The REV Debate: Real Metric or Fake News? Jon, Bread, & Andy8052

This episode dissects the contentious "REV" (Real Economic Value) metric, exploring how it's reshaping valuations for Layer 1 blockchains like Ethereum and Solana, and what this signals for Crypto AI investors and researchers navigating a market hungry for tangible value.

The Spark: Jon Sharbono's Tweet and the REV Debate

• The discussion kicks off with Jon Sharbono explaining his viral tweet, which highlighted that both Ethereum (ETH) and Solana (SOL) traded at nearly identical multiples to their Real Economic Value (REV) at their respective all-time high prices.
  • REV (Real Economic Value): As used in this context, REV encompasses all network fees and Maximal Extractable Value (MEV) tips that users pay to a given network. This is distinct from "Realized Extractable Value," a Flashbots term referring to the actually captured subset of MEV.
• Jon presented this as an observation, prompting debate on whether this was correlation (high on-chain activity during bull runs naturally inflates REV) or causation (the market rationally valuing these networks based on revenue).
• Jon, whose perspective often leans towards fundamental analysis, noted, "I think the market is starting to price or at least ask for a little more of these signs of hey, show me that users are willing to pay the network."
• Strategic Implication: Investors should monitor REV as an increasingly scrutinized metric, indicating a potential shift towards more fundamentals-driven valuations in L1s, even if it's not the sole driver.

Understanding REV: Value Capture and Demand Signal

• Jon Sharbono clarified REV's dual role:
  • Value Capture Metric: For Proof-of-Stake (PoS) networks, REV is analogous to top-line revenue for a traditional company. Token holders, in some form (e.g., burns, staking rewards), are entitled to this value.
  • Demand Indicator: REV quantifies what users are willing to pay to use a specific network, excluding application-level fees. It reflects direct demand for the L1's blockspace.
• David Hoffman, the host, framed REV as primarily reflecting the utility value of a blockchain's blockspace, driven by its application ecosystem (e.g., Uniswap on Ethereum, Pump.fun on Solana). He suggested Jon's focus on REV subtly emphasizes this utility aspect over the native asset's monetary premium, a point particularly relevant for assets like Bitcoin which have minimal REV.

The Challenge of Valuing Crypto Assets

• 0xBreadGuy emphasized the nascent stage of crypto valuation methodologies, stating, "Literally no one knows how to value this [stuff]. No one has any idea of how to properly do that."
• He views REV as an earnest attempt to bring quantitative rigor, similar to how traditional finance eventually developed models like Discounted Cash Flow (DCF).
  • DCF (Discounted Cash Flow): A valuation method used to estimate the value of an investment based on its expected future cash flows.
• Jon Sharbono posited that cash flows, like REV, could represent a "minimum intrinsic value." He used the analogy of Warren Buffett's stance on Bitcoin (no intrinsic cash flow) versus Apple (immense cash flow).
• 0xBreadGuy pointed out that many assets trade at high REV multiples (e.g., Aptos at 1000x, Avalanche at 136x) compared to ETH and SOL's ~26x at their peaks, indicating significant future growth is priced in.
• Actionable Insight: The immaturity of crypto valuation models means metrics like REV are still being tested. Researchers should critically assess their applicability and limitations across different types of crypto assets.

REV: A Piece of a Larger Puzzle

• David argued that if REV were the sole valuation metric, most crypto assets would appear overvalued. He believes other, less quantified factors contribute to value, especially for assets like Bitcoin.
• Jon Sharbono considered a scenario where L1 REV approaches zero while app fees soar. He suggested this could make L1 tokens difficult to hold, shifting value to app tokens or protocols. However, a strong app ecosystem could still be short-term positive for the L1 due to implied future monetization potential.
• Strategic Consideration: For AI-driven dApps, understanding how value accrues (L1 vs. app layer) is crucial. If L1s struggle with value capture via REV, direct investment in promising applications or their tokens might be more strategic.

Native Assets as On-Chain Currency

• Andy 8052 highlighted the intrinsic value of native L1 assets (ETH, SOL) when they become the default currency for popular on-chain activities like NFT trading or memecoin speculation.
• David noted that REV all-time highs for ETH and SOL coincided with their native assets being the primary medium of exchange for these activities. Andy confirmed his preference for using SOL over USDC for trading on Solana due to better execution.
• 0xBreadGuy emphasized the "medium of exchange" property, where users hold L1 assets like SOL to quickly participate in new opportunities, creating buy pressure and deflationary effects (e.g., SOL locked in abandoned memecoin liquidity pools).
• Emerging Trend: The potential abstraction of native L1 assets by stablecoins (like USDC) in user transactions is a key trend to watch. This could impact the "money-ness" demand for L1 tokens.

The Impact of Real-World Assets (RWAs)

• David raised questions about how the tokenization of RWAs on L1s will affect the demand for native L1 assets. The influx of stablecoins onto Ethereum, for instance, hasn't proportionally boosted ETH's price.
• 0xBreadGuy theorized a hierarchy: power users ("Andys of the world") might continue using native assets for efficiency, while abstracted retail experiences use USD front-ends, potentially still settling in native assets on the back end.
• Research Focus: Crypto AI researchers should investigate how RWA tokenization might alter L1 economic models and whether AI can optimize RWA management or create new RWA-based financial products.

Tribalism and Differing Economic Models in the REV Debate

• The panel discussed how the REV debate often splits along tribal lines: Ethereum proponents may downplay REV if it makes ETH appear less favorable compared to Solana, which currently shows stronger REV growth.
• Jon Sharbono clarified that REV's importance varies by asset. He believes REV constitutes a larger portion of Solana's valuation calculus than Ethereum's, given Solana's optimization for high-throughput state transitions and trading.
• David, referencing a tweet by Polar, drew parallels to the Bitcoin vs. Ethereum debates, suggesting different L1s have distinct economic models. Ethereum has historically prioritized secure state-holding, while Solana focuses on rapid state changes.
• Jon's outlook: "My general gut is that rev is going to matter more for the majority of assets and large assets as well going forward."
• Investor Insight: Recognize that L1s optimize for different goals. Solana's focus on throughput may naturally lead to higher REV from trading, while Ethereum's value proposition might be more tied to its security, decentralization, and established "money-ness."

Future of L1s: REV-Focus vs. "Money-ness"

• David speculated that newer L1s might become even more REV-focused, contrasting with Bitcoin's emphasis on "money-ness" and supply sinks.
• 0xBreadGuy questioned whether simply holding state (Ethereum's strength) is as beneficial for a native token's price as facilitating active state transitions that generate REV (Solana's strength).
• The discussion touched on institutional investors, who seek data and models. Smart contract platforms provide this, potentially leading them to value L1s based on comparable metrics like REV, which could challenge narratives like Ethereum as "digital oil."

The "Believe" Ecosystem: App-Tokens and Curation

• Andy 8052 discussed "Believe," a platform seemingly fostering app-specific tokens and integrating token burn mechanisms based on app revenue, moving towards a cash-flow model for apps.
• 0xBreadGuy noted Believe's tokens had strong market cap performance recently, contrasting with Pump.fun's dominance in launch volume. Believe appears to be curating quality apps for its memecoin launches.
• This trend points towards a model where app value is more directly tied to its specific token, potentially through revenue sharing or buyback-and-burn mechanisms.
• Strategic Implication: The rise of app-specific tokens with direct value accrual mechanisms could offer new investment avenues, especially for AI-powered applications that can demonstrate clear revenue generation.

What Drives Solana's (SOL) Price?

• David suggested SOL locked in Liquidity Pools (LPs) on platforms like Pump.fun (a form of reservation demand) is a key driver.
• Jon Sharbono disagreed, arguing the primary driver is the market's increasing "assessed probability of Solana 'winning'" the smart contract platform race, based on user and developer adoption, and its relative valuation to Ethereum. He sees current REV as an imperfect predictor of future REV, expecting margins to compress as apps recapture more value (e.g., MEV).
• Key Takeaway: Investor sentiment and growth narratives, alongside fundamental metrics, significantly influence L1 valuations.

Contentious State, Blockspace, and Sustainable REV

• The panel agreed that sustainable REV likely comes from fees for accessing "contentious state" (e.g., priority fees for transaction ordering, MEV), rather than just raw blockspace quantity or high congestion-based base fees.
• Jon noted Solana's REV is primarily from MEV and priority fees, while historical Ethereum REV was heavily skewed by high base fees due to congestion.
• However, even margins on contentious state-derived REV are expected to compress as applications become more efficient at internalizing value (e.g., better AMM designs, app-level sequencing).
• 0xBreadGuy concluded this outlook is "Bearish infra, man... Great for the apps."
• Actionable Insight for Researchers: Focus on L1s and L2s that can sustainably generate REV from contentious state while fostering an ecosystem where apps can also thrive. AI could play a role in optimizing MEV capture or mitigation at the app layer.

MegaETH and Real-Time Experience

• When asked about MegaETH's focus, 0xBreadGuy (affiliated with the project) stated the goal is to provide the "best environment for people to just create whatever they think they want," emphasizing a real-time, instantly responsive user experience as their competitive edge, attracting diverse applications from trading bots to games.

Conclusion

The REV debate underscores a maturing crypto market increasingly demanding tangible value from L1s, yet it's clear REV is just one facet of a complex valuation puzzle. Investors and researchers should monitor REV trends but also analyze an L1's specific optimizations, ecosystem health, and its native asset's evolving "money-ness" and utility.