We're joined by Kyle Samani, the co-founder of Multicoin Capital and one of crypto's most independent thinkers. In this episode, we cover why "monolithic L1s" is a misnomer, the value of global state, how a protocol establishes moats, why DePIN is finding product-market fit, how Kyle synthesizes new ideas and more!
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Timestamps:
00:00 Introduction
00:34 The Modular vs Monolithic Debate
07:43 Bootstrapping Communities
09:17 A Case for Rollups and Appchains
15:33 The Value of Composability and Globally Shared State
22:22 Permissionless Plug
23:22 Crypto’s Moats, Meat Space and the Saga Phone
28:38 Don’t Sleep on DePIN
45:11 Spatial Computing and New Form Factors
53:42 Kyle’s Thinking Process
57:49 Zero Knowledge Proof Use Cases
01:04:21 How Kyle Cultivated His Communication Style
01:06:03 Advice for Founders
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Although our guests this week are managing partners of a registered investment adviser, nothing in this podcast should be considered an offer of Multicoin’s investment advisory services or should otherwise be confused for investment, tax, legal or other financial advice.
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Follow Kyle: https://twitter.com/KyleSamani
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Use code LIGHTSPEED30 to get 30% off Permissionless 2023 in Austin: https://blockworks.co/event/permissionless-2023
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Resources

Multicoin Capital
https://multicoin.capital/

Unlocking Payments Over Crypto Rails
https://multicoin.capital/2022/12/08/unlocking-payments-over-crypto-rails/

Stratechery (Ben Thompson)
https://stratechery.com/
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Disclaimers:

Lightspeed was kickstarted by a grant from the Solana Foundation.

Nothing said on Lightspeed is a recommendation to buy or sell securities or tokens. This podcast is for informational purposes only, and any views expressed by anyone on the show are solely our opinions, not financial advice. Mert, Garrett and our guests may hold positions in the companies, funds, or projects discussed.

Although our guests this week are managing partners of a registered investment advisor, nothing in this podcast should be considered an offer of Multicoin's investment advisory services or should otherwise be confused for investment, tax, legal, or other financial advice.

Welcome to another episode of Lightspeed.

Today we have Kyle Simani from Multicoin.

Kyle's 1 of the most independent and clearest thinkers in crypto.

Excited to be early early guest of the new Lightspeed show.

I want to start with 1 of the primary debates in crypto right now, which is modular versus monolithic.

I know you kind of have a spicy take on this.

And why do you say monolithic is a misnomer?

If you have any kind of substantial understanding of the history of technology, like this debate has been had many, many times, starting as far back as like the IBM mainframe.

And like the reason that IBM was like, here, Microsoft, like go for it, make our demo operating system is because like they thought the value of the system wasn't being integrated.

And you've seen this pendulum swing back and forth the different layers of the stack.

Obviously in terms of PC components, you had the wind tail kind of rise in the nineties And then obviously iPhone kind of led to reintegration in terms of mobile context.

In software, you've seen something similar.

AWS started as a fairly modular platform and has slowly been integrating up the stack with Pass and with all of their AI tools and whatever.

And now they have a Mongo competitor and whatever call center tool, you know, like, so you see this playing out in, in Silicon, you see this playing out in, in hardware configurations.

You see this playing out in OEMs, you see this playing out in operating systems and everything else kind of moving up the stack.

The important thing to take away is not that there is a universal answer or a universal framework on how to think about which pieces of the stack should be integrated versus modular.

There isn't an answer because these things vary as a function of like different layers and how those layers interact with each other.

The most important example here being like Apple and integrating all the pieces in the iPhone together, And like swinging the pendulum away from modular components and towards integrated components, especially with systems on a chip and the full integration therein.

So there isn't an answer to the question of modular versus integrated.

It's just important to recognize that like this debates been had many times and actually typically both configurations coexist Microsoft did not kill Apple the existence of iPhone does not preclude Samsung from having a very large ship business the existence of Whatever Celestia Ethereum doesn't preclude Solana from existing etc These things actually you typically see kind of both configurations coexist.

It's pretty rare that like, 1 kills the other.

You have rare exceptions like sys versus risk, but like, basically speaking, and that's not really integration versus modularity, that's just more of a question of complexity and chip design.

And So that's kind of comment a is like There isn't a universal framework comment B.

And this is probably actually the more important 1 is Like you need to understand like what is the objective you are trying to achieve?

In my opinion like the customer of a blockchain is the developers and developers want to build as good of applications as possible while doing as little work and thinking as much as possible.

Both of those statements are actually those variables are gray and have are multifaceted in terms of the inputs that that comprise them.

So you can't make kind of universal statements.

But like 1 thing you can say pretty definitively is all of these modular things, OP stack, ZK stack, super nets, you know, whatever, pick your flavor of choice.

They are all increasing the complexity that developers have to think about across many vectors.

Modular people kind of assume that that's isolated to like this vector of the security assumption between the bridge of the L2 and the L1.

And that's like very myopic view of that, but it kind of fails to capture the broader social reality, which is like, okay, well, if your users have assets on another chain, Are they getting over?

Are there on ramps for your new chain or there, or they're not, our exchanges onboarding directly there.

Like there's a limited amount of UI on the withdrawal function of Coinbase.

Like there's all of these weird things that emerge.

Address for I mean, apparently I learned this recently on even on different EVML2s, the address formats change across these things.

So like the token contracts or whatever, like Aave is not the same on Optimism as an Arbitrum.

And like, that's a new form of social complexity that every developer and every wallet has to deal with all this shit.

And so you just keep increasing this complexity in dealing with all of these problems.

And I think that that complexity is being pretty dramatically under appreciated by most most developers in that in that world.

So you put it pretty well there and You painted a very balanced picture.

I would say the sentiment in CT is very, in CT, crypto Twitter, is very modular dominated.

People seem to be like 80% modular bullish, let's say, And they see monolithic as a bad word, which

saying it shouldn't, yeah, it shouldn't be, it shouldn't even be monolithic.

Why is the popular discourse so dominated by this modularity talk?

And how can we, what are your thoughts on how to fix that or maybe make it more balanced?

I mean, just look at the market cap of ETH versus soul.

Like that's like kind of the simple answer.

I, I hate being, I guess, almost like tribal about it, but I mean, I think that's basically what it is.

Most people are just going along with whatever their bags say, which look, you can say the same thing about me.

So maybe I'm the 1 who's not thinking this is the thing that crypto has that does not exist in other technology markets, which is like you have public bag holders in very large quantities.

Even when like the basis for which the kind of core business winnings, the traditional vectors on top of which businesses would win or lose, Opportunities have not yet been defined.

Typically, people become public bagholders once the major questions have been answered.

And in the case of crypto, that's just not the case.

And so, bag-holding effects are very real.

I mean, Justin Drake popularized the term monolith, which, which is pretty frustrating to me.

He generally does have a good sense of history.

And you know, I was, I was a little annoyed when he chose to use the pejorative term instead of the historically correct framing.

But maybe the answer is to have a conversation with him and like, okay, let's really dig into this.

And you coined the term monolith versus modular.

I don't get the sense you would opt into it, but it would be pretty fun to do.

So While we're on that topic, actually, so the tribalism that you kind of, you know, the bag holder syndrome, let's call it to label it.

But it could also be used to bootstrap communities, right?

Token incentivized communities, which is something you're very big on.

So in that regard, it's just like a double-edged sword.

It's a superpower you need to know how to wield as a developer.

Most developers don't know how to wield the superpower well.

Folks actually like the Ethereum Foundation, I think they don't wield it particularly well or poorly.

Generally I think the term community is, used as an excuse for lack of thinking and also used as a euphemism for, or excuse for product market fit or lack thereof, depending on the context in which it's presented.

I generally don't think community matters as a construct.

And like you can be very clear about how to think about financial incentives.

I think D-PIN being like a very good case study of where you can reason for first principles why those financial incentives should or should not work.

It gets a lot more nebulous with L1s and other types of products, though.

So sticking on the modularity and the financial incentives, you see this with rollups today with L2's arbitrary optimism and doing airdrops and that's how they're getting users and high TVLs.

I know you've had a lot of comments on rollups in the past.

What is your bear case on rollups or has it changed?

I mean, I'm not opposed to the concept of them.

They I mean look they can exist Kind of therefore they will exist like these are permissionless systems I think the right question is like, what is the right configuration of them?

And I think it's kind of like, I'd say the Ethereum community is like hammer, everything is therefore nail.

I got a pretty high conviction that statement that that's correct.

And it turns out maybe like 5% of the things that people think are nails are actually nails is like probably correct.

I mean, look like at the limit, if you really push the system like Solana or like Fired Answer, what really is the bottleneck at scale?

I've gone back and forth with this on different people, and depending on which benchmarks you use, you get the different answers.

Actually, I don't particularly care, because the correct answer is Moore's law and Nielsen's law.

But assuming the answer is compute, then you could get gains in total system efficiency by doing by separating execution from DA.

So like, we'll see if you know, that, that matters for scaling total system throughput.

I'm, I'm pretty skeptical that that, that Delta matters, but potentially is a thing.

And then maybe there are some developers, like maybe people come up with cool use cases that are still unclear.

You know the most interesting use case for being in your own chain is a Deruto's Dex.

Obviously Cosmos and Polkadot were the kind of 2 first people to push it hard.

And I've spoken to extent, you know, kind of every 12 months or so for the last 6 years, I've checked in with the Cosmos and the Polkadot people and been like, Hey, like, what are the cool app chains?

And the only answer I've ever received that I think is even plausibly good is derivatives decks and That's because decks is I have a very specific set of parameters or properties rather that are unique.

I mean, that's where all the money is being made and lost.

Obviously you have HFT and latency and all that other shit.

And then specifically in the context of derivatives, it's particularly sensitive.

If people pay 150 bips on Coinbase, it's hard to argue that retail cares about spreads.

And you can make a DEX work with 50 basis point spreads, it's just not a problem.

Derivatives are a little different though, because the people who trade derivatives are a lot more sensitive to those things.

They're also sensitive to the Oracle and to the collateral management.

It's just a 100x higher bar in terms of median amount of caring about quality of execution in a derivatives dex versus a spot dex.

And so there is a case to be made that by doing latency optimizations, primarily by centralizing the sequencer or pseudo-centralizing the sequencer, you can deliver an Oracle plus collateral management plus latency set of optimizations that are impossible to do in a permissionless open system.

And therefore, that is the right way to unlock derivatives decks.

It has not yet been proven or disproven in either direction.

I am of the belief that you can do it on a permissionless system.

Without question, you can get optimizations on a system like the YDX or say that are not plausible on Solana, no questions asked.

I am not particularly convinced that the marginal, basically performance gains you get and spread reductions you get are like, what are going to matter, but there's a chance I'm wrong there.

Beyond that, I haven't seen any apps that like, I've been pitched that I'm like, actually derive explain from first principles, like, why you need to be in a new place.

I think a large part of the challenge is this course is that like the point of blockchains is shared state.

And like shared state should be kind of interpreted as broadly as possible, shared between applications, shared between users.

And this kind of derives from like the core atomic unit of what do you do on a blockchain, which is like, I have 5 coins, and I send you 5 coins.

And so my balance goes down by 5 and your balance goes up by 5.

And Like the fact that that that delta of 5 is enforced is the point of a chain, whether the domination is an NFT of 1 or whether the domination is out of a billion doesn't really matter like that.

That's the core thing that these systems are enforcing.

And so the idea of app chains always struck me as wrong.

I was like, not that there aren't apps and not that those apps can't be fairly isolated in terms of the types of states changes that they are doing.

But it's like the point of these systems is that they're about shared states.

And as long as you have parallelism per unit of state, then like, what are you getting by going to a different, a different, you know, asset ledger?

Like I just, I don't understand what you're gaining.

Derivatives decks being the very notable, interesting, thing that is, is TBD.

And look, maybe there are other things that are gonna emerge that I'm not creative enough or just haven't seen yet, because it's too early.

But It's not obvious what those classes of apps are.

I want to tie 2 of your ideas together, which are really about composability.

I tweeted like December 2021, I think that 2022 was going to be the year of composability.

And then you later tweeted talking about sequencers and how Ethereum, the consensus has kind of shifted from, we're going to decentralize our sequencers, so we're going to have shared sequencers.

And with doing that, they're saying, OK, we're actually looking for atomic composability instead of censorship resistance.

I'm curious, do you think, 1, how important do you think atomic composability is?

Sounds like you're pretty bullish on that.

And then 2, do you think that's the right trade-off that L2 should be taking right now?

I think Atomic Composability is not that interesting.

Even though my name is ComposabilityKyle on Twitter and has been for 2 and a half years.

I think atomic composability is, atomic composability is useful for, actually by definition, the only class of user is useful for our arbitrage bots.

And it kind of defined that broadly, whether it's Dex arbitrage or some flash loan, whatever, whatever.

But that's not who you should design the system around.

The system should be designed for retail, maximizing developer ease and maximizing retail access and minimizing retail gas fees and latency.

Atomic composability is intellectually cool though.

When I talk about composability, I think of it really more broadly in the context of like, Hey, 1 of the problems in all of these crypto systems is that like, they are mostly heterogeneous above the asset ledger.

So like, okay, you've got Solana or you've got ETHL1.

And like, that is a logically consistent global homogenous construct.

And like everyone understands what the rules of those systems are and what the code is and right, like it's the magical asset ledger in the sky and it updates.

But then everything else above that is heterogeneous.

The exchanges, the wallets, the indexing and query providers, like the fiat on-ramps, the currencies that you trade to get in, the geographic rules and regulations, like Everything above the L1 is heterogeneous.

And making all of those things work together across any arbitrary configuration of software and users is pretty complicated.

It turns out that if everyone's using the same L1, a lot of those problems get solved kind of naturally-ish.

And basically, the L1 becomes a standard to which all of those other people conform themselves.

And when you start breaking up into lots of small pieces, you have to get all of those players to reconform themselves around these different configurations of things.

And the more configurations of things there are, the more total system complexity there is.

And so When I talk about composability, it's not so much about atomic transactions and flash loans.

It's about just like, as a developer, knowing you can build a thing, throw it on the standard, which is ETHEL1 or Solana for the purposes of this discussion, and just know that all the wallets will read and write from it correctly.

All the exchanges will interface with it correctly.

Whatever else you just know is conforming to that standard.

And so you get the maximum iteration of compounding in terms of developers and users, instead of thinking about bridges and liquidity and on ramps and like all this other stuff.

1 is you said that, in your view, at least, the point of these systems is essentially a single, globally shared state.

I think probably, I agree with that, but I'm not sure if everybody would.

So I'm curious to see, like for people who just aren't familiar with this concept, Why is that the point of these systems?

Mean there are 2 kinds of Software in the world Abundance software and scarcity software the vast majority of software you use in the world is abundant software.

Like there's an infinite number of video streams.

There's an infinite number of tweets and infinite number of Telegram messages and Gmail messages and whatever.

You can always create more content and just keep adding more and more and more and more and more.

And that's like the point of those systems is it just, everything grows towards infinity.

And then there is scarcity centric software, which is basically just the realm of money and finance, which is like I have $5 and I hand you $5.

And so now my balance of dollars is down by 5 and your balance is up by 5 and something somewhere in the world needs to count the fact that I am down by 5 when you are up by 5.

And obviously this applies for money, for asset, just asset.

Whether they're commodities, bonds, equities, whatever, it doesn't matter.

And, and like block, like blockchains are, I, I, they're kind of generic term I use for them across L1s and L2s as asset ledgers, because they're just ledgers keeping track of who owns which coins.

Like that's really all they're doing, whether those coins are NFTs or whether they're fungible, it doesn't matter.

And so like, if you kind of take that to its logical extreme, the kind of obvious endpoint would be like, well, wouldn't it be nice if in the world there was just 1 asset ledger and like, kept track of every, you know, like what everyone owned, like that's kind of the logical endpoint.

Now there are political reasons why that won't be the case.

And then perhaps technical reasons as well.

But like, that's kind of clearly like the cleanest construction of the world is just 1 asset ledger that enforces those rules.

I think you can get a lot more scale out of a single asset ledger than people appreciate while still enforcing these social properties of blockchains in terms of Nakamoto coefficients as well as number of replicas and validations.

I don't believe you need to validate these systems on a $200 computer at home.

That's a very different thing to optimize for, which in my opinion is superfluous.

But like, it's just, I mean, what's nice about physics in the real world is like, we have a common set of rules in physics, which is like, I have a green piece of paper, and I hand you the piece of paper.

And physics enforces that that green piece of paper has not replicated into 2 pieces of paper.

And like that set of rules governs everything in meatspace.

Wouldn't it be nice if we could have the digital equivalent?

1 set of rules, or in this case, 1 asset ledger that enforces all notions of asset ownership around the world.

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What is Solana's moat against other highly performant blockchains like SWE, MoDAD, other L2s that I just said, you know, that are experimenting with LLVMs?

Like what is a moat in crypto when it comes to these L1s?

Because at some point, you would think that the tech might become a commodity.

It's the state and it's the integrations to the state.

Obviously, if the code is open source, that's not a moat.

Well, the state is who has how many coins.

And so the more people who have more coins, that is state.

And then not all forms of state are fungible for the purposes of the question you're asking.

For example, an LP position in an AMM pool is different than just like passively owning coins because that LP pool position is providing liquidity to other people to do stuff.

But like the broad answer to your question is state.

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Ending the Modular vs Monolithic Debate | Kyle Samani