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The Return Of Meme Coin Mania | Mert Mumtaz, Dan Smith

By Lightspeed

Published on 2024-03-07

Explore the resurgence of meme coins, Solana's MEV challenges, and Ethereum's scaling solutions in this in-depth analysis of the latest crypto trends.

The notes below are AI generated and may not be 100% accurate. Watch the video to be sure!

The Return of Meme Coin Mania

The cryptocurrency market has once again been set ablaze by the resurgence of meme coins, with Bitcoin reaching a new all-time high and altcoins following suit. This phenomenon has caught the attention of both seasoned crypto enthusiasts and newcomers alike, sparking discussions about the nature of these digital assets and their impact on the broader blockchain ecosystem.

Mert Mumtaz, a guest on the Lightspeed podcast, shared his insights on the meme coin craze, offering a nuanced perspective on their role in the crypto space. He noted that while many engineering-minded individuals in the industry initially viewed meme coins with disdain, there's a growing recognition of their potential benefits and the underlying social dynamics they represent.

The Nature of Memes in Crypto

Memes, as Mumtaz explained, are not a new concept. They've been around for thousands of years, serving as vehicles for ideas that propagate socially. In the context of cryptocurrency, meme coins represent a unique intersection of social phenomena and financial instruments. Unlike physical laws or tangible assets, meme coins derive their value from collective belief and social momentum.

Mumtaz drew parallels between meme coins and other viral internet trends, such as the Harlem Shake or cat videos. The key difference, he pointed out, is that "for the first time ever, you get to bet on them." This financialization of memes has created a new dynamic in the crypto market, one that has both supporters and critics.

The Case of Bonk: More Than Just a Meme

One of the most interesting examples of a meme coin's impact is Bonk, a Solana-based token that gained significant traction. Mumtaz described Bonk as "kind of like a stealth startup" rather than just another meme coin. Created by early Solana supporters during a challenging period for the network, Bonk's well-distributed airdrop helped revitalize interest in the Solana ecosystem.

"Bonk is like the one example that I've seen where I'm like, okay, this is clearly a net good for the chain," Mumtaz stated. He highlighted how Bonk's popularity led to increased usage of Solana DeFi applications, attracted new users, and even boosted sales of Solana phones.

The Double-Edged Sword of Meme Coins

While acknowledging the potential benefits of meme coins, Mumtaz was quick to point out their drawbacks. He estimated that "99.99% of meme coins or price scams" fail, much like the high failure rate of startups. However, he argued that the few successful cases can provide valuable insights and opportunities for the broader crypto ecosystem.

One of the key points Mumtaz made was that meme coins aren't necessarily distracting users from other crypto projects. Instead, he suggested that if a product isn't gaining traction, it's likely due to its own shortcomings rather than competition from meme coins. "Your product is just not good at all. Okay, if it were people would pay attention to it as well," he stated bluntly.

Meme Coins as Stress Testers

An interesting perspective offered by Mumtaz was the role of meme coins as unintentional stress testers for blockchain networks. He pointed out that the sudden surges in activity caused by meme coin trading have revealed weaknesses in various blockchain systems, including Solana.

"We noticed a lot of different issues that the chain was having due to the meme coins alone," Mumtaz explained. This unexpected benefit has led to improvements in network efficiency and resilience across multiple blockchain platforms.

The Prevalence of Meme Coin Trading

One of the most striking observations from the discussion was the prevalence of meme coin trading compared to other forms of on-chain activity. Dan Smith, the podcast host, speculated that more people have interacted with meme coins than any other market sector in the crypto industry.

This widespread engagement with meme coins has implications for user onboarding and blockchain adoption. As Mumtaz noted, "I know people who don't understand crypto in any way who understand Shiba and Doge 100%." This accessibility, while potentially concerning from a financial risk perspective, has undeniably brought more attention and users to various blockchain ecosystems.

MEV on Solana: A Growing Challenge

As the conversation shifted to more technical aspects of blockchain operations, the topic of Maximal Extractable Value (MEV) on Solana came into focus. MEV refers to the profit that can be extracted from reordering or inserting transactions within a block, and it has become a significant issue for many blockchain networks, including Solana.

Eugene Chen from Ellipsis Labs, who was quoted in the discussion, highlighted the severity of the problem: "Sandwiching on Solana has gotten really out of hand. It's pretty difficult to recommend Solana for shitcoining these days. Slippage tolerance is turning into guaranteed slippage if you get filled at all."

Understanding Solana's MEV Landscape

To understand the MEV situation on Solana, it's crucial to grasp the network's unique architecture. Unlike Ethereum, which has a mempool where transactions wait to be picked up by miners, Solana was designed without a traditional mempool. Instead, transactions are streamed directly to the block leader.

However, the introduction of Jito, a fork of the Solana client that adds mempool-like functionality, has created new opportunities for MEV on the network. This has led to concerns about transaction front-running and sandwich attacks, which can result in worse prices for users and failed transactions.

The Jito Dilemma

The emergence of Jito has sparked a debate within the Solana community about the trade-offs between validator rewards and user experience. While Jito allows validators to earn additional rewards through MEV, it potentially degrades the transaction experience for regular users.

Mumtaz provided a balanced view on this issue, stating, "If Jito weren't to do this, somebody else would have." He emphasized that MEV is somewhat inevitable in blockchain systems and that the focus should be on managing and mitigating its effects rather than attempting to eliminate it entirely.

Potential Solutions to Solana's MEV Challenge

Several potential solutions to Solana's MEV issues were discussed during the podcast. One suggestion was to create separate treatment for user transactions and bot transactions within the Jito system. This could potentially allow regular users to bypass the mempool and avoid some of the negative effects of MEV.

Another approach mentioned was the improvement of Solana's scheduler, which is responsible for organizing transactions within blocks. The upcoming Solana 1.18 release is expected to include changes that make the scheduler more deterministic, potentially reducing the randomness that can be exploited for MEV.

Ethereum's EIP-4844 and Its Implications

The conversation then turned to Ethereum's upcoming EIP-4844 upgrade, which aims to introduce "blobs" - a new data structure designed to reduce the cost of data availability for layer 2 scaling solutions. This upgrade is expected to significantly impact the scalability and cost-effectiveness of Ethereum's ecosystem.

Understanding Blobs and Their Impact

Blobs, or Binary Large Objects, are unstructured data sets that can be attached to Ethereum blocks. The EIP-4844 upgrade sets a target of three blobs per block, each with a maximum size of 0.125 megabytes. This addition is expected to reduce the cost of data posting for rollups, potentially leading to lower transaction fees for users of layer 2 solutions.

Mumtaz explained the significance of this upgrade: "The TLDR here is this makes the data cheaper. Okay for the rollups. So the rollups can post more data in a cheaper way. And this can now help scalability of those rollups they can do higher TPS at lower fees."

Predicting the Impact of EIP-4844

While the potential benefits of EIP-4844 are clear, predicting its exact impact on the Ethereum ecosystem is challenging. The podcast hosts discussed various predictions and analyses, including those from the Optimism team and independent researchers.

One key point of discussion was the potential for "induced demand" - the idea that lower transaction costs could lead to a surge in network activity, potentially offsetting some of the cost savings. As Mumtaz noted, "We don't know what the numbers look like, but I think you have some latest numbers from the Optimism guys."

Comparing Ethereum's Upgrade to Other Scaling Solutions

The discussion also touched on how EIP-4844 compares to other data availability solutions, such as Celestia and EigenDA. Interestingly, the hosts pointed out that even after the upgrade, Ethereum might not be the cheapest option for data availability.

Smith highlighted this point: "Celestia supports eight megabytes per block... Even after this upgrade, you're Ethereum will very much so not be the cheapest option." This observation raises questions about the competitive landscape for data availability solutions and the potential for market fragmentation.

The Complexity of Multi-Chain Ecosystems

As the conversation progressed, the hosts delved into the broader implications of having multiple chains, rollups, and data availability solutions. Mumtaz expressed concern about the increasing complexity of the crypto ecosystem, particularly regarding trust assumptions and security.

"Every time you introduce something new, you've completely changed trust assumptions or security assumptions," Mumtaz explained. He argued that the proliferation of different chains and solutions could potentially introduce new vulnerabilities, as "the chain is as strong as the weakest link."

The Case for Simplicity at the Base Layer

Both hosts seemed to agree that there's value in maintaining simplicity at the base layer of blockchain systems. Mumtaz advocated for focusing on improving existing chains rather than creating a multitude of new ones: "The simpler we keep it at the base layer as much as we can first before doing all these weird things would be better."

Smith echoed this sentiment, suggesting that a world with "seven Solanas" might be preferable to one with a million rollups. This perspective highlights the ongoing debate in the crypto community about the best approach to scaling and improving blockchain technology.

The Future of Blockchain Scaling

As the podcast concluded, the hosts speculated on the future of blockchain scaling and the potential outcomes of current development trends. They discussed the possibility of a few dominant rollups emerging rather than the often-predicted scenario of thousands of specialized chains.

Mumtaz suggested that "three big rollups" might be sufficient to meet the needs of the crypto ecosystem, rather than the "thousand rollups" scenario often discussed. This perspective aligns with the idea of finding a balance between expressiveness for developers and simplicity for users.

The Importance of User Experience

Throughout the discussion, both hosts emphasized the critical importance of user experience in driving blockchain adoption. They argued that the ultimate goal should be to attract more users to the crypto ecosystem, as this would benefit all participants in the long run.

As Mumtaz put it, "The more users we can get, the better it's gonna be for literally everybody." This focus on user experience and adoption serves as a reminder that, amidst all the technical discussions and developments, the success of blockchain technology ultimately depends on its ability to provide value to end-users.

Concluding Thoughts

The podcast provided a comprehensive overview of several key trends and challenges in the current blockchain landscape. From the resurgence of meme coins to the technical intricacies of MEV and scaling solutions, the discussion highlighted the complex and rapidly evolving nature of the crypto industry.

While challenges remain, particularly in areas like MEV mitigation and scaling, the ongoing work and innovations in these areas demonstrate the vitality and potential of blockchain technology. As the industry continues to mature, finding the right balance between innovation, security, and user experience will be crucial in shaping the future of decentralized systems.

Facts + Figures

  • Bitcoin recently reached a new all-time high, leading a broader market rally.
  • Meme coins like Bonk have seen significant price increases, with some gaining 20-25% daily.
  • Bonk recently flipped Solana's native token SOL in market cap, reaching multi-billion dollar valuations.
  • During the "Bonk-miss" incentive program, Bonk bot saw transaction volumes of 50-60 million dollars and 30-40,000 active addresses.
  • Solana has about 3x fewer nodes than Ethereum but is approximately 5 million times cheaper for transactions.
  • Solana offers about 130 times more throughput compared to Ethereum.
  • Ethereum's EIP-4844 upgrade aims to introduce "blobs" with a target of 3 blobs per block, each with a maximum size of 0.125 megabytes.
  • Celestia, a data availability solution, supports 8 megabytes per block compared to Ethereum's target of 0.375 megabytes after EIP-4844.
  • Celestia has processed about $8,000 in total data availability costs over 3-7 months since launch.
  • Jito, a fork of the Solana client that introduces mempool-like functionality, is estimated to be used by just over half of the total staked SOL.
  • The upcoming Solana 1.18 release is expected to include improvements to the transaction scheduler, making it more deterministic.

Questions Answered

What are meme coins and why are they significant in the crypto space?

Meme coins are cryptocurrencies inspired by internet memes or jokes. They are significant because they represent a unique intersection of social phenomena and financial instruments in the crypto space. Meme coins have shown the ability to attract a large number of new users to blockchain ecosystems and have even helped stress-test and improve blockchain networks. However, they are also highly volatile and risky, with the vast majority failing to maintain long-term value.

How has the meme coin Bonk impacted the Solana ecosystem?

Bonk has had a significant positive impact on the Solana ecosystem. It was created by early Solana supporters during a challenging period for the network and helped revitalize interest in Solana. Bonk's well-distributed airdrop led to increased usage of Solana DeFi applications, attracted new users to the platform, and even boosted sales of Solana phones. It demonstrated how a meme coin could be leveraged to benefit the broader ecosystem of a blockchain network.

What is MEV and why is it a concern for Solana?

MEV stands for Maximal Extractable Value, which refers to the profit that can be extracted from reordering or inserting transactions within a block. It's a concern for Solana because the introduction of Jito, a fork of the Solana client that adds mempool-like functionality, has created new opportunities for MEV on the network. This has led to issues such as transaction front-running and sandwich attacks, which can result in worse prices for users and failed transactions, potentially degrading the user experience on Solana.

How does Ethereum's EIP-4844 upgrade aim to improve scalability?

Ethereum's EIP-4844 upgrade aims to improve scalability by introducing "blobs," which are new data structures designed to reduce the cost of data availability for layer 2 scaling solutions. The upgrade sets a target of three blobs per block, each with a maximum size of 0.125 megabytes. This is expected to significantly reduce the cost of data posting for rollups, potentially leading to higher transaction throughput and lower fees for users of layer 2 solutions on Ethereum.

How does Solana's approach to scaling differ from Ethereum's?

Solana takes a monolithic or integrated approach to scaling, where the blockchain handles execution, verification, and consensus on a single layer. This differs from Ethereum's modular approach, which separates these functions across different layers (L1 for settlement, L2 for execution). Solana's design allows for high throughput and low fees at the base layer, while Ethereum relies on layer 2 solutions like rollups to achieve scalability. Solana's approach offers simplicity and performance but faces challenges in areas like MEV mitigation.

What are the potential drawbacks of having multiple chains and rollups in the crypto ecosystem?

The proliferation of multiple chains and rollups can lead to increased complexity in the crypto ecosystem. This complexity can introduce new security risks, as each new chain or rollup adds its own set of trust assumptions. It can also make it more difficult for users to navigate the ecosystem and for developers to ensure interoperability between different systems. Additionally, the fragmentation of liquidity and user bases across multiple chains can potentially hinder network effects and overall ecosystem growth.

How might the future of blockchain scaling look based on the podcast discussion?

The podcast discussion suggests that the future of blockchain scaling might involve a balance between a few dominant, high-performance chains or rollups rather than thousands of specialized chains. The hosts speculated that three to seven well-designed, scalable blockchains might be sufficient to meet the needs of the crypto ecosystem. They emphasized the importance of maintaining simplicity at the base layer while still providing enough expressiveness for developers and a good user experience for end-users.

What role do data availability solutions like Celestia play in the blockchain ecosystem?

Data availability solutions like Celestia play a crucial role in the modular blockchain ecosystem by providing a specialized layer for storing and making transaction data available. These solutions aim to reduce the cost and increase the efficiency of data availability, which is particularly important for layer 2 scaling solutions like rollups. By offloading data storage to specialized chains, other blockchains can potentially achieve higher scalability and lower costs. However, the podcast discussion also raised questions about whether data availability might become commoditized in the future.

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