This episode scrutinizes Pump.fun's potential strategic pivot to its own blockchain, weighing the allure of higher margins against the imperative of aggressive market growth and user acquisition.
Pump.fun's Potential L1/L2 Ambitions
- Mert, a speaker in the discussion, addresses the question of whether Pump.fun, a platform generating significant revenue on Solana, might develop its own Layer 1 (L1) blockchain or Layer 2 (L2) scaling solution.
- An L1 (Layer 1) is a base blockchain network, like Bitcoin or Ethereum, that processes and finalizes transactions on its own infrastructure.
- An L2 (Layer 2) is a secondary framework built atop an L1 to improve scalability and efficiency, often by processing transactions off-chain and then bundling them for settlement on the L1.
- The core motivation often suggested for such a move is to increase Pump.fun's "take rate" by capturing fees currently paid to Solana validators (entities that confirm transactions and maintain network security) and stakers (those who lock up tokens to support validators).
- A sequencer in an L2 context is responsible for ordering and batching transactions before they are submitted to the L1.
- Mert questions if this move, aimed at improving profit margins, aligns with a company seemingly in hyper-growth mode.
Startup Dichotomy: Growth vs. Margin Optimization
- Mert outlines two primary modes for startups:
- Growth Mode: Characterized by aggressive spending to capture market share, exemplified by Uber's early strategy of blitz-scaling.
- Margin Optimization Mode: Focused on cutting costs and maximizing efficiency, akin to Walmart's operational focus.
- He suggests Pump.fun, given its rapid revenue generation on Solana (reportedly $800 million, though the timeframe and net profit are not specified), appears to be in growth mode.
- "If you're making $800 million by being on Solana... you can probably reasonably conclude that Solana is not actively capping their growth," Mert observes, highlighting that the current platform has facilitated immense success.
Incentives for Launching a Proprietary Chain: A Critical Look
- The primary argument for Pump.fun launching its own chain revolves around increasing its take rate (the percentage of revenue it keeps).
- Take rate refers to the fee or percentage a platform charges on transactions it facilitates.
- Mert expresses skepticism, questioning if a venture capitalist (VC) would be excited by a pitch focused on a marginal increase in profit margins (e.g., from 80% to 85%) rather than exponential growth.
- He argues, "If I'm their VC, I'm going to say, 'What the [heck] are you doing? That's extremely boring. I'm looking for a billion X here.'
- Launching a new chain involves significant costs and challenges:
- Building new distribution channels.
- Losing access to existing liquidity and integrations on Solana.
- Requiring a dedicated full-time team for development and maintenance.
- Needing to integrate with wallets like Phantom and various exchanges.
- Mert views this as an "early optimization" if the goal is substantial growth, suggesting the effort to increase margins this way is substantial and diverts from bigger opportunities.
Focus on "Bold Bets" Over Infrastructure Plays
- Mert posits that Pump.fun's significant fundraising likely aims to "derisk bold bets," such as revolutionizing the intersection of crypto and media, potentially challenging platforms like Twitch.
- He contrasts this with building "the 100th L2," which can be done relatively easily using roll up as a service providers (platforms offering tools to quickly deploy L2 solutions) or even launching a "mediocre L1."
- The real incentive, he argues, should be market expansion. "There is no example of any company or app or even really rationale that says that if you go and launch a blockchain, you will grow 100x or a 1,000x."
- While an L1 premium (higher token valuation for L1 projects) exists, it's a competitive field and doesn't inherently grow the overall market, which seems to be Pump.fun's objective.
- Strategic Implication for Investors: Investors should scrutinize whether a dApp's move to its own chain is a genuine growth strategy or a premature margin-grab that could stifle broader market capture.
The Solana Ecosystem Perspective
- If Pump.fun were to leave Solana or launch its own chain, Mert suggests the Solana community should analyze the "insufficiencies" that prompted such a decision.
- However, he points out that highly successful crypto businesses like Axiom (Axie Infinity), Phantom, Magic Eden, Jito, and Jupiter all originated and thrived on Solana, generating hundreds of millions of dollars. This indicates Solana's environment is largely conducive to growth.
- "Even if there's an issue, it's probably not as bad as crypto Twitter would suggest because those are the highest revenue generating business in crypto and they're all on Solana," Mert notes.
- If not for take rate, a move might be driven by user experience (UX) concerns, such as transaction instability on Solana during peak congestion.
Solana's Proactive Improvements and Future Outlook
- Mert acknowledges UX issues like shaky transaction sending during high congestion as a fair criticism.
- However, he emphasizes that Solana is actively working on these problems, drawing parallels to how past issues with NFT mints causing network downtime were resolved.
- Upcoming improvements include:
- Alpenlow: A codename for a Solana upgrade focused on enhancing network performance and stability (specific details not provided in transcript).
- New work from Gito (likely referring to Jito Labs, known for MEV solutions on Solana).
- Contributions from Helius (a Solana infrastructure provider).
- Fire Dancer: A new, independent validator client for Solana developed by Jump Crypto, designed to significantly increase transaction throughput and network resilience.
- Mert believes that by the time Pump.fun could launch its own chain, Solana would have likely addressed current limitations.
- "The worst case for Solana is not so bad all things considered in my view. I don't see any concern for panic," he concludes, expressing confidence in Solana's ability to adapt and retain valuable projects.
- Actionable Insight for Researchers: Monitor the rollout and impact of Solana upgrades like Alpenlow and Fire Dancer, as their success will be crucial in retaining high-throughput applications and mitigating the incentive for them to build proprietary infrastructure.
Conclusion: Mert's analysis suggests Pump.fun's optimal strategy lies in leveraging its capital for bold, market-expanding ventures rather than infrastructure plays for marginal gains. For Crypto AI investors and researchers, this underscores the importance of evaluating a project's focus on core business growth versus potentially distracting infrastructure development.
