Stratos – Valuing L1s and L2s, monetary premium, fat protocols, sustainability, and more | ep.74

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In this episode of the Fundamentals podcast, we’re joined by Rennick Palley, Founding Partner at Stratos – a fund that seeds the future of crypto. Stratos focuses on both Venture, where they invest in DeFi and web3 companies, and Infra, where they provide the hardware, stake, and expertise that helps blockchains grow.

Listen to the episode

We discuss Stratos, their investment strategy, and how they approach the market. We then move on to speak about the execution layer landscape, and dive into valuing Layer 1 and Layer 2 blockchains – and what the main differences in valuation methodologies are between the two.

We cover topics including monetary premium, staking ratio, real staking yield, positive economic balance, and intrinsic value. We draw parallels between tokens and more traditional assets, and speak about applying comparative valuation concepts to crypto assets.

We speak about the current lack of value accrual mechanisms for L2 tokens, and what the future could look like on that front. Finally, we discuss about the current state of the blockchain market, and what keeps Stratos optimistic about the future.

Tune is for a great discussion about how Rennick and Stratos approach the market!

00:00 Introduction
01:48 Overview of Stratos
03:09 What problem does Stratos solve for LPs?
05:12 The vast majority of cryptoasset value consists of L1 & L2 tokens – what are the implications for investors?
10:56 “Monetary premium” and its significance in valuing L1 blockchains
16:59 The function of revenue in a L1 network – economic balance
19:36 Positive economic balance is not a strict requirement for monetary premium
21:30 Country theory of L1s
Blockspace purchasing power parity
28:09 Real vs. speculative intrinsic value
30:43 Why is achieving sustainability so challenging for L1s?
35:09 Sovereignty of money comes with existing outside purely financial metrics
Fat protocol thesis: what changes as we move towards more modular architectures?
42:45 Where does value accrue when competition increases at the app layer?
45:09 How will dApps creating application-specific rollups affect value accrual?
47:47 How do the above valuation methodologies adapt from L1s to L2s?
Envisioning the future of value accrual for L2 tokens
53:36 Why it’s so easy for someone coming from tradfi to middle-curve crypto?

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