Bullish on ETH, Optimism Bedrock overview - The Daily Gwei Refuel #420 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of The Daily way refuel where we cup the latest news in the ethereum ecosystem I'm your host andreasana and says the third of August 2022. all right everyone let's get into it so there was some legislation proposed in the U.S Senate today to treat both BTC and eth as Commodities under the cftc or Commodities Futures Trading Commissions purview in the US here now the funny thing about this kind of like conversation is that I think over the last few weeks I have Bitcoin maximals especially have been trying to push this narrative that ethers a security when it isn't maybe it was once upon a time like early on on if it's live but now it certainly isn't a security I would definitely consider it a commodity it is extremely decentralized and doesn't just

not fit the security kind of like Monica that doesn't even fit into the something like the Howie test right for example so this proposed legislation would basically codify that and codify BTC and eth as as Commodities here now you may hear about this a lot and like why does it even matter why does it matter that something not be classed as a security and instead of class as a commodity well in the crypto context it's actually a pretty big deal because as far as I know none of the mainstream crypto exchanges are set up to trade Securities which means they're actually legally not allowed to trade Securities uh so for example eath was classified as a security a lot of these exchanges would have to literally de-list eight because they're not allowed to have it on their platform unless they would have registered for Securities trading but I

think to do that is not an easy process or they would have done it already I believe some of them are kind of like trying to move into that I know FTX is trying to move into uh stock trading and things like that uh but yeah I mean most of them aren't and probably won't be and it really kind of like complicates things like D5 as well like what happens on D5 like how do you even police that right it makes things very murky it's obviously not uh not something that we want to happen and I also it also begs the question around would that require the ethereum kind of network or someone in the ethereum network to submit like quarterly uh Financial reports for ethereum to the SEC uh and and to make sure that kind of everyone kind of gets eyeballs on it and is kind of kept aware

of things which doesn't make any sense because ethereum is an open public network you can monitor the chain at any time and from anywhere in the world there's no need to wait for quarterly reports you can kind of monitor the change you can go use one of these third-party tools such as doing out of links or nansen to an eat the scan to dive deeper into things so yeah it just it would be obviously not ideal would be pretty bad and it would basically uh not be a death sentence for an asset but at in the current kind of like scheme of things it would not be great you could only would only be able to be traded in uh kind of like regulated venues or sorry Securities kind of like regulated venues and it would change the dynamic of what it is so Ethan BTC being

classless Commodities would be a lot better because Commodities I mean like they're freely traded right they're not kind of like under the sec's purview they're under the cftc's perfume uh they don't have the same restrictions around them because like there's a ton of different Commodities right like if you if you Google Commodities as I just did here you can go see like some of the most common right coffee is a commodity for example like could you imagine having to be regulated around kind of like trading coffee you could only Trade coffee on an SEC approved kind of like exchange or something like that which means and I'm not just talking about trading coffee as like a Speculator I'm actually talking about like buying coffee like imagine you couldn't go to the supermarket to buy coffee right that would just be silly and it's not just

coffee there's obviously a lot of other Commodities out there all right I'm just reading them off the listing like tea sugar cotton bananas those those sorts of stuff right like imagine having to trade those on a or buy those off a regulated platform it just wouldn't work whereas obviously Securities laws work for publicly traded companies where there is a kind of like stock and you just kind of trade the whole equity and you trade that on a on a regulated a regulated exchange I am also of the opinion that a lot of tokens should be I don't know if there should be Securities but there should be something like they're definitely not Commodities but there should be like some legislation put forward that regulates them as maybe like a pseudo security uh so not as harshly as as kind of Securities are

regulated today because I don't think most crypto assets fall into that but a lot of the tokens out there really do look like the traditional kind of like equity in a or stock in a company for example if you're a defy protocol and you're sharing Revenue with your token holders well what that's not very different than a kind of like company sharing dividends with their their kind of like stockholders right so it's a similar Dynamics there but I think there is obviously key differences with that with with defy a lot of it comes from you know a lot of the time you have to kind of like stake the asset right in order to generate a yield and the assets are normally able to be used for a bunch of different things you can use them as collateral really easily on money markets you can put them in amms things

like that so regulating it as a security would hamper that and and hamper the kind of like avenues that it could trade and stuff like that so I think that there needs to be a reform there I don't think the current SEC and the way it's currently structured is going to be able to do that reform and especially not under Gary Gensler but I do think that BTC and 8th being regulated by the cftc is a big positive yeah I think people often look at regulation and think ah regulation aren't we trying to get away from that in crypto like yeah of course like that's why we're building defy but in terms of kind of like bigger regulated institutional players like Pension funds endowments things like that a lot of the time they're they're not really in the business of touching any of this stuff because there's no

Clarity for them whereas if there was Clarity if they could say to The Regulators or to kind of like their investors and two people that kind of like uh they're on the scrutiny from they could say to them hey you know we're not trading kind of like these assets that uh these crypto assets that have no uh kind of like um regulatory uh not not approval but kind of like regulatory Clarity around uh they can say well BTC and ether regulated by the cftc we're trading them as kind of like regulated products and this and here it is like this is who we custody with right maybe they custody with something like coin a coinbase or something like that so yeah it's it's a huge positive if this was to go through but it's just proposed legislation right now it's not kind of like being passed or anything

like that but I'm sure people will be keeping an eye on this and sharing uh kind of like the updates on Twitter and I'll share them with you guys on the refuel all right so okay this is going to be fun today I'm making not making another 8 ball case but I'm going to be bullish on eth for for a few minutes yeah so data always one of my favorite kind of like uh uh follow uh follows on Twitter who focuses a lot on the data side of ethereum put out this table uh with the title reduction in theoretical annual structural cell pressure and on the table is a bunch of I I guess I shouldn't say table on the kind of like chart here it's basically a bunch of different dollar denominated uh I guess like a structural cell pressure reductions uh in popular blockchain so

obviously you have the eth merge right which is which is first this is going to be about seven and a half billion dollars of structural cell pressure basically evaporating at time of the merge and this is at today's prices guys like this isn't that like the all-time high of 8th or anything like that that's at today's price I think this was calculated at about a sixteen hundred dollar each actually so a bit less than what the price is right now uh but yeah so btsc's 2024 harvesting would lead to around and a four billion dollar kind of reduction in uh in kind of like cell pressure here because of obviously the hardening there but keep in mind that BTC has a larger market cap than eighth by over 2x right now so if you were to I guess like market cap normalize these sorts of things the eighth merge

reduction would be 15 billion or something right if the market caps were what was the same as as Bitcoin here BTC in 2020 uh the 2020 Harmony reduced cell pressure by about 2.8 billion then you can see it collapses from there there was the East 2019 uh kind of a third inning we called it at the time that reduced cell pressure by about maybe 400 million BTC in 2016 was just under that that was like a 2016 Harmony and then you had you know Z cash bch and Ethan 2017 which are basically negligible here so none of them compare really to the 8th merge like like if you put this as a percentage of market cap it would be huge I mean my eighth month cap is what

200 billion in today right now like so seven and a half billion would be what like a uh well I'm gonna do my head math yeah probably under five percent I think if I'm doing my math correctly that yeah I think I am uh just a bit under five percent uh of the total market cap just kind of like being reduced worth of cell pressure here which is which is absolutely huge right um and obviously the as you guys know post merge there is no with big and chain withdrawals until kind of like six to twelve months after so the issue ones basically drops to zero like yes a new eight is still being issued to validators but in terms of issuance hitting the market for at least six months after that there is zero new each hitting the market so the only eat you'll be able to buy is the eight

that's already there so I've I mean I've talked about this at length before guys I'm not going to rehash every Point I've made in the past but I think when you put the dollar number to it here it really starts to speak volumes because this is not something of a speculation this is literal truth like we know for a fact that 13 500 eighth every single day is issued two miners for as rewards right and we know for a fact that once the merge happens we're having it around an eighty percent Insurance reduction and then there's no big and chain withdrawals so issuance hitting the market is effectively zero um so we these are hard facts here so there's no need to speculate there's no need to Guess that you just have to look at the data take it in and be able to come to conclusions based on that now

the conclusions are definitely speculative right trying to kind of time the trade if you are a Traders is super speculative trying to guess what ethi's going to do around the merge like is it going to run up to the merge and then sell off because that's what crypto does right or is it just going to keep running because we have that structural cell pressure that has kind of evaporated there my personal opinion is always that short term I've got absolutely no idea but longer term this is the most bullish Catalyst in its history like I cannot see a world where Heath doesn't react positively to this because of the fact that you can just simply put it like this let's just assume that the demand for eth stays the same that it is today and we've been ranging for a while and I'll be just

going kind of like sideways so let's just assume that each demand stays the same that it is today like the the USD denominated Demand by eighth is the same as today with the same cell pressure that we have today now take away that sole pressure take away all of it literally drop it to zero the cell pressure isn't in the tens of millions today right so take that all the way and now do the math again the demand stays the same if the cell pressure goes to zero then the only place that the price of Earth can go is up like it can't go down I mean it can go down if the uh if the kind of like um Supply and the demand to sell goes up but if the demand to buy just stays the same doesn't have to go up it just stays the same then

logically the eighth prize should Trend up because of the fact that we know for a fact miners have to sell a lot of their eth to cover their costs there's no way around that unless they have Revenue coming from some other Avenue to cover the extreme costs that they have which pretty much all of them don't have that because it's just such a costly business then uh we know for a fact that miners are kind of adding all this cell pressure and this is obviously what hell press talked a lot about in his bankless interview I think he has another one coming up uh hopefully soon there but he's also writing a blog post that he's been teased as well so I'm excited for that but yeah guys like I just I look at this and obviously it's not investment advice but I look at this every like not

every day but I look at this quite often and I just think to myself like we had so many people blow up and spew their eath all over the market over the last few months and yeah okay we went to the 800s for eighth but we didn't stay there long demand is there there is so much demand for eth right now even though kind of like the the bull Market's not here there's still demand in a bear market and all we need is demand to stay the same that it is right now it can even reduce like if you really want to think about it it can even go down right but it'll have to go down by uh you know the same amount as the kind of like structural cell pressure from from minus has gone to to stop it from kind of like

going rpr and I don't you know given that it's a bear market and given that so many people already blew up I don't say where all this you know sudden influx of eth would come from to add more cell pressure to eth in order to kind of offset that for cell pressure that were basically eliminated from the market so yeah yeah as I said I wanted to be bullish there for a few minutes but I think it's just very very um prudent to think about these things and kind of like follow these things and realize that we've never seen something like the merge before Bitcoin hardenings are the only uh kind of like thing that we have to compare them to but Bitcoin harvestings aren't anywhere near as bullish because they're not a change of you know from people work with proof of mistake uh they're at where stakers have

to sell you know a lot less than miners do the miners still have to sell right in in a harvesting yes okay you've kind of like taken away 50 of the cell pressure but there's still that remaining cell pressure there every single time whereas with the issue introduction coming with the merge for six or twelve months after there's just no cell pressure at all and then once big and chain withdrawals are unlocked it depends on a variety of factors that becomes like a very big unknown because we don't know how many people are going to unstake their Ethan sell it we don't know how much of these uh kind of like rewards the block rewards will get sold each day so that's that's in the unknown territory but I think for six or twelve months after the merge we can confidently say that the eighth price

should go up because of the fact that we have removed that structural cell pressure from kind of like the the market there uh and now just before I move on here I wanted to make one more note about how erp1559 plays into this obviously gas space have come down a lot since the bull market they're on any given day you can get a transaction with a single digit way like I saw it go to like two gray the other day it was great crazy right but let's say you average we're averaging around 5 to 15 way kind of like prices a day I think at those prices based on current amount of each staked we would just be kind of like net deflationary in terms of like the the supply would just be at about zero percent a year Supply growth and on the ultrasound money website you can

actually simulate this so pay attention to the middle uh kind of like little graphic here so this is the supply growth under proof of work based on the last day of transaction fees so this is basically showing that the supply is still growing by 4.2 percent uh even though we're offending it with with a bit of the burn now if you you want to simulate the merge right and just take the last day where the gas prices have been really low it's still the the supply growth would only be 0.1 percent so we're basically at zero percent Supply growth even at these low gas prices right change it to seven days it's the same kind of thing 30 days I think it's just slightly under but we've been experiencing these low gas fees for a while if you want to do all for when Erp 1559 first went live we would be

negative 1.6 right so even though the gas prices have been really cheap we're still basically netting out to around you know zero zero point one percent Insurance are kind of like uh here which is is basically nothing still so even if those uh kind of like tokens post uh with bigger chain withdrawals that those eth get unstable get kind of like sold off the block rewards get sold off we would still be offsetting that with the burn right so it's just when you when you keep thinking about this and then I didn't even talk about the burn until now right I already made like a super bullish case for for Eve but now I'm talking about the mer the the burn kind of like offsetting all that extra issuance from sorry all that issuance from proof of stake and making us

basically or you know zero percent insurance or net deflationary take it all like that and yeah things get absolutely wild guys and you know I think I'm going to stop myself there before I get even more bullish but you know I think just refreshing uh you know every once in a while around the kind of like the bookcase faith in like a nutshell I think is prudent but I'm going to move on there hopefully that's got you pumped up all right so another thing I actually got really pumped about today was this tweet thread from optimism where they said optimism Bedrock is coming soon and when it does it will change the roll-up game forever it will lay the protocols foundation for years to come and serve as the model for roll-up architecture it's named Bedrock for good reason this is a threat about what's coming in this

Bedrock upgrade in the first kind of on the second tweet they say it reduces L1 to L2 deposit Times by over 4X that's really cool that it makes onboarding easier for people like that's amazing I didn't even know about that I actually didn't know about most of these things right um it slashes the cost of data submission to L1 by 20 so that basically means fees are coming down on optimism again cuts difference with Geth down to a slim 500 lines of code which is uh kind of like better for developers of course and better for tooling and infrastructure and things like that and it supports any number of alternative proof systems including ZK proofs which I spoke about the other day um a Bedrock is coming in Q4 2022 so it seems like Nitro will go live first but then for arbitrim and then Bedrock will come

after it later in this year which is which is really awesome I think there's one other thing here as well a couple sorry a couple other things Bedrock is also designed like a post merge ethereum with a consensus layer and an execution layout so on L1 ethereum obviously we have the beacon node an execution engine and on L2 optimism Bedrock there is a roll-up node and an execution engine as well so I've spoken about how optimism wants to try and go down this client diversity path as well with their Network which is very very cool there uh and I also didn't know about this instead of a block for every new transaction as it currently stands Bedrock will have a fixed block time of two seconds and the L2 gas price will be updated that dated via an eip1559 mechanism so very very cool here I read

this thread got super pumped up about about bedrock and then you know I kind of I thought to myself wow we have Bedrock coming we have Nitro coming we have ZK VMS coming it truly is the age of layer twos and the age of ethereum scalability and this isn't even talking about all the other cool stuff coming to ethereum layer one such as Proto dang shining which is just going to benefit these layer twos even more so I highly recommend giving this thread a raid yourself I did Cover the main points but just give it a read because it got me really really pumped up and I'm just super excited to see kind of like optimism continue to grow here and all the l2s continue to grow because I I think the funny thing is is that the l1s the alternative L ones I think blew

their load in the bull market and now during a bear Market the l2s are getting much much better exponentially better very very quickly and by the time the next bull market rolls around I think the l2s are going to be ready for prime time this time uh the l1s will probably still have a narrative trade at some point just for whatever reason like the crypto bull markets obviously get like that but I am so confident in ethereum scaling roadmap right now I'm so confident in these l2s and I'm seeing so much kind of like activity on them already so much support on them already in a bear Market that I can't help but be super excited for the next time we have a new influx of uh of kind of like uh new users right new retail users because they're going to be able to use

these things get an incredible amount of value out of them and they're not even going to know they're using ethereum a lot of the time too which is kind of funny you think about I actually saw a tweet just before where someone said I'm an eighth Maxi but I really like arbitrim and I'm like should we tell him guys should we tell him that arbitrim is actually ethereum like it's the same thing I mean it's an extension of ethereum right like a literal extension of ethereum but that's what it's going to be and that's fine like I I think that's totally fine as I've said before a lot of this stuff's just going to be obstructed away from the end user and it's fine if we have like arbitrum and optimism Maxis that reject ethereum like okay that's fine that whatever like it's kind of funny because we have like

Avalanche Maxis who hate ethereum it's like guys like you're using the evm you're basically using Geth like it's the the it's basically the same thing um right so it's kind of like funny when you think about that sort of stuff so yeah I think this is the way it's going to be going forward but I am just so so excited for uh both of these upgrades and bedrock and Nitro over the next few months and I mean the funny thing is like not only do we have these L2 upgrades we have the merge like next month right and then we have basically all the work and all the hype that's going to be redirected towards proto-dank sharding and a bunch of other upgrades coming with with kind of like the next uh Network upgrade after the merge so like I can't even begin to describe how excited in the next 12 to

18 months in ethereum is going to be like I think it's going to be I've said the Golden Age of ethereum was basically you know I think maybe I said it six months ago but I think we're currently in the Golden Age and it just keeps getting better and better as time goes on so I am super excited for everything happening with with all this I hope you guys are too all right so speaking of l2s I spoke about scroll I think yesterday or the day before how they are kind of like um released their article about the architecture of scroll and for those of you don't know scroll is a building a native ZK AVM for ethereum here the scroll intern account has a deeper dive uh into kind of like what was covered in the overall architecture uh post the other day so you should definitely check

this out if you want to learn more about kind of all of that but uh but yeah I mean this just falls into what I was saying just before about being super excited about these l2s the ZK VM stuff is just blowing my mind honestly I didn't expect us to get get to this point this quickly but given that there is so much money being thrown at this kind of like problem there's only people being thrown at it there's so many uh kind of like people in competition to build their ZK VM obviously we saw how cutthro of the competition is because everyone was arguing over who was first to announce their ZK AVM right so given that all that is kind of like coming together uh I'm just like super excited for uh the the zkvm space especially as well but definitely check out this

thread I'll link it in the YouTube description below alright so there was this really weird thread today from this person called Maca Brennan on on Twitter and he started the thread off uh basically by saying ethereum is starting to realize it's losing Builders are leaving the ecosystem in droves just look at new projects coming into web 3 there's a much higher chance it's being built on an ALT L1 or roll-up which the fact that he said roll up here wait and then he kind of like said ethereum is starting to realize it's losing it's like bro like like all the Roll-Ups are on ethereum like what are you talking about and then he goes here's why this is happening he does some kind of like thread here which I'm not going to get into because so many people debunked it and apparently it was actually just a

really bad thread in general I skimmed over it and I just saw the roll-up thing and I was like this is just super weird but there's one tweet that I want to focus on where he said uh uh they uh they being kind of uh he was kind of like trying to FUD Roll-Ups here and he basically said that Roll-Ups work off the assumption that all roll up oh sorry he was saying that you know eth Maxes or ethereum people work off the assumption that all Roll-Ups will willingly pay rent to either for each security model I hate this framing of paying rent like just stupid like it's trying to negatively frame paying ethereum for its security like you're getting nothing out of it what do you mean you're getting the entire ethereum ecosystem out of it like and for relatively cheap I actually think ethereum should be charging more

and we're actually going to be charging less than that because we've got proto-dang sharding coming we should be charging l2s more for what they're getting um you know if we were trying to extract as much rent as possible but we're not we're actually going to reverse that by giving l2s more capacity and making it cheaper for them to settle to L1 right and then Matt Brennan continues by saying in business you if you have two suppliers giving you a similar product for different costs you chose the cheaper one or you choose the cheaper one every time which is just beyond stupid to say as transmission says here because he uses the analogy you know if you're a bank and you can either buy a toy lock for five dollars at Home Depot or a costly Industrial Bank vault to secure billions of dollars I don't know

if you're just going to choose the cheaper one you're not because these Solutions aren't created equal like you're not going to secure billions of dollars with a toy lock right you're going to use a bank to do that and physical cash and then even if you have billions of dollars of crypto you're not going to secure it on uh kind of like your own Ledger with a piece of paper stored in your safe at home right you're going to store it in a much more sophisticated way using custody Solutions most likely so like when people frame it like this it's just bizarre to me and people often will say that not everything needs like super high security and I've said this before as well but I actually think most things do need these high security I've said before that I think maybe the the gaming

stuff doesn't need to be built on a super secure rob it can be built on something like a validium or arbitrim any trust chain or anything like that um but most things especially if they're handling lots and lots of value should definitely be built on a roll-up even if they're they're building their own roll up as an app chain and post Proto dank sharding it's going to be very cheap to do that so this framing of Roll-Ups having to pay rent to ethereum is and framing that in a negative way is just so bizarre to me and it's one of the the worst fud points or worst kind of like critics that I've come across from if you're kind of like haters I guess if you will because it just makes no sense to me because if ethereum was trying to be a landlord that's just kind of

extracted as much rent from these l2s as possible then it wouldn't be doing things like proto-dank shoting right and even without product dang shining it is really cheap to settle to ethereum for these l2s they make more inferior of a new than they spend in kind of having to cover the cost on L1 because of the fact that the the cost that they cover on L1 they actually design for that it's a fixed cost on these l2s and then they have their own fears on top of that right so when you take all that into consideration this framing of um ethereum being like this extractive rent law Sorry landlord that just trying to get as much rent as possible from Roll-Ups is completely and utterly false it doesn't even make any sense in any reality as and I'm not even kind of like talking about proto-dank shutting in

this reality either and then you kind of add that into it and it's just absolutely weird to be making that point but this thread was just yeah I mean and then later on Mac Brennan tweeted out something saying I put together this thread and uh people just kind of like came at me and attacked me and there's you know it's made it says something about like eth Maxis I don't know where it is actually I want to find this to you because I think it was just even more stupid where he said yeah he said this tweeted a semi-viral criticism of eth earlier and there hasn't been one objective reputation of any of my claims where there was plenty and in the thread it actually is linked like the reputations and then he says it's really shocking how much of a group think Echo chamber eth Max is living what are you

talking about like I hate when people pull this card uh people refuted me they didn't just agree with my point sorry they didn't agree with my points that made me look stupid oh you're a stupid eth Maxi you know go away this is just pure cope really at the end of the day but if I keep going I'm Gonna Keep ranting on for on and on here I mean obviously I I kind of like hate this framing but I've said we said before and I said it again ethereum needs just much better critics like I'm sick of the critics like just give us something guys like I mean we ethereum people will never claim that ethereum is perfect I've never claimed that and I think there's a lot of issues with ethereum that we're working on I mean vitalik himself said ethereum is only 40

complete that means that there are plenty of issues that ethereum needs to work on and plenty of upgrades that kind of come to ethereum to make it a complete system but you know resorting to these just really shitty criticisms that aren't grounded in reality just makes me sad because I want us to be better as an ecosystem and it feels like the only good criticisms come from within and we may be missing something if they come from within because there is a very you know there are Echo chambers that exist so I really wish people outside the ethereum ecosystem were able to make object active criticisms that actually made sense of ethereum so that we could learn from them but it doesn't happen it doesn't happen maybe it doesn't happen because of tribal reasons but it's just a really silly thing so so yeah anyway I'm gonna

end the rant there uh final thing here I just wanted to give a quick shout out that I finished recording my uh kind of Twitter spaces with mudit here from polygon we talked about all things security obviously over the last couple days with the Nomad hack and the Solana kind of like hack today it was on top of everyone's minds and we also talked a bit about the proof of work ethereum Fork too so if you missed the talk uh you can go go and kind of look at the recording or listen to the recording here I'll link that in the YouTube description below but I think that's going to be it for today so thank everyone for listening and watching be sure to subscribe to the channel if you haven't yet give it a thumbs up subscribe to newsletter join the Discord Channel and I'll catch you all tomorrow

thanks everyone