Why?

h/t @yahgwai

Crypto has focused on the wrong direction for past few years by spending too much effort on scaling.

Why? Because we’ve came up with a wrong explanation to why bad UX in crypto bappen.

If we look at any system that has real value, the number of users (aggregated by value of economic activity) in that system should increase exponentially. But this is assuming the UX of the system grows to support the user loads.

Our hypothesis has been that gas (or its fancier name blockspace), a commodity that is used for computing in the execution layer, is the limiting factor. However, this is not true as we know that even today over 65% of the activity on Uniswap is arbitrage and the other 35% are a few big market makers, so MEV constitutes a major part of the activity.

And MEV ultimately is not resource intensive on the execution layer, the bottleneck of MEV is at the efficiency of the Monarch (or, should I say, builder-gas, as a dual “quantitative” measurement of the efficiency/expressiveness of the coordination mechanism to allocate spec-on-state).

So what we should really optimize is builder-gas instead of gas. Arbitrum/Optimism as an example, both, even at bull market, are doing <1TPS per day, and the majority of activity is MEV, not organic (and organic needs only come once you have a good enough UX and the hand-in-hand applications that are enabled by preference aggregation engine), so our path of going scaling is wrong, we should focus on “scaling builder-gas,” i.e., a good MEV solution aka a good spec-on-state allocation mechanism. And builder-gas is the true bottleneck, the true “scaling” we should do.

I fail to see how having a MEV solutions that allows for diverse preference to be expressed and aggregated is encouraging more speculation (by percentage in economy) and discouraging organic growth than having a bad MEV solution. For a very simple example, the true organic demand and social welfare-boosting application of crypto relies on us being able to do credible commitment, concretely, this could be that we have some decentralized pharmaceutical protocols that produce new medicines and use credible commitment for incentive alignment of producers, QA, and consumers, and we cannot have those if MonarchEV is not solved.

Ultimately why people want to use credible commitment/crypto? It is because they want to use crypto to solve the MEV in the real world (e.g., Gitcoin tries to use crypto to solve the MolochEV in OSS funding, ETH/BTC tries to solve the non-distributed MonarchEV in governments/inflation, XMR/Tornado is trying to solve the MafiaEV in real world, etc,.). And crypto is the meta-game of the original game in the real world. And as we know from the incompleteness theorem of MEV, crypto the meta-game also is prune to MEV. And the MEV in the meta-game equals the MEV in the original game.

Thus, without solving the MEV in the meta-game (i.e., crypto), the magic of credible commitment cannot be exercised, and people’s incentive to use crypto is eroded. They are indifferent between paying rent/MEV to the real world nation states and paying rent/MEV to the crypto Mafia/Moloch/centralized Monarch because they are getting the same payoff. So what we are really doing here (solving the MEV in crypto) is extremely fundamental, as it is same as solving the MEV in the real world. The meta-game and the original game has the exact same problem, even though the exact realizations of the context for those two settings are different, the structure of the context/problem is exactly the same. If we abstract the relation between the agents in the game and how the game is setup, they are no different.

Now why is scaling gas, i.e., the capacity of the credible commitment device to record results of the aggregation, not the bottleneck? It is because it is pre-mature optimization. The value of scaling gas is such that: IF the credible commitment ability of crypto actually works and can bring welfare to society, THEN it is better for it to have the ability to better more parts of the worlds. Thus, here we are focusing on the consequent not the antecedent, we are optimizing assuming that we have solved the fundamental reason why people use crypto, but this assumption is wrong.

Suppose that instead of focusing on scaling gas, we focus on solving MEV (i.e., scaling builder-gas), and that in the process we bear an opportunity cost of not being able to have the platform support more ppl. So then in the scaling gas case we can have 100 people each earning a utility of 1. While in the scaling builder-gas case we can have 10 people each earning a utility of 100000 (yes that is the scale). Clearly the welfare in the latter is higher.
Plus, it is not like the system is exclusive to those 10 early adopters. The vast majority can always join.

And I argue that the willingness of people to join and improve crypto depends on what payoffs they see the early adopters are getting, so if they see the early adopters are getting 1, they are much less willing to recognize the value of credible commitment than if they see people are getting 100000. The speculations you are seeing are taking up majority of the activity on crypto exactly because we have not unlocked the true applications of credible commitment. We are literally giving 99999 to Moloch/Mafia/centralized Monarch.

Using the pie-cutting analogy, we are throwing out 99.999% of the pie, and then train people to cut the remaining tiny tiny pie faster all assuming that we have a fair pie-cutting methodology. What we should do is simple, NOT throw 99.999% of the pie out and researching on a fair-pie cutting method.

And realizing this is vital for the survival of crypto, because us the community as a whole, is under the pressure of nation states and regulation. We are unable to make a strong case for crypto (to society) if we cannot demonstrate the usefulness of it. The reason why crypto is “shady” to many people is because we have not solved the MEV on crypto, so what people are seeing is the 1, where the speculation take a large part. But, if we have indeed solved the MEV on crypto, then what people will see is 100000 and the percentage of speculation will be much, much lower (granted the absolute quantity might be larger). Thus, we make a strong case for ourselves and gain collective bargaining power against existing system.