EIC02

EIC02 ▪ Summer ’24

Published by: ETH Investors Club, July 2024

Minting Address (Base and Mainnet): eicdeployer.eth

Donations: eic.eth

Disclaimer:

This content is for informational purposes only and is not legal, tax, investment, financial, or other advice. You should not take, or refrain from taking, any action based on any information contained herein, or any other information that we make available at any time, including content such as blog posts, data, articles, links to thirdparty content, discord content, news feeds, tutorials, tweets, and videos. Before you make any financial, legal, technical, or other decisions, you should seek independent professional advice from a licensed and qualified individual or firm in the area for which such advice would be appropriate. This information is not intended to address of be comprehensive of all aspects of EIC or its products. There is additional documentation on the ETH Investors Club website about how EIC and its community function.

Contributors

Riley Blackwell Founder, Cloudscouts rileybeans.eth

Hong Kim CTO, Bitwise Asset Mgmt. @hongkim__

Andrew Hong Headmaster, Dune Analytics @andrewhong5297

Benji Leibowitz COO, Molecule @benjileibo

Nathan Howard Partner, Switchpoint Strategies @fallow8Defi

David Phelps Founder, JokeRace @divine_economy

Tomu Founder, Overgie&MintGate tomu.eth

Hunter Horsley CEO, Bitwise Asset Mgmt. @HHorsley

Vivek Raman Managing Director, BitOoda VivekVentures.eth

Cooper Turley Founder, Coop Records @Cooopahtroopa

Maika Isogawa CEO, Webacy @MaikaIsogawa

Alex Soong Core Contributor, ZKP2P alexsoong.eth

Founders Club

Anthony Sassano sassal.eth

Ryan Rasmussen @RasterlyRock

Hildobby @hildobby

Kevin Ryan kvnryn.eth

Chase C @Deepspacechase

Amdet Amehayes @amehayes

Ben Giove @BenGiove

Jessy @13yearoldvc

James Wang @draecomino

Kirk Hutchison @OneTrueKirk

Arella Trustman @arella_eth

Sid Powell @syrupsid

1e9e

Gurun

Cooper Turley @Cooopahtroopa

Ryan Berckmans ryanb.eth

Kevin Owocki owocki.eth

Jack Stewart @jackthepine

Brian Flynn @Flynnjamm

Otherworld @otherworld_xx

Abhishek Punia @puniaviision

Joey Santoro @joeysantoro_eth

Benjamin Desprets bendr.eth

iDecentralized HomeValidator.eth

Sealaunch @sealaunch_

Spreek @spreekaway

Consome consome.eth

Notmycircus.eth

William Peaster @WPeaster

Mike Taormina @MikeTaormina

Evolution of Onchain Media

Cooper Turley Culture Corner

Inside Base

Onchain Summer EIC Culture Corner

Rethinking Collect as the Like Button

Tomu.eth Culture Corner

Reinventing Biotech with Onchain Intellectual Property Benji Leibowitz Surfing the Chain

Permission as Tradeoff, Not Blasphemy Nathan Howard

Enthusiam is All You Need

Riley Blackwell Culture Corner

FrenPet Is More Complex Than It Looks

Benoit.Tokyo Culture Corner

The Social App Thesis

David Phelps Culture Corner

A Social and Financial Study of Memecoins

Editor’s Note

How should we try to model Ethereum’s valuation? Is it like an app store, a tokenization platform, a nation, or even money?

The sheer breadth of Ethereum’s potential makes simple analogies challenging. Ethereum, along with the innovations built on top of it, represents global software that enhances cooperation and coordination among private entities. This has given rise to a new “internet” built on Ethereum, where privacy, markets, and property rights are paramount.

In EIC02, we’ll explore the solidification of Ethereum as a parallel internet and its expansion into cultural and social applications, spearheaded by Base, Coinbase’s Layer-2 solution, which is soon celebrating its first anniversary. We will discuss how ETH, the asset, powers Ethereum, establishing it as the first truly internet-native bearer asset. Additionally, we’ll hear from Bitwise Asset Management’s CEO, Hunter Horsley, and CTO, Hong Kim, about why bringing Ethereum to Wall Street is a story not just for the present but for the foreseeable future.

So, how should we value this new internet? Or its native asset, ETH? Should we see it as an app store, a tokenization platform, a nation, or money? The answer may well shape the future of our digital economy.

Peter Vecchiarelli Editor-in-Chief

Vivian Vecchiarelli Creative Director

Data Editor

Copyeditor: Logan Miller

Cover Photography: Marissa Rocke

Technology Partners: IYK, Zora, thirdweb

Art Partners: Basepaint

AI Models: Adobe Firefly

To contact the editor, email: peter@ethinvestorsclub.com

Hildobby

Culture Corner

Cooper Turley Founder, Coop Records

NFTs are dead.

Or that’s what the headlines say at least.

In this article we’re going to look at how onchain media has evolved over the past few years and what this means for content creators and collectors exploring the new frontier of the internet.

But before we dive in, a bit of background. My name is Cooper, the founder of Coop Records. We’re building an onchain record label where we’ve released nearly 300 songs from 70 artists over the course of the last year. I’m the guy who was spearheading that crazy “Music NFTs” meme you may have seen on Twitter and thought was a complete joke.

And to tell you the truth, most of it was. However, in the past three to four months we’ve found a model that has allowed us to drive over a quarter million mints back to our artists, earning them more than 100 ETH in onchain earnings without a single secondary sale, 100x, airdrop, or any other number of incentives we’ve commonly seen be the core driver of usage in crypto. Don’t believe me? See for yourself here.

EVOLUTION

Now you may be thinking, “Why should I care? Why should I care that a niche record label releasing collectible songs has something to say about onchain media?”

Well, because this article is using the same playbook that I’ll be covering in depth in this essay.

“And what is that playbook?” you ask. Onchain ads, baby. Sweet, sweet ads. However, they look a little different. You can collect this article on boost.xyz and earn a reward for doing so. This might not sound sexy on the surface, but I believe what we’re talking about here is the way in which creators, companies, and organizations will drive impressions (or, as we say now, “mints”) in a net new way.

And this playbook is critical because it will create a system that unlocks the missing ingredient that’s been necessary for creator tokens to work: recurring onchain revenue.

Anyway, we’re getting a little ahead of ourselves, so let’s set the stage.

ONCHAIN

EVOLUTION OF ONCHAIN MEDIA

1/1

NFTS

Let’s go back to 2018.

The term “NFT” could only be found being whispered about at small meetups and conferences around the country. The earliest NFT NYC was nothing more than a small group of people passionate about continuing the excitement that emerged for a project called CryptoKitties.

Crypto art was in its infancy, and platforms like SuperRare were the destination for internet explorers to spend money on 1/1 pieces from, at the time, relatively unknown names like XCOPY, Coldie, and Hackatao.

It was a niche community, but the interest was apparent. Here, you had a piece of artwork that was limited to one collector and established an immediate bond with its creator.

Simply put,collect a 1/1 and have a high likelihood of meeting the artist and getting to form a personal relationship with them.

The NFT Bull Market

Fast forward to early 2020, and a new concept started to emerge: editions.

If the earliest collectible pieces were limited to one edition, the new meta expanded to a much wider audience: 10,000 editions.

Thanks to projects like CryptoPunks and BoredApes and platforms like NiftyGateway or Topshot, we quickly saw a rotation away from hyper-scarce 1/1s to limited collections with supplies of 1,000 or 10,000 editions.

The value prop was also very straightforward; there’s a fixed number of tokens in a collection, and if you want to buy one, you had to get it from someone else who had it.

This brought on the craziest cycle crypto has seen to date, and I won’t bore you guys with the obvious details of what happened.

Floor prices and rarity traits became all the rage, and for a few years we lived in a world where artificial scarcity was the core driver of value accrual for new brands and collections that managed to tap into a wider demographic of users than the space had seen before.

The same held true for music.

In its earliest days, we saw the rise of platforms like Catalog - a 1/1 marketplace for songs.

This was followed by Sound, a then curated platform that let artists sell 25 editions of a given song.

The market believed it; there was a strong belief in the idea that all items could have a limited supply, and if you were early enough, you would be able to purchase something that you could sell for a higher price later on.

NFTs are dead.

But this is where things started to break. NFTs were no longer cool.

All this belief that a given avatar or piece of art was worth 10s of thousands of dollars went out the door. Floor prices plummeted as people got tired of the same ideas being replicated over and over.

And once more the industry was forced to evolve. At this point in time we started to see the birth of L2s like Optimism, Arbitrum, and Base.

These chains made it cheaper to collect, which naturally made it possible to start selling editions at much lower prices.

The standard mint prices (for music at least) dropped from 0.1 ETH for 25 editions to the

introduction of “Free Mints” and a new industry standard of 0.000777 ETH to collect.

Note: This is very important to zoom in on because this “Free Mint” meta is the underlying theme that ties together this entire essay.

Platforms like Sound introduced pricing mechanics like Sound Swap, a bonding-curve based AMM that allowed for a natural price appreciation to occur after a defined mintwindow closed.

These ideas were genuinely novel; however, they lacked a major aspect… demand.

Across the board, we saw projects struggling to see even a fraction of the amount of sales that they were once seeing. And with that dip in sales, a generation of 2021 founders scrambled to keep their business afloat due to being based on the assumption that people would want to buy and sell limited edition collections.

And that brings us to the meat and potatoes of this article… the birth and evolution of the Free Mint.

What is a Free Mint?

A Free Mint is the most standard mint format that exists in crypto today.

This means the creator is not charging a price to collect, so it gives the allure of being “free.”

But here’s the catch, it’s not actually free. Under the hood, the platform being used to mint the edition charges a Protocol Fee, that sweet,

sweet 0.000777 ETH number we mentioned above.

Due to its nature as something “free,” it also challenged creators to abandon this idea of scarce limited editions. If something is free, why should it ever close?

At some point during 2022 and 2023, we saw a subtle shift away from the idea that editions were to be scarce and limited to the new mentality of them being unlimited and broadly accessible.

The game shifted from trying to sell 1000 limited editions to trying to reach 1M “free” editions.

And why does this matter?

Because creators get paid on every mint. In the case of a platform like Sound, Pods, or Zora, that 0.000777 ETH mint fee gets shared directly with the creator. A “free” edition on Sound now incurs the following breakdown:

▪ 0.000555 ETH ($1.94) - to the creator + collaborators

▪ 0.000222 ETH ($0.777) - to the platform (Sound)

To paint a picture, collectors were used to paying hundreds if not thousands of dollars to collect artificially inflated avatars that more often than not resulted in negative ROI and unfulfilled promises. Think fanny packs, empty IRL meetups, and founders taking “mental health” breaks.

What’s it to someone to spend $3 to pick up an edition of a song, podcast, or article they enjoy? It’s a tip. Nothing more. Nothing less. No expectation of utility. No expectation of 100x profit. They’re just giving back to support something they liked.

Or, at least, that’s the idea.

And this, my friends, is the birth of the new meta. The foundation for onchain media to achieve giant levels of scale.

Enter Unlimited Editions

All right, setting the stage, it’s 2023 and people are completely burnt out on NFTs. They don’t think they’re valuable, and they think they’re a waste of time.

Now you have a new generation of creators (like myself) starting to panhandle “free” editions.

For the sweet price of a McDouble, you too can collect an edition of this digital collectible that gives you a free download of a song and the ability to comment as a member of the audience. Sounds great… right?

Let’s be honest: no one wants to buy $3 editions of a theoretically infinite-supply asset unless there is one of two things in place:

*The promise of a reward for collecting (coming next)

*The speculation of a perceived future airdrop

This is why you see projects like Base, Zora, and other chains achieve hundreds of thousands of mints on “commemorative” mints.

Among the airdrop community, there is a commonly held belief that being active on a chain and collecting canonical cultural moments will be rewarded in the form of future tokens. And who’s to blame for this? We saw airdrops to communities like Pudgy Penguins and Miladys all the time. Why not reward the people who collected the first NFT celebrating the launch of a major milestone on a new chain? Anyways, that’s a much deeper question, so let’s get back to the root here.

Unlimited (or open) editions are the new foundation creators have used to monetize their work for the better half of 2024.

But keep in mind that no one really wants to collect these things in and of themselves. Think of it like posting a video on Tiktok or a picture on Instagram. Sure, you might have a couple close friends who are willing to support you and what you do, but if you drop something into the blue ocean of the internet, the long tail of content has very few likes and very little engagement.

This is the exact same with crypto, but on steroids. Crypto already suffers from having such a small number of people in it that just dropping a mint on Zora, Sound, Pods, or whatever platform you choose is like shouting into the void. No one is going to collect it because no one sees it or cares. You can see this by browsing pretty much every creator economy app and looking at the freshly minted works. You’ll see dozens of songs, artworks, and podcasts scraping by with zero, one, maybe five mints.

Now, you may be thinking, “OK, if these platforms are getting no mints, then they must be dead.” Not quite.

This is where companies like Coop Records come into the mix.

Onchain Distribution

The single most valuable resource on the internet is distribution. This is no different onchain from how it is in the traditional world.

When we started Coop Records, we saw this all play out first hand. We onboarded artists and tried to get them sales under the assumption that if we sold 25 limited editions for the cheap price of $10 a pop that people would want to collect them.

Wrong. There was no demand for limited editions because there was no audience. No one cared about collecting something on Sound because there was no cultural cache attached.

So while the whole world shifted their attention to brighter horizons, we doubled down.

We quickly realized that if we wanted our artists to get mints (which gets them paid) we would have to go out and get them.

Enter platforms like Boost, Layer3, and Coinvise, the central hub for onchain distribution.

Here’s how it works:

▪ I sell an edition on Sound for 0.000777 ETH ($3)

▪ I give you a reward for collecting 1 OP ($2)

▪ You end up spending $1 in total and the creator makes $1 in profit

Sounds pretty straightforward, right?

Stated another way, we have now created onchain ads. Only instead of paying for impressions,you’re paying for mints.

This is what we did at Coop Records. We started running onchain ads on every single song.

And it started to work.

Powered by @coop_records on Dune

Over the past few months, we started to see a major spike in mints thanks to the campaigns we were running across the platforms mentioned above.

These methods have created ~60 ETH in onchain earnings to our record label since May, with the vast majority of that being driven through quests.

But why does this matter?

The Rise of Memecoins

When running a Boost, you can choose to reward users with whatever token you’d like.

This usually started out with Optimism (OP), which was granted to organizations like ours through RetroPGF for driving impact to the network.

This was essentially a way for us to convert the tokens we earned for driving value to the Superchain (i.e. Optimism and Base) into ad dollars to drive mints to our music.

But it didn’t stop there. In recent weeks we’ve been experimenting with tokens like DEGEN and HIGHER that are more speculative in nature.

What you now have is a way to accomplish the best of both worlds.

The creator gets paid in mints, and the collector gets paid in memecoins. You’re meeting the market where it’s at and giving both sides an opportunity to see the results they want.

For creators, they no longer have to worry about speculation around their art because there was never an expectation of it to begin with.

For collectors, they get put onto curated tokens and start to build loyalty with the distribution platform (Boost or Layer3), the curator (Coop Records), the artist (Daniel Allan), and the token (HIGHER).

Going back to our original thesis of why people want to collect, they’re hitting every box; they get a reward for collecting AND they get to speculate on potential future airdrops.

For us at Coop Records, we now have a clear and essential game to be played.

It’s our job to source quality tokens to give to our users as rewards. This is best exemplified by a recent campaign we ran for ATRIP’s latest song “Ginger” in partnership with the Higher Collective.

The Higher Collective gave Coop Records a 300k HIGHER grant (~$5k) to use as ad spend to drive mints to the ATRIP song on Sound. We ran a quest on Layer3 and a Boost campaign and directed all the referral fees (or 0.000222 ETH per mint) back to the Higher treasury.

While it’s nothing crazy, the system here is what’s worth paying attention to.

The New Liquidity Engine

Most token projects suffer from two main pain points: liquidity and distribution.

The system we described above improves both:

*Referral fees create a consistent inflow of ETH to a treasury to be used as liquidity

*The distribution of a reward for collecting creates an influx of new wallets which are being exposed to a token for the first time.

Due to the modern pricing mechanics, token projects can now expose collectors to their ticker symbol for the small price of $1/mint.

Compare this to airdrops granting holders hundreds of millions of dollars of value at once, and you instead have a system that is much more sustainable and achievable across a much wider time horizon.

A $50k token grant to the right curator can now land you 50,000 new token holders, most of whom have likely never heard of your token in the first place.

Now, I’m not going to sit here and say they’re going to be long-term holders, but the ability to get your token in the hands of 50,000 new users for potentially only $50k worth of sell pressure is worth paying attention to.

But what happens when you start to align these incentives on all fronts?

Time for Artist Tokens?

Now imagine a system as follows.

A new artist (let’s call them Bob) decides to launch a Bob token.

He’s interested in building a community and finding a way to align incentives with his collectors.

We’ve seen historically that it’s impossible to assume that there will be a strong market for every single song that Bob releases.

Instead he decides to leverage the playbook we mentioned above; however, this time he’s doing it with his own tokens.

Everytime Bob releases a song onchain, he sets up a Boost.

Collect Bob’s song for $3, get back $1.50 in BOB token.

Using that $3 in earnings, Bob can now direct his earnings back to a shared treasury or, better yet, directly into a liquidity pool.

What you’ve now created is a system where every mint creates a shared upside for holders. It doesn’t matter if you hold song one, five or ten. Every time a new mint happens, you get rewarded as a holder of BOB.

Now the market can start to speculate on the price of BOB, rather than the price of the underlying token.

The content can exist as an unlimited edition that is meant to reach as far and wide as possible. It gives an opportunity for broadscale distribution without needing to worry about the floor price or utility.

It also creates a system for onchain earnings such that the creator can consistently add liquidity back into the pool, creating the ability for holders to buy and sell as they please.

There’s a ton of nuance here, and for all intents and purposes, we’re getting a little far out on the risk curve now.

So where is this all today?

Coop Records Club

We recently made our first distribution to Coop Records Club, our onchain subscription using a platform called Hypersub.

Thanks to the launch of their new protocol, we can now automatically make deposits to a contract which distributes those earnings to our subscribers based on the length of their donation.

We started with a deposit of 0.5 ETH, but are aiming to make weekly distributions back into this pool every week.

Subscribers get an airdropped edition of every release (distribution) and exposure to our onchain earnings (liquidity). While there’s no token in place yet, we’re setting the foundation for a much stronger premise:

Being a part of a community owned record label with exposure to every artist, song, and mint.

we feel fortunate to be the first team to make a rewards distribution on Hypersub V2 and think it’s an extremely powerful premise for what’s to come. If you want to learn more about Hypersub V2, check out this podcast we recorded with their founder this week.

What’s Next

With that you’re pretty much caught up to speed.

I could go on a whole tangent about the trials and tribulations of running an onchain label, but instead I’ll point you towards a few other key ideas worth focusing on.

Recommended Mints

Interfaces that surface viral mints as recommendations based on your onchain activity.

Keep a close eye on Daylight, MintFun and Zerion.

Hybrid Tokens (404s)

A developing token standard that combines fungible and non-fungible tokens.

Keep a close eye on the /louder channel on Farcaster or the Album project from PleasrDAO.

Channel Tokens

Easily create tokens for any tokenized community on Farcaster.

Keep a close eye on FarTerminal, Sonata and Scoop.

Tie it all together and you have the foundation for what I would consider to be the most modern evolution of onchain media.

If there’s one great thing about crypto, it’s that it’s always evolving.

I would be willing to bet that the concepts in this article are outdated even a year after reading them, but it’s important to document them to mark the time.

If you found the concepts in this essay interesting, I recommend keeping a close eye on the following accounts:

> Adam Levy (@levy) - founder of the Mint Podcast

> David Beiner (@db3045) - founder of Hume and /louder

> Lucas Campbell (@0xl) - founder of Pods

I’m in the trenches with these guys every day, and we’re constantly finding new ways to improve the concepts presented here.

And last but not least, make sure to stay up with Coop Records on Warpcast (@cooprecs) and to subscribe to the Coop Records Club.

We have some exciting developments on the way and hope to tie these ideas together over the months and years to come.

Here’s to the future of onchain media and to bringing the world onchain!

Collect Real World Editions

▪ Open Edition, 1-month Mint on Base

▪ Redeemable for limited edition physical magazine

▪ Equipped with IYK NFC-Chips for future drops

▪ Includes one season of EIC community membership

0.029 Open Edition

▪ Open Edition, 1-month Mint on Ethereum

▪ Redeemable for Premium limited edition physical magazine with Holographic Cover

▪ Equipped with IYK NFC-Chips for future drops

▪ Includes two seasons of EIC Founder’s Club membership + producer credit in EIC03 and complimentary EIC02 founder’s club NFT

RETHINKING COLLECT AS THE LIKE BUTTON

Onchain is the new internet - a new way to own what we create, get rewarded for what we share, and collect what we like.

Tomu Founder, Overgie & Mintgate

We are shaping our digital identity based on our transactions and collections, even if this identity is spread across multiple wallets and apps. But do we need to put everything onchain, or are we overdoing it?

Collecting culture

What began as exclusive jpegs that would give you some status within our ecosystem has evolved into any digital content having its onchain version. Every time we see a new design or screenshot essay, the first reply on a cast is, “Where’s the mint button?” We’ve fostered a culture of collecting onchain media, a culture that wants to show off that we were there on day one, that we discovered artists before they got famous, that we liked a product in its early days,

or that we support a community or something that resonates with us.

Collecting might not be for everything

We collect digital content to have a copy of something significant - attending a concert, joining an event, supporting an artist, or being part of a community. But collecting isn’t for everyone, and one big problems is its cost. Why collect a picture of friends if it requires a payment? I’m glad you went on vacation, but that doesn’t need to be displayed in my gallery.

Take podcasts, for example. If you want to create your own “podcast gallery,” showcasing your minted podcasts instead of played episodes on Spotify

makes sense. It offers social knowledge you can share. However, collecting those is not cheap.

Free mints aren’t truly free; there’s always a fee, typically around $3. Even if consumer apps don’t use Zora as a default option, each mint click has a fee. I know those are mints with rewards where creators and curators benefit, but if you, as a fan, purely collect content because you liked it, it’s a lot of money. Just do the math if you collect more than 100 onchain media contents, most of which won’t provide any return or access to a community.

Not everything on social media needs to be onchain. While we have fun in our web3 bubble, and we spend our ETH like casino chips, normies don’t see it the same way. Would you pay the fees with your credit card every time you want to collect something? That would make you think twice before clicking on the mint button.

Collecting should be an addition for the user, one focused on quality, one focused on shaping our onchain profiles.

Collecting as a Premium Feature

Even if paying fees is not a barrier and we achieve seamless onboarding, where users unknowingly create wallets and use apps without needing funds, there must be a

distinction between onchain and offchain content.

I might like a lot of content, but only collect pieces that define my interests and onchain identity. Just as we selectively showcase a few NFTs in a gallery we should treat the content we collect. Sponsoring fees is a temporary solution; even if a consumer platform decides to sponsor all fees for mass adoption, it would lead to chaotic and expensive profiles. The focus should be on curating content that truly reflects our interests.

What differentiates a collect from a like is that it represents a deeper engagement with the content, shifting from passive consumption to active curation and investment.

Conclusion

Not everything we like should be minted. The Collect button should be reserved for culturally significant pieces that reflect personal interests and onchain identity. While there are significant benefits for creators to put their content onchain, fans will resonate with only a portion of it.

I don’t think we will replace the Like button; instead, we’ll add a Collect button to generate immutable digital copies of what we truly like and value - pieces that shape our internet culture and that we want to own.

ENTHUSIASM is all you need

Riley Blackwell Founder, Cloudscouts

The angelic, sacred text of fandom is mystical, filled with subtext, full of whimsy and make-believe. Here, a fandom’s stories are enthusiastically injected with passion shared by millions… This is the power of media we love tapping into.

I’ve been wandering through past loves lately, spending time rewatching TV shows I was obsessed with from 2010 to 2017, sitting with the imagination of those

stories we once shared. In my opinion, this was truly a golden age of social media, TV, the internet, and renewed support for comics.

When you step away for a bit, you get a rare opportunity to zoom out and see the holes you can fill, unbothered by the noise of whatever space you frequent. This most recent time away from web3 has allowed me to consider whether

there’s a viable opportunity to bring fandom to the “New Internet” in a responsible way. I now think it’s possible, with a few caveats, that is, if we collectively want meaning making to get away from ridiculous, overintellectualized VC-led concepts like “scenecoins.”

When I look across the vastness of the onchain space over the past three years, I’ve seen a lot of experiments, from PFP collections that attempted to share a collective identity between 10,000 hopeful members to memecoins that hijack cultural moments with objectively horrendous art and fratlike behavior by 20-somethings.

While NFTs have made an impact on a small, albeit often obnoxiously loud part of the internet, we find that not only have we lost the plot when it comes to community building, but along the way, we have also missed an opportunity to create fan communities where interaction doesn’t constantly rely on financialized PvP games.

We tainted our systems with outstanding hubris when we created communities with money at their core rather than connection, care, and human decency. Even DAOs, in their attempt to upend governance, often resort to PvP and not-sopositive-sum games. Maybe it’s time to try some PvE (player vs environment) experiments, thereby bringing stories to life that fans can connect with.

I will acknowledge here that artists and developers have been presented with new open protocols for receiving recognition and greater financial rewards for their work. These protocols are some of the greatest innovations of our time, as extensions of the web. These experiments should continue.

Social is a People Problem, Not Just a Tech Problem

What may be obvious to some—namely community builders, content creators, and marketers—isn’t so obvious to the rest of the space, which is largely made up of developers. When we hoist developers onto a pedestal simply because they’re the people writing code, we invariably leave out the sound voices of the web’s creators and caretakers who are screaming for connection.

This week, Bankless Podcast co-host Ryan Adams started the conversation re: web3 social with hundreds of responses. Most of these boiled down to a need for better content rather than focusing on money, solving UX problems, and loosening the grip on niche experiences, not to mention that social apps become sticky only with difficulty.

Many people pointed to Farcaster, a protocol I’ve been a big proponent of. I’m still fairly optimistic about the long-term impact of the network there. Still, it certainly has glaring issues that deserve addressing but that will be more difficult to resolve in the short term.

The crypto crowd needs to understand that financialized social experiences don’t actually lead to richer cultural landmarks that stick around. In

fact, they are typically only as good as the time it takes for a number on a chart to go up.

Capitalism is fine for most use cases of the internet, which has allowed technology to thrive thus far. However, it’s increasingly clear that connections between real people require pockets of comfort, narrative, and a long view of stories people agree to care about together. This is where aligned incentives come in, something web3 has largely yet to agree on, despite its values saying otherwise.

People using social media care about the story behind a meme (hello, Know Your Meme historians or meme pages on IG), be it lore in the form of serialization or the relationships between artists and their fans. Plus, it’s just nice to have a place to chat with or make new friends. History and friendships take time to build. That’s the whole purpose of a slow burn. People aren’t built for short-term, meaningless relationships; even if ephemeral experiences are becoming popular, they still need help to create a narrative worth remembering.

Fandom Alieviates Loneliness

On the June show for The State of People, I talked about how fandoms often solve loneliness problems. I was part of or helped manage multiple fan communities in a past life. These spaces were intentionally wildly different from how the onchain space operates, while at the same time having a natural, organic, decentralized feel to them, all without tokenization.

Fandom has an inherent permissionless behavior built in that isn’t to be ignored by creators onchain. Here are some things that I, along with many other incredible builders, have

done as a community builder to help bring fans together online.

As part of the Carol Corps community for Captain Marvel during comic writer Kelly Sue Deconnick’s run, we created the Carol Corps Yarn Brigade, a sub-community of craft girls who made knitted hats, scarves, cross stitches, socks, and other items. (on Ravelry here). Rather than selling items to each other, they were made for and by fellow fans all over the world out of love. We also helped other fans who needed tips with their cosplay, even hosting panels at conventions just for Captain Marvel cosplayers. Another community member and I were approached to be put in charge of adding fancreated crafts and cosplay to central Pinterest boards, where fans could see their creations for years to come.

I don’t claim responsibility for the unprecedented success of the Carol Corps; I was one small part of what was made of many amazing women.

We were all fans of Captain Marvel because Kelly Sue was writing a story we connected with and cared about together. Maybe the alcoholism in Carol Danvers’ past wasn’t so relatable to us, but her tenacity, stubbornness, and feminist leanings certainly were. We could relate to moments when her powers were stolen, even by a friend. This is the universal girl experience. Again, subtext isn’t to be forgotten in these spaces, so much so that when we came together at conventions, we knew we all had something in common: we shared a clear narrative with characters that was undeniably ours. We had breakfast walks together before conventions. We shared in-jokes and incentives to buy the next book to see how the story would unfold. The community wasn’t financialized

in any way other than buying the material, and the community certainly didn’t obsess over vanity metrics like points for a potential airdrop.

The thing to remember here is that when we were building this enthusiasm, we weren’t concerned about being called community managers or anything of the like, even if that is what we were doing. No, again, we were simply creators exploring a passion for a shared story.

We learned that fandom takes time and a lot of effort. Brie Larson, who starred in the 2019 Captain Marvel film, even went on to don a BFF NFT profile pic—still up to this day— where I was on the community team. Talk about a full-circle type of coincidence.

During the period from 2011 to 2016, I was also part of a few other fandoms for TV shows like Continuum, Warehouse 13, Eureka, Orphan Black, Battlestar Galactica, and Lost Girl. In a recent rewatch of Lost Girl from start to finish, I was reminded of how that community also created fan connections.

I remember walking into a 2013 Dragon Con panel room full of Lost Girl cosplayers donning leather gear, fake swords, and long brunette wigs. The room was energized by pure love for a TV show that exemplified what it means to build a story with adventure, whimsy, and mystery around such magical characters and their settings. No one was talking about the tech used on set; they were talking about their passion for a storyline with themes, mythology, or the LGBTQ+ representation on TV made them feel seen in a time when it wasn’t so prevalent. There were Lost Girl panels all weekend long, talking specifics

about these things regular people were enthusiastic about by fans who, in their spare time, made fan edits or fanfic online and found awkward, nerdy comfort in person.

That weekend in a hotel lobby, I happened to meet Paul Amos, who played the character Vex on the show. We had both stopped for a drink and struck up a conversation. Besides being a fantastic actor, he’s a regular guy; though, yes, he is very cool and gothy in person too (or was at the time). This was yet another wholesome fan connection that tied together how artists connect with their work in normal, not-weird ways I’ll always remember.

Fan communities like the ones I’ve described here have yet to have their time in the sun onchain due to how few cohesive stories are being shared. The narrative that PFP collections have typically spouted is one of IP or brand-building for the individual instead of in favor of shared storytelling. From 2021 to late 2022, users were advised to buy a PFP to turn into an identity marker rather than a character to share an adventure alongside. We were told to make a business out of a singular digital piece of art on which someone spent thousands of dollars worth of ETH. This clearly didn’t work as intended.

Is There a Solution to This Madness?

I say all this not to necessarily encourage content creators or fandoms to immediately rush to financialize love for stories and their IP, but to at least consider the possibility of using blockchains for archiving and social sharing.

The prevailing solution until now has been to create a large number of artworks that all look

similar, leaving it up to buyers to decide what to do with them. This gave collectors a few options: trade, hold, sell, or otherwise speculate on their value. To me, these actions are eternally boring.

With the MTV News website shutting down this week and no archive available, it’s clearer than ever that we need a way to preserve our cultures. We know blockchain solves this problem, but what about fan communities? We can responsibly build fandoms to facilitate human connection to media in a New Internet era.

First, we must slow down, recognizing that storytelling and mythmaking take time. For more on how we design cultures in an ontological, more holistic context, check out this article from FWB on Designing For Desire

We must also give creators collaborative spaces in the form of connective apps that allow them to share and grow their creative works into mythologies. With more diverse tools to bring works to life, there will be more opportunities for fan-making. Yes, beyond Twitter, and I’m not sold on a new Farcaster client solving for this at the moment.

This is where my complaint against quests and seasons comes into play. See, many startups and small collectives operate in the onchain space in seasons, or they try to squish quests into their systems for airdrops or cheap shots at “partnerships” that don’t actually do anything significant for community members. This is flatout extractive behavior that needs to stop.

As we’ve seen in forms of media like comics, TV shows, and book series, the path to fandom relies on a shared journey. A quest that asks disconnected people to sign up for an app or

spend money does nothing to create a communal experience. A season that marks the completion of an experiment without shared episodes (rituals), any sort of plotline, or a lesson/moral to be learned doesn’t make for a memorable experience.

And yes, while it’s more difficult, building fandom for a product or tool is possible. Fandom or fan communities are not exclusive to media companies. Developers and founders should work to move away from click-to-earn airdrop farming and instead move toward connection or narrative building. We’ve all seen how lifestyle brand enthusiasts react when launching new products. Again, this takes time and well-designed products people want to use.

Thus, the solution is to find something that people can universally find endless enthusiasm for, which is neither extractive nor pay-to-win. Love and shared narrative, specifically, should always be free.

Your task, should you choose to accept it, is to create a story (marketing) people can grasp onto. Design a story that people care about (community), a journey they easily gravitate towards when they need connection, both in person and onchain.

ONCHAIN TAMAGOTCHI-INSPIRED FRENPET

IS MORE COMPLEX THAN IT LOOKS

Benoit.Tokyo Digital Culture Producer

This article was first written for Lens Protocol’s creative initiative and published on t2.

Because Y2K culture and (tech) nostalgia are indeed big trends within the Web3 space, and because we all LOVE virtual pets, FrenPet was just meant to grab attention within the community, at least for the most degen and sentimental of us.

But don’t be fooled by its super simple graphics— this gem is far more intricate than it lets on.

Drawing inspiration from the Bandai’s Tamagotchi of the mid ‘90s, along with the vibes of the OG Game Boy Pokemon release, FrenPet evokes a sense of nostalgia while using blockchain tech to create a unique experience. “Themainvisionbehind FrenPet was to develop something engaging and interactive that allows players to care for and bond with their pixelated companions while leveraging the benefits of the blockchain for ownership and rewards,” explains Adam, one of the two project founders.

In FrenPet, players evolve through an on-chain (Base), playful yet hyper-financialized environment where they can rake in both ETH and $FP (the app’s native tokens) by looking after and caring for their minted lil’ pals. The play-to-earn (P2E) model here is well-designed and meticulously crafted. It runs on a straightforward and solid incentive structure that’s smooth. “There is a 4% tax every time someone buys or sells $FP tokens on UniSwap. Once the smart contract accrues 50 $FP tokens from taxes, they get automatically swapped into ETH and distributed as follows: 2% goes to the players of the game as rewards, 1% goes to the developers of Fren Pet, 1% gets added back as liquidity provision to support the $FP economy,” Adam says. “The player rewards are distributed according to your share of in-game points in relation to the total points of all pets in the game.”

Feeding, nurturing, virtually cleaning up poops, and tightening bonds with the digi-pets keep them happy and healthy, extending their lifespan and contributing to the game experience. Moreover, FrenPet offers more than basic care. Players can participate in minigames and challenges, earning points that provide rewards (part of the trading fees) and enhance their FrenPet’s attributes. It’s a rich ecosystem where almost every interaction matters.

While it may look easy, players need to strategize to maximize their gains. They can use high-reward items like beer for quick points, spin the wheel daily for up to 2000 free points, collect monsters as tokens, and engage in pet battles (affectionately known as

“bonking”) with higher-level playmates. The odds are set at a 60/40 win rate, adding an element of risk and reward.

Although FrenPet is undeniably captivating with its compelling game and rewards structure and eyecatching aesthetics (for those into pixel art), its appeal extends beyond the fun and the tokenomics. Deeper emotional components come into play, driven by parasocial interactions and psychological ownership. As players cherish their crypto-pets—from birth to growth, life, and eventual passing—they invest time, effort, and sometimes ca$h. This investment elicits a range of emotions, testing the depth of their kinship and love for these virtual companions.

The community aspect is equally vibrant. Some players connect through private channels, sharing stories of their pets’ growth, achievements, and memorable moments. The focus surpasses the game dynamics to bring up connections and celebrate each other’s achievements. “Our community thrives on platforms like Twitter and Discord, growing organically! The game itself encourages social interaction, with players frequently sharing screenshots of their pets and participating in friendly competitions,” Adam elaborates. “In our private channels, members enthusiastically share their pet’s records, strategies for optimal care, and even humorous anecdotes. It’s heartwarming to see how deeply invested our players are in their virtual companions.”

Additionally, community-driven initiatives such as frenpet.dievardump.com and http://fpanalytica.

tech serve as additional hubs for enthusiasts. These platforms enhance engagement, strengthen the community’s vibe, and create an active and supportive place for all participants.

And the adventure never stops. Actually, it’s the other way around. FrenPet evolves continuously, with regular updates that keep the experience fresh and exciting. Updates could include new content and core systems, offer enticing in-game rewards, and enrich visual elements to maintain the level of attraction.

“FrenPet has an exciting roadmap ahead, including new features, partnerships, and expansions,” Adam concludes. “Upcoming plans include additional pet evolutions, gameplay mechanics such as introducing a farming game and land, and collaborations with other innovative projects in the space.”

This commitment to ongoing development ensures that players always have something new to explore. Whether it’s discovering a new setting, mastering

new gameplay mechanics, or attending collaborative events/actions, FrenPet offers a moving adventure that keeps players captivated, connected, and eagerly invested in what’s next for FP.

THE SOCIAL APP THESIS

WHY EVERY WINNING ONCHAIN APP WILL BE SOCIAL

David Phelps Founder, JokeRace

1Once you see it, you can’t unsee it: the influencer living off Prada gift bags in a rat-infested studio in the Lower East Side, the musician from the streets whose beat stops hitting the moment he becomes an over-orchestrated superstar, the rich husband bursting out of his shrunken, wrinkled button-down next to his zealously coiffured, haute couture wife. It’s everywhere.

What I mean is the inverse correlation between financial capital and social capital— between our contemporary merchant class (the financiers) and religious class (the tastemaking kulturati).

This is a bit of a taboo subject, I think, in a world where capitalism has trained its adherents and detractors alike to believe that money can buy anything. Instead, we find that to be rich not only means gaining one type of cultural power in political influence, for sure, but losing another type of cultural power in the blindness of privilege. The cost of controlling society is to become, well, something of a social loser within its norms.

If you are one of those poor people afflicted by billions of dollars of life savings, I know you may be fretting when you hear this. Please don’t. In theory, you still have the three classic ways of alchemizing financial capital into social capital. You can build a relationship with someone cool (by marrying), you can invest in something cool (by buying art), or, you know, you can do both at once (by becoming a Consumer Venture Capitalist). In theory, this hoary playbook remains as useful for you today as it did in the late 19th century. All you need to do—you bursting buttoneddown financier, you—is to pull some baddie

with taste in linens and jewels who can help you to sprinkle a George Condo or Vik Muniz on their walls. All you need to do is invest in the hottest new disposable audio app that every kid in America will be using for the next 7-to-12 days. And then, surely, you’ll be cool.

Right?

Right?

The only thing is that in practice…

When the investor renowned for their money gets in cahoots with a tastemaker renowned for their status, it is the reputation of the tastemaker that remains intact. The tastemaker might get the investor’s money, but the investor can never get the tastemaker’s status.

I am trying to get at something uncomfortable here, something that the past two years of building a social-financial product has taught me over and over. It is easy to trade social capital for financial capital. But while you can cloak yourself in blue-chip designers all you like to impress your fellow financiers, it is extremely hard to trade financial capital for social capital.

You’ve seen this with every washed-up celebrity you know: when the coolest people become rich, even they can’t remain cool.

2What I’m trying to say is something that Web2 taught us long ago: for the masses of humanity, social incentives will always trump financial incentives. Most humans will happily let corporations harvest their data to the highest bidder if it gives them even the remotest chance of appearing

aspirational online. Privacy and civil rights advocates can complain, but most people will happily incur massive financial opportunity costs for the sake of social connection that can signal status. Those of us who work in crypto often forget this fact. Most people are normal, and they’d rather score someone who listens to them than score a million bucks.

And besides—please forgive me this dark thought—they know that accruing social capital is one of the few mobile paths to accruing financial capital in the attention economy.

Web2 knew this. And if you want to know why nearly every Web3 social app has failed, your answer is here: it’s because Web3 disastrously decided that Web2 was incorrect, that financial

incentives are strong enough to build retention, that people can buy their way into status. Of course, Web3 had decent reason to think that financial incentives were all that was needed to bootstrap a zealous user base. After all, the original blockchain communities of miners and validators were driven entirely by financial incentives, as were the communities of DeFi protocols. I mean, financial incentives were the whole original unlock of blockchains’ permissionless financial rails! And they seemed to work so, so well in speculative bull cycles as buyers aped into soaring prices to help them soar some more.

But with the advent of crypto apps, DAOs, and NFTs, it started to become clear that financial incentives were often deadly to building

meaningful social communities. To believe that blockchains were simply financial tools and that financial incentives were sufficient to bootstrap social communities—well, this was wrong.

It was wrong, first of all, that financial incentives could build retention. In fact, the reason financial incentives are so good at user acquisition is exactly the same reason they’re so bad at user retention: because a mercenary who will use an app to profit will leave it just as soon as the opportunity is better elsewhere. The same people who come for a price that goes up will leave for a price that goes down. Their loyalty means nothing unless you can continue to get them paid.

And it was wrong, above all, that people would be able to convert financial capital to social capital, that, as so many 2010s elite coworking spaces promised, people could buy their way to cool. Of course, it’s not wrong that some small mass of delusional buyers will always try to buy their way to being cool. But they’ll quickly kill their own investment, since there’s no club that genuinely cool people would like to be part of less than one whose membership can simply be bought. These clubs don’t just exclude the genuine builders and the marginalized voices that have built culture for millennia; they include (I’m sorry) anyone who’s ever decided to sell out.

If you want to know what crypto social apps keep failing, it’s this: you can’t buy status. In fact, the attempt to do so will only accomplish the opposite. It will mark you as kind of lame.

3None of this means, however, that financial incentives don’t play a crucial role in unlocking onchain social apps. Just as it’s popular to believe that financializing social activity is enough to produce a killer app, it’s equally popular to argue against the supposed degeneracy of a casino culture of mercenaries and gambling addicts. The latter view is a reasonable response to the former, but it reeks of snobbishness towards a global underclass that might actually want to make money to feed its family. And more importantly, it’s wrong.

Blockchains are financial rails, and their most radical value propositions for social apps are also their most boring: they let you perform microtransactions with every tap, they let you disintermediate credit card and app store fees, and they give you an open API in the form of onchain metadata for anyone to build on top of. Ideologically, all of this is far less exciting than the revolutionary vision of collective ownership, artist royalties, and decentralized work that inspired and exhausted us in 2021. Financially, all of this probably sounds a good deal less exciting than pure and simple speculation as well. Probably, it just sounds like technicalities.

But consider what this means. Blockchains transform both the ways that social apps can be built, as well as the kind of social apps that can be built, for a very simple reason: they let users monetize directly from other users. Think about the entire history of web2 social apps outside of gaming, and you won’t find a single major app for which this is true.

Financial sustainability for users alone is huge. In fact, it’s never really been done.

4Because here’s the real issue with Web2: it successfully monetized off of social behaviors. But its users didn’t.

So strong were the networks of friends, frenemies, bosses, colleagues, and lovers— and maybe most of all, the network of potential friends, frenemies, bosses, colleagues, and lovers—that it wasn’t only users who surrendered their data for the harvesting. Corporations themselves gave up the moats they would have had by hosting comms, forums, and job opportunities on their site.

This was the power of social networks: social incentives won, and they did so at the expense of financial and reputational incentives. No, you would not earn money from your valuable content; the social network would. No, you couldn’t programmatically own or access or share the reputation you were building as a star creator on a given platform; the social network alone could leverage it for new users and ads. The goal was to become famous on one platform in order to monetize anywhere else.

Another way to frame this, I think, is that web2 was an app era, which is to say that it was a closed-data era. An individual’s data lived in the siloes of a given app, and this model is what enabled the apps to monetize by selling this data to advertisers. In short, in closeddata eras, ads and apps will win. Everyone

needs to congregate on their platforms to be able to share their data with each other.

But then came crypto, and we entered the onchain era.

Crypto marked the start of a protocol era, or rather, an open-data era. Now an individual’s data could be ported freely between apps, and there was no proprietary data to sell in open-source onchain networks. In place of ads, a new model arose: tokenization. At their core, tokens offer a somewhat awkward solution to the real problems of permissionless technologies in that anyone can input any kind of data into a system. Tokens are, essentially, legitimacy technology for users to put up economic collateral attesting that one transaction is legitimate and another is not. You no longer make money selling the data to ads. You make money by putting down economic stakes to attest that the data is true.

The reason to participate in crypto from the start, in other words, was the financial incentives.

This blessing, never possible in web2, was also a curse. By this point in this piece, you know the problem: in every bull market (including this one), the quick gains would draw masses of mercenaries to spam chains, farm protocols, buy tokens, shill bags, and to launch new tokens, chains, and platforms. But the same financial fervor that overtook individuals during bull markets would turn to financial frigidity in the bear. Just as quickly as the prospect of getting the bag could pull

people in, the prospect of losing it would push them away.

There’s another problem here too, though, that’s much less-discussed. Financial incentives on their own tend to be zerosum at best. One person’s gain is another’s loss, and in the realm of pure speculation, you stand as much to gain in a bull as you stand to lose in a bear. This is why prediction markets—possibly the most-touted use cases for crypto apps for the past seven years—command a total market of only around 10,000 users during their most popular periods (election cycles). And many of these are probably bots. The expected return is zero, so users have to be quite confident that they know the future better than other users who are also confident that

they know the future better than them. Having deep insight doesn’t necessarily help you when you’re also competing against others with the same deep insight.

So how do prediction markets get users? Well, by appealing not to rational bets but irrational ones that are tribal in nature: namely, elections and sports games. People will bet on their own team winning because it matters to them. You see where I’m going with this: for financial products to truly make money, they have to tap into social incentives.

We knew this, of course.

Web2 had extraordinary social incentives, but awful financial and reputational incentives.

Web3 had extraordinary financial and reputational incentives, but awful social incentives.

Financial incentives were good for making quick money, but social incentives were necessary for building a long-lasting business.

Crypto wins when—and only when—it enables both.

5You might not believe me—I know far too many people in this space who think I’m wrong.

So let’s talk about a specific case study: Uniswap.

Uniswap’s protocol has clearly won: it’s used not just by Uniswap, but by Cowswap, 1inch, etc. And that’s the issue. Because it’s a fully

open protocol, it can be cannibalized by its competitors. Uniswap presents a uniquely crypto-native problem, the likes of which we’ve never really seen in tech: you can lose to your own product.

The issue here is that onchain apps don’t make fees on their protocol. Partly that’s for legal reasons. But a protocol with fees would also incentivize competitors to fork it and fragment liquidity for all parties. That might be worth it if there were no other way to make fees, but of course, there’s an obvious one.

Uniswap, like every other onchain app, makes its money on the front end. The front end is where it needs to win. Only the front end, not the protocol, is exclusive to a company in crypto. If projects can’t ultimately drive users to their site, they can’t monetize effectively.

And what drives users to a front end? Brand, features, UI/UX, all matter of course, but one of the great lessons of web2 was that the most important front end driver is user networks. You go to a site because other users are there to find—and to find you. Just as financial liquidity matters for bootstrapping a protocol, user liquidity matters for bootstrapping a front end.

Today, you can see that in every decision Uniswap is making. The wallets? The domain names? The acquisition of Crypto: The Game? These are all ways of making users loyal to its front end. These are all ways of turning Uniswap ever-so-slightly social.

I have no idea what Uniswap has in store, but I imagine we’ll see many similar features in the

upcoming year or two. Want to launch your own token? Uniswap could be the place for any LPs to congregate, join a chat, or launch campaigns for others to join in.

What I’m trying to get at is this: to win on the front end, you need to win on social.

To build a financially sustainable model at all in crypto, you need to win on social.

6I said before that this is a lesson I’ve been personally learning over the past year.

At Joke, we let anyone create an onchain contest for people to submit and vote on entries. Broadly speaking, contest players might win in any of three ways: they might win money, they might win status, and they might win friends. The money is the financial incentive, the status is the reputational incentive, and the friends are the social incentive. These are all the incentives there are.

For example, let’s say someone ran some kind of Shark Tank onchain. The top winner could earn prize money (financial incentives), all of the contestants could earn status from every vote they get (reputational incentives), and voters could form teams around

contestants to create an organic community backing them from the start, creating tribes and making friends (social incentives).

When I frame it that way, it should already be clear that financial incentives are the least compelling incentives at play. Only the winners earn money, and that’s far from guaranteed. But everyone can earn status by winning even a single vote. And everyone can make friends by creating teams.

Besides which, the act of building reputational and social profiles can lead to all sorts of financial benefits in terms of jobs, communities, and airdrops. The financial rewards can only offer money.

You can see why it’s popular to believe that to be money-motivated is to be superficial: it is. Your reputation and your friends represent your underlying values as a missionary for your cause. But your money represents, so often, your ability to sell these out as a mercenary for the highest-bidder.

If this sounds scandalous, crypto has proven it over and over again. One of Web2’s greatest lessons was that social incentives operate something like a marriage: slowburning, long-lasting, deepening over years

“Your reputation and your friends represent your underlying values as a missionary for your cause. But your money represents, so often, your ability to sell these out as a mercenary for the highest-bidder

of activating relationships for an hour or two a day.

Web3’s lesson, meanwhile, has been that financial incentives operate more like an affair: all-consuming, short-lived, incinerating itself in the ashes of its own passion until it finds a new hot opportunity to pursue. The airdropfarmers will float on the winds of the highest yield.

Of course, in a world where we all have to pay for food and shelter, we’re all somewhere on the mercenary spectrum, our attention open to the highest bidders. So I don’t mean to shade financial incentives. I simply mean that passion is a powerful tool for acquisition, but only if it can lead to the retention of a marriage. To recognize this means recognizing that blockchains are not simply tools for globally interoperable finance, but also for globally interoperable coordination and reputation as well. They are, in fact, the solution to their own problem, the top problem plaguing moats and monetization in this space that we need true social tools to solve: loyalty.

With special thanks to Daisy Alioto, Sophia Drew, Parker Jay-Pachirat, Sean McCaffery, Peter Pan, Kinjal Shah, and Seyi Taylor.

bas e

Onchain Summer

InSIDE BASE ONCHAIN

Base, Coinbase’s L2 solution, launched in August 2023 with a mission to bring the next billion users onchain. By leveraging advanced rollup technology, Base offloads transactions from Ethereum, providing a more efficient, costeffective, and user-friendly experience. This L2 supports developers across a broad application spectrum, from DeFi to gaming and collectibles,

reducing costs and increasing transaction speeds.

Seamlessly integrating with Ethereum’s security and decentralization, Base enables highperformance applications without sacrificing Ethereum’s core principles. This combination

ONCHAIN SUMMER

results in faster, cheaper, and more reliable services on top of Ethereum.

As we explore Base’s diverse applications, it’s evident that this L2 sets a new standard for onboarding developers and users. Base is committed to building an onchain platform that is open source, free to use, and globally

accessible. It isn’t just enhancing Ethereum; it’s redefining what’s possible in the digital economy. Join us as we delve into this innovative landscape where technology meets practicality, forging the future of onchain applications.

← DEGEN

Degen (DEGEN) started as a memecoin in January 2024 within the Farcaster community, initially serving as a reward token for active participants. It quickly evolved from its meme status to become a significant player on Base.

Degen Chain, built on Base, uses DEGEN as its native gas token. The tokenomics of DEGEN are designed to reward community engagement, where users can earn tokens through likes, comments, and reposts.

Within the first week of launch, Degen Chain acquired more than 100,000 users and reached $40 million in daily trading volume, signaling rapid adoption and the high demand for its services.

← HIGHER

Higher Memecoin (HIGHER) is a communitydriven memecoin on Base that leverages the viral nature of meme culture. It allows users to create, share, and engage with meme content while earning native tokens.

Users earn HIGHER tokens through various community activities, such as voting on memes, tipping content creators, and participating in staking. This gamified approach to social interaction enhances community engagement and rewards active participants, making it a popular choice among meme enthusiasts.

Base Onchain Summer

THE MIDNIGHT DINER BY COOP RECORDS

Midnight Diner is an event series by Coop Records hosted on the first Wednesday of every month in Koreatown, LA. These events feature live performances from new Coop Records artists and provide an opportunity for music individuals to experience crypto in a familiar setting. The content is produced in real life and minted on-chain, allowing people to form real experiences around these moments, making collecting that much more meaningful.

Each event is exclusive to passholders who receive a free edition of each headline performance as a collectible after the event.

GUNNA ON BASE

Gunna, the renowned rapper, has ventured onchain by leveraging the Base network to offer music collectibles.

Alongside his new album, Gunna introduces ONE OF WUN, a token powered by smart contracts that grants holders early access to the One of Wun universe, which includes music, merchandise, and behind-thescenes content. A portion of the mint sales will support working families in the South Fulton, Georgia area through ‘Gunna’s Great Giveaway.’

WU-TANG CLAN X PLEASRDAO

Wu-Tang Clan’s legendary album “Once Upon a Time in Shaolin” was acquired by PleasrDAO for $4 million, an onchain collective known for acquiring culturally significant items. This move aims to allow fans to purchase partial ownership, priced at just $1 per NFT.

Purchasing an NFT gives collectors access to an album sampler and also bumps up the album’s release 88 seconds at a time. The album will currently be available to the public in 2103.

The proceeds from the sales will benefit the artists involved, and the album’s tracks will be progressively decrypted and shared with the NFT holders.

PARALLEL

Parallel TCG is an immersive and strategic trading card game set in a futuristic, dystopian world. Players choose from one of five factions, each with its unique set of cards and abilities, and build a 40-card deck to compete in 1v1 battles. The goal is to reduce the opponent’s health to zero by strategically playing units, relics, effects, and upgrades.

Players earn the game’s native token, PRIME, by winning matches and participating in various in-game activities.

Parallel TCG is free to play and offers both collectible and noncollectible cards.

IYK →

IYK is a pioneering platform onchain that combines nearfield communication (NFC) chips with crypto to create token-enabled merchandise. This approach allows brands to embed NFC chips into apparel and other products, enabling consumers to authenticate items by simply tapping their smartphones. When scanned, these products provide access to digital certificates of authenticity, exclusive content, and community benefits.

The platform has gained traction with major brands, including Adidas, Atlantic Records, Billionaire Boys Club, and Johnnie Walker. It offers a self-serve model that allows brands to easily integrate IYK’s technology into their products, creating rich, digi-physical experiences without requiring specialized apps. Users can interact with these NFC-enabled products to unlock a wide range of digital content, verify authenticity, and engage with exclusive community activities.

BLACKBIRD →

Blackbird empowers creators, artists, and influencers to build stronger connections with their followers through social tokens. Creators can mint their own tokens, which fans can purchase, trade, or earn as rewards for engagement. These tokens can be used for exclusive content access, voting on future projects, or other community-driven activities. The platform’s integration with Base ensures low-cost transactions and fast interactions, making it easier for creators to monetize their work and for fans to actively participate in their favorite creators’ journeys.

← SLICE.SO

Slice.so provides a fully decentralized and efficient commerce experience. By creating onchain stores, businesses can offer seamless and instant transactions with unparalleled security. The platform supports a variety of advanced features such as revenue splitting, instant settlement, multi-currency pricing, advanced discounts, and NFT minting.

One of the standout features of Slice.so is its one-click checkout process, which eliminates the need for sign-ups and tedious payment details, making purchases seamless and instant for customers. The integration with Base enhances the scalability and reliability of services, ensuring smooth operations even as transaction volumes grow.

← PODS

Pods leverages Base to provide a decentralized podcasting platform, allowing content creators to publish and monetize their podcasts securely and transparently.

Creators can easily set up their podcasts on Pods, utilize features like one-click distribution to major podcast directories (e.g., Spotify, Apple Podcasts), and maintain full ownership of their content. Pods ensures that creators receive fair compensation through direct listener payments and microtransactions, enhancing the monetization opportunities for podcasters.

The platform supports advanced features such as token-gated content, allowing creators to offer exclusive episodes or bonus content to subscribers who hold specific tokens. This innovative approach not only secures the content but also fosters a more engaged and loyal listener base.

FREN PET

Fren Pet is a GameFi project built on Base, designed to evoke nostalgia from ‘90s and early 2000s virtual pet games like Tamagotchi. Players can adopt digital pets, take care of them by feeding, cleaning, and playing with them, and watch them grow and evolve. The game leverages low transaction fees on Base, making it accessible to a broad audience, including those from lower-income regions.

The game has a strong emphasis on deflationary tokenomics, where 90% of the in-game currency (FP) used is burned, and there are no investor allocations. This structure ensures that the tokens are evenly distributed and not controlled by a few large investors. Fren Pet has gained significant traction with a market cap of $53 million and daily transaction volumes exceeding $400,000

Read more about Fren Pet in the Culture Corner section of EIC02.

BASEPAINT

BasePaint is a unique collaborative pixel art application built on Base. The platform allows artists to come together daily to vote on themes and paint on a shared pixel-art canvas. Each day, the collective artwork is minted as a 24-hour open edition NFT. Once the mint concludes, the participating artists receive a share of the ETH generated from the minting process,

The platform was inspired by the internet phenomenon r/Place and was designed to provide a space where every pixel tells a story and every artist can reap rewards. BasePaint uses smart contracts to ensure fairness in pixel placement, allowing only a limited number of pixels to be placed per user daily. This system helps maintain the integrity of the platform and encourages creativity and collaboration among artists.

BasePaint plans to introduce a leaderboard to highlight artists based on their contributions and the value of their artwork, fostering a competitive and rewarding environment for both new and seasoned artists.

KIKIWORLD ↗

KIKI World connects consumers with brands, allowing them to participate in product development and earn rewards. The platform empowers users to vote on product designs, contribute ideas, and earn rewards for their engagement. This communitydriven approach fosters a deeper connection between consumers and brands, creating a more personalized and interactive shopping experience.

KIKI World recently announced a $7 million funding round led by a16z crypto and The Estée Lauder Companies’ New Incubation Ventures. This funding supports the development of KIKI’s digital and physical experiences, furthering its mission to reshape traditional consumer interactions by integrating onchain technologies.

SUMMER BASE ONCHAIN ONCHAIN SUMMER BASE BASE ONCHAIN SUMMER SUMMER BASE ONCHAIN

DOODLES →

Doodles, a prominent NFT-based entertainment brand, is migrating its “Stoodio” avatar customization platform from the Flow blockchain to Base in mid-July 2024. This strategic move aims to improve efficiency and expand user engagement.

While the original Doodles profile picture (PFP) collection will remain on Ethereum, the Stoodio and its various NFT wearables and character customizations will shift to Base.

This move coincides with the launch of an open edition Base NFT mint through Zora, which will unlock exclusive content within the Stoodio. Doodles plans to release a new animated short film, “Dullsville and the Doodleverse,” featuring music by Pharrell Williams and contributions from musicians like Lil Wayne and Coi Leray.

ONCHAIN SUMMER BASE

ADIDAS ↘

Adidas is integrating fashion with NFT technology. These initiatives offer digital ownership of products and exclusive content, enhancing the brand’s community engagement.

BASE ONCHAIN SUMMER

Through its collaboration with Base, Adidas has introduced several innovative projects that merge physical and digital experiences. One notable project is the “Virtual Gear” collection, which represents Adidas’ first venture into digital apparel, designed specifically for virtual worlds and the metaverse. This collection features unique digital wearables that users can purchase and use to style their avatars in various digital environments.

SUMMER BASE ONCHAIN

↖ UNLONELY

Unlonely integrates onchain elements into live streaming, offering unique features like streamer-specific tokens and live betting markets. It offers creators and viewers unique interactive features that go beyond traditional streaming. These features include the ability to launch streamer-specific tokens, which fans can buy and trade, and live betting markets where viewers can place bets on various outcomes during live streams.

One of Unlonely’s standout offerings is its show “Love on Leverage,” where participants go on live-streamed virtual dates, and viewers can bet on whether there will be a second date using ETH. This show has garnered significant attention, with thousands of viewers and substantial trading volume generated through the betting feature.

SUMMER BASE ONCHAIN ONCHAIN SUMMER BASE BASE ONCHAIN SUMMER

← AERODROME

SUMMER BASE ONCHAIN ONCHAIN SUMMER BASE

Aerodrome offers a robust DeFi platform that caters to both novice and experienced users. It includes features like decentralized exchanges (DEX) for trading various tokens, lending protocols where users can earn interest on their assets, and staking opportunities to participate in securing the network and earn rewards. Aerodrome’s user-friendly interface and comprehensive suite of tools aim to make DeFi accessible to a broader audience, ensuring that more people can benefit from decentralized financial services.

BASE ONCHAIN SUMMER

↙ UNISWAP

SUMMER BASE ONCHAIN

Uniswap’s deployment on Base brings its trusted, efficient, and usercentric DEX capabilities to the L2 environment. Users can trade ERC20 tokens directly from their wallets, providing liquidity to pools and earning fees in return. Base’s low transaction costs and high throughput enhance the Uniswap experience, making trades faster and cheaper while maintaining the security and decentralization principles that have made Uniswap a leading DeFi protocol. This integration aims to bring DeFi closer to mainstream adoption by improving accessibility and reducing barriers to entry.

ONCHAIN SUMMER BASE

FARCASTER

Farcaster is a decentralized social network that prioritizes user control and data privacy. It uses a hybrid on-chain and off-chain architecture to provide a scalable and efficient platform for social interactions. Users can create profiles, post messages (called “casts”), and follow others, with full ownership of their accounts and social graphs. This means users can move their data freely between different applications built on the Farcaster protocol, ensuring a high degree of interoperability and user autonomy.

The protocol leverages Ethereum and Optimism for its on-chain components, such as user registration and data integrity, while using off-chain “Hubs” to manage data storage and replication, ensuring reliability and speed. This setup reduces the risk of censorship and enhances privacy by distributing control among multiple servers rather than a single entity.

Farcaster supports various onchain applications, with Warpcast being the flagship app. Warpcast offers a Twitterlike experience where users can post, interact with content, and showcase NFTs. Other notable onchain applications in the Farcaster ecosystem include Paragraph, a decentralized newsletter platform, and Kiwi News, a crypto media application.

To get started, users can download the Warpcast app on iOS or Android, create an account, and begin exploring the decentralized social media landscape. Farcaster also integrates with decentralized identity systems like ENS, allowing users to adopt multiple usernames and enhance their online identity management.

MINT.FUN ↘

Mint.Fun simplifies minting and discovering NFTs, supporting ERC-721 and ERC-1155 contracts.

Users can easily connect their onchain wallets to Mint. Fun, navigate to the create button, and set up their NFT projects by filling in details like the project name, price, and file upload. The platform automatically generates a mintable project page for any deployed contract on supported networks such as Ethereum, Base, and Zora.

Mint.Fun also features a trending section that showcases popular NFT projects, promoting more visibility and engagement for creators. Additionally, it includes referral rewards, allowing users to earn ETH by referring others to mint NFTs.

↙ ZORA

Zora is a platform focused on enabling creators, artists, and brands in bringing media and NFTs onchain.

The platform supports a new revenue split model that incentivizes creators by sharing the minting fees, ensuring that artists and brands receive a fair share of the proceeds from their work.

Zora’s infrastructure is designed to support a wide range of media types, including digital art, music, and other creative content, making it a versatile platform for various forms of digital expression.

← ZKP2P

ZKp2p is a peer-to-peer (P2P) payment platform leveraging zero-knowledge proofs (ZKPs) to enable secure and private transactions onchain. Zero-knowledge proofs are cryptographic methods that allow one party (the prover) to prove to another party (the verifier) that a given statement is true without revealing any additional information. This ensures that transactions can be verified without disclosing sensitive data, thus enhancing privacy and security.

The platform uses zk-SNARKs (Zero-Knowledge Succinct NonInteractive Argument of Knowledge), a specific type of ZKP that has been widely adopted in various blockchain applications. zkSNARKs allow for efficient and scalable transaction verification, making ZKp2p suitable for high-scale, low-latency payment scenarios. This technology ensures that transaction details such as amounts and involved parties remain confidential while still being verifiable.

ZKp2p’s approach addresses the increasing demand for privacy in digital transactions, providing a solution for regulatory compliance, secure digital identity verification, and privacy-preserving transactions. The platform is designed to facilitate cross-border payments and regulatory compliance, making it an efficient and secure option for both individuals and businesses.

↙ STRIPE

Stripe, a leading payment processing company, has integrated with Base to enhance user experience onchain. This partnership allows Stripe to support fiat-to-crypto on-ramps, making it easier for users to convert traditional currencies into digital assets. Stripe’s robust payment infrastructure ensures high payment acceptance rates and fraud mitigation, making it a trusted solution for global transactions.

The integration includes support for USDC payments, enabling faster and cheaper international money transfers.

With Stripe’s technology, users can fund their onchain wallets using various payment methods, including credit cards and Apple Pay, simplifying the onboarding process for new onchain investors.

RUG.FUN ↑

Rug.fun is an innovative game designed to bring excitement to the creation and trading of meme coins. The game unfolds in two 12-hour phases within a 24-hour period. In the first phase, participants can create or purchase meme coins, but only the top 10 coins proceed to the next round, while others are refunded. The second phase is a “race” where players strive to have their coins reach either the highest or lowest liquidity, as only these positions win the entire prize pool, which includes an incrementally increasing “rug pool” tax. Coins in intermediate positions lose all their liquidity to the winners.

Rug.fun’s unique gameplay, leverages the allure of meme coins and gamifies the experience, offering participants a strategic and thrilling environment. The platform’s inaugural token, AIRDROP, was created for users previously affected by other rugged tokens, providing them a new chance to participate and potentially recover their losses.

FRIEND.TECH ↗

Friend.tech aims to redefine social networking. The platform incorporates a reward system that incentivizes active participation and content creation, allowing users to earn tokens based on their engagement levels.

Creators can monetize their influence by using a system of ‘keys’ (shares), which give access to a user’s private chats or any perks associated with the account.

↙ MOSHICAM

MoshiCam leverages Base to create a unique photo-sharing platform. Users at events can take and upload photos, which are then available for others to collect. Each collected photo grants rewards in the form of tokens or exclusive content.

This gamified approach to photo sharing transforms the typical event photography experience into an interactive and rewarding activity.

Surfing the Chain

REINVENTING BIOTECH WITH ONCHAIN INTELLECTUAL PROPERTY

Benji Leibowitz COO, Molecule

Most users of crypto and blockchain technologies will likely agree that for executing transactions, blockchains are far superior to traditional systems. Permissionless, cheap, instantaneous, digital, global, peer-to-peer, and censorshipresistant — blockchain seems to be the ultimate settlement layer for digital assets. To increase the value of blockchains from here, as an industry, we must do one of three things: 1) improve the engineering layer of blockchains to increase their efficiency, 2) increase the complexity of smart contracts to enable more sophisticated onchain transactions, or 3) increase the real-world value of onchain transactions. Here at Molecule and in the decentralized science (DeSci) space, we are focused primarily on the latter.

Many home or used-car buyers who have gone through title transfer have dealt with the painstaking effort of doing something remarkably simple; proving and transferring ownership - something that takes weeks and large sums of money in the current legal system but takes seconds and gas fees onchain. The reason this is a difficult use case for blockchains is that for tangible assets, such as cars and homes, the real-world-to-onchain integration is quite difficult and requires government acceptance of the new ledger of record. In addition, certain intrinsic properties (i.e. does the car/house exist) of a real asset must be provable onchain to enable the efficiencies gained from smart contracts, and this oracle problem is quite difficult to solve.

However, transacting on intellectual property (IP), such as inventions or ideas, do not suffer from the oracle problem because they are intangible in nature, and all intrinsic properties can be represented digitally. This makes intangible assets, like IP, far easier to adopt a digitally native ledger of ownership than tangible assets. IP can be bridged and transacted onchain simply by assigning IP rights to tokens. IP tokens enable the future of digital IP transactions by building a market for IP that has never existed before.

Demonstrating the utility of IP storage and transaction on Ethereum requires the right use case. At Molecule, we decided to start with the hardest, but most impactful industry to break into - biotech. The 1.6 trillion dollar biotech industry, though behemoth, is ripe for disruption. Despite rapid improvements in technological prowess, the cost of developing a new drug roughly doubles every nine years. We propose that these issues in pharma are related to drastic centralization and misaligned

incentives. In an industry where profits often do not align with end-user benefit, we believe decentralized systems are far better positioned to align incentives with the mission of generating effective, affordable medicines.

To that end, we have spent the last few years working with patient communities who have been underserved by the current pharmaceutical system. Since 2021, we have worked with over 16,000 members across several research communities in longevity (VitaDAO), hair loss (HairDAO), women’s health (AthenaDAO), neurodegeneration (CerebrumDAO), cryonics (CryoDAO), and psychedelics (PsyDAO) to bootstrap treasuries and begin funding research with IP rights represented and governed onchain. This has resulted in millions of dollars deployed to funding research globally in areas where it is needed most. Although the Decentralized Science (DeSci) space is early, it is gaining momentum. Notably, Vitalik, Balaji, and CZ have all expressed their support for the movement. Pfizer became an unexpected supporter, funding VitaDAO in an institutional funding round, and the Chief Scientific Officer of Novartis Switzerland co-founded SynapseDAO. The DeSci DAOs have launched multiple Biotech companies, including Matrix Bio and Artan Bio, founded by serial biotech entrepreneurs. HairDAO has nearly completed a clinical trial to test their proprietary thyroid hormone topical treatment for hair loss. Together, these DAOs have gone from 0 to $170M in aggregate fully diluted value in three years.

How does tokenized IP benefit these communities? First, it enables proof-ofpublication. Minting an intellectual property NFT (IP-NFT) is registering IP rights onchain with an immutable timestamp and attached documents. For example, when VitaDAO funds

a scientific research project, like a longevity drug being developed by Artan Bio (a biotech company), VitaDAO mints an IP-NFT. That IP-NFT contains the sponsored research agreement with the researcher, bridging VitaDAO’s IP rights onchain.

It enables funding. In Artan Bio’s case, VitaDAO used the IP-NFT to mint new fungible ERC-20 IP tokens, IPTs, called VITARNA. VitaDAO used the VITARNA token sale to fund the next research milestone for the longevity drug, as described in the VITARNA whitepaper. for VITARNA holders could vote later to mint and sell more VITARNA to fund a new research milestone, like Phase 1 clinical trials, or vote to sell the IP with the consent of the IP-NFT owner, democratically governing the IP-NFT and its attached IP.

It enables governance. With tokenized IP, communities supporting scientific research and development can vote using their tokens’ cryptographic signatures,

fraud-proof and censorship-resistant, which protects the democratic process. IPTs govern IP and IP-NFTs own it. This means the owner of an IP-NFT can delegate authority to its IPT holders over certain things related to its IP: what to do with proceeds from licensing and sales of IP, other terms and conditions of IP usage, and IPT emission schedules.

Finally, it enables incentivization. When VitaDAO funded autophagy research at the Korolchuk lab at University of Newcastle with VITA-FAST, it gave vested IPTs to several of the researchers to ensure incentive alignment with the success of the project. Because those IPTs vest over time, the researchers are incentivized to continue working on the research project. Thus, IP tokenization enables researchers and patients, co-creating medicines together, peerto-peer, using IP tokens on Ethereum as their funding and incentive layer.

What will be the ‘Beeple Moment’ for DeSci?

This is difficult to predict and may come in one of several forms. It may come from a highprofile researcher being funded by DeSci, a groundbreaking discovery, a community product going viral, or an acquisition of DeScigrown IP. Regardless of the flavor, the number one limiting factor in DeSci today is liquidity; there are many more high-quality researchers than there is demand to fund them. To drive more capital and attention into DeSci, we are building a product called Catalyst, which enables researchers to get funding directly for their research via smart contracts deployed on Base. Catalyst users buy IP tokens with rights to the researchers’ discoveries. Designed to introduce both DeFi users and biotech investors to DeSci, Catalyst presents unique opportunities for each of them.

In 2016 and 2017, many crypto projects fundraised through initial coin offerings (ICOs). Some DeFi users who participated in ICOs did well, though many lost money. In 2021, a similar phenomenon emerged with NFTs. In 2024, with Ethereum Layer 2s and the multichain economy, the cost of using DeFi is being driven to 0, attracting more users and memecoins with widespread appeal. In order to compete, Catalyst is designed to bring new liquidity onchain through generating real-world value creation with scientific IP and biotech products. We aim to prove, on a large scale, that realworld scientific impact resonates with DeFi users.

Biotech is one of the riskiest asset classes, so biotech traders are typically comfortable with risk, so long as they have the scientific data that they need to make a good bet. This data does not exist in early-stage scientific research, as private biotech companies keep IP extremely

close. So, biotech equity traders are typically stuck investing in clinical stage biotechs, and have missed much of the value accrual that happens from the drug discovery stage to clinical trials. However, when traders can access early stage research funding opportunities with the right data on Catalyst, they have an entirely new game to play: the preclinical research game.

AUTHENTICATING THE

Alex Soong

ZKP2P Core Contributor

Two decades of innovation have endowed us with ubiquitous connectivity and tools to manage every aspect of our lives. Yet, amidst the technological

renaissance, our methods for authenticating ourselves over the internet have largely remained unchanged.

Signups are still largely derivative of validating email ownership. For other more rigorous validations, there is little choice aside from uploading documents or scanning physical ideas and waiting for resolution. Meanwhile, much of the data that represents our

growing digital footprints is locked away, unable to be used to authenticate our identities and our assets.

Digital signatures offer an elegant solution, providing cryptographic guarantees of data origin and integrity. When coupled with emerging cryptographic techniques, they have the potential to reshape authentication in ways that enhance privacy, improve efficiency, and even unlock new avenues for value exchange.

In this piece, I will:

▪ Provide a brief overview and history of digital signatures, examining several ubiquitous sources of signed data

▪ Explore emerging cryptographic techniques that allow digital signatures to become portable and composable

▪ Showcase a live application incorporating many of these techniques in a practical peer-to-peer solution for exchange

▪ Highlight the tradeoffs, caveats, and learnings from building with these advanced cryptographic techniques

Foundations of online trust

Digital signatures were conceptualized in 1970 as part of a broader effort to secure digital communications.

They are built on top of public-key cryptography and require a pair of keys: a private key for signing and a public key for verification. The private key is kept secret by the signer, while the public key is openly shared. Together, they enhance communication over the internet with three properties:

Authentication: ensuring messages are from a certain origin

Integrity: protecting messages from tampering while in transit

Non-repudiation: preventing the signer from denying they signed the document

To create a signature, the document or message is hashed to produce a fixed-sized value that serves as the document’s fingerprint. The resulting value is then encrypted with the signer’s private key, producing a digital signature.

Verification allows anyone to combine this signature, the original data, and the signer’s public key to validate that the signature was produced by the private key. The security of this process relies on the computational difficulty of hard mathematical problems, making forgery virtually impossible without the private key.

Lotus Notes 1.0, released in 1989, was the first widely marketed software package to showcase digital signature functionality, enabling users to electronically sign documents and establish the authenticity and integrity of electronic communications.

Today, their usage is ubiquitous, yet operating behind the scenes across a variety of applications:

▪ SSL/TLS certificates authenticate websites, preventing phishing attempts. (Introduced by Netscape in 1994, with TLS 1.0 following in 1999)

▪ Email authentication methods like DKIM (DomainKeys Identified Mail) verify sender identity, ensure email integrity, and mitigate spam. (Developed from earlier methods by Yahoo! and Cisco in the mid2000s and later ratified in RFC 6376 in 2011)

▪ Mobile device secure enclaves produce payment authorization and biometric data signatures (secp256 elliptic curve)

▪ Source version control platforms like GitHub enable signing for contributors to verify the authenticity of code changes

In other words, we rely heavily on the signatures they produce as part of our daily internet use. For example, when you access your online banking portal, your browser uses SSL/TLS certificates to ensure communication with the bank.

Similarly, when you receive an email from the bank, DKIM signatures allow your email client to authenticate various components of the email such as the sender’s domain, subject, and body.

Expansion of signed data

Protocols for generating digital signatures have evolved over time, improving in efficiency and security to enable larger and more sensitive communication over the web. As we continue expanding our online presence, there is the potential to use this data to authenticate ourselves and our data.

However, today, there still remains a shortage of exported data and signatures that we can meaningfully apply outside of the platforms that create it. This paradox stems from two primary factors:

First, current signature verification methods require access to the entire original message. In other words, there is no way to selectively disclose parts of a signed message or document without revealing its entirety, limiting flexibility and privacy.

Second, the services we commonly use have little incentive to expose and sign our data. The high value placed on data predates even the AI arms race, as

evidenced by the long-standing competition for attribution and targeting data in advertising. On the rare occasions API access is granted, the restrictions often make it impractical and cost-prohibitive to consume.

The scarcity of signed data is particularly evident in API interactions. While APIs facilitate much of the web’s data transfer, few implement digital signatures. Accompanying API responses with signatures could

significantly enhance internet authenticity.

For instance, imagine if Amazon provided a signed API for your purchase history. This could enable you to prove your purchasing patterns or loyalty status to other services. You could verify to a warranty service that you bought a specific item on a certain date, or demonstrate to a financial app that you have a history of responsible spending. This level of verifiability

would enhance the utility of your own data across various services.

This data scarcity extends to the fundamental problem of identity verification where most of the internet still authenticates via email ownership. More important services such as banking may further utilize patchworks of identification methods including uploading unsigned documents, capturing photos of physical IDs, or simply sharing account credentials.

Generative AI models and agents further compounds these challenges, making it increasingly simple to produce convincing forgeries and automate synthetic behaviors. This development heightens the urgency for more robust verification methods, leveraging cryptographic proof of authenticity.

The closest attempt at standardized identification in the U.S. is the REAL ID Act of 2005. However, this

merely sets standards for state-issued IDs rather than establishing a national identity registry. The formation of a centralized system, akin to India’s Aadhaar, remains unpopular across the political spectrum due to privacy concerns and fears of potential discrimination.

Given both the possibilities and challenges in authenticating ourselves in the future, a question emerges: Is there a way for us to securely and efficiently prove to others our data while preserving privacy and preventing misuse?

Next generation cryptography

Research at the intersection of cryptography, mathematics, and computer science has yielded new primitives that might offer a solution. The notable advancements include Zero Knowledge Proofs and Secure Multi-Party Computation, both of which today are accompanied by mechanisms that make them applicable today.

Zero Knowledge Proofs (ZK)

Formally, ZK proofs are a method by which one party can prove to another that a given statement is true without revealing any information beyond the fact of the statement’s truth.

Today, they are most often linked to projects focused on scaling blockchains, utilizing succinctness and computational integrity properties of ZK proofs to assert state updates from a batch of transactions.

However, they truly shine as verifiable statements of computation and are particularly powerful when the computation encapsulates both the verification of a digital signature and extraction of specific details from the signature’s inputs. This capability allows you to make statements on those details to another party while guaranteeing their authenticity, all without revealing the inputs to the computation.

Mentioned earlier, one abundant source of signatures today comes from our email inboxes. Most emails are signed by the sending domain servers using the DKIM protocol, producing a signature over the sender and recipient addresses, subject, and body. When used in a ZK proof, this allows proving statements about the email’s contents without revealing the entire email.

Similar workflows can be applied to other signature sources, including from attested hardware, signed APIs, and even embedded signatures in physical identification like passports. Open-source projects such as ZK Email and Proof of Passport are making these proofs increasingly accessible for developers.

Secure Multi-Party Computation (SMPC)

SMPC allows multiple parties to jointly compute a function while keeping their individual inputs private. It uses secret sharing schemes to ensure that no single party can recover the secret or intermediate results of the computation.

This enables computations like key exchange required for HTTPS, ordinarily between a single client and a server, to be broken up between multiple parties. Key

exchanges are a necessary step in symmetric key encryption which clients rely on for efficient payload transfer. However, this means that HTTPS calls don’t natively produce verifiable signatures over responses despite servers possessing certificates of authenticity.

This distributed key exchange process can then be combined with cryptographic commitments to different stages of an API request lifecycle and later proved with ZK proofs,producing verifiable attestations of the API call.

TLSNotary, another open source-protocol, leverages this concept to create proofs of data provenance for web data that uses TLS. It achieves this by introducing a third party, a notary, during the TLS handshake. The notary receives a secret share from the key exchange and collaborates with the user to encrypt requests and decrypt responses without learning the full key or seeing the plaintext contents.

The protocol employs a technique called deferred decryption, which enables efficient selective disclosure of elements of requests and responses. This allows the user to omit sensitive information such as session tokens from requests or personally

identifiable details in responses, revealing only the data they wish to prove.

Revolutionizing digital verification

Together, these cryptographic primitives offer a window into how we might prove our identities and interact over the web in the future.

Crucially, these techniques don’t require opt-in from the services we interact with. By leveraging existing signatures in our emails and notarizing our web interactions, we can utilize the growing set of data that best authenticates us without relying on services to open APIs.

These methods also unlock new avenues for signup that go beyond simple social, email, and even passkey based logins. By combining multiple sources of signed data, we can create a more robust, multifaceted proof of identity that ensures membership comprises explicitly targeted qualifications.

Cryptographic proofs of digital signatures also represent the most final form of authentication on the internet, a means of digitally proving data that can be verified synchronously, enabling services to give you immediate resolution on your enrollment or checkout.

When paired with blockchains, these advancements enable new ways to directly exchange value by allowing users to prove statements about off-chain asset ownership and transactions directly to smart contracts. The smart contracts act as trustless escrow agents, settling the exchange without the need for intermediaries, and based solely on verifying cryptographic proofs.

By bridging the gap between our digital and physical identities, and between on-chain and offchain worlds, these cryptographic techniques pave

the way for more efficient, secure, and user-centric digital interactions.

ZKP2P: Showcasing emerging cryptography

Over the past year, our team experimented with these techniques, integrating them into ZKP2P, and showcasing how they can be used to facilitate onchain verification of off-chain transactions. Here’s how it works:

1. Users generate zero-knowledge proofs from a past successful payment confirmation email from Venmo, a popular p2p payment service in America, proving they own a Venmo account

2. An off-ramper escrows USDC (Circle’s fiatbacked stablecoin) into a smart contract, specifying a conversion rate

3. An on-ramper pays the off-ramper the specified amount on Venmo

4. Upon receiving a payment confirmation email from Venmo, the on-ramper generates a zeroknowledge proof of the payment using ZK Email

5, The on-ramper submits this proof to the escrow contract, and receives the proper amount of USDC

This workflow allows for a trustless exchange of fiat balance for tokenized assets, with the blockchains serving as the arbiters. With the help of ZK proofs, we were able to mitigate manual settlement ordinarily required in similar workflows.

While this approach proved successful for Venmo, our experimentation expanding the system revealed significant challenges. Notably, emails for other p2p payment services often lacked the unique identifiers

for the assets or transactions they certified, making it challenging to prevent replay attacks.

In the context of an exchange, this could result in double or multi-spend by the counterparty in a system where a single off chain event should only be eligible for one on chain redemption.

Furthermore, we found that displayed names or other generic identifiers within the email could not be reliably used for verification as many platforms allowed users to update their profile information, enabling the spoofing of valid proofs.

Expanding to APIs: The TLSNotary solution

To address these limitations, we explored APIs of the same services, which often contained more of the necessary data for fingerprinting transactions.

We were able to enable Revolut, a popular p2p platform in Europe by incorporating TLSNotary, allowing users to notarize API responses containing their Revolut IDs and balance transfers. Here, privacy and selective disclosure were crucial as many of the responses returned social security numbers.

These attestations function similarly to the ZK email proofs, allowing users to exchange Revolut balances for USDC.

While our research has largely centered around access to stable currencies, this paradigm for peer to peer exchange is applicable to virtually all digitally

represented assets, from fungibles such as loyalty points and reservations to event tickets and domain registrations.

Proving ownership also unlocks composability, enabling innovative and flexible mechanisms for exchanging verified assets. They can be seamlessly integrated into complex multi-party trades or conditional exchanges requiring other validations.

ZKP2P serves as an early preview of how we will interact and exchange assets online when the means to securely export and verify our data become more accessible.

Challenges

Like any other advanced computing platform, these techniques are not without their constraints and tradeoffs. Our experience building ZKP2P has revealed the cutting edge and boundaries of both the underlying techniques and the data sources that would serve as meaningful inputs.

Technical Limitations

Generating zero-knowledge proofs is generally resource intensive, often requiring several orders of magnitude more computation than natively performing the operations, mostly from large multiscalar multiplications. This results in barriers to providing practical experiences at a time when users expect sub-second latencies on operations.

In many cases, computation cost also scales with the size and format of the inputs. Proving neatly shaped data may be optimized, but extracting data embedded in larger JSON API responses or HTML in email often result in even higher resource costs.

Outsourcing the computation to powerful servers is an option, but introduces potential privacy trade-offs due to inputs being revealed to the server.

On the other hand, SMPC and TLSNotary, while more computationally efficient, face prohibitive network bandwidth requirements. The protocol necessitates the transfer of hundreds of megabytes of data during a single TLS handshake, exceeding the capacity of most cellular data plans and limiting their applicability in bandwidth-constrained environments.

From a tooling perspective, translating specific verification logic into arithmetic circuits and properly initializing certain public parameters that secure the verification still require highly specialized knowledge.

Reliable Data Sources

The value of these techniques is also constrained by the availability and content of meaningful data sources, both signed and unsigned.

Incorporating data sources at scale relies on reverse engineering existing platforms to reliably return emails or consistent responses for notarization. This results in significant platform risk as the platforms, which are not required to opt in to support usage of their data in this manner and are beyond our control.

Additionally, much of the existing signed data lacks the unique identifiers that make them resistant to forgery. Without these malicious actors could potentially spoof statements under the guise of valid proofs. These vulnerabilities undermine the trustworthiness systems that incorporate proofs.

Reconstruction of inputs for second-hand verification also poses several challenges. Email clients often don’t make DKIM signatures available to users, despite verifying these signatures themselves. Clients can also alter subject lines and encoding in email bodies to

improve the user experience or support their internal handling of data.

These learnings underscore the complexity of implementing these techniques which, while promising, still have significant hurdles to overcome. Continued research into more efficient proving algorithms could help address some technical barriers. Meanwhile, developments like RFC9421, which calls for HTTP message signatures, offer exciting possibilities for more reliable and standardized data sources.

Conclusion

We stand to benefit greatly from efficient and privacypreserving authentication of our data. Emerging cryptographic primitives such as zero knowledge proofs and secure multi party computation make this possible by revolutionizing how we can leverage existing signatures and data sources.

Projects like ZKP2P demonstrate how these technologies can facilitate novel forms of proving ownership, bridging on-chain and off-chain ecosystems, and exchanging value by unlocking synchronous verification of transaction data.

While technical and practical challenges remain, these advancements offer a promising solution to the trilemma of digital authentication: achieving security, efficiency, and privacy simultaneously and pave the way for a new era of digital interaction.

Acknowledgements

Thanks to Richard Liang and Abishek Punia for reviewing drafts of this and Andy Guzman and the PSE for supporting our research.

FREEDOM OR SECURITY?

The Crypto Dilemma

Maika Isogawa Founder & CEO, Webacy

The blockchain trilemma refers to the difficult balance between security, scalability, and decentralization in blockchain technology. While we could debate endlessly on this topic, we have a more basic and critical design nut yet to crack: the trade-off between security and freedom.

Would you give up the option to choose which tokens to trade if you knew you could never get drained?

Really Great in Theory

At its core, blockchain technology is revolutionary. The promise of a more transparent, equitable ecosystem, powered by decentralized and immutable technology, revealed possible futures. We could send money to anyone in the world easily and cheaply. Creators and contributors could finally reap the rewards they deserved and share in the profits of social networks. You could own your data and take it with you, disputing everything from healthcare to global identity.

Despite glimpses of brilliance, the overall user experience has often been… underwhelming. Seed phrase management issues, malicious approvals, unreadable smart contract code, and so forth, the risk vectors are vast in the permissionless economy of cryptocurrencies.

But this freedom is what we wanted, right?

This was the beautiful promise of the blockchain: the ability to do anything, own anything, and be truly free.

When Permissioned Goes Crypto

Some pioneering Web2 companies are venturing on-chain with strategies markedly different from

Venmo enables users to move money into BTC, ETH, and three other tokens. You can send or receive ETH, but only to other users on Venmo. There is no other functionality available to users at this time. Robinhood allows users to buy and sell a select number of tokens. You can send and receive a subset of these listed tokens from within Robinhood after (another) full KYC process and agreement to new terms and conditions. Robinhood’s recent acquisition of Bitstamp is a strong signal of commitment to stay in the space.

Another example is the trend of in-app accounts that house a user’s digital assets within a company’s own walled garden. Users create a “wallet,” typically with an abstracted method (email, social login, etc.) associated with the platform to interact, play games, collect NFTs or points, and more. One major limitation is the inability to send assets to or from the platform, nor interact with the greater blockchain ecosystem. We’re right back where we started: applications and technology designed and controlled by centralized companies. The only difference is now they’re on crypto rails.

These examples highlight a trend towards integrating blockchain technology while maintaining elements of centralized control. The permissioned-first design reduces the risk to end-users and the companies, but it’s also important to remember that these platforms

can lock us out or change the rules at any time without our opt-in. Without interoperability or true ownership, should these experiences even be built on blockchain?

Pick Your Poison

Freedom and security exist in a tricky dichotomy. Diving deeper still, there are four main pillars that make up the core of the debate.

1. Immutability vs. Flexibility: Immutability, one of blockchain’s most celebrated features, ensures that once data is recorded, it cannot be altered. This characteristic ensures transparency and integrity but also restricts flexibility. Mistakes or fraudulent transactions can’t be easily reversed, which places the responsibility on users to safeguard their private keys and verify transactions thoroughly. In contrast, traditional financial systems offer mechanisms to dispute and reverse transactions, albeit at the cost of centralized oversight and potential delays.

2. Privacy vs. Transparency: Public blockchains, such as Ethereum, offer an open ledger accessible to anyone, enhancing accountability. However, this transparency can compromise user

3. Permissionless Innovation vs. Security Protocols:

Ethereum’s permissionless nature allows anyone to build and deploy decentralized applications, fostering rapid innovation. This freedom fosters innovation and rapid development but also opens the door to vulnerabilities. Without stringent security audits and protocols, dApps can become targets for exploits, as seen in numerous DeFi hacks. Implementing rigorous security measures can mitigate risks but may also slow down development and create barriers to entry for new developers.

4. User Sovereignty vs. User Experience: Decentralized platforms empower users by granting full control over their assets, thereby eliminating reliance on third parties. However, this sovereignty comes with complexity. Managing private keys, understanding gas fees, and navigating decentralized exchanges can be daunting for non-technical users. Enhancing user experience through simplified interfaces and custodial solutions can improve accessibility but potentially at the expense of decentralization and security.

Navigating the Tradeoffs

By integrating innovative solutions throughout the industry’s infrastructure, we can foster a resilient and inclusive ecosystem that empowers users and drives the future of finance

get to choose between freedom and security at all.

Implementing multi-layered security protocols may enhance protection without severely restricting freedom. There are security and safety companies that serve different parts of the technical stack from validators and data availability to hardware wallets, address-scanning, pre-transaction simulation, and more. The right implementation of these technologies can offer robust security while preserving user control.

This may be the only chance we get.

Decentralization and community governance models can provide a framework for distributed decision making. With the right design, transparent and inclusive governance can address security concerns while still respecting the decentralized ethos. Finally, engaging with regulators to develop clear and fair regulations can help navigate the tradeoff. Regulations that protect users without stifling innovation are essential for the sustainable growth of the crypto ecosystem.

A Path Forward

The security/freedom trade-off in blockchain technology doesn’t have to be a zero-sum game. By integrating innovative solutions throughout the industry’s infrastructure, we can foster a resilient and

Future of Finance

A Social and Financial Study of Memecoins

The memecoin craze is back again. But this time, we can include social data (farcaster) in our analysis.

Andrew Hong Headmaster, Dune Analytics

Every market cycle comes with memecoins. If you’re not familiar with the concept, think about the craze of r/wallstreetbets driving the rally of AMC in 2021. A bunch of people rally around some meme and bid the price of some asset up for a short while (anywhere

from one day to a couple months). It’s become a popular go-to market strategy in crypto for everything from the blockchain layer to the app layer as you drive up not just prices but attention around an ecosystem. Some like Avalanche go as far as creating an actual official fund for memecoins.

The line between a memecoin and any other token can sometimes be blurred, but the general assumption here is that there is nothing backing the token besides the meme. For example, DOGE as a token only has the shiba inu doge picture/idea backing it. Unlike a token like ETH, which is secured by the ethereum blockchain; UNI, which has the full Uniswap protocol behind it; or a token like MKR, which has a full collateralized stablecoin service behind it.

Farcaster memecoins (like DEGEN) are the newest flavor, with the primary benefit being that the social graph is openly accessible. So with that, I wanted to test the waters with some basic analysis, combining social and financial data.

I ended up with this dashboard, which I will walk through in this article.

Measuring the Meme

Extreme Risk: Memecoins with low liquidity and volume are very risky and subject to rugs (as there are likely only a few liquidity providers).

Bot Arena: Most memecoins will never make it out of the trenches, where thousands of coins (many with the same token name/variation) are competing for social and financial attention.

Volatile Growth: Memecoins that do break out of their initial circles now have to sustain their momentum and growth. You’re likely to see many days of 100-500% swings in price, and a bunch of influencers who start to latch onto the meme.

Well Established: The leaders will sit at the top socially and financially for a while and be very clearly separated from the pack. It’s likely that the weekto-week numbers are less volatile and attention is sustained, as there is an equilibrium of inflows and outflows of people.

I started with the hypothesis that we could compare all memecoins with a simple chart that graphs social and financial health.

I’ve categorized five main areas in this chart:

Sleeping Giant: Memecoins that grew a lot socially and financially—and didn’t get rugged—may die down and sit in the corner for a while. Likely a DAO has formed, they’ve started shipping random mints or products, and they’re are dealing with the mess of a community, all while hoping to rotate into the spotlight again.

The bulk of memecoins should be stuck in the “bot arena,” with a few catchy ones in the “volatile growth” segment, and maybe one or two making it “well established.” Along the way, some may lose social power and become “sleeping giants” while others may lose their financial backing (liquidity) to become “extreme risks”.

I believe that the average successful memecoin goes on a journey like this:

https://dune.com/ilemi/social-memecoins

And you probably see many memecoins that get botted/influencer pushed to have a high social score, but has low financial score (liquidity) and leads to rugs.

After much data engineering and cleaning, I was able to produce this chart in Dune focused on Farcaster memecoins:

This actually fits my expectations pretty well. You have DEGEN far out in the top right corner and then a few others like ENJOY, HIGHER, TN100X, and EVERY out in the middle. Everyone else is stuck on the left, competing for attention and liquidity.

It’s worth noting that I have not filtered out sybil/bots here, so social scores for some memecoins may be skewed. An improvement for the future!

Now, let’s walk backwards from this end chart to explain how those two scores were created. I’ll also pose further research questions and detail my query lineage for those who want to dig deeper.

The dashboard can be found here. There are a few charts that I have not included in this article.

Social Score

Each score is made up of a “base” and a “growth” component. For the social score, we start by measuring the casts and engagement of ticker mentions. So “$DEGEN” will count but “DEGEN” won’t in this methodology. Related symbols to the token (like the degen hat, higher arrow, tn100x ham) are also included in counts.

That gives us five main columns:

Casters: number of people who have casted a given ticker

% Recipients: percent of those casters that have recieved the token before

Casts: number of casts with a given ticker

Channels: number of channels that had a cast with a given ticker

https://dune.com/ilemi/social-memecoins

Activity Level: The engagement (likes + replies) plus the casts times cube root of casters times cube root of channels.

The overall social score is calculated with the “base” being the activity level and “growth” multipliers based on week-over-week change in unique casters and recipient casters. The idea here is that if you’re seeing large growth in people casting a ticker, and those people are buying/acquiring the token, then that’s an extremely healthy sign.

Overall, it looks like this in a table:

https://dune.com/ilemi/social-memecoins

Financial Score

These are your main financial metric columns:

Fully Diluted Value (FDV): total supply multiplied by price

Price: most recent price based on DEX trades

% DoD, WoW, MoM Price Change: percent changes in price on a daily, weekly, and monthly basis

Liquidity: Non-token liquidity, meaning for a DEGENWETH pool, only the WETH portion is counted, which gives a more stable sign of liquidity for a given token

Trades: Number of DEX trades in last 30 days

Transfers: Number of erc20 transfers in the last 30 days

Total Volume: USD volume of DEX trades in last 7 days

The “base” for the financial score is its non-token liquidity and DEX volume, with a “growth” component based on week over week change in liquidity.

Overall, it looks like this in a table:

https://dune.com/ilemi/social-memecoins

Follow Up Questions

Below are some top of mind questions that I’d love to see people dig into from here:

▪ How can you do sybil/bot scoring of casters? Weight it by the dollar value of tokens in the wallet?

▪ Can you tier casters based on relationship to known clusters and/or communities of people?

▪ Categorize the waves of social and financial growth - how are they correlated? Is there a time delay or dependency one way or another?

▪ Are the the same circles/types of people driving the initial growth waves? What about the people who

are early, on-time, and late to the meme? Are there relationships with the user tier?

▪ What happens when a meme “rotates” from one to another? What or who drives this?

▪ How “interested” is a person based off of their social or financial stake? Do people cast more/less after they buy/sell a given token?

▪ What’s the average lifecycle of a meme? Socially and financially?

Permission as Tradeoff, Not Blasphemy

Nathan Howard Partner, Switchpoint Strategies

The Ethereum community has pioneered and bootstrapped a world of possibility with programmable smart contracts and decentralized finance. For as long as Ethereum has been around, there have also been blockchains that make different trade-offs, often to cater to enterprise needs or those of financial institutions. For ease, let’s call them “permissioned blockchains.” Though they have gone by many names: “enterprise blockchains,” “private blockchains,” “distributed ledgers,” or “DLT,” to name a few.

The Ethereum community often derides attempts at permissioned or institution-focused blockchains or blockchain-application environments. This derision is at odds with Ethereum’s own origin

as an exploration of trade-offs to support blockchain-enabled applications suited to particular purposes. This article urges the community to view experimentation in permissioned blockchains as an extension of what Ethereum started.

Before I go further, a few side notes and attempts to head off objections:

First, on terminology, I’m lumping everything into “permissioned blockchains” because that’s the trade-off I want to focus on and destigmatize for the Ethereum community. I recognize that term is imprecise for things like “private, permissionless chains” or enterprise blockchains. I don’t think it is very productive to parse the definitions, but suffice it to say that historically, blockchains and applications that cater to financial institutions are viewed with cynicism by the Ethereum community.

Second, on Ethereum’s own trade-offs, You might say, “Ethereum is the world computer, designed to be the global settlement layer for all transactions, how can you claim there are unacceptable trade-offs? The institutions are unacceptable!” I would ask you to put down your torch and tell you that my source for these trade-offs is from the Ethereum whitepaper: “The intent of Ethereum is to create an alternative protocol for building decentralized applications, providing a different set of trade-offs that we believe will be very useful for a large class of decentralized applications, with particular emphasis on situations where rapid development time, security for small and rarely used applications, and the ability of different applications to very efficiently interact, are important.”

Third, I’m not preaching to you or even asking you to like permissioned chains. Rather, this perspective came about because a friend of mine who studied the space and whom I’ve worked with in DeFi asked if engaging with builders of permissioned or institutionaligned environments wasn’t “playing for the wrong team.” My sincere response was that this isn’t as adversarial as some would have you believe (certainly in the Ethereum community) and that because these experiments are inevitable, engagement and attention is a better strategy than dismissal or being concerned about every action’s

“Ethereum alignment.” Ethereum is a tool to make transacting better. There will always be other tools.

In the past, I’ve fallen into the habit of ignoring other smart contract environments and L1s because so many seem to be formed with minimal differentiation from Ethereum for the sole purpose of building hype and selling an underlying token. As I dig further into the utility of blockchains for solving real-world problems, I find folks making sincere attempts to solve problems that Ethereum is either not interested in solving or has made fundamental trade-offs that make it the wrong tool (or the wrong tool today). But I’ve also encountered a mindset from Ethereans that permissioning and Ethereum is a binary, philosophical choice. I refuse to believe that stance should dominate this community’s perspective because it’s both irrational and ignores Ethereum’s own origins.

To make this a little more tangible, let’s look at two different permissioned chains, explain what they are, and also focus a bit on what tradeoffs they make that Ethereum doesn’t. Then I’ll provide some closing thoughts on how the Ethereum community should approach them.

Canton

Canton is described as “the first privacyenabled open blockchain network” on the network’s website. It’s always worth examining claims (especially pioneering claims) a bit deeper. Another cut from the same source (though perhaps more recent) calls it a “publicpermissioned blockchain network.” Taking these terms together with a little more context from their whitepapers, you can see that Canton makes two essential trade-offs: additional privacy at the expense of transparency across

nodes and removal of competitive transaction throughput. From my perspective, the privacyenablement is more interesting and requires a deeper look.

What Ethereum does: state machine replication, where all participants replicate the same global state.

What Canton does: “Canton’s proof-ofstakeholder consensus protocol is split into two layers of consensus. To achieve consistency along with privacy, the first consensus layer is a two-phase commit protocol that replicates each contract to the contract’s stakeholders while concurrently enabling each stakeholder to validate the transaction. Conceptually, this can be thought

of as having a replicated state machine for every subset of parties.”

So where Ethereum sacrifices privacy for the sake of a transparent global state consensus, Canton adds some complexity in their interoperability principles for the sake of a “privacy-enabled” network with two layers of consensus. Recall that Ethereum’s design is optimized for “the ability of different applications to very efficiently interact.” One element of that efficiency is the public blockchain’s approach to privacy (namely, that there is none), but for applications where privacy is valued more, Canton turns the dial in that direction.

I don’t mean to entirely dismiss the competitionfor-throughput trade-off, but in my view, that

selling point preys on short-sighted concern from institutions about gas-fee complexity. It may be that it’s a necessary trade-off for institutions now, but has less long-term relevance to Ethereum than the privacy trade-off.

Avalanche Evergreen Subnets

People are likely familiar with Avalanche as one of the alternative smart-contract platforms that popped up in the last cycle. It enjoyed moderate success along the gaming verticals and with some echoes of Ethereum DeFi but hasn’t proven much long-term differentiation from Ethereum.

One feature of note is the protocol’s ability to accommodate subnets. From Avalanche, “subnets are application-specific L1 blockchains that collectively constitute the Avalanche network. They can be customized along a wide array of parameters and features to ensure optimization for any given application or use case—including, but not limited to, Institutional, Enterprise, Government, Gaming, Healthcare, and DeFi deployments.” So an application-specific L1 could make certain tradeoffs, perhaps ones that cater to institutions, but also retain EVM compatibility. Avalanche has done exactly that with Evergreen Subnets. Evergreen Subnets are subnets with “built-in and further customizable features [that] include EVM compatibility, blockchainlevel user permissioning (embedded allow lists based on KYC/KYB or other requirements), a permissioned validator set, and custom gas token.”

So if you wanted to create an application that “would work on Ethereum but needs permissioning within the application” and have resources to test it, then an Avalanche Subnet would be a great starting point for that. However, the additional flexibility of Avalanche does come with some trade-offs by allowing Avalanche to estimate the global network

state with some errors. For many applications, this is an acceptable trade-off, but likely not for a global settlement layer.

Closing Thoughts

Early attempts at enterprise blockchains ruined the impression that the Ethereum community has of designing for institutions, and with good reason. The bald proposition of “do a blockchain, but make it corporate and therefore legitimate” lacks nuance and doesn’t take Ethereum seriously enough. By no means am I surprised that this is the state of things for people in the Ethereum community. But hopefully, I’ve encouraged folks to take a look at these projects with a more sincere eye to what they’re actually trying to solve. Building a tool that can be used by institutions is difficult but worthwhile if it isn’t done for the sake of an empty legitimacy signifier. If you think that the world will move from trusted institutions to trustless stores of value and exchange, then it’s hard to imagine that as an overnight revolution. Isn’t it more likely that those institutions will be shown the value of trustless exchange and then be part of the adoption curve?

So if you care about Ethereum’s success, I suggest paying attention to these chains rather than dismissing them because I think, in hindsight, they will be a part of Ethereum’s story. One way that could look is if some of the trade-offs are incorporated

into L2s. You can already see this with projects like Kinto. Kinto is an Ethereum L2 that settles on Ethereum Mainnet and, by design, provides KYC, insurance, and AML and fraud monitoring at the blockchain level. A path for Ethereum to incorporate to encourage more institutional adoption would be to see more experimentation like this at the rollup level. And any tradeoff attempted by a L1 could, in theory, be incorporated into an Ethereum rollup. As security and infrastructure around L2s improve, so, too, does Ethereum’s ability to accommodate purpose-built tradeoffs.

In closing, it’s crucial for the Ethereum community to reassess its stance towards permissioned blockchains and similar institutional-focused environments. The historical skepticism is understandable given the early, lackluster attempts at enterprise blockchains, but dismissing all such endeavors outright is shortsighted. As Ethereum continues to evolve, embracing the experimentation found in permissioned chains could pave the way for a richer, more versatile ecosystem. Projects like Canton and Avalanche Evergreen Subnets demonstrate that meaningful innovations can arise from these efforts, which could address needs that Ethereum may not currently prioritize. By viewing these initiatives not as adversarial but as complementary to Ethereum’s mission, the community can foster a more inclusive dialogue and encourage innovations that may one

day integrate seamlessly into Ethereum’s broader framework. Ultimately, the evolution of Ethereum could well involve incorporating some of these trade-offs at the rollup level, ensuring the platform remains adaptable and robust in the face of diverse application demands. Embracing this perspective might reveal that permissioned chains are not sidequest villains but integral chapters in Ethereum’s ongoing story.

Stakeonomics

Scaling Ethereum

Valuation Theory

INSIDE

ETHEREUM' S WITH

IPO MOMENT

A CONVERSATION WITH:

HUNTER HORSLEY, FOUNDER & CEO

HONG KIM, FOUNDER & CTO

PHOTOGRAPHY BY: MARISSA

ROCKE

The approval and forthcoming launch of a number of new spot Ethereum ETFs can create an ‘IPO moment’ unlike any event in Ethereum’s history. ETFs (exchange-traded funds) and other ETPs (exchangetraded products) will open access to Ethereum for tens of trillions of dollars on behalf of tens of millions of traditional investors. The approval also validates Ethereum’s legitimacy on many levels, allowing enthusiasts a spiritual sigh of relief.

Bitwise Asset Management, a crypto specialist with nearly $4B in AUM, is one of the firms leading the way on ETP filings.

In six years, Bitwise has grown to a firm running with Wall Street giants as they provide one of the most formidable bridges between Wall Street and blockchain ecosystems. Bitwise’s forthcoming Ethereum ETF [NYSE: ETHW] is setting standards in transparency and alignment for TradFi giants to follow, but as they’ll tell you, that’s just part of Bitwise’s DNA.

We sat down with Bitwise co-founders: Hunter Horsely (CEO) and Hong Kim (CTO); to learn about how they weave community alignment into their ethos, how they view ETHW, Ethereum’s IPO moment, and much more.

EIC: You two met while Hunter was at Wharton (part of UPenn), Hong was in CS school at UPenn. Can you tell me about how this partnership came to life?

HK: Hunter and I had a common thread in that we were interested in building our own things and both interested in business and technology, and that naturally led to us finding each other. Ultimately, the practical thing that connected

us was a student-organized trip to Silicon Valley to network with alumni. That led to, “oh, we should grab coffee.” For the next few years we blocked off every Saturday to work on things together. That project buddy relationship became a close friendship and even ended up college roommates.

EIC: How did you guys get started and how did the thesis for Bitwise emerge?

HK: At the time of Bitwise’s founding, I convinced Hunter to leave his job at Facebook and we went right into it. We were fortunate in that we had people in the Valley that believed in us and were willing to write angel checks to get us going.

We built conviction around crypto as a thing that we felt would play out over decades and that there was a lot of business opportunity and wealth creation we could help others gain access to.

“

What we felt was clearly missing was an asset management firm. Crypto at ~$100 billion market cap was hardly considered an asset class, and not something you allocated to in your retirement or brokerage account. But if it were to grow into what we all hoped it to be, it was clear there had to be a point where people build the types of products that investors can buy in those accounts or with their financial advisor.

A Bitcoin core dev sent me a screenshot after the bitcoin ETPs launched and said ‘look, my mom finally bought the coin.’ I see Bitwise as building bridges that allow more people to participate in the opportunities of the space and, if it’s successful in the way we hope it is, we can be a part of that journey.

HH: At Wharton, we read about Ford doubling the minimum wage and the invention of variable cost as an accounting

” And I think that’s something that appealed at an abstract level about working in the crypto space. It’s not very often that a new technology comes along that presents a chance for the world to improve and the next few decades to be different and better than the prior few.

principle. What looking back in business history makes you realize is that a lot of the things that we take for granted today, at some point in time were a seismic shift in how the world worked.

And I think that’s something that appealed at an abstract level about working in the crypto space. It’s not very often that a new technology comes along that presents a chance for the world to improve and the next few decades to be different and better than the prior few.

The crypto space, when we were encountering it, looked like the type of thing we could contribute to stewarding that might actually make a meaningful impact on why the world is different in the 21st century. I think that is an element of the space that gives it meaning for a lot of people and that made us feel like this could be a meaningful place to spend a large part of our careers.

With Bitwise and asset management specifically, friends would say, ‘I want to invest in crypto, but I don’t have time to figure it all out and be constantly monitoring it’. And these are people working in Finance and Tech. So at some point it struck us that this routine phrase was actually a problem that needed to be solved.

EIC: If you fast forward to today, you two make up a portion of Bitwise’s executive team and you have sixty full-time employees dedicated exclusively to crypto products that are managing nearly $4 billion in assets.

What are some of the most memorable events in Bitwise’s history?

HH: Gosh, there are many over 6 years. We announced the first crypto index fund in the U.S. back in 2017, the Bitwise 10 Crypto Index Fund. We took that index fund public under the ticker BITW in 2020. In 2021 we launched the first equity ETF with the word ‘crypto’ in it, and we rang the bell at the New York Stock Exchange to usher in that new category of products.

And, recently, we launched the Bitwise Bitcoin ETF (BITB) which is our biggest product to date with over $2 billion in assets. And, of course, we’re excited about our filing for an Ethereum ETP.

HK: We also raised a few meaningful rounds, notably our seed in 2017 led by Keith Rabois at Khosla Ventures, our series A led by Corey Mulloy at Highland Capital, and our $70 million Series B in 2021 led by our first two angels Elad Gil and Avichal Garg at

Electric Capital. It’s been a privilege to have exceptional backers and it’s enabled us to build an extraordinary team.

EIC: Hong, I’ve heard you say Ethereum’s ‘IPO’ moment represents a meaningful state change, what do you mean by that?

HK: All of today’s dollars and wealth lives on traditional financial rails. We’ve onboarded maybe $150 billion in stablecoins, but there are tens of trillions of dollars living in the traditional financial world.

There’s more than $10 trillion in retirement accounts, and due to regulatory and tax reasons, that’s never leaving the system. There’s another $40 trillion-plus in private

wealth managed by financial advisors and the like. These two categories happen to be the largest buyers of ETFs.

So, for much of the addressable investor market, we need to make it as easy as it is for any other asset class: real estate, commodities, equities, bonds, etc–in their brokerage account.

An Ethereum ETP would meet those dollars where they already are.

HH: The ETP has transparency. The ETP also has tightly bound requirements that can give investors peace of mind. The institutional custodian holds the assets. A third party administrator, like Bank of New York Mellon, keeps books and records.

"All of today’s dollars and wealth lives on traditional financial rails. We’ve onboarded maybe $150 billion in stablecoins, but there are tens of trillions of dollars living in the traditional financial world.”

The auditor, KPMG, is then confirming that all of that is correct. Tax reporting can be done by a professional tax preparer. And since it’s ultimately a security, and not a bearer instrument that you own, you have the comforts of a titled security. That means you don’t have to worry about losing your password. If you hold it in a brokerage

account, there’s SPIC insurance up to $250,000. That whole stack of protections contributes to making the ETP vehicle a powerful option in crypto.

EIC: Who are the target markets for an Ethereum ETF and what narratives around Ethereum resonate?

HH: In general, what’s resonating is that Ethereum is the platform powering the decentralized web. That pertains to stablecoins, DeFi, NFTs, tokenized assets, and a host of things that are currently being invented or haven’t even been invented yet. With Ethereum, you have a chance to own the operating system of the decentralized web.

As far as the target market goes, Hong mentioned that our core focus is U.S. wealth management.

U.S. wealth managers are entrusted with $40 trillion of savings and assets. They’re the trusted partner for stewarding those assets, and we work to enable people’s wealth managers to help them participate in the asset class. That is a huge constituent for us.

And then, in addition to that, there are individuals who are passionate about Ethereum and would like to hold it in retirement accounts. In the U.S., individuals have roughly $13 trillion in IRAs. And if you’re an individual who says, I’m really excited about the possibilities for Ethereum over a long time horizon, and so I want to hold it in my tax-advantaged account, then an ETF enables you to do that.

Those are the two sort of core audiences for an Ethereum ETP and for ETFs more broadly.

EIC: Are you seeing Ethereum resonate more or less than Bitcoin? How do you envision the relative flows?

HH: It’s a slight dodge, but I think Ethereum will resonate more and it will resonate less than Bitcoin. I think Ethereum has a big advantage in that it fits the mental model for technology investments. It has applications, it has users, it has cash flows. It answers for a much broader cross section of investors intuiting ‘why do I think this thing is going to be valuable in the future?’ that Bitcoin doesn’t. Many investors put 20-30% of their money in technology stocks, not 1%.

The challenge for Ethereum is investors have limited time and are already in the midst of contemplating Bitcoin. Some investors will say ‘Why can’t I just own Bitcoin?’

I think the Ethereum ETP will have historic flows, but those flows will be smaller than the Bitcoin ETP flows. There’s going to be huge demand, Ethereum will be historic relative to other ETPs, but I don’t think it will be as much as Bitcoin.

EIC: So you guys specialize in crypto asset management, but can you explain a little bit about what that means on a practical level?

HH: What we’ve seen thus far this year is investors will say ‘Bitwise has the expertise. It’s their singular objective. They’ve purposebuilt the firm and team to build the best products and steward those with excellence.’ That’s what it means to specialize in crypto

asset management, and that’s what we’ve done for the last six and a half years. Investors appreciate the quality that comes with a best in breed specialist.

And, by the way, this is true in other asset classes. You have Apollo in private credit, KKR in private equity, Blackstone in private real estate, and so on.

My view is that there will always be demand for a best-of-breed specialist. So I feel great about a world in which people are deciding between a familiar name that they use for everything else, BlackRock, or a firm that is immersed in the space and has a long track record of doing things with excellence like Bitwise. And there are other valid reasons to choose one versus the other. BlackRock’s the largest asset manager in the world–highly unlikely that anyone’s going to question why you would invest with them.

These are large, established firms, but Bitwise has competed favorably. And some people who care about the ethos or the values of the space know that Bitwise understands those and will continue to advocate for the right things. I think that’s a great set of options for investors to have.

HK: We’re doing a lot onchain, both personally and professionally Bitwise as a firm has participated in DAO votes with our DeFi index fund. We trade on Uniswap on occasion and we trade onchain markets like Opensea or Blur for our NFT Fund.

Additionally, many at Bitwise are participating in onchain communities. I’m voting, minting, or trying new crypto apps almost every day,

BITWISE → SF FINANCIAL

HUNTER HORSLEY & Hong Kim

FINANCIAL DISTRICT

and I was early into things like Farcaster and the Nouns community. I have made a number of Nouns proposals to fund Ethereum public goods over the years, such as the Ultrasound Money relayer.

But, what myself, the engineering team, and the research team, spend a lot of time focusing on is understanding how the technology of the space is evolving and then doing things and building products that align with those ethos. For example, our Bitcoin ETP is the only one that publishes our Bitcoin addresses. It sounds a little crazy to people that live onchain, but you have these products with tens of billions of dollars of assets and you can’t look up its assets on a block explorer. It almost breaks your mind, but that is actually the status quo. And Bitwise’s bitcoin ETP is the only product that you can go to the ETP’s website and

look at the published addresses. And that’s because it’s just not a thing most traditional asset managers really think about, and that’s partially because their clients might not really demand that of them.

Another thing is we’re committed to supporting the underlying ecosystems. You can see that through BITB where we donate 10% of profits to three organizations supporting Bitcoin core devs. And Bitwise will support Ethereum open source development as well.

EIC: That’s exciting. It sounds like you guys are thinking about alignment in a lot of ways. HK: In some ways, if the ETP issuer has this donation program where 10% of profits go to developers, it can create a long-term automated crowdfunding mechanism.

Additionally, many at Bitwise are participating in onchain communities. I’m voting, minting, or trying new crypto apps almost every day, and I was early into things like Farcaster and the Nouns community. I have made a number of Nouns proposals to fund Ethereum public goods over the years, such as the Ultrasound Money relayer.

And we’re locking in on a Bitwise corporate donation pledge for Protocol Guild, which is an important set of client devs and researchers working on L1 execution and consensus clients. This is about giving them enough financial incentive to stay and build their careers there, which is a really important part of making Ethereum work long-term. We’re also exploring a donation to an entity called the PBS foundation. They’re a bit newer, but have an important mandate around helping Ethereum balance the tension between decentralization and block builder censorship.

This is an important moment. The Ethereum community is trying to build a credibly neutral public computer that increases the wellbeing and productivity of the world by facilitating coordination between parties without having to trust each other. There are certain qualities, like validator decentralization and censorship resistance, we cannot take for granted and have to fight for and defend.

So, if other issuers are not actively thinking about these matters then that is an opportunity for Bitwise to lead by example. And that really motivates me. If investors choosing a Bitwise ETP pushes the large traditional firms to consider whether they, too, should give regenerative donations to developers or do proof of reserves, that’s a great thing.

When investors choose Bitwise products, and they grow, it gives Bitwise more of a voice to advocate for these practices.

EIC: It’s almost like by both maintaining these alignment principles and competing on flows, AUM, etc; you’re applying

pressure on the giants of traditional finance to maintain a certain set of standards when interacting with this technology, as well. And that’s a really interesting dynamic.

When you think about what comes next from this moment, where do you gravitate toward? Is staking a consideration?

HH: 2024 feels like the most exciting moment in a long time. And part of that is because having the largest asset managers in the world endorse the validity of this asset class, of Ethereum, of Bitcoin as being appropriate and relevant for investors, broadly affirms what we have been trying to do for over six years.

I think you’ll see a lot of products over the next eighteen months that provide different opportunities for investors to get exposure with the benefits of the ETP wrapper, and that’ll build huge bridges to many different types of investors participating in the space.

Most people that experience crypto for the first time through an ETP, end up interested in pulling the thread more. They become interested in other parts of it, they download a wallet and start to do stuff onchain. So I think this moment is great because it will open up access through this ‘IPO moment’ and that will lead people to do more with this technology.

And in general the ETPs will give a lot of investors peace of mind. Before, if an investor wanted exposure to the potential of public blockchains as a revolutionary architecture emerging two-to-three decades into the internet, they unintentionally had to make a decision about which app is least likely to blow up.

For the average investor, they don’t have the capacity to be answering: “Is FTX professionally run? Did the risk manager at Genesis leave? Is the balance sheet healthy?” People have found out that how you own something is as important as what you own.

With ETPs, you will just need to have a view on if you believe that Ethereum is a good investment opportunity, but you don’t really need to spend much time worrying about how to access it.

HK: The way that we think about it is not like: “The Ethereum ETP is over, what’s next to launch?” In reality, the work is just beginning to build adoption in the market.

That $10 trillion I referenced in retirement accounts and $40 trillion in managed wealth has literally not had access to spot Ethereum before now. And that is just now opening up. It’s not a singular moment thing, but rather something that will happen over the next five to ten years.

Look what happened with gold once traditional investors could access them via ETFs. For nearly a decade following their launch they saw nothing but growing annual inflows. We’re seeing the same thing with Bitcoin ETPs, so far, and the big banks and wirehouses haven’t even started allocating yet (they take 6 to 12 months to do their due diligence).

So, we expect the same to be true for Ethereum ETPs, because the setup is the same: today they can’t access this emerging asset class, but soon they’ll be able to. It’ll take time for capital to flow into the products to reach test checks

then target allocations, as it did with gold, but if the demand for Ethereum is anything like the demand we’ve seen for Bitcoin thus far, that’s a very big deal.

And in terms of technology and opportunities; if staking is possible and permitted, we’ll do staking. If restaking is meaningful and possible to do safely, we’ll do restaking. When considering those options, other players might not care about Ethereum’s ethos and nuances. So will the issuer make good decisions around how it is staked? Which pool? What is the client diversity profile of their node operator? Are they even thinking about client diversity? Investors trust that Bitwise will always consider these details.

EIC: Okay, time for the serious questions. Whose desk does the Nouns x Pudgy Penguin mini-statue live on?

HK: I have claimed that.

HH : For now.

HK: For now. But I’ve also now claimed the holographic EIC01.

EIC: Are there any quirks or interesting lessons about this business that you can share?

HH: I think one thing that sometimes surprises people is that it’s very hard to get a good ticker. Tickers are like domains, there’s a finite number of good ones, and those get reserved. You can see it with ten issuers vying for an ETHrelated ticker. You can see some funny things that result from the lack of quality options.

EIC: Hong, Hunter, thank you for sharing your story and shining some light on the gravity of this moment. Is there anything you’d like to share with the Ethereum community going forward?

HK: As more people pay attention to the Bitwise brand, I want people to understand that we share the Ethereum ethos and that we live and care about this thing. And I hope people keep us accountable.

In some ways, an Ethereum ETP is a commodity product. Why would you buy one brand over the other? You might have to buy one because you’re putting it in your retirement account or you’re setting a trust for your child, why would you choose one over the other?

I think a lot of people look at our products and say ‘I would rather support a company and brand that is going to give back to the ecosystem and is paying attention to the things that I care about.’

THE INSTITUTIONAL TOKENIZATION ETHEREUM:

INSTITUTIONAL TOKENIZATION PLATFORM ETHEREUM:

Vivek Raman

Managing Director, BitOoda

Smart-contract blockchains provide a revolutionary new infrastructure layer for the world: blockchains offer general purpose global computers that anyone can access, store assets, and innovative on. However, it is becoming increasingly important to aggressively highlight and market key value propositions and applications that blockchains uniquely unlock, rather than adopting a “build it and they will come” mentality. This is especially critical as we approach a pivotal inflection point, where the crypto ecosystem is fighting for, and beginning to achieve, much-needed regulatory clarity.

In short, building infrastructure is only the first step toward adoption. We need to actively market the infrastructure and onboard enough users so that blockchains can become globally ubiquitous technology.

Bitcoin has done a fantastic job highlighting its value in a simple proposition: a digital store of value, or “digital gold,” meant to be held as a flightto-safety reserve asset.

Ethereum, which extended Bitcoin’s vision by adding programmability to the blockchain, has created the double-edged sword of an overly ambitious narrative: Ethereum has endless potential, but lacks a clearly understood use case that attracts an all-encompassing user base.

We are at the eve of the spot Ethereum ETF launch, where Ethereum will cross

the regulatory chasm that can open the floodgates of institutional and retail adoption. ETH has been classified a commodity, has been green-lit to be held by everyday investors via ETFs, and is the first smart contract ecosystem to achieve an implicit regulatory nod of approval.

The Ethereum community consists of a vast network of the smartest individuals on the planet working on the hardest, most cuttingedge technical and engineering problems to make blockchains accessible to all.

But - there is a lot of potential to package Ethereum’s value proposition in a more actionable manner for institutions.

Ethereum today has too many nebulously technical narratives - like “digital oil,” or “world computer,” or “global settlement layer,” or “Internet of money,” or “decentralized programmable currency.” These are simply not good enough to onboard uses and spark mass adoption. As a result, we propose a new institutional narrative for Ethereum that is as elegant as “digital gold”:

Ethereum is the Institutional Tokenization Platform.

This provides a punchy, memorable narrative embedded with a clear action item which institutions can adopt and enact from day one.

Tokenization

The primary purpose of blockchains for institutions is to facilitate tokenization.

“Tokenization” is one of those buzz words that seems so overused that its ingenuity and potential is diminished. What is the simplest, most accessible, definition of tokenization?

Tokenization is the most efficient way to represent a physical object in the digital world.

It is undeniable that the economy is moving onto an increasingly digital platform. The ubiquity of the internet brought commerce and shopping online (Amazon, Shopify), brought social interaction online (Meta), brought information online (Google), and brought money online (Venmo, Stripe). The digitization of the physical world is only accelerating, with artificial intelligence pouring fuel on the fire.

It therefore stands to reason that every physical asset will have a digital representation online, as transacting in the digital economy is much more efficient (cheaper, faster, more global) than transacting in the physical realm. It is in every institution’s best interest to represent their offerings digital to facilitate frictionless transaction. This is where tokenization on blockchains will come into play - as blockchains provide a global

platform to store digital assets and facilitate frictionless trade and transactions.

As an example, after spending 10 years in traditional finance trading corporate bonds, loans, and derivatives, I saw how archaic the existing infrastructure is for global trade. Each bank, fund, and institution operates their own walled garden database for their assets, which are still physically settled in bank back offices. This results in high friction, high costs, and slower transactions - resulting in inefficient commerce.

Blockchains provide a shared platform for all assets to be tokenized and to live in one place. In the example above, if all bonds, loans, and derivatives were digitized (tokenized) and issued on a public blockchain, it unlocks a world of possiblity. These assets could be fractionalized, traded globally, and made accessible to a global audience. Public blockhains will democratize access to assets and also create a global buyer baseincreasing the velocity of commerce.

This movement has been brewing since the inception of Bitcoin. In fact, the attitude of most institutions was to adopt “blockchain, not Bitcoin” - as institutions understand the potential of tokenization. At the end of the day, institutions are profit maximizing entities, and using public blockchains to tokenize assets for trade and commerce will reduce their costs and make their operations more efficient.

Hence, a core thesis of this article is that the primary institutional use case for blockchains is to tokenize assets. If we agree with this conclusion, then the follow-up question is: which blockchain should institutions use to tokenize assets? And more importantly, what are the properties needed for a global tokenization platform?

In this article, we outline four key criteria needed for an institutional grade tokenization platform, and why Ethereum has been optimized to achieve this vision:

1. Security (i.e. Decentralization)

2. Customizability

3. Liquidity

4. Regulatory Compliance

Decentralization)

The number one property that institutions will require from a global tokenization platform is for the security of the assets on the network. We must remember that traditional finance in its current

form works already. It is far from perfect, and has several avenues to improve efficiency (including rebuilding TradFi architecture on blockchains). However, no incumbent is incentivized to switch to a public blockchain unless the onchain experience is cheaper, faster, unlocks more liquidity, and - most of all - is safer.

Arguably, the entire purpose of a public blockchain is to provide superior security. All the “crypto-native” terms, such as “decentralization” and “censorship resistance” can be rolled up into one overarching use case - the blockchain is a secure ledger where anyone can tokenize and store assets without needing to worry about a central point of failure. If security were not prioritized, then there is no point to blockchains, as traditional databases are faster and cheaper. As a result, high-value assets will only be tokenized on the most secure public blockchains; the alternative would be to keep the TradFi ecosystem in its status quo state.

Ethereum’s Proof of Stake mechanism eliminates the hardware, infrastructure, and electricity

footprint of Proof of Work and secures the network via an economic moat consisting of ETH staked by validators, who are able to continuously verify transactions and collect block rewards. If these validators act maliciously, their stake (32 ETH per validator) is slashed, resulting in economic loss and incentivizing them to act honestly.

How could an attacker break the security of Ethereum’s Proof of Stake network? The cost to attack Ethereum is a simple calculation; the attacker would need to purchase 34% of the outstanding staked ETH and stake it (which would take months, given there is an entry queue to stake and an exit queue to unstake). At the current price (~$3,250), this would cost an attacker ~$36.5bn assuming the attacker could purchase all 34% without moving the price. The cost to attack ETH increases as a function of amount of ETH staked and ETH price, as depicted in the graphic below:

Source: “Breaking BFT: Quantifying the Cost to Attack Bitcoin and Ethereum”

As a point of comparison, the paper referenced above also calculates the total cost to attack the Bitcoin network. This is a more complicated attack, which would require an attacker to purchase enough

ASICs to control 51% of the network hashrate and pay for the electricity and infrastructure costs to deploy them. The total monetary cost to attack Bitcoin ranges from $5bn to $22bn to perform a 51% attack.

Note: the attack surface is, of course, more nuanced than comparing dollar values. Although the dollar value required to attack Ethereum is larger than attacking Bitcoin, Bitcoin attackers would be heavily constrained by the ability to buy (or manufacture) enough ASICs to control 51% of the network hashrate, rendering such an attack practically infeasible. A much more doable attack would be taking control of existing mining pools, given that miners have tangible footprints (electricity, real estate, and hardware).

In contrast, attacking Ethereum is also more nuanced than just deploying dollars. Ethereum attackers would need to acquire 34% of the staked ETH supply, which would potentially drive up the price of ETH and make it even more costly to attack. A more doable attack would be taking control of existing validating nodes until an attacker has 34% of the stake. However, an Ethereum validator has a much smaller footprint than a Bitcoin mineran ETH validator can run on a consumer-grade laptop, making it more difficult to find and control individual nodes. Ethereum’s security under Proof of Stake is arguably further bolstered by the ease of access to running a profitable ETH validator vs the high barrier to entry to run a profitable BTC miner.

One additional note on Ethereum’s security: because Ethereum’s Proof of Stake is designed so validators can run on consumer grade laptops, Ethereum has a lower environmental / electricity footprint. This is not meant to be a criticism of Bitcoin’s Proof of Work; in fact, many BTC miners act as load balancers in areas with volatile power grids. In other words, BTC

mining is arguably accretive to the environment and much of the BTC mining infrastructure relies on green energy. However, the argument comes back to security. A BTC miner with a power, infrastructure, and real estate footprint has more of an attack surface than an ETH validator, and over time, ETH validators can be more geographically decentralized (and therefore offer differentiated security) from BTC miners.

Why is this analysis important? Because institutions need to use the most secure global platform to embrace tokenization. Although Bitcoin does not have smart contract functionality needed for the implementation of tokenization, Bitcoin has crossed the Rubicon as an institutional grade digital store of value and is therefore used as the reference point for blockchain security. Ethereum has an economic attack cost that is higher than Bitcoin (as well as a more lightweight security mechanism using validators vs mining pools - allowing for more geographic diversification which bolsters security).

In short, Ethereum is, by far, the most secure blockchain ecosystem that can be used for institutional tokenization.

Note that we do not mention other smart contract chains in the tokenization conversation because 1) their validator count and cost to attack are lower than Ethereum and 2) many have high-bandwidth, compute-heavy validators that are optimized to run in data centers - which introduces a centralization vector that could compromise security in a coordinated attack.

Customizability

The utopian view for crypto is to have one global blockchain holding all tokenized assets (or, as some call it, a single global shared state machine). Even if the scalability trilemma were solvable and

a single layered chain could satisfy ongoing global transaction needs, this is as naive of an outcome as expecting humanity to live in harmony in one universal country, or to speak one universal language, or to have one universal form of government or religion.

The more pragmatic outcome is that each blockchain ecosystem where assets are tokenized will need to be somewhat customizable. Each issuer of tokenized assets may want their own rules and parameters for the environments where their tokenized assets could be utilized. An analogy is Federalism: in the United States, each state can have its own set of rules and governance at local levels, while all states share security and a global set of rules. This allows for maximum innovation and customizability at the state level while inheriting the security and property rights frameworks at the national level.

There is one blockchain ecosystem that has been architected in a similar fashion: Ethereum. Ethereum has adopted a rollup-centric, or L2-centric roadmap: while Ethereum L1 has been optimized for security and decentralization, L2s can be fully customizable while inheriting Ethereum’s security. This division of labor among layers achieves two things. First, it solves the scalability trilemma, keeping Ethereum as the most decentralized blockchain, while moving everyday users to rollups to execute transactions in cheaper and faster ecosystems. Second, it allows for customizability and experimentation at the Layer 2 level.

This means that the design space for L2s is infinite! As stated earlier, there is pragmatically no such thing as a “one size fits all” blockchain. Companies, countries, and other users will want to customize their blockchain ecosystems, and as different regulatory frameworks emerge, blockchains will likely need to integrate regulatory changes to be

compliant. For example, coming back to the financial sector: banks will need fast, private L2s with integrated user KYC to tokenize regulated financial assets (stocks, bonds, loans etc). While this design cannot be programmed into Ethereum L1, it is possible on a bank-built L2. If real estate becomes tokenized and real estate transactions move onto blockchain rails, they will likely need to be reversible in the case of legal proceedings (e.g., an erroneous title). Ethereum L1 transactions are immutable and cannot be reversed, but this additional functionality could be programmed into a real estate L2. There will be social media L2s with tokenized social profiles, gaming L2s with tokenized in-game items, commerce L2s with tokenized receipts of ownership, and more. All of these tokenized assets can live within their own mini-ecosystems and have cheaper, faster, and potentially private transactions - all while inheriting the security of Ethereum.

Let’s examine three live examples of the L2 design space today to examine what is possible:

Kinto is an L2 ecosystem with built in KYC for all users as well as native account abstraction. Account abstraction means that private keys do not need to be stored in the current Neanderthallevel setup of writing 24 words on a piece of paper and allows for crypto transactions to be facilitated via Apple’s FaceID and other widely used technology. Even more importantly, KYC for all users ensures that only legitimate users can use assets in the Kinto L2 ecosystem. While this may conflict with the original “cypherpunk” blockchain vision, the pragmatic take is that all institutions will require some level of user KYC to interact with tokenized assets, especially assets with collateral in the “real world” (such as real estate, stocks, bonds, etc). Kinto is an example that banks and financial institutions can replicate to keep within the regulatory perimeter while

leveraging the benefits of a blockchain. And it extends the design space of Ethereum by adding KYC to a subset of the Ethereum ecosystem.

Aztec is on the other end of the spectrum: it is an L2 ecosystem with inbuilt privacy. The current default is for every transaction (and therefore every user) on the blockchain to be visible publicly to all. While creates a utopian level of transparency, it is also not practical for mass adoption. For example, if every user of Venmo could see every other user’s bank account, it could create user privacy and security issues. Aztec embeds user privacy into its ecosystem, allowing for private transactions. A powerful combination of L2 could integrate the privacy of Aztec with the KYC gating of Kinto to create a regulatory compliant blockchain that maintains user privacy; this is a likely design for future bank chains. Aztec extends Ethereum’s design space by adding privacy to a subset of the Ethereum ecosystem.

Base is a general-purpose L2 environment incubated by Coinbase and built with Optimism’s OP Stack. Base is effectively an extension of Coinbase’s centralized exchange - it extends Coinbase’s presence into the onchain ecosystem by facilitating permissionless tokenization and app creation on Base while providing an onramp with Coinbase. Base has been a resounding success in scaling Ethereum and creating a retail-user friendly economy that will ultimately inherit Ethereum’s decentralization and security. Base is a model that banks, exchanges, and other financial institutions are likely to replicate as the onchain and offchain worlds merge.

One very common pushback against the multi-L2 thesis: why will institutions not create their own L1 chains? Why would they opt to build L2s on top of Ethereum? The first, and most simple, answer is that bootstrapping a new L1 is expensive. It requires a new validator set, a new token to gain economic weight

(since security of the blockchain is proportional to token market cap as well as number of validators under Proof of Stake), and a distribution method to onboard new global users. Starting an L1 also requires compromise, as combining execution and consensus/ security on the same layer is inefficient (hence the proverbial “Scalability Trilemma”). In contrast, building a customized L2 outsources security and decentralization to Ethereum while optimizing for execution. In other words, it is cheaper, faster, and more secure to build an L2 on Ethereum versus bootstrapping a new L1.

The second, and more interesting answer: because all L2s “settle” transactions on Ethereum (ultimately using zero-knowledge proofs), they will be able to interoperate with each other, effectively building an “Ethereum Trade Network” whereby tokenized assets on L2s will be able to use apps on other L2s. Ethereum’s L1 and its web of L2s create a “tree” structure that, leveraging the magic of cryptography, can interoperate and unify user experience while maintaining L2 customizability - which is not possible between sovereign L1 chains. Polygon’s Agglayer and zkSync’s Elastic Chain are enabling this vision today, and it enables one of the most important features for an institutional tokenization platform: liquidity.

Liquidity

The most important outcome from tokenization of all assets is to maximize liquidity and access to all assets for a global audience. Liquidity, however, is a chickenor-egg problem: institutions are likely to tokenize assets on the blockchain that has already achieved escape velocity or liquidity. Institutions will want to build on top of environments with network effects, or “Lindy,” vs experimenting in brand new sandboxes.

For now, the most Lindy blockchain with the most institutional grade liquidity is Ethereum (and by

extension, the Ethereum Trade Network consisting of the L1 plus the L2s). And the best measure of institutional grade liquidity is the amount of tokenized assets already on the chain. Let’s examine the liquidity that lives on Ethereum.

As we’ve established - tokenization has several obvious benefits: instant settlement, programmable assets, lower costs of asset ownership and transfer, and fewer middlemen. What is the most tangible example of product-market fit and best manifestation of tokenization today? The answer is the US Dollar.

Stablecoins, or tokens pegged to the US Dollar, have emerged as one of the most applicable use cases for blockchains. While some crypto natives will denominate assets in ETH or BTC, there is a vast demand from consumers for native stable currency that tracks the value of the dollar. The total amount of stablecoins in circulation in all blockchain ecosystem is just over $160bn, indicating clear demand for US Dollar-pegged stores of value in digital economies on blockchains. And of the $160bn of stablecoins issued, almost $80bn (~50%) are on Ethereum, while $60bn

(~37.5%) are on Tron (an Ethereum fork that currently exists as a payments network).

This results in a very complementary use case for Ethereum as public infrastructure for the existing banking system. Rather than replacing banks - which is the zero-sum thinking of just a few crypto zealots - Ethereum provides a digital “back office,” with a programmatic settlement and record keeping infrastructure layer that banks can easily integrate into their operations. Since Ethereum is a public layer, these different “back office” systems can interoperate, reducing friction and costs across the financial system.

It is important to note that blockchain innovation is a positive sum game. Ethereum complements the existing financial system - it does not compete with it. Bank adoption of stablecoins into their infrastructure could result in payments and transfers that are faster, cheaper, and 24/7, with automated accounting and instant onchain settlement.

Stablecoins can be a net positive for the US economy. As the US continues to issue debt,

‘ It is important to note that blockchain innovation is a positive sum game.

complements the existing financial system - it does not compete with it.

stablecoin issuers have ended up being one of the main purchasers of treasuries. The figure below shows that stablecoins were the ~16th largest sovereign holder of US treasuries and will likely be an ongoing buyer as the stablecoin market grows. Stablecoins are therefore additive by creating a new buyer of government debt.

One note of clarification: Tron has done an excellent job making digital dollars available to much of the world (South America, Asia, Africa, Europe) - and has unlocked the promise of financial freedom that comes with crypto adoption. However, USDT on Tron has not been adopted by US institutions, which prefer USDC due to Circle’s US jurisdiction. For example, Coinbase has made USDC and USD interchangeable as part of their fusion with Base, and other US institutions are likely to follow. For our institutional analysis - if we

measure total stablecoins outstanding minus Tron (~$100bn in total), $80bn live on ETH L1, and just over $10bn live on ETH L2s (Arbitrum, Optimism, Base, Polygon, Linea, and Blast). In other words, 90% of the non-Tron stablecoin liquidity is in the Ethereum ecosystem, making it the first mover and current chain of choice for institutional tokenization.

However, stablecoins are just the first instance of tokenization potential on blockchains. If the thesis is that all assets will be ultimately tokenized and represented digitally on blockchains, dollars are just the tip of the iceberg. The next major asset that is prime for tokenization is yield-bearing dollars, or US treasuries. A stablecoin plus yield begins to unlock the novelty of tokenization - it is a step toward banking the unbanked. One reason tokenization of treasuries has been slow is a regulatory overhang (mainly from the

Stablecoins create net new demand for U.S. Treasuries

Stables are small, but they would be the 16th largest sovereign holder of USTs

US), as crypto tokens, as well as the broader crypto ecosystem, have been in regulatory purgatory with the current SEC regime. Nevertheless, financial institution heavyweights like Blackrock and Franklin Templeton have led the charge in tokenizing treasuries with tokenized mutual funds. Although the total market cap of tokenized treasuries is small, the growth potential (especially after future regulatory clarity and a potential US political regime change) is enormous. The next question - where did Blackrock (who has the the largest tokenized mutual fund, called BUIDL) issue its tokenized treasuries? The answer is Ethereum.

Ethereum is home to over 70% of tokenized assets. And the institutional signaling from a firm like Blackrock issuing tokenized treasuries on Ethereum is strong. In traditional finance, it does not pay to be the first mover; other institutions

are likely to follow Blackrock to make Ethereum their first stop for tokenizing assets.

Finally, to close the loop on Ethereum being the home for liquidity - we will look at the frontier of DeFi. One benefit of tokenizing assets is the ability to programmatically financialize them via smart contracts. DeFi, and the novel applications like Uniswap (autonomous trading), Aave (autonomous lending), Yearn (automated asset management), and Pendle (autonomous bond markets) allow for tokenized assets to be used as collateral, generate yield, and to be seamlessly traded. The ultimate endgame is for tokenized assets to be represented on the safest, most customizable global liquidity hub and used in a variety of onchain applications.

Which ecosystem has the most DeFi liquidity (measured by assets currently in DeFi apps)?

Source: RWA.xyz

Of the $100bn total value locked (TVL), $60bn is on Ethereum L2, and ~$8bn are on Ethereum L2s (Arbitrum, Optimism, Base, Polygon, Linea, and Blast). Ethereum not only has the majority of the overall DeFi ecosystem liquidity, but it has the most battle-tested and secure DeFi apps. In a world where traditional finance infrastructure could ultimately merge with DeFI apps, Ethereum’s liquidity and track record is likely to attract institutional interest first.

Lastly, liquidity is synonymous with network effects, and Ethereum’s architecture allows seamless interoperability between L1 and the web of L2s. This will allow for connectivity across the Ethereum Trade Network - whether between users on L1 or between users of Blackrock or Fidelity’s future potential permissioned L2. The combination of customizability of individual chains, while retaining composability with the broader Ethereum network is powerful and is likely to be a driver for institutional tokenization on Ethereum.

Regulatory Compliance

Last, but not least - the least compelling, but equally important, criterion for an institutional tokenization platform is to operate in an ecosystem that has achieved regulatory clarity. Unlike tech startups, which can “fail fast and pivot,” financial institutions move slowly. And this is by design - moving slowly is a feature, not a bug, when it comes to money, as the financial system is ultimately optimized for security and compliance.

The benefits of blockchains as global ledgers for tokenization is clear - and has been clear for over a decade. Institutions have been patiently waiting for regulatory clarity since the inception of Bitcoin, and these same institutions were never going to be incentivized to be first movers to adopt a frontier finance technology without regulatory guard rails in place. Finally, in 2024, a historically hostile crypto regime shifted, and there are green shoots for regulatory integration.

Bitcoin achieved this status first via the approval of BTC spot ETFs. Bitcoin has now become an institutional grade digital store of value - and had the most successful ETF launch of all time. However, Bitcoin cannot be used as a tokenization platform due to its lack of programmability. Bitcoin’s simplicity is also its limiting factor.

Ethereum is in a very unique position, as it is on the brink of achieving the regulatory clarity needed for institutional adoption, while presenting much more potential utility. The following data points have separated Ethereum from the rest of the smart contract chains and have de-risked it enough to unlock institutional tokenization:

ETH ETF approval - this is the ultimate stamp of approval from the SEC representing that Ethereum is an investment that is suitable for public retail use, and that the ongoing investigations into the Ethereum ecosystem are effectively defunct

ETH declared a commodity - by approving the ETH ETFs, the SEC implicitly declared ETH a commodity. Meanwhile, the CFTC char has

explicitly claimed jurisdiction over ETH as a commodity, which allows for more innovation potential on the Ethereum blockchain

Blackrock’s implicit approval to issue BUIDL on Ethereum - Blackrock is not likely to trailblaze into the tokenization arena without a nod from the SEC; Blackrock has too much to lose, and not enough to gain by being the first mover. Nevertheless, the deployment of the tokenized BUIDL treasury fund on Ethereum was the biggest signal that the Ethereum paradigm is shifting to favor institutional adoption

SEC dropping its case against “Ethereum 2.0” - in line with the approval of the ETH ETFs, the SEC dropped its case on its investigation of “ETH 2”, or the post-Merge Proof of Stake Ethereum. This case had likely been an overhang for over a year, and regulatory uncertainty meant institutions would not risk touching ETH with a ten-foot pole. This overhang is no longer a headwind.

Institutions have been sidelined for long enough due regulatory hostility. In the meantime, they have all experimented with tokenization and blockchain technology using permissioned private blockchains. Much as institutions used private Intranets before converting upon a public Internet, these private blockchains have simply been sandboxes until there was enough regulatory clarity to plug into a global public blockchain network. The time is now - Ethereum finally has the regulatory blessing that TradFi institutions need to inject their liquidity, users, and assets into the ecosystem.

Ethereum: The Institutional Tokenization Platform

In the end, all assets, whether physical or digital, should be tokenized (digitally represented on a blockchain), which allows for a globally accessible ledger of ownership for all assets. Physical assets, like real estate deeds, as well as digital assets, such as digital content and currencies and art, can all be represented on a blockchain. And this is the revolutionary innovation that is bringing institutional players into the blockchain space.

Jenny Johnson, CEO of Franklin Templeton, has a trademark talking point: “Bitcoin is the greatest distraction from the greatest disruption that is coming to financial services.” The disruption she is referring to is tokenization; she refers to blockchain’s use cases as (1) a general ledger / source of truth, (2) a payments method with smart contracts, and (3) a venue for tokenization, or “securitization done on steroids.”

If the global economy is becoming more digital, blockchains represent the natural evolution for record keeping and programmability of tokenized assets. And the bar is high - institutions will choose the most secure, the most customizable, the most regulatory compliant, and the most liquid blockchain ecosystem to issue tokenized assets. The most secure, global, programmable smart contract platform that is primed for the tokenization boom is none other than the Ethereum blockchain. And this is the narrative that will ultimately onboard the masses into the Ethereum economy.

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