Coinbase vs the SEC, Layer 2 metrics and more - The Daily Gwei Refuel #599 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of daily gray refuel where we got the latest news in ethereum ecosystem I'm your host and this is the 7th of June 2023 alright everyone let's get into it so obviously the biggest news or the Talk of the Town over the last 24 hours has been the continuing conversation around the sec's actions against not only binance but of course coinbase and you know the funny thing is I've seen more people talk about the action against coinbase than binance and I don't know exactly the reason for that but I can kind of speculate a little bit that people consider coinbase to be a much more legitimate exchange than binance obviously coinbase is is based in the US so it hits home a lot harder for for a lot of people and also the cases are distinctly different I think

and it's it's a little bit harder to defend binance not against the security trading charges but against some of the other charges that make it look obvious that they were doing things that they knew that they shouldn't of um but with coinbase I believe the the lawsuit is only over uh the Securities uh or I guess like the um the assets that the sac are claiming of Securities being traded on coinbase and also coinbase's staking products which comes as no surprise since the SEC already went after Kraken about their staking products but coinbase has opted to fight all of this instead of just basically uh you know throwing in the tower essentially and honestly you know I don't blame Kraken for throwing in the tower because this fight is not something for the faint-hearted it is not going to be cheap that's for sure it

is going to be long and drawn out and it's going to require pretty much a lot of work and effort on coinbase's part to make sure that they can both defend themselves and defend the industry at large because what we're witnessing right now is basically the the the battleground of what's what's the come right what's what's the calm uh not only for crypto as exists in the US but just regulations generally and the things that are put in place now the the regulations the laws the legislation that's put in place now will have impacts for decades to come so we want to make sure that we get it right and really it really means that crypto is maturing I think as well because it's become part of the mainstream conversation it means our industry is getting a lot more scrutiny of course

but with scrutiny comes uh with it the opportunity to work with these Within These Frameworks or at least to try and create new Frameworks which is especially what we want to see happen with the SEC in order to move the crypto industry forward now of course this wasn't ever going to be easy there was a lot of pushback here especially from Gary genslow who I would label an enemy of crypto at this point because he went on air I don't know what what station it was or what channel it was it may have been a CNBC or something like that but he went on air and he basically said that we don't need more more crypto and it's like well okay who's we here Gary like who are you speaking for right now because literally no one I know in crypto except maybe the BTC Maxis right

uh are saying that we don't need uh more crypto I think that really they're the only ones so are you speaking for just the BTC Maxis and yourself are you speaking on behalf of the whole SEC or are you speaking in a personal capacity because really you I feel like Gary gensley is definitely on the minority side of things when you're looking at the crypto industry in terms of what they actually want and also he shouldn't be allowed to or shouldn't even really be saying stuff like that because at the end of the day he works at the SEC he ultimately works for the American people even if he doesn't act like he does he does right um and he should be looking after the best interests of the American people you know which he's not doing well at least from my point of view he's

definitely not doing so for him to say we don't need more you know more crypto assets it's not him trying to say that I'm you know we're going to regulate them we're going to make sure that they abide by the rules it's basically him saying that he wants to ban them really that's that's what I take from it and that's essentially what I think he's trying to do now I of course I don't believe he's going to be successful thankfully the US is not a dictatorship it's not like Gary gensley says that the helm and dictates uh what people can and can't do there are checks and balances in place there are courts and and you know For Better or Worse a lot of the US political system runs on uh donations as they like to call them but we all know they aren't they aren't donations in the

literal sense they there's another word for it but I'll let you I'll let you kind of think of that but essentially yeah I mean the more money you have the better chance you have and that's exactly what coinbase has coinbase has a lot of money they have a lot of public support they have a lot of people in there in their um their corner of the Arena now and they're ready to fight they're not ready to Cave or to throw in the towel they are ready to fight and to fight to the fullest extent of the law and to hopefully get some positive things happening around this now Brian Armstrong of course the co-founder and CEO of coinbase put out a tweet today uh talking about the SEC complaint and he said remember and these are the four key points you brought up the SEC reviewed

our business and allowed us to become a public company in 2021 there is no path to come in and register we tried repeatedly so we don't lose Securities we reject the vast majority of assets we review the SEC and cftc have made conflicting statements and don't even agree on what is a security and what is a commodity this is why the U.S Congress is introducing new legislation to fix the situation and the rest of the world is moving to put clear rules in place to support this technology and then Brian continued and said instead of publishing a clear rule book The SSC has taken a regulation by enforcement approach that is harming America so if we need to Avail ourselves of the courts to get clarity so be it and by the way in case it's not obvious the coinbase suit is very different from others out there the

complaint filed against uh coinbase is exclusively focused on what is is not a security and we are confident in our facts and the law so those four points I think are really Salient uh it really is kind of insane that the SEC would approve a coinbase to go public even if there was some some discussion about how they put in a clause there saying that this doesn't mean that coinbase wasn't uh trading Securities or something like that I still think it's insane um you know there is no path to come in and register and that hasn't only been said by uh by coinbase but but by multiple parties in the crypto ecosystem especially parties that aren't just in the crypto ecosystem but Robinhood crypto are one of the people one of the executives I believe that that works there uh basically gave a statement

saying that they worked at the SSE for a long time to try and get uh I guess like approvals for things and work within a regulatory framework and the SEC ended up just stonewalling them uh the SSC and cfdc having differing opinions on things is obviously not great uh and obviously the US Congress is now introducing new legislation to address all of this and that's the bill I covered the other day and there was also a video that coined the coinbase account put out here around numbers of what's happening with with this so basically this is a really to the point 40 second video that basically lists what they've done so you can see here uh they say uh coinbase by the numbers and they say the number of times we mentioned staking in our public S1 report 57 times we met with the SEC in

2022 asking for guidance 30 percentage of assets we reject because they don't pass legal standards 90 percent the year the test was written that the SSC uses the determine if tokens are securities 1946 and tech jobs at risk of being driven offshore are a million countries currently establishing comprehensive rules for crypto 33 and comprehensive rules that the SEC has established for crypto in America is zero so yeah and then they say update the system keeping in theme with their update the system uh uh kind of uh thing that they've been doing for the last few months and I think this is just a really impactful video it got a lot of views 1.8 million views here got a lot of attention uh and 40 seconds so for those people with very short attention spans which seems to be a growing number of people on the

internet these days this is the perfect video for you so yeah I guess that's mostly the latest stuff that's that's happened really just responses from coinbase um Paul growwell the chief legal officer of coinbase actually went on Bank list with David Hoffman spent around 25 minutes talking through this uh and I believe that there's going to be more stuff coming out around this but really what's been the funniest thing to see actually has been the market reaction the market I think at time of recording has erased at least on Ethan BTC has erased all of the dump that happened um from when the SEC announced that they were going after binance and I've said it before and I'll say it again guys when you're in the time-based capitulation part of a market you have this crab style action where essentially

the bad news doesn't really move the market anymore yes there are opportunistic Traders and short-term people but really at the end of the day the market is not in a spot right now where bad news is going to Nuke the market uh in any significant way and on the on the other side good news is probably not going to pump the market in any significant way I mean the the um uh the the withdrawal thing right uh where withdrawals went live and then East pumped a bit that was a short-term opportunistic thing 8th pump to what 2100 or something like that after withdrawals that was literally just a Traders taking advantage of a narrative and then each just went back to where it was just before withdrawals went live that's because good or bad news it doesn't matter at this point in time the the crab wants what the crab wants and

it wants to continue so it's going to continue for quite some time as we go through these time-based capitulation we we could visit lower from here we could go higher from here but as I said there is a defined range right now a long-term range of between a thousand and 2500 that I'm kind of keeping my eye on and if we break that in any significant uh any significant way you need a Direction so if we go under a thousand again and then we just sit under there and we don't bounce really hard from there uh that's when I'd start getting pretty concerned uh and if we go over 2500 and we stay above it that's when it's like getting pretty excited right because you it could be a potential new bull market happening but I don't believe the the um the eighth is going to go under a

thousand and sit there I don't believe that to be a realistic scenario I don't really believe it's going to get near that unless something like really bad happens like another Black Swan like what we have with the covert dump in 2020 and then getting above 2500 again it it's going to take a while we might just get above it everyone gets really excited and then everyone just gets liquidated and we go back down these things happen so as I've said before I'm not expecting any fireworks until probably next year at this point but enough market talk just a last little uh tweet uh three tweets here from uh tongvi lee uh who used to work at the SEC I believe uh put out a tweet that said let's be clear the SEC complaint doesn't mention this but there is currently no way for a platform like

coinbase to register as security as a Securities Exchange broker or clearing agent that's why they've been they've been begging the SEC for years to give them a path to compliance and this just reinforces what Brian was saying and it really is insane because you know the funny thing is is that if coinbase could register as an exchange that was allowed to trade Securities you could actually um uh basically say okay well these things are securities and then climbers could be like okay their Securities but we're still going to trade them because at the end of the day being a security shouldn't be viewed as a negative it shouldn't be viewed as something that that that is negative for the assets the biggest Assets in the world are some of the biggest Assets in the world are securities I mean the biggest company in the world Apple is is publicly traded

right it's it they have a security a share uh and obviously there are different obligations when you are actually a security you have to do like Financial reports you have to abide by certain regulations and subs and shot such but I think a lot of crypto projects could do that if they have a centralized team behind it they just they could put the financials out there um for their token holders and that's it and then eventually if they want to decentralize and they want to become more of a community oriented project that could potentially uh their token could potentially become a commodity and just move away from being a a security because they don't actually want to be that centralized point of control there but yeah currently there's no way for coinbase to go in and register as that sorry yeah just another thing reinforcing all of that there but anyway

moving on from the regulatory stuff onto some updates on the tech side so first up the optimism a mainnet upgrade a Bedrock that I've been talking about for a long time now has concluded and the Bedrock sequencer has started up uh so I I and this was at I think like 16 hours ago now something like that so it seems like the optimism network is well and and truly upgraded to bedrock chugging along nicely I was using it just before for a little bit and everything seems fine I kind of don't have anything to compare the fees against to be honest because I'm not like a super active user uh where I'm on there all the time just making transactions so that I can compare the fees and as I said um these l2s fees are actually also influenced by our one so obviously when

the L1 fees are higher so two will be the l2s at least until 48.44 but there is a website you can use called l2fees dot info again not totally sure how accurate this is to show the cost of things right now it says that sending ethon optimism is about four cents uh spot swapping tokens is about nine cents uh and that actually the um the layer one gas fees are quite cheap right now at 19 gray I wonder if they have have like a historical view here let me let me have a look in no that they don't seem to have a historical view here of fees on l2fees.info but these are the the kind of current fees here that you can see as opposed to the ethereum main networks almost a dollar to send eighth and over four dollars to do a swap transaction but as I said not sure

totally sure how how accurate this is um and you can test it out for yourself I guess uh but but yeah Bedrock is still a major upgrade there have been multiple posts uh for them explaining essentially what Bedrock is what it brings with them not just the cheaper fees but also better infrastructure better tooling better things for people to use when building things with the op stack and what's really exciting at least for me is the ability to uh potentially uh I don't know if it's if it's enabled yet or if it's something that is being focused on yet but I do know it was included with the Bedrock upgrade the ability to use validity proofs instead of fraud proofs now for those of you don't know what that is fraud proofs is basically the system that optimistic

rollups use in order to catch fraud so in order to catch someone trying to do an irregular State transition on uh the L2 Network or on on the roll up I should say on the optimistic roll up whereas validity proofs are used within ZK roll ups and uh they're not it's not a okay there's actually analogy I can use here to explain this a bit better so it's not like a fraud proof where essentially four proofs are used after the fact so you're basically assuming that the network is always uh is always working normally no one's trying to abuse the network everything's working as it as it is intended and then if something happens where essentially someone's trying to do fraud you have to prove that via fraud proofs and there's different games that are played with these things and different constructions

of this Arbor gym has their own implementation of optimism uh does too with Canon which isn't live yet but they've been working on it for quite a while and then with a ZK roll up instead of uh assuming that everything's uh going going well they just basically post the the proof uh the validity proof to mainnet ever whenever it's a kind of uh whenever it's posted I mean some music store faster than others and then it's sealed and always well and good there so that eliminates the need for like that seven day withdrawal window or a long withdrawal window that optimistic Roll-Ups tend to have uh but it does make it a bit more expensive so that's the kind of analogy to to think about here but yeah congrats to optimism on a successful Bedrock upgrade uh I'm

looking forward to seeing how people build out this um build out more I guess like infrastructure using the op stack as well all right speaking of arbitrim there was an economic analysis done of time boost transaction ordering a policy uh here on the arbitrim Forum so you can go check this out I'll link in the YouTube description below uh but I believe this was around the topic of sequencer decentralization and things like Mev at the l2s and how we can make it fair for different sequences and how we can essentially ensure that the negative parts and negative kind of externalities of Mev on layer one don't get replicated on L2 because at the end of the day like Mev affects any kind of ordering within

blocks doesn't matter if it's at L1 L2 L3 side chains wherever an ordering of transactions is controlled by a sequencer or by a validator whoever else there is going to be people that want to take advantage of this in order to extract profits from it now obviously we have a lot of different solutions currently being researched and developed for ethereum L1 and those can actually be applied to L2 as well but I see games at the L2 research communities are doing their own kind of research on on these sorts of things and suggesting their own things which could also be ported to L1 mind you as well so you can go check this out uh for yourself I'll link it in the YouTuber description below all right so speaking of l2s uh the other week someone in the dailyway

Discord Channel came along and posted a new website called growthepie.xyz that they and their team had been working on which basically tracks a bunch of metrics around layer twos so you can see here on the front page you have uh the layer 2 user base as the first metric now this was of this is obviously based on a number of unique addresses interacting with one or multiple l2s in a given week obviously uh and you know each user can have or each human can have multiple addresses so it's not like there are two million uh unique users of these l2s right now which is kind of bullish I guess in a way but this this shows kind of the number of unique addresses interacting with one or or two or one or multiple

l2s and you can see it's basically up only so this is total users across all the l2s that they monitor then you can go to users per chain and you can see each of the chains here so I'll just go to the latest data arbitrim uh and ZK sync error are leading uh and then you've got under that um uh optimism immutable X and polygon ZK ZK AVM here now sometimes uh I I explain this the other day but taking this data with a grain of salt is is sometimes uh prudent because you can see here ZK sync error almost has 800 000 users I I think a lot of those people are farming the airdrop because ZK sync doesn't have a token yet obviously arbitrim has a token so there's not really any of that going on same with optimism uh and it's immutable X and

with polygon so Zeke sync stands out right now as the one without the token so I feel like there's a lot of airdrop Farmers going on there but still I mean growth is growth right uh and then you've got like a percentage stacked chart here and you can scroll down and see a bunch of uh uh a bunch um of the different ways of displaying this data with a bunch of FAQs then they've got some different sections so they've got like a fundamental section where they're tracking things like transaction counts total value lock to feed paid by use fees paid by users uh stable coin market cap on these l2s so they're basically basically doing a more comprehensive version of l2b in terms of metrics l2b is great but I think L2 beats strength is really in all of the information they have on there about the various l2s like

the risk framework they have details about uh how the l2s handle things like fraud proofs or validity proofs and uh what what their current uh construction looks like is it centralized it's got training wheels all that sorts of stuff so it's great to see that there's another analytics site coming in to kind of fill that Gap here and then you can go as I said like stable coin market cap um which shows the markup of different stable coins on different l2s and then uh single chains they're also tracking ethereum L1 by the looks of things as well which is pretty cool but you can see here you can I just sort by single chains you can sort by arbitrine one and see the tvl transaction count daily active addresses stablecoin market cap and fees paid by users at a glance which is great to see and then there's also a

Wiki as well they've got here which is a a documentation section where it seems like they're going to be breaking down exactly how how these metrics work and how their the Defiance here and how they're calculated which is obviously very important to make sure people don't don't look at these metrics and get the wrong idea and they also have an API as well as a contributors section so yeah kudos to the grow the pie team for building this out obviously early days for them since it's new I'm sure they're going to be adding a lot more metrics and a lot more features to the site over time you can check it out I'll link it in the YouTube description below but you can also just go to growthepie.xyz as well but as I've said multiple times on the refill before I really want to be clear about the fact

that when looking at Metro tricks like this you really have to take a lot of them with a grain of salt you have to add a context to them you because the classic example of this and I didn't mention this the other day but back in I think 2018 EOS launched and they were bragging about having like millions and millions of transactions a day or something but the thing is they were measuring transactions differently to the way ethereum measures it they basically did uh didn't really they basically acted like Solana acts today where they're doing everything on the L1 they didn't really have a small gas limit uh the harder requirements were huge it was very centralized uh and there it didn't really equal the same as it did with it with ethereum and it was

really just junk the the it was a very weird way of measuring transactions and obviously as we know as we all know EOS is is very irrelevant now and no one really cares about it so I will reiterate the fact again that the only metric that I really trust uh is fees paid and it has to be a long-term thing I think fees pay made in a bull market is more noise than signal because people are willing to pay fees if there's some kind of incentive program going on and it's a bull market and all this money sloshing around but in a bear Market where there's not that much money sloshing around and where it's been consistent for a long time like it has with ethereum L1 that is a clear signal that the chain obviously has activity has a use case has demand has product

Market fit some of these l2s are doing it right now but also in saying that the L2 fees are going to drop a lot when 4844 drops their total fees as well as the individual fees but obviously the total fees will continue ramping up as more and more people use the networks as it becomes a bigger aggregate but for each individual user it will be less and less and you know I looked at the fundamentals here before and you can see feed pays by users per L2 and you can see what it looks like here now there's a lot of fees being paid on on arbitrim obviously all the time it's been pretty consistent same with optimism and ZK sync error they're pretty High here again though like I'm not trying to fight the ZK Sync here I mean investing in them but I I look at the engagement

I've done a lot of my own research on this and a lot of it does just just for reality of the situation look like airdrop farming to me even if they're paying the fees because if you're expecting some kind of big airdrop and you're doing like a comp say you say you think that okay ZK sync uh is going oh the zika sync token is going to be worth five billion dollars for fluid value this is the percentage of uh tokens that are going to be airdropped so if I'm able to farm such and such amount this is the expected value that I'll be able to get so this is the fees that I'm probably comfortable paying and saying that I'm sure there is a bunch of organic and legit activity not not legit I mean for agile farming isn't necessarily not legit but I guess

organic activity happening on ZK sync era there are a lot of exciting projects launching there there's a lot of excitement about them uh but I I do look at this and I think to myself let's see how this plays out after the token is issued right uh because that's what you know that's what I look at with with all of these things and and I think in terms of consistency Arbor trim seems to have been the most consistent here and and also being most consistently growing uh but yeah as I was saying the only real metric that I kind of look at over the long term uh to to to look at not I mean so you can look at all the metrics in Aggregate and kind of paint a picture but in terms of a metrics in a vacuum really fees paid would be the uh the

only one to be honest and there's also new ones here as well I'm going to end soon it's sorry I'm going on a little bit of rant here but there is no one Nuance here as well because who are the fees being paid to because if the fees are being paid to a centralized party that doesn't need to uh that runs the validators right then they're just paying themselves whereas with the fees on these l2s they have to pay ethereum L1 and no the ethereum L1 fees most of them are burnt so you can say that that most of this fear Revenue at least is legitimate is not fact whereas on other chains out there maybe they like super centralized and the creators behind them which is very shady and say okay well we're just gonna inflate the fear of a new because it makes it look good well

then they're just paying themselves so they're not actually losing any money here to do this so it's just it's basically a marketing cost right so yeah there's Nuance in every metric so that's why you shouldn't ever take any metric in like a vacuum and just on on its face value fee Revenue included but I think fear of fear Revenue over the longer term is definitely a pretty high signal High signal metric uh but yeah anyway you can go check out growthepie.xyz for yourself I'll link it in the YouTube description below all right last up here we have a tweet from Nick Johnson who is the lead developer of ANS tweeting out saying so excited this is now public so what's he what he's talking about is something called my DOT box and he says dot box will be the first blockchain Native DNS

routable TLD and it's enabled via ANS all registrations and transfers will be Unchained and the owner of the nft will own both the DNS and ens name so this is very very cool you can see it's counting down to public availability here which is still quite a while away it's 127 days away we're here but essentially what this is trying to do is make uh web3 domains work on on web 2. so essentially you'll be able to go to this dot box domain so eth.box or ethereum.box or sasol.box instead of I guess like Dot eth and then you'd be able to see a website that's that's hosted on there and and do all kinds of like web 3 stuff which is very very cool to to see there so I guess just a reveal from from Nick today it doesn't seem

there doesn't seem to be that much in info on the page you can apply for Early Access if you would like to do that which is there's an early access form here you can of course follow them on Twitter and contact them to learn more as well I'm going to quickly follow them on Twitter there because this is stuff that's interesting to me of course and this definitely fits into like the web 3 part of crypto and the kind of decentralizing the web part of crypto and I was actually having a conversation with a friend today around decentralization of the web because I don't know how many of you have been paying attention but right now there are two major platforms on the internet that are trying to kill a lot of their user base without realizing that they're killing a lot of their user base so

Reddit in particular has raised the cost of API access to just a ridiculous amount that it's actually made having a third-party apps talk to Reddit be infeasible so I'll be uneconomical so essentially what Reddit is trying to do is that they're trying to kick third party apps off of the platform and and funnel everyone into their own app and they're doing this because on their own app they can show you more ads they're going public soon they want to make their financials look good but the problem is is that reddit's own app right reddit's uh official app is horrible I've used it and it's absolutely horrible my main Reddit app that I use on my phone is called Apollo it's uh I think it's only on iOS but it's amazing in in so many different

ways uh but the official Reddit app is absolutely horrible not just because of the extra ads uh but because the interface is just shockingly bad it's the interface seems engineered to be as uh unfriendly to the user as possible and is friendly to ads as possible and to enter marketing as possible which is just crazy right but that's the way of the internet and there was another thing that came out today about twitch which basically I think twitch is is limiting how users can monetize and they're going to be making it so that only the maximum three percent of the uh the view the window view or the video view can be used for ad space now for those of you who don't know uh how people make money on Twitch most of their Revenue comes

from ads and from sponsorships on Twitch itself not from the subscriptions uh and and that's obviously not going to be great for the the smaller creators on the platform there so a lot of kind of anti-competitive and anti-consumer stuff going on with uh uh with these major platforms on the internet today and that's what I was talking to my friend about basically saying I think crypto actually plays a role here because it's not going to happen anytime soon but the way you defend against these things is ensuring that no one has centralized access to I guess the state of the network right essentially the database so you could imagine that the Reddit network is the the database it's all the posts all the comments it's all the the upvotes and

and all the profiles and things like that now I imagine all of that lived on some decentralized alternative but obviously it doesn't have to be like ethereum L1 it can literally be like a like a validium for example like a really cheap thing where it's not super decentralized but everyone has access to that open state to that open database and then uh multiple different parties or entities around the world could build interfaces for that and all get a talk to the same database because right now you're only able to talk to the Reddit database via apis because they let you but they're jacking up the prices to a ridiculous amount to effectively not ban you but essentially kick you out from being able to do that and uh Twitter did the same thing you know Twitter had

their open API access there were plenty of third-party Twitter apps and then they killed it uh Facebook is famous for doing this a long time ago now and it was all because they wanted people to use their official apps for monetization reasons right and it's very anti-consumer so in a world where we have the infrastructure and technology in place to be able to make it so that the state uh of the of the database is open source essentially or open to everyone and and decentralized and it's still privacy preserving through the use of Technology like uh zero knowledge proofs and stuff like that uh and we can build and then it's just like an open API for everyone to tap into uh we could have a alternative to these current centralized Mega monopolies that we have on the internet today and a lot of

people don't know this I I think or unaware of this but the internet was always envisioned as being this decentralized thing it was never envisioned as being what it ended up being and I think that with the technology that we have with crypto now we can actually get to that original Vision but it's going to take quite a while it probably will take decades but I do think crypto has a role to play there and and something like my DOT box is definitely a small uh but important piece of that puzzle anyway on that note 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 Disco Channel and I'll catch you all tomorrow thanks everyone