Ethereum Is Running Away With DeFi | Roundup

This episode unpacks the shifting dynamics between Ethereum and Solana, the evolving crypto market structure, and the regulatory winds shaping the digital asset landscape, offering critical insights for Crypto AI investors and researchers monitoring infrastructure development and capital flows.

Ethereum's Resurgence and Market Dynamics

• The hosts, Michael (One), Michael (Two), and Vance, kick off by discussing Ethereum's (ETH) recent positive performance, noting the ETH/BTC trend is experiencing a significant reversal for the first time in over two and a half years.
• This resurgence is partly attributed to strong community leadership, with figures like "Tomas" (likely a prominent Ethereum community member or developer) effectively communicating positive narratives that resonate with investors.
• Vance highlights that fundamental improvements, such as the "Petra upgrade" (the transcript's term for a recent upgrade, possibly Dencun or related changes), have made ETH net deflationary. He states, "actually the fundamentals have improved drastically and if you look at the changes from when pro [Petra] went live, it's net deflationary."
• The narrative around institutionalization and the role of stablecoins on Ethereum are also seen as key drivers for its improved fundamentals and market attitude.

Perpetual Futures and Options Market Maturation

• The discussion shifts to the perpetual futures market. Perpetuals are a type of derivative contract in crypto that mimics a margin-based spot market and allows traders to hold leveraged positions without an expiry date, paying or receiving a "funding rate" periodically.
• Vance observes that funding rates, which used to spike dramatically (e.g., 70-80%) during significant market moves, are now showing lower peaks (e.g., 7% for ETH recently). This suggests increased market efficiency, possibly due to the presence of CME capital or more mobile on-chain capital, like that interacting with protocols such as Ethena (referred to as "Athena").
• Michael (One) adds that the growing robustness of the crypto options market also contributes to muted funding rates, as hedging activities in options don't directly translate into funding rate changes like perpetual futures do.
• Strategic Implication for Crypto AI: A more mature and efficient derivatives market for major assets like ETH can lead to more stable underlying asset prices and better hedging tools, which is beneficial for projects building long-term infrastructure, including those at the crypto-AI intersection that might rely on these platforms.

Impending FTX Creditor Payout and Market Impact

• A significant market event discussed is the upcoming FTX creditor distribution on May 30th, where over $5 billion in cash will be distributed to larger creditors.
• The hosts anticipate this could lead to substantial buying pressure in the crypto markets. Creditors, having had their claims dollarized post-bankruptcy, will receive cash but likely wish they had held crypto during the recovery.
• Michael (One) notes, "what everybody gets back is cash. But what they wish that they had was crypto... So there will probably be, you know, some significant buying right around the end of the month."
• While FTX's balance sheet held ETH and Bitcoin (BTC), it also involved significant Solana (SOL) purchases. This raises questions about which assets creditors will repurchase, though ETH and BTC are considered primary targets for rebuilding positions.
• Actionable Insight for Crypto AI: This large capital injection could boost overall market liquidity and sentiment, potentially benefiting altcoins and newer sectors like Crypto AI if a "catch-up" trade materializes across the board.

Coinbase Developments: M&A and Challenges

• The podcast touches upon Coinbase's recent acquisition of Deribit (referred to as "Darabit") for $2.9 billion, marking a significant M&A deal in the crypto space as Coinbase expands its offerings.
• However, Coinbase also faced setbacks:
  • A data breach affecting what Vance describes as the "top 1% of users," leaking sensitive KYC (Know Your Customer) information like home addresses and social security numbers. KYC refers to the process of verifying the identity of customers.
  • An SEC investigation into potentially misstating customer numbers.
• Despite these issues, Coinbase was also inducted into the S&P 500, replacing Discover, a symbolic win for the crypto industry.
• Strategic Implication for Crypto AI: The Coinbase data breach underscores the critical need for privacy-preserving technologies. For Crypto AI, this reinforces the value proposition of zkML (Zero-Knowledge Machine Learning), which allows for AI model verification or computation without revealing underlying sensitive data, a crucial aspect for user trust and security in decentralized systems.

Ethereum vs. Solana: The DeFi and Consumer Dichotomy

• A core theme is the diverging specializations of Ethereum and Solana. Michael (Two) posits that Ethereum is solidifying its lead in DeFi, with major players like BlackRock and Coinbase building financial infrastructure on it.
• Conversely, Solana is excelling in the consumer application space, particularly with memecoins and platforms like pump.fun. Michael (One) explains, "Solana has proved itself to be much cheaper and much easier to use and it has gravitated towards...the consumer application category."
• The speakers note an irony: the Ethereum Foundation (EF) was historically lukewarm on DeFi, while the Solana Foundation focused on RWAs (Real-World Assets), yet each seems to be succeeding in the area the other initially targeted less.
• Vance suggests a framing: "Ethereum is debt capital markets and Solana is equity capital markets."
• The difference in technical stacks contributes: Ethereum's proven uptime is vital for financial services, while Solana's higher throughput and lower costs suit consumer apps that can tolerate occasional downtime.
• Relevance for Crypto AI: Researchers and investors should consider these platform strengths. Ethereum's robust security and DeFi ecosystem might be better for AI applications requiring high-value financial transactions or secure data marketplaces. Solana's speed and low cost could be advantageous for consumer-facing AI agents or high-frequency decentralized AI computations.

The "Believe" Launchpad and Alternative Funding Models

• The discussion touches on "Believe," a launchpad where projects can launch based on Twitter engagement, incorporating features like sniper protection.
• This sparks a conversation about funding gaps for projects that may not be "venture scale" – i.e., not aiming for multi-billion dollar outcomes that traditional VCs seek.
• Michael (One) clarifies venture expectations: "they are expecting that you will get to a multi-billion dollar valuation."
• While tokens are considered an alternative, they come with public market-like pressures and are not a universal solution for non-venture scale projects.
• Insight for Crypto AI: Many early-stage Crypto AI projects might explore alternative funding. The viability of community-driven launchpads or token models for niche AI tools or decentralized AI networks is an area to watch, especially for projects that prioritize community ownership over traditional VC routes.

Ripple (XRP) and the Institutional Finance Play

• Michael (Two) raises the point that Ripple (XRP) is making a serious, though often underestimated by crypto natives, attempt to compete in the institutional finance space, similar to Ethereum.
• Ripple's acquisition of Hidden Road and rumored interest in Circle (USDC) signal its ambitions.
• Michael (One) likens Ripple's strategy to using its existing asset (XRP) to acquire businesses and integrate them into its ecosystem, a model he believes "will work for a while."
• This is part of a broader trend of Web2 companies moving into Web3 (e.g., Robinhood acquiring an Ethereum L2) and vice-versa, blurring the lines.
• Strategic Consideration for Crypto AI: The increasing institutional interest in blockchain for finance, driven by players like Ripple and Ethereum, could pave the way for more sophisticated on-chain AI applications in areas like risk management, compliance, or algorithmic trading, leveraging these emerging institutional rails.

The Stablecoin Bill ("Genius Act") and Regulatory Outlook

• The hosts discuss the "Genius Act," a stablecoin bill that faced a procedural delay in the US Congress, reportedly due to efforts led by Senator Elizabeth Warren.
• Despite the setback, the general expectation is that a stablecoin bill will eventually pass, providing much-needed market structure for stablecoin issuers in the US. Michael (One) states, "our expectation is that this bill will pass."
• Vance offers a strategic perspective: "If they do not enact regulation, there will be deregulation...this is really like the Democrats like last chance to get their own feedback into the crypto world."
• The market structure bill is viewed as the ultimate legislative goal for the industry. Hester Peirce's (SEC Commissioner) comments about a potential tokenization safe harbor also offer a positive sign.
• Implication for Crypto AI: Regulatory clarity, especially for stablecoins and broader market structure, is crucial for the maturation of the crypto ecosystem. A stable and well-regulated environment can foster greater institutional adoption and investment, benefiting all sectors, including Crypto AI, by providing a more predictable foundation for building and deploying applications.

Venture Capital Headwinds and Market Dispersion

• The conversation revisits the challenges facing the venture capital (VC) asset class, referencing comments by Philippe Laffont of Coatue. Factors include the fallout from 2021-2022 investment exuberance and companies staying private longer.
• Michael (One) notes that in VC, "the balloons don't pop, they very very slowly dissipate." He observes that crypto VCs are already facing difficulties, raising smaller funds due to a lack of distributions (DPI) to their limited partners (LPs).
• A significant development is Yale University's decision to sell $6 billion of its private equity and venture capital interests, potentially signaling a broader trend among endowments preparing for new taxes or liquidity needs.
• This environment is expected to accelerate dispersion: top-tier VC firms will likely consolidate capital, while tier 2 and tier 3 firms struggle. This trend is visible in both traditional and crypto VC.
• Outlook for Crypto AI: The tightening VC landscape means Crypto AI projects will face higher scrutiny and competition for funding. Projects with strong fundamentals, clear use cases, and viable paths to revenue or adoption will be favored. The "flight to quality" will likely benefit more established or exceptionally promising Crypto AI ventures.

Conclusion

The crypto landscape is maturing through market corrections, regulatory advancements, and platform specializations like Ethereum's DeFi dominance versus Solana's consumer focus. For Crypto AI investors and researchers, tracking these evolving infrastructural and capital market dynamics is key to identifying opportunities and navigating the path to mainstream adoption for decentralized AI solutions.