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Hey everybody, this is Sib from the chopping block and today I'm doing a little bit of a special holiday episode. It's Thanksgiving weekend and I recently published a piece that I got some requests to do a reading of. So I thought it might be a nice little gesture, a little break from this market, to have a little bit of a kind of deep dive article. So this article is titled In Defense of Exponentials. I used to tell founders, the reaction you're going to get to your launch is not hate, it's indifference by default. Nobody cares about your new chain. I have to stop telling them that now. Monad launched this week, and I've never seen so much hate about a blockchain that just launched. I've been investing into Crypto professionally for seven plus years now. Before 2023, almost every chain I've ever seen that launched was mostly met with enthusiasm or indifference. But now new chains are born into a chorus of hate. The amount of haters I've seen for projects like Monad, Tempo, Mega Eth before they even hit mainnet is a genuinely new phenomenon I've been trying to diagnose. Why is this happening now and what does it mean about the psychology of the market? The cure is worse than the disease. Forewarning. This is going to be the vaguest blockchain valuation post you have ever read. I don't have any fancy metrics or charts to sell you on. Instead, I'll be arguing against the zeitgeist of crypto Twitter, which for the last couple of years I've been constantly on the opposite side of. In 2024, I felt like what I was arguing against was financial nihilism. Financial nihilism is the belief that none of these assets matter. It's all memes at the end of the day, and everything we've built is inherently worthless. Thankfully, that's no longer the vibe we've broken out of that spell. But the zeitgeist now is what I'd call financial cynicism. Okay, maybe some of this stuff has value, maybe it's not all memes. But it's grossly overvalued, and it's only a matter of time before Wall street finds that out. Not that all these chains are worthless, but these things are all maybe worth 1/5 to 1/10 what they're currently trading at. Have you seen these PE ratios? And so you better pray like hell that Wall street doesn't call us on our bluff, because once they do, it's all getting wiped out. You've got many bullish analysts now trying to conjure up optimistic L1 valuation models, inflating P E ratios, gross margins, DCFs. Trying to fight against this mood, late last year Solana proudly embraced Rev as a metric that could finally justify their valuation. They proudly announced we and only we are no longer bluffing to Wall Street. And of course almost immediately after Rev was embraced, it fell off a cliff, though Soul tellingly did better than Rev did. Not that there's anything wrong with rev. Rev is a very clever metric, but the point of this post is not metric selection. Then came the launch of Hyperliquid, a dex that had real revenue and buybacks and PE multiples. And the chorus said look, look, I told you. Finally, for the first time ever, a token that has some real profits and a proper PE multiple. Never mind BnB, we don't talk about that. Hyper liquid will eat everything because obviously Ethereum and Solana don't make any real money. We can stop pretending to value them now. Hyperliquid, Pump sky these buyback heavy tokens are all great, but the market always had the ability to invest into exchanges. You could always buy Coinbase or BNB or whatever. We own Hype and I agree that it's a fantastic product, but that's not why people were investing in ethanol. The fact that L1s don't have exchange like profit margins is not why people were buying them. If they wanted that, they could have bought Coinbase stock. So if I'm not critiquing blockchain financial metrics, maybe you think this post is going to be chiding the sinfulness of the token industrial complex. Obviously everybody's lost money on tokens in the last year, VCs included. Alts are down bad this year and so the other half of the zeitgeist on crypto Twitter is arguing about who's to blame, who's become greedy? Are the VCs greedy? Is Wintermute greedy? Is Binance greedy? Are the farmers greedy? Are the founders greedy? The answer of course is the same as it's ever been. Everyone is greedy. Everyone. The VCs, Wintermute, the farmers, Binance, the KOLs. They're all greedy. And you are greedy too. But it doesn't matter because no functioning market has ever acquired anyone to act against their self interest. If we're right about crypto, we can all be greedy and the investments will still work out. Trying to analyze a market that has gone down by figuring out who's greedy is going to be about as fruitful as commissioning witch trials. I guarantee you nobody just started being greedy in 2025. So this too is not what I'm going to be writing about. Many people want me to write a post about why Monad should be valued at X or mega eth at Y. I'm not interested in writing this post or advocating that you buy anything in particular. In fact, you probably shouldn't buy any of them if you don't already believe in them. Will any new challenger chain wins? Who knows? But if it has a material chance of winning, it's going to be priced on that basis. If ethereum is worth 300 billion or Solana is worth 80 billion, a project that has a 1 to 5% chance of becoming the next Ethereum or Solana will be priced according to those probabilities. Somehow Crypto Twitter is scandalized by this, but it's no different than biotech. A drug that has less than a 10% chance of curing Alzheimer's is priced by the market as worth billions of dollars, even if 90% chance it won't pass stage three trials and we'll just go to zero. That's how the math works. It turns out markets are pretty good at doing math. Binary outcomes are priced on probabilities, not on run rates or moral turpitude. It's the shut up and calculate school of valuation. I really don't think that's an interesting question to write about. 5% chance to win? No way. That's clearly a 10% chance. Markets, not articles, are the best way to assess that for any individual token. So here's what I am going to write about. Crypto doesn't seem to believe anymore that chains are valuable. I don't think this is because they don't believe new chains can win market share. We just saw Solana dominate market share after emerging from the ashes less than two years ago. It's not easy, but of course it's possible. It's more that people have come to believe that even if a new chain wins, there's no prize worth winning. If eth is just a meme, if it'll never generate real revenue, then even if you win, you won't be worth 300 billion. The contest isn't worth winning because these valuations are all bunk and if it'll all come crashing down before you go to claim your prize, then why bother being optimistic about chain valuations has become passe. Not that nobody is optimistic. Obviously there must be optimists out there. For every seller there's a buyer. And as much as crypto Twitter cool kids love to drag on L1s. People are comfortable buying SOL at $140 and E ETHA 3000, but there's a perception now that all the smartest people are over buying smart contract chains. Smart contract people. Smart people know the jig is up on smart contracts. If not now, then soon. The only people buying here are suckers, Uber drivers, Tom Lee, maybe KOLs who say stuff like trillions. Maybe the US treasury, but not the smart money. This is bullshit. I don't believe it and you shouldn't either. So I felt like I had to write a smart person's manifesto on why general purpose chains are valuable. This post is not about MONAD or Mega eth. It's really in defense of ETH and sol because if you believe ETH and SOL are valuable, the rest is straight downstream. Defending ETH and SOL valuations is generally not my job as a vc, but fuck it, if nobody else is willing to do it, then I'll write it Feeling the Exponential My partner Bo experienced the Chinese Internet boom firsthand. As a vc, I've heard how crypto is like the Internet so many times now that it doesn't even register for me anymore. But when I hear his stories, it always reminds me how costly it is to be wrong about these things. A story he often tells is about when all the early E Commerce VCs, it was a small group back then, got together for coffee in the early 2000s. They debated how big is the market for E commerce going to be? Is it going to be mostly electronics? Maybe only techies will use PCs. Could it ever work for women? Perhaps they're too tactile. What about food? Maybe impossible to manage perishables? These were deeply important questions for the early VCs to decide what to invest in and what prices to pay. The answer, of course, was that literally every single one of them was devastatingly wrong. E commerce would sell everything and the target audience was the whole fucking world. But nobody at the time actually believed it, and even if they did, it would be too absurd to say out loud. You just have to wait long enough for the exponential to show you. Even among the believers, very few thought E commerce would become as big as it became. And those few who did, almost all of them became billionaires from just holding on every other vc. As Bo tells me, since he was one of them, sold too early. It has become passe in crypto to believe in the exponential. I believe in the crypto exponential because I've lived it. When I started in crypto, nobody used this Stuff. It was tiny and broken and awful. TVL on chain was in the millions. We invested in the first generation of DeFi MakerDAO compound one inch back when they were science projects. I remember playing around on Ether Delta back When DEXs traded single digit millions a day and that was considered to be a huge success. It was complete dogshit. Now we routinely trade in the tens of billions on chain every day. I remember believing it was crazy that tether hit a billion dollars in issuance and was being written up in the New York Times as a Ponzi scheme on the brink of shutdown. Now Stablecoins are over 300 billion and regulated by the Federal Reserve. I believe in the exponential because I've lived it. I've seen it over and over again. But you might respond well. Stablecoin growth might be exponential. Maybe defi volumes are exponential, but they don't accrue to ETH or sol. The value doesn't get captured by the chains. To which I answer, you still don't believe in the exponential because the exponential's answer is always the same. It doesn't matter. This stuff is going to be so much bigger than it is today. And when it's absolutely enormous, you will make it up on scale. Study this chart, those of you who are listening, not watching. This is a chart of Amazon's revenue as well as their profit. I'll talk through the chart so you don't really need to see it. This is Amazon's P and L from 1995 to 2019. That's 24 years. Red is revenue, gray is profit. You see that little blip on the end where the gray line goes up? That's when 22 years in Amazon started actually making a profit. Amazon was 22 years old when this little gray line of net income first peeled off of zero. Every single year before then there were op EDS and critics and short sellers claiming that Amazon was a Ponzi scheme that would never make any money. Ethereum just turned 10 years old. This is what the first 10 years of Amazon stock looked like. Cue a picture of the Amazon stock. 10 years of chop. All along the way, Amazon was beset with doubters and non believers. Is E commerce a VC subsidized charity? They're selling underpriced, cheap, low quality knickknacks or bargain hunters. Who cares? How are they ever going to make actual money like Walmart or ge? If you were arguing about Amazon's P E ratio, you were in the wrong regime. That's the regime of linear growth. But E commerce was not a linear trend. And so every single person for 22 years arguing about PE ratios was devastatingly wrong. No matter what you paid, no matter what you bought, you were not bullish enough. Because that's what exponentials do. When it comes to truly exponential technologies, no matter how big you think it's going to get, it just keeps getting even bigger. This is the thing that Silicon Valley has always understood better than Wall Street. Silicon Valley was raised on exponentials, while Wall street was raised on linearity. And over the past few years, crypto center of gravity has migrated from Silicon Valley to Wall Street. You can feel it. Granted, crypto growth doesn't look as smooth as E commerce's growth. It's burstier. It goes in fits and starts. This is because crypto, being about money, is deeply tied to macro forces. And it also has more violent regulatory push and pull than E commerce. Crypto strikes at the heart of the state money. And so it's more unnerving to governments than E commerce ever was. But the exponential is no less inevitable. It's a crude argument, but if crypto is exponential, then the crude argument is correct. Zoom out. Here's a collection of charts, all showing numbers going up and to the right. Financial assets want to be free. They want to be open. They want to be interconnected. Crypto turns financial assets into file formats, makes it as easy to send a dollar or a stock as to send a PDF. Crypto makes it possible for everything, to talk to everything. It makes it all 24 7, global, interconnected, and open. That will win. Open always wins. If there's no other lesson I've learned from the Internet, it's that incumbents will fight against it. Governments will huff and puff, but eventually they will give up against the adoption, the generativeness, the sheer efficiency that this technology enables. It's what the Internet did to every other industry. Blockchains are how that same trend will gobble up all of finance and money. Yes, with enough time, all of it. An old saying goes, people overestimate what can happen in two years, but they underestimate what can happen in 10. If you believe in the exponential, if you zoom out enough, then it's all still cheap. And it should humble you that every day the holders outlast the sellers and the naysayers. Big capital has a longer horizon than crypto swing traders might lead you to believe. Big capital has been trained through history not to fade big technologies. You know that big gushy story that originally got you to buy eth or sol Big Capital believes that story and hasn't stopped. So what exactly am I arguing? I am arguing that applying PE ratios to smart contract chains, the revenue meta as it's now called, is giving up on the exponential. It means you have consigned this industry to the regime of linear growth. It means you believe 30 million daily active users on chain and less than 1% of M2 is it. Crypto is just one of the things in the world. A sideshow. It did not win. It was not inevitable. More than anything, I'm arguing to be a believer. Not just a believer, but a long term believer. I'm arguing that this exponential will be bigger than anything else you've been a part of in your life. That this is your E commerce. That you will look back when you're old and tell your kids. I was there when it all happened. Not everyone believed it was possible that whole societies could change. That all of money and finance would be transformed by programs running on decentralized computers that we collectively owned. But it actually happened. It changed the world and you were a part of it. Disclosure these are my own views. Dragonfly Investor is an investor in many of the assets that I mentioned. Dragonfly believes in the exponential and this is not investment advice, but is advice of another kind. That's it for me. We'll be back with your normally scheduled programming next week. Enjoy the holidays everyone. Thanks for listening.