132 - Polynya's Crypto Thesis

Welcome to Bankless, where we explore the frontier of internet money and internet finance. This is how to get started, how to get better, how to front run the opportunity. This is Ryan Sean Adams. I'm here with David Hoffman, and we're here to help you become more bankless. Guys, we have a special episode for you today. Palenya's crypto thesis. Palenia is a crypto anon. David and I have called this individual Polynaya in the past. Turns out that is not how you pronounce Paulinaya's name. It's Palenya. We did this conversation in kind of a unique way. Do you want to describe that before I get into some of the takeaways here?

Yeah, we've always wanted to host Palenia as one does, who has a podcast with a writer who's writing very informative technical literature. Also, definitely one of the most in-demand podcast guests that's out there, but we could never have them because they were so an-on that even their voice is too far doxxed. So Ryan and I spent about five hours across two days in Discord with Polenia doing a written interview as if it was spoken. And then we turned that into a script and we got a voice actor to come and speak and give Polenia a voice. So that is what you are about to listen to here on the episode today.

Some takeaways for you. Number one, who is Palenya? This crypto anon. What is it like to be an Anon in crypto and why did they choose to become Anon? Number two, Palenya's investment thesis. I was particularly interested in this, David. Where will the value accrue? The layer one, the layer two, different tokens, alternative layer ones. And also Palenya tells David and I what bankless got wrong in the thesis, a little kind of correction and a change. Number three, the long term relationship between Ethereum, the layer one, and its layer twos and roll ups. Is this a parasitic relationship or is it symbiotic? We talk about that. Number four, Palenya also Steelman's Cardano.

An argument for why maybe bankless shouldn't give Cardano such a hard time. We get into the puts and takes of that as well. David, there's some implied knowledge coming into this episode that I feel like when we start to bandy about terms like L1 and L2, that's maybe easier for most bankless listeners. L1, of course, is the Ethereum layer or the blockchain layer of things. L2 is sort of the roll-up, and we use these terms L1, L2. But there's some other things that are maybe less common knowledge, even for seasoned bankless listeners, such as EIP 4844, this term proto dank sharding, and this other term dank sharding. David, could you give us a quick explanation of some of these terms and why they're significant, maybe how they relate to Ethereum's roadmap?

Yeah, I think really the thing to emphasize here is EIP 4844, which is the thing that we talked about the most with Palenya. And really, this is part of Ethereum's roll-up-centric roadmap philosophy. EIP4844 really enshrines roll-ups as a first-class citizen on Ethereum. And you can actually kind of see in the moment where I have this like aha moment, like personally, about like what 4844 does. There's like this link between layer two usage and layer one usage in Ethereum's current state. So like your transaction on Arbitrum or Optimism or whatever shows up somewhere with block space demand on the layer one. So block space demand on layer two does carry over, does translate to block space demand for the layer one, not at a one-to-one relationship, it's like a 10 to 1 or 7 to 1 relationship in roll-ups current forms. With EIP 4844, it a little bit breaks that relationship in that transactions can scale on roll-ups without there being too much more data going on to the layer one. So roll-ups are like relinquished from their bond to the Ethereum layer one. And like there can be 10 times more transactional activity on a layer two that doesn't actually put a larger footprint on the Ethereum layer one. So 4844 really takes the brakes off of layer two scalability and allows them to really just go wild. And that's with this call data opcode, but really it's the idea that layer twos are free to scale without having a larger and larger gas cost on the Ethereum layer one.

Yeah, one way to think of it is it makes it ultra cheap for layer two transactions to post onto layer one, like massively more cheap. 100x we're talking about, or a thousand X even. And EIP 4844 is also called a proto-dank sharding because it's a skinny down minimum viable product release that is tentatively scheduled for the next maybe release after the merge. We don't know yet, but it could possibly be coming in 2023. And this is all part of Ethereum's big push towards scalability and uh seems very achievable. I mean, it's not a massive undertaking to implement this. So we actually expect it to come relatively soon. And again, this is an order of magnitude increase in terms of roll-up transaction throughput or cost decrease, you think of it that way, too, of like roll up transactions costing a small micro fraction of a penny rather than you know 10 cents or 20 cents as it costs today.

And this, of course, is just good pre-knowledge to have going into our podcast with Polenia. If you are at all familiar with Polanya's writing, you know that they are very, very smart. So we just needed to prime the listener with this information so you can fully digest. Proto-Dank Sharding, of course, is actually a name coined between Proto Lambda, who is a person in the Ethereum space, and Dankrad, who works at the EEF. But the name actually works out because it's proto, as in like, you know, early dank sharding. Later comes full dank sharding, which is just a full manifestation of this full vision. And you just add another order of magnitude of scale onto roll ups. So much scale that like we can't even comprehend the level of scale that it's going to bring. But don't hold your breath for denk sharding. It's not happening anytime soon. 2024 and beyond. But this information is just going to be really, really useful to understand as we go into this episode with Paulinia, because this is what they focus on. And so that having this in your brain as you go into this is going to be useful.

So, with that, let's get right to the conversation with Polenia. Thankless Nation, this conversation has been a long time coming. We're super excited about it, and we're thrilled to introduce you to our next guest, Polinia. Polinia is a pseudoanonymous writer, an investor, a crypto researcher as well. They call themselves a crypto hobbyist, but I'm pretty sure I've learned more about blockchain scalability from this crypto hobbyist than I have from 99.9% of the so-called experts in the space. Polinia coined the term modular blockchain and has been super influential on about a hundred different crypto topics, most notably on roll ups. That's where I learned most of my roll up knowledge from Polinia and is also quick to point out, though, that roll ups are no longer their main focus. Polinia, welcome to Bankless. It's great to have you on.

Hello there, Ryan, David. Delighted to be on Bankless.

All right, we got to get this out of the way and talk about the meta of the podcast. This is the first time we've done a podcast in this format for bankless listeners. Well, to preserve your privacy, you're an on right now, and we are having this conversation through a written chat log, but your voice is being reenacted right now by a member of the bankless community. Thank you, Eureka John, for doing that. Is it cool that we're doing it this way, or is it kind of weird, Polinia?

I've written dialogue for fictional characters, but never autobiographically, so this will be an interesting experience. My personal experiment would be I'd try to write it as a screenplay. It's something new for you, too, isn't it? What do you think? Well, autobiographically was the wrong word, but you know what I mean.

Yeah, this is certainly a first for us. But the crypto world always throws fun curveballs, and we like to be flexible here at Bankless. Just curious, in an ideal world, who would play you as a voice actor? Anyone like either fictional or non-fictional?

Huh, let me think. Um, I'd say my ideal choice would be Maggie Chung.

Okay, so I'm looking up Maggie Chung right now. For the listeners who aren't familiar, who is she?

Well, you gotta check out her work. Maggie Chung is an actor from Hong Kong. Some of her best work is In the Mood for Love, uh Irma Vep, and Hero. Interestingly, some of Maggie's best work is in the silent moments, where a lot of the emotions are conveyed through subtle gestures and movements. I suppose that's why I'd like to hear more of her voice. Should say her voice is pretty captivating too, but uh excuse my simping.

Okay, well, we have some new movie recommendations to check out as well. So thank you, my friend. We're gonna talk about crypto, but first we kind of want to talk about you, the Anon, because this is super fascinating to us. Why did you decide to be an anon in crypto?

And is it hard?

Sure. Um, this is one of my many pseudonyms. There are many reasons to go Anon. It's uh mostly a clean separation from my various hobbies. Going back, this is actually my third Anon in crypto itself. Uh the wonderful folks from RETH Finance will know my other crypto anon, which I also used on Steam since 2016. I kind of messed up there, you know, crossing wires between the two Anons. Anyway, specifically for Polinia, it was a pretty simple objective to raise awareness about sustainable scaling strategies. It comes from a time when the prevailing narrative was something like Cardano will release smart contracts soon with 1 million TPS, and there'll be a mass exodus from Ethereum overnight. I could barely believe what I was seeing and decided it would be fun to do my little bit and to abridge the massive information asymmetry. The plan was to write a few posts and then disappear. Obviously, that didn't quite pan out, given I'm here rambling on about so yeah, it's just difficult to cover different hobbies and then move on to the next one without any baggage, if you will.

Yeah, but this has to be difficult. Juggling different lives, switching back and forth. Is it hard?

Ah, you see. The trick is not to juggle too many lives at the same time, but to move between them. Most posts on my blog were written in Q2 and Q3, 2021.

At that time, this was my primary hobby. Since Q4 2021, I barely have one blog post a month, so I can move on to other things. I'd say at any given time I only have two or three active anons. It's not too difficult if you plan it out, and uh remember to be strict about the time you spend on each. Um, each anon and community has its own challenge. I'd say for crypto, it's um

not sure how to put this, but uh the general hostility, you know. Uh I mean, I've never had an an on on some heated religious or political venue, but it's pretty fascinating how angry people are on Twitter.

Yeah, certainly. We're all too familiar with it on our side as well. So Polinia, I've gotten the hint that you've actually got this very rich life outside of crypto. You've apparently written dialogue. I think you might be a film or TV connoisseur. Obviously, you've played some games on Steam. I know you're Anon, but can you cast a little light on the life that's behind the Twitter profile?

All right, um, without giving too much away, my primary interests are in the field of arts, entertainment, and culture. Also happen to be my primary day jobs, so to speak. But uh just like my anons, I keep moving between different projects in my work. Moving to 32-hour work weeks has been tremendously more productive, and also, at least for me, I know 32 hours may seem absurd for some, but yeah, also it gives me more time to indulge my hobbies, of which there are many. I'm generally more inclined towards humanities related topics, but um, I have no idea myself what may interest me next. So I'm making it up and uh playing it by ear and trying to make the most of my meaningless existence.

I think you've definitely left some breadcrumbs of your strong interest in culture and arts on crypto Twitter and our on our ETH Finance. But to hear that you work a calm 32-hour work week with the seeming intent on experiencing the many facets of human culture that the world has to offer seems to be at odds with the very technically adept persona that we find on crypto Twitter. So how did you become so technically minded and why bother with a drama of crypto twitter when you could be out touching grass?

Ah, uh, my persona is a bit of an illusion, a Fugazi. Back in 2020, when I first started writing comments on RETH Finance and RCC, I used a completely different tone, more of a curious observer, more of a neutral tone. But at some point in summer 2021, again, I realized crypto calls for a more unique strategy. I decided to create a new blog with a new name and go on the offensive with hyperbole bombastic statements. It worked too well, and the posts went viral within a matter of days. In reality, I'm not technically minded at all. Heck, I couldn't read a line of code to save my life. So I suppose the skill I'm employing here is understanding a topic that I actually have no idea about or qualifications for and churning a narrative out of it crypto Twitter drama.

Uh, I kind of regret that one. I stayed away from crypto Twitter for the longest time, focusing mainly mostly on my medium blog and Reddit, but got so many requests, eventually buckled under pressure, and uh the account grew quickly, and I stayed due to inertia and many asking me to. And uh I could see my presence there was uh not making not an insignificant impact. But anyway, I think I've had enough now, and lately I've only been on Twitter a couple times a week.

Okay, so maybe you're not technical, but you have this insane ability to synthesize highly technical content and make a mental model out of it. From our perspective, the reader's perspective, the listener's perspective, it feels extremely technically well informed and makes you appear that you've worked in related fields prior to crypto, something like computer science, hardware architecture, distributed systems design. Where did all of that come from? Are you just one of these like really smart types that can absorb information extremely fast?

I'm not sure. I think it probably comes from being curious about different topics and moving between them. I

definitely don't have an innate talent. Um probably just experience in identifying the important points to get an overview of the situation, I think.

I've observed that everything we do is complex. Some things like computer science may seem more complicated and extremely technical than something like,

I don't know, woodworking or something. But despite appearances, once you're interested in a variety of things, to me, it seems everything is more or less equally complex.

One thing, there are some incredibly complex projects like building Apollo 11 or Burge Khalifa that needs millions of people to collaborate. But I mean, what an individual can process, whether it be the chief architect, the chief scientists, there's always a broad overview that one person can understand relatively easily.

You know, I I think the other thing people like about your voice is that it feels like.

Non-tribal. It's almost scientific in its approach. So you come at things from a neutral perspective. You're building on first principles. And these are economic and technical. And I think people find that refreshing. The fact that you're not a crypto shill. You almost seem to have this like love hate relationship with crypto, and you appreciate its virtues, but you're also quick to call out the vapor and the fluff. Why do you have this love hate relationship with crypto?

Well, I wouldn't say it's a love hate in relationship. Um, I just have a different opinion on things in crypto. Some things in crypto are very cool, while most of it is embarrassing, really. Um, which is what you would expect. I mean, it may seem refreshing because crypto is deafened by very, very loud chills. I mean, do you feel the same?

Oh, I definitely have a week relationship with crypto. Okay. Crypto, I feel like it's attracted some of the best and most genuine, most human-forward people in the world. Like we've got some of the biggest brains of our generation, legitimately. But it's also attracted these cult leaders, scammers, like these short-term thinkers. And sometimes I'm embarrassed to even be part of this industry. And other times I couldn't be more proud to play a part in it. But I guess I would say the reason I'm still here is because the good outweighs the bad. At the base level, I think that's especially true. The protocol level, the cryptography level, crypto is a technology that I think will bring tremendous freedom to the world. It's probably the most important thing I feel like I could be doing with my time.

And uh maybe that's where we should turn the conversation next, Bolinia. Let's turn the conversation to crypto.

Yeah, I hear you, though I'm probably a bit more on the neutral side than you are. Also, not sure if the good outweighs the bad in its current state, but cautiously optimistic, if you will, in the long term.

I think we should start there then, because that's a distinction that's like worth talking about. So, David and I, as listeners, know we're ultra optimistic about crypto over the long run. And I want to hear your bear case for the space. Like, in what ways could this crypto experiment go wrong? I'm not talking about the current state. We both agree there's a ton to build and lots to do. But in the far future, how do you think this whole crypto thing could turn out badly for us?

Crypto is a blank slate that can be used for good as much for bad. So far, there's more gambling and I should say quansies that have destroyed more value than they've created.

I know that's kind of an abstract opinion, and also satisfying our innate gambling instincts can be looked upon as a productive, valuable use case. But subjectively, in my humble opinion, um thus far crypto hasn't really done enough, or as Vitalik once asked, we haven't earned it.

Simultaneously, fintech and banking continue improving. And in some developing countries, you have solutions like Alipay, MPesa, or Paytm, which are ridiculously simple and convenient. I mean, it's not just fintech or banking, it's pretty much everything, really. Like y'all said on a roll-up recently, bullish humanity. A majority of humanity is not actually on crypto, but in democratic institutions, public corporations, cooperatives who are doing their very best to improve things. And they're no less well intentioned, motivated, and talented than other crypto people. We live in a prosperous time in history, by many a measure. And it's quite possible we get to a point where.

I'm not sure why crypto is needed. My bull case

is that crypto seamlessly integrates into the traditional venues and fills the holes. Uh not holes, but let's say gaps, which in certain niches in crypto is uniquely qualified.

Uh I'm not sure if that makes sense, but my idea is something like

not bankless, but better banks. In the very far future, I'm so bullish humanity that I think we'll solve our trust issues and get rid of trustless solutions.

Trust is inherently highly efficient and scalable, and that's what's got us to this place. Achieved remarkable things, and in the first place, the best optimization is better trust, not trustless. I sometimes joke, okay, the half joke, Ethereum will succeed when it's no longer relevant.

Okay, so what I'm hearing is that crypto is currently neutral at best when it comes to the value it's bringing for humanity. We're still early, so there's still potential there. Meanwhile, our TradFi banking system is actually getting meaningfully better over time and actually providing new value to the world, banking the unbanked, connecting people financially. And we share this idea that crypto will become the back end to the current financial system that we have. But I fail to see a world where the banking system becomes systemically superior without crypto. Crypto, it's like tugging the banking system by force to become better by its mere existence. And now that crypto exists, banks must compete with it. And only in crypto can you codify can't be evil. So it forces banks to not be evil because there's this can't be evil alternative. I don't see a world in which we like produce a bull market in human trust that isn't supported by this underlying trustless system. It's the fact that we have the option to run trustless systems at the base layer, is what creates a flourishing of human trust on layers on top of it. Do you agree with all that?

Generally agree, but

I don't think crypto codifies can't be evil in quotes at all. So far, we've seen a hell of a lot of evil things happen. Tons of scammers, grifters, opportunists. The traditional systems have checks, balances, and protections, but there's none in crypto. So I'm not sure I really understand what you mean here.

Not all of crypto obviously can't be evil. Upgrade keys, for example, means that the window of still doing evil is very, very open. But some parts of crypto have been elevated into a can't be evil status. I'd put Uniswap there, other DeFi protocols there. What's got people so excited about Uniswap in 2019? We all realized that there was this can't be evil liquidity primitive that would be in our DUFI toolbox for like the rest of time. So our idea is that the can't be evil toolbox grows and grows and grows exponentially. And that is something that the banking layer will have to contend with by exactly what you said, becoming better banks.

Ah, that I agree with. I definitely think technologies like Uniswap can improve banks, exchanges, and such. And I don't think we're focusing nearly enough on these proven valuable use cases.

Yeah, so I actually think we're we're fairly aligned on that part. Like maybe Bankless Veer is a little optimistic in tone sometimes. Right? No one has ever accused David and myself of being too bearish on anything in crypto, but I actually think we arrive in in much the same place as what you're talking about, Polynia. Okay, so philosophy aside.

What I love about you is that you're also an investor. And as an investor, you've got this value accrual thesis for crypto, as do we. And I think your thesis, your value accrual thesis is unique and it's kind of contrarian from many others I've heard. So let's get right to that. What is your thesis for crypto?

At the end of the day, all of us want to see greater financial inclusion and options for all, but mildly differ on what might be the best way to achieve it.

I don't have a strong thesis. I'm also not much of a crypto investor. My first impression of Bitcoin was that it doesn't make any sense as a medium of exchange. This was back when it was the main narrative, but I thought it's the greatest Ponzi that the world has ever seen. You see, the fatal flaw of Ponzies before is they had a perpetrator. Maybe Ponzi is too harsh, but I mean it was the first

let's call it the first non productive collectible without a perpetrator.

So, my thesis was pretty much we love to gamble, and this is the best one yet.

That was a while ago.