ENS layer 2, Shifting regulatory landscape & more - The Daily Gwei Refuel #775 - Ethereum Updates

Transcript

hello everyone welcome to another episode of the delway refuel right up the latest news in etherum ecosystem I'm your host and this is an and today the 29th of May 2024 all right everyone let's get into it so just a reminder for you guys that there will be no refills on tomorrow or Friday so the next two days I will be away and I'll be back on Monday of course uh with the next refuel there so just wanted to give you guys a quick reminder on that but without further Ado there I want to go into the news from the last 24 hours and I have a lot to say about one particular item case here because I think think that there's been a lot of questions around the SEC around regulations around kind of what the space is going to look like going forward given that we had the E

ETFs being approved and I know I've already said a lot about it over the past couple of episodes but I think that there's more to say here and the reason why I'm talking about it today is because as you can see here Paul grel coinbase's Chief legal officer tweeted out today that judge Shelby ordered the SEC to pay attorneys fees of over $1 million and receivership fees of about $750,000 after finding that the commissioning engaged in bad faith conduct in obtaining and defending the trro and imposed a sanction against the commission of all attorney fees and costs arising from the improvidently entered exp parte relief now in simple terms here you guys will remember that that debt box case that the judge ruled against the SEC for because essentially the SEC basically broke the law I believe in that case and lied about what

they were doing in that case and now they've been ordered to cover the relevant legal Fe here now of course the SEC itself is a government entity so what where does that money come from it comes from us taxpayers which is just insane to me considering that they you know did wrong here but there's really no I guess uh blowback on them you know they're not out of pocket the money themselves they used two of uh the SEC staff as kind of scapegoats here you remember I covered this a few weeks ago where these SEC staff were basically forced to resign as kind of sacrificial Lambs over this case but the reason why I think that this is important is for a number of different reasons one I think this case was in a long list of cases and a long list of losses that the SEC

had that definitely changed their tune or at least forced their hand in approving the E ETFs and also forced the democrat's hand in being more friendly towards crypto given that the SEC had lost so many high-profile crypto cases and had also uh kind of lost them in such a extreme way right to to the point where the judge basically said that the SEC broke the law in the debt box case and that in any normal circumstances if these weren't SEC lawyers uh the lawyers would have been disbarred which is obviously one of the worst things if not the worst things that can happen to you as a lawyer right where essentially if you get disbarred I from my understanding you can't practice law anymore for a period of time or indefinitely depending on on kind of what happens there uh but but you know when you look at it from that

perspective it to me is no surprise that the SEC and the Democrats have softened their stance on crypto generally here that's not to say that that won't change going for you know that's not to say that all of them are going to be in the same camp as I explained the other day you know the big ones like Elizabeth Warren Gary gendler Brad Sherman wax in waters they're all still very anti- crypto but I think that they you know took a calculated bet on being anti- crypto and they were really bad at math because essentially that completely backfired on them and now there is a very big Pro crypto kind of army I guess to counter uh Warren's anti- crypto Army that is really uh well funded that is basically getting into politics you know lobbying uh the the right politicians getting them on side and creating this

proc crypto Army within Congress that is really beneficial for all of of the crypto ecosystem here now of course this opens up questions around a bunch of different things and one of those questions is something that someone in the de grade Discord Channel wanted me to cover was around the tokens themselves within crypto like are these tokens going to get proper regulatory Clarity does that mean that these tokens can start acting more like a I guess security that where it pays a dividend right where it essentially for example the uni token would be able to have a fees switch turned on where it could actually share in the profits generated by the unisoft protocol but not uh be sub object to any kind of I guess regulatory scrutiny or regulatory uncertainty and this is a really big discussion because when you talk about something like Unis swop as I've

discussed before there are multiple different kind of I guess arms of unop right there's the unop protocol the set of smart contracts that exist on ethereum completely decentralized you know immutable they're there and and they're there to stay forever or until the ethereum EOS ethereum Network goes offline right whenever that is you know could be hundreds of years could be thousands of years or could happen tomorrow for whatever reason right uh that that's kind of how long long unisoft will last for as long as ethereum lasts now of course between that there is different sets of contracts there's V1 V2 V3 and incoming V4 which I think is going to go live over the next few months there and any future versions and they have differences between them but if we're talking about the totally immutable nothing can ever be changed that would be unisoft V2 V3 has levers to change

certain things like the fee switch for example uh but really other than that it's completely immutable you can't kind of censor tokens on the smart contract level of of Unis swap you can't remove you know liquidity pools so on and so forth but then you have the more centralized side of unop which is the unop lab's team and things like the unop foundation and the unisoft labs team runs the front end for unisoft at least one of the front ends the most popular front end for unisoft the one that everyone kind of goes to and Trust if they're newer to the ecosystem as well and unop also has a wallet that they have out there so they operate a front door into the unisoft protocol now of course uh because of that they essentially are a target for the SEC and for other regulators out there so I

think that even if the tokens themselves are deemed to not be Securities or are deemed to be you know fined by regulation standards the problem becomes that the SEC and other regulatory bodies can still go after the teams building the products even if the products are decentralized and immutable and the teams that originally issued that token too because a lot of these tokens get issued out of Foundations to uh basically separate the token issuance from the uh team building the software itself but at the end of the day like the the small teams can do this but then if they get I guess pursued by the SEC they can't really afford to defend themselves uniso can afford to defend itself because they have a lot of money but the smaller teams the upstarts the the you know the true startups within

the crypto ecosystem uh if they're in the US and if they get targeted by the SEC for you know I guess like serving us users or being based in the US then a lot of the times they can't actually afford to defend themselves and a lot of the times they'll actually just pay whatever penalty needs to be paid and shut down their project which is obviously very bad for Innovation it's obviously very bad for this ecosystem but that is kind of where we're at right now and unfortunately it's not just limited to teams that are in the US it's also for teams that exist outside of the US but you know accidentally serve us users because as far as the US is concerned they are allowed to reach into wherever they want in the world if you are uh interacting with any with the US

in any way if you're serving us customers in any way if you're interacting with the US uh kind of system in any way you are a target for them and the US uh is obviously a big monolith and gets what it wants a lot of the time so that is the the kind of fear that they strike into people into Builders and that is not the way forward so hopefully we get better Clarity around that for for that purpose because it's not just the tokens themselves it's also the teams because if the teams don't feel comfortable building these things uh for regulatory reasons then they're not going to do it right and I I know there's been teams before that want to build certain things lots of teams that want to build certain things but they just don't do it I mean the uni fee

switch is probably the perfect example where it hasn't been turned on for so long because they all worried about the regulatory side of things but it seems now it looks like it's actually going to end up getting turned on here which is a pretty big step and then that will allow or act as a shield for the rest of these defi protocols to start integrating stuff like that and just go for it right like the SEC is going to sue you anyway whether you do the right thing or not I mean they went after unop even though unop has been one of the most careful teams in crypto uh right so if you if the if the SEC and The Regulators are going to come after you anyway you may as well just do it because at end of the day they're going to go after you if

you're doing good or bad so you may as well just do and build what you want to build without you know scamming or or committing fraud or anything like that but just building things that The Regulators May deem as uh something that they don't want to see and something that they think is bad but at the end of the day it's not it's just that it doesn't fit into their neat little box that they have for the existing Financial system especially uh there but anyway moving on from that one onto some updates around layer 2os so I think the rest of these episode's actually going to be about layer 2os and I think it's probably something that I need to talk about a lot uh going forward because there is a lot of evolution happening with the l space right now and I think that there are too many l2s at this

point and what I mean by that is that there's too many independent L2 ecosystems and I'm going to cover that at the end of the episode but firstly on the L2 topic I wanted to cover that ens actually uh made an announcement today uh they're introducing ens V2 which they're calling the next generation of ens so essentially the biggest part of env2 is that they are moving ens to uh a layer 2 Network now in their design document here they basically don't specify what this is going to look like yet yet but they float the idea of either deploying ens to a existing public L2 or a dedicated chain so they're going to either have an ens chain you know an ens L2 or they're going to have uh basically um their uh you know ens deployed to an existing L2 whether it be Bas or arbitrum 1 or you

know one of the bigger l2s out there so that that makes total sense there I think uh from that perspective um but on on that note as well it kind of begs the question of like should they do a dedicated L2 vers Deploy on a public one and what does that look like from an end user perspective because if you want to manage your I guess like ens name today you do it pretty much all at L1 that is the shelling point that is the place that everyone knows to go but if they move a part of it or a big part of it to L2 and to one of the l2s they're essentially picking a winner here as well they're basically saying that okay well if you want to interact with ens you either do it at L1 or you do it on arbitrum for example right and that I

think is I guess eroding some of the credible neutrality and some of the decentralization properties of enss so it might be better for them to do their own dedicated chain so they're not picking winners here and really that chain would just be a way to manage ens names without having the you know the high gas cost and without kind of pricing people out from from that perspective there which I personally think could be the Better Way Forward here but we're going to have to see what the rest of the ecosystem thinks and what the I guess like ens uh uh contributors think as well uh but that would make the most sense to me because I I I'm not really a fan of big projects picking winners within the L2 space base because it basically means that you not only have I mean I wouldn't say you

fragment the user base but what you have is uh not not only a kind of like eroding of credible neutrality of that project but you also have something where these projects will start competing for en so for example arbitrum you know optimism uh uh you uh the other altitudes out there polygon so on and so forth they'll use their treasuries to bid for ens to come there and this has already happened with other projects right and this is why it doesn't actually uh um isn't actually a very good idea is because essentially what you have is a lot of nastiness around that a lot of toxicity around that you have these projects getting all this money just to pick uh a certain chain to deploy to whereas if they want it to remain as credibly neutral as possible I

think spitting up their own chain that can be integrated with these other ones would probably be the better way for it especially for something like ens because really at the end of the day if you're talking about like the ens registry system itself that is not something that people will uh I guess interact with very often like for example I have S.E and I haven't interacted with it in a long time I've actually set s. E's expiry to I think like 50 years from now so I renewed it for like 50 years on on chain there now I'm not I don't have any reason to go to the ens kind of site at this point to do to change anything about su. e maybe if I wanted to to send that ens name to a new address instead of the existing one that it's that it's tied to or or kind

of change the registry information there or set like some other information in there I would do that but really it is not something that I'm going to every day every week every month it may be something that I look at once a year so from that perspective I think it makes total sense for this stuff to be deployed to maybe a dedicated L2 that just really handles all the ens related stuff because people AR aren't going to have to interact with it that often if to manage their ens names there but we're going to have to see how that all shakes out there is this paper here which you can go check out this design doc I'll link it in the YouTube description below um but I don't think they've decided on what they're doing just yet whether it's going to be a dedicated chain or they're going to

migrate ens to an existing L2 out there there all right so Bas has increased its execution side scalability over I guess the last couple of days so Jesse poac here said that Bas B's gas target has increased to 6.25 megas per second which is an overall capacity increase of 25% and fees of course are down significantly again because of this this is them working their way to 1 gagas per second of course but you can see here on this really great chart that I've shown before for what this actually looks like you can see the blue line is the gas limit increase that uh 25% increase there the yellow line is the base fee as you can see it did start going down obviously before the increase but has since gone down even uh you know more

dramatically since the increase was put in place uh and then the purple line here is the amount of space that's being used which is again cripping up because of the I guess concept of induced demand which definitely plays out in a really big way on the l2s here now of course blobs are still not at capacity again or anything like that which means that that the bottleneck is still the execution side for these l2s so it's great to see that they're still working on that because I mean at the end of the day like we could increase blobs by I guess like 5x from here and it wouldn't make a difference to to the rollups because blobs aren't at capacity whereas the execution side of these of these rollups uh them increasing the ex execution side makes an absolutely massive difference because of the fact that that thing gets

quickly filled up due to induced demand and due to the fact that these things are being used more than ever I mean uh I I think I showed the other day on the refill the grow the pi website I'll bring it up again for you guys uh here so essentially you can see here that the layer 2 user base is just up and up I know there was a bit of an outlier here as you can see on the chart but really it's still at all-time highs and you can see on the different sections on grow the P the throughput you know all the other kind of metrics that they have on here are still definitely trending in the right direction which is up and to the right which is what we love to uh to see there but then there's also the gas fees. website which I've showed before

but I'll show it again here which basically shows you what the costs of transactions are like on these different Roll-Ups right now so on Bas uh a unop trade is still only 2 cents that is very very cheap guys the usdc transfer is half a cent here uh and then you have uh an eth transfer which is even cheaper than that and you can see it's comparable across other l2s arbitrum is even cheaper than base right now at around 1.2 cents for a unop trade uh op mayet bit more expensive same with ZK sync and uh scroll and Lan as well so and you can see on ethereum on E 1 uh it's $730 for a unop trade so obviously substantially more expensive there now of course you might guys have might have

noticed as well over the last few days gas fees on L1 have started trending up again now what is the I guess like amazing thing about this is that I think gas went to like 40 gay but L2 fees remain the same because as you guys know the blob Market of uh on ethereum L1 is the The Blob fee Market is completely separate to the normal L1 fee market so the normal L1 fee Market Market can literally go to hundreds of gay or thousands of gay and that would have no material effect on the blob gas fees The Blob base fee now of course you can draw some kind of I guess looser correlations where essentially if the gas fees on L1 were going and consistently staying at like 100 plus away then that would mean that the market was very very hot which

means that the l2s are probably hot so we may hit the blob capacity and then blob fees will start going up from there but these markets are independent of each other and that's the most beautiful thing because it means that just because L one fees go up doesn't mean the L2 fees have to go up on on the data side here and it means that the l2s have a lot more I guess like freedom and flexibility here to essentially keep scaling up on their side of things while also not having to worry about the blob side of things now of course I've also mentioned that in the coming I guess like year or so there are massive upgrades coming to blobs with Pier Dash and potentially increasing the size and count of blobs that will just increase the capacity by maybe another order of magnitude there not to mention all the

other things that are coming down the pipeline as well so really I think I mentioned this before I went on my break that we're in the ethereum kind of like scalability Golden Age here where for years to come these l2s are just going to keep getting more scalable and scalable not only through their own work as on the execution side of things but also on the data side of things because we're going to reach capacity eventually guys it's not going to be uh you know at zero basically zero gay forever it's going to go up uh not not because of inscriptions but because there just going to be more and more rollups coming online that use this stuff there which I'll talk about in a sec I actually have a twe from Hill Dobby lined up that I wanted to to speak about there um but

yeah the final thing on the L2 front before I talk about uh the Hill's tweet here was polygon announced today something called a Pim pessimistic proof which is a novel zero knowledge proof that is flexible enough to support both ZK and non ZK chains and they explain exactly what this is in this thread here guys the most magical thing about the L2 ecosystem as I've always said is not the scalability of it it's the experimentation and not just the experimentation on the app level but on the infrastructure level as well because we would never have gotten something like a pessimistic proof or a workable zero knowledge proof or different types of zero knowledge proofs is if it wasn't for the fact that we kind of went all in on the L2 ecosystem here and it was able to get funded because there's tens of billions of dollars that have gone into

these l2s and all that money is being used on This research that is going to pay massive dividends over the years to come in terms of not just scalability but increased experimentation for Builders on these L2 ecosystems so a huge crit for to polygon for obviously pushing the the I guess like industry forward here with um with this but they're not the only team doing it there's you know pretty much every L2 team is doing this in their own way some of them are focused on ZK stuff some of them are focused on optimistic stuff you know I've I've always said and I've said this for a long while now and I actually saw people talking about this on Twitter today but you guys know I've said this years ago I think at this point it would have to have been in uh 2021 at least I

was saying this where people were kind of asking oh is ZK Tech going to obsolete optimistic Tech and does that mean that any ZK VMS are going to obsolete uh optimism or arbitrum and at the time I said this and I say the same thing now no because what matters most is the ecosystem built around these things not the underlying technology that they use so in the end if ZK proofs prove to be and it looks like they are going to be a much better technology solution than optimistic rollups all of the all these l2s have to do all these optimistic rollup l2s have to do is change their proofing architecture from fraud proofs to uh ZK proofs uh and and validity proofs technically and then that's that's it they're they're there and end users wouldn't even feel the difference uh maybe the the fees would

be a little bit volatile for for a little while but other than that end users probably wouldn't feel anything anything different but the underlying Tech would be uh would be a lot different the underlying security assumptions would be a lot stronger uh and essentially we would be in that world where arbitr and optimism would keep their entire ecosystems while becoming ZK rollups and i' I've said that as I said since 2021 you can probably go back and find a video I've been saying that I've written about it when I was doing the daily way newsletter it is not something new but it's funny to see people finally talking about it on Twitter like it's something that is a you profound Insight I like no guys like we've known this for a while but hey glad that you're on board now with this uh there but anyway you can go

check out polygon's announcement for yourself I'll link it in the YouTube description below for you to do so all right so onto the topic that I wanted to talk about when I announced that at the start of the episode with regards to the fact that there are too many l2s guys I love l2s but there are so many now as you can see from Hill Dobby's tweet there are 24 l2s uh and inscriptions posting blobs uh and he's shown the first seven in his screenshot here and this is from his dashboard uh where I can actually see where is it um the eth two staking uh sorry the blobs dashboard I should bring up hill doob's got many good dashboards here but this is the blobs dashboard which you guys know about I've shown this a bunch of times before but essentially if you look

at the l2's posting blobs so if we look at go if we sort it by the l2's um posting the most amount of blobs so the least amount of blobs if we look at the distinct l2s you have uh because a bass falls into the optimism ecosystem right so if you look at just the distinct separate ones you have uh Bas and op main net which are one arbitrium is two you have scroll which is three Lana 4 ZK sync 5 Stark net 6 uh Zora and modor part of the optimism ecosystem um so is paradex I believe and then uh Tao which is seven on its own um I'm just looking for things that aren't part of other ecosystems here so really there like like I guess maybe seven or eight uh blog posting l2s right now rather than the before that Hill Dobby said in terms

of like distinct l2s so there are 24 l2s but uh there are only I guess like seven distinct ones that are in uh their own ecosystems here they they're kind of their own thing here um so from that perspective I think that that is probably getting on the too much side because as I've said before I feel like or at least my prediction is is that there's only going to be a small handful of these super chain EOS systems that consists of thousands of l2s within them so you'll have like the optimism super chain the arbitrum super chain they they call different things but just for for I guess like um ease of of terminology here I'm going to call them all super chains you have maybe the polygon super chain and then maybe you have a few others like the ZK sync super chain and

a few others out there that really exist as a niche as as their own thing doing their own thing like for example Tao is doing its own thing with Bas Roll-Ups right but then what does that look like in the long term as I discussed yesterday does every roll up become a based rollup so there's a lot of open questions right now but I think that uh two two things are true yeah first thing is that there's not going to be a th000 super chains uh definitely not and second thing is that most of the activity you know 80% of the activity is going to be concentrated in five or less super chains I believe and I I think that we're already seeing that play out but I think it's going to get even more concentrated than that um and then I guess like the third thing which is

related to those two things is what's the interoperability going to look like what's the I guess like uh cross L2 communication going to look like is it going to go through the L1 through base sequencing is it going to be done via Bridges is it going to be done via something like the AG layer from polygon or or you know whatever else it is I think there's going to be a mixture there but then what does that look like in 10 years time because I'm always looking very very far out 5 10 years at least when it comes to these things and I'm really try to imagine what it's going to look like and to imagine that far out what you have to do is you have to basically follow the incentives and you have to follow the um incentives both monetary and the user uh user

onboarding incentives too and really at the end of the day like the monetary incentives are quite clear right everyone wants to make the most amount of money they can for their ecosystem of course that's fine and that leads us to a certain conclusion but then you have the user experience side of things which is essentially like how do you make this as easy as possible to onboard users and get them through that sales funnel because essentially what all is a sales funnel right you have like a the top of the funnel where all of your potential new users exist which for crypto obviously is the billions of people that exist on on the planet and then as they go down that funnel you lose users for whatever whatever reason right so essentially you want to capture as many of them as possible and lose the the

least amount and that's going to be one of the main focuses too so I think to get there both on the monetary side and the user experience side in 5 to 10 years the end game is ZK I know that's a meme but it is ZK is the end game here so everything's going to be ZK you're going to have interoperability between all these protocols uh via probably base sequencing uh and shed sequencing in some parts but I feel like it's going to be I mean it's kind of hard to reason about this because I feel like the ethereum L1 is the best shed sequencer we probably will be able to come up up with because as I mentioned yesterday it is a really strong shelling point for all of the l2s out there and just the wider ethereum ecosystem so I feel like that might be the end game as well so ZK

as the end game ethereum L1 validators and block Builders as the kind of sequencing layer there for the l2s and then you have near perfect interoperability and communication between all these different layers which feeds into the user experience side of things which is what I just talked about with regards to making sure that you can onboard the most amount of users and then the ultimate question becomes okay well then where does the value flow like who is the ultimate winner here is it arbitrum is it optimism is it uh you know polygon is it zky is it starnet is it whoever else or is it ethereum and I'm like okay well I can tell that obviously ethereum is going to be like the ultimate winner here ium ecosystem in general ether as an asset is going to be the ultimate winner as well because

of the fact that it's used everywhere and that and it's a shelling point for the entire ecosystem but then people will ask you know which of these L2 tokens are going to be the most valuable uh you know what what kind of infrastructure players are going to be the most valuable here what's what's it going to look like for L1 validators are they going to get a cut of this and so on and so forth so there is a lot of open questions as I said you got to follow the incentives but the incentives are uh varied let's just call it like that the incentives are varied because of the fact that every project is in it for themselves as they should be but there is some kind of cooperation that needs to happen between them in order to grow the pie alt together which I think

that whether they want to or not these ecosystems are going to be forced into doing that which then ultimately begs the question of okay well what's the ultimate shelling point and that's going to be the ethereum L1 I think in in my mind anyway um but yeah anyway enough rambling about that you can go check out all of uh all of that stuff I'll link it in the YouTube description below but I think that's going to be it for today's episode guys I know it's a bit shorter than usual um but uh yeah I think that's it for today so yeah thank you 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 on Monday thanks everyone