Valuing Ethereum as Public-Goods Infrastructure | William Mougayar - Ethereum Market Research Center

Hello. I'm getting so good at this and this is my last announcement um and introduction, but I want to take about 20 seconds and I've asked William if I could actually properly introduce him. Back uh in 2012, I read the white paper. 2013, I joined Twitter. um which is now ex because I needed to find people that were in the crypto space.

One of the people that I started following was William um and he's about to come up here and talk. He actually um then produced a book that actually walked with me through flights. I was in the data center industry. Um his book um was in my ear all the time on audio. the business of blockchain and it taught me a lot and [music] I strongly recommend listening to this book or getting this book making notes in it.

It became kind of my blockchain bible and I can't stress enough how wonderful and enlightening and insightful this book was at the time. And it, you know, I I would go through immigration lines and I would stand there and listen to William's book. And so it is a with great pleasure um to be able to announce William to and introduce him to the stage. And while I was in the data center industry, I then joined a company called Block Apps uh which was an enterprise blockchain well I I I made it into a enterprise blockchain solution um in 2016 2017. It was the first company to incubate out of consensus and um they also sponsored the museum of Ethereum which is very interesting if you guys haven't gone to see that.

So without further ado, William, please come to the stage. I need you guys to big round of applause and hopefully he will tell you guys about his new book.

Thank you.

Thank you, Kelly. Thank you. So today, I'd like to reframe how we value Ethereum, not just as a blockchain competing against others on some metric, but as a public goods infrastructure unlike any other. So I'm going to talk to you and present to you my valuation framework for seeing Ethereum in this new and important perspective because if you use the wrong framework in valuing Ethereum, you are going to mispric it just as it is mispriced today. Right?

So I'm going to give you only have 12 minutes or so. Uh this is the executive summary version. Uh I wrote the report on it about 40 pages. If you want to read the whole thing, just go to ethmrc.com and you'll be able to see the whole version.

So, this is just a teaser and uh let's get started. What drove me to um come up with this uh valuation framework was the fact that I was very obsessed in trying to figure out and answer this question. Why aren't fundamentals driving crypto prices? As you well know, today just about anything that is not related to crypto moves crypto prices. One day it's the geopolitical situation.

Another day it's the US dollar. It could be the interest rates. It could be what Nvidia did, what the NASDAQ did, what the regulation did or did not do. It's always external factors that determine the prices of cryptocurrency. And whenever whenever something wrong happens in the world, crypto is the first sector to get dumped on and it's the last one to recover.

So I thought to myself, there must be a better way. We've been in it for almost 15 years. And then I kind of realized that there's a segmentation here. There is no oneizefits all. So uh the most uh the the the sector that's kind of the the most forward uh thinking right now in terms of being able to see metrics is DeFi.

Uh DeFi you look at the D5 protocol and you can see uh the total value locked for example that is like assets under management. So we know how to understand that uh the treasury is a reflection of the balance sheet strength. the fees are revenue and the volumes are about having reached product uh market fit. So defy is not perfect but it's directionally correct. We can look at a D5 protocol and see these uh metrics and say yeah this uh protocol is doing well.

Then the second um uh sector was uh that I looked at were the uh so-called I call them revenue chains. These are the chains that are obsessed with revenues, obsessed with transaction fees and they say some of them say they are central decentralized but it's it's not as decentralized as Ethereum and I put in that bucket the tempo of the world um even the Solana of the world or the Canton of the world because these are centrally managed. They are run almost like a SAS business. Uh some of them want to be profitable. uh they like revenue and uh they like gas fees and they extract all of that uh for that benefit.

Then we have Bitcoin. Bitcoin is a special snowflake. It likes to be perceived to be like gold like digital gold. Uh unfortunately it hasn't done very well recently. Uh and digital gold or gold um usually does well when there is uncertainty in the world.

Uh that's the stress test that gold is good for. That's why the metals are moving up. And then we have Ethereum, which is another special snowflake. And and that's really what I'm going to talk about. Now, why are we doing this?

Why am there isn't a there is a um a precedent. Uh there's nothing too new here. And the president is the internet. When the internet started in '94, we were also very uh it was very difficult to try to find the right valuation. Just to give you an idea at the beginning in '9495 you know what the most important metric was at the beginning when when the uh business models were not so mature it was eyeballs we were measuring page views and the banner ad impressions that was the beginning of the internet then things evolved better progressively there was revenue the SAS companies came along and we could measure uh the uh retention factors the lifetime of life cycle cycle of a user and then recently companies like Facebook, Uber uh and these big [clears throat] companies that are on the internet now uh their mode is the ecosystem.

It's network of facts and we have some very sophisticated ways to measure their uh valuation and to um have Wall Street look at them um very seriously. But look how long it took almost 20 years from where we started, right? And then we ended up in in something more sophisticated and less sophisticated. And we are kind of in in this area right now with the blockchain where what we are looking at is not necessarily what we're going to end up looking at in the future. The analogy with the internet is very striking when it comes to Ethereum.

At the structural level, uh here is the analogy here. Uh at the very uh low level here, the the protocol level, uh Ethereum is like TCP IP. Okay. And then we have the the access networks like the layer twos. And then what's interesting here is that where is most of the monetization in this stack?

The monetization is at the highest level. The applications. the applications on the internet are that's where all the big companies are. Same thing is going to happen here with Ethereum. The monetization is going to be here with the apps and the what the institutions are doing.

However, this monetization depends on a good [snorts] systemic layer that is a foundation. So you value this layer based on how much is going on here as well. That's how the internet is valued. That's how we need to think about valuing Ethereum. Imagine if TCPIP had a token, what would it be valued at?

It would be very very uh valuable, right? In the same way that we don't value the internet based on TCP IP packet fees. So why should we value a blockchain based on transaction fees? That misses the whole boat. And if anybody tells you uh go and measure Ethereum against gas fees, give them that analogy.

Uh the the other analogy is that there's been very credible studies uh to value uh the internet specifically and it kind of went into three buckets. There's the visible value, it's the companies that are on the internet. There is the flow value which is like the equivalent of the digital economy, the GDP. And um there's been an assumption that the internet is about 15% of the global GDP. Global GDP is about a hundred trillion dollars.

15% of that is 15 trillion more or less. And you capitalize that you get 160 trillion. And then there's a consumer surplus. Very interesting number. And then uh here are the numbers on the this means that this is the amount of money if somebody were to take away search engines from users.

Apparently, users will be able to would be willing to give up search engines for $17,000, give up email for $8,000, um, and and then so on. And this is how you look at the trust surplus. Uh, it's important because I'm I'm going to give you the analogy for Ethereum. Um, let's do quickly a quick definition about public goods. What what are public goods?

Why is Ethereum like the internet? Because there there's the non-rivalry aspect. It means one user's activity doesn't reduce another act user's activity. Any anybody is open to get get in. It's like the roads uh uh anybody can come in and and use the roads.

They are a public good or infrastructure uh electricity and so on. It's not excludable meaning that anyone can use the system. In the Ethereum analogy, anybody with a private key can use the system. and and uh the same thing with uh public in with like uh GPS signals for example and it is systemically enable enabling meaning that it creates more value than it captures that's a very important point the internet creates more value than it captured the internet did not get big by capturing all the value and in Ethereum is growing by creating value around it. So in the same way as we valued the internet we can value Ethereum again against three buckets captured value what we see uh the flow economic flow this is all of the activity around the L1 and the L2s the defy the institutions and then there's the trust surplus same analogy but now the numbers are different trust surplus again it's what users would have paid for something minus what they actually pay.

It's kind of the surplus. It's the difference. And in the Ethereum space, uh it's been um this is my own uh approximation about $50 to $150 in net trust surplus per year per user. Assuming there's 20 to 30 million users, then you capitalize that and you get a number. But now this is per user.

There's a systemic surplus as well. Think about all of the reduction, cost reduction, fraud reduction, settlement assurance reduction, uh permissionless innovation, all of that. You add them up. Even if it's 1 to three basis points, meaning 0.1 to 0.

03, these are big numbers on trillions of dollars and you get some billions additional of value for Ethereum. This is a lot more than what we have today. So low low uh case modeling today Ethereum should be at 1 to1.2 trillion. This is today today.

This is like three times what it is right now. And if we extrapolate into the future, you can see how the progression will be. And then if you uh put in a price here, I know you like to look at prices. What this means $1 trillion of valuation at Ethereum for Ethereum would be $8,000. It's four times what it is today.

Okay. And then this is how you calculate how it gets in less than 10 years up to $166,000. It is not far-fetched because the internet same thing happened with the internet. For a long time, we didn't know how to value it and then we realized that it is valued quite a bit. markets misprices Ethereum because the token supply obscures its systemic function.

It is not all clear. So the uh paradigm shift you have to think about I'm skipping a little bit here. Don't think of feebased valuations, think of flow-based valuations. Don't go the rabbit hole of TPS comparisons. Look at the economic settlement trillions of dollars.

Don't look at the short-term revenue. look at the long-term trust minimization, how much trust minimization, trust surplus benefits Ethereum is generating. And it's not just about comparing speeds and fees one blockchain against another. It's about adoption. Ethereum's valuation is not the sum of its revenue.

It is the sum of the world's dependence on it. And the architecture of trust is breaking. This is why Ethereum is rebuilding it. That is the thesis of my next book. that was hinted about.

I announced it yesterday. It's going to be called trust shift in one word. I'm coining that term Ethereum and the reinvention of trust where I'm going to expand even further how trust is being rebuilt from old traditional models to new neutral blockchain based models based on Ethereum because I believe that Ethereum is the only blockchain that can do this at the scale that we need it. Uh you can go on the shift book uh sign up you'll get updates. It's going to be published in September.

Thank you for your attention. [applause]