Podcast Summary
Crypto Fundamentals: Understanding crypto asset fundamentals like daily active users, fee revenue, and total value locked is crucial for relative valuation, even if the market doesn't yet trade on cash flows.
Michael NATO, a crypto analyst and founder of the Defy Report, emphasizes the importance of fundamentals in analyzing crypto assets like Ethereum and Solana. He believes that while the market may not yet be trading on cash flows, understanding key performance indicators (KPIs) such as daily active users, fee revenue, and total value locked is crucial for relative valuation. Michael shares his insights on why fundamentals matter, the data for 2024, and the catalysts for Ethereum and Solana. He also discusses his price predictions for both assets in the current bull market cycle. Additionally, there's an exciting announcement from Puffer, an Ethereum staking protocol, about their new roll-up technology called Puffer Unify, which aims to tackle Ethereum's layer two fragmentation problems. Overall, the conversation highlights the importance of fundamentals in the crypto world and the ongoing process of determining the most effective KPIs for relative valuation.
Crypto Fundamentals: Comparing crypto projects based on fundamentals like total value locked, number of users, transactions, developers, and application activity can reveal undervalued assets and inform investment decisions.
The growing involvement of traditional finance institutions in crypto is bringing a fundamentals-based approach to investing in crypto assets, which is unique to this new asset class due to its social and database fundamentals. This was highlighted in a report comparing Ethereum and Solana, where Solana was found to be significantly undervalued based on metrics like total value locked, number of users, transactions, developers, and application activity. Despite the bear market and Solana's market cap being just 3% of Ethereum's at the time, the report argued that this was a dislocation in price that didn't reflect the actual fundamentals of the project. Since then, Solana has appreciated to capture 17% of Ethereum's market cap, making it a valuable trade in the current cycle. The report also noted that while bot activity and civil activity pay fees and contribute to the user base, they are still considered users in the analysis. Overall, this fundamentals-driven approach provides a valuable perspective for understanding the value of crypto assets and making informed investment decisions.
Solana vs Ethereum fees and trading volume: Solana's fees have been rising significantly and a large portion comes from transaction ordering (MEV), while Ethereum has outsourced some of its transaction ordering to layer 2 solutions. Solana's dex trading volumes reached 36% of Ethereum and layer twos in Q2, but overall trading volume still trails behind.
While Solana has been gaining ground on Ethereum in terms of daily active addresses and layer two fees in the current market cycle, it's important to note that Solana was actually higher than Ethereum in terms of fees during the peak of the previous bull market. However, the fees on Solana have been rising significantly in recent months, and it's worth noting that a large portion of Solana's fee revenue comes from the ordering of transactions, known as MEV. This is different from Ethereum, which has outsourced some of its transaction ordering to layer 2 solutions. Another notable trend is the impressive dex trading volumes on Solana, which reached 36% of Ethereum and the layer twos in Q2. Despite this, Solana still trails behind Ethereum in terms of overall trading volume. Overall, these trends suggest that Solana's growth in the current market cycle is worth keeping an eye on, particularly in the areas of fees and decentralized exchange volume.
Solana growth vs Ethereum: Solana's trading activity outpaced Ethereum in Q2 2021 with $4.7 trillion in stablecoin volume, but Ethereum still has a much larger TVL due to its earlier start and more mature ecosystem.
Solana is experiencing significant growth in trading activity, particularly in the meme coin and stablecoin markets. With over $4.7 trillion in stablecoin volume in Q2 alone, Solana outpaced Ethereum in this metric. However, the total value locked (TVL) on Solana is currently only about 7% of that on Ethereum and the layer twos. This discrepancy can be attributed to Ethereum's earlier start as a proof-of-work blockchain and its more mature ecosystem. The importance of various metrics in valuing Solana is multifaceted, but fees are generally considered the most significant indicator of demand. Other factors, such as user activity and community sentiment, also play a role in the overall assessment of Solana's value.
Kraken and Uniswap: Kraken offers a secure and award-winning trading experience, while Uniswap simplifies swapping across multiple chains. Kraken's intuitive tools and top-notch support distinguish it, while Uniswap's extension provides a smooth swapping experience. Solana has significant user adoption and fee generation, but Ethereum leads in network effects and value accrual due to its modular tech stack.
For a secure and award-winning crypto trading experience, consider using Kraken, and for seamless swapping across multiple chains, try the Uniswap extension. Kraken, a long-standing and secure crypto platform, aims to make trading accessible and fair for everyone, while Uniswap's extension simplifies swapping across various chains. Kraken offers intuitive trading tools and top-notch support, while Uniswap's extension provides a smooth, synergistic swapping experience. Both platforms are growing and innovating within their respective spaces. Regarding the crypto development landscape, Solana now has significant user adoption and fee generation compared to Ethereum, but Ethereum still leads in network effects and value accrual due to its modular tech stack. Solana's monolithic architecture currently allows validators to capture 100% of the value, while Ethereum's L2s distribute fees between the L2 and Ethereum. While Solana may not need L2s yet, Ethereum's network effect remains unmatched. In summary, Kraken and Uniswap offer distinct advantages for crypto traders and swappers, while Solana and Ethereum each have unique strengths in terms of network effects and value accrual. As the crypto space evolves, understanding these differences can help investors make informed decisions.
Ethereum vs Solana scalability: Ethereum's decision to outsource execution to other chains maintains its role as a settlement layer but may lead to lackluster performance in the short term, while Solana's control over both settlement and execution results in better performance in the bull market but potential commoditization of fees
Ethereum's decision to outsource its execution layer to other chains, while maintaining its role as a neutral settlement layer, is a strategic move for long-term scalability and decentralization. However, this design choice has led to a lackluster performance in the bull market compared to Solana, which retains control over both settlement and execution. The Ethereum community believes that this approach will pay off in the future by allowing Ethereum to maintain its role as a base layer for settlement and export ether as monetary assets across various layer two economies. Meanwhile, Solana aims to be a more direct competitor in the execution layer, leading to a potential commoditization of execution fees. Ultimately, the outcome of this strategic difference between the two blockchains will depend on how the market evolves and which approach proves to be more successful in the long term.
Decentralization catalysts for Solana and Ethereum: The development of new technologies like Solana's Fire Dancer client and Ethereum's upcoming ETF could bring institutional investment and impact the networks' fundamentals, ultimately shaping their long-term narratives.
The debates and issues surrounding the decentralization of blockchain networks like Solana and Ethereum will ultimately play out in the long run through the fundamentals, including on-chain revenue and user activity. The development of new technologies like Solana's Fire Dancer client and Ethereum's upcoming ETF are potential short-term catalysts that could impact the networks' fundamentals and attract institutional investment. The Fire Dancer client aims to reduce the risk of single points of failure and bring a sense of security to Solana, potentially making it more appealing to traditional financial institutions. The Ethereum ETF, on the other hand, could bring significant inflows of capital and increase institutional interest in Ethereum as an open-source app store with a large addressable market. These catalysts, along with the ongoing debates and developments in the blockchain space, will shape the long-term narratives of these networks.
Ethereum institutional adoption: Institutional adoption of Ethereum through initiatives like BlackRock's ETF and Coinbase's base platform could lead to a flywheel effect, driving up Ethereum's value and attracting more institutional investors
The integration of traditional financial institutions into the Ethereum network through initiatives like BlackRock's ETF and Coinbase's base platform could significantly drive up the value of Ethereum. This potential influx of institutional capital and increased use of Ethereum for real-world assets could lead to a flywheel effect, where the rising price of Ethereum attracts more institutional adoption, leading to further price increases. Additionally, the growing popularity of decentralized finance (DeFi) applications on Ethereum, such as Uniswap, and the potential for Ethereum to outperform other cryptocurrencies later in the cycle, make it an attractive investment option. However, the user experience on Ethereum remains a challenge compared to other networks like Solana, which could limit its growth potential until these issues are addressed. Overall, the integration of traditional finance into Ethereum and the potential for Ethereum to outperform other cryptocurrencies later in the cycle make it an intriguing investment opportunity.
Ethereum vs Bitcoin: Michael Novogratz predicts Ethereum will surpass Bitcoin in market cap during this crypto cycle, with Ethereum and Solana being major players in smart contract platforms. If Ethereum reaches $1.8 trillion market cap, that's around $15,000 per coin, and Solana at $450 billion equals $900 per token.
Michael Novogratz, a well-known crypto investor and CEO of Galaxy Digital, believes that Ethereum is poised to surpass Bitcoin in market cap during this current crypto cycle, with Ethereum being overweighted relative to Bitcoin and Solana. He predicts that there will be a few major players in the smart contract platform space, with Ethereum and Solana being among them. If Ethereum reaches a market cap of $1.8 trillion, that would equate to around $15,000 per coin. For Solana, if it hits a market cap of $450 billion, that would mean around $900 per token. Novogratz also emphasizes the importance of human behavior in the crypto market and believes that the bull cycle will continue, despite the potential competition from AI and other sectors. He encourages investors not to overthink the market and to trust in human psychology. Novogratz shares his research and analysis through the Defi Report and his podcast.
Mantle Rewards: Mantle's popularity stems from its association with Eigen Technology, high DeFi app yields, and supportive team, offering users potential access to a $3 billion treasury and rewards station, while developers benefit from grants, liquidity support, and venture partnerships.
Mantle, a Layer 2 blockchain platform, has gained popularity due to its association with Eigen Technology, high yields from DeFi apps, and supportive team. Users are attracted to Mantle for the potential to earn from the $3 billion Mantle Treasury and Mantle Rewards Station. Developers, on the other hand, benefit from grants, liquidity support, and venture partnerships offered by the Mantle team. Overall, Mantle's strong foundation, generous rewards, and helpful team make it an attractive option for both developers and users in the crypto space. If you're interested in building on Mantle or participating in its DeFi ecosystem, consider checking it out.