This episode unpacks Zora's controversial token launch, exploring its potential to reshape crypto media economics and tackling the persistent challenge of valuing onchain activity and protocols amidst shifting market sentiment.
Market Sentiment & Recovery Signs
- Santi kicks off by noting a stabilization in broader markets, with the VIX down, suggesting a potential return to risk-on appetite ("beef is back on the menu").
- Mike references a previous comment from Vance indicating significant altcoin buying activity recently.
- Santi observes that markets often look beyond immediate negative data if signs of a turnaround emerge, citing recent positive signals from potential political shifts regarding trade and Fed policy as contributing factors to the quick sentiment change.
- This highlights the forward-looking nature of markets, even in crypto.
Valuation Fundamentals in Crypto: Bitcoin vs. The Rest
- The conversation pivots to the complexities of crypto asset valuation.
- Santi draws a sharp distinction: Bitcoin, he argues, functions like a commodity (a basic good interchangeable with other commodities of the same type, valued primarily by supply and demand dynamics).
- Its value is driven by flows, global liquidity, and belief in its store-of-value proposition, much like gold, but with a perfectly predictable supply schedule.
- This contrasts sharply with other crypto assets.
L1 Valuation & Blockspace Pricing
- For Layer 1 blockchains like Ethereum and Solana, Santi explains valuation hinges on demand for blockspace and the chain's ability to monetize it through fees.
- He references a prior discussion with Multicoin's Kyle Samani on Solana valuation.
- Key drivers of blockspace demand include DeFi swaps, stablecoin issuance, NFT mints, and memecoin trading.
- Santi expresses a long-held belief: "I don't think a single blockchain has priced block space correctly."
- He notes Ethereum's evolution with EIP-1559 (an Ethereum Improvement Proposal that changed the network's fee mechanism to include a base fee burn and optional tips) as an attempt to address this complex challenge.
MEV Deep Dive: Nuances and Persistence
- The discussion touches upon MEV (Maximal Extractable Value) – value extracted from block production beyond standard block rewards and gas fees, often through transaction ordering.
- Santi differentiates between "toxic" MEV (like sandwich attacks and front-running, which degrade user experience and should trend to zero) and "non-toxic" MEV (like back-running or arbitrage, and tips for priority inclusion).
- Mike adds that measuring MEV is difficult, especially off-chain components like CEX arbitrage, and draws parallels to sophisticated value extraction by market makers in TradFi.
- Santi expresses skepticism that MEV, particularly non-toxic forms, will ever fully disappear despite efforts like MEV protection or solutions like DFlow.
Ethereum Scaling & Data-Driven Decisions
- Mike highlights recent findings, shared by Paradigm's Storm and originating from the Nethermind client team, suggesting Ethereum's L1 has significant untapped capacity.
- The data indicates current node clients could support substantially higher gas limits (80x-280x).
- Mike quotes Storm: "now that we have actual data instead of flying blind and performing vibes based optimization the client teams can precisely identify bottlenecks and raise their performance even higher."
- This underscores a shift towards more empirical, data-informed approaches to scaling L1s, moving beyond theoretical debates.
Crypto Metrics Debate: Revenue, Fees, and Standardization
- The conversation delves into a recent Twitter exchange involving Vance Spencer, Zerox (likely 0xngmi from DeFi Llama), and GMI (likely from DeFi Llama) regarding crypto metrics.
- Mike frames the core issue as the difficulty in translating crypto-native concepts like fees and protocol revenue into traditional finance (TradFi) terms like revenue and earnings.
- Santi emphasizes that debates over metric definitions (e.g., adjusted EBITDA, churn calculation) exist even in public TradFi markets.
- He uses Amazon and Airbnb to illustrate the crucial difference between GMV (Gross Merchandise Value) – the total value of transactions processed – and actual platform revenue (the fee or "take rate" charged on that GMV).
- The key takeaway for analysts is to ensure methodological consistency when comparing protocols or analyzing trends over time, even if disagreeing with a specific platform's definition.
Valuation Methodologies: Bridging Public and Private Market Frameworks
- Mike points out the challenge arising from crypto tokens becoming liquid much earlier than traditional equities, blurring the lines between private venture capital (VC) metrics and public market analysis.
- VCs focus on growth rates, ARR (Annual Recurring Revenue), and unit economics to gauge future profitability potential.
- Public markets often use Price-to-Earnings (P/E) or Price-to-Sales (P/S) ratios.
- Mike questions the relevance of applying mature public market metrics like P/E to very young protocols, stating, "how often do you look at price to earnings of a 2-year-old company, right? It's completely irrelevant."
Coinbase vs. Robinhood: A Valuation Case Study
- Santi provides a concrete comparison between Coinbase and Robinhood.
- He notes Coinbase trades at roughly 15x EV/EBITDA (Enterprise Value to Earnings Before Interest, Taxes, Depreciation, and Amortization – a proxy for operating profitability) and 20x P/E, while Robinhood trades at higher multiples (35x EV/EBITDA, 27x P/E).
- However, Santi stresses the importance of forward-looking growth expectations.
- If Robinhood is expected to grow much faster, its forward multiples might look more attractive than Coinbase's, despite Coinbase having higher current revenue and EBITDA.
- He also raises strategic questions about market saturation, competitive threats (TradFi entering crypto), take rates, and positioning for future trends like tokenized stocks, where Robinhood might have an edge.
The Challenge of Valuing Protocols: Beyond Fundamentals?
- Santi argues that traditional DCF (Discounted Cash Flow) analysis often fails to justify the current valuations of most crypto protocols.
- Much of the value appears derived from terminal growth assumptions or "social value" and narrative strength, citing Ripple as an example of a project whose value proposition resonates strongly with non-crypto natives despite fundamental questions.
- He concludes that the market largely doesn't value these assets based on traditional fundamentals yet, seeing them more as options on future transformation.
- However, he acknowledges pockets like MakerDAO and Hyperliquid where cash flow generation and buy-and-burn mechanisms offer more tangible valuation anchors.
Zora Launch & Platform Overview
- The focus shifts to Zora's recent token launch and platform evolution.
- Mike explains Zora started as an NFT platform, launched its own chain on the OP Stack (a standardized, open-source development stack for building optimistic rollups), and recently relaunched as a social app on Base.
- The core mechanic involves each post being minted as a coin (1 billion supply, 1% to the creator), which then trades in a single-sided liquidity pool on Doppler, utilizing a UniV4 Hook (a customizable smart contract interacting with Uniswap V4 pools) built by Austin Adams.
- This creates a market-based feed algorithm.
Zora Token Launch Controversy & Creator Economy Angle
- Mike notes the Zora token launch faced controversy, partly due to perceived low airdrop allocations and the framing of the token as being "just for fun," which frustrated users seeking clearer utility or governance rights.
- Some critics view Zora as a "more thought boy version of Pump.fun," associating it with memecoin speculation.
- Santi acknowledges launch criticisms are common but highlights that Zora has rewarded early creators and users, aligning with crypto's ethos of shared ownership.
- He does reiterate a long-standing concern about IP rights on such platforms – the ease with which unowned IP could potentially be "coined."
Zora's Business Model & Fee Structure Analysis
- Santi details Zora's fee structure: a 1% fee on platform trades, with the majority distributed back to creators (0.5%) and referrers (0.15% + 0.15%), while the Zora protocol itself takes 0.2% (20 basis points).
- He cites data suggesting modest cumulative revenue for the platform (~$5M) but a significant distribution of ~$27M in earnings back to creators.
- This starkly contrasts with traditional platforms like YouTube, which typically capture the lion's share of value.
- Santi observes, "...most of the value is being distributed back to the people that are generating value which is the creator."
Zora as a Media Disruption Experiment
- Mike views Zora as a significant experiment tackling media's challenges: creating a clearer mechanism for value redistribution from platform to creator (compared to opaque systems like Twitter's payouts), solving the "cold start" problem for new creators, and offering a potentially cleaner monetization path than relying on ads (like Substack writers often must).
- Santi agrees crypto will fundamentally change creator economics but cautions against assuming Zora (or similar platforms) will achieve YouTube-level valuations.
- He invokes Jeff Bezos: "'your margin is my opportunity.' That margin evaporates... It just gets distributed to the... creator."
- The platform enabling this shift might be a great service but not necessarily a massively profitable business itself, similar to early Uber's unit economics challenges.
The Persistence of Speculation & Crypto Cycles
- Mike reflects on crypto's history of speculative cycles – from early altcoins (Feathercoin) to ICOs, DeFi summer (Yam), NFTs, and memecoins.
- He posits that these often "funhouse mirror" versions of innovation precede more sustainable, professionalized applications.
- While acknowledging the downsides (toxic MEV, retail losses), he argues it would be "foolish to completely write it off as if it's not a persistent phenomenon," suggesting an underlying drive for speculation and new forms of digital ownership/interaction.
Future of Media & Market-Based Information Discovery
- Mike connects Zora to prediction markets like Polymarket, suggesting both represent a shift towards using market mechanisms for information discovery and pricing, moving away from purely editorial or algorithmic curation.
- Santi concurs, seeing tokenization as enabling "markets on everything," which act as powerful "arbiters of truth" for surfacing genuine content and creators based on economic conviction (dollars) rather than just clicks or gaming algorithms.
- This financialization, if done right, could lead to discovering higher-quality, more authentic user-generated content.
Zora's Potential & User Metrics
- While acknowledging Zora's long-term business model beyond trading fees is unclear (perhaps ads?), Mike shares promising early user metrics from a Blockworks dashboard: posts, active accounts, and DAU/WAU (Daily Active Users / Weekly Active Users) – a key retention metric – are trending positively, although it's very early post-launch.
- Santi emphasizes that truly valuable products (like early Facebook, which delayed ads) can eventually monetize attention effectively, often by increasing prices if the value proposition is strong, citing private equity strategies.
Concluding Thoughts on Product Development & Creative Selection
- Both speakers agree that Zora may not be the final form factor for onchain social media; these things take time to iterate, referencing Web2's evolution and the eventual disruption by TikTok.
- Mike recommends the book "Creative Selection" about Apple's design process during the Steve Jobs era as relevant to building groundbreaking products.
- The conversation highlights the ongoing experimentation in crypto to find product-market fit and sustainable economic models.
The Zora discussion underscores crypto's potential to rewire creator economics, shifting value from platforms to individuals. Investors and researchers should monitor these onchain media experiments, analyzing user adoption trends alongside the development of sustainable monetization models that move beyond pure speculation.
