Thread by @epolynya

I have gotten a few questions about value accrual on layers. Hate to break it to you:

- Execution layer: highly competitive, tight margins, a race to the bottom. We can see this from alt-L1s, where the sole gimmick is accruing as little value as possible.

Rollups have a significant advantage as they pay a small fraction or zero of alt-L1s on inflation budgets, but any significant value accrual over that is unclear. MEV mitigation will be an area of innovation, and the rollup with the strongest MEV mitigations will be advantaged.

- Settlement layer: nearly zero for optimistic rollups in the optimistic case; tending towards zero for ZK rollups for anything above 100 TPS. Low-activity ZKRs become recursive rollups (L3s) or sharing proofs.

- DA layers: requires very little compute, can use consumer hard drives for extremely cheap storage. Possible network effects as the most decentralized DA layer have the highest capacity, but also a competitive space with many players over the next couple of years.

In my opinion, 99% of crypto assets today are grotesquely overvalued, and derive their value entirely from speculation & gambling, rather than any actual value accrual or projections of value accrual. So, where will the value accrue to? It's pretty obvious - the application layer

People have seen this graph a hundred times, and it's bleeding obvious what's going on. Despite all the hype and rage, L1s barely accrue value, and a small fraction of their marketing budgets and farming incentives worth billions of dollars collectively. All about applications!

As an example: dYdX earned $67M in October, while paying $1.5M in gas fees for verifying; $0.5M for DA. As activity goes up, the settlement fees become a small fraction, as do the DA fees as data shards & DAS roll out. It's clear to me applications will accrue most value.

Anyone who has been in this space and paying attention will know we go through waves of speculative hype, where tokens pump for very little fundamental reason. There's only one thing that endures: M. O. N. E. Y.

Both settlement & execution layers (maybe DA?) have an opportunity to develop quality money, and transcend their actually very limited value accrual properties. Going back to the Token Terminal graph - there's a large elephant in the room, and it's that way because MONEY.

I know everything I have said above is highly unpopular, and I'm prepared to be trashed by every single influencer you know and love. But it's the truth, it's the way the world has always worked, and it will continue to, long after speculative games have faded away. Peace out.