• 19:45David Hoffman?

  So when you guys, sorry, uh, Wilson, go ahead.

• 19:48Speaker 02

  Uh, it was perfect timing for the, for the BLST audit to come in last minute to just give us that little extra time so they could bump it up from like a 30 page report to.

• 19:56Ryan Sean Adams?

  All right. So what Wilson's referring to here is he got an extension on his paper, basically, because ETH2 was delayed a little bit in November. Some people thought it would come Thanksgiving weekend and there was, um, a kind of a, an audit that was sort of pending for some BLS crypto signatures. So you guys got to re-prove in a few more weeks to finish it up, right?

• 20:19Speaker 03

  Yeah, exactly.

• 20:21David Hoffman?

  So when you guys first started chewing on like producing this report, what were, what were some of the initial like motivations? Like why, a- apart from just like providing, making information available as part of Mazzari's business model, like what, what really specifically about an ETH2 report was really attractive for, for you guys in Mazzari?

• 20:39Speaker 03

  Yeah. Uh, so I guess I'll, I'll start first. Um, I think what was, what we really wanted to do with this report was, you know, we looked out on what has been written on E2.0 so far. We've seen really great technical deep dives. We've seen really great economic deep dives, uh, but we really wanted to create a report that combined all of these different elements as well as touched on some of the more like philosophical and historical elements of Ethereum 2.0 that we think are like critical to understanding what is actually being built, why it's being built and where Ethereum is, is going. And to put that all in, in one report, uh, is, is really what we were, we're looking to do.

• 21:22Speaker 02

  Yeah, that it was exactly what Watkins was saying. Trying to put something together that really kind of took away. There were a lot of misconceptions going into what ETH 2.0 can be. It's this major upgrade, really trying to break it down into a very simple, but descriptive report as far as what's going on. So people have a good idea of what is happening now and what's to come and what are the implications for it. So really covering all of our bases in a very easy to read and digest manner.

• 21:57David Hoffman?

  So we're going to open up the report and talk about some graphics and components of it that we thought were particularly interesting. But before we do that, I want to ask about the decisions to include like political philosophy and like social consensus and a social contract in a report, right? Because this is, this is not something that you will ever find in a, in a legacy report about a legacy equity market company or whatever. Like there's no political philosophy of like Tesla or Amazon, right? And so this is something that I think, you know, legacy people or institutions, quote unquote, people that are trying to like peer in from the space from the outside in, they might open up this report and be like, why is there political philosophy here? So maybe like you guys could add some perspective as to why you thought it was important to

• 22:42David Hoffman?

  add in like some of the social aspects and or social narratives around these blockchains.

• 22:46Speaker 03

  Yeah, no, it's funny because Wilson and I were like literally just talking about this yesterday about the differences between writing a report, you know, say at an investment bank, and it's pretty much just very descriptive, very dry, to the point, you know, what are the numbers, et cetera. And no, you don't really need to dive that deep into what is the political philosophy of just Bezos to understand Amazon. But with blockchains, it really is a different story because blockchains aren't just technology, they also are institutions. And they're institutions that are, you know, encoded with different values and were created for, you know, different purposes. And we thought that like it was really important with this report, like if you really wanted to appreciate what Ethereum is and

• 23:32Speaker 03

  Kind of like the underlying design principles for Ethereum 2.0. It's really important to understand these philosophical components, right? To understand, and I think another thing that was also pretty interesting is that with Bitcoin, there's been a ton of content written on what is Bitcoin's social contract? What are Bitcoin's values? And these ideas have actually seeped into mainstream consciousness as well. Like when you hear about, you know, Michael Saylor or any of the major Bitcoin bulls, including some institutional investors, like they will touch on some of the, you know, core elements of Bitcoin's social contract.

• 24:14Speaker 03

  If it's 21 million, it being immutable, censorship resistant, decentralized, like all these different things. But for whatever reason with Ethereum, there's this perception because it keeps changing its narrative and because it's always evolving, that its social contract is kind of like nebulous or it's just weak. And that's not necessarily true. Like there are like very consistent values that Ethereum has had and continues to have that the community agrees upon and that kind of keep the Ethereum ecosystem together. So that was like really important to start, you know, upfront, really right after introduction with what is Ethereum actually and why?

• 25:00Speaker 03

  What are we all doing here?

• 25:02David Hoffman?

  Wilson, you want to add anything?

• 25:04Speaker 02

  I mean, that it broke it down perfectly. I think really trying to get to understand what Ethereum is, you have to understand, you know, where it kind of comes from and what are its key principles? And so that's why we kind of lined it up right there. Not only the philosophy going into why it was built, but then the principles of what Ethereum 2.0 is supposed to bring. And it goes into its design, why it took so long to come, why it took seven years of research to get to where it is. Because they didn't want to sacrifice decentralization for all of these different upgrades that they're looking to make. And that was core to its, to its design, to its, to its social contract going forward.

• 25:45Speaker 02

  So really kind of understanding that concept was key to diving into the rest of the report.

• 25:52David Hoffman?

  Fantastic.

• 25:52Speaker 03

  Yeah, and I think like one thing I'll also add is that. Like, these concepts of Ethereum social contract, it's not just like some kind of ideological appeal to people. Like, these ideas actually underpin many of the desirable properties about blockchains. Like, making it so that they are globally accessible, making it so that they are unable to be censored. Like, pretty much everything that makes like a blockchain interesting is enabled by the fact that you have these like core ideas that actually become real when they're manifested in like the design of a blockchain.

• 26:32Speaker 03

  So, uh, yeah, it's not just, they're just, you know, trying to tell everyone like why, you know, what we believe in this industry, but to actually get them to understand like why this stuff is important in the first place.

• 26:45David Hoffman?

  So I would imagine that like the, the research process, because of this difference, the research process for producing this report was probably also like different. I don't know what your guys' backgrounds are with producing reports of this nature. But I would imagine if you did have experience that this particular report was perhaps different than reports you've produced in the past, specifically based off of this like attempt to talk about the political philosophy and, and the ethos of a blockchain. So, so maybe talk about just the research process at large and also maybe any of the differences as a result of this unique nature of what Ethereum is and how that impacted the way you guys came to coalesce the report.

• 27:25Speaker 03

  Yeah, so I think a lot of the research, I mean, it's been like years in the making, especially on the more like philosophical and historical aspects of Ethereum and Ethereum 2.0. I mean, and that's, you know, years of, you know, reading some of the content that you guys put out, like reading all of Vitalik's blog posts, reading or watching all the interviews that Vitalik and, you know, various members of the Ethereum Foundation have, have given to, to really get a sense of, like, how, how are they thinking about Ethereum 2.0? So, in, in that respect, like, it, it wasn't, wasn't unique. I mean, it is similar because you're just finding information and synthesizing and putting it to a report.

• 28:08Speaker 03

  But, uh, again, I guess like another thing is that, uh, you know, you, you also have to... Understand some of these ideas, like what is a social contract in the first place? For example, so we actually had to do some research on, okay, well, what is a social contract? And how do we actually express this idea and report that may actually be like palatable to people who come to this space and just think this is just a technology. I've never heard of this concept of a social contract and especially applied to Ethereum. It seems crazy. So yeah, those are kind of the differences.

• 28:47Speaker 02

  Yeah, I it was, um, it's kind of interesting because I was drawing a little bit more on like experience. Because when I first, I mean, I'm, I guess I'm relatively new. I really got into crypto back in 2017, so typical bull run bandwagon fan.

• 29:01David Hoffman?

  Right there with you, brother. September 2017.

• 29:05Speaker 02

  Yes, exactly. So yeah, same time. So I, uh, it, when I first came in, I was particularly drawn to Ethereum. And so that's kind of where I went. I started helping teach classes about people how to develop smart contracts. And, um, so it was kind of like this, uh, this ecosystem of like acceptance. And, uh, what I, and it was kind of like a pragmatic approach to everything, which is what I found very, very interesting going in. So kind of drawing on that and that kind of culture around what Ethereum was. And then the other part was really diving into not only the, a lot of the historical pieces that Vitalik put together six, seven years ago, but listening to a lot of the podcasts to try and get a deep understanding of

• 29:51Speaker 02

  what it was kind of like going through this process. And so I, in some cases, I was diving deep into Reddit threads of stuff that was happening like back in like 2014, 2015. And seeing kind of like what, what, how were they saying, how were they acting? What was the community like at that time and how it evolved over time? Which I've just, it was fascinating to kind of dive into the history of how everything has evolved over time, both Ethereum as we know it now and, and you know, ETH two and where it's going to go from there.

• 30:19Ryan Sean Adams?

  I think what you're saying, Wilson, is super interesting because this is not how a traditional institutional investor would go collect data, right? They are not going to go to the Reddit threads, or the old Vitalik posts, or the Discord channels, or Twitter. You know, heck, you know, we have some probably institutional investor exposure at Bankless on like Substack and YouTube, but it's not necessarily their channel either. Like, we don't package it in a way that institutional investors, like Dave and I don't wear suits generally, right? Like, so, but the way this is packaged is it's very appealing

• 31:03Ryan Sean Adams?

  to the institutional investor, I suppose, or the traditional investor who is used to reading like analytic-heavy, data-driven sorts of reports like these on other traditional assets. I want to ask a question about who this report is for. Is that kind of who it's for? It's obviously for the crypto community and anyone who is investing in crypto, right? They're going to read this report. Everyone who is reading Bankless should go read this report, obviously. But also, outside of that, are you guys trying to reach a new audience? An audience that may be like Paul Tudor Jones of the world. They have, they understand the Bitcoin narrative,

• 31:44Ryan Sean Adams?

  and now they understand digital scarcity, but they don't yet understand Ethereum. That was my guess on who you're trying to reach after reading this, but why don't you tell us? Who's the target market for this kind of a report?

• 31:58Speaker 03

  Yeah, so, I think, well, we wanted to create this so that it was accessible to have as many people as possible. So whether they be a user of Ethereum, or an investor, or someone who's building, or a service provider in the space, we want to have insights that would be helpful for all these different groups to navigate the space. But yeah, I mean, definitely something that we definitely considered. Probably like one of the first things we considered was actually, how do we like really communicate? What's special about Ethereum to this more like institutional, like more professional

• 32:41Speaker 03

  audience that now is comfortable with Bitcoin, now understands the value proposition of Bitcoin, but has not yet been able to grasp Ethereum because of how kind of like expansive the idea of Ethereum is. And, you know, I think when we're thinking about like how to like craft this report, you know, one of the things like when people think about the smart contracts market, and I'm sure like Wilson can elaborate on this, you know, a lot more is that, you know, when people think about smart contract platforms, they think, one, they are like utility platforms, like they just, you know, and it's all about how much transaction throughput it has, it's all about how scalable it is, like, all this stuff that, like, yes, does

• 33:26Speaker 03

  matter, but is probably about like less than half of the picture of actually matters with these, these blockchains. And to understand, you know, why those things are everything, it really was important to really like touch on, you know, kind of that first section on philosophy and history, to really like talk through the different design decisions that the Ethereum team made for Ethereum 2.0, to highlight like why that's important. So, you know, hopefully it was written in a way that, you know, someone with that more like professional background will be able to appreciate, you know, with how it's written.

• 34:08Speaker 02

  Yeah, and exactly what you're saying on the institutional side, people from outside of Ethereum trying to get familiar with it, but I think it had a little bit of something for everyone, in a sense. So you can kind of get a sense of the history of the philosophy behind it. But I had a lot of talk on the monetary policy of ETH that that walked us in a lot of phenomenal work on. So if you're looking as from an investment standpoint, those are some key critical parts that you definitely want to check out to understand what's coming forward for Ethereum. So, yeah, that was definitely one of the key things we talked about going in is who is this going to be for? How are we going to really structure this and write it? Obviously, we want to make it very approachable, but at the same time, have something where people have some key takeaways that they can make decisions on going forward.

• 34:54Ryan Sean Adams?

  Very good. All right. Well, with all of that, I guess, setup, we want to get into some of the meat of the report. And I like what you were saying, Wilson, about sort of, you know, not just talking about kind of the the the network side of things, but also talking about issuance and ether as an asset, because I think a lot of people get, they have trouble separating the difference between Ethereum as a smart contract network and ether as a reserve asset for that network. Because in Bitcoin, it's a little bit one in the same. I mean, the purpose of Bitcoin is to, you know, transact Bitcoin and move Bitcoin around. So monetary policy is very tied into that. Anyway, we're going to get into all of that in the report. A few sections to cover.

• 35:39Ryan Sean Adams?

  Can we start here, though, which is the scalability trilemma? Maybe, Watkins, you could kind of describe what that is and why, why, like, what ETH2 does about that?

• 35:55Speaker 03

  Yeah, and also let Wilson hop in as well. But basically, the high level idea with the scalability trilemma is that there exists this trade off between these three properties of a public blockchain being it can be decentralized, secure, and scalable, but can't be, or it can only be one, like, two of the three. And, you know, different blockchains have made different trade offs to get those desired properties. And it's been this, you know, really tough problem to try and solve, especially for Ethereum, where it wants to become scalable, but doesn't want to sacrifice its security or decentralization.

• 36:36Speaker 03

  So one of the ways that Ethereum approached this problem is through sharding, which is, you know, one of the the major components of Ethereum 2.0's design. And the high level idea with sharding is that it involves partitioning the Ethereum blockchain into subsets of nodes, which can process transactions and store data kind of in parallel. And the reason why this is done is, and this is kind of tying back to some of these, you know, underlying philosophical aspects of, you know, why this was built, because Ethereum wants to ensure that, yes, while it gets scalability, that it is still accessible for people to run infrastructure for Ethereum.

• 37:18Speaker 03

  So that, you know, someone with a laptop or some other kind of Consumer hardware can participate in the consensus process and run an Ethereum validator is something that's very important to maintain the property that this thing is decentralized and accessible. And then probably another aspect about this kind of sharding component is that it also makes Ethereum accessible for users when it's more scalable. So, and then I think this is actually a really important point because if it's a case where transaction fees become extremely high in the future because block space is very limited,

• 38:02Speaker 03

  then practically speaking, the way that the majority of people who interact with the Ethereum blockchain would be through intermediaries that subsidize the transaction cost for them. And if that's the case, then all of these special properties of the blockchain don't actually flow up to end users. And that's kind of like a compromise on the vision. So scaling is important, not just from the perspective of, you know, kind of the supply side of people who run the infrastructure for Ethereum, but also the demand side so that people can directly interact with the Ethereum blockchain and really take advantage of, you know, all the special properties.

• 38:41Ryan Sean Adams?

  As we've said so often, the alternative to scaling the base layer in some way or having a trustless scalability solution is basically you have to scale by trusted intermediaries, as you're saying, so often crypto banks, right? We see Bitcoin doing a lot of this today, right? Transactions through Coinbase, more institutionalization. Hopefully that is not the path that Ethereum takes. But I noticed you kind of plotted these things in, I guess, different sides of the triangle here, right? And it looks like things that have strong decentralization with high security are sort of on the left and they're more conducive to money type use cases. So Bitcoin and Ethereum would be those.

• 39:26Ryan Sean Adams?

  Those that kind of make some trade offs with decentralization in favor of getting more scalability like EOS or a Tron or a Ripple. It seems like what you're saying in this graphic is they're not as conducive to non-sovereign money type use cases with bearer assets. Is that one of the ramifications of the scalability trilemma that you're drawing out here?

• 39:52Speaker 02

  Yeah, I think that has to be a part of it. The main purpose is they're making the accessibility to the base layer, whether as a node operator, as a user, or mainly as a node operator, very, very difficult, and limiting that. So when you have a limited number of node operators, obviously, that's just a high amount of centralization that you have in the network. And as we've seen with some of the cartel issues with EOS and obviously Tron, you know, there are some issues that can seriously bubble up there. So making that maximally democratic is maybe far more beneficial in the long term for any network.

• 40:34Speaker 02

  But it's tough to kind of meet that high level of security, something that Bitcoin and Ether have reached. And one of the main reasons behind why they're valued at where they're at is because they do have this high monetary premium right now, and they are kind of seen as these store value assets. At least, you know, some people, most do. But, so yeah, I think that's kind of why Bitcoin/Ether fell to one side and the others haven't, because they really haven't reached that point of how people kind of look at them as a store value asset.

• 41:12Ryan Sean Adams?

  Wilson, that sounds a little "Ether's money" of you, sir. Is that what you're saying?

• 41:16Speaker 02

  A little bit.

• 41:17David Hoffman?

  So we see a bunch of blockchains around the perimeters of this triangle, and then we see ETH2 at the center, right? And I feel like the reason why we wanted to start with this particular graphic is because this kind of illustrates the difficulty of like moving into the center. Like, this is called a trilemma for a reason. Jeff Coleman recently had a fantastic tweet thread that talked about like, "Why did ETH2 take so long?" And the answer was, "Well, because it's hard." And like getting into that center point where you have a nice balance of security, decentralization, and scalability, where you are working all the angles to maximize all three of these rather than having to make compromises, is why Ethereum 2.0 has taken so long to get out the gate, right? And so it's at this point...

• 42:01David Hoffman?

  Excuse me. With Ethereum 2.0, and well, probably speaking of Ethereum 2.0 past Phase 1.5, when the ETH 1 and 2 chains merge, there is nothing like Ethereum like that, right? And Ethereum 2.0 is what, it's not just trying to have an evolution of Ethereum to me. It's more like trying to, in the most pure and most essence way possible, solve the scalability trilemma, right? And as a result of that effort is what Ethereum 2.0 is, right? Ethereum 2.0 is the thing that solves the scalability trilemma, not some just inherent, it's technologically neutral, right?

• 42:42David Hoffman?

  Like whatever technology needs to solve this scalability trilemma needs to be discovered, and that's what Ethereum 2.0 has morphed itself into, right? Out of a very long, like six-year-long research and development process. So I'm super happy to see this graphic like really early in the article, because it really sets the foundation of the whole purpose of the whole point of this whole Ethereum thing, and also sets the groundwork for the rest of the article, rest of the report.

• 43:09Speaker 02

  Yeah, and I think you nailed it when you were talking about the, it was Jeff Coleman. That was an excellent tweet thread, that was fantastic, diving into why it took so long, and the background on BLS signatures. So the idea that, and this is kind of why we put Ethereum 2.0 in the middle here, is that there are other networks that have introduced proof of state and sharding.

• 43:35Speaker 02

  But no one's done it at the level that Ethereum 2.0 is looking to do it at. No one's going to have the level of validators that are on the network. And so that level, it kind of takes it to another level of like, hey, we're introducing the scalability.

• 43:51Speaker 02

  Feature and then at the same time, you're gonna be significantly more decentralized than any other competitor at the moment. Who knows where they end up at, but just based on design, that's where it's leading to. And just kind of one of the reasons why, going back to that thread, was the idea behind the BLS cryptographic signature aggregation. So basically, if you have a ton of validators in a network and you're pummeling the network with a bunch of signatures on each block, it can lead to a network overload. And so what BLS does is it basically aggregates the signatures and makes it very, very small. So you can maintain the the speed of block finality without making node operator costs go through the roof.

• 44:37David Hoffman?

  Awesome. Ready to move on?

• 44:41Ryan Sean Adams?

  Yeah, let's talk about this graph, David.

• 44:44David Hoffman?

  Yeah, so this is the one, the subject we want to bring up next, because again, this actually sets up really important groundwork for why all of this effort needs to be undertaken in the first place, right? And when I first look at this chart, and this is a chart of the percentage of Ethereum block space that's used, right? Like, how full are the blocks on percentage terms? And we see like relatively in the center, we have like the 2017 like mania, right? We had, this is where we experienced like ICOs that sold out in 10 seconds because everyone was racing to get in the blocks. This is when we had CryptoKitties. This was like the first real test of Ethereum's capacity, right? And like we see, to me, when I look at this shaded area

• 45:24David Hoffman?

  in the center, I see three big spikes, one in like Q1 2017, one in Q2, and then maybe one in like late Q4 2017. And it's that in each spike, it's progressively higher and higher and higher, right? Like the first spike spikes up to roughly 70% full, then like the second spike is 85 ish, 90% full. And then the third spike in 2017 actually got to comparable levels that we see in DeFi summer 2020, like 9 plus 95% full, which if you're above 90% 95% of a block, you're basically full. That's basically a full block. And what's interesting to me is like, okay, that's great. Uh, we reached capacity, but that was in like peak mania times.

• 46:05David Hoffman?

  But we actually didn't really fall off in block usage between 2017 and 2020. It stayed relatively high. And then the first instance of like DeFi coming back to life after the bear market of 2018. It looks like we have just this incredibly high sustained block percentage used uh in 20 in in 2020. Like it starts at the very start of DeFi summer 2020, it's like 95%. And at the end, it looks like it's something like 98% full. Uh, and so to me, this is just like extremely validating of the whole um incentive or or need uh need to scale Ethereum, right? Like there, we're trying to scale Ethereum and and this is why we're doing it. Like the first instance of Ethereum becoming like adopted again, we max it out.

• 46:50David Hoffman?

  We it's like it's our is already maxed out. And like this is before like new wakes of people come into the space. That's my analysis. What's what's your guys' take when you see this uh chart?

• 47:02Speaker 03

  Yeah, so I'll just give a couple of thoughts and then I'll I'll also have to to both in. But yeah, I think you know that like the the reason why Ethereum is like Ethereum is not doing this upgrade because they just want to make things complicated. That's not what they're doing. Like the reason why there's this transition to Ethereum 2.0 is because like Ethereum doesn't currently scale today. And it's cool that we can run all these very interesting experiments on here. And everything that's happened, even during the ICO, but you know, especially now with with DeFi. Uh, it's it's incredible uh what's been built on here. But what we're doing now is still very small scale

• 47:43Speaker 03

  and nowhere near what you know, the the level of uh scalability we need if we actually want Ethereum to uh actually serve as a, you know, public infrastructure for the world, where you can actually run, you know, significant amounts of the world economy on Ethereum uh and actually start, you know, have have like real people actually use this thing. So uh, yeah, that's, I mean, that this is why Ethereum 2.0 was built.

• 48:11Speaker 02

  Yeah, I I I won't add too much. I'll I'll say on top of that. I I kind of wrote it in the piece, but I thought this was um clear affirmation of, you know, some of the concerns that a lot of the developers and researchers, when they first built Ethereum, they had they had those concerns around, you know, Ethereum couldn't scale, should have reached this level of utility. Um, but it also affirm a lot of the research that they had already been doing and research that they had put towards building Ethereum 2.0. Um, so that that was a clear reason and this whole event, uh, starting in 2017, and you can see it hasn't gone down since. Um, is is the clear showing that there is a is a need for uh for scalability and that it's a top priority.

• 48:53Ryan Sean Adams?

  I I have two uh thoughts on this when I when I see this, which is super interesting. Um, but it's a little bit of a side quest. You know, one thought when I see this is, oh, my God, like in 2017, we wasted block space on all sorts of stupid things. There's there's this concept we talked about on Bankless, um, like economic density of blocks, transactions, like the more economic value and throughput being pushed in each block. And this is something, by the way, that happens in Bitcoin, right, as well. But it also, it when I look at this, uh, and I contrast it from three years ago, it also seems to be happening in Ethereum, like in DeFi Casino Summer,

• 49:36Ryan Sean Adams?

  um, we were spending blocks on more productive things, like these are collateralized loans, you know, a a lot of still speculative behavior, but it wasn't CryptoKitties, right? And I wonder like three years from now or five years from now, if the things we did in DeFi Summer are going to seem awfully silly too and awfully wasteful. Because it seems to be the case that at least on the main chain, these transactions are getting more and more economically dense. And you guys talked about rollups a little bit later on and kind of that uh way of thinking about Ethereum. And that is the that is a a maximally economic, economically dense transaction, because you're doing all of this economic activity in a rollup chain.

• 50:19Ryan Sean Adams?

  And then essentially you're just like settling that on the main chain. So that that's that's one thing I think of. Um, any reaction to that? Is was that an observation that you made as well?

• 50:32Speaker 02

  I mean, yeah, absolutely. I mean, you're it's, you know, I'm just kind of even thinking about it a little bit more right now. And you'll see a lot of these, and I this is just how I'm thinking of is each cycle that we go through in 2017 and what we went through in DeFi. Casino summer is we're going to go through these cycles of where things start to get somewhat popular and then and then they'll catch on. And you almost you almost need to run through that. You need to get to the other side. And and then the ones that actually have some utilities, some good teams behind them, as we're seeing right now with like Urn is basically eating up all of DeFi.

• 51:13Speaker 02

  They're the ones that are going to come out and be a potential frontrunner or all I mean is that they'll they'll still be there. Come the next cycle of of whatever comes next. And, you know, I think it's going to be related to DeFi. But what that's going to be, maybe it's not liquidity mining food coins, but it's something even more even more interesting related to.

• 51:36Ryan Sean Adams?

  It's very, it's very survival of the fittest, isn't it? In a in a healthy evolutionary way. And only the most valuable transactions survive because those are the only ones that can compete for block space, which is super interesting. Want to move on to this maybe because this is sort of related, I guess, to block space. But the median Ethereum daily fees have certainly shot up as well. And that means like I was I was looking the other day at Token Terminal. And basically, ETH fees annualized are about 700 million right now. Right? So if you look at kind of all of the fees that are going to pay for block space.

• 52:18Ryan Sean Adams?

  Ethereum is generating 700 million in revenue, which is pretty surprising because that was not the case in 2017. What's the story between behind the Ethereum daily fees? Are blocks just becoming more more valuable? Or like, what does this tell us? Is this also a part of the story of, oh, my God, we need scalability on the base layer too?

• 52:40Speaker 03

  Yeah, definitely part of the same story, except I guess maybe this chart highlights the perspective of the user of Ethereum and what they experienced if they're trying to submit a transaction. So throughout this year, like you kind of see like the median daily fees like paid on Ethereum is in EE terms is about 2,000 ETH. And then since kind of like the DeFi summer, which I'll say started in June, it was around like 5,000 ETH per day, which is a ton. I mean, and we'll talk about this kind of in the section we get to Ethereum 2.0's monetary policy and what happens when you start burning

• 53:23Speaker 03

  some of those transaction fees and why that matters. But yeah, it just really highlights just how much more competition there was to get your transactions included into blocks because there was just so much opportunity on Ethereum this summer for people, I mean, to be frank, just for people to make money. Yeah.

• 53:43Ryan Sean Adams?

  Yeah. And the criticism is real, right? At sort of the peak in October, lots of folks in DeFi were saying, this is just a whale chain, right? Like, we can't afford a basic transaction. Only if you only have a certain amount of capital, maybe you can, but it's not worth it for my $500, you know, transaction to actually pay $100 in gas fees to do this thing.

• 54:07Ryan Sean Adams?

  Well, let's switch to issuance, because I think that is another key part of the story. So we were talking about All the same story. All the same story. So we're talking about blocks and that being kind of the chief commodity that Ethereum sells, I guess, right? Get your blocks in an Ethereum transaction. We're selling that to you and you have to pay an ETH, by the way. But this is a story around Ether as an asset and its net annual issuance, right? And we'll get into why that matters, maybe kind of the the three points on the triangle. We call it triple point asset thesis. But can you talk about this? Because I'm not sure that many people frankly know this, guys, right?

• 54:49Ryan Sean Adams?

  Like, I don't know how many times a week I get asked on Twitter, what is ETH's issuance into the future, right? I'm like, well, like, we kind of know it, right? Like, I can't tell you there's a fixed amount of ETH, but we kind of know it. Can you tell us what we know and how we know and what this graph is showing us?

• 55:10Speaker 03

  Yeah, so some helpful background for this is just to describe Ethereum's monetary policy, kind of what it is. And, you know, you guys have discussed this plenty of times. So I'd be prepared for you guys. But the high-level idea with Ethereum's monetary policy, it can be defined as like minimum necessary issuance. And basically what that means is that Ethereum always aims to issue enough ETH to ensure that it remains secure now and into the future. Now, the trade-off with that is that, and this is probably many people's criticisms, is that who defines what minimum necessary issuance is?

• 55:52Speaker 03

  It's something that sounds very technocratic, subjective.

• 55:56Ryan Sean Adams?

  Sounds like a hand-bending.

• 55:58Speaker 03

  Yeah, and it's like, it's like really hard to really quantify like what that actually is.

• 56:04Speaker 03

  But practically speaking, I mean, this has always been Ethereum's monetary policy. And what's happened in practice is that Ethereum monetary policy has only changed twice in its history. And both adjustments were to reduce its monetary policy. So this is not something that, like, while, yes, it may be a little bit kind of, you know, it's not like clearly defined.

• 56:31Speaker 03

  Practically speaking, if there was going to be a change to Ethereum's monetary policy, there would need to be ecosystem-wide agreement to do so. So this is not something that can just change at the flick of, you know, if a talbot says one day, like, hey, guys, like, let's jack up the inflation to 10%. Like, this is it. Like, that's just not how it's going to work. Now, I think that that is kind of important to highlight the differences here. So Ethereum has designed this monetary policy to prioritize security. And this is in opposition to Bitcoin, which has designed this monetary policy for for kind of like monetary idealism, at least what the Austrian thinks is what would be like ideal money.

• 57:15Speaker 03

  And the trade off with that, you know, because we kind of discussed the trade offs with the minimum necessary issuance, the trade off with optimizing for, you know, this this perfect money is that as a consequence, you also set your security budget arbitrarily. It's unclear if having halvings every four year and then ultimately a fixed supply where the Bitcoin blockchain will be supported by fees is actually viable in the long run. Uh, so that's that's a trade off that Bitcoin makes. So now that we have that kind of, you know, framework for how to think about the monetary policy, well, this is how like it actually translates into, you know, Ethereum 2.0.

• 57:56Speaker 03

  So when Fears Phase Zero launches, I'm saying this as it hasn't launched, I mean, now that Phase Zero has launched, all of the issuance on Ethereum to the ETH2 beacon chain will actually be incremental to what's on the ETH1 chain. So for the next, maybe call it, you know, one to two years before the ETH1 chain merges into ETH2, Ethereum's annual issuance will actually increase slightly. And it'll increase maybe about, yes, like here it is, it'll increase, you know, probably somewhere between, you know, 0.10% and under the most aggressive assumptions, maybe 0.8%. Uh, this is a temporary thing, right? Like, because once that

• 58:36Speaker 03

  Ethereum 1 merges into Ethereum 2, well, all of that issuance does come from Ethereum 2.0 that right now is incremental will now become the only issuance for Ethereum 2.0. So if we go back to the last chart, uh, that's kind of what it's showing is that once this merger happens, Ethereum's annual issuance weight will drop, uh, you know, well below 1%, potentially even below zero. And kind of like that range you see on the screen, that's depending on how many, how much transaction fees are burned. So one of the things I touched on before is how

• 59:15Speaker 03

  When EIP 1559, which is kind of like a proposal to restructure how users bid for block space, that results in majority transaction fees being burned, depending on how much transaction fees are being burned in E2, it can actually cause Ethereum's net issuance to actually be negative, despite the fact that Ethereum 2.0 is perpetually inflationary. Which would be super interesting, because at that point, I mean, you're talking about Ethereum's issuance rate practically being zero, while Bitcoin's issuance rate is 1.28%. And I don't think this is something that, you know, many people have appreciated yet,

• 59:55Speaker 03

  just how, I mean, potentially deflationary Ethereum could be at this point.

• 1:00:03Ryan Sean Adams?

  One thing I just read, I just want to read this last line here, because it's, it's kind of encapsulates what you're saying. "Is very likely that once ETH 1.0 merges with ETH 2, Ethereum will not only be the most secure blockchain, but also the one with the most credibly low monetary policy." That's the summary of what you just said.

• 1:00:25Speaker 03

  Yeah, and I guess when I say credible, I really just mean credible in the sense that it is very likely that this is sustainable. So it's not going to be a question of down the line, like,

• 1:00:36Ryan Sean Adams?

  Right.

• 1:00:36Speaker 03

  is this issuance enough to so that Ethereum remains secure? So that's kind of where that credible part comes from.

• 1:00:42David Hoffman?

  Ryan, you talked about how like, you gave the theoretical hypothetical example of like, if somebody asks you like, "Well, what's Ethereum's monetary policy? Like, you know, tell me how much Ether there's going to be in 10 years." If somebody can answer that question with like a specific number, the ability to do that comes as a sacrifice to the understanding, the knowing of the security at that point in time. It's kind of like, I don't know what law there is, it's something to do with quantum physics, but you can either know the velocity of a particle and not the place, or you can know the place of a particle but not the velocity, right? Like, there's something like quantum physics rule about that. And so that's the same thing with blockchain security and monetary issuance.

• 1:01:25David Hoffman?

  It's like, either you get to supremely decide what the monetary issuance policy of a blockchain is, or you get to decide what the security of a blockchain is, but not both, right? You only get to maximize for one of those two things. And the thing is, like, with Ethereum... It decided to innovate and be pragmatic in its approach to generating security. And one of the big incentives to generating a very efficient and efficient in security blockchain is that that allows you optionality with your monetary policy. And so like the innovation behind proof of stake means that we get to tinker with our monetary policy in ways that are long-term net positive for the ecosystem.

• 1:02:07David Hoffman?

  So at the same time, we've been able to generate a secure environment for the Ethereum economy, while also we've been able to figure out a path forward for something that is actively deflationary versus something that is just passively deflationary. And that's what I see in like this chart here where like the thing, the line is variable, but it's trending in the direction that you want it to, no matter what. And I want to go back to the line that Ryan just read out. Ryan, if you want to scroll down a little bit. To me, when I read that line, that felt like a mic drop moment. And because if you gave out this line two years ago, back in peak bear markets, when

• 1:02:51David Hoffman?

  the Bitcoiner maxi narrative was dominating, and if you got like Ryan Selkis to like, Ryan Selkis, like what do you think about this line? I'm sure people would be like, no, that's just completely ridiculous. But the fact that this sentence is being like reported out in a report nowadays, to me just indicates like how many people are starting to wake up to like this new alternative security model and the positive benefits of the monetary policy over the long term. And so I see this as just like a shifting of the tides, if you will, about like the perception of ether from like the outside in. And I'm just really thankful that you guys are putting this, actually putting these words into a report because they mean so much.

• 1:03:34David Hoffman?

  When you guys typed, whoever typed this into this page, did you think about the implications of typing those words in when you typed that?

• 1:03:44Speaker 03

  Uh, yeah, no, that definitely, you know, we definitely did.

• 1:03:50Speaker 03

  And, you know, I'm sure that there will be people that are triggered and rightfully so, because this is something that could have, like, will happen, or I should say, it's, it's, this is something that is planned to happen in, you know, one to two years. And in theory, it's not guaranteed. So I can get why people will be skeptical if they read something like that. And they are, you know, have a predisposition to be an Ethereum skeptic. But this, this is the plan. And if Ethereum two works out the way that it's been designed, this, this will happen. And at that point, uh, people need to deal with the, the consequences.

• 1:04:31Speaker 03

  And, you know, granted, even at that point, you know, maybe, maybe, you know, people still might not get it. Maybe they'll be like, you know what? Ethereum is still perpetually inflationary. And it will be hard to get people to buy the narrative. Uh, we still don't know. But this, this is something that, that will happen if the two point two point O works out. And it's, it's important, it's integral to understanding, uh, how ETH will evolve as an asset in Ethereum two point O when, when it does, uh, you know, try to kind of fully roll out.

• 1:05:04Ryan Sean Adams?

  I, I wanted, I, I want to, uh, answer that question in another way too, right? Because when someone asks you, uh, what is the monetary policy of Ether? How much supply will there be, right? The, the answer, of course, is what we've said, minimum necessary issuance, right? It's balance this trade off between we're going to maximize for security. But we also like, it's not like we don't know, like, we know the bounds of what this is going to be. Like, it's not that hard, right? So maximum is 4.82%. Like, that's probably going to be the maximum, because we're not going to have likely more than 30 million staked ETH. And it'll probably fall somewhere in the 10 to, you know, 16K range. So we're probably talking about before the merger,

• 1:05:48Ryan Sean Adams?

  a 4.47 to 4.6% issuance rate, right?

• 1:05:53Ryan Sean Adams?

  Right? So like, that's the max. And we know it won't be more than that. And if this merger happens, which again, as you say, is not concrete, nothing in the future is, who knows? Right? But if the plan is carried forward, and by the way, we have evidence that the plan seems to be working because these two just launched. Okay. But if that happens, yeah, you haven't heard, in two years or so, which is what the timeline, with the timeline kind of predicts, look, maybe you're bearish on that, maybe it happens in three years, maybe it happens. But but there's a tremendous amount of momentum and force from the community to deliver on this plan. And we just completed the hardest part. If that happens, then we get a drop of issuance down below the 1% range.

• 1:06:38Ryan Sean Adams?

  And do we know whether that's going to be 1% or negative half a percent? No, but to me, both of those scenarios are pretty damn deflationary. Like, that's a pretty good store of value asset. It's a pretty good story. So I am fired up because I'm also tired of people saying like, acting like Vitalik could trigger a masternode and suddenly inflate like 15% annual issuance into his personal account and steal it like a Fed chairman or something. Because that's just not true. But I want to ask you a question here, because I'm getting to a question. This is not just a rant.

• 1:07:16Ryan Sean Adams?

  Why is this so taboo? What like, so David and I have been talking about this, you guys know, right? For like, the last year and a half to two years, right? It's why we started Bankless, like, literally, to talk about this stuff, because no one else was. And here's the first report I've seen that is actually like, spreading the truth about what is about to happen for Ethereum, right? And you guys are doing it, and fantastic. Thank you. Like, sincerely, thank you. But why has it been so taboo to do this? Is it? Is it the fact that it's taboo? Or maybe it's something else? Maybe it's just the data is hard to compile? What's your sense as analysts as to why no one else has written a report like this?

• 1:08:01Speaker 03

  Yeah, I mean, there's probably a ton of different things going on for why people

• 1:08:10Speaker 03

  always discount this scenario that could happen. I think among them is that many of the early people who got involved in Bitcoin were playing for a very specific thing when they when they thought about what a cryptocurrency would be. And they're playing for a fixed supply currency with a deterministic monetary policy. And when that's what you're playing for, and when that's what you don't want to compromise on. When someone offers an alternative, oftentimes I feel like people can think in binaries that it's either fixed or it's hyperinflationary and Ethereum is going to be, you know, Zimbabwe on the blockchain.

• 1:08:55Speaker 03

  And that's just, and that's just not, this is not true.

• 1:09:00Speaker 03

  So I think that's probably one of the, one of the biggest things is just that, you know, some people just don't want to, you know. And also I think another thing is that

• 1:09:10Speaker 03

  for whatever reason, there's this idea that there will only be one crypto asset that will succeed. And that there's not a future where these different blockchains, Ethereum and Bitcoin can actually be symbiotic and they can both be successful. That it's not a zero sun game. And I think that that like thinking is probably one of the reasons why, you know, so many people haven't been able to appreciate this. And you know, hopefully that will change, you know, especially when, you know,

• 1:09:43Speaker 03

  this ETH one merger finally happens and this thing is real and it's no longer a point of, you know, contention or of what if it's just this exists. You know?

• 1:09:56Speaker 02

  Yeah, I think, yeah, you, on that last point, I couldn't agree more. It was the idea that

• 1:10:05Speaker 02

  that there will only be one winner, winner take all situation. And especially when you have a lot of Bitcoin holders or people that have been in crypto for a while, as soon as you tie any sort of, you know, financial holdings to this narrative that's going to just kind of bring out this ideology that's not going to allow someone to kind of think of

• 1:10:28Speaker 02

  something else as money. And I think that was the other thing that kind of maybe attributed to why it was potentially taboo is the idea that using ETH as money, that narrative was, I guess, kind of brought up more within, kind of got legs within the last like two years. So kind of looking at it when you're thinking about issuance schedules, you really kind of do that for assets that you're looking at it from a monetary standpoint and less so for something that might be just used as a utility or gas. So actually starting to look at Ethereum from a different perspective, I think that's exactly something as it starts to gain more

• 1:11:11Speaker 02

  acceptance, then you'll start to maybe see more people look at it. So I think that that was kind of one of the reasons why we definitely wanted to take that perspective, like as we're saying, get everything into this report. So everyone understands what's really going on.

• 1:11:26David Hoffman?

  All right, ready to move forward? Let's move forward.

• 1:11:29Ryan Sean Adams?

  I do have one solution. If you're, if you're a Bitcoiner, you know, is you could just buy some ETH, right? You could diversify a little bit, right? So like, I think having some investment in the space does color these on the space and it's okay to be hedged. I guess if we're moving on, maybe can we talk about this concept of the staking implications on ETH? Because that is the thing that launched today, right? And we've used this term like Ether as an internet bond. And it looks like you guys agree with that as well. Can you comment on this, this kind of sovereign bond analogy and what that means for Ether as an asset? What that like turns Ether into?

• 1:12:15Speaker 03

  Yeah, and I'm sure this will probably end up leading into the Ether triple coin asset. We're getting there.

• 1:12:22Ryan Sean Adams?

  Yeah, we're building.

• 1:12:24Speaker 03

  Yeah, but yeah, I think so. Guys touched on this earlier that Mara and Colin did this great report called Ethereum, the Internet Bond. And it was a really interesting report because, you know, when you think about like what staking is, it's not entirely clear that there is a very, you know, easy analogy to what what is happening here. So there are aspects of it that are similar to like a sovereign bond in the sense that, you know, if you think, and this is like a very simplistic model, but if you think, you know, why do, why do the United States raise capital via selling treasures?

• 1:13:08Speaker 03

  Well, in large part, I mean, its largest expense is to pay for its defense. And there's kind of a similar concept here with Ethereum. It's like, why, why is, like, what is Ethereum doing? It's raising capital from people who will ETH. And it's using that capital to then go and secure itself. And another common thread between, you know, a nation state issuing a sovereign bond and Ethereum paying people staking is that the currency that it's paying, kind of like these bondholders, is one actually issues itself. So Ethereum is issuing users ETH for, you know, staking on Ethereum protocol.

• 1:13:52Speaker 03

  And that's interesting because of, you know, what it means for the risk you take when you're staking. So the risks you take when you're staking are really two risks. It's one systemic risk, and that's just the idea of like Ethereum failing.

• 1:14:08Speaker 03

  And then two would be validator risk. So the risk that your validator underperforms and you get penalized, or let's say you blame maliciously and you splash. Now validator risk can actually be diversified away if you were to stake through like a decentralized, a staking protocol, like say like Rocketpool. In which case, you're just holding this kind of like ETH bond that is paying you ETH for providing the service to Ethereum blockchain. Now, it's not quite just like a sovereign bond, because there's also these other interesting components of it, right? Like, there's no maturity on it. Users can demand their money back whenever they want. Obviously, subject to like withdrawal period. It's perpetual.

• 1:14:54Speaker 03

  And there's also, you also get paid transaction fees as well. So, yes, like when EIP 1559 is implemented, the majority of transaction fees will be burned. But there will be a portion of it that is actually not burned. And that portion of it that's not burned will be based on Ethereum's ability to kind of serve users well in their use cases. And this is almost like an equity component to it as well, because it's kind of like this like variable component of how much return that a staker can get that's based off the utility of the Ethereum blockchain. So it kind of is this like really kind of new like financial opportunity

• 1:15:38Speaker 03

  for investors to be able to, you know, basically like lend your ETH to Ethereum blockchain and receive this return from this non-sovereign, but in a sense sovereign, because Ethereum is like the sovereign over Ethereum users, you know, source of yield, providing the service. So, yeah, I think it's like a super interesting like opportunity for people.

• 1:16:05Ryan Sean Adams?

  By the way, Watkins, I'm not sure that people know about that last part, right? So we've talked a lot about EIP 1559 and the burn, right? So if there's a transaction, some portion is burnt and that benefits all ETH holders because it reduces supply, of course. But if you're staking, if you're a validator, you also receive some proceeds for denominated ETH from that transaction too, in addition to the block rewards that you receive. It's a really interesting point.

• 1:16:30Speaker 03

  Exactly.

• 1:16:32David Hoffman?

  Wilson, do you want to add anything on to that?

• 1:16:35Speaker 02

  Um, I think I couldn't have covered it better.

• 1:16:41Speaker 02

  But I think it's important to kind of fit these kind of narratives around what's actually happening here. Because it just makes it that much more acceptable what's going on. Because even there, there's still some people who are skeptical skeptical of what proof of state can actually provide. And being able to kind of bring a story around it and make it relatable. Just makes it that much easier to understand what's actually going on.

• 1:17:07David Hoffman?

  Do you guys think that this is a narrative that the legacy markets, the legacy institutions, institutions, this headless thing that everyone keeps on pointing to? Do you think this is a narrative that people can grasp onto these days?

• 1:17:22Speaker 03

  This is to be determined. I feel like part of that would be predicated on acceptance of ETH as a monetary store of value. And then I think once you get over that hurdle, this becomes an incremental benefit to being able to hold ETH and that you can be productive with it by staking.

• 1:17:43David Hoffman?

  Cool. All right.

• 1:17:45Ryan Sean Adams?

  Totally agree. Should we get to it, David? I know you're itching to get to it. We're here. Are we here? Is this the moment? Okay, this is the moment.

• 1:17:53David Hoffman?

  So asset, super class, triangle. And when I see this, I see ether, the triple point asset, right? And so I kind of wanted to ask you guys like your thought process as to why you thought that the ether, the triple point asset thesis was worthy of getting included into this report?

• 1:18:10Speaker 03

  Yeah, so I think this was actually a recent tweet that Metallica had where he was like when describing like assets. Now, I might be like botching what he was saying, but the general idea is that like when describing.

• 1:18:26Speaker 03

  Things in the blockchain world, like assets, it's better to describe their properties than to just like kind of box them into like what they are. And with Ethereum, you know, there's always been this, and this is something I've struggled with as well as like, what, what actually is this thing? Like, is it just a commodity? Because it's used as, you know, fuel for transactions. I mean, there's also the analogy back in 2017 that Ethereum was just kind of digital oil. And that's like, it's not really the entire story. It's not quite just oil. And then, you know, is it a store of value? Uh, well, I mean, that's something that, you know, you guys talk about, uh, but that's also the full story because it's not just something that people use for collateral and DeFi to pay for transactions, et cetera.

• 1:19:11Speaker 03

  Um, and the mistaking, well, now you can actually get like a, a yields for, on your, on your ether. So now you have these like three like properties of, of assets, and maybe I should also zoom out and just describe what these properties mean and kind of where they come from. So I think like back in 2017, uh, Chris, Chris Perdiski and Adam White wrote this paper called Ringing the Bell on a New Asset Class, where they looked at Bitcoin and then they kind of introduced research, uh, from, I guess, a guy named Robert Greer, about, uh, classes of different assets. And, you know, the student basically said that there's three super classes of assets. Stores of value, which are assets that retain their person's power to the future.

• 1:19:56Speaker 03

  There are commodities, which are, you know, assets consumed or transformed. And there are capital assets which can, you know, be, um, and they're capital assets that can like generate an income, right? Now, uh, with Ethereum, it is, I mean, as far, and granted, I have not looked through every asset in history to determine if this statement I'm saying is true, but it, it could be like the first asset that actually has all three of these properties. So if you look on this, uh, this kind of visualization, uh, we've had asset seven too. So we've had gold and Bitcoin, which are both commodities and stores of value.

• 1:20:36Speaker 03

  We've had US Treasury securities, which are both, uh, capital assets and stores of value, right? Like people will

• 1:20:46Speaker 03

  Gladly, I mean, there's what like seventeen trillion dollars of negative yielding debt that people are holding. They're not holding it because of yield, they're holding it because to store value, right? But Ethereum is actually probably one of the only assets that actually has all three of these properties. And, you know, I think it's just good to highlight these properties because they, you know, not to try and like box Ethereum to like, this like, it's like this is one thing, like, oh, like Ethereum is money, or Ethereum is commodity, or Ethereum is this, just saying like it just has some properties. And these properties are, could be different sources of demand for ETH on the Ethereum blockchain. Like ETH will be demanded to, as a store of value, ETH will be demanded to pay for block space, ETH will be demanded to stake.

• 1:21:31Speaker 03

  And this, I think, is actually what's important for people to understand from an investment standpoint about Ethereum. It's not some abstract concept of like, oh, like it's money, or oh, it's a commodity, or it's a capital asset. It's like, no, that there's three kind of different use cases that are all pulling upon it for, to be used, and that's an important driver of value.

• 1:21:57David Hoffman?

  Do you guys think that when somebody from the outside world, maybe a money manager, family office, quote unquote, institution, then when they stumble on this page of this report, do you think they're ready for some sort of interpretation like this? Because this is like not something that is within the legacy topics. Like this is a very inherently crypto-based narrative or topic. So when the outsider perspective comes in and sees this, what do you guys think their gut take is going to be?

• 1:22:29Speaker 03

  Well, hopefully I want to fix the title under capital asset. But, um, but yeah, I mean, hopefully this can, this can help people understand.

• 1:22:43Speaker 03

  Just help them to begin to understand what drives Ether's value. Uh, because it really is difficult. Like, people would love to have these assets just fit into predefined boxes. Uh, but that's just not the case. Like, you you really can't just box in what Ether is. And I think that's fine, because part of what makes this industry interesting is that in many cases, we are reinventing what like Mi is and we're like creating these like new uh, assets that haven't before existed. So I think it's fine that you can't box it in and that it has these various properties

• 1:23:26Speaker 03

  that we may not be able to make sense of now, but uh, certainly uh, are important in in driving value for for Ether. So hopefully that, you know, that idea can get across in this page of, you know, sure, you might not be able to, it doesn't neatly fit into some some box that you you have in your head, but here here's what makes it valuable.

• 1:23:48Ryan Sean Adams?

  So what David and I have found through our travels is this is the simplest way to explain Ether as an asset. This idea of an asset superclass triangle, this idea of the triple point asset thesis.

• 1:24:04Ryan Sean Adams?

  We need to take this to the world, guys. Like, we're like, what's the next step here? How do we get people to understand it? There's an element of, I feel like we're Bitcoin, like Ether is Bitcoin in 2015, where some niche group understands it, but like institutions didn't understand digital gold back then. They thought it was like, you know, hacker money or drug money or something like that, right? So I feel like we need to to take this out to more people and spread the message. I, you know, I know that's what you're doing with your your report here, but uh, man, we're aligned. Let's do this, guys.

• 1:24:41David Hoffman?

  This is the collateral. We need to get that done. So this is why we're so excited to see this.

• 1:24:46Ryan Sean Adams?

  You know, I do have one, I guess, thought on this. So as I've thought about the triple point asset thesis in these in these three ways, one like next level thing. So first of all, this is the way to explain it exactly as you had, in my opinion, Watkins, you did a great job. One subtlety I've often wondered is, well, actually, like, the commodity here is not actually Ether, the asset. The commodity is actually Ethereum block space, which is different. We were talking about that that block space earlier. But Ether, the asset, is almost like the petrodollar. Because that's what, like, as, as, you know, barrels of oil are all denominated in US dollars

• 1:25:30Ryan Sean Adams?

  in kind of the real world, that is the unit of account for barrels of oil worldwide, US dollars as the reserve currency, as the petrodollar, if you will. Ether is kind of the reserve currency for the commodity, which is Ethereum block space. Right? So like, the next level of thinking about this, I think, is understanding that subtlety. We don't have to get investors there yet. But that's what I've come to to think of it is, it's like Ether is actually just the unit of account for that commodity, which is Ethereum block space. I don't know if you guys agree with that. I brought that up with Chris Berninski when we had him on the podcast. He was like, ah, I'll have to think about that some more.

• 1:26:12Speaker 02

  I remember when you tweeted that out. Yeah, the kind of idea that Ethereum was Ether was gas money. Yeah, it's just kind of like an easy way to think about it. You know, you go fill up your tank and you're just paying with your credit card, whatever cash. And that's essentially the Ether in that transaction. So

• 1:26:30Speaker 02

  it's a very interesting way to think about it because I think kind of wrapping ahead around the asset superclass thesis.

• 1:26:39Speaker 02

  It makes it sound really nice when Ether acts as that commodity as well.

• 1:26:43Ryan Sean Adams?

  It does. I don't want to plug your ears institutional investors. Let's go with that as a super class. Don't worry, we'll address the rest in 2025 when you're ready.

• 1:26:53David Hoffman?

  Well, it is important to know that like when you purchase block space with Ether, you're actually, there's an intermediary currency that is gas. And so it actually goes Ether, gas, block space. And when you are like calculating the way for the gas price or whatever, like you are actually doing a very quick, instantaneous creation and then destruction of this gas currency, which then purchases you the block space, right? And so like this conversation actually gets really, really nuanced.

• 1:27:21Speaker 03

  Yeah, no, honestly, I totally agree with that. And honestly, I think that the commodity analogy will be even stronger when EIP 1559 is implemented. And there's actually this direct relationship between block space being used in the theory of Ether, the currency being like consumed.

• 1:27:38David Hoffman?

  Gasoline wouldn't be as expensive if it was renewable. That is for sure.

• 1:27:45Ryan Sean Adams?

  Absolutely. I think we have maybe one last area we wanted to cover really quickly. And this is in the report to do with decentralized staking, right? So staking is now upon us and you guys have characterized, I thought this was pretty unique, decentralized staking protocols, almost as investment banks. Can you talk about what these decentralized staking pools could actually become in the future? And how you think about them?

• 1:28:14Speaker 03

  Yeah, so there was a really good article and then paper that Alex and Alex Evans from Placeholder and Taurun from Gauntlet wrote about this topic of, you know, what proof of stake and DeFi can learn from mortgage-backed securities. And they kind of introduced this concept that staking derivatives are similar to mortgage-backed securities. And what this kind of diagram is showing is what that process looks like under the hood when you stake through decentralized staking protocol. And the process is you as someone who wants to stake. Deposits or ETH into this protocol, say it's like Rocketpool.

• 1:28:57Speaker 03

  And then Rocketpool will then go and allocate that ETH to different validators in this kind of network. Right? So it's almost like a two-sided marketplace. Investors on one side who want to stake, validators on the other side who want ETH to stake with. And if you think about it, the validators are, in a sense, receiving loans on ETH. Because they don't actually have to put up the entire 32 ETH that they need to stake. They're actually borrowing, you know, part of that 32 ETH to stake and they need to pay it back. Now, that's interesting because, you know, you, when you hold this kind of ETH derivative

• 1:29:40Speaker 03

  that you get from depositing your ETH into one of these decentralized taking protocols. Well, what does that ETH actually represent? It is a claim on the underlying ETH that is being loaned out to all these validators. So one analogy, think about this is that, imagine like each validator loan is kind of like a mortgage. And then you're packaging those validator loans into a security, like a mortgage-backed security. And that's essentially what this derivative ETH is. It's kind of just like this package of all these different, you know, loan to see different validators.

• 1:30:21Speaker 03

  And I think it's also interesting, we're starting to where I think these decentralized taking protocols will actually be preferable as a form of ETH derivative. Is that it actually diversifies the underlying, I mean, just like mortgage-backed securities on diversified underlying risk of, you know, a single mortgage failing. Similarly, like A derivative ETH that's issued from one of these staking protocols diversifies the risk that individual validator fails. So that's a lot better than if you were to go and stake with a centralized service provider, like say an exchange. And if their validator

• 1:31:03Speaker 03

  fails, then that ETH derivative is toast. And I think that they'll probably be why people will prefer this. Come out the fact that, and this is protocol specific, but in the case with like Rocketpool, well, validators are actually in a position of first loss if they get penalized or slashed for behaving maliciously. So validators have to put up 16 ETH, they get the other 16 ETH from stakers in the protocol. If it was the case where they got slashed for 5 ETH, then that validator would lose that 5 ETH as well. So from the

• 1:31:44Speaker 03

  perspective of someone holds this derivative ETH, not only do you get to diversify the validator risk, but you also get kind of like insurance against being penalized or losing because the validator misbehaves. So that's kind of the idea of these staking pools and how big they could be when Ethereum, yeah, I keep saying one Ethereum 2.0, now that Ethereum 2.0 has launched.

• 1:32:12David Hoffman?

  You're used to it, brother.

• 1:32:15David Hoffman?

  So before I hop in, Wilson, we want to add anything?

• 1:32:19Speaker 02

  I just think this is one of the most interesting aspects of phase zero, this idea of the illiquidity dilemma for validators or prospective stakers and how this is going to play out between the centralized protocols versus centralized protocols. And I know the centralized staking protocols are going to, in a sense, mitigate that risk, that validator risk a little bit more. But I will say, like, if you're staking with Coinbase, most likely they're probably going to insure any losses off of that. But I think there's a lot more that could go on. One of the clear benefits of utilizing these decentralized

• 1:33:00Speaker 02

  services is obviously you're not using a custodial service. So you still kind of have that ownership over and exactly what Ryan was saying.

• 1:33:11Speaker 02

  There's a built-in insurance protocol as well.

• 1:33:14David Hoffman?

  Right. So here's, when I was reading through the report, this was one of my favorite sections. And the reason why this, especially this little graphic right here, and the reason why I got so excited about it is because like it opened up my eyes to what like could be a very, very competitive world in the world of staking pools. Probably both on the centralized and decentralized end of the spectrum, they're all probably competing on the same few things. And it's basically all competing for like ETH deposits into my staking pool. But where like, where we are eliminating mining pools, we are creating the possibility of staking pools, right? And that can be decentralized or centralized.

• 1:33:55David Hoffman?

  But there, but no matter what, like no matter what characteristics or the parameters of how these staking pools come to be, they're going to be competing on the same few things. One of them is uptime. How, how does a pool incentivize maximum uptime from its validators? Because that's going to create the strongest amount of ROI in a derivative token that each staking pool is going to inevitably issue, right? Like you deposit your 32 ETH, you get 32 like staked ETH derivative tokens. That's one of the articles that you guys have cited here from, from Dan Elitzer. And so like, I'm really bullish on like this competition to be the best staking pool system to really add overall to Ethereum's security.

• 1:34:39David Hoffman?

  Because it's really amping up the incentives to have strong uptimes, to be staking as much ETH as possible. And they're going to be fighting for generating liquidity on their staked ETH derivative token. So like, you heard it here first. Yield farming on staked ETH derivative tokens is totally going to be a thing. Like you are going to be, people are going to be compensated for providing liquidity for like, whether it's like our ETH for the Rocketpool token or coin US or ETH C for the Coinbase token. I don't know. You're going to get rewards for providing liquidity between staking pools and, and Ether. And that, that was kind of like my big takeaway from, from this part of the section.

• 1:35:20David Hoffman?

  And so I thought that this, this part was, was really ingenious and this graphic especially was a nice add to the piece as a whole.

• 1:35:28Ryan Sean Adams?

  Yeah. But you know what this made me think of too, just to add to what David was saying is basically like, you know, the stablecoin wars that we have?

• 1:35:35Speaker 02

  Yeah.

• 1:35:36Ryan Sean Adams?

  Like. We're going to have the ETH staking wars in a big way, right? So Ether is already the most liquid asset on Ethereum. Staked Ether is going to be the second most liquid asset, right? But staked Ether will have all of these different flavors, right? So there's not like just one US dollar on Ethereum. There's USDC and there's, you know, Tether and there's DAI and all of these things. And that range will be from centralized to decentralized. And then because of like Dan Elitzer, who you sourced your superfluid collateral, right? We could mix and match all these things too.

• 1:36:15Ryan Sean Adams?

  So we could create some basket of, you know, centralized staked ETH if we want. And it's a blend of Binance and Coinbase and Kraken, right? Yeah. And then we could have a like, cause one, one dimension, David, that, um, you know, you mentioned uptime, but another dimension that's probably going to be important is the degree of, of trustlessness of the asset itself, right? So we talk a lot about economic bandwidth and in particular trustless economic bandwidth. Well, like, and you guys cited the protocol sync thesis. Thank you, by the way, we're propagating that.

• 1:36:53Ryan Sean Adams?

  Like the protocol sync thesis would predict that DeFi is going to want to build on the most trustless form of, of staked ETH in the Ethereum ecosystem too. So rather than build on Binance's version of ETH, right? That is completely custodial staked ETH. May- maybe you want Rocketpool because that is more decentralized or maybe you want this blend of decentralized. Anyway, we could go down the rabbit hole here, but you guys have unlocked something, I think, in both of our minds with respect to how the future could, could pan out with all of these Ether bonds that are floating around and it's super exciting to think about.

• 1:37:32Speaker 03

  Yeah, honestly, I think both of you guys nailed it. I think when we were researching this, this was probably one of the most surprising things when I was like when we were looking through it because of how little it has been, it's been discussed. So obviously like Dan had that that great article on the the death of Ethereum. But outside of that, I it just didn't seem like there was an equal amount of coverage for how big an opportunity this ETH derivative space space is. And yeah, I think there's gonna be kind of like you said, there's gonna be like incentivized pools between like ETH and derivative ETH to build liquidity between those those two. There's gonna be you farming opportunities with derivative ETH. There's gonna be the opportunity

• 1:38:16Speaker 03

  to like lend it to lend and borrow derivative ETH, like use it as collateral to mint die, like all these different things. There's also gonna be like, you know, structured products that will probably be built packaging these different derivative ETH together. It's really like, I think the possibilities are really endless. I mean, there probably be like, you know, opportunities for you to like swap your variable yields in your state ETH for like a fixed one. That's interesting. So there's like a whole ton of, you know, products that I, you know, imagine will be built using this derivative ETH as a as a primitive. And I think they'll be very popular because, you know, no one wants, I mean, everyone would prefer liquidity over illquidity. And this is

• 1:38:59Speaker 03

  probably going to be the way it happens when there's no withdrawals for your safety.

• 1:39:07David Hoffman?

  Right. Well, Ryan Wilson, I really appreciate you guys coming on and talking about the Mizhar report. Ryan, I'm looking forward to talking to you tomorrow at the Mizharri, Mizharri conference online as well.

• 1:39:20Speaker 03

  Yeah, no, looking forward to it.

• 1:39:22David Hoffman?

  You guys have done a fantastic job with this report. Bankless Nation, this is the report that you send to your financially minded friends who have not yet gotten to crypto. This is the report that you send to your friends and family if they're trying to learn about Ethereum. Ryan and Wilson here have done a bang up job, really just going into every single nook and cranny of Ethereum subject matter and getting it relayed into this report. So tip of the hat for really pushing the narrative forward, pushing why we're doing this and pushing why Ethereum. Really, really appreciate you guys' work.

• 1:39:56Ryan Sean Adams?

  Yeah, seriously, guys. Thanks for getting it right. Thank you.

• 1:39:59David Hoffman?

  It's not easy.

• 1:40:02Speaker 03

  Yeah, no, yeah, thanks. Thanks for having us on.

• 1:40:05Speaker 02

  Thank you, guys. Yeah, I really, really appreciate it.

• 1:40:07Ryan Sean Adams?

  Absolutely, guys. Take care. Thanks a lot.

• 1:40:10David Hoffman?

  All right, Bankless Nation, we're going to turn to sponsors really quick, just to talk. And then afterwards, me and Ryan are going to talk about just, you know, ETH2's launch, so we're going to reflect on that a little bit. So stay tuned as we get through some of our fantastic sponsors that make this show possible. Hey, guys, the next sponsor is Ledger, and Ledger is running a 40% off Black Friday week sale. So if you haven't gotten your Ledger yet, you are in luck. For the week of the 23rd through the 30th, you can get 40% off of all Ledgers on the Ledger website. So if you are still using a hot wallet, or you're just looking to get a backup, maybe for a multi-sig or just for some more redundancy, now is the time to go get that Ledger.

• 1:40:54David Hoffman?

  There's a link in the show notes that can get you that 40% off Black Friday deal. If you want to live a bankless life, you need to get a hardware wallet. There is no alternative for storing your crypto in a self-sovereign fashion. That's why I have four Ledgers that I use to manage my different crypto assets using the Ledger Live account as well. Ledger Live is like your home base for managing your Ethereum, DeFi, and crypto accounts. It does a really good job of aggregating all of your different Ethereum wallets if you are the type of person that uses more than one. But you can also add other cryptocurrencies like Bitcoin or Cosmos or. Whatever your preferred blockchain is. And then it will display an aggregate portfolio of all your accounts at the main page.

• 1:41:38David Hoffman?

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

• 1:42:22David Hoffman?

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

• 1:43:07David Hoffman?

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

• 1:43:50Ryan Sean Adams?

  Bankless Nation, we are back from the sponsors. David, that was fantastic. Like, I felt like Watkins and Wilson are kindred spirits. Maybe they're the Ryan and David of Messari.

• 1:44:01David Hoffman?

  Well, one of them is literally Ryan.

• 1:44:03Ryan Sean Adams?

  Well, okay, literally. I mean, I think that it's the first time, to be honest, I talked to analysts, crypto analysts specifically, who actually like got it, right? Like, they totally understood and they, I don't know, there's, I just, nothing, nothing I disagreed with in that. It, you know, so like, what was your take on, on that report? Is this the one that gets into institutions? Did we just, did we just advance a step on the Ethereum education and Ethereum narrative side?

• 1:44:35David Hoffman?

  Yeah, you know, I think we did. And a lot of what was included in that report was like stuff that you and me have been chewing on like since 2018. I think like, Ryan, even before we knew each other, like, I think the first time we actually like talked, we just hopped into a Zoom just to share ideas about stuff, right? And I don't think we, you and me at the time, didn't really have the words that we use now to communicate things of that nature, but like, we talked about like other teams that were trying to get to Ethereum 2.0 before the actual Ethereum team could and things of this nature. But like, I think the beginning of that talk that we had in 2018 was like talking about things like credible neutrality,

• 1:45:15David Hoffman?

  talking about things about the importance of Ether as an asset, Ether as a money, defining Ether and like narratives. And that, that conversation that we had like, like over two and a half years ago, I think has turned into some of these, like, some of just the canon truth about what Ether the asset is and what Ethereum the platform is. And so it's taken like two, three long, long years for that to finally like bubble up to the surface and get into something that's, that's like a legitimate institutional report coming out of Messari. So it's not like Rome was built in a day. Like, we've been hammering some of these points for years now. And it's finally kind of starting to like rise up to the top and be put into like an actual fantastic PDF by the Messari team.

• 1:46:00Ryan Sean Adams?

  Yeah, it's it's super cool to see that happen. And a lot of like so, sometimes with with the bankless thesis and bankless ideas, like the the ideas are are novel and new. But a lot of times, like what we're doing is is basically what they did, which is we're we're synthesizing things that we see in in the community and ideas and posts that that people like Vitalik write, or like that, you know, like synthesizing the the social sentiment and trying to put that into metaphors and and words, and easy to understand models. And this just felt like the next extension of that is basically like, you know, we have a reach with bankless, but that reach is also also limited. I mean, people who are on YouTube, people who don't

• 1:46:45Ryan Sean Adams?

  do podcasts, people who don't like newsletters, right? We we struggle to reach everybody. So the more people that we have talking about this narrative, right, like the better. So we're just seeing it spread. And I think part of this is like, the bankless community, quite frankly, because like, the bankless community helps get guests on our shows, the bankless community helps spread like the narratives and the memes, and helps really really support us. So what this is, is it's the next iteration of the social layer that we talk about so much, which almost like, it rests on very simple models, or like, as we call them memes, and those memes like propagate up the stack. And pretty soon, the

• 1:47:29Ryan Sean Adams?

  next level after, I'm sorry, right, this is now mainstream crypto. It's like we're this, we're this like niche, right? And then we got mainstream crypto. And the next level is Wall Street Journal and CNBC, right? And I don't know if that happens next year, or if that happens, maybe 2022. But I'm not going to be surprised, David, if in a few years, everybody that the common way to think about ether as an asset is, oh, it's like an internet bond. It's like a digital bond. It's like Bitcoin is, it's just digital gold, right? Like Bitcoin propagated its narrative in the exact same way. So super exciting to start seeing that.

• 1:48:07David Hoffman?

  Yeah, one thing that I think really Cites me about the future is like to me and to you and to the Ethereum culture and community like Ethereum is inherently good. It's a good thing, right? It's a maybe it's a neutral good lawful good or I don't know, but it is good, right? And one of the reasons why it is good is the protocol sync thesis, like things that are good, credibly neutral, like balanced, fall down to the bottom of the protocol sync. And this is something that they cited in their report. They talked about how like the the credible neutrality of a protocol makes it more socially scalable to the whole world. That's something that they cited in their report. And if this Mazzari report lands on the desk of some Wall Street individual,

• 1:48:51David Hoffman?

  there's a link between Wall Street and the protocol sync thesis and the protocol what inherently the protocol sync thesis is, is the promotion of global public goods, public financial internet-based infrastructure that are credibly neutral that reach out to the whole entire world. And all of a sudden, so to me, what Ethereum does is all of a sudden, there's generating alignment between somebody as far away from from alignment as Wall Street to the creation of global financial public good infrastructure on the internet. And that's the power of Ethereum. It's linking people on Wall Street to to open permissionless protocols that just are going to better everyone's lives. And so to me, it's just

• 1:49:32David Hoffman?

  very validating of like, why, why we are here in this space. Like, it's to do good. And then we have the path to do that.

• 1:49:41Ryan Sean Adams?

  Yeah, absolutely. Not only the path to do that too, right? So the the second piece, maybe we talked about this morning and the launch of E2.0, right? So I think partially for for a while, it's felt like we've been prophets in the wilderness and no one's listening, because everyone's like, yeah, like, sure, tell us when ETH staking ships. Like, tell us when, you know, proof of work and staking merge into one chain and Ether issuance drops down to less than 1%, right? Then maybe we'll believe you, right? And our take on that, I think, David, is like, if you wait for all of these things

• 1:50:19Ryan Sean Adams?

  To happen like let's say let's take it to the extreme. Let's say you wait until Ethereum is the globally adopted financial permissionless financial infrastructure for the world. It's the Internet of Money, right? Maybe that happens in the next decade, maybe it takes longer, maybe it doesn't happen. But if you wait until that happens for the evidence, you're going to be buying ETH at 50K an ETH.

• 1:50:42David Hoffman?

  Yeah.

• 1:50:42Ryan Sean Adams?

  Right?

• 1:50:43David Hoffman?

  From me.

• 1:50:46Ryan Sean Adams?

  I don't know, man. I might not sell. I might be just staking.

• 1:50:49David Hoffman?

  Right.

• 1:50:49Ryan Sean Adams?

  Like, uh, so if part, part, part of this, I think is where, where I was getting to full circle is the message starts to have more credibility. When some of these things are actively shipping. And now that we have ETH two shipping, as we witnessed this morning, it was basically like the launch could not have gone any better.

• 1:51:09David Hoffman?

  Yep.

• 1:51:10Ryan Sean Adams?

  Right? Stuff can still happen in the future. We're talking to Lucas, uh, Lucas Campbell on the Bankless team and he was like, guys, something bad's gonna happen at some point in time over the next year, right? Um, like probably this is, this is still a, uh, an early, uh, kind of network. There, there could be some bumps along the road, but the launch went super smoothly. And the, the sentiment, the narrative over the past two years has been ETH two will never launch and none of these things will happen or come to fruition. And I think when reality starts to, to kick in and things are shipping, it just shakes, it shakes that, that narrative.

• 1:51:49David Hoffman?

  Right.

• 1:51:50Ryan Sean Adams?

  Um, maybe it's no accident that I feel like, does, is it just me or it feels like on, on crypto Twitter at least, there's a lot of angry Bitcoin maximalists.

• 1:51:58David Hoffman?

  Yep. Unpenetrable maximalists.

• 1:52:01Ryan Sean Adams?

  I don't know. It just seems like that. They're, they're throwing these like red herrings about, um, if, if you do something with ether, it's going to be like a taxable event.

• 1:52:09David Hoffman?

  Right. The IRS is gonna bring Ethereum down.

• 1:52:12Ryan Sean Adams?

  Right.

• 1:52:13David Hoffman?

  It's like grasping at straws, man.

• 1:52:15Ryan Sean Adams?

  It just feel, it just feels like maybe it's a reaction to wow Ethereum is actually shipping. That thing that we said would never happen is actually happening.

• 1:52:23David Hoffman?

  Right.

• 1:52:23Ryan Sean Adams?

  By the way, I'm looking at myself. Does it look like I'm wearing lipstick? Like, my lips are super red, dude.

• 1:52:28David Hoffman?

  Uh, yeah.

• 1:52:29Ryan Sean Adams?

  I don't know if you got a weird filter or what.

• 1:52:31David Hoffman?

  You had the pretty filter on.

• 1:52:33Ryan Sean Adams?

  I'm not wearing lipstick, guys, but whatever.

• 1:52:35David Hoffman?

  Yeah, so like, the funny thing about Bitcoin or narratives is like, the Bitcoin or narratives have kind of painted themselves into a corner, where they're actually out of control of some particular things that could like pull out all the Jenga blocks from the tower. Like, a decent amount of Bitcoin or narrative is that proof of stake can't work. A decent amount of Bitcoin or narrative is that Ethereum can't ship. A decent amount of Bitcoin or narrative is that you don't scale a blockchain. If all of those things and others like turn out to be not true and instead like actually plausible, then like, one by one, you're taking ammo out of the tool belt of, you know, of a community that is just frankly obsessed with making sure that Bitcoin is the only blockchain

• 1:53:20David Hoffman?

  that the crypto economic blockchain world ever produces.

• 1:53:25Ryan Sean Adams?

  To be clear, when you talk about Bitcoin, like thinking you're talking about maximalists, right? There's so many Bitcoiners, and at some level, maybe this is the more silent majority who, like, they're, they hold Ether too. They want any bankless system to succeed, but there are definitely many maximalists who think of things in just binary, like, you know, Bitcoin wins, or Bitcoin has to win and everything else has to, has to lose. So, yeah, I, I, anyway, successful launch this morning. So how are you feeling about things at this, at this moment? Like, we are December 2020, we're getting ready to get, go into 2021.

• 1:54:09Ryan Sean Adams?

  How are you feeling on this day, December, in December in 2020 about just, I guess, your crypto journey and the future of Ethereum, future of Bitcoin?

• 1:54:18David Hoffman?

  Yeah, I feel pretty split because one part of me is like, and especially at the same time, the rise from Ether price going from like 300 to 600, and also the launch of Ethereum phase zero staking, like, yeah, like duh, like duh, it's here. Like, we've, we've told you it's been coming. Like, yes, I've, I've seen it coming and now it's here. Like, now today's the day. It's like, my, my birthday doesn't surprise me every single year when it comes around either. Like, some of these things are just like expected. And so like, yeah, maybe to the outside world, like this is like, oh, like Ethereum 2 is actually shipped. But, but to me, it's like, well, some of these things are just obvious. Like, yeah, Ethereum 2 shipped today. Like, you know, cool. But also Ethereum's becoming ready

• 1:55:01David Hoffman?

  for the world. And the world is becoming more and more ready to accept Ethereum. And so like, this is why Ethereum scaling is so important is because we've been chanting this, beating this drum on the Bankless Pod. Ethereum is a platform for trustless institutions, and the institutions of the legacy world are breaking down, right? And so we need to find different ways to produce new institutions on Ethereum. And I think, and as Ethereum is becoming more ready for the world, the world is becoming more ready for Ethereum. And so at the same time, while I see like, you know, oh, phase zero launch, like yay, like, cool, we did it. Like, today's the day. And maybe, maybe I'm not as excited as other people, just because like, I kind of saw it coming. At the same time, I'm so

• 1:55:42David Hoffman?

  incredibly like optimistic as to like, this arc that is seemingly like getting really, really close to being complete, that is going to save a lot of people from a lot of suffering in the world.

• 1:55:54Ryan Sean Adams?

  Does it feel like things are starting to happen faster now?

• 1:55:56David Hoffman?

  Things are happening really fast.

• 1:55:58Ryan Sean Adams?

  Velocity has increased.

• 1:55:59David Hoffman?

  Time moves forward really quickly right now. Like, never mind 24 hours, it's 24 hours are units of time of units of time. More progress is happening per unit of time. And therefore, it feels like we're moving forward through time at a faster tick rate.

• 1:56:15Ryan Sean Adams?

  Absolutely. At some level, it just feels like the decade could be over in a, you know, snap of the fingers, right? And just...

• 1:56:23Ryan Sean Adams?

  Well, I don't mean to get existential on you, but like, I just feel like, um, velocity is increasing in this space. Over the past, I don't know, year and a half, two years, it's really, it's really picked up. And I, I have been frankly blown away with even the velocity of some projects on Ethereum, DeFi projects that start out so small. And suddenly like you wake up a few months later and they're doing billions of dollars in transactions and value, right? And like, I'm wondering what the next phase of this looks like because if, uh, if it continues to grow, right?

• 1:57:04Ryan Sean Adams?

  It's going to start consuming parts of the mainstream world, right? Right now, we are still in this, this niche where the crypto is weird and like you can't talk to anyone about DeFi. And no one really knows what Uniswap is, right? And there's maybe a million people using this.

• 1:57:25Ryan Sean Adams?

  But like last year at this time, there was less than a hundred thousand people using this. So if you think about like just the, the Bill Gates quote, people don't really think in like log scale, basically.

• 1:57:38Ryan Sean Adams?

  And you think about log scale, I mean, where are we going to be in five years from now, right? It could be pretty, pretty incredible.

• 1:57:47David Hoffman?

  The, the, the Bill Gates quote that I know is that you overestimate what you can do in two years and you underestimate what you can do in 10 years. And so like, I always anchor my perception onto 2017 because that's when I got into crypto, right? And it's like, all right, 2017, I thought like all of the world was going to be crypto enabled by like the next year. Like it was going to be 2018 and like, oh, the world just runs on crypto. And that was just like my harebrained, like mania mind that, that I had at the time. And so like moving, moving forward, moving into Bill Gates's quote, like we overestimate what we can do in two years. Okay. Well, that was 2019 and then, and then we underestimate what we can do in 10 years, right? And so now we're at like three and a half years past, uh, 2017, when I got into, got into the world of crypto. And so now it feels like.

• 1:58:32David Hoffman?

  We're actually at the meeting point where like what gets developed in the next year actually starts to exceed my expectations of what I could have envisioned back in 2017. And it doesn't stop there. It just like keeps on going. It just keeps on going. And again, there's just an inherent demand for a platform like Ether, right? But like Ethereum, like, think of all the jobs that Ethereum is going to create in a world where jobs are extremely hard to find. Like, just any sort of DeFi protocol or platform or company is going to be hiring in the next, like, in the next two to three to four years. And there's also going to be more of them. Like, a lot of economic activity is going to be put onto Ethereum, but also generative outside of Ethereum as well. Like, it's just going to be, it's just going to be the savior of the world. It's going to save the whole world.

• 1:59:18Ryan Sean Adams?

  Well, David, chances are your kids may work for a DAO or for a protocol rather than a company. I think that's kind of the trajectory we're on.

• 1:59:26David Hoffman?

  Yeah. Speaking of kids, not my kids, but my sister is due in February and I just bought a B is for Buffett book from John Poller, who runs the East Denver. And so just FYI, for any, any other families that are having COVID babies like my sister, get the B is for Buffett book because it's a great children's book to indoctrinate your kids with.

• 1:59:48Ryan Sean Adams?

  All right. Well, we should include that in the Shinet's. All right, David, we should maybe wrap it up. This has been, this has been fantastic. Okay, Bankless, Bankless Nation, thanks for hanging with us on the State of the Nation extra long, but today is an extra special day with the ETH two launch and this fantastic report from Messari. It's been a pleasure to be with you. Of course, none of this was financial advice. ETH is risky, so is Bitcoin, so is DeFi. Everything we talk about is relatively risky, 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.