In a wide-ranging discussion on the Lightspeed podcast, Kyle Samani, Managing Partner at Multicoin Capital, shared his insights on the current state and future of the crypto industry. Samani, known for his bullish stance on high-throughput systems like Solana, discussed topics ranging from the L1 vs L2 debate to the potential for Solana to eventually overtake Ethereum as the leading smart contract platform.

The Core Value Proposition of Crypto

Samani begins by emphasizing that the fundamental value of blockchain technology lies in its ability to serve as financial rails for moving money around. He argues that while there's often discussion about abstract concepts like decentralized identities and trust-minimized computation, these ideas can cloud our understanding of what blockchains truly are - asset ledgers.

"Blockchains do really one thing. They keep track of who owns what," Samani states. He goes on to explain that the primary functions enabled by these systems are trading assets and making payments, with trading essentially being two atomic payments going back and forth.

This perspective frames crypto as primarily a financial system, rather than a generalized computing platform. Samani believes this focus on financial applications is where the true potential of blockchain technology lies.

The L1 vs L2 Debate

When discussing the ongoing debate between Layer 1 (L1) and Layer 2 (L2) solutions, Samani takes a nuanced view. He acknowledges that while a single global asset ledger might seem ideal in theory, practical considerations make multiple interconnected ledgers more likely.

Samani draws a parallel to the existing financial system, where the Federal Reserve acts as a bridge between banks. He notes that the global financial system has scaled to support billions of people through a federated approach, rather than a single monolithic system.

"Asset bridges are fine," Samani states, but he cautions that truly trust-minimized bridges are still years away from being a reality. This suggests that while L2 solutions may have their place, robust L1 platforms will continue to play a crucial role in the crypto ecosystem.

Stablecoins and DePIN: Key Use Cases for Crypto

When asked about the most promising applications being built on crypto rails, Samani highlights two areas where Multicoin Capital is focusing its investments: stablecoins and Decentralized Physical Infrastructure Networks (DePIN).

Stablecoins

Samani sees enormous potential in getting stablecoins into the hands of people worldwide. He notes that this is not a homogenous problem, as it requires navigating local regulations and cultural practices in different regions.

One interesting approach he mentions is a team focusing on "Huntas" - group savings programs common in Latin America and other parts of the world. By building these traditional financial structures on blockchain technology, they aim to introduce crypto wallets to new users in a familiar context.

Samani also highlights the potential for stablecoins in business-to-business payments, particularly for gig economy platforms. He predicts that companies like Grab, Uber, DoorDash, and Fiverr will offer stablecoin payouts to their service providers within the next few years, as demand for this option grows.

DePIN and DeVIN

Decentralized Physical Infrastructure Networks (DePIN) and Decentralized Virtual Infrastructure Networks (DeVIN) represent another major focus for Multicoin Capital. Samani reveals that the firm has made several investments in this space, including Helium (wireless networks), Hivemapper (decentralized mapping), and an undisclosed project in the energy sector related to smart grids and virtual power plants.

These projects aim to create decentralized alternatives to traditional infrastructure, leveraging crypto incentives to build and maintain networks. Samani sees significant potential in areas like video distribution, bandwidth provision, storage, and certain types of compute workloads.

The Mispricing of L1s vs L2s

One of the most provocative points Samani makes during the discussion is his belief that the market is currently mispricing the relative value of L1s and L2s, particularly in the Ethereum ecosystem. He argues that L2s are dramatically undervalued while Ethereum itself is overvalued.

The crux of Samani's argument is that the true value in these systems comes from Maximal Extractable Value (MEV) - the profit that can be extracted from transaction ordering and inclusion. He contends that Ethereum is essentially forgoing this value and giving it to L2s.

"I believe all the value comes from the MEV. Ethereum is explicitly forgoing the MEV and giving it to the L2s," Samani states. He dismisses the counterargument that Ethereum provides economic security to L2s, calling this concept "nonsense."

This perspective suggests that as the market matures and participants better understand value flows in the ecosystem, we could see a significant revaluation of L1s and L2s relative to each other.

Why Solana Will Flip Ethereum

Perhaps the most attention-grabbing claim Samani makes during the podcast is his prediction that Solana will eventually overtake Ethereum as the leading smart contract platform. He bases this on several factors:

1. MEV Capture: Samani argues that Solana is better positioned to capture MEV, which he sees as the primary driver of value for these networks.

2. Transaction Finality: Solana's faster finality times (a few seconds compared to Ethereum's ~12 minutes) provide a better user experience and enable more use cases.

3. Scaling Potential: Samani believes Solana's architecture allows for greater throughput and scalability compared to Ethereum.

4. Growing Ecosystem: The Solana ecosystem has been expanding rapidly, with increasing adoption and development activity.

Samani reveals that Multicoin Capital has communicated to its limited partners (LPs) that they expect Solana to "meaningfully eclipse Ethereum on all relevant metrics by the end of the year." This is a bold prediction that, if realized, would represent a seismic shift in the crypto landscape.

Economic Security and Issuance

Samani takes issue with common arguments about economic security and token issuance, particularly those made by Ethereum proponents like Justin Drake. He contends that these arguments often fail to account for the productive nature of staked assets in proof-of-stake systems.

"In a proof-of-stake context, you can just stake your coins and you are guaranteed to beat the rate of inflation," Samani explains. This is in contrast to proof-of-work systems like Bitcoin, where miners must sell newly issued coins to cover operational costs.

Samani also argues that concerns about token issuance leading to selling pressure are overstated. He points out that the actual cost of running the Solana network, for example, is much lower than the headline inflation rate would suggest, as most newly issued tokens go to stakers rather than being sold on the market.

Decentralization and Governance

On the topic of decentralization, Samani takes a pragmatic view. He acknowledges that there's no single perfect measure of decentralization, but rather a combination of factors including node count, client diversity, and geographic distribution.

Interestingly, Samani argues that concerns about initial centralization in systems like Solana are overblown. He points out that all major blockchain networks, including Bitcoin and Ethereum, have become more decentralized over time as they've grown in value and importance.

"As market cap goes up, that means more people care. And that means more people are doing stuff," Samani explains. This organic process of decentralization, he argues, is more important than initial design choices aimed at maximizing decentralization from day one.

Advice for Crypto Founders

When asked what crypto founders often get wrong, Samani highlights the importance of timing and unique insights. He cautions against simply jumping on the latest trend, noting that by the time something becomes "hot" in crypto, it's often too late to start building in that space unless you have a truly novel approach.

"By the time something is hot and it's like being discussed, if you aren't already haven't been building there, like then you were by definition at a disadvantage because it's becoming hot because other people have been building there," Samani advises.

He encourages founders to focus on solving real problems and bringing unique insights to the table, rather than chasing the latest hype cycle.

The Future of Solana L2s

On the topic of Layer 2 solutions for Solana, Samani takes a nuanced view. He distinguishes between projects that are simply trying to replicate Solana's functionality with minor improvements (which he sees as less interesting) and those that are extending Solana's capabilities in novel ways.

Samani mentions projects like Drift, Zeta, and Grape as examples of the latter category. These projects are building systems that leverage Solana's base layer while adding new functionalities that aren't possible on Solana itself.

This perspective suggests that the most successful "L2s" in the Solana ecosystem may not look like traditional rollups or sidechains, but rather specialized systems that expand the network's capabilities in specific domains.

Conclusion

Kyle Samani's insights provide a compelling vision for the future of the crypto industry, with Solana playing a central role. While his predictions about Solana flipping Ethereum are certainly bold, they're grounded in a deep understanding of the technical and economic factors at play in the ecosystem.

As the crypto industry continues to evolve, it's clear that the competition between different L1s and L2s will remain fierce. However, Samani's focus on real-world use cases like stablecoins and DePIN suggests that the ultimate winners will be those networks that can deliver tangible value to users, rather than those that simply promise theoretical benefits.

For investors, developers, and users in the Solana ecosystem, Samani's optimism provides encouragement. However, it's important to remember that the crypto landscape is highly dynamic, and continued innovation and execution will be crucial for Solana to realize its potential and potentially overtake Ethereum as the leading smart contract platform.

Facts + Figures

• Kyle Samani predicts Solana will "meaningfully eclipse Ethereum on all relevant metrics by the end of the year"
• Multicoin Capital is focusing investments on stablecoins and Decentralized Physical Infrastructure Networks (DePIN)
• Samani believes L2s are currently undervalued while Ethereum is overvalued
• Solana finalizes transactions in a few seconds, compared to Ethereum's ~12 minutes
• Samani argues that concerns about initial centralization in systems like Solana are overblown, as all major blockchains have become more decentralized over time
• Multicoin Capital has made three investments in DePIN projects with hardware components: Helium, Hivemapper, and an undisclosed energy sector project
• Samani predicts companies like Grab, Uber, DoorDash, and Fiverr will offer stablecoin payouts within the next few years
• The actual cost of running the Solana network is much lower than the headline inflation rate suggests
• Samani believes US equities could be the next major asset class to see significant on-chain adoption
• Multicoin Capital has invested in Mountain Protocol, a regulatory-compliant permissionless stablecoin that accrues yield on an auto-rebasing basis

Questions Answered

What is the core value proposition of crypto according to Kyle Samani?

Kyle Samani argues that the fundamental value of crypto lies in its ability to serve as financial rails for moving money around. He emphasizes that blockchains are essentially asset ledgers, keeping track of who owns what. While there's often discussion about abstract concepts like decentralized identities and trust-minimized computation, Samani believes these ideas can cloud our understanding of what blockchains truly are and what they're best suited for.

Why does Kyle Samani believe Solana will flip Ethereum?

Samani predicts Solana will overtake Ethereum based on several factors. Firstly, he argues that Solana is better positioned to capture Maximal Extractable Value (MEV), which he sees as the primary driver of value for these networks. Secondly, Solana's faster transaction finality times (a few seconds compared to Ethereum's ~12 minutes) provide a better user experience. Thirdly, Samani believes Solana's architecture allows for greater throughput and scalability. Lastly, he points to the rapidly growing Solana ecosystem as evidence of increasing adoption and development activity.

What are the key use cases for crypto that Multicoin Capital is focusing on?

Multicoin Capital is primarily focusing its investments on two areas: stablecoins and Decentralized Physical Infrastructure Networks (DePIN). Samani sees enormous potential in getting stablecoins into the hands of people worldwide, particularly for business-to-business payments in the gig economy. For DePIN, Multicoin has invested in projects like Helium (wireless networks), Hivemapper (decentralized mapping), and an undisclosed project in the energy sector, believing these decentralized alternatives to traditional infrastructure have significant potential.

How does Kyle Samani view the economic security arguments made by Ethereum proponents?

Samani takes issue with common arguments about economic security, particularly those made by Ethereum proponents. He contends that these arguments often fail to account for the productive nature of staked assets in proof-of-stake systems. Samani argues that in a proof-of-stake context, users can stake their coins and are guaranteed to beat the rate of inflation, unlike in proof-of-work systems where miners must sell newly issued coins to cover operational costs. He dismisses the notion that Ethereum provides crucial economic security to L2s, calling this concept "nonsense."

What advice does Kyle Samani have for crypto founders?

Samani cautions crypto founders against simply jumping on the latest trend. He advises that by the time something becomes "hot" in crypto, it's often too late to start building in that space unless you have a truly novel approach. Instead, he encourages founders to focus on solving real problems and bringing unique insights to the table. Samani emphasizes the importance of timing and having a clear understanding of why your approach is different and better than existing solutions.

How does Kyle Samani view the future of Solana L2s?

On the topic of Layer 2 solutions for Solana, Samani distinguishes between projects that are simply trying to replicate Solana's functionality with minor improvements (which he sees as less interesting) and those that are extending Solana's capabilities in novel ways. He mentions projects like Drift, Zeta, and Grape as examples of the latter category, which are building systems that leverage Solana's base layer while adding new functionalities that aren't possible on Solana itself. Samani suggests that the most successful "L2s" in the Solana ecosystem may be specialized systems that expand the network's capabilities in specific domains.

What is Kyle Samani's perspective on decentralization in blockchain networks?

Samani takes a pragmatic view on decentralization. He acknowledges that there's no single perfect measure of decentralization, but rather a combination of factors including node count, client diversity, and geographic distribution. Interestingly, Samani argues that concerns about initial centralization in systems like Solana are overblown. He points out that all major blockchain networks, including Bitcoin and Ethereum, have become more decentralized over time as they've grown in value and importance. Samani believes this organic process of decentralization is more important than initial design choices aimed at maximizing decentralization from day one.