Curve v2, DeFi regulation, Polygon updates & more - The Daily Gwei Refuel #140 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of the daily gray refuel where we cap the latest news in the ethereum ecosystem i'm your host anthony sosano and today's the 10th of june 2021 all right everyone let's get into it so i think the biggest release from the last 24 hours was that curve v2 is now live um on the ethereum and on polygon as well here now there is a white paper that goes along with this uh definitely only read this if you're good at math there's a lot of technical kind of jargon in here a lot of stuff going on you know i read these equations and i think to myself uh what i don't understand this at all uh i definitely didn't uh do very well um in high school with math or whatever but uh i did put out a tweet asking kind of

like you know what's the explain like i'm five on these new curve pools now i may get some of this wrong i think that even the smartest people that i'm following are still trying to wrap their head around kind of like what this means what the implications are but from what i've seen there was this good thread put out from djen trading here who basically had a take on on these kind of new pools and i should explain what these new pools are it's actually non-stable coin pool so like triples where you can have uh i think their first pool if i go to it here uh their first pool whoops gotta get rid of that uh their first poi is usdt wbtc and eth and they're claiming that you'll be able to trade between these assets uh with very minimal slippage on uh you know little liquidity so this may

sound similar to something like unisof v3s concentrated liquidity and that's exactly what djan trading is saying here is that it's similar to to v3 because they concentrate liquidity into a certain range and then based on the math and based on d gen trading's reading of the math the price is only moved if the loss is less than part of the profit otherwise the price is adjusted by an exponential moving average of the oracle price now in in plain english from what i can understand here it seems like they're using i guess part of the trading fees to uh i guess like keep the price you know within a kind of a certain range here and basically offset some of the impermanent loss i think i maybe might be wrong here now

the pros of this is that it's going to concentrate a lot of liquidity so you can imagine that this is really good for something like uh i guess tokens and assets that don't really kind of like trade too much outside of like a a range so just say for example um you know stable coins obviously very very good for this because stable coins trade around a dollar but if you look at other like really volatile assets it's actually not that great um you know in terms of lacking permanent loss and it's the same thing with with unisop v3 or whatever where just say you have like your liquidity concentrated between twenty four hundred dollars and twenty five hundred dollars on unison v3 you're going to earn a lot more fees because a lot of your liquidity is concentrated in that range but your impermanent loss is going to go

you know exponential within that range it's going to go up and down kind of much higher here because you're only in a hundred dollar price range and if you say you're you're out paying on the 8th usdc pair if 8th was to go to 2500 then you would be in 100 usdc and you're in permanent loss would be quite great so that's that's the main trade-off really and that's that's what kind of like dj trading says here the con is that you experience really bad impermanent loss because you you're basically trying especially this is with curve not univ3 but with curve you you you are now artificially restricted restricting the change in price from the price impact so and he goes on to say in normal markets this will work all right but when markets rip this will

cause the price in the curve pool to be mispriced and arbitraged away so it's working a little bit different in curve where because they try to keep it it to to a certain price range using this new mechanism that they've come up with if eth was to like for example pump really hard here uh the curve pool will become mispriced to the rest of the market and that will be arbitraged away by arbitrage bottle traders and stuff like that um and then he goes on to say the fees you know generated by this can protect you to a certain expense it extends sorry but in all likelihood it won't be enough to cover the lot the impermanent loss that you'll suffer if you know there's a kind of like large rip here so essentially what you would want to happen from my understanding is if you're liquidity providing to one

of these pools what you would want to happen is you want um each kind of like range to to exist for a long time so that the fees build up over time so that when it actually moves the fees are making up from for that impermanent loss but i think that when you kind of like look at the way the crypto markets actually work and if you were to back test this it's rare for things to go sideways in bull markets and really it only happens in bear markets where it goes sideways for a while but it's and this is like the danger of liquidity providing is that depending on when you add and pull liquidity our urine permanent losses is different like you could suffer known permanent loss and and all profit if you were to provide liquidity at twenty-five hundred eighth and eighth went to five thousand dollars

and then eighth went back to twenty five hundred dollars you and and you were out peeing in that range you basically got all of the fees of that of that range and you profited all those fees and you suffered zero in permanent loss because you remove liquidity at the pro at the um point you put it in that's usually how liquidity providing works but with with curve here um from what i'm understanding because of the fact that they're trying to cover uh and restrict this sorry restrict the change in price from the general price impact of the wider markets um you're going to need a lot more fee revenue to make up for that kind of um impermanent loss here uh and that's that's kind of like the bet that you make that the fee revenue is going to be greater than the impermanent loss i

think and this also i guess uh uh applies to united v3 with concentrated liquidity as well this is why i think it's been so appealing to people is that in a range-bound market this works really really well but as soon as the market starts getting you know um it starts breaking out of those ranges like we're potentially seeing now with something like bitcoin uh seems to be pumping off of this el salvador news if you were out paying between like the 30 and 40k range you might be starting to sweat now because i guess the last time i checked bitcoin was at what 38k so if bitcoin goes above 40k uh and used lp to but we'll just say you lpaid at like 30k now bitcoin's at 38k you've suffered something permanent loss there and you know the fees probably won't make up for that so you're hoping

that it goes back down and maybe you pull liquidity uh and you're all good um so yeah from that point of view you know that's usually how uni v3 works at the concentrated liquidity and curve seems to be taking this to the next level where your returns uh might can be much greater but also your losses can be much greater because of that as well um so yeah hopefully that explains kind of like how that works in a simple in simple terms here i won't lie i don't totally understand it either yet but i'm going to definitely kind of keep up with this and make sure that i that i understand it better so i can explain it better in the future but this is definitely you know brand new i saw some of the giga brains i like to call them on twitter fighting over this

uh or at least debating this in in a in a kind of like um uh i guess you could say they were they're they're a bit of a bit of shade thrown either way here but basically the the guys from paradigm who essentially had a big role in designing unisop v3 were kind of like debating the guys from curve um and the people like that that kind of like um worked on curve or like understand curve and things like that so there there was a bit of shade being thrown there but i think generally over time you know we'll see what works and what doesn't because the markets don't lie and the the co doesn't lie so we'll be able to see in the coming weeks if these pools actually do what they say they're going to do are they actually going to give greater returns

less slippage and and cons and due to the concentrated liquidity will they give i guess like better end results to end users when they're training between these things and will they increase volumes for curve overall we're gonna see that play out i mean it's funny because i think univ3 took the first shot at curve being saying well you know we can do um stable coin trading better than you can and then curve was like well wait till v2 and now they've got v2 out there and they're basically saying well we can do you know volatile asset pairs better than you can and so you know i really love this because outside of the shade being thrown by either team and like fans of each project at the end of the day we all benefit from this right we as as kind of like users of these products

these people are like in cutthroat competition to one up each other not for any monetary gain really but for uh i guess like intellectual gain everyone wants to be the smartest person in the room when you're at this level of kind of like um designing these protocols because as i said if you look at the you know the kind of stuff that's going on in this white paper here this is like giga brain stuff definitely and and you know the people who work on this sort of stuff uh i understand it deeply but i i even saw some of them talking on twitter being like i can't understand this like some of the the people i guess from from paradigm some of the researchers there i believe said that they look at this and like i can't understand this and if you can't and if if people can't understand that then

it's bad math and then the people were saying well you know i i guess like just uh study it like closer and like spend more time on it you know you can kind of see what's going on here i think as i said over time this is going to be illuminated more people will actually you know know what's going on here and they'll be able to study the actual market dynamics of this and study what's going on in the actual markets here so yeah exciting either way i'm a big fan of curve and what they've done big fan of uni swap i try not to play kind of like favorites among projects uh i may seem like that sometimes may seem a little bit biased it's hard not to be biased in this ecosystem to be fair um but i definitely do think that at the end of the day

the real winners are just us as the users it doesn't really matter uh what people say it matters what happens on chain or verifiable we can see all the code it's all open source so that's the beauty of this ecosystem as well is that we will you know people will be able to tell if you're lying to them pretty much straight away so we'll see what happens not to say that curve's lying or anything like that or kind of over-hyping but we're going to see this new kind of product play out in the markets and see how it actually fares in real world conditions here so an interesting tweet from i guess walter bloomberg here who cut who basically i think just tweets out the bloomberg news terminal uh kind of prompts so he basically said uh bazel proposes capital treatment of stable coins in

line with assets like stocks and bonds i don't know who bazel is maybe in the comments they said something about it it must be some kind of regulator somewhere uh i don't know what i'm missing here um okay there's a more complete picture here maybe this is a regulator part of the bank of international uh sentiments here um yeah i think so a bank yeah okay i get a banking committee on banking supervision okay so it's a pretty big uh kind of a regulatory body here um but essentially this is pretty bullish because if you treat uh stable coins uh like assets like stocks and bonds well then you're just treating them like any other normal asset out there and they're being regulated um like any other asset out there and as i've said before governments don't regulate things that they plan on banning like

you look at like pretty much everything that's been regulated instead of banned like cigarettes for example in australia um we have uh pretty uh strict regulations on cigarettes like plane packaging high taxes to display people from buying cigarettes and you know all these kind of like support uh kind of groups for people to quit um but the government didn't outright ban it uh because they were regulating it so from that kind of uh point of view this is really really bullish i think and you know we've been seeing a lot more chatter about regulations around stable coins and in you know for like about a year now really and since stable coins have really taken off especially usdc you know fully kind of like us-based stablecoin issuer when i saw that i was like i don't know how these teams are going to get away

with this forever because they're letting basically anyone transact in usdc around the world unfettered access to it like someone from um you know a sanctioned country like north korea or russia could be sending money around um using this you know usd stablecoin now of course uh circle and coinbase have backdoors with usdc they can freeze it and they have done so in the past um at the request of governments that's just the risk that you take when you're using usdc but in saying that i'm sure that there's tons of this activity going on that they just don't know about now that that was always surprising to me i always thought that that that was uh was crazy i didn't think that would last either so it depends what these regulations look like i i honestly i'm not a big fan of most financial regulations i think a lot of

them are just reactive and a lot of them are just basically um putting up a uh i guess like a fence around people and fencing them into some kind of thing that you want them to be be in because you think they're too stupid or whatever um you know as i've mentioned before i think leverage trading is definitely going to be regulated much much more heavily especially the us-based exchanges i think either kraken or gemini actually got hit over the last 24 hours by a regulator saying that they have to kind of scale back their offering on leverage and only offer it to sophisticated traders whatever that means so i think the reckoning is coming from regulators but i don't think it has to be something that's necessarily bad i think generally the only thing that can be regulated in any real capacity is these centralized things like

centralized exchanges or centralized stable coins but good luck regulating the ethereum blockchain and the actual truly decentralized apps that run on top of it and i'm not sure if regulators are actually aware of this i'm sure some of them will come and be like okay well can we actually regulate this and they'll try and then i'll figure it out the hard way that there's literally it's unstoppable like uni swap is unstoppable you cannot regulate uniswap on ethereum yes you can probably choke it you can you can ban the websites you know the front ends whatever but it's it's essentially like banning uh something like peer-to-peer file sharing or torrenting every kind of like head you chop off of one of these websites another one just pops up and there's plenty out there i mean look at the pirate bay that's been around for for a long time and governments have

gone after it as much as they can but they can't shut it down um and pirate bay is just like an indexer for torrenting but like just generally peer-to-peer file sharing you can't shut down because it's peer-to-peer there's no central service here it's decentralized so from that point of view it's the same thing that happens with ethereum with d5 with crypto generally is that if it's decentralized and it's worldwide and global there is no kind of like regulations that you can impose on that you can you can try and choke the endpoints you can check the centralized exchanges and the centralized assets on ethereum and other kind of platforms here but you cannot regulate d5 now i as i said i am curious to see kind of like how this all shakes out if there are really really harsh regulations put forward like i've seen

in the past um one group wanted to regulate full nodes like people running four nodes maybe that would scare people away from running full nodes it'd be it'd be outlawed say people say the government said well if you run a full node you're breaking the law uh and you know maybe people will be scared by that and just not and there'll be less full nodes being run which i think would be probably some of the worst regulation that could be put in place because that would hurt decentralization but in saying that i think it would maybe even rally people to do it more because there's nothing better than the government telling you you can't do something when you think that it's fundamentally your right to be able to do it and there's plenty of examples of this right there's plenty of examples of shitty laws that that

have no purpose existing i mean if we just take like uh marijuana for example being illegal that is just like a really shitty law and and and um you know generally you can point to other things and be like okay why is you know why are cigarettes legal why is gambling legal like these things and why is alcohol legal like these things are more harmful to the average person than something like marijuana is and i'm not you know advocating for like for any kind of like which way here but i'm just saying that there are laws out there and regulations out there that really shouldn't exist and exist just because of a number of different things i'm not going to get into the politics of it all but i think that's what's going to happen if there there's too much regulation being put on these things

the users and worldwide are this going to essentially rise up and essentially kind of like fight back with uh by running full nodes by decentralizing things even more and it might cause d5 to actually decentralize itself even faster because a lot of d5 to be fair it's still quite centralized a lot of the front ends don't run on ipfs they still run on centralized web servers um so i think that could actually be a catalyst to to kind of like you know decentralize it out further so a bit of a strides and effect from the government there if they were to kind of clamp down too hard here so i trust that the the regulatory kind of lobbyists that we have such as coin center are doing their work here to make sure regulators are aware that they can't regulate this stuff and if they do it's

going to be harmful to them it's actually not going to achieve what they want it to achieve but yeah i guess back to the original tweet here this is just very very bullish in general if the stable coins are treated like stocks and bonds but we'll have to see regulation i think over the next couple years is going to be a big thing crypto is not small anymore crypto is a big industry it's made a lot of waves you know the the btc being passed into laura's legal tender in el salvador is definitely going to make waves it's going to get politicians speaking if more countries do it it's just going to ramp up from there so as i said yesterday we have entered the geopolitical age of this kind of ecosystem now and that is an age that's going to be very dicey i believe

you know different countries are going to treat it differently but i'll leave it at that for now definitely going to keep an eye on all of this stuff and keep you guys updated with it so the ethereum cad herders put out a blog post over going over all of the eips that are coming with the london upgrade for those who of you who don't know the london upgrade is scheduled for july and it is the one that includes eip1559 so you can see down here not only does it include eip1559 but it also includes four different eips so erp3198 adds the base fee op code which is required for one five five nine to work three five two nine um basically uh reduces refunds so this is the um you might have seen the gas refunds that people were using to basically create a gas futures market on ethereum

now that is basically going away um this is a more technical one rejecting new contracts starting with the xerox ef byte i don't know technically what that means or kind of how that's helpful um but i think that is just like a technical line of upgrade here and then the last one the difficulty bomb delay to december 1 2021. now for those of you who don't know the difficulty bomb is a mechanism that exists within ethereum and its original purpose was to force upgrades on the network so force developers to not become complacent and and and force ethereum to not to not ossify so uh and this gets delayed uh from time to time and and you know the last time it was delayed was in the new glacier miura glacier hard fork which went live in january of 2020 i believe so it's been about 18 months since then

uh and so you know you have to push it back with an aip here so what the difficulty bomb actually does is that once it activates on on ethereum once a certain block is hit it will basically increase the block times of ethereum and eventually it it gets to a point where it bricks the chain so the chain basically becomes unusable and the only way to fix it is to diffuse the bomb by either delaying it or removing it now what i find interesting about this delay here is that it's only been delayed till december 1 2021 so uh if you if you if you've been paying attention the next upgrade following london is actually going to be the merge um or uh so so if is the merge scheduled for december 1st 2021 i don't think so i still think it's going to happen in q1 2022

so what i do think is going to happen if we're going to have to hard fork again is that we might get eip3704 is which is the other popular eip that's going to improve the user experience so maybe uh that that'll get in before the merge goes in which would be really cool to see as well but in saying that technically we can just have a hard fork that delays the difficulty bomb and nothing else we've done that with mu glacier as i just mentioned but still pretty cool but anyway this blog post details basically what each of these eips are and kind of why they're necessary actually i think uh reading through this one here the one that i was confused about so apparently eip the 3514 is a simple change which lays the groundwork for broader evm improvements um so this erp will make it

impossible for new contracts starting with this byte to be deployed um and i'm not exactly sure what the implications of this are but i'm i'm sure you'll be able to read uh if you kind of like go to this blog post and follow the links you'll be able to read on that so this will be linked in the youtube description but i'm very very excited to see uh you know london go live obviously because of one five five nine there's no block times yet actually i i think i think i haven't seen any kind of main net block times or block numbers put forward here i think that this is because as i mentioned the other day there's either going to be a one to two week delay due to that bug that was found that had to be kind of um fixed and tested and everything like that

so at best we get like a one week delay which would put it at july 21st i believe uh and then if not july 28th will be the next one there so i'm still confident we're going to get it in july i want two week delays really not gonna be making much of a difference in my opinion and it's funny how like we we had like a year's worth of really really high fees and then finally when we get one five five nine on the network the fees are really low so um you know it's a and you know like 15 way right now it's just funny how that kind of worked out but maybe in july mid mid to late july there will be you know high fees again on layer one because i i think that most of the reason why the fees are low

has got to do with the market conditions and then once the market kind of heats up again we're definitely going to see higher fees again on layer 1 but that's not going to be something that a lot of end users are going to have to deal with because we do have scaling solutions now i've talked about arbitrary a lot you know optimism zk sync polygon of course and all that sort of stuff so even if layer 1 fees get high again i think a lot of users are just using these other kind of scaling solutions now and they're gonna have a really good time on there and these scaling solutions will pay ethereum for its security instead of uh users having to pay there so really cool uh just to kind of like see that um and yeah i'll link this in the youtube description so you can go check it out

for yourself so just a quick update here from sigma prime uh they have a new lighthouse release so if you're staking on eth2 with lighthouse definitely upgrade your uh kind of nodes here because these beacon nodes that so the lighthouse beacon node now uses only one third of the ram of the previous version and one fifth of the eth1 call so it's a massive kind of efficiency improvements here which is really really awesome to see so if you are running lighthouse um definitely go check this out it'll be linked in the youtube description of course so gary tan from initialized capital uh put out a a really cool video called ethereum is going to 10k and here's why i think that was the title of it let me have a look on on youtube here

so uh why ethys ultrasound money and going to 10k uh why buffer buffett and berkshire hathaway are wrong on crypto so this was a pretty popular video i kind of watched it here i thought it was really good i mean i highly recommend going going and watching it it's about 12 minutes long here i think uh gary has a different reach to something to the people that me and bank listen to define all that have a reach into uh because gary comes from i guess like the web 2 world he's definitely been investing in a lot of different companies over over time and definitely has a reputation behind him as i mentioned he's the founder of initialized capital uh which i guess like um alexis ohinian from ohonian from uh the co-founder of reddit is also part of initialized capital as well which is

really cool so yeah good to see more people kind of like uh clue into the ultrasound money meme and i think i've spoken about gary 10 before how he went on i think it was cnbc or one of those kind of like uh mainstream news channels and gave the case for eth going to 10k and ultrasound money and all that good stuff so yeah definitely go check out this video if you haven't yet so matcha the popular decentralized exchange aggregator is now live on polygons so you can trade uh basically all the tokens you want on polygon things over 1000 tokens available um you know macho is just an awesome decentralized exchange aggregator i use it a lot uh myself i think it's got a beautiful ui probably one of the best if not the best within

all of kind of crypto and d5 right now if we're being honest so if you're a regular polygon user and you've been waiting for uh you know a decentralized exchange aggregator like matcha to come on board definitely go check that out but you have other options too i mean i've spoken about uh uh slingshot before they're on there they're really great as well i love i love slingshot and display disclosure i'm a seed investor in slingshot as well there but um it's good to see the polygon kind of like d5 ecosystem being built out more with more of the kind of popular apps that are on ethereum which i think is really cool to see uh and yeah so go definitely check this out if you haven't yet speaking of polygon ok x announced that they have integrated polygon and will now allow withdrawal to polygon now you'll

remember that ok x was the first to integrate albertum as well the other day so they seem to be really really uh uh pushing the boundaries here and i think that i don't know if this is a fact but i i don't know if ok x actually allows withdrawals something like bsc because they're doing polygon they're doing arbitram but are they doing uh something like bsc or other chains out there like polkadot and and whatever else uh or solana cosmos whatever i don't think so i haven't seen that but maybe they are i'm not sure i don't use okay okay x but they are a big exchange so it's really cool to see that they've integrated polygon here therefore they follow ok coin which announced this kind of the other day um and i think that this is just like a much easier way for people

to get into the polygon ecosystem rather than i guess going through ethereum layer one where fees even though they're low today you know the fees are still uh something that if you want to avoid them you you know sorry if you if you can't avoid them you want to so yeah good to see this integration here um and if you're an ok ex user i'm sure you're happy and and a polygon user i'm sure you're very happy with this so finally uh alex from flashbots uh announced that they have uh uh that they have posted a new flashbots research post called mev in eth2 and early exploration so you know a lot of you will know about mev and kind of like what's been going on there uh and you know i've explained mep before on the refill so i won't go into it now

but mav in eth2 uh has a few different kind of considerations here so uh in this report they found that meb obviously still exists in eth2 um and it can actually significantly boost validated rewards by about 70 at the current number of validators which is 160 000 validators or 5.3 million each staked which would lead to more rewards more validators and ethereum gets more secure because of that however there's a caveat here a pretty big one um mev can also amplify the inequalities between validators uh you know catalyzer rich get richer dynamics and be a centralizing force that exerts pressure on validators to join pools by making running a solo validator financially harder so you can see here that mev is very complex while

you can paint the positives for you can also paint the negatives for it just as easily so i still hold that mav is something that over time we need to uh minimize as much as possible i don't think that long term is actually healthy for a decentralized blockchain to have lots of mev going on and lots of these kind of like negative externalities that come out of the mav set the mev uh that's that's going on on chain here but in saying that i think mavs in eth2 and with stake is is probably better than something like you know miners because i think that stake is generally a more more aligned with ethereum and eth as an asset than miners are because if you think about and i've explained this you know plenty of times in the past but if you think about it ethereum

miners have to sell eth to cover cost they have to do it there's no way around it there they have to pay off their electricity cost their hardware cost their maintenance costs whereas with staking you only have a very very small kind of maintenance cost and electricity cost because you're not using you know massive kind of mining farms and lots of electricity to do so you can get away with running validators on a on a on a very simple pc like i i've pointed out my staking box here it's not very powerful it's pretty simple stuff um uh even though it might look a little bit fancy it's it's still pretty simple hardware so from the and and i'm sure it's not costing me much electricity because of that so from that point of view i i think that you know stakers are definitely more aligned because they don't have to

dump either they don't have to uh to cover costs they normally have been eath holders for a long time i know a lot of people personally they've been holding it for a long time waiting for staking and they have no plans to sell their eighth and they they care about the network deeply because they have been using ether light using defined stuff whereas from what i've seen with mine is is that a lot of them are actually not users of ethereum they view mining as like a separate kind of job that or a separate thing to ethereum where they they will mine the chain they'll make their profits but they won't actually care too much about the chain that they're mining now i'm not saying this is the universal rule i'm sure that there's plenty of miners out there who did care deeply about the network

but it definitely feels like there's a disconnect there and i've spoken about that disconnect before but not to put like a blanket thing on miners here and not to get miners to hate me again but i just think that generally stake is a moral line like i never mind but i'm staking for example and there's plenty of people like that because i think the barrier to entry to staking is much lower than it is for mining even with solo staking i think a lot of people bought 32 eth or more back when eth was much cheaper than it is today obviously 32 today is worth a lot more than it was you know uh just a few months ago but i think a lot of people stacked eath during the bear market that are staking today like i'm one of them of course so from that point of view i just think

that generally they're more aligned and maybe mav is is kind of like better under under eth2 because of this maybe that the stake is don't wants to kind of like be parasitic and don't want mev kind of corrupting the chain here but again we shouldn't rely on that we shouldn't rely on humans we should always be able to make this stuff better uh with code and i think we can over time i think that mav will be minimized to a point where it will basically be a non-issue eventually i'm just not sure how long it can take there are smarter people than me working on it i've mentioned before bankless did a really great podcast the other day with top some of the top mev researchers in this space so definitely go recommend checking that out um but yeah and this thread will be linked to the youtube description along

with the report so you can check that out as well but that is it for today so thank you everyone for listening and watching be sure to subscribe to the channel if you haven't yet give that video a thumbs up subscribe to the newsletter join the discord channel and i'll catch you all tomorrow thanks everyone