Blockworks Host Jason (J)
Avichal (A) – Electric
Haseeb (H) – Dragonfly
Crypto narratives today
Haseeb – narrative exhaustion; resurgence of Defi 2.0 (Wonderland); game fi has slowed (Axie price falling); overuse of metaverse; L1 wars have stabilized; interoperability is exciting but not many tokens yet
Avichal – far enough in bull market that everyone’s exhausted, like early 2018; is it a top signal; so much activity in every subsector
H: Lots of activity in private / early stage, but not much movement in public / blue chip tokens
So much web3 chatter, but most of the top coins aren’t really web3
It’s not like 2018 (lots of bullshit got funded, floor fell out of market, market lost confidence)
We’re in a waiting game, what’s the next big thing?
Lots of exciting tech is coming in 1-2 years, like big studio games, zero knowledge
A: As a startup, the promise carries you for a few years, and then the real work begins
Wonderland type drama happens all the time in normal startups – but now it’s public and liquid and transparent much earlier
J: In web2, founder has all the equity, but it’s almost flipped in web3, where founders can’t really sell, but the early employees can and are more anon / have more freedom
A: For best founders, money doesn’t change them but shows who they really are – they just dial up their game. It’s an interesting character test. Like Vitalik, it’s mission driven
J: Money is amplification of character
H: Blockchains as cities thesis
Will ETH win everything?
If blockchains are networks, then one will be completely dominant
But blockchains are physically constrained by decentralization and blocksize
Best analogy is land
ETH is old, congested, improvement is slow, but all the money and status is there (NYC)
Scaling: Rollups (skyscrapers); Alt L1 (build another city)
Cities become differentiated – NYC vs LA vs Chicago
This model predicts a few things:
1. Power law distribution of cities / blockchains
2. Rollups are important but not complete solutions
3. Bridges are important as crypto grows (moving between cities)
A: Worked at Google / Facebook
Think about it as countries not cities (bigger cultural differences, more protectionism), but generally agree w/ Haseeb
TikTok can be huge, but so can Snapchat, LinkedIn, Twitter, etc
Free trade matters, maybe need a NATO
pmarca idea – world is moving to city-state model, away from nation-state; internet is fractured, people aggregating into tribal units that are more like Greek city-states
Are there 10 or 100 L1s?
H: markets generally are neutral; there are some axes (like cost, or privacy) where it does matter
Blockchains try to be a neutral substrate
A: Value capture is tied to L1, so maybe things evolve like Flow (gaming focused, more vertical solutions)
Will fragmentation happen at app layer, or L1 layer?
H: Ethereum doesn’t have a single culture now, NFT v Defi v web3
Balkanization will happen within L1s
Solana culture feels different – high performance, build the fastest thing, everyone makes money
But the same balkanization could happen too
J: Identity could get tied up in L1s, but your identity isn’t tied to AWS v Azure v other cloud services
Identity can shift quickly based on token performance
A: If you missed one chain’s pump, you’re motivated to find a new one, but once your net worth is tied to a chain, you’re more incentivized to identify with and stay there
If I can own a piece of the network, do I HAVE to become an evangelist?
Parallels with religion – there’s an “r factor” where the faster you grow, the more likely you can win
J: If you wanna make it in Hollywood, you go to LA, if you want money you go to NYC
AMMs / lending / blue chip apps will be utilities on each L1
A: Tribes have financial incentive to improve L1, so will build apps on top of them
Nationalism is a good comparison – each nation competes with each other, and wants to support their local economies and companies
H: rarely invests in L1s now, hard to differentiate
In 2017-18, crypto was 95% religion, not many real use cases
Now you have real use cases decided by technical differences of scalability and cost and speed
Becoming less about religion, more about needs
A: At 2B crypto users, we may need a lot more L1s, maybe just a period of consolidation now. It’s 5-7 blue chip L1s today, but could it become 50-70?
Also apps choose chains based on # of users too – not just optimizing tech
H: Maybe invest in Atom / Cosmos Hub to get exposure to the long tail of L1s
J: We’re agreeing on a multichain future, and need bridges to connect the chains
Bridges are harder to build than we expected
A: Anti-bridges, if 99% of users aren’t in crypto yet, you don’t want inter-op, you wanna build your own network effects
Bridges give liquidity + some users, but none of that is really sticky
Better off acquiring new users
FB doesn’t want to get MySpace users, but get new users / new demos (like college students)
Solana wasn’t EVM compatible, wasn’t trying to get ETH users, attracting different type of users / money
H: Very pro-bridge
Solana got all its users and liquidity from FTX – which was de facto a bridge
Considers Binance / FTX bridges too – way to move assets across chains
Users don’t care if bridges are centralized or decentralized
Every social network imports email graphs – that was top of funnel – which is equivalent to Ethereum in crypto today. It’s the starting point, there was an existing graph
New users are unlikely to start with Near, most likely to show up on Coinbase and Metamask
A: Point of entry into crypto is FTX / Binance / Coinbase
Bridge technical challenges will get solved
Back to nations analogy, you want capital controls / protect your native users and companies from foreign competitors
More bullish centralized bridges (like Opensea, FTX, etc, bridges broadly defined) over decentralized bridges
H: Avalanche took off because they had a good bridge
Blockchains are economies, and amount of capital really matters
Cross chain messaging is important but central bridges won’t allow that (want to control the info flow) – thus decentralized bridges are useful for that (in addition to moving capital)
J: Sometimes crypto has reverse network effects – more users = more cost and blockchains can slow down
A: R-factor and evangelism create more / less network effects
EVM is javascript of crypto
Tooling and developer network fx
Spectrum of network fx – some are strong (eg, evangelism, being anti-other chains), others are weak – wonder how this will correlate with market structure and outcomes