Alex Stokes - State of our union

Transcript

okay welcome welcome back everyone hopefully you had a chance to enjoy that break I'm very pleased to introduce our next speaker this is Alex Stoke uh Alex is a researcher with the ethereum foundation and he's going to be uh giving a presentation entitled state of our Union hey everyone let's see okay sounds like you can hear me um yeah I think the schedule talk title was something like very extreme like uh staking economics me and like feature of ethereum uh I'm not exactly sure where they came from but basically I thought it was like a good good sort of uh place to start um and I've distilled it down into what I'm going to call the state of our Union um basically just looking at like what

we've done where we're going maybe how we're going to get there um let's dig in so yeah I mean this talk I might be a little more like higher level and just like trying to understand like yeah like what are we all doing here like what really is ethereum anyway um it's obviously this thing that's like brought us all together we like maybe we stake maybe we like I don't know do all the crazy stuff that the protocol allows um but yeah let's let's maybe try to Define that a little bit more concretely um one thing we can say is that it's a successful cryptoeconomic protocol you know these are the types of things we mean when we say blockchain and I have some like graphs here so uh yeah a lot of numbers I mean the

the main point to take away from this is I was just trying to out that like there's this like staking layer that many of you are aware of and yeah like it seems like it's been a resounding success um you know we've had the merge recently and this is now a chart here of a staking Supply and basically you know it's like up only um people seem to like staking and um yeah there's some like absolute numbers here so you see there's like over 28 million e staked that's like 23% of all ether which is like actually quite a lot um and then like Drilling in a bit into like the protocol details itself you see like these these numbers at the bottom where yeah we don't have to get into them but essentially it's just saying that like the activity on Beacon chain in terms of

the protocol execution is like very healthy so like almost 100% sort of participation by each validator um the messages they need to go on chain get in like pretty much immediately that's good um they are this says 99% correctness basically saying like when I when I run my version of the protocol like do I agree with everyone and again numbers like incredibly High there's this Effectiveness anyway point being you see it's a bunch of very high numbers uh that's all very good so that was like kind of you know me claiming there's a successful consistence layer there's also the successful execution layer um this is like the top let's say 50 gas guzzlers from ether scan I just pulled yesterday and you can see there's like all these

applications uh Unis swap is at the top uh different like telegram trading Bots tether the stable coin what else is on here arbitral so like layer twos that's pretty cool cuz people are actually like not just using like ethereum the execution layer but also using it for like their different blockchains um yeah people seem to really like ethereum and you know there's a bunch of stuff here ZK sync uh Stark net Circle usdc more stable coins all kinds of stuff nfts at the bottom there point being is in this next column I called out you see people are paying like millions of dollars like to use the chain right so it's not just like oh we like this because like like we can like run some code and like just watch it happen it's more like you know

you would you would imagine these people are getting at least that much value out of what they're doing if they're paying for it so you have all these applications on top of this consensus layer that we have there's all defi stable coins I'll call out because that's like a pretty important category in its own right nfts people really like these like digital collectible things um ether just itself as like a product application there's this whole you know Arc of establishing ether's money um layer twos that I called out all this fun stuff so we have a very sucessful this layer very successful execution layer and then you know I think it's also important to note that like we are trying well at least some of us are trying to establish uh this core asset

ether as as a money right as like a monetary product and really what I'm trying to make the point I'm trying to make here with this slide is that there's a successful economy like on top of all of this stuff as well um I'm not seen this inft collection this was just the top one on openc but I just grabbed it because it was handy really the takeaway is simply that they price things in eth this is like showing that like people do actually use ether in this case as like a unit of account one of these like primary properties of money that's pretty cool um right now the like ether market cap to the extent that's useful metric you know 245 million that's like quite a lot considering this was like nothing just a few years ago we've like kind of me this all into existence uh that's pretty cool

and this is interesting if you like um so I went to the uh this list I found the website was like worldometers either way you look at like GDP by country around the world and if you put ethereum as like sort of a nation state in this list it sits somewhere between like Peru and New Zealand essentially like top 50 that's like a big deal I think again considering it was like nothing just years ago um and also too right like so there's like this protocol bit right there's like the cons layer execution layer the apps that use it but on top of that there's like the social layer right so you have this like incredible Community that's like why we're all here um I honestly ran out of steam just like finding all of these images like there

was like so so many more events that like people are putting on all over the world and it's like so exciting to see so that's pretty cool um what is ethereum here's like a very dense answer blockchain protocol hosting a digital economy coordinating a comp passionate Community pretty cool stuff that being said I want to like zoom out a bit and like start to ask like what will it mean in 50 years so like not just like oh cool like we have this blockchain and like we like swap some tokens and maybe some of us are rich now that's exciting whatever but like you know in like 50 years 100 years a thousand years like no one will care about that right it's really we can ask like what what are we doing here that will like mean something like in like a

time scale that's important and that's when you can start to ask these like very big abstract questions around like what are we doing what is ethereum like as a project um and you can like quickly get into like all this theory around like building institutions and like uh things like that so one way to see this is that like you know there's like collections of humans through time and we like try to make up these different institutions to basically help us organize ourselves and like figure out how to make sense of like the chaos of reality um there's like things you've heard of here in the middle like your tribe a church nation state these different things that we've built um you know generally they like

collect bigger groups of people so then you have new challenges as they get bigger but ultimately we have these Technologies to help us like coordinate uh again yeah all these like bundles of people doing all different random things and yeah I'm again not endorsing necessarily these politics but uh there is this like different or there's definitely this like core encrypto ethos of this like Cipher Punk idealism you could imagine there's almost this like um digital State and ethereum could be seen as a realization of uh of these sets of ideas so again zooming way out one way to think of this is like ethereum is like essentially this like State

Building exercise we are coordinating on the internet to make all this happen um hopefully in a way that like makes us all better off also this is just a random location I just picked it I wanted to pick an empty spawn the map um but who knows you know some of you are into these like Network State ideas and like maybe one day there's like a physical realization of the ethereum network State and we like build some C setting complex wherever these lines cross on the Google Map so my point here is that yeah like what what is ethereum really trying to do um in terms of like being a really big impact project that like people are write about in history books you know 50

100 years from now um one thing we could say is that like there's just like so much going on in the world especially as we like have this like information revolution you know like we weren't meant to like sit and like deal with social media like it's here just to like take our attention and like distract us six ways to Sunday and like it's kind of a huge mess as you probably are very familiar and because of that my claim is that like institutions that like have these like very strong properties are like relatively more valuable so simply because uh like yeah we like need something like again there's like there are problems we see we now have this like digital ecosystem that we're all kind of embedded in and the question becomes like how do we make sense of that so yeah it seems like ethereum

could become one of these institutions uh so far I've tried to paint the picture that it's like heading that direction certainly and that's really cool um but then there's a question because like because of the nature of these like new like inputs and forces upon us again sort of just like uh the internet being like a blender for everyone's cognition um you would have to wonder like how how can we stay aligned which is everyone's fun hot word and my answer to that is that we should focus on values um this is something I think about quite a bit like what are ethereum's values like if there's one takeaway from this talk you should have is that like basically to the extent

that we have challenges as we grow as a community we should like lean to our values and use that to like help us make choices so it's really important like you should probably spend like most of your time thinking about what the values are and the other you know minority of your time thinking about how to like execute upon them I've kind of come to like these three that I like we'll walk through them a big one is credible neutrality which you probably hear all the time another one we'll call permissionless Innovation I'll explain that in a little bit and this one I kind of made up concrete optimism um yeah so credible neutrality um vitalic has an article on this that's probably like the sort of canonical text if you want to read that but what do we mean right so neutrality

is this idea that no one who like if you think of ethereum as this like game and say a game theory since no one playing the game has any special advantage over like any other player um that's kind of the the core idea and it's not enough that you just have neutrality because for other people to like really feel safe let's say playing the game they also need to know that it is neutral and that everyone else also knows that right like you get this like huge reduction in like this sort of strategy space of the game if everyone knows that like everyone's expected to play in a certain way so this is what we mean with the credibility bit that there's almost this like common knowledge layer I'll draw an analogy here there's this whole field of like development economics which is basically saying um

well I would say like and sort of insight from that field is that basically one way we can say that things develop in this like capitalism GDP sense is that the more that a nation state has these like strong property rights the more basically everyone is better off over time um simply because it like gives you some properties around you know I can own this thing and that I can also own in the future no one will arbitrarily change the rules on me around like ownership of this capital and yeah there might be better systems but this one seems to work at scale most of the time and uh yeah this last bit here I was just trying to point out

that we talk about these other things around like sensorship resistance immutability of the chain you know like cod is law I'll kind of claim these are like all consequences of credible neutrality and ultimately we want to just have this notion that like there's some sense of like uh property rights in the legal sense but in this like digital space peral Innovation I think this one's like a lot more clear basically you can do whatever you want um sometimes it's actually not what you want as a protocol designer but it's here um this is good in terms of like State Building because it means that there's like possibly boundless opportunity for anyone to like join and play and taken together with credible

neutrality okay I have five minutes I'll speed up um C neutrality and permission Innovation um yeah everyone's advised to join and play this game concrete optimism I'm going to gloss over this basically I wanted to call out that like I think as a community ethereum is like very optimistic uh we're like very hopeful and like we're willing to try new crazy experiments and generally think that we'll all be better off by by doing so so great I've tried to paint like a nice picture for you um does that mean it's it like we're all good and basically no um the point here is that like the protocol isn't perfect there's like we have but they're leaky we have

these like leaky abstractions a direct example here is like me um which that stuff has been said today so I'll just assume you know what it means and yeah I mean again a like very sort of hot button easy Le displayed example of this is ofx censorship with all of our MV infrastructure uh this is a chart of validators relays and Builders and you can see there's quite a bit with these like red bars going on uh this is from C.P from uh Tony you heard on the panel a minute ago and yeah so like the point here is just that there all these unint consequences like we can try to like make this nice set of rules but like when they are put in the real world it turns out that um yeah there's all these things we don't see that that lead to

issues um a big one is staking dominance which I was going to drill into a little bit more rakings here as kind of an example of like you know no one was talking about this even say a year ago but now it's like this huge thing me was a very similar thing of few usually and now the question is like who knows what else will happen in the future where Suddenly It's like oh there was something we didn't think about with the way you could use ethereum and suddenly it could lead to like quite a problem uh right so I going to drill in here and and speak to like staking again a big issue most of you are probably familiar with is Lio dominance so if we have say almost 900,000 validators 31% of them are stti through Lio uh that's not great it should be obvious it's like

a d centralization vector and I think ultimately like a lot of the big issues are around soft power just because it's like in the limits like imagine all the eth isake through Lio now basically their governance token is essentially the ethereum governance token but the ethereum or the Dow governance token is not necessarily distributed in a way that aligns with like ethereum community so that's not great um yeah think ex this happens it like really starts to erode all these values I was just talking about so that's not good uh what can we do so this is the thing Justin was talking about in the last talk around stick capping you could imagine if we say okay it would be bad to for example have all the eths and Lio we could just say within the protocol we want to Target a

fixed amount and we could just pick a number say there's like 20% stake today we say we want that how do we get there well we actually adjust the rewards curve in the protocol such that it becomes irrational to stake if there's more than 20% eth in the protocol and that's what this graph here is showing that's a you know at like 5% e stake you get 5% APR for example and then it decreases down out to say like 20 that'd be cool um if we do so then say there's like 20% Stak securing the protocol 80% doing whatever else all this like crazy application nonsense I was calling out the issue with this is that me still exists you know take this as a Shand for like all execution layer

rewards to the extent that this happens you end up in a place where it adjusts the rewards curve down even more and this becomes an issue because if we take the reward the rewards curve that I had and just Shi it down a bit you get to this regime that I called on red of negative rewards what this means in practice is that for example the individual solo Staker they're basically paying say one one e a year to basically buy a lottery ticket to maybe get 10 from like some me block that they propose um this isn't great because bigger players are more well capitalized and able to like buffer these types of sort of payments because uh yeah they just have more Capital to play this game it's sort of law of large law of large numbers you end up in a place where they

can play these games for longer than say the smaller players that's not great so is there a fix to this fix of stake capping participation targeting um Mev burn has been floated uh there's some ideas around how you'd actually try to capture the movie in the protocol itself and either burn it smooth it do something with it the issue here was this volatility in the in the rewards itself um without this basically you can't have this lowering of the curve and you end up in a spot where it's or like this some other ideas floated around you can imagine every Valor is like their own staking pool I'll call it work here by like denr and mager at the EF um rather than have like Lio or rocket pool

you could imagine a construction where like every validator has their own staking pool their own LST and that could be cool but then you kind of have this issue where like the reason you have these staking PS in the first place is to like have punch ability around like the LST and if like everyone has their own then they're not immediately fungible and it's not clear how to do that we could just give up and say steth is money call a day that's possibly not a good answer either so yeah I mean what can we do basically keep doing what you're doing like unironically just like be aligned and that's not just posturing but what I mean by that is that we should live out the values that I called uh called out earlier um when people disagree with you try to incorporate their opinions but

ultimately have some principles used that you think are going to lead to a better future and and act in accordance with those that's [Applause] it perfect we do have uh time for about maybe one or two questions if anyone in the audience has any all right not not seeing any thank you very much Alex for an excellent oh wait oh wait there is one thank you very much I missed it oh my gosh um so given the set of values you mentioned and using them as a guiding principle how do you feel about

enshrining PBS uh okay this is a great exercise so yeah if we were an enshrine PBS you'd probably end up in a regime where you wouldn't have as much trust say in the relay there's probably a lot more you could do around captur M that would all be good and yeah you would get to a place where um yeah what would this be probably in the credible neutrality bucket just saying that like there is this me sort of like metag game that's happening but to the extent that we can by enshrining PBS in the protocol you like bring that back into the protocol such that now it can be dealt with in a nice way and suddenly the the sort of board game ra playe is like more level all right any other

questions all right well once again Alex thank you very much for a very thoughtful presentation thank you everyone