The Future of Inevitable Ethereum w/ Jack Melnick (Polygon)

**Speaker A:** Welcome back to the Strange Water podcast. Thank you for tuning in. Today's guest is Jack Melnick, who heads up business development for DeFi at Polygon. Jack and I met almost a year ago, which is nearly three decades in off chain years. During that time, Jack has become one of the voices that I respect most for everything on chain. But what sets Jack apart isn't just his deep knowledge of Ethereum and its possibilities. It's also his ability to connect the dots between seemingly disparate ideas and trends and to pull together the big picture. What sets Jack apart is his ability to see the future. Whether you're a seasoned Degen or you're opening your first sex account, you're sure to come away from this conversation with a fresh perspective and a renewed sense of excitement for what the future holds. Before we begin, please do not take financial advice from this or any other podcast. Ethereum and decentralized finance will change the world, but you can easily lose all of your money in the process. So without further ado, let's dive in. Jack, thank you so much for joining us. **Speaker B:** Yeah, thanks so much for having me, Rex. It's great to be here. **Speaker A:** Thank you. Well, so Jack, you and I have been. We met just kind of in the depths of discord and really from a kind of research and just love of Ethereum background and so I've actually never gotten the opportunity to hear this. Would you share with both the audience and myself just like what's your background and how did you kind of end up in this space? **Speaker B:** Yeah, I'd love to. So I think relative to a lot of the listeners of this podcast and definitely the community at large, I have a little bit of a non traditional background. I studied philosophy in college. Out of college I went and worked in traditional finance for a few years on the sell side at a bank called ubs. Spent a lot of time working with the buy side specifically like long, short platform funds like Millennium, like Citadel. I learned that I really liked markets, but I didn't like traditional financial markets with where they were at the time, which was especially during COVID which is where I did the bulk of my, my career and beyond that too. I kind of realized that a lot from like a more philosophic perspective, a lot of the meritocracy that was kind of promised in a lot of these trad industries that are like, yeah, we're super entrepreneurial wasn't really there and I was wanting something else. And late 2019, my roommate at the time introduced me into Defi, kind of broadly I started to get into it slowly and then very, very quickly in 2020 I think with the release of Olympus Dao actually. And so I was an OG omi and you know, while that was fun and it's a great way to, you know, move making 5,5k into 100k is as your first trading crypto is definitely a way to get you coming back like a sucker at the casino. **Speaker A:** By the way, your hundred K came from suckers like me. I was just six months behind you. **Speaker B:** Yeah, yeah. And don't worry, like I round tripped with the rest of them. But, but, but at the same time, you know, like from a traditional financial perspective, from like a traditional modeling and fundamental analytics background, I remember I had always heard that crypto had no fundamentals. Crypto had no fundamentals. It's all just sentiment. And I had an example in front of me. Although it was an insane study in like mechanism token design. There were also like clear cash flows, clear dilution events, like all that sort of stuff. And, and that got me into starting to like shift my Tradfi mindset onto all this DEFI stuff. And so I spent about a year writing anonymously on Twitter. Didn't know about Substack, didn't know about Medium, didn't even like do Twitter threads because I wasn't really even that knowledgeable about the space of the crypto. Twitter space at the time literally was just like throwing Google Drive links out into the abyss and through a mutual friend ended up at a company called the tie at the end of 2021 like had this decision to either stay in Tradfi and go to a big hedge fund or come to crypto. And I said like fuck it. Like I know this is what I want to do full time and middle join a company called the tie, Big Information Services and institutional data provider. It was like a nice mix of being crypto native and also working with funds, which is what I knew I was already decent at and so had an opportunity to combine both of those things. Joined near 15 people and by the time I left a year and a half later, it was around 85. So super cool to see that kind of crypto native startup growth. Got to lead a research team there, which was a ton of fun. And for me, as someone that like always loved being in DeFi for the past few years, has written anonymously for a handful of large DEFI protocols and continues to be very involved both on the DEFI side and now especially on the DAO governance side. It was something that I always knew That I wanted to do was getting more involved on the builder side, helping support people that are looking to get into the ecosystem and given my background, helps people take technical ideas that I could never come up with and turn them into legit businesses that find product market fit on chain and help legitimize what we're doing in this space every day. And so Polygon was a great opportunity to do that. There's a lot of really cool stuff happening behind the scenes. And so getting the opportunity to come in at the end of January was, was a really, really cool leap. **Speaker A:** Yeah, well, I mean, you came in, like, at the right time. I mean, this whole, you know, the ZKEVM and like the energy that it's about to unlock is. I can only imagine, like, knowing that it was coming was just like the most exciting thing ever. And now that we're here, you know, I think, I think actually that's like kind of a good pivot point. So I, I encourage you to continue in your business development role as much as possible and bring up Polygon as much as possible, but just like shifting to a more wide open scope, like, it's one thing to say, okay, I was in traditional finance and was unhappy with the lies around meritocracy, which you're totally correct about, and, and you know, for your own particular career, you found this exciting thing and decided to join crypto. But it's kind of like a whole different beast to end up where you and I both ended up, which is like, believing that the point of crypto maybe is Ethereum. And from Ethereum, incredible things can flow that build on top of it. But Ethereum is kind of, at least my home base. And so when you entered the space, and then the next two or three years in which you've, like, you know, this space moves so fast, but, like, built a very prominent career. What? Why, why? What do you see in Ethereum and like, what keeps you, like, so closely tied to the core backbone protocol? **Speaker B:** Yeah, no, I totally see it. I'm agreed 100 with what you said. Like, I'm Ethereum to my core, first and foremost. It's like, if I could be any more physically long Ethereum right now, I would be, but my dad would be even more concerned than he already is, and so I had to call it. But I think coming from the background that we kind of come from, we analyze things very differently and there's this big bifurcation in the industry that I've noticed generally. And it's really realized, I think most prominently On Ethereum and on Ethereum scaling right now. And that's this split again. This is the philosopher in me coming out and I apologize for all of my tech listeners. But like the split between the metaphysician, the person that operates on first principles, and the pragmatist, right, who operates based on like, what can we do right now, what makes sense, how can we sustain it? And you kind of see it in terms of how chains are structured, right? And it's hard to argue against either one of them because both of them are so uncertain. Right? It's just two different camps, two different sets of opinions, completely both valid for the time being. I would say the metaphysicians are the Solana types, right, who are building something that is clearly super legit in a ton of ways, that has a ton of really smart people behind it, that's battling against issues that they think are going to be facing not just blockchain, but humanity for the next hundred years. How do we solve those problems? That's for me, given my philosophy background, an impossible way to start. And from a traditional, like metaphorical perspective, right, that's the equivalent of building a huge tower with giant foundational blocks at the bottom. That's awesome. It makes for a very, very strong structure when it's solid. But remove one of the core blocks that you had as a tenant, everything's messed up, right? The entire thing's coming down. On the other hand, there's like if this other side of more pragmatic approaches where I really see Ethereum, and that's this idea of, hey, I'm taking a platform that works really well, that's running as a sustainable business. And I want to get into that later with you because I think that's a really important point. That's running as a legit, sustainable business on chain in a bear market that has the ability to scale in a variety of different ways, that has the ability to scale cryptographically that's really well decentralized, that doesn't have buy in from like too many large stakeholder groups, right? That ticks off like so many of these core tenants for us on the blockchain side and on the defi side that it feels foolish for me to abandon that in the hope of like going into a 1 in 100 moonshot project, even if the upside of that like down the line is theoretically better. My belief is that over time you end up in a really similar place, but with a much steadier state because you know where you are at any given point. In time. And so that's Ethereum for me. It's this, it's this product that has been built that's elegant and sophisticated, but also has like, you know, some patches on it that have just been like nailed over. And you know they're going to get fixed eventually and it might take a year and a half later than you thought, but they will eventually get handled. Right? Like the merge did happen, withdrawals did go live and none of them was like this terrifying end of existence event that they thought. And if anything, people's conviction is just getting strengthened and strengthened and the bear cases are clearing and clearing. And for me, from an investment perspective, like, this is the most excited I've ever been about any individual investment ever made in my entire life. Right. And so I'm so bullish on this as a product given that, you know, I also work full time supporting, scaling it. **Speaker A:** Yeah, I think, yeah, let's. We'll get to like the fact that Ethereum is a business and that is unique and special within crypto and it's totally normal outside of crypto and there's something incredible in that. But before we get there, I think the thing that's just so important for people to understand when they're thinking like, okay, Ethereum versus other chains or whatever is like, look, man, I agree with you that there's obviously other technology to be made and Solana is the most interesting case because I can sit here and have a credible discussion with you on delegated proof of history and blah, blah, blah, all the things that they're doing, but then FTX happens, right? And you look behind the curtain and you realize, I don't even know if anyone cared about the tech. I don't know if any of this is real. This all might just be financial manipulation. And I don't know. I mean, I think the people that look at Blockchain and say, like, okay, Ethereum is kind of cool, but we just need it to go faster. We need faster, faster, faster. It's like you're missing the point of what we're doing here. If you need fast computing, go to Amazon, right? Go to Google. They just will let you create fake tokens and trade them through an API and it doesn't matter. That's totally fine. The thing that's special about Blockchain is that we all believe, rightfully or wrongfully, in this decentralized, credibly neutral space where no one person can ruin it or whatever. And just to look at this, this, this thing that we all agree is a Neutral space. And to think, like, it's just not fast enough. We should start over. Like, come, come work at my neutral space is like, oh my God, you don't get why we like this. And so I don't know. I mean, I think, I think there's space for Solana, I think there's space for Avalanche, I think there's space for Phantom. But like when I, when I see all these things, I just think you're going to learn what Polygon learned from day one, which is like you're going to end up as a scaling solution and not an independent chain. **Speaker B:** Yeah. And I think there's two kind of underlying things to unpack there. The first is I actually disagree with a little bit with your take and maybe it wasn't like your hardcore stocks belief, but I've had like a few people that have successfully over the years really convince me that there is a real use case behind Solana. Like genuinely, it's differentiated, it's unique. Like they're trying to solve for something that is just different than what Ethereum is trying to solve for the entire time. And I think a lot of the PvP and back and forth head to head comparison that naturally goes on between two change angel businesses highlights that and really throws them side by side, given that a lot of the core use cases are the same right now. But I think over time you can end up in a point where there are different strokes for different folks. Right. And some businesses may need that kind of solution where it's all based on a single chain and maybe that, that the things that they have solved for also get solved for by Ethereum down the line and it doesn't matter. **Speaker A:** Actually, can you, I mean, I don't want to make you give someone else's point, but can you like try to just like sum up that thought? **Speaker B:** So I think the first thing I would say is you should get Logan just Stremsky on this podcast. He is like, he's the, he works at a fund called Frictionless. They're super involved in the Solana ecosystem and he was the guy that originally kind of pilled me on what was going on. There were a few things in particular he mentioned that I thought were really interesting and stuck out to me at the time and like still stick out to me now. The first and probably less like, certainly less important one is the setup of the actual chain in the ability to handle stuff like parallel processing and execution and settlement makes for legitimately different issues and lack of issues around stuff like MEV searching Sandwiching all of that sort of stuff where a lot of that is just less of a factor because of their execution model. The second thing that is ultimately way more interesting, and this kind of speaks to like the core differentiated tenants that I'm talking to are his point to me was ultimately that at the end of the day, what's going to limit throughput on blockchains? And he broke it down not from a TPS perspective or anything like that, but from a data propagation and throughput perspective in something like megabytes per second. Right. And what's going to limit current blockchain systems is literally physical limitations, like from physics stuff like the speed of light, the ability for these machines to actually process data in fast enough ways. And his point is that as we've kind of seen, and I think that this is like very accurate in a lot of ways, upgrading stuff like Ethereum is possible, but it's very, very slow and very, very difficult. And so the further you get away from the original intent of what was built, the harder it gets to make necessary improvements to get it to what you need to be. His point was, first of all, like, if we have something that in a vacuum might be strictly better, and this is hotly debated, right? Like, why wouldn't we switch to it? That's like the counterfactual side. And then his second point was specifically around stuff like hardware. He goes, okay, think about what happens on the hardware side. You have this Moore's Law situation where every six years your, your processing power is doubling or sometimes even less than six years, versus think about how long it takes to make significant upgrades to Ethereum's core protocol. If you have the ability to scale throughput that quickly by just changing your hardware from a blockchain perspective, as that gets better over time, why wouldn't you take that route versus trying to make like very, very difficult additions to the core protocol to scale throughput a different way. **Speaker A:** Yeah, I, I think this probably isn't like the debate we want to have now. **Speaker B:** I'm not the right person to have it with. I'm not going to do it justice. **Speaker A:** Because I think the bottom line is, I mean, if you're ever talking about the hardware that's running a blockchain, you've lost decentralization. It's over. Right? Because you now have to manage that and make sure that the people that are running your nodes are getting this latest state of the art stuff to run. And then again you're, there's interesting stuff there, like, don't get Me wrong. There's definitely like an interesting model where every major bank is running one of these nodes and they can afford to like make sure it's running and it's trustless between the banks or whatever. But anyway, let's move on to back or let's move back to Ethereum. And like, the one thing that's like super, super interesting about Ethereum that sets it apart from every other blockchain is that Ethereum, it's like sustainable. People pay more to use it than the protocol itself spends to keep itself alive and like that. I think there's like infinite things that we want to go on that. Jack, right before we spoke, you mentioned that this has been your hobby horse for the last couple of months. So before I just kind of go in whatever direction when you are talking about Ethereum as a business, what are the most important things for most exciting things for you? Most important things you feel like everyone needs to know. **Speaker B:** Yeah, yeah. So this is. Before I start, I want to say that I'm kind of strictly talking right now about layer one to layer one comparisons. I think the layer two business model remains like really uncertain. So I don't even want to open that can of worms right now. Yeah, let's be real. **Speaker A:** We don't even have layer twos yet. We have like a bunch of permission chained and so, like, yeah, we'll keep it. **Speaker B:** We're trying. We're out here working. Yeah. I think, like, if you take the strictest definition of a layer two, there probably are no true layer twos right now, but there are a bunch of people that are progressively getting really close. And so on the layer one perspective, this is actually my biggest issue with every chain that's not eth. And I don't, because of my seat. Like, I really don't want to like throw elbows at anyone. And so I'm not going to. I'm kind of just gonna like split. Speak about the different models generally and the things that I think are tough about them from a financial perspective. And I think interestingly, both of these are driven by these underlying points too, of the pragmatic versus the metaphysical mindset. Where the metaphysical mindset is concerned with the tech as the end in itself. What we want to do is create insane tech without necessarily putting as much thought into how is this a business or how does this accrue value to people and keep it incentivized long term. We already have one of those, that's Bitcoin. And then there's the pragmatist who I view as Ethereum is like, yeah, we need to run an actual business even if it doesn't meet the laws of physics right now. And so you think about it, right? Just to set our baseline, Ethereum being profitable means that net issuance in terms of staking yield minus all the burned stuff. Haim can do a better job of explaining the technical side of that if we need to, minus all the burn stuff from gas fees is negative over time. Right. And so there's the classic ultrasound money chart just for my ref. We'll see what the number is. Because I know that gwei's been really high the past week, but I know. **Speaker A:** Isn'T that exciting that like hi Gui, like adds this whole layer of like, all right, it's the best. **Speaker B:** And so. Yeah, right. And so if we're talking since merge and not even since merge functioning. Right. So merge. So since merge has been 217 days, September 14th, from September 14th to January 21st, net issuance was completely flat from January 21st to today. So right around three months we've seen $100,000 of net ETH burned. Right. And so from a profitability perspective, you can think about eth as being 0.1% like profitable a year right now, which doesn't seem like much because it's not. But relative to every single other company in the industry, it's extremely profitable. And specifically I think relative to the value that it also has as a token in and of itself, the aside from this whole idea of like, well, I guess it's more than 0.1%. It's like 0.1% plus staking rate. Right. Because that's like your cost or like your yield opportunity on it too. **Speaker A:** Yeah, I mean there's like a lot of cool ways to look at it, but my favorite way is that every burned ETH is kind of like a dividend to every ETH holder. And so what is Ethereum doing with its profits? It's like making it more scarce, which is taking the same amount of value with a smaller pie and it's, you know, it's like a tax efficient way to get profits. **Speaker B:** Yeah. And you know, you can probably even think about a reality down the line where as Ethereum hits like a steady state on. On staking rate. Right. Like let's say that we hit that, that staking rate of 2% or 11 1/2 percent, at which point, you know, participation declines. But. But on chain activity is still high enough that net issuance is negative. You could potentially see a reality where they up the base staking rate to try and get close to operating completely net flat from a balance sheet perspective and improve the security of the chain by incentivizing more people to stake effectively. Right, that's like totally a thing that could happen down the line. **Speaker A:** Well, I think like, so if we. **Speaker B:** Were willing to get into like actual underlying. **Speaker A:** Yeah, no, no, no, this is perfect because I think once you start talking about down the line we get really, really interesting stuff. Right. And, and I think in this particular conversation what has me worked up in this moment is so like one of the core upgrades that Ethereum will get is single slot finality. **Speaker B:** And so yeah, for someone that doesn't know what that is. Yeah, not me. Of course. **Speaker A:** For a friend you may have heard finalization, like the Ethereum transactions are only finalized after two epochs. And the reason that that happens is basically there's too many validators to sign every block. And so what Ethereum does is split up the validator set into 32 groups and then each group only does one block. And then every 32 blocks, slots or blocks, the entire valid validator set has signed. And so when, if you do that two times, it means every validator has signed at least two times. And like that's our whole scheme. But like the problem with that is, is like we have 12 or yeah, we have 20 ish minutes where we like aren't really sure if, even though Ethereum says that our transaction has happened, like if it might roll back. And in order to really do government level or UBS level trades and have that kind of certainty, Ethereum really needs to support single slot finality, which says if Ethereum accepts the transaction, it's done forever, it can't be undone. And so in order to get that, unless we start really getting close to the levels of physics, the problem that we have is that it's not possible for every validator to sign each block. And so what is already being talked about in some of the dark but gigabrain corners of Ethereum is what are we going to do about the validator cap? And I don't know, how does that change all of our economics of defi. **Speaker B:** What does it do from a security and decentralization perspective, having a bunch of eth combination concentrated in the same validator pools? **Speaker A:** Well, it actually. So there's a trillion different ways you can implement this. You can basically do first in, first out so that it's just like there's these validator slots available and you can do. It was around the end of the Ohm season. But do you remember there's a lot of time talk about the Harbinger tax. First it came from Vitalik and then the redacted folks just like spoke about. **Speaker B:** It endlessly around when that was happening. **Speaker A:** On the redacted stack. Yeah. So Vitalik brought that up to discuss the problem with the validator, like the inherent technology driven validator cap. And so it just draws in all these questions like, okay, is there going to be this intense competition for validator slots or are there going to be like such compelling other places to place your eth, like maybe, you know, in lending or in like these new things that it balances out and like it just opens up this whole new design space that they're like, we're not even talking about yet. **Speaker B:** That's interesting. So it almost like, I wonder over time like how healthy that is, to be honest, for the ecosystem. It kind of depends on I think where. And this is me speaking from a D5 perspective, not at all from a tech perspective, purely because the removal of staked eth is effective or the root, the removal of like free agency to enter and exit. Staked eth is actually, I think, a core part of what makes D5 work because it is genuinely the only true risk free rate in crypto. As far as I'm concerned, it's the only successful business that's offering bonds. Right. And so from my perspective, like removing that opportunity no longer allows the market free expression of what the baseline interest rate of crypto should be and actually weird, weirdly moves us towards a Fed model where the Ethereum like core team or whichever developers are effectively deciding on the validator cap are in effect setting a baseline rate for crypto that can't be like moved below because the number of stakeable ETH is effectively capped. **Speaker A:** Yeah, I mean this is all like a system design problem. And so I'm sure people are actually working on this or people that are looking to profit from it can pick apart exactly how you need to design or what a vulnerable design looks like. But I do think it is like one of those things that really makes me excited about Ethereum, but also just only Ethereum and I'm a huge believer of what everyone's building on top of it. And I encourage everyone to continue to deploy smart contracts and try and change the world and whatever. But I just, when I understand where Ethereum is in the roadmap, you know, I feel like we're building the Eiffel Tower on quicksand, you know, because like everything is still Changing so fast and I don't know, I mean, a guy at Polygon can tell that better than anyone. **Speaker B:** It's, it's simultaneously like incredibly wild. Talking about, you know, 5, 10, 15 year roadmaps with Ethereum, because on the one hand, like, that sort of vision is what makes it really incredible to be a part of. And like, gives you some comfort knowing that they know what the core issues that they have to address are over time and they're actively working on it at the same time. Having worked in, in the space for a few years now, you really get a sense of what a long time, five years is in this space. And so it's like, can you imagine in five years from now, looking back, like, look back at like 2017, 2018, like some of the layer one projects that were coming out around then. It's like, it's hard to look back and say like, yeah, we had a good understanding of what our core needs were back then. And so it makes me nervous at the same time to look and say like, yeah, the 5, 10, 15 year action plan that we laid out five years ago is still, still the same way we should function. But then there's like this caveat where, because I am always optimistic that the Ethereum team is the pragmatic team, I think that there's this reality where like, they also recognize that obviously and are working to update that roadmap, like you said, and deal with incremental issues that are coming up that could very much change this baseline conversation that we're having in a couple years. **Speaker A:** I think at the end of the day, like my, my read of the Ethereum roadmap and not, you know, not like going on Ethereum.org, but like reading through EIPs and like listening to these people talk about it is like, everyone understands that this is not like a relevant technology. We have to continue built. Like the entire roadmap is not about taking over the world or whatever. It's like, get it to a point where it's actually usable and like can reach into the real world and affect real people's lives. And you know, it's just, it's like, it's incredible that we have this opportunity to like build and, and claim land and speculate before then. **Speaker B:** But it's like when Amazon was profitable selling books, you know, like, I don't know if they were or not, I'm just saying. But this is the equivalent, right? It's like, yeah, I'm not saying we get there. I would love if we Got there. I fully believe we're going to get there. But it's like really, this is what you're kind of betting on, right? Is this thing that does one thing right now, but has the potential to do an infinite number of things across an infinite number of industries. That's really what we're looking at right now. **Speaker A:** Yeah, well, look, every single time I buy Ethereum, I view it as. **Speaker B:** I. **Speaker A:** View it as a lot of things, but most importantly I view it as this is just the derivative that derives value from open source. This is what all open source has been leading up to and we created this property layer so that we can have open source. And just so I hear you that the road is long and crypto is very erratic, but I just like at the end of the day, if you believe in like the power of the Internet to bring developers together to like solve problems, like, Ethereum provides a call option on that. **Speaker B:** Yeah, no, a hundred percent. And it provides a call option with much more limited downside or much more readily understandable downside than a lot of other, you know, projects that are effectively call options on that in the space and a much more diversified one as well. Right? **Speaker A:** Yeah, yeah, well that, that is what's so exciting about the Ethereum, like whole thing that in the place that we're at is what EIP 1559 allows, is that we all benefit from every single thing that's built on it. And you know, I just like, it's so cool, like the more you think about it, the more you realize like Ethereum has created this like self incentivizing layer to just like get people to build stupid stuff on it, even though like it's not really relevant because it's not ready yet. Can you just imagine the amount of developers building on AWS before it even worked? That would be crazy. **Speaker B:** Yeah, yeah, no, I totally agree and I think it kind of like leans into some of the stuff that we were briefly mentioning earlier that didn't really get to talk about is like how hard it is to actually do this at any sort of scale. Like if you think about what happens on an app chain model or a, you know, like traditional high throughput layer one, those are fundamentally right. Like on a High Throughput Layer 1, your, your mechanism design is such that like you want to always have like high validator participation to make sure like transactions are always getting processed and also simultaneously like have high hardware requirements and extremely low transaction fees. Right. And so that combination makes for an environment where like your cost of operation is higher than another chain a lot of the time. And simultaneously you have to have captured significant scale already to ever get to a profitable business model. Right? Like, that's not a business model that scales from zero to infinity, and that's what makes it really hard. It only scales from like 80 to infinity. You know what I mean? You have to be most of the way there already. The same thing is kind of true of the app chain model, which is like, there's two different things that they're simultaneously trying to do. One is more interesting than the other, but both kind of have the same underlying core issue, which is that if I am taking a product that lives on my main chain and moving them onto an app chain, what I am doing is taking a business that if it is growing, is paying me increasing ARR in gas fees on my main chain and moving them to a business model where they pay me a flat fee for validation of the sidechain. And on top of that, because all these tokens are, that are running, these, these other L1s are still highly inflationary and not profitable, it's likely to be like decreasing ARR for your largest partners. That's like bad business. And the, on the other hand, if you have this, the business model of like, oh, I'm doing onboarding of applications that don't even exist on my main chain, whatever it is like huge business opportunities. That's somewhat more interesting. Again, same issue though, where your unit economics are still based on validators for the chain. And the only way to really make the unit economics work is by scaling it up to literally like 5,000 plus of app chains, which is so far beyond the realm of where need is right now relative to the amount of block space that's available. Available? **Speaker A:** Yeah. No, I mean, I'm a huge believer in the app chain paradigm, but like, I think that we'll get to like, the real way this works. But you're totally right. Like, it doesn't make sense to just take a protocol and say like, like, we're going to make it independent. Because, like, again, you're just. You have to ask yourself, why wouldn't you just deploy that on AWS at that point? And like, yeah, we, we can have a conversation about, like, but there are. **Speaker B:** Some cool solutions being worked on the app chain side from a liquidity composability perspective. And there are ways that you can tap into some of the liquidity that already exists, some of the platforming that already exists, some of the tooling that already exists. **Speaker A:** Yeah, all that stuff is, I think that project that you may be referring to is tampering with some very dangerous parts of consensus. And so I think that like I, I would love to see documentation. Been asking for it for a long time. But I think that like the second you start exposing like your core security to like the whims of the market like you, you're in trouble. Right. And so anyway, I think like the interesting thing about app chains, right is. Sorry, yeah, I think how we're going to get to app chains is. I'll pick an example, but there's infinite out there, right? Like Frax is my favorite one where their whole idea is like, okay, we started with a stablecoin, okay, we have curved and that's great. And then we realized we need more places for people to use our stablecoin. So they built Frax Swap, right? And then they built Frax Lend and now they have this whole validation stack through Frax eth. And so like the, the boys at Flywheel, like Defi, Dave loves to call it like the Defi trinity, right? And so using that frame, it's just like once you realize that you can build this integrated like full service protocol where you can get anything you would want out of Defi, it totally makes sense to me to take all of that, bundle it up, move it off chain so that instead of like letting arbitrary MeV bots take all your arbitrage, like letting that get extracted out of the system, you now control it, but then you can just settle back down to Ethereum to maintain the like the crypto economic security. So you. That make sense to you? **Speaker B:** I think so. I hate it, but it does make, it does kind of make sense. Well, it's interesting. Yeah, go ahead. **Speaker A:** Because like for me like this is my read on like what Polygon is doing with the like the ZK node and stuff and like what I would love to see, like if it's not Sam Kazemian, fine. But like Maker or Aave, like anyone that is starting to build these integrated services should be looking at Gnosis chain and sorry, should be looking at cowswap to say like this is the experience that we should provide our users but in the background we like can actually like build the systems and like the technology and like capture the MEV that we want and still maintain the L1 settlement. **Speaker B:** The whole point of roll ups, I guess in this example though is where is the liquidity is living on the roll up chain. On the app chain effectively or off chain, where do you envision all of the participation happening effectively? Because I think it's interesting if it's like on an. If the liquidity still lives on chain somewhere, I'm like pretty interested in that. And if the off chain functionality is more of like a hybrid Dex model, like what we were talking about from Cosmos. I think something like that's actually really, really cool where you still have some core liquidity on chain. You have the ability for validators to claim MEV on order books, which gives a chance for economics attached to the token without any direct fee pass through. There was some cool stuff being built there. Moving it all off chain starts to get into this weird place of like what are we doing here then? **Speaker A:** So number one, if you were to build directly in the model of Cowswap, I'm pretty sure the way that that works is it's just like their execution engine that is off chain and then all the liquidity stays on chain. And so that's the model you're talking about. Yeah, the high, yeah, the, your more philosophical and therefore like interesting question about like if you start to like build these like build these integrated services so that like from an economic standpoint it makes sense to like move computation and that like siphons off liquidity. I mean, I guess like to me that doesn't break down the point of what we're doing at all. Like for me the point of what we're doing isn't even really about defi. It's about like trustless settlement. Like it is about like the fact that we all like believe that if I do something on Etherium, it's not being undone. Like I don't care if like Jamie Dimon is involved. I don't care. Barack Obama. And so like in this paradigm it's like let's say that Frax is able to like really lock in like using locks so that they know it's not going anywhere. Like $10 billion, right. And they're like, you know what? This is enough liquidity that we can actually just move this into its own roll up. And if we ever need to project liquidity into on chain to facilitate a huge trade or whatever, we can just do that from the roll up. But in general we want to house the liquidity option that doesn't break down what we're doing at all. To me. **Speaker B:** Yeah, no, I think I agree with that. That's. I still count that as on chain, right? Like the liquidity is still living somewhere on chain. You're effectively just using like you're. What you're talking about is effectively like using synthetics. Right. Where the back end for the synthetics just lives on another chain. **Speaker A:** Yeah, yeah, I mean that's definitely like a way to look at it. But what's so cool about again, I'm just like going to do your business development for you. But like what's so cool about Polygon on the same day that they open up the like beta for all of us to go farm, thematic, airdrop or whatever that like they also open source it. So like literally Sam, because I mean today could like say, okay, this is a general purpose zkevm. Let me take out all the general purpose part. Let me just make it frac specific. And then like these all open source app chains are roll ups, right? And they're all interoperable because they're using the same provers like everything. And so I don't know man. Like this. **Speaker B:** Yeah, no, I, I like, don't get me wrong, I didn't mean to sound pessimistic at all about what we're doing on the scaling side because that's literally what I spend all day supporting. And I am extremely excited about it. I'm also just someone at this point who believes so strongly. I'm like a crypto maxi, right? I'm a blockchain maxi. I'm a. I want to make sure that we're not just doing it for the sake of doing it, but we're doing it like the right way. Right. We have a mission that we're working towards, we understand what it is and like we're all kind of getting there together. And for me, like, yeah, scaling absolutely is one of the most exciting things that happened. Like I remember getting involved in defi summer paying $100 to clear transactions, right? Like mind boggling numbers and now like having the opportunity to come in. And even something as new as zkevm, which is still operating at huge multiples of what its end game gas cost is going to be because it batches transactions and sends them to the approver. And so the larger the transaction batches are the lower unit economics get. And so for us, even in these early days, you're still paying fractions of what you were back then. And whether it's POS or arbitrum or optimism as well, you feel the difference on a daily basis from a user experience perspective. And the other nice thing as well is that because you have some of this abstraction layer when I'm talking to a lot of these really interesting people that are solving like stepping away from the world of like degen crypto for A second. As much as I love to spend all my time there, like I talk to people on a daily basis who are building really cool shit that like has the potential to change the world, right? In various use cases using this underlying tech and in a way where they're using it because we're finally at the point where you can abstract away a lot of the bullshit crypto native stuff that you don't necessarily want everyone to have to deal with. And I'm talking about stuff that's like as cool as connecting like huge, huge nonprofit organizations globally to like small hold cold sharecrop. Like farmers in India who are looking to get loans on a seasonal basis, like connecting originators to loan officers, tracking it all on chain on a farmer by farmer basis. All of that. Like, none of the, you know, loan senders know that this is happening on Chain necessarily just happens to be like the back end infrastructure to a dude I was talking about talking to today who's literally basically putting up like white hat hacking bounties on Chain, not in like a code for arena style, but on like a FBI's most wanted list. Like he's partnered with a bunch of NGOs. He used to be like a hacker for a major government organization. And he's like, yeah, like we're going to do this all on chain. Completely decentralized. Anyone can submit information leading to a bounty. And like, right. It all just happens to live on chain. And so some of these random kind of edge use cases that are finally able to actually get realized now that this stuff has become more usable are going to help over the long term. Also legitimize a lot of what we're doing to the people where trading ecoins that have vaporware for value doesn't make sense to. **Speaker A:** Yeah, no, I couldn't agree with you more. And I call it the Lord's work where when people are building like real projects that have real utility in the world that happen to include crypto. And you know, I think like Goldfinch is one of them which does basically what you describe, which takes like crypto money and puts it into the real world. I think reserve protocol is amazing, which like does some like, you know, whatever defi stuff. But like turns out like hundreds of thousands of people in Latin America are actually like using it to protect their savings against inflation. And I think that like you're totally right. We're, we've just, we're starting to reach a point where the technology is like mature and performant and like good enough that you can start to have conversations about functionality and, like, why you'd want to build this and not come in with, okay, so in 10 years, like, it could look like this. And if you want to, like, have your little like, crypto buzzwords and like, we could do this integration, but, like, no one's going to use it because it's sucks. I'm like. And so, you know, we're just, we're like, we're in a different era now and it's, it's super exciting and awesome. But, you know, I guess this is a good moment to pivot a little bit because it's also an incredibly scary time, at least as an American. Right. And I guess there's just like a lot of activity definitely since Sam Bankman fried, but really seems like in the last couple weeks. And, and so I think there's a lot of things to be said. There's some, like, reasons for hope. There's a lot of reasons to be, like, incredibly afraid. But what is your holistic feeling about crypto and like, most specifically about Ethereum in the United States and then like, a little bit larger what it's like to be like an entrepreneur or a builder in the United States. How are you processing everything that's happening? **Speaker B:** Yeah, so first of all, like, very fortunate too. And this is going to be one of the few times I like objectively show Polygon on this podcast too, because I'm trying to keep it low key. We're very fortunate to have like, a couple really, really strong policy people that are working to help, like, go into D.C. and educate. I literally think our, our chief of policy and president of Polygon Labs, Ryan Wyatt, were both in D.C. either today or yesterday. I think it was today talking to a bunch of senior people on Capitol Hill. And to that end, you know, I think the part of what really screwed up, honestly for us was the fact that the vast majority of people that were providing opinion to regulators were in one of two camps. Either, like, I don't want to, like, throw too many elbows, but like algorand types who are very, very focused on blockchain, like as an academic use case versus how it's actually being used today, or Sam Bankman Fried types who obviously had, like, somewhat more problematic underlying agendas. And in a large part that was because of the dearth of sophisticated people that understood blockchain, but could also bring it down to a level where a regulator could, could get really comfortable with it. And I think even relative to a year ago, the number of those people in the space like when I would talk to large tradfi institutions a year ago it would be like, what is eth staking? And then by the time I was leaving the TIE or I guess like two years ago and by the time I was leaving the Thai like six months ago, the conversations were much more in the weeds on defi. In the weeds on other, other like major technical topics. And so the base level of understanding I think has increased significantly, which my hope is that like that begins to propagate out into like more levels of comfort among these like senior stakeholders. The second kind of thing that you're asking is like, what is my take on it broadly? I don't really have one that's actually informed. Like I hate talking out of my ass and like, I can't pretend to know what like the CFTC is going to decide to do with or like who's going to decide between the SCFTC and SEC at the end of the day and like what's going to be labeled securities and what's not. I think like what's really obvious to me is kind of two things. So the SEC one is going to like continue to shoot for targets that they know they're going to win, right? Like they're very, very careful in what they're selecting. They don't want to set bad precedent. And so that's like why we're seeing this rollout in the way that it has. The second thing that I'm kind of broadly hoping for, and this is really a hope, there's like no guarantee here, is that the US is cognizant enough of how important this is that they're going to be err, on the side of caution for not screwing it up. Because I genuinely think we're at the point in the tech where the US going gung ho on it would be really bad, don't get me wrong. But at the same time I have enough comfort that there are enough legitimate financial economies globally out of Asia, a few in Europe, right. Decent number in South America that are willing to support this to help like ensure that there's always going to be spaces for people to keep building. And so then on the builder side, like, yeah, it's a little weird sometimes for sure. I'm extremely cognizant that I'm always paying my taxes correctly because they, they know I work in crypto. And on top of that, like you have to definitely be very, very careful even internally. Right. Like our company is kind of very global, but at the same time we're extremely Cognizant of like US regulators in everything we do and trying to make sure that we're always erring on the side of caution, which can be really, really tricky oftentimes given the lack of clarity. And so you're dodging between trip wires that like may or may not be there. **Speaker A:** Yeah, I like, spot on. Couldn't agree with you more on everything. I, I, I do think that it's a lot of people like to just like call what's going to happen, especially like in regards to the SEC or like whatever stablecoin bills are like and look like. The reality is, is that even if we were making these decisions based on like logic or technology or finance, like our decision making process is broken and it has nothing to do with like the facts on the ground and has everything to do with like things that have nothing to do with crypto. Right. And so I, I think that part of me of course is like really terrified at like what could happen and like what it would mean for my personal life. And then part of me is a little bit so look, like, like you, I imagine a world where the US does something really bad and like I will go to Singapore, like I will go to Dubai and I'll be back in the US in 10 years because. **Speaker B:** Yeah, I have other passports, man. I'm not worried, I'm chilling. Israel's very crypto friendly. **Speaker A:** Yeah, man, like there is. I, I do believe that Ethereum is inevitable and I do think that like we could get displaced for a while, but like, you know, it'll be to the much to the chagrin of the United States and to like the American people. But I, so, you know, like, I'm always mo, I'm always comfortable with like the worst case scenario and, and in, in these times, it's just like really hard to pick apart like what I actually need to be worried about. Like for example, man, is eth a security or a commodity? **Speaker B:** Who cares? I mean there's just like underlying issues with actually registering something like ETH with the sec. Yeah. Like who, who even registered who's IT incorporated under? Like who's issuing it. Yeah, there's no centralized body to actually do any of that. **Speaker A:** And that's what we're like this. Yeah, sorry, I don't mean to cut you off. **Speaker B:** No, no, I totally get your point. But, and you know, again, this is me like the stoic pragmatist, the most annoying person to be around. It's like, yeah, dude, like plan for the worst, expect, you know, like plan for the Worst and then set your expectations somewhere like, hopefully realistic, a little shallow of the mark and you'll always be ready. And then like, there's nothing at this point that we can do aside from continuing to build out legitimate shit, you know, like in my, in my eyes, like what, what are my controllables in this situation? Like, I'm not a policymaker. I can't get in there with Gary. I can educate myself until I vomit about it. None of that's going to help anything. What's going to help is like, knowing what the kind of outcomes are generally and then knowing that I can get in there and try and help build as much legitimate product as possible over the next couple of years and show them right, rather than tell them that what we're doing is cool. And so that's like totally my mindset. **Speaker A:** You just spoke words directly from the heavens. I think that couldn't be more spot on. And I think that it's a great place to wrap this up because look, when I hear non crypto people talk about crypto and I hear that like, isn't that just a scam? Like, I can't believe like you would put your career in there. Like all this stuff, like, I don't know, man, like they've got a point. And like, yes, like if you bother to stick around and learn about the history of Ethereum and then the roadmap of Ethereum to learn the special moment in history that we're in, like, you realize like it's not, not all a scam, but it kind of is like mostly a scam. Like whether that's the SPF style scam or the Goblin Town style scam or like the Sifu style, like pick, pick one, right? **Speaker B:** Pepe Token style scam. **Speaker A:** Pepe Token. Like, I just, I think that like the message that like we all like need to take away is like, first of all, we just need to get this regulation stuff out of our heads. Unless it's our job to work in regulation and then we need to take all of that energy and focus it on building legitimate shit. And you want to be in the defi d gen world where you're basically issuing security so you can dump on people. That's one world and fine. But for those of you who, and. **Speaker B:** We love it here, it's fine. **Speaker A:** But if you really care about the inevitability of Ethereum, that's the mission statement. Build legitimate ship 100% right. **Speaker B:** And I love being a DFI DGEN. I spend a lot of time on it. I, I also spend a ton of time working with people trying to build out really legitimate use cases to help them figure out specifically, right? Like, how can we build out really thoughtful technological stacks that can start to rival and replace some of what we're seeing in the real world? Like what are the low hanging fruits for replacement? How can we then build thoughtful defi based stacks to replace them so we're not just making fed chain. And if you start getting to the point where this stuff's getting integrated in real business across lut legitimate industries that were ripe for disruption, then all of a sudden like these companies, like, if bad regulation starts coming in, are also going to be on our side. Right? And it's not just going to be the crypto natives, it's going to be the crypto natives plus all of the dudes who have business in Latin America and then they're like, no, like this is important to us. Right? And all of a sudden it becomes more and more meaningful every day. **Speaker A:** Yeah, exactly. I mean, look, like I don't care how bad the law is that comes down if like by that time I've been able to go back to like my old company, Anheuser Busch and convince them that in order to do all their international transfers, they should just use USDC instead of this like bullshit wiring process. We don't have to do any lobbying. When that bill comes down, Anheuser Busch will be there, you know, or like we just need to build legitimate shit that companies want to use. **Speaker B:** Yeah. That's all I'm here to do, man. And also DJ pass the hours of 6:30pm yeah, yeah. **Speaker A:** That's the night job. Yeah, exactly. **Speaker B:** Yeah. **Speaker A:** All right, man, well, thank you so much. I really appreciate the time. Anything you want to shout out or Twitter like anything like that? **Speaker B:** Sure. If you guys want, you can follow me on Twitter ackmelnick with an underscore at the end. You know, I work at Polygon, you should check it out. We're doing some cool things on zkevm. Really excited to start rolling some of the protocols out next month. And for us, as a Defi native, as someone who's trying to fulfill a lot of these things around scaling and thoughtful growth that we've been chatting about all episode. ZK was a chance to come into a chain that was brand new day one and say, like, what would I build? You know, like, if I had the chance to build my own chain, what would I put on it and do that? And so it's been really cool. It's been, you know, a little bit slow to start, and I think that's actually for good reason where we are being really tactical. It's open source, of course, anyone can deploy, by all means, go launch your shitcoins on it. At the same time, though, too, we're trying to make sure that every single building block, you know, a dev could ever need, not just from an EVM equivalence perspective, but even from like a. A second and third order protocol perspective, everything you could ever want is going to be there and actually make like a really, really thoughtful community and partnership driven defi. Experience. And so that's my show for today. Today. Go check out ckevn. **Speaker A:** All right, Jack, thank you so much. I really appreciate the time. **Speaker B:** Oh, thanks for having me on, Rex. It's a pleasure as always, man.