Zora & The Future Of Crypto Media | Weekly Roundup

This episode dissects the evolving landscape of crypto valuation, contrasting traditional metrics with new on-chain economic models like Zora, and exploring the future of creator-centric media where value capture fundamentally shifts away from platforms.

Market Stabilization and Contrarian Views

• Santi kicks off by noting a calmer market environment, with the VIX down and a sense of stabilization after recent volatility. He references Vance Spencer's (Framework Ventures) recent heavy buying of altcoins, suggesting a contrarian strength despite bleak macro narratives. Santi draws parallels between current logistics slowdowns and COVID-era disruptions, reminding listeners that markets often price in future turnarounds even amidst negative data, especially with potentially bullish signals like recent shifts in Trump's rhetoric on trade and Fed policy.
• The discussion touches on the difficulty of assessing market sentiment, referencing a conversation with Jeff Dorman (Arca) about valuing assets like Coinbase and Robinhood.
• Santi emphasizes the core challenge for investors: understanding what information is already "priced in" versus possessing incremental knowledge. He notes, "it's not so much what you know about a particular company it's like it's what is already priced in."

Valuing Crypto Assets: Bitcoin vs. Fee-Generating Chains

• The conversation pivots to asset valuation, drawing a sharp distinction between Bitcoin and other crypto assets. Santi, leveraging his traditional finance background, explains Bitcoin's valuation is akin to a commodity like gold or aluminum – driven purely by supply and demand dynamics and flows, influenced by factors like global liquidity. Bitcoin's predictable supply schedule is highlighted as a key differentiator from traditional commodities.
• In contrast, Layer 1s (L1s) like Ethereum and Solana, along with Layer 2s (L2s), are framed differently. Their value derives from generating fees tied to demand for their blockspace.
• Blockspace: This refers to the limited capacity within each block on a blockchain to include transactions or data. Demand for blockspace increases with network activity.

Deep Dive into L1/L2 Valuation: Blockspace, Fees, and MEV

• Valuing fee-generating blockchains requires analyzing the drivers of blockspace demand (e.g., DeFi swaps, NFT mints, stablecoin issuance) and how effectively the chain monetizes this demand. Santi expresses skepticism about current blockspace pricing mechanisms, mentioning Ethereum's evolution with EIP-1559 as an attempt to improve this.
• EIP-1559: An Ethereum Improvement Proposal implemented in 2021 that changed Ethereum's fee mechanism, introducing a base fee that is burned and a priority fee (tip) to incentivize miners/validators.
• Key fee streams identified:
  • Base fees (protocol revenue, potentially burned).
  • Priority fees/Tips (payments for faster transaction inclusion).
  • MEV (Maximal Extractable Value).
• MEV (Maximal Extractable Value): Refers to the maximum value that can be extracted from block production in excess of the standard block reward and gas fees by including, excluding, and changing the order of transactions in a block.

The Complexity of Measuring MEV

• The discussion delves into MEV, distinguishing between "toxic" MEV (like sandwich attacks and front-running, which degrade user experience and are often considered harmful or illicit) and "non-toxic" MEV (like back-running arbitrage or tips for priority inclusion). Santi argues that while toxic MEV should be eliminated, non-toxic MEV, representing a premium paid for blockspace access, is a significant value driver for chains.
• Mike points out the difficulty in accurately measuring MEV, as much occurs off-chain (e.g., CEX arbitrage) and involves complex strategies, drawing parallels to sophisticated market-making in traditional finance (TradFi).
• Santi pushes back against the idea that MEV will trend to zero, stating, "people love to say that MEV is going to trend to zero and I just don't think that it possibly could." This suggests MEV, in some form, is an inherent part of blockchain economies.

Ethereum Scaling: Data-Driven Gas Limit Increases

• Mike introduces recent findings, highlighted by Paradigm's Storm and based on Nethermind team research (crediting Camel/Camille Chola), suggesting Ethereum's L1 clients can handle significantly higher gas limits (80x-280x current limits). This data challenges previous assumptions and enables a more precise, data-driven approach to scaling the base layer, moving away from "types based optimization."
• This implies potential for increased L1 throughput, a crucial factor for Crypto AI applications demanding significant computation or data processing on-chain. Investors should monitor how client teams leverage this data to optimize performance.

Debating Crypto Metrics: Revenue vs. Fees (Vance vs. DeFi Llama)

• The conversation shifts to a recent Twitter exchange between Vance Spencer and DeFi Llama (represented by 0xngmi) regarding crypto data and metrics. The core tension lies in standardizing terminology and accurately representing financial performance, particularly distinguishing between gross activity (like Total Value Locked or trading volume) and actual protocol revenue/earnings, a common point of confusion when applying TradFi frameworks.
• Vance's critique centered on the need for clearer, TradFi-aligned metrics (like distinct revenue and earnings figures) for better analysis, while acknowledging the quality of DeFi Llama's work.
• The use of terms like "REV" instead of standard "Revenue" was also noted as a point of friction.

Bridging Valuation Gaps: TradFi Metrics vs. Crypto Realities

• Santi draws parallels to valuation debates in TradFi, citing examples like varying definitions of "churn" among software companies or adjustments like "Adjusted EBITDA." He stresses the importance of consistent methodology within an analyst's framework, even if it differs from reported figures, to enable valid comparisons.
• A key distinction highlighted is between Gross Merchandise Value (GMV) and actual Revenue, using Amazon and Airbnb as analogies. GMV represents total transaction value flowing through a platform, while Revenue is the fee or "take rate" the platform earns on that activity.
• GMV (Gross Merchandise Value): The total value of merchandise sold over a given period through a customer-to-customer exchange site. It's a measure of gross transaction flow.
• Santi advises looking at the trend of metrics over time (longitudinal analysis) within a consistent framework (like DeFi Llama's or a custom one) to identify meaningful changes or anomalies, rather than getting bogged down in absolute definition debates. "Look at the historical trend line... as long as the methodology hasn't changed that still is useful."

The Challenge of Valuing Early-Stage Crypto Protocols

• Mike notes the difficulty of applying traditional valuation metrics like Price-to-Earnings (P/E) to early-stage crypto protocols, which often resemble high-growth private tech companies where metrics like growth rate, Annual Recurring Revenue (ARR), and unit economics are more relevant. Santi concurs, stating most crypto protocols cannot be justified by standard Discounted Cash Flow (DCF) analysis, with value heavily reliant on terminal assumptions or non-fundamental factors.
• He points to protocols like MakerDAO and Hyperliquid as exceptions with tangible cash flows distributed to token holders (via buy-and-burn), trading at more "reasonable" (though still growth-oriented) multiples compared to giants like Coinbase (15x EV/EBITDA) or Robinhood (35x EV/EBITDA).
• Santi emphasizes that much crypto valuation is driven by narrative and "social value," citing Ripple as an example whose market cap is hard to justify fundamentally but benefits from a strong, easily understood narrative for non-crypto natives. Cash flow remains the ultimate arbiter: "Go look at the cash flow. How much hard cash is being produced? And and that's just um very simple to understand."

Zora's Token Launch and Creator Economy Model

• The discussion turns to the recent launch and airdrop of the ZORA token. Zora, initially an NFT platform on the OP Stack, pivoted to become a social media application built on Base, where each post is essentially minted as a unique coin.
• OP Stack: A standardized, open-source development stack for building optimistic rollups, powering chains like Optimism and Base.
• Zora's mechanics involve creators receiving a percentage of their post's coin supply and trading fees generated via an integrated Automated Market Maker (AMM) built using a Uniswap V4 hook (Doppler by Wetstone).
• The launch faced controversy regarding the airdrop allocation and the token's stated utility being "just for fun," frustrating users expecting governance rights or clearer economic value accrual. Santi notes the inherent difficulty in pleasing everyone with token launches.

Analyzing Zora's Potential Impact on Crypto Media

• Mike presents a more optimistic view of Zora, framing it not just as "Pump.fun with extra steps" but as a potentially significant experiment in reshaping media economics. He argues Zora addresses key issues:
• Fairer Value Distribution: Offers a more transparent and direct mechanism for creators to earn from their content's engagement compared to opaque algorithms and payouts on platforms like Twitter or YouTube.
• Solving the Cold Start Problem: Provides a native monetization model that could empower a new generation of on-chain creators, analogous to how YouTube enabled creators like Mr. Beast.
• Cleaner Monetization: Avoids the need for creators to manage complex advertising relationships (like on Substack), aligning incentives directly with content virality and market demand via token trading.

Zora's Business Model and the Creator Economy Shift

• Santi analyzes Zora's fee structure: a 1% trading fee, with only 0.2% (20 basis points) going to the Zora protocol itself, and the majority distributed to creators and referrers. While reported protocol revenue seems low (~$5M cumulative), Zora has distributed significantly more (~$27M+) directly to creators.
• This exemplifies a core crypto principle: shifting economic power from platforms to users/creators. Santi cautions against assuming Web3 platforms will achieve Web2 valuations (like YouTube's $100B+), precisely because they distribute most of the value.
• He invokes the Bezos maxim: "Your margin is my opportunity. That margin evaporates... It just gets distributed to the... creator." The sustainability question remains: can a platform thrive long-term with such a low take rate, or will it need other monetization methods?

Broader Implications: Crypto, Media Disruption, and Market Mechanisms

• Mike connects Zora to broader trends, seeing it and prediction markets (like Polymarket) as examples of using market mechanisms for information discovery and pricing, moving beyond traditional editorial curation. He views the speculative cycles in crypto (ICOs, DeFi Summer, NFTs, Memecoins) as often predicting future valuable use cases, albeit in chaotic initial forms.
• Santi agrees, emphasizing tokenization allows markets to form around anything, acting as powerful (though imperfect) "arbiters of truth" for discovering valuable content or creators based on economic commitment ($) rather than just clicks.
• Early Zora metrics (user growth, retention via DAU/WAU) show positive signs, but long-term viability is uncertain. The core potential lies in creating a flywheel where better creator economics attract better content, driving platform growth. The ultimate monetization strategy beyond trading fees remains an open question, potentially mirroring Web2's eventual turn to advertising, albeit perhaps in a novel, crypto-native way.

Product Development Cycles in Crypto

• The conversation concludes by reflecting on product development. Santi recommends the book "Creative Selection" about Apple's design process, highlighting the iterative nature and importance of strong product vision. Mike notes the contrast between Apple's "taste-driven" approach and Facebook/Meta's more data-driven product evolution.
• They acknowledge that crypto is still early in its product development lifecycle. While Zora is an interesting experiment, history suggests the "final form" of on-chain social media and creator platforms may take years and further iterations to emerge.

Conclusion

• The discussion contrasts traditional valuation with crypto's creator-centric models like Zora, highlighting a fundamental shift in value capture away from platforms. Crypto AI investors and researchers must analyze the sustainability, scalability, and eventual monetization strategies of these emerging on-chain economies.