^{The Phenom Crypto Update}

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GM,

I’ve been think a lot about L2’s this week. It is a sector I believe will drive a lot of value as a beta play on ETH and I’ve been building personal positions in this space since $ARB launched last spring. For this sector my investment strategy leans towards longer periods, like 2 to 7 years, rather than short-term, narrative-driven investments of 3 to 12 months.

I am bullish on this area based on "fundamentals". For chains involved in block sales, I define fundamentals as the enduring profitability (revenue minus issuance) of those blocks. Ultimately, chains sell block space and if they can create enough demand for their blockspace to turn a profit they are fundamentally sound companies. Novel strategy huh? 😂

L2s hold a substantial edge in the profitability of block space, not requiring issuance-based security funding. They resell enhanced value from Layer 1 (L1) and Data Availability (DA) block space.

Provided they keep drawing users and investments to their platforms (as evidenced by the growth of ARB/OP/Polygon, surpassing L1 rivals), we should see value accrue to their tokens. They circumvent the need for inflation to finance security or compete as currencies. The best value will come from L2’s with direct value accrual built into their tokenomics. revenue sharing through staking, fee burning, etc.

I also think we will trend towards block space fees becoming standardized and decrease, except for main settlement chains like Ethereum. With innovations in DA layers, parallelized VMs, compression, and zero-knowledge tech, block space is transforming into a standard commodity. It’s increasingly challenging for an L1 to sustain profitable block space in such an environment. Although MEV can be a revenue source, if it becomes overly exploitative, it may push users and capital towards chains with lesser MEV rates.

Personally I am holding a good portion of my portfolio in restaked $ETH and a basket of L2’s.

Cheers,

Will

Here’s a taste of what we’ve got this week:

• Eric on Real Vision™️ 🎥

• Ripple Founder Gets Hacked 👮🏻‍♂️

• Vitalik’s Bday Thoughts 🎂

Market Rundown