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Collection for podcasts • 511 items • Updated • 2
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A | Why are l two tokens bullish? That is the topic today on bankless stakes. Bankless stakes is an episode where David and I just speak our mind on whatever we want to talk about. And today we decided to talk about. |
B | You want to talk about layer two tokens? |
A | Yeah. Are they bullish? Are they bearish? I mean, that was kind of a question. A few things we're going to take on the question of are l two tokens worthless governance tokens? That is narrative going around. Will they accrue any value or are they actually bullish? |
B | Ryan, before we get into the conversation, why, why are we having this conversation? Where, where did this come from? |
A | Well, you were out mountain climbing, David. There was some robust discussion in the bankless citizen discord, as there always is, by the way. |
B | So if you are a bank account, it's been crescendoing. |
A | You should join in a big way. Great discussions. Anyway, the question was posed exactly as I stated, like, are l two tokens going to go up? Are they bearish? Are they bullish? Are they just worthless governance tokens? How should we think about them? How do you guys think about them? And so this is essentially my answe... |
B | I think we should do it and we'll get right into that conversation. But before we do, a moment to talk about some of these fantastic sponsors that make this show possible, especially. |
A | All right, David, so the first place, and if we're going to talk about l two tokens, we have to see if there's zombie chains or not. Like, is anyone actually using these things? And it's been a few days since I've looked at some of these metrics, but in depth, probably like a few weeks. And it's maybe, maybe worth a re... |
B | Let's set the table. |
A | It's called growthepie XYz. And fun fact, David, you can get a lot of l two metrics. Layer two metrics on the Internet these days. All right, there's a series. |
B | What a great place. |
A | I know it's a series of fantastic sites that put this out. The first is grow the pie. And let's take a look at daily active addresses. You can think of a daily active address almost like a bank account. It's true that a user can have multiple addresses. That is also true. So it's like a one to many. |
B | Probably have like, I don't know, thousands probably. |
A | But this gives you a sense of the number of addresses on the chain. ZK sync era is right now leading in daily active addresses. So these are kind of bank accounts, as it were, using the chain. 428,000 daily arbitrum right behind that, 185,000 linea right behind that 88k op mainnet 66, base 63, scroll 44k on down. Zora ... |
B | The chains that have not issued tokens have a probably a significant premium of activity from people who are just using the chain to hunt the token. And you can probably see that both in the daily active addresses and also the transaction counts for some of these chains. |
A | And which ones would those be like? Zk. |
B | Zksync era is the big one. Linnea also very big. Base is probably not being airdrop hunted, because I don't think people are really thinking about a base token. And so there's opportunity costs to hunt the base token when you could be hunting, like, zksync has been talking about their token for, like, 2019 or something... |
A | So good numbers on that and certainly up only on the transaction count. We're seeing kind of up only numbers as well. So you'll notice some massive spikes here, too. Like, see this arbitrary. |
B | Those are gonna be in inscriptions. Inscriptions. |
A | Right, inscriptions. |
B | That was the spike that took down the arbitrum chain. |
A | Exactly. This was. |
B | But also was the number one largest daily transaction volume of any layer two. |
A | Yeah. So really stress tested. |
B | Arbitrary, actually stress tested. |
A | So this is definitely a metric for usage, but it can be gamed in, like, all various ways that we've sort of seen. |
B | One transaction does not equal one transaction. Not all transactions are the same, but. |
A | Still, I mean, you want to see an up trend line over time, and you'll see spikes for volatility. It's also a good stress test of how many transactions these networks can actually a handle before falling over. So CK sync era right now is the current lead with 1.3 million transactions on a daily basis. Arbitrum is second... |
B | Did you hear the report as to why arbitrum toppled over when the inscription attack got it? |
A | A little bit, yeah, I don't recall the details. |
B | I think it was something super trivial. It was like an out of date prism client. And once they updated it, it was like, oh, it's done, we fixed it. |
A | That's the problem when you just have one sequencer as well, right? |
B | Which multiple sequencers can start to fix liveness failures. |
A | Op mainnet is next. 369,000 and then base and immutable x is on there. Linnea is on there as well. |
B | Congratulations to arbitram for passing 500 million transactions. I don't know if that makes them number one in total raw transaction count. It could be. They could be number one in that for layer two. That's pretty cool. For layer twos. Yeah, that's pretty cool. And arbitrarium probably has the highest ratio of total ... |
A | Yeah, they've been around for a while too. Stablecoin metrics as well. So arbitram has about $2 billion worth of stable coins on chain. OP has 610 million and then base. All right, this is one to watch for stable coins. You know that Coinbase is going to send some love bases. |
B | They're going to put the USDC on the base chain. That's where it's going to go. And then circle which Coinbase owns 25% of is going to go public. And then base is going to be the visa competitor. That's my prediction. |
A | That feels like a good solid prediction. So this is at 300 million right now, but I expect that to like ten x blossom. Yeah, 50 x. I don't know, something like that. It's going to be pretty large then a total value locked. This is a pretty astounding statistic. So, yeah, so if we look at the total arbitrum chart, 22 bi... |
B | I really like having base metrics here because they feel so pure optimism. And arbitrum probably pretty damn pure. Too arbitrary, I think recently has some liquidity incentives going on that are kind of juicing some numbers, but the base is, they're not going to juice liquidity, they're not launching a token. So the ba... |
A | I agree. And by the way, we're talking about the big ones, but there's this massive long tail of layer twos that aren't even listed on this website that are kind of trying to compete. We haven't even talked about mantle. That's been a massive grower lately. Then there's another metric which I think is useful, which is ... |
B | Okay, so this is kind of the punchline that we're getting to, right? |
A | I think. So this is going to be part of how we talk about l two tokens and why they're valuable. But this says arbitrum. Yesterday was about 60k in on chain profit. And you could see like, look at these massive spikes. So there was a day where a base was making, let's see, three hundred eighty k per day. That was July ... |
B | That must have been like launch. Yeah, yeah. |
A | Launch around that, like series. So it's spiky. This is these averages. |
B | Yeah, yeah. |
A | These daily averages are not necessarily kind of like the annual averages, which would be. |
B | This is a seven day rolling average. It says. |
A | Okay, seven day rolling average. |
B | So still spiky, by the way. Seven days. |
A | We should explain what profit is. Okay, so what profit basically is. Why don't you explain it, David? |
B | Well, the grow the pie website has it actually pretty laid out strong, pretty strongly here because they have this economics section of the tabs that we're looking into. And page number one in this section is fees paid by users, aka layer two, gas fees. The next page is rent paid to the layer one, aka the gas fees paid... |
A | And they'll pass these savings onto the user. Right. What I love about this is it's such a simple model. It's a value added reseller type of model. So you have a supply of block space that Ethereum sells wholesale. It's like, hey, who wants my block space? I'll sell it to you. And a bunch of layer twos are bidding on t... |
B | They're profitable by default. |
A | Yeah. Now, of course, we're not taking into account, like, how much it costs to run the sequencers. We're not taking into account how much it costs to, like, develop the software, do the marketing for these chains. All of that is additional cost that is outside of this type of a p and L. Right. But you can clearly see ... |
B | Would never not laugh at that, David. |
A | There's $50 billion worth of stable USDT, primarily on tron stables, $69 billion. |
B | Nice. In stables on Ethereum, and there's $50 billion on TrOn. And Tron doesn't even have defi. It just has payments. |
A | Exactly. So that's an interesting sort of, I guess, like edge case, but is real utility for some people. Binance smart chain. Let's see. Binance smart chain is next with about 6% and then arbitrum, 4%, 4.6% solana, about two and a half percent. Optimism, 1.5% polygon, 1.5% avalanche, 1.5% on down. Okay, so arbitrum is ... |
B | Yeah. And the way I would perceive TVL on chain on chains is a little bit like potential energy. Just having TVL on chain doesn't actually natively produce any economic activity. Like, you can just hold, you know, all your stables on arbitrum and not do anything with it, and you actually won't make arbitrum any money b... |
A | I would say, yeah, for sure. It's a game build metric. It's a metric you can't fully rely on when the native token goes up. Like it's going to spike in terms of TVL. Right? We've saw that with Solana. |
B | Are we counting native tokens in TVL here? I don't think we are. |
A | Oh heck yeah we are. Yep. |
B | Oh, okay. |
A | It's all like total value locked on these chains. |
B | Okay. |
A | Like sole token goes up, you're going to get a massive increase in tbl token. |
B | Well, that makes sense. That makes sense for the native asset of a layer one on a layer one. But like if op goes up and there's op on optimism, I guess. Yeah, TVL and optimism goes up. Okay, sure. |
A | All right, so that's the baseline setting of state of the l two s from a metrics perspective. So the big question that we're trying to answer here is are l two tokens going to go up in price or are they just worthless governance tokens? This was the question posed in the bankless discord that I mentioned earlier. I wan... |
B | Concept for understanding the world. |
A | Yeah. And so my biases, let's call them, are one long term time horizons. Right? So I'm not a narrative trader, I'm talking when I'm in the context of this two to seven year intervals. Okay? This is different. If you're doing narratives, you're doing like three to twelve month time horizons. So for the listeners, this ... |
B | I have a high and mighty. |
A | Yeah, high and mighty. |
B | Holier than that. |
A | Fundamentals. What do you think? |
B | Fundamentals? |
A | Yeah. Okay. Because there's holes with the idea of fundamentals, right? So I have a. |
B | Your fundamentals are not everyone else's fundamentals. |
A | Exactly. And fundamentals are just like a consensus technology at the end of the day, and. Right. So what I'm trying to do is get everyone else to agree to my fundamentals. |
B | My fundamentals are better than your fundamentals. |
A | Yeah, exactly. But mine are better, David. |
B | No, that's why we talked about them. |
A | My specific definition of fundamentals is for chains that sell blocks, right? This would be an alternative layer one or layer two. Long term profitability. That's the fundamental. I look, which we just talked about what that means. It's the revenue that the chain brings in by selling blocks, less its costs, which are t... |
B | Money flows from elsewhere into your vault, and you can measure that. That is fundamentals. |
A | I mean, this is kind of how equities, like, are valued, right? It's like, you know, of course, this perceived growth ratios counted cash flows over time, right? That is at least some utility value consensus that the market kind of believes, right? So. But this may not be the way the market decides to value blockchains ... |
B | It is a cheat code for they're. |
A | Just value added resellers, right? Instead of like, ethereum's doing the hard work instead of bootstrapping their own military and court service and police force and all of these things, Ryan, means security. |
B | And smart contracts and ecosystem. |
A | Exactly. They just take all of that and then they resell it. And they can resell both layer one block space and data availability block space. So they could go take Celestia and resell it. They could go take Ethereum, Lyra just. |
B | Started doing, yeah, they could go take. |
A | Eigen Da and resell it. And that's what they're doing. And so they're always going to be more profitable than somebody who is issuing their native token. Just look at the PNLs, just look at Costco. So they have an advantage there that I think is hard to compete with. Now this is a caveat, and this is where the kind of ... |
B | And capital, okay, share adoption, trust brands, it won't matter. |
A | An l two zombie chain is just still a zombie chain and it's not producing revenue or profits. And if an alternative layer one is able to capture that value, then they now I would just say, what have we just seen? I mean, we looked at the numbers, we've seen traction for arbitrum, for op, for polygon, for base, for Zk s... |
B | Like, nah, you're saying it's being disproven as in it's the only strategy that can do that. Exactly. It's still happening. |
A | It's still in the mix for sure. |
B | And there's people who are valuing layer ones who are negative in economics, as in they're issuing more tokens than they are accruing in fees. The market is assigning a growth premium, a P e ratio for layer ones who are operating at a loss in order to incentivize growth, which is a tried and true strategy that we've se... |
A | Exactly. And so I'm just making the case that l two s are not positioned to be valueless governance tokens. Not necessarily that they will exceed alternative layer ones, but you can see that they're doing a lot in terms of traction. The last piece on this kind of worthless governance stakes is I am not bearish on gover... |
B | Cash flows certificates with regards to the paper. |
A | Exactly. But they have some sort of legal guarantee to cash flows so long as the governance token has a code based guarantee eventually to cash flows. To me that is a value accruing device. We'll contrast this with something like the unitoken right now does not have a fee switch. There are transaction fees and value ac... |
B | Yeah, you said l two tokens are governance tokens with cash flows. I would just amend that just in a slight way, just to l two tokens are governance tokens over cash flows. That's the thing that they govern over. The base case is what I would say arbitrum currently is, which is you can go look at the smart contracts of... |
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