Encryption Scale Rule - Where is the hard cap of Decentralized Finance

Source: Zuo Ye Wry Neck Mountain DeepSeek R2 did not come out in May as rumored, but was updated with the R1 minor version on 5.28, and Musk's Grok 3.5 also frequently jumped tickets, which is not as good as Starship.

With the enthusiastic push of massive capital, the scaling law in the field of large models completes its lifecycle faster than Moore's Law for chips.

If software, hardware, and even human lifespan and cities and countries have their upper limits on scale effects, then the blockchain field must also have its own laws, and at the moment when SVM L2 enters the coin issuance cycle and Ethereum returns to the L1 battlefield, I try to imitate the law of scale and give an encrypted version.

Ethereum soft cap, Solana's hard cap

We start from the scale of full node data.

Full nodes represent a complete "backup" of the public chain. Having BTC/ETH/SOL does not mean we own the corresponding blockchain. Only by downloading the full node data and participating in the block generation process can we say "I own the Bitcoin ledger." Correspondingly, Bitcoin has also added a decentralized node.

Solana's scale of 1500 nodes struggles to maintain a balance between decentralization and consensus efficiency, while corresponding to this, the scale of 400T full node data leads among various public chains/L2.

Image description: Data scale of public chain full nodes. Image source: @zuoyeweb3

Without comparing to Bitcoin, Ethereum has already excelled in controlling data volume. Since the genesis block was born on July 30, 2015, the total data volume of Ethereum full nodes is only about 13 TB, far less than its "killer" Solana's 400 TB, while Bitcoin's 643.2 GB can be considered a work of art.

In the initial design, Satoshi Nakamoto strictly considered the growth curve of Moore's Law, limiting the data growth of Bitcoin strictly within the expansion curve of hardware. It must be said that the later supporters of larger Bitcoin blocks have no foothold, as Moore's Law has already entered the edge of diminishing returns.

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Image description: Comparison of Bitcoin node growth and Moore's Law. Image source: Bitcoin White Paper.

In the CPU field, Intel's 14 nm++ can be considered a family heirloom. In the GPU field, NVIDIA's 50 series has not "significantly outperformed" the 40 series, while the progress in the storage field, under the Xtacking architecture of Yangtze Memory, has gradually reached the peak of 3D NAND stacking scale, with Samsung's 400 layers being the currently expected high point in engineering.

In a nutshell, the scalability laws mean that there will be no significant advancements in the underlying hardware of public chains, and it can even be said that this is not a short-term technical limitation, but rather that the status quo will be maintained for a considerable period of time.

In the face of difficulties, Ethereum is devoted to ecological optimization and reconstruction, with trillions of RWA assets being its battleground. Whether imitating Sony's self-built L2 or fully accelerating to embrace the Risc-V architecture, it is not about "finding the most extreme hardware-software synergy," but about sticking to its own advantages.

Solana chooses to go for the extreme of light speed, and beyond the current Firedancer and AlpenGlow, the ultra-large node scale has effectively excluded individual participants. A 13 TB hard drive can still be assembled, 400 TB is already a pipe dream, and 600 GB of Bitcoin can theoretically be satisfied even under the daily fire-fighting conditions at Samsung, LG, and SK Hynix factories.

The only question is, where are the lower and upper limits of on-chain scale?

limits of the token economy system

AI has not embraced Crypto as expected, but this does not hinder the surge in the prices of Virtuals. Even with one hand on blockchain and the other on AI, it has already become a companion of the current US government's MAGA. 5G and the metaverse are both outdated; the focus on prominent figures now shifts to Sun Ge and stablecoins.

Let's briefly discuss the various limit indicators of the token economy system. Bitcoin, with a market value of 2 trillion dollars under the premise of lacking practical use, Ethereum at 300 billion dollars, and Solana at 80 billion dollars. Taking Ethereum as the standard value, the limit of the public chain economy system is 300 billion dollars.

This does not mean that Bitcoin's valuation is too high, nor that new public chains cannot surpass this value. Rather, it is highly probable that the market performance of a public chain is the current optimal solution, in other words, "We believe the current market performance is the most reasonable existence." Therefore, directly selecting this value is more effective than complex calculations; if it is unnecessary, do not increase entities.

We introduce two concepts from the book "Scale":

1. "Superlinear scaling" refers to a situation where, as the system scale increases, its output or benefits do not grow proportionally but rather increase at a faster rate. 2.2. Sublinear scaling refers to the phenomenon where certain metrics (such as cost, resource consumption, maintenance requirements, etc.) grow at a rate lower than linear proportion as the system scales up.

Image description: Ethereum price trend Image source: BTC123

Understanding the two is not complicated. For example, Ethereum grew from $1 (2015) to $200 (2017), which falls under super-linear scaling, taking about half the time compared to its growth from $200 to ATH (2021), the latter being classic sub-linear scaling.

Everything has its limits, otherwise blue whales, elephants, and North American redwoods will surpass themselves, but the earth's gravity is hard to overcome.

Continue drilling, has DeFi reached its limits?

The scale limit of DeFi can be included in Ethereum, and the yield is examined instead, which is also the core proposition of DeFi, the power source of entropy increase, lies in the extreme pursuit of returns, we give three criteria, 20% APY of UST, 150% over-staking ratio of DAI, and 5.51% calculation of 90D MA APY of Ethena's sUSDe at this stage.

We can assume that the yield capture capability of DeFi has dropped from 1.5 times to 5%, and even when calculated at 20% in UST, DeFi has already reached its limit.

It should be noted that the trillion RWA assets on-chain will only lower the average yield of DeFi and will not increase it. This aligns with the sub-linear scaling law, where extreme expansion of the system scale does not lead to extreme increases in capital efficiency.

Please note that the 150% over-collateralization ratio of DAI creates a market incentive: I can earn additional profits outside the 150% collateralization ratio. Therefore, assuming it serves as a market benchmark, this is my personal opinion and may not necessarily be correct.

We can be a bit blunt; currently, the on-chain economic system, based on a token economy model, has an actual scale limit of 300 billion dollars, with a yield of around 5%. That said, this does not refer to the total market value or the upper or lower limits of individual tokens, but rather that the overall tradable scale is just this large.

In fact, you cannot sell 20 trillion bitcoins; US Treasuries cannot handle such a large scale of sell-off.

Conclusion

Looking at the history of blockchain development since Bitcoin, the discrete trend among public chains has not closed. Bitcoin is increasingly decoupling from the on-chain ecosystem, and the failure of on-chain reputation systems and identity systems has led to the over-collateralization model becoming mainstream.

Whether it is stablecoins or RWAs, they are all leveraged on-chain representations of off-chain assets. Off-chain assets inherently possess higher credibility. Under the current on-chain scaling laws, we may also be approaching the limits of scaling law or Moore's law. Since DeFi Summer, it has only been 5 years, and since the birth of Ethereum, it has only been 10 years.