I wrote a short 8-tweet thread on "Economic Sustainability"

I believe this is a factor often overlooked when people compare $SOL.X to $ETH.X

@m2jr posed some interesting questions in a comment on my post from last week:

"Hey Michael - In the steady-state, what types of services do you think will be more successful on Solana and which on Ethereum? I've been thinking that Ethereum is probably better for hard money exchange since you really want to be sure your money is secure. Solana might be better for digital assets that have scarcity but aren't absolutely vital (most NFTs, games, other types of web 3 apps.) But still developing a thesis on this. How do you look at it these days? And when do you think ETH will really get its act together on performance for real?"

I started writing out my response as a comment, but given the length, I decided to post it as a memo.

Over the next 2-5 years, I absolutely agree that Ethereum will be used for higher value transactions that prize security & decentralization (e.g. institutional DeFi, expensive NFTs, etc.). Solana, on the other hand, looks to be the leading contender for use cases that prioritize low-cost over security (the use cases Mike mentioned are good examples).

Gas fees on Ethereum are simply too high, and even L2 solutions like Optimism and Arbitrum aren't cheap enough for the average user (though they definitely are major improvements that will attract a lot of users and capital). I fully expect a lot users who are priced out of Ethereum to move their activity (and capital) to Solana. Solana is more decentralized/innovative than chains like Binance Smart Chain. And, perhaps most importantly, the backing of Sam Bankman-Fried has attracted a lot of great developer talent & venture capital to the platform, which is resulting in a ton of great infrastructure (e.g. Phantom Wallet) and applications.

However, on a longer time horizon, I believe Rollups will be the future of the blockchain industry and Ethereum will be the defacto settlement layer for all rollups because it offers the highest security, decentralization and data availability. Unless Solana pivots to a rollup-centric roadmap focusing on security and data availability (rather than transaction execution), it will not be competing with Ethereum. It will be competing with rollups. While rollups are still a nascent technology that will take a couple years to live up to their full potential, some brilliant people believe that zkRs (zero knowledge rollups) will be able to offer significantly higher TPS than even the most centralized L1s (e.g. Solana, EOS, BSC etc.). Basically, whatever any L1 execution layer can do, a rollup can do better.

We're already seeing the limits of Solana's scale. Despite only processing a few hundred TPS (not counting votes), validators need 128GB of RAM just to keep up with the chain and are still struggling to maintain consensus, as evidenced by the 7 hour outage today.

So the future will almost have to be thousands of zKRs settled on Ethereum (with data sharding) to attain global scale. This essay explains how we can get to 14 million TPS by the end of the decade. Thus, I don't really see the Solana model as sustainable longer term, unless it converts to becoming a rollup itself. Doesn't mean it's block space won't be valuable, but calling it an "ETH Killer" is terribly misguided.

In summary, I'm sure $SOL.X (the asset) will do decently well as cheap blockspace and innovative applications attract capital in the near term. But longer term, I don't think its upside is nearly as high as $ETH.X given that Ethereum will be the global settlement layer for thousands of zkRs, offering millions of TPS while remaining highly secure, decentralized, permissionless, trustless, and credibly netural. Ethereum also has vastly better tokeneconomics given that it goes deflationary after the proof-of-stake merge next year, while Solana's transaction fee model is currently unsustainable ($36.5mm annualized transaction fees compared to $4 billion of inflationary rewards, which is unsustainable once the hype fades).

I will probably turn this into a more comprehensive essay in the future, but for now, I'd highly recommend these resources on rollups and the future of blockchain scalability:

Solana ($SOL.X) looks like it's been down for almost two hours now.

Last week I wrote a post citing some scalability challenges Solana will face. Would highly recommend reading the linked essay below.

"you can see networks like Solana and Polygon PoS pushing too hard already, despite only processing a few hundred TPS (not counting votes)"

Must-read article on how $ETH.X will scale to millions of TPS

$SOL.X will play an important role servicing users who've been priced out of Ethereum. But labeling it an "ETH-Killer" is fundamentally flawed

They're making unsustainable trade offs that most people don't understand

Solid article from Arca recapping the past week in crypto

gm Commonstock

Real yields on European junk bonds have fallen below zero. Investors continue to be forced further out along the risk curve into even riskier assets.

Great article from FTX on "The Everything Bubble"

"If global central banks and governments are going to continue to print money, investors are faced with a TINA 2.0 predicament, where cash is literally burning a hole in their pockets, pushing them not just into risk assets, but further out the risk curve, exacerbating wealth inequality along the way, leading to even further risk taking."

My family is a bunch of degens

Stumbled across this article from less than six months ago:

"Chromie Squiggle floors are currently at around .12 eth, almost 3 times the original mint price ($235 at time of this writing)"

Today the floor is 17 ETH (~$54,000)

It hurts how much alpha was hiding in plain sight leading up to JPEG summer.