Delphi 4D details on L1 public chain valuation methodology

Paying rent to L1 through Rollup may be a way to maximize the return on L1’s native assets.

The main points

  • Traditional assets are generally divided into three categories – capital assets, consumable/convertible assets, and store-of-value assets. Cryptocurrencies offer unique features that combine all three.
  • Capturing value from network fees and MEV yields a robust token economy that directly yields very substantial real benefits to the native asset.
  • While obtaining long-term benefits, it must be guaranteed not to increase user transaction costs (network expansion is a must). Monolithic blockchains may not be able to achieve the scale needed to capture the majority of revenue.
  • Multi-chain ecosystems like Avalanche and Cosmos can reach massive scale. However, this fragmented security model is inherently difficult to feed back base-layer assets.
  • We believe that paying rent to L1 through Rollup may be the way to maximize the return on L1’s native assets.

Delphi 4D details on L1 public chain valuation methodology

Comparison of nominal and real returns of Ethereum and Luna after the merger

Delphi 4D details on L1 public chain valuation methodology

L1 price performance in the past six months

If you ask the bankers, how is Apple valued? The answers you get are more or less related to discounted cash flow, price-to-earnings ratios, etc. But if you were to ask cryptocurrency professionals, how do they value ETH? In fact, ask them why the token has value? Are cryptocurrencies real money? Or commodities, stocks or bonds? You will get different answers.

So, how exactly is a token valued? Some business valuation tools may work quite well for your favorite DEX. But if the token includes a stake in governance and financial control, valuation becomes difficult. Just look at “Curve Wars” to see how valuable governance can be. Prioritizing growth metrics for early-stage startups and applying DCF (discounted cash flow) to more mature cash flow protocols sounds more plausible.

Things get confusing when we introduce native L1 tokens. Governance? Not too possible. Generate income for holders? uncertain. Specifically, miners in PoW networks take the profits from block rewards, transaction fees, and MEV; both Bitcoin and Ethereum use fully off-chain governance. BTC and ETH have long dominated the crypto market, and these things matter, but it shows a bigger picture.

Taking Solana as an example, token holders directly obtain network value through staking. In Anatoly’s words, Solana is an information bus. Other than your staking entitles you to MEV, SOL is just “something that prevents spam in the info bus, that’s all”, no value of anything beyond that is known. So, should the value of SOL be equal to the net present value of its future expected MEV? Even in the most aggressive forecasts, SOL’s market cap will be slashed.

For the sake of simplicity, this report mainly uses ETH and SOL when discussing, which represent:

ETH – a public chain that tries to obtain sustainable value, that is, a type of public chain that is crucial to the development of the network by continuously pushing up the value of tokens; 

SOL – A public chain that attempts to minimize fees and value extracted from users, the development of such a public chain has a low correlation to the token price.

The SOL is used as an example because it has been articulated in detail and clearly by Anatoly, which is the premise of a healthy debate. Although I disagree with many of his arguments, I will respect the process of arguing this question.

Why do tokens have value?

Regarding fair value, Robert Greer provides a useful framework in his 1997 paper “What is an Asset Class?”

Delphi 4D details on L1 public chain valuation methodology

Asset Class

The L1 cryptocurrency is the first asset to exhibit all three characteristics.

Capital Assets: Continue to bring real benefits to stakers and holders

Some call it an indefinite bond, some call it a dividend stock, whatever you call it, it’s all about yield. Capital assets are highly sought after in the context of negative real (inflation-adjusted) yields on fiat currencies. Other things being equal, investors want positive real yields (like staking ETH) rather than severely negative yields (like U.S. Treasuries).

  • ETH staking — future cash flows are issued in the form of deflationary currency ETH (which makes real yields more attractive) 
  • U.S. Treasuries — future cash flow depreciates due to inflation the moment you receive it

With ETH, however, if you denominate your returns in USD, your yield is subject to ETH/USD volatility; if you denominate in ETH, you will happily accumulate a deflationary asset. This is a question of perception, and crucial: Ethereum needs to convince holders that their investments are denominated in ETH (as we do in dollars today).

The emphasis here is on real yields (relative to nominal yields). So how do we make earnings sustainable? The staking reward consists of three parts.

Inflationary block reward

The block reward increases the nominal rate of return, but it does not increase the value of the proof of stake. Stakers simply get rewards from holders. The hype surrounding the ethereum merger revolves around massive reductions in block rewards — subsidies for miners are expensive and cause the entire token ecosystem to lose value.


MEV strengthens security budgets and increases real profitability. In an efficient market (with the help of projects like Flashbots), searchers should ultimately pay the full value of MEV as a fee to validators.

Users won’t line up left and right for a sandwich attack, though. Pragmatism calls for reducing exploitative MEVs as much as possible, then socializing the remainder (e.g., funding stakers or public goods). Avalanche’s Snowman++ is a recent example of a protocol-level update aimed at reducing MEV.

In some cases, Flashbots cap Ethereum MEV in the range of around $500 million in 2021. From Aug. 1 to Dec. 31, Ethereum, BSC, Avalanche, and Polygon had MEVs of at least $179.5 million, $34.79 million, $18.84 million, and $11 million, respectively. Bear in mind that these are extreme lower bound estimates, and without even tracking major categories of MEVs such as sandwich attacks, flash loans and liquidations, the true range remains a mystery.

After the merger, MEV will accrue to ETH stakers instead of miners. With Flashbots (which socialize MEV among validators), searchers can now pay for inclusion in transactions indirectly via high gas fees, or they can set fees to zero and provide rewards directly to miners/validators .

After the merger, MEV will play a more important role in Ethereum than ever, as its share of validator rewards increases. The following prediction comes from Justin Drake:

Delphi 4D details on L1 public chain valuation methodology

Predicting Ethereum Validator Reward Composition

Transaction Fees

Transaction fees should go to stakers or burn (benefiting all holders). In either case, they directly improve the overall token economy.

Delphi 4D details on L1 public chain valuation methodology

The comparison chart of the nominal rate of return and the actual rate of return of the public chain, the merged Ethereum and Luna are unique

Net Token Value Capture = (Stake Proportion x Actual Staking Yield) – (Unstaken Proportion x Inflation Rate)

The nominal yield is the headline rate and the real yield is inflation after deducting token burn.

The formula then captures the weighted average real return for all token holders, including stakers and non-stakers. The first half measures the actual return of stakers, and the second half measures the actual return of unstake holders.

The actual staking revenue comes from transaction fees, MEV earned by validators, and token burn (which also benefits all holders).

Note that this does not penalize high PoS inflation like using a simple value capture model such as fees minus issuance. Inflationary block rewards that remain in the protocol simply transfer value from holders to stakers. Higher inflation would change my personal opportunity cost and decision on whether to bet or not. However, it does not actually account for the value capture of the entire token itself. You’re just judging whether it’s good for stakers or other holders. Either way, value capture is neutral, the difference is which side of the player benefits.

This is similar to deciding whether to burn the fee or give it to the validator. In this case, the value is all captured, you just decide who is better for it.

If you plan to buy tokens for long-term investment, then you would logically be willing to stake your tokens. Therefore, higher block rewards should not directly harm any valuation method. The maturity of liquid collateral derivatives will also make collateral more ubiquitous. Most L1s have staked most of their supply tokens (ETH is currently an outlier for obvious reasons) and this should increase over time. Just imagine, if 100% of the tokens are staked, I really don’t care if the inflation rate is 5% or 10%. It’s all just value shifting and I’m breaking even.

However, this metric does reflect the fact that PoW block rewards do dilute the value of the tokens in the hands of all holders. As a BTC holder, I don’t actually care directly whether network fees are high at all, because I can’t staking to capture them. BTC didn’t capture any upside. Therefore, under inflation, the real yield of BTC will always be negative.

While there is no direct blame here for the value capture of high inflation PoS, I still believe that relatively low inflation is beneficial for currency stability and premiums. If these L1s hope to one day transform from “speculative investment” to real “money” (becoming a measure of value and a medium of exchange), then high inflation rates are untenable. Even if it doesn’t hurt valuation directly, it can lead to price instability and make it difficult for users to spend what they have on hand.

It is important to consider post-burn inflation net here, especially since several of the largest L1s such as Ethereum, Avalanche and Solana are all implementing burn. While Solana burns half of all fees (the other half goes to validators), it doesn’t have much impact considering the fees are so small.

Outside of Ethereum, Avalanche is the only meaningful on-chain fee burn. It has burned more than 10,000 AVAX per day for the past 30 days. That’s more than enough to offset inflation of about 1% per year, which I’ve netted in the chart above.

However, the bulk of all recent Avalanche activity has actually come from a game, Crabada, which is about to move to its own subnet, and many of its current users appear to be bots, so be careful with the data.

Avalanche’s C-Chain implements a mechanism similar to EIP-1559, where the base fee is burned and the tip goes to the miners. However, for consistency of comparison, we use a pre-burn inflation rate of 5.8%, while also not including the inflation impact of other incentives being distributed, such as on Aave. When idiosyncratic factors such as these are taken into account, the picture of inflation becomes confusing. The inflation portion issued through the reward will directly drain value from the hands of AVAX holders, as it is not recycled to the token through the staking reward.

The combined ETH and LUNA have unique advantages in value capture. Other ecosystems are relatively stable, and the benefits are essentially a tax, which is transferred from the holder’s pocket to the staker’s pocket. AVAX is a close second, but it is important to consider the aforementioned mitigating factors.

The burning of EIP-1559 offsets some of the inflation, and after the Ethereum merger, the miner subsidy disappears, and ETH will become a deflationary asset. Additionally, priority fees and MEV earnings will go to validators.

At the time of the merger, the staking rate of ETH will likely be quite low, and as a result, the staking yield will be very high. Yields will then be diluted back down after the merger, assuming that in the slightly longer forecast, the pledge ratio rises to around one-third.

Terra’s mechanism is very special. LUNA has multiple sources of staking revenue:

  1. Gas Fees – Transactions incur a small gas fee, which is very small for Terra.
  2. Stability Fee Tax – A fee is charged on all stablecoin transactions until January, capped at 1 SDT per transaction, which is a small percentage of the overall revenue. In Proposition 172, the stabilization fee tax was set to zero.
  3. Market Trading – This is the main way to get income.

Terra charges a fee when exchanging between Terra stablecoins or between them and LUNA using Terra Station’s transaction function. (Terra Station also integrates with Astroport and Terraswap, not including this fee, but you’re using their respective LPs and fees, not Terra’s marketplace feature.) 

Fees flow into the oracle reward pool and are distributed to validators (in return for providing exchange rate data). Validators then distribute these fees to delegators in the form of staking rewards over two years.

These fees come in one of two forms:

  • Tobin Tax – A flat fee for transactions between Terra stablecoins, set at 35 bps most of the time
  • Spread Fee – Fee for swapping between LUNA and any Terra stablecoin. Set to a minimum of 50bps, but can be increased during periods of volatility to maintain a constant product between the quorum values ​​for Terra pools and LUNA pools for stability.

The graph above shows that LUNA has an inflation rate of 0% (block reward without inflation). However, this ignores the fact that LUNA is deflationary. Considering that seigniorage burns would break the graph above, and since deflation rates can fluctuate, comparisons are difficult.

Before the Columbus-5 upgrade in late 2021, a portion of the LUNA used to mint UST is sent to a community fund to fund the development of the Terra ecosystem, a portion is awarded to validators, and the rest is burned. After Columbus-5, when new USTs were minted, the corresponding LUNAs were all burned. Therefore, for every $1 of UST minted, $1 of LUNA is destroyed.

Note that the current LUNA staking yield also includes the massive rewards previously earned from the oracle reward pool (before Columbus-5). This is because rewards are accumulated into a reward pool and then distributed to stakers in a certain way over time. Columbus-5 reduces staking yield over time, and this value is still continuously captured by burning seigniorage (not charting it as deflation).

Delphi 4D details on L1 public chain valuation methodology

 L1 cost leaderboard

Almost all of LUNA’s revenue comes from the native stablecoin trading market. This provides a revelation to other L1s – implementing a native stablecoin mechanism internally can provide meaningful organic revenue. Note that this is in stark contrast to Near’s recently launched USN, which is managed by the independent DAO Decentral Bank.

Delphi 4D details on L1 public chain valuation methodology

Ethereum’s price-to-sales ratio (P/S) has been ahead (fully diluted market cap divided by annualized total revenue)

Apart from Fantom overtaking Ethereum for a short period of time, Ethereum has been leading the way in terms of P/S. BNB Chain and Fantom are close behind, and Avalanche is also a strong contender.

The level of P/S is indicative of real demand, but it is unreasonable to over-interpret it in isolation, taking into account growth factors. For example, Fantom and BNB have lower P/S, but there is no innovation catalyst and the growth rate is not high. While AVAX is trading at high prices, they have stronger growth prospects.

The diagram below shows the dilemma facing L1. Ethereum is expensive to use, Solana is cheap, and the rest are somewhere in between. Alternative chains have gained traction mainly because they can offer much cheaper fees than Ethereum. However, they ultimately need to scale throughput to capture more value without increasing user transaction fees (easier said than done), or they risk losing users.

Delphi 4D details on L1 public chain valuation methodology

 L1 average transaction fees (total revenue divided by daily transactions)

Consumable/Convertible Assets GAS

Cryptocurrency is a commodity. For Ethereum, the ETH token is the engine that keeps the public chain running. More network transaction users need to buy a lot of ETH to pay gas fees.

This model has changed on Rollup, where L2 users can choose other tokens to pay gas fees. As a result, the growth in demand for ETH due to L2 user growth is less than L1.

Still, Rollup will handle the conversion and pay rent to the main chain in ETH. Ethereum will take a cut of the Rollup, which hosts the vast amount of data, while also coordinating settlements and transfers.

This is in stark contrast to multi-chain monolithic ecosystems such as Avalanche, which lack shared security and settlement, and new subnets can pay for gas in their native token of choice. However, the subnet must start its own validator set, so the fee will be paid to the subnet validator (and not the mainnet’s AVAX validator). The potential benefit to AVAX is that new subnets must validate the mainnet by staking at least 2000 AVAX. Emin recently came up with the idea:

Delphi 4D details on L1 public chain valuation methodology

First, thousands of subnets each have around 100 validators, which is not a “conservative” estimate. Even 100 subnets in any reasonable time period is a bold assumption.

100 validators per subnet is in stark contrast to the recommendation for subnets in the Avalanche documentation, “For network security and stability, we recommend 5 validators per subnet in a minimal production setup (each located in different regions), 10 validators should be enough to balance security, stability, and future needs.” Having 100 validators in a long-tail subnet is not realistic.

It also assumes that each subnet validator is a brand new AVAX validator (bringing 2000 AVAX new market buying pressure). In fact, many may be existing Avalanche mainnet stakers locked up today. Similar block producing entities are expected to emerge throughout the ecosystem. As a result, the 2000 AVAX new buying pressure is gone. Staking requirements from subnets will be negligible.

Emin also argues:

Delphi 4D details on L1 public chain valuation methodology

The assumption that validators on the AVAX quilt are “required” seems unlikely. For example, the DFK subnet only uses JEWEL as Gas, and some of these fees are burned and the other paid to subnet validators. Subnets capture value in this way, and it is in their own interest. It pays no rent to Avalanche. At best, user-aware subnets could allow gas payments in several different tokens for convenience (AVAX would certainly be an option in this case).

The biggest factor is capturing the value back to AVAX, which subnetting basically doesn’t do. Subnet fees are borne by its own validators. It only benefits AVAX directly if the subnet for some reason asks to pay for Gas with AVAX and destroys it (which seems unlikely).

Even in a bull market, there is more AVAX staked for a long time, which is similar to the Polkadot model, where DOTs are locked for parachain security. It doesn’t hurt to lock in more supply, but it doesn’t make AVAX a more productive asset, and productivity comes from additional revenue capture. But unlike Rollup, subnets are useless here.

Dankrad published an article last year describing why productive assets (where a fixed supply is not enough) are a superior form of long-term store of value. This should not be difficult to understand, as we have seen this today. Do you want to be in gold or the S&P 500 over a long period of time? The best long-term stores of value need to be more than just a solid rock, they need to capture meaningful value over the long term.

Subnets will drive exciting innovation, but the benefits will go disproportionately to the Subnet tokens that receive transaction fees and token burns, not AVAX. As the Cosmos ecosystem grows, this situation looks closer to what is happening on ATOM than Ethereum Rollup.

Of the non-Ethereum chains shown, Avalanche has the clearest scaling roadmap as it spans many chains (subnets), the same applies to Cosmos. However, this approach breaks security and essentially the main chain token cannot capture most of the value capture.

Store of Value Assets – Currency Premium

“Cryptocurrency” is usually not an appropriate word, but sometimes it is not. So can our magical internet currency really be turned into money? store of value? medium of exchange? Just look at ETH’s “hypersonic money” meme and you’ll see at least trying to make it happen.

If we are building entire digital economic systems and nations, it also makes sense to treat their tokens as real money.

Asset price = quantifiable utilitarian value (eg, discounted future cash flow) +/- some speculative or currency premium. As long as the dollar’s dominance remains intact, and you can park that cash somewhere to earn yield (treasury bonds), it will remain the global reserve asset (with the highest currency premium).

Likewise, what a cryptocurrency investor would like to see is:

  • Strong economic system: Which L1 has the most economic activity? Where do most users want to spend their money?
  • Balanced Budget: Running a deficit and inflating the currency, or getting enough revenue?
  • Positive real yields — As in any country today, higher real yields attract capital inflows and strengthen the currency.

The U.S. dollar is the preferred medium of exchange for global trade. Consider the benefits of the petrodollar system for the United States. It makes the dollar a global reserve — exporters receive payments in dollars, and importers need dollar reserves to buy oil. With the boom of ICOs, ETH became a trend of quotation currency. With the recent boom in NFTs, its function of quoting currency has been enhanced. Whether you want to participate in the hottest ICO or NFT trading, you need ETH. These effects snowballed as people started to denominate their wealth entirely in ETH.

The U.S. dollar is the preferred medium of exchange for global trade. Look at the benefits of the petrodollar system for the US, it drives global reserves of dollars – exporters receive payments in dollars, and importers need dollar reserves to buy oil.

The budding of ETH as an offer currency emerged with the ICO boom. This situation has been further strengthened with the recent NFT boom. Whether you want to participate in the hottest ICO or NFT offering, you need ETH. These effects snowball when people start denominating their wealth in ETH.

Delphi 4D details on L1 public chain valuation methodology

However, if ETH’s only role was as a circulating currency (like USD) that you only want to spend, it wouldn’t have the value it has today. Large U.S. investors don’t hold actual cash, they own higher-yielding dollar investments, such as Treasury bonds. The ETH in your wallet is the USD of the Ethereum ecosystem, and the pledged ETH is the U.S. Treasury bond, the benchmark risk-free rate for the entire economy. Also, Ethereum has more sustainable economics (i.e. deflation + real staking yield vs. inflation much more than incredibly low US Treasury yields).

 Not to mention unique innovations native to crypto, such as liquid staking tokens (like stETH) that give you extra pie to eat – liquidity, yield, and the ability to stack assets on blocks.

ETH’s ability to combine currency denominations with attractive investments (deflation + yield) is a good benchmark for the new S&P 500 to beat by fund managers.

Delphi 4D details on L1 public chain valuation methodology

Economic diversification also increases the stability of economic strength. Relying on only a few applications presents significant risks, most notably with Terra and Near, although Near is still in the early stages of developing its TVL.

Delphi 4D details on L1 public chain valuation methodology

Diversification of DeFi TVLs in L1 (Terra and Near remain highly centralized)

what’s under the hood

If Ethereum’s scaling roadmap fails, the demand and interest in holding ETH will be greatly reduced. . If the US budget is balanced but its GDP falls, the dollar will no longer be a global reserve asset.

A country cannot be built without land and resources, and a cryptocurrency economy cannot be built without block space. High usage costs will drive incremental customers to cheaper alternatives, and making the cake bigger requires increasing throughput while reducing transaction costs for individual users. The demand for block space is quite elastic, and expansion can support new use cases and attract new users.

Without going too far to repeat our recent segment report, realized TPS is generally in the double-digit (Ethereum) to sub-1,000 range for Solana, well below the marketing numbers we typically see. Avalanche claims its current transaction throughput is “unlimited TPS (subnet included)” relative to other L1s. While theoretically correct, the point is that we are seeing many claims of TPS that are completely unfounded.

Dragonfly recently conducted a test comparing the maximum AMM transaction throughput of multiple L1 chains against a unified benchmark:

Delphi 4D details on L1 public chain valuation methodology

Dragonfly’s AMM Test

Ethereum’s delta is there, but it’s a far cry from the crazy TPS numbers we often see, even Solana’s only 273.3 transactions per second. Note that unlike other chains, Solana’s internal consensus information uses transactions that account for 80% of TPS. Also, this test only tests Solana’s single-threaded execution. This does not reflect Solana’s key advantage — parallel transaction processing utilizing multiple cores. However, this is a realistic benchmark because whenever Solana has network congestion issues, the cause tends to come from a hot market (eg, Raydium IDO). Based on this, throughput becomes the bottleneck for single-core execution.

Many chains require exponential scaling. This realization has taken hold – Cosmos zones are gaining traction, Avalanche is rolling out new subnets, and Ethereum and Celestia are targeting Rollup.

contradictory vision

The metrics shown here are of great value for diagnosing these network states. While short-term value is difficult to grasp, it is important to understand the long-term dynamics of value creation.

Let’s consider the two extreme approaches as case studies.

Solana’s Vision 

Solana’s goal is not to simply push up the price of the native token. The claimed value of SOL is simply the net discounted value of future MEV cash flows.

The discount rate will be determined around the risk-adjusted cost of capital for holding SOL, at which point validators will stake in exchange for the right to receive MEV. The number of future MEVs required to match the current market cap of SOL is quite large, and in any case, they would need to scale by orders of magnitude.

Network transaction fees in an efficient market should be settled at the validator’s operating cost:

Cumulative Fee = Bandwidth Cost + Hardware Cost + SOL Voting Transaction Fee

Delphi 4D details on L1 public chain valuation methodology

MEV will effectively cover your capex (staking SOL) while fees cover your opex (bandwidth, hardware and voting transactions).

Any transaction fees beyond this range will be considered squeezed from users and represent validator profits. In this case, a competitor should theoretically emerge and weaken the network, eventually reaching zero profit. It would be an aspirational vision if it turned out to be feasible to provide this service to the world at near-zero cost. But it does raise the value capture problem we discussed in our research.

Delphi 4D details on L1 public chain valuation methodology

Ethereum’s Vision

The Ethereum community has made significant efforts to give ETH a value beyond minimum utility. They want investors to buy, hold and stake ETH because it is an attractive capital asset. At the same time, it is a large liquid asset that you can safely use to denominate your wealth, and its staking returns will serve as the benchmark risk-free rate for the emerging cryptocurrency economy. The key to capturing maximum value is to construct an attractive monetary policy (such as EIP-1559) so that the native asset earns a monetary premium.

Does Token Price Matter?

OK, so we’ve settled on two models. Add value to a token to make it an attractive asset to holders, or run the network at the most basic cost and let the market figure out the value of the token. If the number is very low, then there is no way.

But is the second way enough? Does the network care that the number of users is not going up? Or are ETH maximalists just sitting there rushing to burn tokens?

As Anatoly mentioned, you need transaction fees to prevent “spam” and protect the network from DOS attacks, but the real reason is to maximize the cost of attacking the network. All the other bells and whistles are optional, and the fundamental reason these tokens need to exist in a proof-of-stake system is to resist Sybil attacks.

This is why it is difficult to balance between transaction fees and MEV. They are a sustainable source of revenue for token holders, but if left unchecked, they can extract value from users and drain users. You can have the most deflationary currency in the world, but your blockchain is worthless if no one uses it.

Conversely, you may settle trillions of dollars in value every day because everyone loves your cheap fees. However, if this high-value network is secured by low-value collateralized assets (because no one wants to hold your monopoly), then you have a big security risk and are vulnerable to attack. Future growth expectations may attract speculative staking in the near term to support current market cap size. However, an order of magnitude larger pledge value would mean attracting a lot of long-term sticky capital.

How much does the staked amount affect security? In the case of Solana, “safety” is defined by the cost of destroying all replication chains, since that is truly indestructible.

Delphi 4D details on L1 public chain valuation methodology

The goal of Solana’s “decentralization” (which is important against censorship and liveness) is to maximize the Satoshi coefficient (the number of colluding validators required to stop the network). In theory, increasing the Satoshi coefficient would improve network defenses.

Delphi 4D details on L1 public chain valuation methodology

The Satoshi coefficient might be a trillion, but if their cumulative stake was $1, it would be meaningless. This is an extreme example where looking at the number of validators alone doesn’t make much sense, especially assuming a large attacker disguising himself behind many entities, which is logically feasible. A high Nakamoto coefficient helps prevent attackers from sabotaging many distributed nodes, but it does nothing to prevent economic attacks. In this regard, Solana maximizes the Satoshi coefficient while also focusing on token value capture.

This is especially concerning because Solana is not equipped to deal with such an attack. Anyone can fully verify Solana, but it requires a lot of money and effort that 99% of users will never be able to do. Networks such as Ethereum or Celestia allow everyday users to enjoy full node security (low capital and hardware requirements) and are more capable of handling and recovering from 51% attacks. Cryptographic guarantees are always better than cryptoeconomic guarantees. If all light clients knew not to accept an attacked dead chain, the damage that could be done could be greatly mitigated.

Anatoly often says that Solana is optimized to “prevent the first strike in a nuclear war” (preventing majority attacks by maximizing the Satoshi coefficient and real-time censorship resistance), while Ethereum is optimized to “clean up the mess” . A pledge value that is unattainable for ordinary people is as important as the Nakamoto coefficient of preventing strikes.

Delphi 4D details on L1 public chain valuation methodology

The argument here probably boils down to this: Even if the network has a low market cap, attacking it is difficult for individuals to profit from. It seems unlikely that someone will try to spend tens of billions of dollars hacking the blockchain in hopes of making a quick buck and get away with it. It is more likely that state actors act to sanction a globally important network, causing significant damage at relatively low economic cost. At this point, it probably boils down to a completely different point of view from the community:

Delphi 4D details on L1 public chain valuation methodology

Anatoly made it clear: “If you don’t have trouble in the US, Europe or China, that’s okay, nothing else matters. If you have one of those problems, nothing can help ni. So that’s why I don’t worry about these attacks. The reason. I just don’t care.”

So if the only attacks that huge market capitalization protects you from are state actors, why bother? Just admit there is a threat, then ignore it and build the best mechanics you can, Solana is working hard to do just that.

If we do build France’s future on top of these networks, I want the strongest guarantees, even against state actors. It seems irresponsible to build a systemically important network for the global economy, which is easily attacked by hostile governments, and economic and cyber warfare are increasingly the preferred methods of attack. These systems must be designed so that the cost of these attacks in the trillions of dollars has reached the point of invulnerability.

Modular vs. Monolithic Value Capture

Ethereum requires rapid growth in network value to ensure the security of the entire system.

Going back to the multi-chain monolithic system, it becomes clear why huge token prices are not necessary. AVAX’s price doesn’t directly benefit from the growth of its subnet ecosystem, nor does it really need to. His fundamental design vision does not provide shared security without tracking the growth of the surrounding ecosystem at the price of the largest asset in a multi-chain system.

Monolithic chains are inherently disadvantaged in acquisition fees because they are capped at:

Fees = throughput x value users will pay for monolithic transactions

Modular data availability, consensus and settlement layers (like Ethereum) will capture more value. They are capped at:

Fees = throughput x value users will pay for all transactions

This is a key point for future fee revenue projections.

Compared to what a single user would be willing to pay for a transaction on Avalanche C-Chain, a rollup would pay a huge fee to Ethereum in a single transaction to secure a rollup block that could contain thousands of user transactions. Furthermore, it is technically feasible to securely scale data availability layers (like Celestia or Ethereum’s design). Compared to the monomer chain, both parts of the equation have now been maximized.

An important negative external to Rollup base layer assets to be aware of is MEV extraction. Individual users may eventually all leave Ethereum L1, and as that happens, MEV acquisition will gradually shift to Rollup block producers. This shift will coincide with a massive increase in Rollup fees paid to L1. Pure data availability and consensus layers, like Celestia and Polygon Avail, do not acquire MEV from the start, they can only rely on transaction fees.

If L1’s crypto-economy is to reach a scale of global importance, sustainable value capture is critical to its long-term health.

The most secure modular base layers by design (data availability, consensus, and settlement) will gain the most value from any single chain because they can scale the furthest and their block space is the most valuable.

Delphi 4D details on L1 public chain valuation methodology

Delphi 4D details on L1 public chain valuation methodology

L1 token value acquisition

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