Podcast Summary
Discussion with Polenia on Ethereum and Layer 1 & 2 Scalability: Polenia emphasizes the importance of both layer 1 and layer 2 in the crypto ecosystem, with value accruing to both. Ethereum's roll-up centric roadmap and EIP 4844 aim to improve scalability, while a symbiotic relationship between Ethereum and other projects is possible.
Learning from this episode of Bankless is the discussion with the anonymous crypto figure known as Polenia. Polenia is an investor with unique insights into the crypto space, and despite their anonymity, they shared their investment thesis and perspectives on Ethereum, layer 1 and layer 2 scalability, and the relationship between Ethereum and other projects like Cardano. One key takeaway is Polenia's investment thesis, which emphasizes the importance of layer 1 and layer 2 in the crypto ecosystem. They believe that value will accrue to both layers, with layer 1 providing the foundational infrastructure and layer 2s offering scalability solutions. Polenia also discussed Ethereum's roll-up centric roadmap and the significance of Ethereum Improvement Proposal (EIP) 4844. This proposal, also known as proto dank sharding, aims to break the link between layer 1 and layer 2 usage and make it cheaper for layer 2 transactions to post on layer 1, enabling greater scalability. Another interesting point from the conversation was Polenia's argument for a more symbiotic relationship between Ethereum and other projects, such as Cardano. They believe that Ethereum and other projects can coexist and complement each other, rather than Ethereum being the only focus. Overall, this conversation with Polenia provides valuable insights into the crypto ecosystem and the future of Ethereum and its layer 2 solutions.
Ethereum's Progress Towards Scalability with Proto Danksharding: Proto Danksharding could lead to roll up transactions costing a microfraction of a penny, significantly increasing Ethereum's scalability and lowering costs.
Ethereum is making significant strides towards scalability with the implementation of Proto Danksharding, which could lead to a significant increase in roll up transaction throughput or cost decrease. This is part of Ethereum's larger push towards achieving more scale, with full danksharding being a future manifestation of this vision. Roll up transactions could potentially cost a microfraction of a penny instead of the current 10¢ or 20¢. This information is important to understand as we delve deeper into the topic with Polenia, who focuses on this area. Sponsors MakerDAO, Rocket Pool, and Across are also contributing to the Ethereum ecosystem by providing decentralized finance (DeFi) services and layer 2 bridges, respectively. These developments are crucial for the Ethereum layer 2 ecosystem to thrive and for users to fully utilize its potential.
Paulinia's Impact on Crypto through Modular Blockchains and Roll Ups: Anonymous crypto researcher and writer Paulinia coined the term 'modular blockchains' and made significant contributions to this field, advocating for sustainable scaling strategies and bridging the information gap in the crypto community.
Paulinia, a pseudonymous crypto researcher and writer, has significantly influenced the crypto space through their work on modular blockchains and roll ups. They coined the term "modular blockchain" and have made notable contributions to this field. Paulinia chose to be an anonymous figure in crypto to raise awareness about sustainable scaling strategies and bridge the information gap during a time when the focus was on the scalability capabilities of other platforms. Being an anonymous figure in crypto is not without its challenges, but Paulinia manages to juggle multiple hobbies and active anons by planning out their time and focusing on one at a time. Despite the hostility and heated debates in the crypto community, Paulinia finds the experience fascinating. During this unique podcast episode, Paulinia and the Bankless team discussed their experiences and even shared movie recommendations.
From arts to crypto, Polina's multifaceted persona: Polina, an anonymous crypto personality, uses her unique ability to synthesize complex info and present it clearly, gaining a large following despite no technical background.
Behind the technical and provocative persona on CryptoTwitter, there's a person with a rich interest in arts, entertainment, and culture. Polina, who prefers to keep her identity anonymous, has a primary focus on these fields in her day jobs but also indulges in various hobbies. Despite her technically adept persona on CryptoTwitter, she admits to having no technical background or qualifications. Instead, she has a unique ability to synthesize complex technical information and present it in a clear and engaging way. Her presence on CryptoTwitter grew quickly due to her viral posts, but she now spends less time there and focuses on her other projects. Her approach to crypto is a mix of appreciation and critique, and she is known for her neutral and scientific perspective. Her ability to build on first principles and call out the fluff has resonated with many in the community. In essence, Polina's persona on CryptoTwitter is an illusion, and her true interests and skills lie in the realm of arts, entertainment, and culture.
Crypto's Potential Outweighs Its Drawbacks, But Concerns About Current State: The speaker acknowledges crypto's benefits but expresses concerns about its current state, which they see as having more gambling and scam activities than value creation. They envision a future where crypto integrates into traditional financial systems, improving trust and efficiency.
While the speaker has a nuanced view on crypto, acknowledging both its potential benefits and drawbacks, they believe that the good aspects of crypto, particularly at the protocol and cryptography levels, outweigh the bad in the long run. However, they express concerns about the current state of crypto, which they see as having more gambling and scam activities than value creation. They also believe that traditional financial systems, such as banking and FinTech, are improving and providing value to a majority of humanity. The speaker envisions a future where crypto integrates seamlessly into traditional financial systems, filling gaps and improving trust. They also emphasize the importance of trust and believe that it is more efficient and scalable than trustless solutions. Ultimately, they see crypto as a force that compels traditional financial systems to compete and improve, rather than becoming obsolete.
The potential of cryptocurrency to create trustless systems and disrupt traditional finance: Cryptocurrency's trustless nature enables the creation of 'can't be evil' systems and the growth of decentralized finance projects, offering potential for financial inclusion and innovation.
The trustless nature of cryptocurrency and its underlying technology allows for the flourishing of human trust and the creation of "can't be evil" systems on top of it. However, it's important to remember that not all parts of crypto are inherently good, and there have been instances of scams and malicious activities. The excitement around decentralized finance (DeFi) projects like Uniswap comes from the belief that these tools will continue to grow and improve traditional financial systems. As an investor, Polinaya has a unique value accrual thesis for crypto, which focuses on the efficient allocation of capital and the potential for immutable protocols to exist as public goods for all. She believes that the future is better when capital is allocated more efficiently and that investing in areas of culture, arts, and entertainment, particularly independent and innovative works, can have a significant impact on society. Despite her investment focus, Polinaya emphasizes that making money is not the most interesting part of investing for her. Instead, she is drawn to the potential for cryptocurrency and decentralized systems to create a more efficient and inclusive financial system. Overall, the conversation highlights the potential of cryptocurrency and decentralized systems to disrupt traditional financial systems and create new opportunities for innovation and financial inclusion.
Investing in crypto for personal satisfaction and belief in tech: Believing in crypto technology and investing for personal satisfaction can lead to rewards beyond financial gains. Ethereum's app layer and potential in DeFi make it a valuable asset, but other Layer 1 assets may also capture value with a focus on economic sustainability. Both Bitcoin and Ethereum have value in tackling the money problem differently.
Investing in cryptocurrencies or blockchain projects for personal satisfaction and belief in the technology, even if it doesn't guarantee a profit, can be more rewarding than focusing solely on financial gains. The speaker also discussed the potential value distribution between different layers of the crypto tech stack, specifically focusing on Ethereum. He believes that Ethereum, as a platform with a strong app layer and the potential to become a valuable asset due to its current trajectory in DeFi, could capture more value than ETH as a standalone asset. However, he also acknowledges that other Layer 1 assets have the potential to improve and become better money over time with a focus on economic sustainability. Ultimately, the speaker sees value in both Bitcoin and Ethereum, each tackling the money problem in different ways.
Balancing decentralization and financial dominance: Ethereum's success depends on balancing decentralization and financial dominance, ensuring trust and resilience through decentralized features, and adapting to new use cases on layer 2 solutions.
Decentralization and financial dominance are crucial aspects of a successful cryptocurrency. Decentralization, which includes anti-corruption resistance, a large group of block producers, censorship resistance, and uptime, is essential for creating a trustworthy and resilient asset. Financial dominance, on the other hand, is inevitable due to the limited block space and the value of financial transactions. However, it's important to note that other blockspace consumers, such as gaming applications, could potentially compete with DeFi for block space consumption on layer 2 solutions. Ultimately, Ethereum's future success will depend on its ability to balance these two aspects while continuing to innovate and adapt to new use cases.
Arbitrum: A Popular Layer 2 Ethereum Scaling Solution: Arbitrum, a fast and cheap Ethereum layer 2 scaling solution, attracts NFT collections and DeFi protocols, offering exclusive rewards and asset bridging from multiple exchanges.
Arbitrum, a layer 2 Ethereum scaling solution, is gaining popularity among NFT collections and DeFi protocols due to its fast transactions and cheap fees. Notable NFT collections have moved to Arbitrum, and users can bridge assets from over 10 exchanges to explore new crypto opportunities. Arbitrum also offers exclusive NFT rewards for joining events like the Arbitrum Odyssey. The Brave Browser, with its secure multi-chain crypto wallet built-in, provides an extra level of security compared to browser extension wallets. As for the value capture potential between Ethereum's app layer and layer 2 solutions, it depends on the specific nature of the layer 2 solution. Generalized roll-ups focusing on DeFi, like Arbitrum, have the potential to capture significant value due to high financial transactions and associated gas fees and MEV potential. Specialized roll-ups, like SarkX, may not capture as much value through fees but could be lucrative based on the strength of their applications' revenues. Ethereum's use as digital money on both layer 1 and layer 2 solutions also adds to its value capture potential. Overall, the value capture potential of layer 2 solutions is complex and depends on the specific nature of the solution and the crypto space.
The Role and Value of Ethereum L2 Solutions: Ethereum L2s can range from enabling apps to becoming innovative money plays, potential impact on Ethereum's value as settlement layer, future holds mix of possibilities, real driver of value accrual may be Ethereum's use as money across various layers and applications.
The role and value of Layer 2 (L2) solutions in the Ethereum ecosystem are complex and multifaceted. L2s can range from capturing little to no value themselves but enabling valuable applications, to becoming innovative money plays with their own ecosystems. The value accrual for Ethereum through L2 demand for block space is a topic of debate, with the potential for EIP 4844 and dank sharding leading to an abundance of data capacity and negligible fees for L2s. This could impact Ethereum's value as a settlement layer and its use as money on various L1s, L2s, and side chains. The future holds a mix of possibilities, including free-to-use L2s with smart contract commissions and innovative L2s that become primary collateral in their ecosystems. Ultimately, the real driver of value accrual may be Ethereum's use as money across various layers and applications.
L2 solutions may not pay Ethereum fees but still accrue value: L2 tokens gain value through congestion fees, MEV, network effects, or alternative fee structures, while Ethereum remains the dominant settlement layer.
Despite the potential for layer 2 (L2) solutions to significantly increase their capacity post-EIP 4844 and danksharding, they are expected to pay negligible fees to Ethereum for block space due to the abundant nature of data in the L2 world. However, this does not mean that L2 tokens themselves won't accrue value. Instead, they may do so through mechanisms like congestion fees, MEV, network effects, or alternative fee structures. The Ethereum network will remain the primary settlement layer due to its larger economic capacity and the interoperability between different L2 solutions. This is not bearish for ETH as it will continue to be the dominant currency used across most L2 networks. Rollups are additive to the Ethereum ecosystem, inducing new demand and expanding its capacity rather than competing with it.
Ethereum as the Base Currency in Layer 2 Solutions: Ethereum's larger capacity, native security, and strong network effects make it the primary currency in layer 2 solutions. The relationship between Ethereum and layer 2 solutions is symbiotic, with Ethereum providing valuable settlement services and layer 2 solutions paying for them.
Ethereum (ETH) is expected to be the primary currency in layer 2 solutions due to its larger capacity, native security, and strong network effects. The relationship between layer 1 (ETH) and layer 2 (rollups) needs to be decoupled for full scalability, but it will remain symbiotic as Ethereum will be the money inside these layer 2 solutions, and trade will still route through the layer 1. The 4844 proposal does not change the fact that Ethereum provides the highest quality settlement services, and rollups bid for them. Despite some criticisms, Ethereum's model is not about forcing layer twos or ecosystems to pay rent, but rather a market-driven relationship where Ethereum offers valuable services and layer twos pay for them.
Ethereum L1 and L2s Coexisting in a Multi-Chain World: Ethereum L1 and L2s will coexist, with L1 serving as the home base for most DeFi and economic activity due to security and robustness, while L2s handle transactions with lower fees. However, connecting and making available liquidity and protocols between L1 and L2s is a challenge.
The Ethereum blockchain and layer 2 solutions like roll-ups are expected to coexist in a multi-chain world, with Ethereum L1 serving as the home base for most DeFi protocols and economic activity due to its security and robustness. Roll-ups, which pay significantly less in fees to Ethereum L1, are expected to handle the majority of transactions in the future. However, Ethereum L1 will continue to improve and expand its capacity. The challenge is seamlessly connecting and making available the liquidity and protocols from L1 to L2s. Some DeFi apps might consider having their own layer 2 for specific use cases, but they would lose atomic composability with other Ethereum L1 DeFi protocols. Ethereum is not unique in this space, as other chains can also follow its path and even compete with it on the value accrual level. The future might see a few global monetary asset and settlement layer chains emerging, but it's uncertain how many there will be. Ultimately, the crypto ecosystem will continue to evolve with various chains and bridges playing their roles.
Comparing Chains and Bridges in Crypto: Cardano's Approach: Cardano, a top crypto contender, offers inclusivity, accountability, and easy-to-run nodes as alternatives to Bitcoin and Ethereum. Its community is dedicated, and validator distribution is best in the industry. They're working on roll-up solutions and aim to improve upon traditional systems' foundational learnings.
The crypto space can be compared to the debate between chains and bridges, or thesis projects like Cosmos versus Ethereum. While some may argue for one over the other, the ideal solution might be a combination of both. Cardano, the third-largest cryptocurrency outside of Bitcoin and Ethereum, is a strong contender in this space. It prioritizes inclusivity, accountability, and easy-to-run nodes, making it a compelling alternative to both Bitcoin and Ethereum. Cardano's community is dedicated, and its validator distribution is the best in the industry. Additionally, they are actively working on roll-up solutions like Orbis and Macomata. However, the industry is known for its tribal nature, and Cardano, like many other projects, can be seen as a cult. While some criticisms of Cardano may be valid, it's important to remember that it's a real project with real research and development. If we could change one thing about crypto, it would be for the industry to be more humble and pragmatic. Instead of trying to reinvent the wheel, crypto protocols should build on the foundational learnings from traditional systems and improve upon them. By taking a more practical approach, we can create solutions that work for everyone, not just a select few.
Learning from the Past and Building on Achievements: Embrace the past, learn from it, and build on the achievements of others in the crypto community. Understand Ethereum's modular blockchain thesis and the importance of education for crypto scalability through roll-ups. Stay informed and enjoy the crypto journey.
Polina, a prominent figure in the crypto community, emphasized the importance of learning from the past and building on the achievements of others. She also highlighted the uniqueness and value of the human experience and life itself. Polina shared her perspective on Ethereum's modular blockchain thesis and the importance of education in understanding crypto scalability and roll-ups. The conversation also touched upon the lengthy nature of their interaction, which spanned over 5 hours despite appearing to be only 45 minutes to the listener. Polina was thanked for her contributions to the crypto community and the Bankless podcast, and the episode concluded with a reminder to enjoy the crypto journey and stay informed through recommended resources. A key action item for listeners was to check out the Bankless modular versus monolithic blockchain show and Polina's top articles for a deeper understanding of Ethereum roll-up scalability. Lastly, the risks and disclaimers were addressed, reminding listeners of the inherent risks in crypto and the importance of being informed and prepared for the journey ahead.
