Why I'm excited about Monad

The return of the ETH killer narrative

Mar 17, 2023

Human beings are terrified of being wrong. Publicly telling people you're buying when the world feels like it's ending, the charts are down, USDC is depegged, and banks are blowing up is a very uncomfortable thing to do.

I'm guilty of this too. Last week, in fact, I scrapped my half-written "why the bottom is in" post midway through writing it as I saw USDC plunge to below 90 cents.

The truth is, I do truly believe the bottom was in during the days following the FTX implosion and its fundamentally important to my Monad thesis. It’s just scary to utter it out loud.

When candles are green, telling people you are buying becomes far more comfortable. You are part of the crowd. If it's up, others must be buying. The marketers appear, the YouTubers start talking about it, Peter Thiel turns up on TV and announces to everyone that he bought the bottom.

Suddenly, before you know it, the floodgates are open. Bitboy is trending on YouTube, and Chamath is busy telling everyone they were idiots for not realizing Bitcoin would go up after the banks blew up! Maybe you're finally able to visit your grandparents that you haven't seen for two years after you encouraged them to invest their pension into Dogecoin.

The positive feedback loop continues from there. Corporate brands revive their decaying NFT strategies, random companies wanting to appear relevant again start putting Bitcoin on their balance sheet. AI influencers change their Twitter bios back to being crypto consultants and immediately start running Twitter spaces berating anyone who was bearish at the bottom. The average IQ in the space starts trending inversely to the price.

Next thing we know, thousands of users, new and old, are rushing through the tiny entrance doors into the promised lands of Ethereum. All convinced riches will be bestowed upon them, and the green candles they see today will never end.

And then the most predictable of predictable things ever will happen.

GAS FEES GO UP ONLY.

Enter the ETH killer narrative once more.

At this point, many ETH maxis will attempt to hang, draw, and quarter me as they explain with anger that ETH now has working L2s with real user adoption! "ETH FEES ARE NO LONGER AN ISSUE!" Bankless will shout, "we have Arbitrum and Optimism!" Sassal will scream, "Ultrasound money is the one true money!" "$100 Mainnet transactions are a feature, not a bug! OOOOH look at all this burned ETH!$!$!$"

But if we look at the data with a calm head and an intellectually honest brain that is not maximalist, it's unclear that ETH scaling is remotely close to being complete.

Ultrasound.money burn leader board

Looking at the burn leaderboard over the past 30 days. A large majority of the transaction volume on ETH L1 is from NFT marketplaces.

data from Cryptoslam.io

But if we look at the last 30 days, Arbitrum has done less than 0.5% of the NFT volume compared to ETH. It’s barely 30% of the volume of Cardano! I couldn’t even find data on Optimism as it isn’t even in the top 20 blockchains for NFT volume.

In my opinion, it is unlikely that any large NFT projects are planning to launch on ETH L2s anytime soon; all the valuable NFTs, marketplaces, and users exist on L1.

As a result, I think it is overwhelmingly likely that as more users come back into the space and NFTs gain traction once more, ETH gas fees will rapidly increase.

Uniswap TVL from Defillama

The other big gas burner on ETH L1 is, of course, Uniswap. A similar story is evident here. L1 TVL clocks in at over $3bn, while Arbitrum lags significantly behind with only 5% of mainnet's value.

Even Arbitrum native projects such as STFX launched their governance tokens onto L1 because that is where the liquidity and traders are.

In my opinion, unless there is a significant increase in the real-world usage on L2s, there is a compelling case to be made for alternative L1s being viable investment strategies once more.

The question is, which alternative L1s are worth considering?

Enter Monad

Monad is a new EVM-based L1 launching later this year.

Why is Monad good?

If, like me, your brain does not look like the above, then the smart-sounding words used by Hasu to explain why Monad is a game-changer are meaningless to you.

If you do, however, happen to have a galaxy brain, then this thread explains it far better than I can:

My brain looks like this, and as a result the only way I can understand it is to dumb it down to the absolute basics.

Monad = Fast

Eth = Slow

If you have a normal human brain, then maybe you can comprehend that Monad is exciting because it is optimizing EVM to develop an extremely high-performance blockchain.

The MVP is currently capable of processing 10,000 transactions per second, with a goal of 400,000 (fast). It is capable of this because transactions of different types can be processed simultaneously.

A popular NFT mint can happen at the same time as a user trades a token on Uniswap as a result of parallel execution.

This allows the DeFi nerds to continue yield farming their CRVWSTETHPOOL2 in peace at the same time a new badly drawn monkey picture is launched.

Flashbacks to when YugaLabs made the entire ETH chain unusable for hours on end to sell 100,000 monkey lands for $10k a piece.

Today almost all TVL resides on EVM chains. The majority of users know how to use it, the wallet tech is being built around it and the developers already have the knowledge of how to build on it.

A high speed, low cost EVM based chain could be a real game changer.

Okay, so Monad is fast. Lots of things say they are fast, so why should I care about this?

Enabling NFTs to reach the masses

Why are NFT mints typically capped at 10-20k units? Because ETH breaks for hours on end if you try to launch a popular mint with a larger number than this, as we saw with the 100k Otherdeed mint.

Monad could enable larger NFT mint sizes. When Donald Trump inevitably launches his second NFT collection, does he want to sell 10,000 units for 0.05 ETH each? Or does he want to sell 1,000,000 units at $10 each?

Spreads will reduce when trading on chain.

By reducing gas fees dramatically, the cost of execution for market makers goes down significantly. As a result, they can update their liquidity more frequently, resulting in a tighter spread.

This unlocks far more efficient token trading.

The same is also true for NFT trading. We saw with Blur what happens when you build a more liquid trading platform around monkey pictures. This volume could be supercharged if gas fees were substantially lower.

More complicated dapps are feasible.

In today's world, developers have to optimize entirely for gas constraints. Make a contract too complicated and no one will use it because it’ll cost more than your rent to make a transaction.

In a world where gas costs are lower, and computation is abundant, developers can innovate and start to build entirely new projects that we haven't even dreamed of yet. This will begin to onboard a new wave of users.

There might actually be some upside left for users.

Every mildly successful L1 is already valued at $12bn FDV, and secondary market participants would have to wade through a torrent of unlocks and uncertainty over the coming years as FTX liquidators, or bankrupt lending practices continue to unwind their positions as they vest.

At the same time, these L1s must compete with each other while simultaneously fighting back against a new generation of L1s or ZK-enabled products with more advanced technology.

While, of course, I have no prediction superpowers, and it's very plausible that one of the incumbent L1s goes up in value significantly as they gain adoption, it does feel as if the risk profile here is not great.

Monad, on the other hand, has raised significantly less funding, $19m in total, which is vastly lower than every other major L1.

data taken from Crunchbase

While, of course, the FDV of Monad tokens is not known as no token is available yet, it is at least encouraging to think that on day one, a new user may not be completely priced out and will possibly be able to participate in some of the upside if the project is a success.

I’m not sure if this is by design, but if so, it’s a genius move on behalf of the team.

We saw in Solana land that DeFi failed to attract any real users because the tokenomics were set up in such a way that it only benefited VCs in the original raise. Very small circulating supply and huge FDVs meant that anyone buying on the secondary market was at such a significant disadvantage that they all lost their money and swiftly gave up. This certainly damaged the reputation of Solana and the VCs that invested there.

Avax, on the other hand, was able to grow a far more loyal and organic DeFi community. Projects such as Trader Joe gained huge levels of popularity as early Bridgoors were able to invest at reasonable valuations.

It's for this reason that I have absolutely zero intention of bridging to either Aptos or Sui. The tech might be fantastic, but the limited upside as a user simply does not make it worth the risk of moving my assets there and holding their gas token.

For Monad, you best believe that if the valuation remains reasonable I will be bridging on day one and will make sure to participate in the early NFT drops and DeFi projects, because I believe the upside here will be significantly greater.

An opportunity to be early again

Monad is the first L1 that I’ve seen in a very very long time that doesn’t already have 10s of thousands of bots swarming its Discord demanding wen token and generally being really annoying. There also aren’t 20,000 fake accounts pretending to listen to every Twitter space begging for POAPS.

This has given Monad the chance to build an organic community that encourages thoughtful discussion and enjoyable sharing of memes, treasure hunts and poker evenings. As Discord communities go it's a pleasant place to be and I predict that a really strong culture will form around a loyal and small number of core community members.

It also makes it possible to understand and watch the culture be moulded. Culture in Crypto is an area that a lot of people don’t consider when making their investment thesis, but understanding it correctly can present some of the biggest returns.

E.G. Being able to determine that Solana Monkey Business NFTs were culturally more important than Degenerate Ape Academy would have netted you a ton of profits in the early Solana days.

Or if you were early to ETH NFTs, you would have realised that Punks had a huge cultural movement around them and you could have positioned accordingly.

Similarly realising that Pudgy Penguins were culturally important to a large portion of Crypto native users would have returned you a handsome profit this year.

I predict that Monad will have similar opportunities that present themselves, and the best way to discover them is by being early.

The memes write themselves.

Choosing your investments based solely on who else is investing isn’t a strategy I’d ever recommend. But during every bull run we’ve seen people ape blindly based on names involved, and I doubt this time is any different.

I can picture now, hoards of excited Crypto users bridging their assets over and tweeting gleefully about how they are now operating on “Cobie Chain.”

Whilst this would be an incredibly powerful meme, it does run the risk of Cobie becoming the main character which in my view would be up there with the most detrimental impacts to Crypto ever, so simulation scriptwriters pls don’t kill him off.

But regardless, people better at creating memes than I have an open goal here due to the stacked list of investors that have funded Monad.

Cobie

0xMaki

Hasu

Naval

Dragonfly capital

Placeholder Capital

Just to name a few.

The fact that the team largely comes from Jump and also happens to be very good communicators helps stem a narrative that they are a bunch of Gigabrain wizards, which likely also helps with chain adoption.

What about the potential downsides?

With any investment thesis, it's important to consider the risks and then pivot when alternative information comes to light.

We still don't know anything about tokenomics, so it's possible the good value viewpoint may be incorrect. How will the tokens be distributed? What's the plan for decentralizing, etc.?

The testnet is not live, so we’ve yet to see these TPS speeds in action.

Maybe the chain will go down for days at a time like Solana did? Will it be able to onboard institutional traders if this is the case?

Maybe the incentives don’t align well enough to encourage the best developers to focus their building attention on Monad?

It’s possible that now Arbitrum has a token confirmed, a flurry of activity takes place there and real user adoption moves from L1 to L2 for the first time. This would dent the Alt L1 thesis somewhat.

It’s also possible that the Base chain launches and onboards a huge host of new users directly onto L2. It’s also in the interest of Coinbase to point all new users here and refrain from offering on ramps to new L1s such as Monad.

These are the areas I will be closely monitoring over the coming months to ensure my bullish thesis remains intact.

In Summary

In summary, I haven't felt this excited about a new project in a very very long time. Below is a condensed version showing why I feel this way.

Bottom is in = markets are unlikely to make new lows.
If prices start to go green = new and old users return to Ethereum.
More users = gas fees start to go up.
Gas fees go up = users look for somewhere else to trade.
The narrative around ETH killers ramps up once more.
Users trying to find the new best thing bridge to Monad
Developers are incentivised to build there to meet demands of users
A flywheel effect takes place and Monad experiences rapid growth.

Whenever I feel ultra bullish on something, the skeptical part of my brain always becomes uneasy and sends a flood of anxiety-inducing thoughts my way. Surely you've missed something? Something will go wrong here for sure? Maybe your estimates are incorrect?

It's in this zone, however, that I've learned to trust my intuitions and analysis and not allow the moronic part of my brain to fud me out of a good opportunity.

I have strong conviction in Monad and will be focusing the majority of my efforts in that ecosystem throughout the testnet phase and once mainnet launches!

Happy’s Substack

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