Episode Summary
Executive Summary: The episode debates whether REV (network revenue, including fees and MEV) is a useful crypto valuation metric. Tom argues L1 fees trend toward zero and that blockchain value should instead be tied to economic security, adoption, and broader value secured by the chain. Austin argues REV still matters, especially for Solana and Ethereum L2s, because it reflects real economic activity, can rise even as user fees fall, and helps compare networks—though it’s not the only metric.
Main Topics: What REV means and what it includes (Priority: 5/5): The hosts define REV as a mix of MEV, transaction fees, priority fees, and sometimes protocol-native or app-adjacent revenue. They debate whether out-of-protocol payments like Jito tips should count and whether L2 revenue should be attributed to Ethereum. Whether L1 fees trend to zero (Priority: 5/5): Tom argues execution fees, priority fees, and even MEV will largely go to zero as blockchains scale and markets become more efficient. Austin counters that fees can fall while total revenue rises because usage and capacity expand. How to value blockchains beyond cash-flow models (Priority: 5/5): Tom rejects simple discounted cash flow approaches and says blockchain value should be tied to the economic security a chain provides to assets built on it. Austin says REV is useful but should be combined with other metrics like stablecoin activity, app revenue, and user adoption. Ethereum, L2s, and value capture (Priority: 4/5): The conversation centers on whether Ethereum L2s should count toward Ethereum’s REV and whether L2 tokens are justified. Both guests are skeptical of most L2 tokens and think a base-rollup future could bring more value back to Ethereum. MEV, user harm, and network efficiency (Priority: 4/5): Austin views MEV as a market reality that can be internalized on-chain rather than externalized to TradFi infrastructure. Tom agrees bad MEV will decline with better tech but argues most current MEV is gameable and not a durable long-term valuation driver. Better metrics than REV (Priority: 4/5): Both agree REV is incomplete. Tom wants blended models using GDP-like economic activity and security-based measures. Austin suggests metrics for fee isolation, congestion resilience, and stablecoin deployment, with stablecoins possibly the best single indicator. Bitcoin as an exception (Priority: 3/5): Both treat Bitcoin as a special case: REV does not map cleanly onto it because it primarily functions as digital gold and does not secure a broader ecosystem the way smart-contract chains do.
Key Arguments: Tom argues fees are economic friction, not value creation, so rising network usage should not imply rising fee capture; instead, value comes from the chain securing assets and activity. Austin argues REV is still meaningful because it tracks real economic activity and can coexist with lower user fees if networks scale capacity. Tom claims security in proof-of-stake chains is already high enough and not dependent on fee revenue staying elevated. Austin says fees are not the only source of network value; a chain can have lower per-user costs and higher aggregate REV through scale. Tom believes many L2 tokens lack a compelling purpose because sequencing and governance are too centralized, and future base-rollup models should consolidate value back to the L1. Austin argues some L2-related fees should accrue to Ethereum stakers and that Ethereum’s low REV partly reflects deliberate offloading of execution to rollups. Tom’s preferred valuation anchor is the economic security budget of the chain, not REV multiples. Austin thinks REV helps assess user demand and network health, but should be supplemented with metrics like app revenue, stablecoin activity, and fee predictability. Both concede metrics can be gamed; Tom says REV already can be gamed by meme-coin activity and Austin says any metric needs context and anti-gaming considerations.
Data Points: Ethereum staker rewards: effectively zero - Tom says Ethereum stakers are currently earning roughly no fees yet the network remains secure. Ethereum staking participation: roughly 1 million stakers - Used by Tom to argue there is already enough security despite low fee revenue. Solana staking participation: about 65% of supply staked - Tom uses this to discuss how rewards accrue to a subset of holders. Ethereum staking participation: roughly 30% stake - Tom compares Ethereum’s staking rate to Solana’s. Solana Jito adoption: about 85% of stake runs Jito - Austin uses this to argue Jito tips are effectively protocol-adjacent and widely adopted. Base sequencer fees: about $750 million in Ether fees over the last 12 months - Austin cites Base to argue Ethereum L2s already generate meaningful fee activity. Global equities transaction fees: $200 million to $250 million daily - Tom uses this as a benchmark for possible future blockchain fee capture. Global credit card transaction fees: $2 billion daily transaction volume / about $20 million in daily fees at a penny - Tom uses this to estimate upper bounds for fee-based valuation. Implied annual fee revenue from global equities + cards: about $10 billion annually - Tom estimates a rough ceiling for combined transaction fees if blockchains captured all of it. Aggregate L1 asset value: about $700 billion - Tom compares current L1 valuations to his projected fee ceiling. HFT industry revenue: $7 billion to $10 billion per year - Tom cites this to compare trad-fi monetization of fast execution and MEV-like behavior. Jane Street revenue last year: $20 billion - Austin cites this to argue trading profits are broader than pure HFT and traditional finance monetization is large. Solana app revenue share: 53% of app revenue over the last seven days - Austin uses this to argue Solana is capturing more economic activity beyond REV alone. Solana meme-coin share of volume: about 60% to 70% on many days - Tom argues meme coins may inflate REV and make it less durable as a valuation signal. Base sandwich-attack losses: $0 claimed loss to swappers since launch - Laura cites Jesse Pollak’s tweet as part of the debate about MEV protection on Base. Ethereum burn vs inflation: burn once exceeded inflation about two years ago - Used by Tom to explain that net issuance can be deflationary or inflationary, but is not the whole economic story.
Pivotal Quotes: "Any L1 fees are a meme and going to zero, in my honest opinion, REV or otherwise." — Tom Dunlevy: Tom’s core thesis on why fee-based valuation models overstate long-term chain value. "I would much rather have the sort of value chain of execution, especially for professional traders, be internalized into the economic system than externalized." — Austin Federa: Austin’s defense of on-chain revenue capture and why REV can matter even when user fees stay low. "If you think these assets have value more broadly, you have to come up with new and interesting frameworks." — Tom Dunlevy: Tom argues blockchain valuation should move beyond standard revenue multiples and DCF logic.
Implications: The debate suggests investors should not treat REV as a standalone truth. Future blockchain valuation may depend on a blend of revenue, security, adoption, stablecoin usage, and congestion resilience, with Ethereum L2 design and Solana’s scaling path especially important.