Is SOL Undervalued? 83% Discount to ETH? | Michael Nadeau

This episode discusses whether the Solana (SOL) cryptocurrency is undervalued compared to Ethereum (ETH), focusing on a detailed analysis of on-chain fundamentals, user activity, fee revenue, and value accrual.

1. Solana's daily active users have reached 50% of Ethereum's users.
2. Solana generated 27% of Ethereum's fee revenue in Q2.
3. Solana achieved 36% of Ethereum’s decentralized exchange (DEX) volume.
4. Solana’s stablecoin volume was 190% of Ethereum's in Q2.
5. Solana's TVL is 7% of Ethereum’s, reflecting its younger ecosystem.
6. Solana has 11% of Ethereum's core developers, indicating a growing developer community.
7. Solana's Fire Dancer validator client is expected to enhance network stability and performance.
8. An Ethereum ETF could significantly boost ETH's market performance.
9. Ethereum’s value accrual is diversified across its modular tech stack, whereas Solana captures value more directly through its monolithic architecture.

1: Introduction and Overview

Ryan Sean Adams introduces Michael Nadeau and outlines the main question: Should Solana be trading at an 83% discount to Ethereum?

• "Ryan Sean Adams: The price of the Sol token is currently trading at an 83% discount to ether."

2: Fundamentals of Crypto Asset Analysis

Michael explains his approach to analyzing crypto assets, focusing on on-chain fundamentals.

• "Michael Nadeau: His lens really isn't technical. He just looks at current on-chain fundamentals."

3: Solana vs. Ethereum: Daily Active Users

Comparison of daily active users between Solana and Ethereum.

• "Michael Nadeau: Solana averaged 1.3 million active users, which is about half of what Ethereum plus all of those L2s are doing today."

4: Fee Revenues and Their Significance

Analysis of fee revenues on both networks and what they indicate.

• "Ryan Sean Adams: Fees represent block space that has been purchased."

5: Decentralized Exchange Volumes

Evaluation of DEX trading volumes on Solana versus Ethereum.

• "Michael Nadeau: Solana did 108 billion in DEX trading in Q2, 36% of Ethereum's volume."

6: Stablecoin Volumes and Velocity

Insights into stablecoin activity on Solana compared to Ethereum.

• "Ryan Sean Adams: Solana did 4.7 trillion in stablecoin volume, outpacing Ethereum."

7: Total Value Locked (TVL)

Discussion on the significance of TVL and Solana’s performance.

• "Michael Nadeau: Solana averaged 4.3 billion of TVL, 7% of Ethereum."

8: Developer Activity

Comparison of core developer activity between the two networks.

• "Michael Nadeau: Solana averaged 59 active core devs, 11% of Ethereum's."

9: Value Accrual Mechanisms

Differences in how Solana and Ethereum capture value.

• "Ryan Sean Adams: The execution layer is kind of the commodity here."

10: Upcoming Catalysts

Upcoming events and developments that could impact both networks.

• "Michael Nadeau: Fire Dancer validator client and Ethereum ETF are key catalysts."

11: Conclusion and Market Predictions

Michael's final thoughts on the valuation discount and market predictions.

• "Michael Nadeau: The conclusion is that the number is still too low. It could go up to 25% of Ethereum's market cap in this cycle."

1. Monitor On-Chain Metrics: Regularly check daily active users, fee revenues, and DEX volumes for insights into network activity.
2. Stay Informed on Upcoming Catalysts: Keep an eye on developments like Solana's Fire Dancer client and potential Ethereum ETFs.
3. Diversify Investments: Consider diversifying investments across multiple Layer 1 blockchains to mitigate risks.
4. Evaluate Developer Activity: Follow core developer activities to gauge the health and growth potential of blockchain networks.
5. Understand Value Accrual: Learn how different blockchains capture value to make informed investment decisions.
6. Follow Market Trends: Stay updated on market trends and cycles to anticipate potential price movements.
7. Consider Long-Term Fundamentals: Focus on long-term fundamentals rather than short-term market fluctuations.
8. Use Reliable Data Sources: Utilize trusted sources like Artemis for accurate on-chain data and analysis.
9. Engage with Community: Participate in community discussions to gain diverse perspectives on blockchain developments.
10. Prepare for Market Volatility: Be ready for market volatility and have a strategy in place to manage risks.

SOL is currently trading at an 83% discount to ETH - should it be?

Michael Nadeau is a crypto analyst who can help us answer this question. His approach isn’t technical, he isn’t a decentralization-maximalist, and he doesn’t represent any specific tribe. Instead, he focuses on current on-chain fundamentals like daily active users, fee revenue, and Total Value Locked to provide insights.

In our discussion, we explore why fundamentals matter when analyzing crypto assets like ETH and SOL. We review the data for 2024 to see who’s winning and examine the catalysts for both ETH and SOL. Additionally, Michael shares his price predictions for ETH and SOL this cycle and offers insights on which asset will outperform the other in the second half of the bear market.

People

Michael Nadeau, Ryan Sean Adams

Companies

Solana, Ethereum, Blackrock, Coinbase

Books

None

Guest Name(s)

Michael Nadeau

Content Warnings

None

Michael NATO
If you get to 1.8 trillion, that's about slightly under 15,000 per coin for ETH. If Solana gets into that 450 billion range, that gets you above $900.

Ryan Sean Adams
Bankless nation. The price of the Sol token is currently trading at an 83% discount to ether. The question is, should it be trading at a discount? We have Michael NATO on the podcast today. He is a crypto analyst who can help us answer this question I think is a very relevant one for investors.

His lens really isn't technical. He's not a decentralization maxi. He doesn't represent tribe A or tribe B. He just looks at current on chain fundamentals like daily active users and fee revenue and total value locked of these respective networks. To answer the question of what should these assets be worth, a few things we discuss on today's episode.

Number one, why fundamentals matter when we analyze crypto assets like Ether and Sol. Number two, the data for 2024 and who's winning? Number three, the catalyst for Ether and the catalyst for soul. Number four, his price predictions for Ether and sol this cycle. Which asset will outperform the other on a relative basis in the second half of this bull market?

I won't spoil this now. You got to wait till the end. And before we get there, got an announcement from our friends over at the staking protocol, puffer. So you probably know puffer as an Ethereum staking protocol. Well, now they are doing something even more exciting.

They're releasing a roll up that helps solve Ethereum's layer two fragmentation problem. That's a problem we've been talking about a lot on bank lists. It's called a based roll up, and it's called puffer unify. We are really excited about based roll up tech. You've probably heard Justin Drake on the podcast talk about it.

How does it work? Puffer unify leverages layer one. Sequencing integrates pre conformations from puffers restaked validators. So all of that results in benefits like synchronous composability and unified liquidity in Ethereum's layer one. So this fixes fragmentation.

It also features fast confirmations, pre conformations, I should say. And there's native yield on your eth in the form of unify eth. So go check that out. Really think that this is the next generation of roll ups on Ethereum. It tackles Ethereum's fragmentation and it unifies ununified liquidity.

So if you want to find out more about puffer unify, and I suggest you do go take a look at their litepaper. There's a link in the notes. And if you are a developer and you want to build on top of this exciting new frontier, then fill out the form in the show notes and you can get started. All right, let's get to the episode with Michael right now. Now, bankless nation.

Very excited to introduce you to Michael NATO. He's the founder of the DeFi report, and he writes some of my favorite analysis in crypto. I got to say that because his focus is old fashioned fundamentals, you know, old school on crypto. So he likes to analyze tokens, crypto assets like equity as capital assets with cash flows. He also models the demand for crypto assets as money.

And he has less of an emphasis on some of the attention metrics, let's say the attention economy behind crypto, and more focus on overall fundamentals. Anyway, it's just a great blend to me of crypto native knowledge and financial analysis. And I hope the crypto world starts viewing assets, our crypto assets, the way Michael does in his reports. It's just a solid base to figure out what's real. So, Michael, what do you think of that gushing intro?

I don't usually do that for my guests, but I got to say, I'm a big fan of your reports here. That was a gushing intro. I'm blushing a little bit. No, it's great to be here. Ryan, first time, long time.

Michael NATO
Been a fan of the show for a while. So awesome to be here with you. Okay, well, let's open this up with a leading question. So on the agenda, of course, we're going to be talking about Sol versus etH. It might get a little spicy for people out there.

Ryan Sean Adams
In particular, you wrote a report called should Sol be trading at an 83% discount to ETH, which is approximately what it is right now at the time of recording what it is when you publish that report. We're going to table that. Get to that conversation in just a second. I want to ask an overarching question to you before we begin, which is fundamentals. Are they making a comeback in crypto?

And recall the way I just defined fundamentals as, you know, kind of like cash flows. As an equity analyst might view these crypto assets, we are seeing maker. This is a. This is performance of maker MKR, a token in the, in the blue chip defi token. It's never really received kind of the credit fundamental analysts are due.

It's had a great year here so far, and people are talking about maybe the rekindling of fundamentals analysis. Maybe it's fundamentals crypto. Maybe fundamentals are cool again. What do you think are fundamentals? Having a moment, I love to hear this.

Michael NATO
And it is interesting to see this narrative starting to pop up a little bit on Twitter. My view on fundamentals is that everything we do at the DeFi report starts with data. So that's always the starting point. Even if it's a meme coin, right. I think there's actually fundamentals of meme coins.

You can even go in and see how many, what's the growth of token holders? There's fundamentals related to social and what's happening on Twitter and things like that. So fundamentals is a broad term. And I just think that ultimately this is all going to fundamentals. For me.

The fundamentals are easier to sort of wrap your head around, I think in a bear market. And this discussion today, we're going to talk a little bit about Solana versus Ethereum. And really what brought me to Solana initially was studying it in the bear market. I think that's where it's actually easier to see projects, as Warren Buffett likes to say. When the tide goes out, you can see who's been swimming naked and you can see that wash out and you can see what might last in a bear market.

But I love to see this at the DeFi report. We work with some of the data companies in this space that are very focused on fundamentals. We believe ultimately this is where the industry is heading. So it's great to see this narrative out there. Makerdao is obviously one of the projects that has fantastic fundamentals in the space.

Ryan Sean Adams
That's fantastic. Yeah, it's interesting. Somewhat ironic that we mentioned is fundamentals coming back in style as a narrative, which is interesting. That does seem to be the way that crypto markets fluctuate. But what is just the general thesis behind fundamental?

Is it as simple as, hey, in the long term, that buffett, quote, markets are kind of a weighing machine in the short term? He didn't say this, but maybe they're more of a narrative game. But in the long run, fundamentals actually matter. Is it just that simple with respect to why you view crypto assets from a fundamentals perspective, that they're important in the long run and they will reflect in price over the longest period of time? Yes, it is basically that.

Michael NATO
But I think that the market needs to have some sort of KPI's for relative valuation. Think today if you look at the crypto markets, I dont think anybodys making any argument that crypto assets are trading on cash flows, but ultimately, I believe that is where were going, even though were not trading on cash flows. We do have these benchmarks in the market. Youve got bitcoin, ethereum as the two alpha assets, and then everything is a relative valuation on those two assets. Theres always going to be fundamentals and KPI's that the market needs to understand.

I think what we're trying to work through now is, what are those KPI's? When you go back and study how security analysis came about, these are really social constructs. I think it's important for people to realize that the market coalesces around a shared set of ideas because we can make sense of them. The discount cash flow is how do we do this with stocks and equities? Is discount cash flow going to be the thing we use for relative analysis in crypto?

Maybe, maybe not. But I believe we are in this process of sorting that out today. It's funny that the metagame here is not only do you have to believe in fundamentals, you have to get all of the other investors who are buying crypto assets to also believe in fundamentals, as you sort of define it. So it's almost like a coordination game, a consensus game. One reason, I think, to be more bullish on fundamentals, who knows?

Ryan Sean Adams
Maybe not this cycle, but in the months and years to come, is Tradfi's growing involvement in crypto. This is how they're used to viewing traditional capital assets, and they're going to, by default, bring that lens into crypto. I've actually been super impressed with some of the analysis I've seen from shops like Vanek, which, like, they dive into crypto assets. And it's really, it's from a fundamentals perspective. I mean, you could disagree with the variables.

You can adjust them. You can, like, say those assumptions are wrong, that that's all fair game, but the way they're actually coming up with their price predictions and analysis, it's all very much fundamentals based, 100%. And there's different fundamentals for different types of assets as well. You don't use the same metrics for, if you're analyzing a basket of banks as you would for commodities or some other asset class, crypto is a new asset class. And so you do have data based fundamentals.

Michael NATO
But then crypto is very social. It lives on the Internet. It kind of lives on crypto, Twitter. So there's all these other nuances that get folded into fundamental analysis in crypto. That is unique to this asset class.

Ryan Sean Adams
So the reason I led with those questions is because I want bankless listeners to hear how you think about assets and your approach to investing in general. And I think you're bringing this framing to the conversation we're about to have. And that's why I think this conversation is so valuable. So you wrote an analysis report. I think you published this last week.

That kind of caught my eye. I read through this and I think it's a great subject to have an episode on and actually apply what we just heard about fundamentals to two assets that have really been taking a lot of mind. Share this cycle. So ether and Solana. And the title of this report is like, it's a good title, well written.

Made me click right away. Should Seoul be trading at an 83% discount to ether? So you're viewing this from a market cap perspective, and the current market cap fully diluted. I assume Solana is trading at an 83% discount to eth. And should it be?

That's the question. And you call this a data driven investigation. And the reason I wanted to have you on to talk about this rather than somebody else is because I think you can bring a objective, like neutral. Hey, like, this is what the data says, perspective to the analysis. And it's like less tribal infighting.

There's less of this debate between decentralization and centralization. I'm not saying that those debates don't matter. I'm just saying your lens is a little less political, I would say. And it's a bit more objective with respect to the data. So high level, as we get into the key metrics and analysis, what, what are you actually analyzing here?

What are the core data points that you look at when you look at l one tokens like Ether and Solana? Yeah. This comparison between these two l one s in particular goes back to the end of 2022, after FTX, when we really started taking a hard look at Solana. And I was comparing Solana at that time to e three back in January of 2018. And I was seeing some similarities in the data there.

Michael NATO
And really what I was looking at was total value locked Solana versus Ethereum. Back then, I was looking at the number of users, looking at the number of transactions, looking at the number of developers, and sort of the application activity, sort of anecdotally looking at where is venture capital money going, where are VC's sort of focused. And so when I started to see those numbers in Solana, basically looked like Ethereum in January of 2018. This was in December of 22. That sort of forced me to go deeper on Solana at the time when everybody was sort of punching down on Solana and sort of giving up on the project.

So that's where it always just sort of starts with fundamentals for me. And then there's obviously layers of nuance within crypto and analyzing crypto assets, the social layer and the sort of nuance there that we layer in. But that's kind of the core, I guess, fundamental analysis here. Okay. And I want to say something that you said at the beginning of this report, which is you used fundamentals analysis in kind of like the depths of the bear market in December of 2022.

Ryan Sean Adams
And it allowed you to see this dislocation in price. So at the time, December 2022, like bear market, FTX had just, like, imploded. It was the end of the world, particularly for Solana. And at that time, Solana's market cap was just 3% of ethers in the wake of the demise of FTX. So, like 97% off the price of ether.

And so you said you didn't think that was right, and you shared a long Solana kind of report. And since that time, Solana has appreciated a capture. Now it's 17% ethereum. So it went from 3% relative to ether, the asset, to 17%. And it definitely has been the trade of this cycle.

Right? Kind of. The Eth Solana ratio has been a good way to do well. So the question, I think, in this report is, will that continue? Will Solana continue to build its relative value versus eth?

So let's talk about the data, the fundamentals data. The first is this daily active addresses. And if listeners want to go log into like YouTube or Spotify and video, you can see. So the charts that Michael and I are looking at live. But this is a chart of daily active addresses of Solana versus Ethereum plus Ethereum layer twos.

So not just ethereum, it is Solana versus Ethereum plus the layer twos. What are we looking at on this chart on the screen here? Yeah, so this is looking like you mentioned, I think when you do any type of relative comparisons now for Ethereum, you need to factor in probably like the top ten l two s. So we do have, I think, the top twelve included in this report. So all the majors and what Im pulling together here is just were combining Ethereum and were going back to June of 21.

Michael NATO
And just looking at sort of the chart between ethereums growth versus Solana. I mean, ethereums chart looks fantastic right theres. Nothing wrong there. What I'm trying to understand is where does Solana sit relative to Ethereum and the combined Altus? Solana really made a lot of progress, really, over the last six months.

In this report, we were looking at just q two data. For the quarter, Solana averaged 1.3 million active users, which is about half of what Ethereum plus all of those l two s are doing today. So. So it's, it's doing quite well. A few things I noticed from this chart, too.

Ryan Sean Adams
And, um, ether and the l two s are in purple and, uh, Solana is in, in pink. And you say here now, it's about 50% of Ethereum. And the top layer two is from a daily active addresses perspective. One question I just want to get out of the way is do, do we know how much of this is like Sybil activity or like bot activity between the different networks? And like, how does that factor in at all to the analysis?

Michael NATO
Yeah, so Artemis does a good job with this. They do have civil detection now with some of their data. There's definitely a lot of civil activity and bots. My view on this is those things pay fees. So I know there's this narrative that if it's a bot, it's not real, but I think over 60% of trading in tradfi is coming from algorithms.

Ryan Sean Adams
So it's like bots are taxpayers too. Exactly, yeah, exactly. They're users. They are users, and I don't really sort of parse them out. I still think there's product market fit if there's something using the tool, paying fees to do so.

Michael NATO
So certainly plenty of bot activity on Solana, but again, they're paying fees. So, yeah, and we should remember the definition of a user here is like an active address. And of course, a bot can have multiple addresses. A person does have multiple addresses as well, but that's what we're calling a user almost. Think of it as like a bank account, an active bank account here.

Ryan Sean Adams
One other thing I mentioned I noticed from this chart, though, is if you compare this back to the last bull cycle in 2021, 2022, Solana was actually higher in terms of daily active addresses than Ethereum. Not by a little. By a lot now. Yeah. Like, what do you make of this?

Like, we're looking right now, if you just look at the last 18 months or two years or so, you look at the chart and you're like, wow, Solana is really on the tail of Ethereum. The layer two is really catching up. But if you go back to 2022, and kind of like the mania of the bull market. Solana was actually higher. I know from the chart it looks like it was like just a good two x, maybe three x higher than Ethereum at the peak in terms of daily active addresses.

So from that relative benchmark, it's actually not doing as well as it was previous cycle. Yeah, no, that is interesting. And I think that was happening really at the peak of last cycle, or actually almost after the actual crypto markets had peaked and right before sort of terra luna and everything that came thereafter. To me theres a lot of signal there. I watched Solana last cycle, did not invest in it was just this new shiny thing and trying to figure out if it was real or nothing.

Michael NATO
And typically what I see, and I tend to like to sort of wait. I put this in the report as well. I like to wait and observe and look at data and just watch the markets and then wait for those dislocations. But you could see that there was something here with Solana and then you can see those users just come off basically after FTX and there was basically a restructuring of the whole blockchain and they have since reemerged. But there's usually some signal.

When there's hype, there is some signal. And then I usually sort of wait and look for the fundamentals in the bear market. So let's talk about the next fundamental, which is one that I am quite fond of. We are quite fond of that bankless, and that is fees, because something we repeat often is. What do blockchains do?

Ryan Sean Adams
Blockchains sell blocks and fees represent block space that has been purchased. So we're looking at a chart of Sol versus ETH and layer twos. Again, the fees on these networks, and I think ETH is represented in purple and Solana in Pinkenhouse yet again, throughout this report. And the summary here of this chart is in Q two, Solana did 151 million in fees. That's 27% of Ethereum and the top layer twos.

Can you explain this chart? And actually I was kind of maybe not fully understanding this chart itself because it looks like you're saying the summary that Solana did 27% of Ethereum, the top layer two. But it looks like on the chart, the pink, the Solana is higher than the purple. Am I misreading this chart? And what is it saying?

Michael NATO
There's two axis. There's two there. So that's what's going on there. It's just the chart. If I only used one x axis, then you're not going to be able to tell the difference because Ethereum is much higher.

Yeah. So Ethereum is still much higher here. This chart is a little bit misleading, but it was the best way to show Solana's growth in the last six months. Okay. And, yeah, so really what's happening here is you can see the pink line is Solana.

Even when you showed that chart that showed the users really jumping up last cycle. On this chart, you can see the fees there as well, but certainly not as expressive as the users. But we can see the fees really spiking up. Last cycle, Solana was doing something like 20 million transactions per day and stuff, but the fees were so low, that. Was really, really, like thousands of dollars on the day.

Ryan Sean Adams
It was really 25,000. Ethereum is doing a just orders of magnitude more here, but we've seen that gap close. So now if you just look at the Q four performance, Solana was about 27%. And a lot of this is Mev. Now we're seeing on Solana as well.

Michael NATO
So you can just kind of see. Interesting to me that fees are rising on Solana. The whole narrative has been that the fees are going to stay super cheap. We'll see. We may see in this bull market that Solana, you know, we'll see when fire dancer gets.

Gets introduced as well. But there could be bottlenecks on Solana that the same process that Heath went through, and we're going to see if that starts to play out later in this cycle. Fees is a fundamental that I like and I respect because it represents the taxpayers on the network. It's like real activity because they're willing to pay something for it. So I love it because it's relatively civil, resistant.

Ryan Sean Adams
I want to ask you about the compilation of the fees, because there are two ways that blockchains can generate fee revenue. Right. The first is just selling the space within a block. And the second, that's one source of the revenue. And the second is selling the ordering of the transaction in the blockchain itself.

And so you referred to Mev earlier. That's the second category. It's kind of like you're paying for priority ordering in a given block and getting your transaction in. So you're either paying to get your transaction in ahead of everybody else, or you're paying for the ordering of that transaction. What's the different compilation in terms of fees?

My impression has been that Solana is doing quite a large amount of its fee revenue on the MEV side of things. That is the ordering side of the transaction. How is that different than how Ethereum is generating fees today? Yeah, I haven't looked at this super recently, but it was over 50%. And a lot of this is running through Gedo validators currently, which can share that MEV with.

Michael NATO
With people that are validating. You know, there's an interesting view here that, like, some people have this view that all fees should sort of collapse towards you as layer one blockchains sort of get commoditized, you know, as they should. And really sort of the value accrual mechanism is going to come through MEV in the future. And it's really all about priority access to block space. And this is basically how it works in traditional finance today.

There's no fees to trade, and everything comes from ordering transactions and value that can be extracted during that process. So we'll see how that starts to pan out with Ethereum. We're starting to see this with layer two's post EIP 4844, transaction fees have dropped significantly. We put together this quarterly report on Ethereum that this is sort of the story of Ethereum from last quarter is that EIP 4844 significantly reduced fees at l two, and that's now impacting l one. We'll see if that starts to sort of that new supply of block space ultimately gets backfilled in the future here.

But my view is that MEV is probably the main thing in the future for how these things are monetized. So this is going to be interesting. And this kind of gets into the different design strategies of Ethereum versus Solana. Whereas Ethereum has outsourced, I'll say, some of its execution, kind of the ability to order its blocks to layer twos. Solana has done none of that.

Ryan Sean Adams
So it gets to retain all of this mev. So there's some interesting question as to how long are you on Mev in general across these chains and how will that shape up? That factors into the analysis. Let's get to the third fundamental, which is Dex volume. So we're looking at Dex trading volumes on Solana versus ETH and the l two s yet again.

And Dex volume has been pretty impressive. Solana did 108 billion in Dex trading in Q two. So that's 36% of Ethereum. And the layer twos a much different story than last cycle, where like, just the volume was not there. What do you make of this chart?

Michael NATO
Yeah, I think this, you know, basically shows that DeFi was basically non existent on Solana just even a couple of years ago. And most of this activity is now happening on Jupiter. And if you look at, if you just compare Jupiter, where most of the trading is happening today, or most of the user activity is happening, compare that to Uniswap, the users are. Jupiter is doing about 90% of what Uniswap is doing in terms of active users. So I think that's where most of this volume is coming from.

At an aggregate level, Solana is still significantly below what we see from Ethereum and the l two s combined here. But this is interesting to me. I use Jupiter now when I'm buying and selling assets on Solana rather than Coinbase. I find the user experience to be really nice. You can avoid the bridging and a lot of the UX challenges that Ethereum still has.

So this is something I'm watching to see if there's a potential for retail to potentially onboard to Solana, or it's more of that happening in this cycle versus going directly to a coinbase or a centralized exchange. So we'll see how that plays out. Do you have any takes on the compilation of these traders and the assets that they're trading? I think there is the impression that Solana's activity is maybe a bit more retail, let's say a bit lower in terms of transaction size for a trade, but more people. The asset compilation is heavily meme coin.

Ryan Sean Adams
Right now. It's other assets, certainly, but meme coins have had a massive boom on Solana, and that's got to account for a good portion of this Dex activity. Do you have any takes on the compilation differences between the networks? Definitely more meme coin trading on Solana. This is all purely speculative bull market type of assets that are being traded on Solana.

Michael NATO
There's quite a bit of stablecoin activity, which we'll get to as well. But yeah, I think that's, to me, the signal here is that there's a lot of velocity. Solana has always had much lower Tvl than what you see on Ethereum, but the velocity has always been higher. Smaller amounts can be transacted. I think this comes back to the Solana user experience.

Fees are low, a little bit easier to use, so people can play around and just trade memes at very small volumes, things like that. So I think that's what we're seeing play out in this data. Okay, since you brought it up, let's talk stablecoin volumes. This has been super impressive in Solana. There's just basically nothing in stablecoin activity.

Ryan Sean Adams
You can't even see it in the charts last cycle, this cycle, it's quite a different story. So you say here, the summary is for q two. Solana did 4.7 trillion in stablecoin volume. So it looks like it outpaced Ethereum stablecoin volume. And again, this is back to kind of the velocity type of take.

Right. So we'll get into TVL later and that the amount of stable coins on Solana. But from a velocity perspective, these are big numbers. Huge numbers. Huge numbers.

Michael NATO
This is, like, pretty underreported. I was pretty shocked to see this number. And this is coming from Artemis. RM's has fantastic stablecoin data. But, yeah, I mean, it's really all happening over the last six months or so.

We saw it really kind of peak out in q two. We'll see where that number goes. I mean, 4.7 trillion in a quarter is absurd. These are not like peer to peer payments and e commerce and things like that. This is mostly happening on Dexs, on Solana, so keep that in mind.

But that is just a really big number right there, 4.7 trillion. And we'll see how that plays out. But to your point, it's really the velocity, the ability to, I think, a Solana user is transacting many more times a day than your typical ethereum user today. This is two x, by the way. That 4.7 trillion is two x, that of ethereum and the layer twos over the similar time period.

Ryan Sean Adams
You put a footnote here saying you're not concerned about the fact that a large percentage of this trading activity, or, sorry, the stablecoin activity, is related to meme coins and bots and algorithms. And you say, why? It's estimated that more than 60% of tradfi volume is algorithmic. I guess that's the point you were talking about earlier in the episode. Bots are people, too.

Bots are taxpayers. And so why discount them when you're doing this type of analysis? That's how I view it. And I know Solana has been focused on creating the Nasdaq on a blockchain. And to me, you got to try that out.

Michael NATO
You got to have some sort of minor leagues before the big leagues, and we're seeing it with meme coins and speculation today. But to me, the signal is that it's happening, and it's happening at very high volumes. So bots are people, too, and memes are assets, too. Is the Solana narrative here. Let's talk about this chart, which paints a different picture than, I think, all of the other charts so far, which have been, like, very bullish Solana.

Ryan Sean Adams
This paints a bit more nuance into the story here. This is a chart of total value locked. And this is again Solana versus Ethereum plus the layer twos. And you can see this kind of chart over time. It's interesting, by the way, that in purple Ethereum, the layer twos, it's not up to all time highs of previous cycle.

So we've got a ways to go. But the pink shading, the area under, under the purple here in pink, which is Solana, um, TVL is just like not exploding, uh, the way the other metrics are exploding. In fact it's, it's about approximate in terms of like, you know, you can kind of see this. I eyeball this relative to what it was doing last time as a percentage of, of TVL on Ethereum, the layer two s. So Solana averaged 4.3 billion of TVL total locked value in slayer two s or, you know, assets under management.

I suppose maybe that's a more tradfi explanation, which is 7% of Ethereum in the top layer too. So 7%. So TVL is showing a different story here. What do you make of this? I think this shows a lot of this is telling me the fact that you have way more ETH locked in DeFi on Ethereum just tells me that the Ethereum ecosystem is much more mature and much more further along.

Michael NATO
And ETH asset is a more capital efficient asset, I would say, than Sol currently. Part of the reason for this, I think, is that Ethereum started as a proof of work blockchain, and Solana started as proof of stake. If you look at the stake rates between these two networks, it's like 80% on Solana and it's 27%. And that's come up from basically nothing over the last few years. On Ethereum, you have this glut of soul, basically from the original validators that is just locked up and it's not really making its way into DeFi just yet.

I know Solana has made a lot of attempts to get with liquid staking solutions and different ways to try to incentivize people to pull that value and get it into defi. That's really where this has to go for Solana to really get that number up, I think. But I think the big takeaway is that just, it's the difference between ETH starting as proof of work and also just being a much more mature ecosystem today. Yeah, it's also interesting. Maybe a quick side quest here is when I always hear the tribal infighting, oftentimes if your team, Solana, you'll take the perspective that TVL doesn't matter.

Ryan Sean Adams
It's a made up metric, right? If your team, ethereum, you take the perspective, daily actives are all fake. Like meme, coin volume, Dex trading, all of those fundamentals don't matter. When you look at kind of a holistic picture and you're not just taking one fundamental into account, you're taking multiple fundamentals into account. Does that tell a better story here, like, or is there one fundamental that's more important then another?

Do you take them all into account equally of the metrics so far, which are the most important ones towards valuing this asset? Yeah, it's definitely, I think, putting all the ingredients together to sort of paint that picture. And then there's office. We certainly look at other stuff outside of just the on chain data as well. And that's more like the intangibles of kind of what you see with community and what you see on Twitter and things like that.

Michael NATO
I mean, I think the biggest signal is always like, what are people paying for? So that's like probably number one, always looking at users as well, knowing that that's a proxy. Like there's certainly people with multiple wallets and things like that and bots, but I think fees is always number one. And then you kind of layer in the other ingredients thereafter. It's like if you're making cooking a meal, you probably, if you're not a vegetarian, you probably want some meat in there first.

That's probably your fees. And then you layer in a few other spices and ingredients as well. So that's kind of how I think the analysis. If you want a crypto trading experience backed by world class security and award winning support teams, then head over to Kraken, one of the longest standing and most secure crypto platforms in the world. Kraken is on a journey to build a more accessible, inclusive and fair financial system, making it simple and secure for everyone everywhere.

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Ryan Sean Adams
Again, it looks like correct. Okay, so Solana averaged 59 active core devs. I guess you're looking at GitHub, repos, and that sort of thing, and seeing commits. And that would be in q two. Again, this is a full q two analysis.

That would be 11% of Ethereum and the top layer twos. It looks like it has definitely grown since the early days of Solana 2018. It's not quite at the highs it was previous cycle. Is there anything you divine from this metric? Yeah, I will just say that this is coming from token terminal.

Michael NATO
You're right, it's looking at GitHub, repos, and this is core devs only. This is only people that work directly on the Solana versus directly on ethereum. So it's not factoring in the ecosystem devs, all the apps and protocols within the ecosystem. If you looked at that data, and I probably should have included it here, it's about 30 almost. Solana is at about a third of what you see on Ethereum total.

But yeah, from a core dev perspective, I think in general, if the ecosystem is really developing, the core devs don't need to grow that much. You need a lot of activity at the beginning to get things stabilized. But ultimately you should see the development coming from apps and protocols around that core community. And I think we're seeing that with Solana, and we're certainly seeing that with Ethereum. You can see the Ethereum chart just continues to go up and to the right.

So we're seeing it in both areas. To me, what I'm looking at with developers is like red flags. If I'm seeing other metrics that look good or there's a lot of speculation going, but then you look at devs and there's a few devs on the project, that's more of a red flag to me, and that's what I'm using this metric for. But no red flags on either side, I would say. Okay, so let's just summarize the fundamentals, the data driven analysis we've just done.

Ryan Sean Adams
So on q two, q two performance. Solana now has 50% of Ethereum users like Azure by daily active addresses, 27% of Ethereum fees, 36% of ethereum dex volumes, 190% of Ethereum stablecoin volumes, 7% of Ethereum Tvl, and 11% of Ethereum core developers. And of course, the context for this report and the market conditions right now is Solana trades at about an 83% discount to Ethereum at this point in time. So that's some of the qualitative analysis that goes into this. I don't think we're quite ready to get to the conclusion and your take on the conclusion, but that's maybe the fact so far in the summary.

So let's talk about the next section. We've got all of these on chain fundamentals that we've just gone over. Let's talk about value accrual. And there are some differences in terms of how the networks are now architected with respect to value accrual. So there's something I think investors need to really get through their heads as they're thinking about this space.

You can create a whole bunch of value. There's value creation. It doesn't necessarily mean you're able to capture that value in an asset. So an example I always like to give is, in the early days, a peer to peer protocol, like a bittorrent or something like this, or napster in the early days created a whole bunch of, let's call it value. Right?

It was awesome. I could listen to MP3 s in college and all of these things. That's highly valuable, but was not able to capture that value in an asset as part of a business model. So when you look at, like, fundamentals behind assets, it's not enough to see value creation happening. You also need to see the asset actually accruing that value.

So with that said, what are the similarities and differences between Sol, the asset, and its ability to capture value versus ethereum? So I think the big difference here and yeah, thanks for that intro. That's fantastic. And I see this all the time, by the way. I think bankless creates a ton of value for the entire crypto ecosystem.

Michael NATO
So I just want to throw that out there. A lot of these l one s benefit from media and crypto. I think the biggest difference here between these two ecosystems is Ethereum is building itself out as this modular tech stack. And so when a user comes into an l two, they're transacting, they're paying a fee to that, to the l two sequencer today that is just going to these l two s and their sequencers, and then there's a settlement fee also that gets paid down to Ethereum. So if you're an ETH validator or you're holding the eth token, that's sort of, you get that percentage of the pie.

Today it's getting, there's a piece that's going to the l two with Solana because they are building it out so far in a monolithic tech stack. The validator itself is capturing 100% of that. There's no l two. That's sort of a middleman in there that's capturing some of these economics. And so I think that's the primary difference here.

I don't know. I'm not convinced that Solana won't need l two s at some point here, I've had conversations with founders in Solana that have told me that there's a chance that they're going to need an l two because they've already run into some bottlenecks. So we'll see how that plays out. But so far today, it's cleaner on Solana in terms of the value accrual to that token. In general, the two assets themselves, I would say, are building out very strong network effects.

I think ETH has the strongest network effect of any asset in crypto, and I think Sol is probably number two today. So let's talk about this in a bit more detail because I think this is like the crux of some of the conversation. I think part of the reason Ethereum has had so far a lackluster performance in the bull market relative to Solana is this architectural decision that it's made that it thinks will be long term beneficial, but in the short run, it's basically like, you might not put it this way, but this is the way I've been putting it. It's outsourced its execution layer to other chains. Layer two, Solana has not done that.

Ryan Sean Adams
It is taking, is not sharing with others. The sole token is the recipient of settlement and execution, and all of the fee capture of block ordering and block sales related to that go to the sole token. Whereas Ethereum has said, nope, we're trying to scale and maintain its version of decentralization. And so with that design constraint, we're going to be a recipient of the settlement fees. But execution, that's going to happen in arbitrum.

It's going to happen in optimism. That's going to happen in a ZK rollup, and we're going to give up that revenue model. Now. The belief for the Ethereum folks is that that will pay dividends later in the future. So it's a more credibly neutral settlement layer.

It's not competitive now with other layer ones in the same way it used to be. It's kind of like the base layer for settlement. It gets to export ether as monetary assets inside of all of these, a layer two economies that are springing up, and it gets to maintain its like decentralization, its version of decentralization. But that seems to me is like a bet for sure and also a long term play. But thats whats happening right now and is a key difference between these assets.

Do you have any reflections on that? Yeah, no, I think thats exactly whats happening. Its making the market a little bit confused and I think this is something Ethereum is going through right now. And if you look at the data from Q two, it's an interesting time to be looking at Ethereum data because we're seeing the impacts of EIP 4844. And that plays into this story because ultimately what that did is open up this massive amount of supply of block space.

Michael NATO
And my view here is that if you look at any past technology movements, when you open up a glut of supply, it gets backfilled. And what's causing it to be backfilled is new entrepreneurs, new developers coming in and building new things. And I sort of view that as like we're in kind of like this. This is the broadband moment for kind of ethereum. In the interim, it looks a little funny because Ethereum's fees are down, l two fees are down, and so it's starting to look much more competitive as well.

And investors have to decide, am I putting my money in an l? 02:00 a.m. i putting it in ETh? You're potentially diluting value capture for ETH, and we're in this confusion right now. Ultimately, I do think this plays out, and because of the network effects with ETH asset, it's potentially going to capture value accrual happening throughout the tech stack with restaking, potentially capturing value from these l two s as well, and other protocols.

So I do see that story playing out, and I'm actually bullish on that, on that story. But in the interim, I think it's a little bit confusing for investors, that. Is a fantastic story. In the long term, we'll have to see how it plays out. Your reflection is it's not playing out that way right now in the on chain fundamentals, right.

Ryan Sean Adams
And so what it looks like is, oh my God, Ethereum just like cannibalized itself. And it's now it's just taking all that juicy fee revenue, and because it decided not to scale or scale via execution layer twos, it's just like outsourcing that. It's giving that away. And like, why would it cannibalize itself? That's what it looks like right now.

Snapshot of time in, you know, at the end of Q, 220 24. And it almost looks like a bad decision from a fundamentals perspective. But let's talk about some, maybe the bull case for ether in this section in terms of value accrual versus the soul token. A few things I want to check with you. I think the ETH bowl would say there's the long running assumption that the execution layer is kind of the commodity here, actually.

And that's going to have not much of a moat. And that there will be other incredible execution layers that spring up and go fight Solana essentially for execution. So Ethereum's over here with settlement. It's the only player that's really doing that well. And then execution wars will be severe, will be harsh.

Like, have you seen the telegram? Daily active addresses. It's absolutely insane. And it's getting to Solana type levels. And so all of the roll ups on Ethereum will go fight that battle with Solana.

And you've got roll ups like base with the power of Coinbase behind it, fighting for execution against Solana. So that will be a commodity game. What do you think about that? Counter to value, accrual for soul, the asset? I think that's fair.

Michael NATO
I definitely think that's fair. And one of the things that I think is very bullish for Ethereum also here you mentioned base, like Coinbase. There's a relationship there. And Coinbase is very focused on the Ethereum ecosystem. Over 100 million accounts signed up on Coinbase.

So I think that's pretty interesting. I've been looking at potentially what Robinhood may start to enter and it looks like they are going to be focused on Ethereum. Got a deal now with arbitrum to potentially allow the robinhood wallet users to interact via arbitrum. I think that's going to bring users into defi. There's definitely a story here, a bullish story intact for ETH, and we'll see how it shakes out.

Solana needs these types of stories. I believe Solana is trying to be Nasdaq on the blockchain. A lot of the real world asset narrative, what blocks Blackrock is doing, also happening in the ethereum ecosystem. So theres plenty of competition to play out here. Michael, did you get a chance to watch that Anatolia versus Justin Drake debate that we had a few weeks back?

Yes, I dont think ive watched it in full just yet, but yes, it was a great episode. And yeah, I did tune into sections of it. One of the themes from that, which was incredibly interesting is and something that we can't, like, we don't have evidence to verify. Part of my challenge to both Justin and Anatoly was like, make a prediction and let's check back in three to five years and see who is right. And that will sell it.

Ryan Sean Adams
Right. That's where we started. But like, Justin's perspective as the Ethereum bull was that Solana is making some short term decisions that are centralizing it with respect to, you know, like, MeV will centralize its monolithic like design, will centralize, like, block production. So this is a bad foundation to host layer twos, to be a credibly neutral monetary asset, to preserve censorship resistance, to preserve the properties that actually make crypto corruption resistant. And those properties like the market discounts and undervalues in the short run, but in the long run, they matter a lot.

And isn't that the point of crypto, to maintain corruption resistance and be censorship resistant and immutable and no rollbacks and all of these things? What do you think of that argument? Because I think the Solana camp would say, hey, you're co opting this word decentralization. You're giving an ethereum specific meaning. Solana does have decentralization, and here's how.

But what do you make of this? Yeah, there's no question that I think ethereum is more decentralized. It's cheaper to spin up a node on Ethereum. It's more expensive. The hardware requirements are more on Solana.

Michael NATO
So I think there's no question here that Ethereum is more decentralized. I think Solana, at the same time, is sufficiently decentralized with the number of validator clients that they have the sort of geographic dispersion of those clients. I am not as technical as Anatolia and Justin Drake debating these concepts, certainly, and I think they're very healthy debates. I'm always happy to see these types of debates in the market. It's not something that I am looking for sufficient decentralization myself, and it's also in line with just my ethos and why I'm in crypto.

But from an investor perspective, it's not something that I'm really factoring in just yet. But I think that's fair that you do need to be thinking long term here. There could be potential issues that I'm unable to see currently. Let me run an idea by you and see if you cosign this. But I guess my theory is that all of that, all of the trade offs and all of the decisions that are being made by each respective network will, in the fullness of time, play out in the fundamentals.

Ryan Sean Adams
So you will see it reflected in on chain revenue. So, for example, if users leave Solana because they're getting sandwich attacked on the transaction, because MeV is centralizing, or the validators take control and kind of distort the economics, so they're receiving some proceeds and kind of diluting everyone else, or just corruption happens nefarious things happen over the long run that will result in less activity on Solana, less feed generation. Basically, it tends to play out in the long run. If, on the other hand, none of this manifests and Solana proves itself sufficiently decentralized for the use cases that users want, and there is lots of activity on it, well, that will play out in the fundamentals as well. So, like, my take here as like a little bit of a fundamental, I'm a decentralization like lover, but I also live in the real world of investing and I do like fundamentals matter a lot.

So I'm kind of a fundamentals maxi. My take is that, like, the debates are kind of temporal and a little bit silly, like, it'll all play out in the fundamentals in the very long term. What say you to that? I think that's fair. And there's something to be said here to like, are users going to care?

Michael NATO
We care. The people that are in crypto early certainly care, but do the normies and the people that are actually going to be using these things in the long run, do they actually care? We can get into the privacy conversation as well. And all this data is public today. So there's a story there.

But yeah, I mean, to me, like, you know, when I hear Anatoly and Justin debating a lot of these topics, I'm just looking for like, is there some, is there some red flag that I'm unaware of because I'm not deep in all these technicals? Yeah, but I think you're right that like, this is going to play out. The market is always correct, is quite kind of how I think of this. And it is going to play out in time. And one thing thats sort of interesting to me with Solana that I havent fully reconciled is the fact that jump crypto, which is like a market maker in crypto, one of the largest ones, is the developer of the fire dancer validator.

Anatoly talks about lowering latency on blockchains and allowing it so that nobody can front run. You were seeing all this mev on Solana. You have a market maker developing the next iteration of the validator client. That's concerning. I think, to your point, there's some stuff that needs to be worked out here as well.

Ryan Sean Adams
Yeah, I raise my eyebrows on that. Although the Solana bulls tell me it's going to be open source, where it is open source and so everyone can audit it and check. I still haven't gotten to the truth there. But the fundamentals hopefully will be the reflection of what actually plays out and the best decisions. So speaking of firedance or a client, let's get to some upcoming catalysts for both networks.

So, Solana, you do mention the fire dancer client as an upcoming, I guess, short to medium term catalyst. So something that's going to play out in the next six to twelve months. So what do you see as the core catalyst? Maybe let's start with fire dancer, the core catalyst for Solana. Yeah, so this is, we just mentioned this is being developed by jump crypto open source.

Michael NATO
So anybody can jump in here and also participate in the development. The big thing here to me is just the redundancy of the blockchain and having this single point of failure, because Solana has one validator client. So I think that's the most important thing here. Then this gives Solana over time that Lindy effect, once firedancer goes in to, and it never has another point where it sort of needs to be shut down. The blockchain, then the market starts to forget about these early days when Solana had these issues.

Ethereum had issues earlier as well. Maybe not shutting down the blockchain, but it had other issues that because it's continued to run and validate transactions over a really long period of time, the market just forgets about it. So there's a chance that that's going to start to play out on fire dancer. What does that mean for the real world asset narrative? Is Blackrock going to start to pay more attention to Solana because they can see that it's more secure and it's been around for longer.

That's the signal potentially, that comes out. This plays out over a multi year period, I think. But that's what I'm looking at with the fire dancer client there. How about blinks? Let's talk about blinks.

Ryan Sean Adams
What are those and why are they a bullish catalyst for Solana? Yeah, so blockchain links. This is like, very similar to what we saw, like, on Farcaster with Farcaster frames. It's basically bringing like a web three wallet experience right to the browser within social media. So blinks are something that you can do on Twitter.

Michael NATO
Currently. We may see this start to pop up more on other social networks, but it basically allows you to do stable coin payments and things like this, like right in your browser. I could see this starting to really pick up later in the cycle. Potentially. If we get into one of these hype manias again, where people are sharing all kinds of these links, they're probably going to look scammy.

And toy like and potentially pumping meme coins and things like this where you could send it, you could have influencers sharing links right on Twitter and it goes right to Jupiter. And you can make a trade and buy the meme coin right from your Twitter feed. So we may start to see stuff like that later in the cycle. That's what I'm looking for with blinks, but in the long run, potentially changing the consumer behaviors, e commerce, potentially impacting things like that. There are some other catalysts we don't have time to get into, but Deepin has carved out a special place on Solana also.

Ryan Sean Adams
There's some stuff going on in social. Let's flip to the other corner, though, with upcoming catalysts for Ethereum. The first is something that, but my God, I hope this is the last week we will go without an Ethereum ETF. But the Ethereum ETF, that is a major catalyst. Let's talk about that for a second.

So that is a catalyst on the Ethereum side of things. If Solana gets an ETF, it's kind of like a Hail Mary pass, like who knows when it'll happen. But Ethereum is just about to get an ETF. We saw what it did for bitcoin and he takes their this is huge. And this definitely factors into how I'm thinking about how this cycle is going to play out.

Michael NATO
I expect the ETF to potentially surprise people. I know a lot of the experts over at Bloomberg and I've been watching what they're projecting out there. I think somewhere in the ten to 20% range of what the flows that that bitcoin got, I'm sort of thinking it might surprise people a little bit. And I just think the narrative for ETH, which is still largely misunderstood, I think. But just this idea that it's this open source app store, there's a cash flow.

The ETF is not going to allow staking initially, so there's going to be no yield there. But I just think that the addressable market for Ethereum is, to me, and this has always been my thesis, is much larger than bitcoin. We may start to see this start to become realized once the smart money or the big money on Wall street starts to really understand Ethereum. We have this flagship quarterly report we put out, the Ethereum investment framework. So im hoping that gets a little more traction now that the ETF is here.

But I just think that Ethereum has a very compelling story for Wall street, and it could surprise people once this thing starts trading. Let's add to that story of real world assets you listed as a catalyst. You've got blackrocks, biddle fund, tokenized treasuries. The bulk of that activity is happening on Ethereum. This is the serious assets on Ethereum type of take.

Ryan Sean Adams
But tell me about that as a catalyst for Ethereum. Yeah, so I just think, I always try to make sure I'm understanding all the incentives that are at play. You've got Blackrock. With this ETF coming, I believe they're going to want to legitimize Ethereum for putting financial products on the asset. And so they already tokenized money market fund on Ethereum.

Michael NATO
I'm expecting to see more of this. I'm expecting to see Larry Fink once the ETF is trading, going on CNBC more, talking about all the benefits of putting these assets on chain. This is the real use case for crypto, is putting all these assets on a blockchain, creating efficiencies, making these markets more liquid. And I think Blackrock totally gets it. We can talk about it on crypto, Twitter and amongst ourselves all we want.

It's a totally different story when Larry finks on CNBC talking about this stuff. So I just think there's a chance that Ethereum starts to get that flywheel going where you get the burned eth. The narrative is driving price, which is driving more burned ETH. And potentially we see like a period where ETh just outperforms everything. I'm looking for that potentially later on in this cycle.

Ryan Sean Adams
We haven't as well had retail come aboard yet, but once they do, they'll probably be coming aboard via an exchange and then being routed by someone like Coinbase to go on chain and to use the base platform. So you list Coinbase and base as a layer too. It's a fast growing l two. Of course, Solana as an execution layer has had many years of doing this, including an entire bull cycle. We have not yet seen base in a retail bull cycle.

And you think that that could be a major catalyst for ether as well? I think it's. Yeah, I think it's another catalyst. We've seen similar, not similar levels of meme coin trading and stuff on base, but there's certainly plenty happening there. There's a lot of volume.

Michael NATO
The fastest growing app on base is uniswap, which is kind of interesting competitor to Coinbase in some ways. So yeah, I think base is another big catalyst and also just coinbase facilitating the migration of their users on chain. Lastly, let's talk about qualitative differences and then we'll get to kind of like what all this means and we'll answer the question. At the beginning of the episode, you list a few qualitative differences. And this is kind of like opinion based, of course, but user experience right now it's better on Solana.

Ryan Sean Adams
I think people would say, hey, it's also good on layer twos. But then the counter would be, yeah, but it's all fractured across all the layer twos. And Ethereum has had a major kind of like, which layer two do I use from a Devx perspective and a fragmentation perspective. And also the difference here is Solana is kind of centralized, it's a VC funded, it's almost like a Silicon Valley type of team. You look at the Solana events and it looks a bit more like an apple type keynote that has that flavor and that feeling.

Versus Ethereum, it's just kind of like. It's like Linux, it's a little open source, a little haphazard. And lastly, maybe I'll add something. Some of the feedback I was hearing from ETH CC is that the Ethereum community feels also fractured on the social layer. So not only do you have fractured user experience, but you have some of the layer twos that are kind of fighting.

And it's like, what's the cohesive Ethereum community this cycle? Right? There's some question as far as that goes. Whereas Solana has a simple message like Sol apps, Sol token go up. We're really excited about meme coins.

They can unify around kind of like the shared state in a bit of a different way. Anyway, what do you want to reflect on in those qualitative differences here? I think you said it pretty well. I think from my perspective as a user in crypto, I do find myself using Solana a little bit more just because of this, just the wallet experience and not having to bridge. My view is that's going to get solved on Ethereum with account abstraction, and it's just a matter of time.

Michael NATO
And it may end up coming through stuff like robinhood and stuff that start integrating with Ethereum. So we may see them. We need somebody who's a really good interface developer come in and fix some of those challenges. I do think it does get solved, but right now it's better on Solana. And yeah, there is just some fascinating differences.

I think Ethereum has sort of the bitcoin sort of ethos, very decentralized. If you're Blackrock, if you're Larry Fink and you're trying to figure something out on Ethereum. Who are you calling? I think there's a direct line somewhere at Solana where you can speak to someone and they're going to help you. And there's a little bit more organization, I think, just with developing the developer community and things like that.

So we'll see how that shakes out. So what's the moment we've been waiting for? Let's answer the question. See where this leaves you at the end of the report. So the question was, should sole be trading at 83% discount to Seoul?

Ryan Sean Adams
And recall some of the stats we mentioned earlier in the episode. So back in November 22, Solana was trading at 3% of Ethereum's market cap. The market has said that that was not correct. Now it's a YDE 17% of the market cap, but that's still 83% of the like off in terms of the market cap. So what's your answer to that question?

Should it be trading at this discount relative to Ethereum at this point in time? And what do you see on the horizon for the next, like six to twelve to 18 months? So the conclusion is that that number is still too low. So I think that is actually going to get sort of rerated higher. My view is that it could go up to 25% or so in this cycle.

So we're at 17% now of Ethereum and you think that it could go up to 25%? Correct. And this is just pure speculation, not financial advice or anything. I'll share that in my personal portfolio. I haven't sold any eth for Sol.

Michael NATO
I did add to Solana, but I never, never convert. I think a lot of people have done that in this cycle where they've sort of taken their ETH and gone into Seoul. But no, I think the way I see this playing out is with this ETF. I think ETH is going to have a period of outperformance here, and I'm looking for Solana to outperform later in the cycle when potentially we get this altcoin rotation. I think this is going to be interesting.

Ethereum has typically been sort of the outperformer in the latter stages of these cycles. Now that you have a new market participant in Wall street, buying those ETF's could change us a little bit. But yeah, the take here is that Ethereum has a great run. My base case for where this is all going, and I use the $10 trillion market cap for all of crypto. And that would sort of follow a similar growth pattern that we saw from the 17 top to the 21 top, muting it a little bit for just a larger market cap.

But if we get to that 10 trillion mark I usually pencil in bitcoin gets to 40% of it or so. Ethereum in the last few cycles has gotten somewhere between 40 and 50% of bitcoins market cap. So you potentially get to Ethereum at around 1.8 trillion market cap. And then if Solana is 25%, you're getting somewhere in that between 400 and 500 billion market cap. So it's getting sort of to where ethereum got in the last cycle.

It's kind of where I see this shaking out. But that's not saying Solana is going to flip Ethereum. Ethereum is growing, bitcoin is growing. They're all growing. I just think that Solana is going to slightly outperform in this cycle.

And there's a chance that if you look at the performance, some of these alternative layer ones in last cycle, Cardano and some of these things did better than ethereum, theres a chance even if you go farther down the list, there could be outperformance on Sol as well. Preston? Yeah, I guess if crypto history repeats, there definitely will be some outliers that just pump and do absurd things, but likely without the fundamentals to back them up. It doesnt always happen that way. A slightly overweight soul relative to Ethereum.

Ryan Sean Adams
But you don't go as far, you don't come close to thinking that Solana is going to flip in ethereum this cycle. Then it's 25%, maybe a little higher. Is the top layer in terms of percentage of market cap? That's exactly right. I don't see it flipping.

Michael NATO
I think in the fullness of time, Ethereum flips bitcoin and we'll see. There's going to be the battle here between Solana and Ethereum. My view is that we ultimately get like four to five of these, like major l one s and like there's three that I think are investable. And that's where all my research is focused currently. We'll see how that sort of shakes out between the smart contract platforms.

But I'm not calling Solana to flip Ethereum in this, in this cycle. So you are overweight ether relative to bitcoin and overweight soul relative to ether. Very interesting. Well, this has been great. Michael, thank you so much for guiding us through this.

Ryan Sean Adams
Just curious, maybe at the end if you could translate some of those market caps into price. I don't know if you could do that math on the spot. Or you maybe have some of this memorized. You mentioned a $1.8 trillion eth. Can you just do the math?

What's the price of ether this cycle look like? And similar for the Sol token if we hit those numbers? Yeah, so, and a little more context. So about 77% of the market cap today is in like the l one s. So you can, that's another factor here.

Michael NATO
But yeah, if you get to 1.8 trillion, that's about slightly under 15,000 per coin for ETH, like the peak. And again, this is forecasting a 10 trillion market cap. If Solana gets into that 450 billion range, that gets you above $900 per soul. I sort of have this scenario analysis sheet that I work off of. You could say, okay, maybe the market cap only gets to 8 trillion and then do it from there.

You could say, well, maybe ETH actually outperforms bitcoin and it gets even higher than the 1.8. Maybe Sol does a little so you can toggle it as you will. But I think these are sort of the base case if we see this, a strong second half of this bull cycle. So that last, if I just want to press you on that for a second. So your base case is around 10 trillion, which is like a full bull cycle.

Ryan Sean Adams
Like, you know, it's kind of a repeat of the last bull cycles, you know, four year cycles that have been historic. There's also kind of like the bad news case, like the bad scenario here. Like, what if this time it's different? Michael, what if this time the bull gods kind of skip crypto because theyre very, very excited about AI right now, theyve pivoted over to Nvidia stock and AI and crypto doesnt get the cycle its had previously. Whats the probability or chances of that in your mind?

Or are you just betting on similar cycle? Well get to Raoul Pauls banana zone and well figure this all out. Yeah, I will say that crypto is like, has this incredible ability to, like, express human behavior. And I always sort of root myself in this. And like, there's people that have this view and they always overthink, like, oh, retail got hurt last cycle.

Michael NATO
They're not going to come back. And like, to me, it just fails to understand human behavior. And, like, once the number starts going up, like, I've already seen this anecdotally with, you know, my family members reaching out to me and asking me what assets to buy a when I told them, you know, twelve to 18 months ago to be interested. So I just think it's going to play out again. This is even more interesting this cycle because you have like Wall Street.

I think they're going to have the same FOMo that retail has had as well. I'm not worried about AI, you know, stealing the narrative or anything like that. I just think this is human behavior. Don't bet against humans, just doing human things. And so I do think we're going to have another cycle.

I think it's going to play out similarly to the past. They've always sort of peaked in Q four. So we've got a ways to go potentially in this one. And there is the other side of this, that if markets are rational, then people should be front running this and that. It can't possibly play out that way, but it continues to do it.

I think Raoul Paul does a good job with his banana zone analysis and liquidity cycles and how all this plays in. But I just think it's all setting up with the election cycle. With global liquidity, the Fed may start cutting rates here into Q four. So I just think it's all setting up. And don't overthink it.

Just don't overthink it. Don't overthink it because you're not so much betting on crypto, maybe for the cycle view of things. You're betting on human psychology, which fundamentally just doesn't change. I will tell you anecdotally, Michael, a few weeks ago I got my first text from a family member saying, hey, I was talking to this guy about XRP at a party. What do you think of that?

There you go. The trickle has started. Let's end it here. Michael, one last thing. Can you shout out where people can access the Defi report?

Ryan Sean Adams
You also have a podcast. You do some of this analysis in podcast forms. Where can folks find out more about the resources that you have in the content you're putting out? Yeah, we share all our research through the defireport IO so people can go there and access the podcast. Also all the written research.

Michael NATO
And I'm on Twitter justdoit and also on LinkedIn as well. So, yeah, thanks for having me on, Ryan. This has been fantastic. Amazing. Got to end with this, of course, bankless nation, you know, none of this has been financial advice.

Ryan Sean Adams
We don't do that on bankless entertainment only. And, you know, crypto is risky. You could lose what you put in. But we are headed west. This is the frontier.

It's not for everyone. But we're glad you're with us on the bankless journey. Thanks a lot. Arbitrum is the leading Ethereum scaling solution that is home to hundreds of decentralized applications. Arbitrum's technology allows you to interact with Ethereum at scale with low fees and faster transactions.

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