Ethereum's Endgame: Why Credible Neutrality Beats Speed, with William Mougayar

0:00 [on-hold music] Welcome to another episode with 51 Insights, today with William Mougayar, author of the book Business of Blockchain and founder at the Ethereum Market Research Center.

0:17 William, welcome to the show. Hi, Marc. William, it's great to have you here. I know that you've been very early in the crypto industry. You've done some pioneering work.

0:29 You have very interesting thoughts on what's happening today among Layer-1 chains, what's happening on Ethereum, and we're gonna unpack all of that today.

0:40 And before we jump in, I would love to know a little bit about your background, where you all started. I know you've been an early internet pioneer. How did that all come about, and how did you get into blockchain? Yeah.

0:53 So first of all, I've been in the technology business for, uh, almost four decades, um, so that gives you an idea about, uh, my background. I started in the early '80s.

1:04 Uh, my first, uh, employer was Hewlett-Packard, and I stayed there for fourteen years and moved on to become very involved with the internet.

1:13 Uh, as far as the blockchain is concerned, I was lucky enough to have met Vitalik, uh, at the end of '13, early '14, because we both lived in Toronto.

1:25 And at the time, I was attending, uh, what was called the, the Bitcoin meetups. And, uh, uh, Ethereum and Vitalik was-- used to be present at those meetups initially.

1:36 And, uh, at the time, he had just barely finished, or he was just putting the final touches on the white paper, and that's when I met him.

1:43 There was that first meetup that was changing focus from Bitcoin to Ethereum, and the highlight, uh, of that meetup, it was actually January the 1st, two thousand and fourteen, uh, was Vitalik talking to us about, uh, what, uh, uh, he had been, uh, thinking about.

2:02 And, uh, I, I met him for the, for the first time, and I spent a good amount of time asking him about Ethereum and trying to understand it. Uh, I was quite impressed. Uh, he didn't have all the answers.

2:14 Uh, he was very positive. He was very, uh, uh, happy about it. He, he was very optimistic, although a bit naive at the time, I would admit.

2:23 And his impetus for starting Ethereum was that he saw the limitations of Bitcoin specifically.

2:30 It's a well-known story that he had been involved with Bitcoin previously and played with the colored coins and wanted to do more

2:37 and saw the limitations, and he said, "Well, what we need is, is more of a general purpose programmable blockchain and not something that had some limitations like Bitcoin."

2:48 So that was really the impetus that started Ethereum.

2:52 From my side, ha-having been involved in technology for a number of, of years and, and having seen peer-to-peer technologies at least a decade before, before, I kinda put two and two together, and I...

3:04 It dawned on me that this was going to be very important because that technology was going to be enabling some changes, uh, ahead.

3:11 It was really about another wave of re-engineering, another wave of disrupting specific industries. And I felt there was a human element to the technology and, um, that, uh, had a big promise.

3:24 And I, I became a big student of Ethereum. And for the three years following that, Vitalik and I became almost, uh, reverse mentors.

3:32 He taught me, he taught me a lot about the blockchain, and I was there as an advisor to him, uh, in the early days of the Ethereum Foundation when they had some growing pains and, uh, we were close in touch, uh, at that, at that, at that period.

3:46 Yeah. I, I love that, William. It, it almost feels like going back in history, and that's what we're also gonna do today in the podcast because you've seen so many things, uh, across technology.

3:56 And I would actually wanna take a step back and look at blockchain and Bitcoin in general.

4:02 Even before that, peer-to-peer technologies, I know you've been involved in that, and you also talked about digital cash in the '90s.

4:11 So what was that big leap when Bitcoin came along, and how did digital cash that already existed before became Bitcoin that was suddenly so much better? Yeah.

4:23 There, there, there were two other data points that kinda helped me connect all the dots together.

4:27 And in the, in the early internet days, at the end of the '90s, and I wrote about this in my other book, uh, called Opening Digital Markets, the concept of digital cash was, uh, put forth by David Chaum.

4:40 And these early versions of digital cash, called Cyber Cash at the time, they never took off, but the concept was there. They ne-never took off for, for several reasons.

4:50 One of them being that they had not solved the double spend problem. Uh, and also is be-because they, they tried to integrate it within e-commerce as a form of payment, and the integration was not so easy.

5:03 Uh, it was still a central kind of technology, and the, the deployments was not as, as, uh, fluid as it, uh, uh, could have been.

5:11 But we learned a lot from Cyber Cash, and it had some very minor, minor effect in the early days of, um, of, uh, the-- And then the internet crashed in nineteen ninety-ni...

5:22 At, at that time, there was a bit of a, uh, something new that was a spark at the time, and that was peer-to-peer technologies.

5:30 And, uh, the first generation of peer-to-peer, which, as you know, peer-to-peer is also a, a good factor in the blockchain today, the first generation of peer-to-peer was sparked by Napster.

5:40 Napster was in the music the protocol for sharing music, but it was squashed by the government because it was illegal. It was used by, for illegal purposes to rip music and to share it, ignoring the copyrights.

5:55 So the government did a good job at killing Napster and killing the first version of peer-to-peer. At that time, I was running a,

6:03 a website called Peer Intelligence, and it was chronicling, uh, all of the activities in peer-to-peer. So we didn't just do music sharing. We al- it also got into file sharing.

6:14 So that was a little bit closer to what we have today.

6:16 But again, at that time there was, there were maybe se- 70 different technologies, but none of them took off because, uh, when, when Napster died, peer-to-peer died with it.

6:25 And it wasn't until Satoshi revived this peer-to-peer, uh, technology, but then added the double spend, uh, um, solution, uh, that we got to blockchain.

6:36 And, uh, when I saw all of these pieces coming together, uh, that's when I was able to get really, really excited and, and dived completely into it in, in 2013. I had heard about it in 2012 or '11 at the time.

6:52 Uh, but I was too busy with my own startup, uh, at the time, and I didn't really devote too much time for it, but I was reading about it. But then later it became a full-time activity.

7:02 And you're speaking about the double spend problem or the double spend solution, and in very simple terms, that basically means that-- Or maybe, William, why don't you explain it?

7:14 [laughs] I'm sure you can explain it better than me. The best, the best example, best example that we, that we've used, and, and it's been used m- many times, is that take the concept of sending a photo.

7:24 So when you, when you take a, a picture on your iPhone, on your phone, and you send it, suppose that is a digital, digital, um, copy of the... It's a, it's a digital representation of the image, right?

7:36 So when you send a photo, um, you still have a copy of it, uh, in your, in your phone. Uh, but i- if, if that photo was, was money, uh, that can't be, because if I'm giving you $20, uh, you own it. You want to own it.

7:53 I can't be owning that same $20 after I give it to you. And, and that's, that's called the double spend problem.

8:00 That's been solved with, uh, the advent of the blockchain technology, meaning that if I'm gonna send you $20, I don't have it anymore.

8:09 Yeah, and it, and it's been solved in a way where no central institution needs to keep track of those accounts, but that all happens decentralized on a blockchain. Correct.

8:19 The second important factor is that this could be done now peer to peer, meaning that nobody in the middle is necessary. Because the argument could be that, "Oh, yeah, the banks can do that.

8:28 Of course, I can send you money by taking it out of my account, and it will appear in your account," but there's a bank in the middle, and this is now possible now without a bank, without any intermediary.

8:39 It just gets done via the blockchain. And you mentioned at the beginning that in 2015, Ethereum came along, and Ethereum upgraded that system that Bitcoin pioneered.

8:51 Can you help us understand also for people not familiar with blockchain technology, what was that Ethereum did that made it so much better, and how does that translate into today's context, how we need to look at Ethereum as a digital asset and infrastructure in the blockchain economy?

9:14 Yeah, I mean, the, the main nugget there was the advent of what is now called smart contract. In fact, uh, i- the language behind smart contracts. And, and smart contracts would kind of dumb it down.

9:27 Uh, they, they are a bunch of if this, then that. So it's logic. It's really codifying logic and, and putting a language behind the l- logic. But the novelty is now money is attached to that logic.

9:44 So it's not just if this happens, then this will happen, but it's this can happen with money attached to it. So if this,

9:53 if the weather turns to, uh, twelve degrees tomorrow and you and I have a bet that I bet on twelve degrees and you bet on fourteen degrees, automatically the money will move from one person to the other person that won that bet.

10:06 That's a very simple example. It's smart technol- contract languages. They're the language behind making this possible, making it programmable. That was the, the key nugget that Ethereum understood very well.

10:20 And Vitalik was very keen on making this very general purpose, meaning that he didn't want Ethereum to be tied down to a particular use case.

10:30 Rather, he, he wanted anybody to use this, this technology and use the capabilities

10:36 to apply it to any use case, whether it's in the finance aspect or whether it's with content or whether with it's with decisions and the whole gamut basically of what we see today.

10:47 So it's kind of opening this up and making it a platform. At the time, uh, we were calling Ethereum as that, a platform for decentralized applications. So th- that still applies today.

10:58 So he really believed in decentralized applications and making Ethereum as the best platform where you could develop if you're a, a developer.

11:08 Because the first users of Ethereum were not end users the way we see them today. They were developers. That was really the intent, and that was the target market for Ethereum, was developers. Mm-hmm.

11:20 So since the foundation of Ethereum or the launch of the Ethereum chain in 2016, many different layer ones came along. Uh, nowadays we have hundreds if not thousands of competitive layer ones.

11:34 Ethereum also pioneered EVM technology on which now a lot of other blockchains run as well. William, what made you so intrigued about this blockchain? Sure.

11:46 I mean, Ethereum is not the only blockchain that I've had experience with. Early on, we were not sure that Ethereum was going to be dominant necessarily.

11:54 Uh, I do have a lot of depth and perspective, uh, and insights, um, and, and context into Ethereum, maybe long, more than most other blockchains.

12:05 Um, and, but at the time, I was involved with, uh, Blockstack, with Filecoin, uh, and even more recently with Solana.

12:12 In 2018, I was on the board of the Kin Foundation, um- And, uh, and, and Kin was initially an Ethereum project, then moved to Stellar, and then became the third project to, to choose Solana in 2018, uh, and implemented it in '19.

12:32 At the time, Solana had-- was at 35 cents, and it, it was still an unproven technology. And then I became the chairman of the Kin Foundation.

12:40 So I've had first, uh, uh, hand experience in, in Solana as well, and we'll come back to that later. Today, uh, E-Ethereum has, has more than 10 years of experience in, in the blockchain specific.

12:55 And that's very important. It's, it's not to be understated. And they are at the point where the network effects are becoming very real right now. And when we talk about L1s, I mean, not all L1s are equal.

13:08 Yeah, we can say Ethereum is an L1 at the base level, but it's a lot more than an L1. Eth-Ethereum is, is now basic infrastructure.

13:19 And, uh, at the base of it, yeah, there is an L1, but Ethereum has given birth to almost two th-- 200 L2s. Uh, L2s, it, it, it's be- it's becoming a layered technology.

13:32 So, uh, these L2s, think of them as subnets or, uh, attachments to the L1, and, and they are part and parcels of the Ethereum ecosystem.

13:45 A lot of the, uh, Ethereum competitors like to pigeonhole Ethereum as just an L1 and compare themselves to the base layer. But that's misleading because Ethereum is not anymore a base layer.

13:58 It's multilayered infrastructure, and it is very general purpose. In my opinion, game is over in terms of competing as a general-purpose blockchain.

14:10 Bitcoin is a very special thing, but Ethereum has a leadership as a general-purpose blockchain. Most other blockchains, some of them will disappear, some of them will not be as significant as we think.

14:21 Some will become L2s, and many others will become specialized or doing a very narrow number of things, like some of these corporate L1s that we've heard about.

14:31 In my opinion, these are-- Yeah, they can call themselves L1, but they are alternative L1s.

14:38 They are not going to be a general-purpose base layer technologies, infrastructure layers at the scale that Ethereum is at today. They will be doing, I'm sure, uh, specific things well,

14:53 but they, they will not be the same as Ethereum. So in your view, William, I think a common framing that crypto people use is we had the first generation of blockchain, which was Bitcoin.

15:08 Then we had the second generation of blockchains. Most of them use proof of stake, which includes now Ethereum as well.

15:16 And then we had the third generation of blockchain, which are the m-more performant chains optimized for, for speed and, and transactions per second. I would probably count Solana into it.

15:28 How do you think about that framing, and what would be a more nuanced perspective on that? Yes. I mean, s-speed is, is not the number one, uh, feature of, uh, of the blockchain, though, uh,

15:46 that, that's one of the things that, uh, some other blockchains come up with, is they say, "Well, we're faster." But in reality, speed, speed is, is, is, is a feature.

15:56 It's a feature, but it's not the most important feature. If you wanna go for speed, you might be better off choosing a very fast database, and they do very well.

16:07 And these databases run the Nasdaq, and they run the New York Stock Exchange and, and other very high-frequency types of systems.

16:15 It turns out that the most important decisions and many of the most more important actions are more lower to medium-frequency types of decisions.

16:27 So when you're moving assets, when you're making decisions on investing, when you're trying to tokenize, let's say, specific assets, speed is, is not really a big factor. You wanna d-do this on a more paced manner.

16:43 So I don't think that speed is going to be the reason why you would choose one blockchain over another.

16:50 Also, some of those that have speed will say, "Well, s- we have speed," but it, it is certainly not and, and should not be used as really the most important factor. What is the most important factor in your view? Okay.

17:05 So wha-what's, what's more important than, than speed is, is trust, for example. I mean, we, we have to go back to the first principles of the blockchain.

17:15 And, and, and the first principles of the blockchain are about trust, are about decentralization,

17:22 are about being credibly neutral, and are about being censorship resistant, meaning that you cannot, uh, change the outcome of a particular transaction. And, and this trust is very important. Trust must be earned.

17:38 Trust is not a promise. Henry Ford once said that you cannot build a reputation based on what you are going to do.

17:48 And a lot of these-- some of these upcoming blockchains are promising things and, uh, are saying, "Well, we promise that we can be trusted." But it is not a declaration trust.

18:00 It must be earned over time, and the track record matters. And, and the fact is that Ethereum has a big advantage. They have more than ten, 10 years of track record of never having gone down

18:17 day in, day out since the beginning. Uh, over 18, and now the 19th upgrade is coming. The blockchain kept ticking block after block. So Ethereum has earned its trust with institutions.

18:33 And when you, when you ask institutions, they, they, they don't really necessarily want flashy speed. Speed kills, by the way, whether it's on the road or anywhere. Speed kills.

18:44 Institutions want a platform that, uh, that behaves consistently, that can uphold fair access, that can execute orders orderly as they are submitted.

18:56 And, and, and when, when they enter the blockchain environment, they, they require this guarantee of fairness.

19:01 It means no preferential treatment and no hidden actors, no manipulation of transaction ordering, no subsidies, and a dedication to censorship resistance and true neutrality in the true sense of wor- of the word, and they want continuity.

19:15 And, and that's what Ethereum offers. Among all the programmable blockchains, probably Ethereum and, and Bitcoin are the only ones today that can talk from the track record perspective, not from promises.

19:27 Promises are easy to, to talk about, but the track record is immutable. You cannot change the track record because it's there. You, you can point to it, and, and, and that's important. Yeah.

19:40 And William, you mentioned now credible neutrality a couple of times, and, and we heard that-- hear that word often when it comes to blockchains and now also recently in the context of Ethereum and also new corporate layer-ones that are launching.

19:57 People are talking about credible neutrality. What does cre- credible neutrality mean? How do we define this? You, you have to think that blockchains are, are systems. When, when you've really...

20:09 When you've, uh, ingrained neutrality in the system, no single person or no single entity can make changes that are not good for the system. So the system is like the Constitution.

20:23 You, you can't win against the system, and you should not be able to win against the system. So this is all baked in. And, and this should be the test of blockchains. Who can make changes?

20:35 To what extent can changes be made? Can you trust the system? That's, that's really the essence of it.

20:41 And E- Ethereum has this, this base, base philosophy about being neutral and about being trustworthy, uh, at the core. And, and it's, it's not just a technological architectural construct.

20:55 It's also philosophical, and it's also ingrained in, in the financial aspect. So it's, it's very important, and it means that no any a- no actor

21:07 can, can behave unethically or unfairly, and no actor is advantaged by being subsidized or by being put in a, in a position of, uh, priority by any central actor. So the Ethereum Foundation, for example,

21:25 was very, very sensitive about making sure that they were not perceived to be at the center of anything. They are just a part of it. And I can give you another anecdote.

21:36 When I was working with the Ethereum Foundation very early on and the ecosystem was starting to develop around them, and I'm talking two thousand fifteen, '16, I was sitting with Vitalik and the executive director at the time, and I, I drew this new diagram for them, uh, and I put the Ethereum Foundation at the center, and, and around it, there was, like, some arrows of the ecosystem around it that was developing, the exchanges, the developers, the different layers of technologies around them.

22:03 And they looked at... They, they, they, they liked it, but they didn't like the fact that the foundation was at the center. They said to me, "We like your diagram, but remove the foundation. It's not at the center.

22:16 The foundation is one of the elements." So I changed the diagram, and I put the foundation as one of the nodes. It's, it just... And that was, that dawned on me. Yeah, I'm, I'm sorry.

22:27 I mean, I didn't mean it to be that way, but I mean, they started it. They were the nucleus. But they never wanna be seen at the center. Mm-hmm. And that's very important. You see other foundations today,

22:39 they're at the center of their ecosystem. And the, the, the key test is if you took the foundation away, what would happen?

22:46 I would challenge some other foundations to, to turn themselves off, or if something happened to them, what would happen to the founda- to the-- And with Ethereum, you can be sure that, God forbid, even if the foundation was not there, the system will continue to thrive.

23:01 Over time, yeah, the foundation was quite important early on. Over time, the role of the foundation and its, its criticality was decreasing over time. It's still important. It does very important work,

23:16 uh, but it's not as primord- pr-primordial as before, and it doesn't push the buttons. It's part of, of the whole system. It's very difficult to put a proposal together and to get it voted on.

23:29 Yeah, they have researchers. They have scientists. They come up with ideas, but so does the other, the ecosystem around them. Yeah, I, I agree.

23:37 A lot of other foundations are much more commercially oriented than the Ethereum Foundation ever was.

23:44 And at the same time, that was also some of the criticism that Ethereum Foundation received in the last couple of months and I think beginning of this year, that they need to do more to push Ethereum adoption, particularly among institutions, right?

24:02 How do you see that balance, or what's your view on that?

24:07 Yeah, I mean, and, and I, I was one of those, uh, critics ear-early on in the year, and I've been a critic of Ethereum in a constructive manner for more than five years or so, which is fine.

24:17 The issue was that because of this philosophy they had, which was to be diminuta- diminutive and, and not leading- Maybe they took too much of a backseat and, and, and wanted to see the ecosystem thrive.

24:34 But one blind s-blind spot they did not have is that the, the competition be-became very fierce.

24:42 So in a, in a perfect world, you, you, you do what you do, and then you, you hope that people adopt it because you're doing some good stuff, you're doing some good things.

24:52 But you, you don't, uh, have to ig- you shouldn't ignore the competition, and that's what happened in the last four years.

24:59 The competition became more fierce and became, um, uh, a little bit more eager to, uh, to attack Ethereum. And that comes with the territory, by the way.

25:10 You take any leadership position in any industry, and any industry has leaders, the leader is always going to be attacked.

25:18 The number two, the number three, the number four, and whoever wants to be, uh, in, in that category are, are going to attack the leader, the leader.

25:27 And usually, they try to attack on a, on a weakness or on a perceived weakness. It could be a small something that is not perfect, and they go and they attack it. And all that Ethereum has to do was to defend itself.

25:40 And what the Ethereum Foundation was not doing enough of is defending itself. And, uh, the ecosystem was depending on the foundation more than they should have, perhaps, in that period.

25:52 But this was a bit of a wake-up call, and now you see the ecosystem is just very vibrant.

25:58 A lot of, uh, marketing is being done, not just by the foundation, although they've made some changes, but they, they have a desire to win more than before, and they realize that you have to be competitive.

26:09 It means you have to be defending. If somebody says things that are not true about you, you just don't sit there and assume that the truth will come out because truth doesn't come out on its own. You have to help it.

26:22 Uh, you have to have spokespeople that go and shout the truth, and, and me included, and others. I'm not the only one.

26:28 There are dozens of us now, and there are hundreds of organizations that are very vocal and that will defend Ethereum vigorously, uh, especially if the competition wants to stretch the truth, if they don't tell you exactly, uh, what the reality is.

26:44 Yeah. So let's do a little bit of that defending here on the show as well, William. I know that you're very vocal on Twitter, and you've recently defended Ethereum against claims from Solana.

26:56 Um, let's dive a little bit deeper into that because that's a very common comparison people make in that industry, Solana versus Ethereum and, and who's better and who's faster.

27:08 And what are some of the claims that, that you see nowadays that you think are not justified and need correction? Sure. It's become one of my favorite things to do in the last month, especially.

27:22 Um, and, and we-- I mean, let, let's talk about it. Solana, they are the elephant in the room that attacks Ethereum in more ways than one and, uh, more frequently than any other, uh, blockchain.

27:34 Uh, unfortunately, uh, the Solana that, uh, we have today is not the same Solana that I knew, uh, three years ago. Uh, I think they were a little bit more humble before. Uh, they were a bit more scrappy.

27:46 The Solana I see today is a bit more elitist, uh, unfortunately, and a little bit more arrogant, more on the attack. They are more unhinged, more unshackled, and more emboldened by what they say.

27:58 Uh, and, and I don't appreciate that too much. So it was my, my responsibility to pinpoint some of those claims they make. And the list, uh, is the following.

28:08 They, they talk about their DEX volumes being higher, that they have more app revenue, that the L2s have nothing to do with the L1.

28:16 They really want to push the, the revenue metric as being so important, and they talk about capital turnover being more than Ethereum, and they talk about speed.

28:25 But let's debunk one of them at a time, and I'll give you the executive summary because I've written at length about this, both, uh, on the blogs at the Ethereum Market Research Center and on X.

28:36 On the DEX volumes, that, that's not true. You look at the CoinGecko numbers, you look at the Blockworks numbers, and if you add the L2 activity, which you should, because, uh, Ethereum is no longer just the L1.

28:48 Ethereum is an ecosystem. And es- everybody likes to single out the L1, uh, because they like to do that because that makes Ethereum to look a bit weaker.

28:58 But Ethereum intentionally shifted some of the activity to the L2s on purpose. It was by design that the L2s were gonna do more so that the ecosystem could grow. So you should look at the whole ecosystem.

29:12 And when you apply the L2s and all of that, Ethereum does almost twice as much on the DEX volumes as Solana, eight point four billion versus five billion. And, uh, twenty percent of Solana's activity is meme coins.

29:26 Uh, only ten percent of Ethereum is meme coins. So small transactions on Solana, higher value transactions, uh, on Ethereum. We'll talk about that in a, a bit more. App revenues.

29:37 Solana's top ten apps do about two billion dollars per year in revenues. Ethereum's top ten apps do four billion, and these are just the top ten apps. App capital. Ethereum is seven hundred billion app capital.

29:51 Solana, fifty billion. Orders of magnitude more. Solana like to say, they like to say that L2s are not part of Ethereum and, and that they, they suck all of the value. That's not true.

30:04 It's, it's like saying that the, the, uh, it's like the Internet without websites. L2 extend the reach of Ethereum. Uh, Ethereum is a, is a foundation, and that's where everything settles.

30:16 The, the relationship between the L1s, between L1 Ethereum and the L2s is very symbiotic. The L2s depend on the L1. The, the value capture is at the, at the settlement layer and, and at the asset level.

30:30 'Cause E-ETH is the asset. And it's more than five hundred billion dollars at this point, so there is value capture there. So it's not true. You have to look at the whole spectrum.

30:41 And yeah, as I said, L1 had to sacrifice a little bit to allow the L2s to thrive, but L1 is also scaling. W-wait until the next Fusaka upgrade to see how it's going to scale in addition to allowing the L2s to also scale.

30:55 The revenue metric is one that they also like to, to talk about, and we, we'll, we can talk about that more in a minute, hopefully. My point is, is revenue is only one metric.

31:06 It's too simplistic, and I'm gonna explain that, why in a, in a few minutes. Blockchains should not be very extractive. Blockchains are not SaaS businesses. They are not software as a, as a service business.

31:18 And if you only wanna see them as based on their revenue, then you might as well count them as a, as a private SaaS business, but they are not that. So revenue is one, is one factor, but it's not the only factor.

31:31 Capital turnover. That term is very vague, by the way. It, it can mean multiple things. The frequency in which the assets move or trade.

31:38 It could be in the, mean the velocity of capital, the transaction activity, the amount of capital locked, the volume of DEX activity.

31:45 Some of it, yeah, Solana might lead in transaction count, but they are low-value transactions. A lot of meme coins, a lot of micro-transactions.

31:53 But Ethereum leads in higher value transactions and, and with institutional capital. So the turnover is with real capital.

32:01 There's a big difference between micro-transactions and moving billions of dollars in DeFi and institut-institutional flows. And the final one I'll debunk is the speed. Speed, speed, again, we talked about it initially.

32:14 Speed is, is not an issue.

32:16 And now when you count all of the, the L2s together and you can go on the, the dashboards, Ethereum as an ecosystem can average five hundred transactions per second with peaks of almost three thousand.

32:28 Uh, Solana's true TPS maybe is a thousand. They count a lot of transactions that are voting transactions. We should not count those. But definitely speed is not a defining value of blockchains.

32:39 Blockchains were not designed to compete against Visa or Nasdaq or raw, on raw throughput. The real power is decentralization, neutrality and programmability and ena-enabling trustless

32:52 collaboration between strangers around the world. And again, we talked about it. So if you want really speed, you might as well go with a database that are really, really good in speed.

33:03 So I think in my opinion, Solana is kind of caught between a rock and a hard stone.

33:07 As a general purpose blockchain, uh, E-Ethereum beats it many times over if you remove the speed factor because that doesn't matter too much.

33:16 Uh, as a special purpose blockchain, which is what they wanna be, 'cause they aspire to be the Nasdaq. They wanna go after the Nasdaq. They wanna be the internet markets blockchain. Even there, they are getting

33:27 challenged by, look at Hyperliquid. They are already almost there. They are doing what Solana wants to do. So you can't be both at the same time.

33:35 Are you a general purpose blockchain or are you a high speed, high frequency, a high frequency trade blockchain? Uh, so they are kind of in the middle.

33:44 Uh, so may-maybe they'll end up being great for micro-transactions, for meme coins. Uh, and even there, uh, the Ethereum L2s can give them competition anytime.

33:56 And you pick, pick any metric, any segment that matter, matters, any sector that matters, like DeFi, NFTs, stablecoin issuances, real world assets, tokenization.

34:07 Solana has five to ten percent of the market share that Ethereum has, and, and that's really what counts. And then one thing that you didn't mention now is that Solana also has a much higher inflation than Ethereum.

34:22 Um- Absolutely. And, and, and- Yeah, I mean- Maybe can you untangle that a little bit, how, how, how that inflation model works?

34:29 I mean, on Solana, it's clear, just issuance of new tokens and people can stake their Solana and they get some yield back. But how, how does it actually work on Ethereum? C-correct.

34:39 So Ethereum right now in the last three years has had a deflationary philosophy. It doesn't mean that it's deflationary every year, but it has very, very, very low inflation, especially compared to Solana.

34:53 Solana keeps depending on minting new tokens. I'm not sure exactly, but it's in the seven percent range, more or less.

35:01 So, uh, and, and that, that appears to be the carrot that they dangle and saying that Solana has a higher staking yield, uh, than Ethereum. But that's, that's really funded by inflation.

35:13 So at some point it's gonna catch up with them and you, you can't kind of keep being funding this inflation forever. Uh, and, and it's kind of artificial. Uh, it's artificial. Uh, it's like a race against the clock.

35:26 They, they depend on the value of ETH, of Solana to go, keep going up for, for it to make sense. And it, it's, it's, it's not, uh, advisable in the long term.

35:35 It, it could be interesting in the short term, but, uh, it, it's, it's really artificial.

35:41 And Ethereum has a more sound monetary policy at this point where, uh, a lot of the ETH is burnt and, uh, and the fees are very low right now. So I think it's a more sound model going forward. Yeah.

35:53 And I think I, I saw yesterday a tweet that Solana has double of its market cap, um, than in twenty twenty-one, but the price is still the same. Exactly, exactly.

36:06 And then some will tell you that they'll say, "Well, yeah, uh, Ethereum started at sixty-five, um, million ETH and, and, and now it's about a hundred and twenty."

36:15 So yeah, it had inflation, but this is, this was over a, a number of years, but it stopped three years ago. Uh, compare, uh, Ethereum, uh, three years ago to now, uh, and, and that was changed.

36:29 So it's possible that those, in the future, Solana's inflation It will slow down. I think they've said that in their defense, that they will slow down if they have to. They, they have no choice.

36:39 The sky is not the limit on inflation. Uh, otherwise, you, uh, you're setting yourself up for a much bigger failure from much higher heights. They will have to tame down that inflation. Mm-hmm.

36:50 But in, in the meantime, it's like a drug, so you have to be careful. So, uh, let's say Ethereum is sound money.

36:56 Ethereum is or will be the preferred infrastructure for institutions because it's trustworthy, it's credibly neutral, it's stable.

37:05 Let's assume all that for a moment, um, and let's focus a little bit on the investor perspective.

37:11 So I'm, I'm gonna ask myself now, how does that value accrue to Ethereum when all those activities will happen on the Layer-1 Ethereum itself or in Layer 2s if we have all those institutions coming in, those tokenized assets?

37:27 How does that really accrue to the Ethereum network itself and eventually to token holders and investors?

37:35 Yeah, I mean, we, we like to say that, say that Ethereum is a very productive asset, and, and that was coined by Ethereum.

37:44 Some of the other blockchains coming now with, uh, digital asset treasury strategies are using the same term.

37:50 But DeFi, decentralized finance, was really, uh, started on Ethereum, so Ethereum is still the big kahuna in the realm of, of, of DeFi.

38:01 And the, and the idea is, is that you can employ, uh, the, uh, Eth, the asset, via multiple finance-related strategies: staking, restaking, lending, borrowing, and leveraging, yeah, positions.

38:16 The, the variety is, is there, basically. Currently, the total volume, uh, to-total value locked, uh, on Ethereum is close to $80 billion,

38:26 uh, if I recall, and growing, and it's, it, it dwarf the other, uh, blockchains in that space. So when, when institutions enter that realm, they will see a lot of variety.

38:36 They will see a lot of ways that they can make Eth work for them and generate yields that are way beyond the initial two or three percent staking l- yields.

38:48 And, uh, what I'm most excited about is the fact that now traditional finance is going to take a, to get a taste of that. Traditional finance is much, much bigger than, than DeFi, specifically decentralized finance.

39:01 And, and they, they are, they are coming. They are, they are coming to, and to DeFi because, uh, they have the balance sheets. They have the balance sheet.

39:09 But, uh, Ethereum has the blueprint for doing it, and, and it's only the beginning. And we're seeing this with a lot, a lot of the digital asset treasury companies, like the Ether Machine and others.

39:20 They are going to start to, to deploy Eth specifically as a productive asset that can return multiples, uh, based on the, on the investment. And that's where the activity is, basically.

39:30 So it, it becomes a, a new currency that is preferred, um, and, and that's where the upside is going to come from. And I, I know that there are different valuations of Ethereum out there.

39:41 I think some are saying Eth is gonna be at around fifty, sixty, seventy K in five years. We also looked at different valuation models. You can use top-down models. You can use bottom-up models.

39:54 What is your approach to that? How, how do you value Eth, and, and what do you think is a fair way or a practical way of valuing Eth?

40:03 The point is that traditional metrics fail to, to capture what blockchain's values are today, and we, we need a new paradigm. And, and I'm not sure what that paradigm is today.

40:16 But to give you the blockchain and the Internet analogy, the Internet went through four different phases to kind of where we are today.

40:23 And the first phase of the, of the Internet, the valuations in the 1990s up to 2000, was about eyeballs, not earnings. It, it was just about page views, banner ads, unique visitors, monthly active users.

40:36 And, and, uh, that, that was kind of the beginning, and that's where things failed. And there was a crash because these, these were meaningless or almost, um, vanity metrics.

40:45 After the po- after the crash, then, uh, we started to focus on, on revenues. 2001 to 2005, um, they, they wanted to see revenues, uh, not, not just vision and, and what you could do. Uh, then eBay became profitable.

41:02 Uh, Amazon started to become profitable at that time. Uh, and the top-line growth became important. Uh, and the, and the, then, then we went into the SaaS model. This was the third phase in 2005 till 2015.

41:18 SaaS emerged as a new language in Internet valuations, so we couldn't, uh, just rely on advertising, uh, or, uh, uh, different, like, retail margins.

41:28 And, and the SaaS be-became more predictable as a revenue stream, and, uh, we started to come up with metrics like annual recurring revenues or monthly recurring revenues, MRR or ARR, and then customer acquisition costs, CAC, lifetime value of customers, and the churn rate, like the, um, how, how fast you, you lose customers or how quickly you, how, how much, how many of them you retain.

41:54 And that became a unit of, uh, uh, in, of economics, and that evolved. And then lately, in 2015, the advent of social media till now, it was the advent of network effects and ecosystem value.

42:09 And you have companies like Facebook, uh, Google, Uber, Airbnb, and they kind of re-redefined what's value, what value was like in, in the Internet.

42:19 So they, they became platforms, so you value them now on network effects, on ecosystem depth, on the, the number of third-party relationships, developer activity, marketplaces, plug-ins they had, uh, they have into their platform, user engagement, data login.

42:36 So the companies were not just on revenue, but also on infrastructure, on the infrastructure that they were building and that others depend on. Others depend on the, uh, on that infrastructure.

42:47 So they were-- It became more strategic. And, and now we have these internet giants. It's about efficiency and, uh, about growing the moat. So in, in short, valuation became...

42:59 started very, very narrow and became more specialized and, and more kinda en-encompassing. And what this means for the blockchain is that we, we are still in a valuation limbo.

43:09 We're not sure exactly how to put a number and a multiple on, on, on blockchain valuations, and maybe it's a number of metrics. But it's certainly not one metric. It is certainly not just revenues.

43:21 It is certainly not discounted cash flows. It is certainly not just the fees that a protocol generates. It is not just validator revenues. They are part of it.

43:30 It-- I mean, if you just fall in that rabbit hole, it would be like valuing, uh, Amazon on shipping costs in 1999, which is just a factor but not the whole thing. Uh, blockchains are really public infrastructures.

43:47 They are not private companies. Uh, uh, so, so you, you have to, to, uh, be able to value the whole ecosystem. Uh, and it could be a number, a number of, of these, uh, metrics. Um, it, it could be the flow of money.

44:03 I like to-- I've been developing some metrics around the flow of money. It's, it's, it's how, how much velocity there is in the, in the asset, in the digital asset. So money in this case is Eth.

44:14 Uh, if you take Eth or any, any digital asset, is the, the velocity and the frequency of the flow of that money across the different ecosystem, whether it's stablecoin is-issuances or real, real-world assets or trading.

44:29 So it's really the activity out there, and that's why, in my opinion, Ethereum is so important because it, it has already won the network effects game. Look at Tether.

44:40 Eighty billion of Tethers have been issued on the Ethereum blockchain. That's more than half of the, all of the Tether that has been issued, uh, which is about a hundred and fifty or so billion.

44:53 So no matter what you do on the blockchain, the chances are one out of two you're gonna touch Ethereum. That is really the network effect.

45:02 No matter what you do, even if these Tether and, and Circle and, uh, no matter what you do, you, you cannot escape not touching Ethereum because Ethereum is where everything settles, and it's there.

45:16 The analogy is like the highway. Ethereum is like the main highway, and the number of lanes are growing on that highway, and yes, you're gonna have more on-ramps and more off-ramps.

45:28 But at the end of the day, you're gonna end up getting on that highway no matter what to get from point A to point B. So you're gonna touch Ethereum in the same way that you're gonna touch Bitcoin.

45:40 No matter what you do, if you're on the blockchain, you're gonna touch Ethereum, you're gonna touch blockchain, touch Bitcoin. There's no avoiding those two, and that's really the reality. Yeah.

45:52 Uh, William, that was a, a great e-ending word. We're not, not at the end yet, but almost.

45:58 I wanna ask you a last question on how you see the future and what are some things that you have on the agenda or priorities that you have that you think are gonna be important in the next one to three years?

46:14 I like to see-- I, I think in terms of fi-- DeFi and, and finance, that's already doing well. It's doing well. But I'd like to see more traditional finance come into it.

46:25 Finance is in the trillion-dollar types of industries. DeFi, no matter how you cut it, we're still at a quarter of a trillion. Whether it's TVL or, or activity, we're still at two hundred billion best case.

46:38 So it's still a drop in the bucket, uh, of the trillion dollars, uh, in the traditional finance. I wanna see more tradit-traditional finance coming into DeFi. That's number one.

46:48 Number two, I wanna see more consumer, uh, apps coming into play. Uh, um, that was a big thesis of mine back in '17, '18, uh, but there are some, uh, some small experiments. Uh, I wanna see

47:05 more wallets where the consumers are able to earn, uh, digital assets or earn tokens in a productive way and be able to spend them in a specific marketplace, uh, like a particular vertical space.

47:20 There's a company I like called Blackbird, and they offer a loyalty point system but in tokens when you visit restaurants.

47:28 But as you visit these restaurants and they give you those tokens, you can use those same tokens to pay for your next meal.

47:34 So I like to see these closed economies where you earn a token, and you spend the token in a way that is meaningful. Seen too much of that.

47:42 I still believe in the creator economy, being able to be paid for what you do or, uh, the data that you own. We haven't seen that mu- that much there, but think of it, uh, that we, we are all data-emitting machines.

47:56 I'd love to sell my data on an anonymized kind of a version and earn some tokens for in, in return for something else. We haven't seen that, too much of it yet. So these are some of the, some of the, um, uh, sectors.

48:09 Uh, I'd love to see the, the di- the digital asset treasury companies start to now show us the, the returns, and we, we have to wait a few quarters for that.

48:18 But overall, I'm, I'm an optimist in terms of blockchain, obviously. Uh, I think there's still a lot of education.

48:24 I think the corporate world has to get educated more about the blockchain, so I'd like to see more of the blockchain being discussed in boardrooms, seeing bigger companies, uh, taking the blockchain more seriously because we, we need them.

48:39 Yes, we can grow bottoms up, but it's not enough to grow bottoms up. You have to grow bottoms up, and you have to also grow top-down. And maybe your book, The Business of Blockchain, is a good start for that.

48:50 William, thank you for coming on the show. We used to like to do a short lightning round before we end the show, a couple of very short questions with very brief answers.

48:59 The first one is the first cryptocurrency that you bought? Bitcoin. What's a book or encounter that has shaped the way you think about blockchain or technology in general?

49:11 Alvin Toffler, PowerShift, before the blockchain. Okay. I met him obviously, and, uh, he had a profound impact on my thinking. Almost annually, I reread PowerShift.

49:22 What's one contrarian belief you hold about crypto that most people in the industry would probably disagree with? Hmm. That's a tough one. That we're not gonna have thousands of blockchains.

49:33 Initially, I thought we were gonna have thousands of blockchains. In terms of general purpose, there's gonna be just a handful.

49:39 There will be maybe hundreds of specialized blockchains, but not thousands of general purpose ones. And last one, what's one message that you would give away to business leaders, builders in the space?

49:56 Get educated. Go back to first principles, and, uh, don't get distracted by very loud marketing messages. The blockchain is a very bottoms-up technology that's going to creep even further. It has crept on us.

50:10 It's gonna keep creeping on us. Stay tuned for my next book. Great. William Mougayar, author of The Business of Blockchain, founder o- of the Ethereum Market Research Center, thank you for coming on the show.

50:23 Where can people learn more about you? Sure. Three places. First, on X, it's wmougayar, M-O-U-G-A-Y-A-R. My blog is WAmougayar.xyz or zed if you're in Canada.

50:40 And the Ethereum Market Research Center is eth, E-T-H, mrc.com. It's a place focused on curating and developing market research, specifically focused on the institutional market.

50:55 William, thanks for coming on the show, and all the best. Thanks, Marc.