L2s, AltDA, ETH Profitability: TradFi Goes Deep on Tokenomics | David Alderman - Franklin Templeton

bearing with Danny and I here for the past couple minutes while we got set up so yeah again we're going to move into kind of a trafi section for a little bit here we're going to kick off with um David Alderman from Franklin Templeton he's going to speak about l2's Alda eth profitability Trad fry goes deep on tokenomics and then uh David you're going to introduce a panel immediately after that David will be followed by a panel um called after the ETF what will it take to get Wall Street on chain thank you David thank you David let's get Wall Street on chain woop W all right exciting topic I suppose um so we'll be talking about ethereum economics and impact of layer 2s and Alta as it relates to just how eth economics are changing based off that uh but first off uh Franklin Tieton is a global asset manager we have 1.4 trillion awm um we have a focused digital assets team that's kind of bucketed into three pillars um digital asset technology um you can think of that as like tokenization that sort of thing and then uh digital asset investment strategies is where I sit um I'm a research analyst for the uh within that group um and then we also run nodes across a bunch of different chains um so the agenda is just ethereum tokenomics today current impact of layer as they currently stand uh new scaling solutions that would be the dancon upgrade coming up 444 uh that's in like a week March 13th and um and then also alt da something like Celestia Ian da that sort of thing um and then burn equivalence would just be um how is like one transaction across these different scaling Solutions how's the what's the difference in Burn between those on the the layer one so you can take like one transaction on L1 versus L2 versus an L2 that uses Alda So currently and I'm sure you know this is e diver you know everyone knows about the burn ultrasound money um you know today ethereum current issuance rate is about 80 basis points um but burn is at least past 90 days is annualized is about 1.4% of total Supply burned and you know that equates to about 70 basis points net burn on total supply for Layer Two specifically you know we can see something like you can see these uh this table you have ethereum arbitrum optimism based ZK sync um and you can see you know total fees transactions average transaction fee and then on the far right side cost of transaction relative to eel1 is you know 95 to like 98% lower on average um across the board and then just that bottom table shows uh a scaling Factor so just how many transactions are coming through on the layer two relative to the eel one and you know right now it's about seven times um kind of fluctuates by day um and this is where I think gets really interesting is to think about total transaction or how much in fees is getting uh is coming purely from layer twos on the ethereum layer one and you know it's been growing from like slow single digits and now it's it's in the 10 to 15% range on a daily basis um and what's even more interesting I think is this bottom left table kind of shows you so the eel1 like average transaction tot like average transaction is going to be like right now about $941 um but a transaction on a layer two result results in like 23 cents of economic value to the layer one which is about you know 40 40 times multiple here a lot of blue um this kind of gives you an idea with that cost where's that cost coming from on Layer Two um and you know it's with with Layer Two cost there's like fixed and variable cost but really what matters most is what cost is going to the layer one and then what is kind of profit that a sequencer on a layer two would take um and then within the eel one cost that the layer two transaction pays like 99% of it is all associated with call data which is a big reason why like you know data availability is becoming a bigger and bigger um narrative because you know if you want to get those costs down on any sort of scaling solution it's really it's really going to come down to data availability so on this new scaling Solutions um Proto in sharding would be EIP 4844 that's all in the dancon upgrade coming up and alternative data availability which is again like Celestia or Ian da and also as you can see I kind of have a banker background so you know just bear with me um yeah it works great in you know uh board presentations but um with uh EIP 4844 you know that's all associated with creating a new tra type of transaction on ethereum called blobs um and it's kind of it's just taking those those rollups and changing uh like the the amount of data that can go through blocks that sort of thing um and at least the the estimates I've seen you could just say something like 90% uh you could get like a 90 % reduction in call data cost associated with this upgrade so it's going to have a big impact on you know Layer Two profitability it's going to have and it's going to have a really big impact on like how much how much burn is going to in get impacted on Ethel one at least as it relates to like Layer Two transactions um and that's you can you know transaction reduction cost is got 70 to like 80 90% so it's it it's going to have a big impact as it relates to Alda I'm just using Celestia as an example here um and instead of it being like a reduction of 90% you know at least what they say is it's going to be like 99.9% but for the you know for sake of being conservative I do 99.5 and um if you break that down you end up getting even more cost reduction instead you know it's like 75 to like 90 um but you get call it like 5 10% more in cost reduction and again this also relates to like these layer 2 gas vs we just keep those I just keep those constant but you know layer 2s don't necessarily have to keep those constant those could also go down if they wanted to and then comparing those across and this comparing all those Solutions across um all across uh like the economic impact on the layer one you can see obviously if it's if it's a eel one transaction all the value gets uh absorbed by Ethel one which would you know which kind of makes sense um and you know today if if you go all the way down e burned by per like 1 million transaction on eel one you know you're going to burn some around like 2600 2700 eth um but as you go across to like current uh post 4844 and then using Celesta um which for this case I'm just using optimism or like the op stack for as an example um as you go across the average transaction fee goes down but even more so the economic value per transaction um kind of exponentially goes down for the layer one so you know 100% on if it's just a L1 transaction and then as you go down like 4% currently for a layer two optimism and then optimism post 4844 you're going to end up with like 40 basis points and then um it gets near zero when you use like Celestia da and that's because if you're paying for data availability on eel one but then you push that across to Celestia you know that 99% of the cost that you were paying to eel one now is getting absorbed all by Celestia instead of instead of ethereum and where I think it's kind of it's like an interesting way to think about this is this bottom this bottom row transaction like burn equivalence as I call it is obvious you know one eel one transaction is equivalent to one eel one transaction but as you start going across an optimism you have 26 so like 26 transactions on optimism is equivalent to one uh one eil one transaction purely as it relates to like economic value uh economic value screwed by eel1 um but then post 4844 it starts to you know exponentially grow it's like 235 times and then with Celestia da you're like two like 2100 transactions so you need 2100 transactions on an op on an optimistic rollup that uses Celestia da to have the equivalent burn of ethereum like layer one transaction um so this is just a good gauge to like as we think about as we think about like where a eum is going to scale and how that impacts the uh the burn um it's not like you know a 10% 10% growth on optimism helps but then when you do like 10% growth on optimism using celest da it's basically has zero impact to the burn you need to have like a serious amount of growth and a serious amount of transactions on that rollup to have um a material impact to economics on just ethereum based layer um but that it you know but this also kind of highlights you can use these Celestia da or a layer two but ultimately it's you know you're going to get cheaper fees but you're also going to get less security um and then obviously as you go further down the stack you know it's higher fees like on eel one but more security um but even what's more interesting I think it's like if you use celes da it's not just less security but it's also less economic impact to ethereum itself um and then this is a screenshot of Dan grad works at ethereum foundation and you know his kind of view is that if you're a rollup or Layer Two and you don't use ethereum for data availability um you're not really a full ethereum Layer Two um but really that just highlights like you're taking less security you know if you're using if you're using a rollup with Celestia now you have you're taking some security from ethereum but you also have to rely on some security for Celestia versus a full optimistic rollup it's completely different um and then that is all I have um but coming up would be as it relates to uh this next panel which is all related to kind of ethereum and uh how institutions I guess like myself frankco Tieton are getting [Applause] involved and you can go ahead and just sit down I'll put this at our