Does High REV Signal a Blockchain's Strength or Its User Exploitation? - Ep. 841
82
Companies
128
Key Quotes
3
Topics
5
Insights
🎯 Summary
Podcast Summary: Does High REV Signal a Blockchain’s Strength or Its User Exploitation? - Ep. 841
This 82-minute episode of Unchained features a deep-dive debate between Tom Dunleavy (Head of Ventures at Varys Capital) and Austin Federer (co-founder of 00) regarding the utility and valuation implications of REV (Revenue), defined as MEV (Maximal Extractable Value) plus transaction fees, as a metric for blockchain network strength. The discussion, sparked by a prior exchange on X, also touches heavily on the structure of Layer 2 (L2) ecosystems and the future of token utility.
1. Focus Area
The primary focus is the critique and re-evaluation of REV as a core metric for valuing Layer 1 (L1) and Layer 2 blockchain assets. Secondary, but significant, topics include the necessity of L2 tokens, the concept of “protocolization” of off-protocol payments (like Lido tips), and alternative valuation frameworks for decentralized networks that move beyond traditional discounted cash flow (DCF) models.
2. Key Technical Insights
- REV Definition Nuance: The participants debated whether REV should include “out-of-protocol payments” like Lido tips, arguing that if a mechanism is widely adopted and integral to the network’s function (like Lido on Solana), it should be considered part of the economic activity, even if not explicitly internalized by all token holders.
- L2 Token Utility Questioned: Both guests strongly agreed that most L2 tokens are currently redundant or unnecessary. They argued that L2s should primarily function as settlement layers, potentially using the L1’s native token (like ETH) for gas/fees, suggesting a move towards a “base model” (like Coinbase’s Base, which lacks a native token).
- The Rise of Base Rollups: The conversation noted that the industry is already moving toward “firing the L2s” through the adoption of base rollups on Ethereum, which integrate execution and sequencing directly into the base layer, potentially rendering many current L2 tokens obsolete.
3. Market/Investment Angle
- Fees Headed to Zero: Tom Dunleavy argued that execution fees, priority fees, and even MEV are likely to trend toward zero over the long term, making traditional revenue/DCF models useless for valuing these assets.
- Security as the Valuation Anchor: The core investment thesis presented by Dunleavy is that L1 assets should be valued based on the economic security they secure for the underlying assets built on the chain, rather than current fee generation. This security component is unique to blockchains and not comparable to traditional equities.
- Valuation Disconnect: The sheer scale of potential global transaction volume (equities + credit cards) suggests a maximum annual fee pool of only around $10 billion, which is difficult to reconcile with current L1 market caps ($700B+ aggregate), especially when considering the ancillary monetization in traditional finance (lit/dark pools, HFT infrastructure).
4. Notable Companies/People
- Austin Campbell (NYU Professor): Mentioned in the intro regarding his interview on the stablecoin bill banning yield-bearing stablecoins.
- Haseeb Qureshi (Dragonfly Capital): Initiated the debate and provided questions, pushing a skeptical view on the importance of REV.
- Tom Dunleavy & Austin Federer: The central debaters, representing differing perspectives on how to quantify network value.
- Coinbase/Base: Cited as a model for L2s that forgo a native token, relying instead on the L1 (Ethereum) for settlement.
5. Regulatory/Policy Discussion
The episode briefly touched upon user comments regarding the stablecoin bill banning yield-bearing stablecoins, highlighting the tension between user innovation and banking stability concerns.
6. Future Implications
The conversation suggests a future where:
- Fee revenue metrics (REV) become increasingly irrelevant for long-term L1 valuation as execution costs drop.
- Economic security—the cost/incentive structure required to maintain consensus integrity—will become the dominant framework for assessing the intrinsic value of L1 assets like ETH and SOL.
- The L2 landscape will consolidate, likely favoring L1-native solutions (like base rollups) over L2s with separate, potentially useless, native tokens.
7. Target Audience
This episode is highly valuable for Crypto Investors, Blockchain Architects, Protocol Developers, and Financial Analysts specializing in digital assets who are seeking sophisticated, non-consensus frameworks for valuing decentralized infrastructure.
🏢 Companies Mentioned
Haseeb
✅
Individual/Analyst (Implied)
USTC
✅
Stablecoin/Asset (Implied)
Polk (Jesse Pollock from Base)
✅
Project/Individual associated with Base
Robinhood
✅
Institution (Adopting Crypto)
Salesforce
✅
Web3 infrastructure company (Analogy)
ZK-TACs
✅
Infrastructure/Technology
Jane Street
✅
Institution (Finance)
PayPal
✅
Institution (Adopting Crypto)
Aergo (A-E-R-G-O)
✅
Project/Application
AWS
✅
Web3 Infrastructure (Traditional context)
BlackRock
✅
Institution (Traditional context)
Sui
✅
Layer 1 Blockchain
XRP
✅
Layer 1 Blockchain
Dan Smith
✅
unknown
Alpaca Glow
✅
unknown
💬 Key Insights
"I don't think anywhere in the near term, that is realistic, right? If we have 10,000, 100,000 TPS per second, is it realistic to think that that demand will be there every second going forward or even some meaningful portion of seconds? And my contention is no, because if there was that demand, we would have much more transaction volume that I quoted earlier on credit cards and equities or whatever you want to say, right? The volume is not there yet."
"high economic value, high opportunity transactions that are willing to voluntarily pay high fees to ensure that they're in the front of a block, and then the end of the block is just a numbers game. It's a charge every user, $2 per month for the app subscription, and suddenly you have a huge amount of revenue that comes in on these things."
"you can actually build systems nowadays for users where their average fee, the median fee paid on chain goes down and the aggregate fees to the network do continue to go up."
"if I 100X a chain's capacity and I drop the fees down by 10X, I have still 10X fees, right?"
"It's decentralization, it's censorship resistance. That's the whole reason for blockchains, the whole reason blockchains exist. So having those be centralized as a major portion of the biggest network on blockchains makes, doesn't make sense to me."
"I think they'll start off centralized, but need to move to decentralized. Because the reality is I think for Base rollups, you're going to have to have some level of involvement from the L1s that exist today, which have centralized sequencers."
📊 Topics
#artificialintelligence
116
#investment
6
#startup
4
🧠 Key Takeaways
retire them all and do not mention native base asset
retire all the other ones, move to sort of the base model, and that would be my feel
come up with new frameworks
be touting because like that, it just, these systems don't work that way
be very mad at Coinbase and Binance if that's, if we're upset about, you know, MEV-related fees on other L1s, which is not to say that it's like the goal