Thomas on Warpcast

Content pfp

0 reply

0 recast

0 reaction

kripcat.eth 🎩 pfp

kripcat.eth 🎩

Genuine question. To what extent is it possible for ETH to become “top heavy”? Is there a timeline where the modular blockchain thesis is successful and thousands of L2s collectively form the global infrastructure of a new decentralised financial system, shuffling trillions of dollars in value daily, all settling down to mainnet but ETH the asset does not accrue a substantial portion of this value? Doesn’t the economic security model ensure that if ETH is the backbone of a massive financial system, but undervalued as an asset then the whole system is vulnerable to attack? Is it possible to be bullish on the modular thesis but bearish on ETH the asset?

4 replies

0 recast

3 reactions

Thomas pfp

@aviationdoctor.eth

This sounds like the inverse of the fat protocol thesis which keeps me awake at night (that, and jet lag). In Web2, the value accrues to the application layer and not at all to the protocols (HTTP, TCP/IP, TLS, etc.), which are an indispensable commodity, but a commodity nonetheless. In Web3, the value is supposed to accrue in reverse of that. But that thesis was formed in 2016, well before L2s appeared on the roadmap. That’s important because as an ETH hodler/staker, I own part of the Ethereum protocol, but I don’t own any of the bespoke L2s that are increasingly app-like (think Base and the literal Coinbase Wallet app built as its front end) and capture value through sequencing. The other aspect that the fat protocol thesis didn’t anticipate is when the unit cost of settling onto the L1 asymptotically trends toward zero due to blobs and other blockspace capacity scaling innovations. So yes I think it’s a valid concern and I would love to be explained why I’m wrong

2 replies

0 recast

2 reactions

kripcat.eth 🎩 pfp

kripcat.eth 🎩

Kind of. What you described has been a concern that I’ve in the past. But my own internal counter-point to this concern has been that in the event that ETH is dramatically undervalued relative to its L2s then the cost benefit would eventually reach a point where a 51% attack would be inevitable. If I’m a sufficiently large actor and I can undermine, control or exert influence over 20 trillion dollars in capital in a way that benefits me by buying half of a $500 billion dollar asset I’m going to do it. So in this way the L2s themselves have a strong incentive to ensure that the price of ETH the asset rises in proportion to the value it secures. Otherwise they lose their cash cow. Even to the point that L2s orgs may buy ETH simply to secure their own credibly neutral settlement layer. So if you believe the broad ETH ecosystem succeeds, then you have to believe in value accrual to ETH. I guess I’m trying to sanity check this mental war game.

1 reply

0 recast

3 reactions

Thomas pfp

@aviationdoctor.eth

I agree that the L2s have an incentive for the L1 security to remain at an unaffordable level for any 51% attacker, but practically speaking, how can L2s buoy the ETH price? They can only pay whatever gas the L1 charges for block space. If the L1 charges too little, that’s a design consideration for the dev team collectively working on the L1 specs, not something the L2s can fix (at least not directly; they can of course use some of their own proceeds to buy and lock ETH to remove sell pressure from the market).

1 reply

0 recast

0 reaction

kripcat.eth 🎩 pfp

kripcat.eth 🎩

I think you’re right that L2s have no on-chain mechanism to buoy ETH price. But say if , in the future, Base is the majority of Coinbase’s revenue they’ll be incentivised to buy and hold ETH to secure that revenue. Same is true for devs. Although they’re famously agnostic about price action they do care about the success of the network and if the success of the network depends on value accrual to ETH, they’re incentivised to ensure the protocol delivers this over time.

0 reply

0 recast

1 reaction