This episode argues that due to powerful network effects and market consolidation, investing in decentralized application tiers (DATs) beyond Bitcoin and Ethereum is an increasingly risky proposition.
Bitcoin's Established Position as a Category Winner
- Bitcoin's value is anchored by the Lindy effect, a concept suggesting that the longer a technology survives, the longer its future life expectancy is likely to be. This reinforces its durability.
- It has a clear and dominant narrative as a store of value, which has attracted a dedicated community of "maxis" (maximalists).
- The speaker asserts that Bitcoin has already won its category, making it a foundational asset class with a distinct and secure market position.
Ethereum's Dominance in High-Quality Liquid Assets
- The speaker references a report from Consensys and the Financial Accounting Standards Board (FASB), the U.S. body that sets accounting standards.
- FASB provides a definition for High-Quality Liquid Assets (HQLA), which are assets easily converted to cash with minimal loss of value.
- Of the $250 billion in assets that meet the HQLA definition within crypto, a staggering 90% reside on the Ethereum network. This leaves all other competing blockchains to fight over the remaining 10%.
The Power-Law Dynamics of Market Consolidation
- The 90/10 split between Ethereum and all other platforms mirrors the search engine market, where Google commands over 90% of search queries.
- This leaves competitors like Bing and Yahoo with minimal market share, making them largely irrelevant for most users. The speaker emphasizes this point with a rhetorical question: "When's the last time you used Ask Jeeves?"
- This parallel suggests that alternative DATs face an immense, gravity-like challenge in trying to pull liquidity and users away from Ethereum's established network. The speaker concludes that, given these dynamics, investing in these alternatives is likely not worth the risk, while acknowledging this is a potentially biased viewpoint.
Conclusion
The discussion highlights that Bitcoin and Ethereum have achieved a level of market dominance analogous to natural monopolies. For investors and researchers, this suggests that the narrative of finding the "next ETH" is fraught with risk, as power-law dynamics strongly favor the incumbents, making them the most viable long-term assets.
