Ethereum ETFs are coming, Privacy Pools paper - The Daily Gwei Refuel #652 - Ethereum Updates

Transcript

hello everyone welcome to another episode of The Daily refuel where he kept the latest news in the ethereum ecosystem I'm your host and this is Hannah and has the 7th of September 2023. all right everyone let's get into it so just a quick apology for yesterday uh on the video the audio seemed to go out of sync at around the eight minute Mark um for some reason I don't know why that happened uh the auto went out of sync with the video and it happened on my local recording as well so it wasn't a YouTube issue and those listening on the podcast you probably noticed there was a gap of a few seconds there where I went silent and then just cut back in uh my microphone must have disconnected and connected again or something which was which was super weird there but yeah hopefully it's fixed for today I've made

a few changes on my end so it won't happen again but anyway on that note let's get into the news so boom as James so far here it says here uh that a bunch of these U.S tradify institutions have are now filed for an eth spot ETF so you can see here van Eck and Arc invest have filed for a spot uh a ETF yeah now of course this isn't too surprising I mean I've been saying for a while that you know bitcoin's gonna get its ETF and then eth will get its ETF and who knows what comes after that but yeah I I kind of Wonder around timelines now it's like obviously as James says here the clock starts ticking when they when they follow these things but obviously the deadlines are going to be later than the BTC ETF deadlines uh and

also there is no guaranteed all the SSC is going to approve these things uh because of the fact that the SS still see is obviously quite hostile towards eth I I think way more hostile than it is towards uh BTC obviously because Gary Gensler has said that everything except Bitcoin is a security but I have maintained for a long time now and I think it's pretty obviously obvious at this point that it is not a security it is a it is a commodity uh and on top of that I think that uh they're going to be potentially forced into approving these ETS because once they approve the BTC ETFs all these same try to find institution institutions are going to be like hey you approved BTC you need to approve Eep as well because really Ethan BTC from I guess like the lens of what

the SEC wants to see from from both of them uh is the same right they trade on the same markets uh this the same exchanges right they've got very similar liquidity profiles they've got similar market caps I mean yes E3 is like what 50 50 less or something of btc's market cap but it's still like a very large market cap it's been around for for a long while it's actually it's decentralized so I think that just generally the the eight spot ATS will get approved I don't know if it'll happen next year or the year after I think the PTC ones will definitely happen uh next year if not potentially even uh sometime this year there's still a chance it could happen there uh uh but yeah it's still great to see that they've that vanic and Arcus have made these moves now obviously the bigger

deal will be if BlackRock does their ETF right because then that again sends a signal from Big Daddy BlackRock that um the SSC needs to approve it um because uh basically BlackRock said so right that's that is definitely like a something that changed the the Bitcoin ETF race because obviously for years and years now these other institutions had been filing for a Bitcoin spot ETF but they were kept getting denied and then in comes BlackRock uh and as I've mentioned before Larry Fink the CEO of BlackRock is a very uh deeply ingrained Democrat and obviously he uh he has a lot of sway in the Democratic party which are currently in power and the SEC Had Gary Gensler is a Democrat and was appointed by a Democrat so it comes all back to politics of course but that

definitely changed the game there so right now I think it's just vanic and Arc as well as a bunch of other other uh attractify institutions that have also done the Futures ETF uh for eth as well uh but yeah we'll see we'll keep kind of uh tabs on this and see how this goes here but I'm going to be curious if BlackRock actually puts their hat on the ring and decides yeah we want to have an eth ETF as well I mean it makes sense at the end of the day and then it also begs the question of are these ETFs going to be staked like is sorry is the Ethan these ETFs going to be staked because then that becomes a super attractive product to these institutions because for them they can basically say Hey you know come base come uh buy through US

buy these ETFs through us and then we'll give you a yield on top of it and the yield can be like a very uh I guess like muted yield to what you would get solo staking or staking through an LST or something like that but it's still going to be a yield and when you think about the types of money that it's going to be going into these products it's retirement account money right it's long-term money it's Boomer money for lack of a better term right so these are the kind of types of people and this is the type of money that really does care about yield and it begs the question is that you're going to be paid out in eth is it just going to be added to their eth balance or their ETF balance or is it going to be paid out in dollars it

could be done in either which way and I'm sure that the company is managing these ETFs can play whatever games they want with it in order to maximize their profitability from it but it is a huge thing for them for sure so yeah just great to see that these spot ETFs have been filed uh no idea on timeline here as I said but yeah we'll have to see how it uh plays out but you can check out this tweet from James I'll link it in the YouTube description below all right I've got a few things here today uh all about Mev that I want to talk about again uh so starting off is this tweet thread from SMG uh titled footprints in the dark Forest SMG researchers mapped the hidden relationships between Builders searches and on-chain autoflow by analyzing top

of block winners and the block Builders who got them there uh and then you can actually see this thread here about what that what they're talking about now I'm not going to summarize the thread it goes into a lot of details so I definitely recommend checking it out um but also I listened to the uh podcast um uh with uh with hazu and John of oncoming on Uncommon Core today where they talked about Mev boosts and PBS and epbs and Pepsi and all those things uh in great detail so I highly recommend checking out that podcast as well you can just search Uncommon Core and you'll be able to find that podcast there but this is really kind of I think as I've been saying the the main thing over the next couple years uh one of the main things over the next couple years that's

going to be focused on especially in in in the wake of obviously the the sanctions the the relay um ecosystem and how that's working out and I'm going to go over that in a sec but it really is a definitely a pressing issue here and I think as I I think I've said it before on the refill but Mev left unchecked is like the blockchain killer I mean I don't think it's anywhere uh at that point for ethereum right now and ethereum has a lot of mitigations in place and is is building more mitigations for it but the problem is is that Mev basically takes the concept of like an economic incentives and bring economic incentive and brings it to the Forefront and basically forces all of the players to um to essentially adhere to those economic incentives even at the expense of the network now

obviously a pure example of this is people running Mev boost and connecting to censoring relays right and and basically essentially Outsourcing their block production to Mev boost which then uh has relayers which are censoring uh specific transactions so that is the obviously negative concept sequence of of Mev and what I mean by blockchain killer isn't just uh in the in the concept of security or disabling consensus but also in the concept of killing credible neutrality now I don't think ethereum's credible neutrality has been killed or anything like that but obviously in in some of the eyes of the of the wider ecosystem they look at this and they're just like wow okay there is this uh you know large contingent of

block Builders uh through these relays uh that are that are being censored or large contingent of blocks I should say that that are being censored here and obviously the ethereum ecosystem has responded to this in kind and basically said well we're going to essentially build around this we're going to build better systems in order to increase the censorship resistance of ethereum and I've said it before but I think that without the ofax sanctions a lot of this work would have probably been pushed out more especially around censorship because there's different parts of Mev uh right and mitigating Mev and and doing things like PBS and there's different reasons for doing it but when it comes to censorship it was something that people would tout in crypto and say okay well blockchains are censorship assistant blah blah but we never really tested it before right there had never

been really a grand test of a blockchain censorship resistance until the ofax sanctions happen because now we've seen what can happen uh specifically on ethereum obviously on other networks it's different like if it happened on bitcoin it'd be different because Bitcoin doesn't really have Mev but there's still been instances where mining pools were censoring certain certain addresses right so it exists everywhere so if so in the wake of the the oh flag sanctions which happened over a year ago now by the way but in the wake of that uh the researchers obviously have said well we need to we need to work on this we need to work not only on mitigating Mev or making it so that we can get rid of as much toxic mvv as possible but also putting in place things like uh censorship resistant lists or inclusion lists and stuff like

that that make it uh really um either costly uh to to censor uh but also just undesirable to censor and give plausible deniability as well that's a lot of the stuff around privacy is is basically giving plausible deniability to block Builders and value is to basically say hey we don't know what's in these blocks or at least a validators obviously with block builds it's a bit different but with validators or relayers they can basically say hey we don't know what's in these blocks so we can't censor anything that is the Holy Grail I think um but yeah it depends how that plays out especially on on Layer Two obviously it's different on layer one and Layer Two but still interesting to think about nonetheless now as a kind of segue into the rest of the Mev discussion that I

wanted to talk about uh this site for those of you who don't know I've shown it on the refill before but this is a great site for keeping up with what's happening um on the relayer and Builder side so you can go to relay scan dot IO I'll link it in the YouTube description below and you can kind of see an overview uh sorted by seven days uh one day 12 hour or one hour so I've just selected seven days here you can actually see each of the relays here and the percentage of uh of payloads or I guess blocks they have uh kind of um uh relayed here so ultrasound money is firmly in the first place with 22.3 blocks route Max profit at uh almost 20 percent uh a flashbots at about 17.5 percent and then the rest of these is kind of um counted here and

from this you can actually get the censorship versus nonsense censorship percentage uh by just adding these up right you can add ultrasound money to block shot Max profit you you quickly get up to uh 30 uh sorry 40 um two percent here then add agnostic which is also a non-censoring relayer you go up to 56 um add I use this uh that gets you to almost 60 with uh with uh these other relays yeah so essentially 60 of blocks over the last seven days uh were relayed through non-censoring relayers which means that they weren't censoring those tornado cache transactions there now on the right hand side of things you have the builders so these are the I guess entities that put together blocks and

then pass them on to the relay as you can see that there is basically a few dominant ones so Titan Builder are sync Builder Beaver build and um illuminate democratize distribute and build a 0x 69 are the top five Builders here and they have pretty much the whole Market I guess cornered and this goes back to what uh I think vitalik has spoken about a lot of other researchers I've spoken about about this concept of PBS obviously proposal Builder separation but this concept of well block building is probably going to be quite concentrated uh and and quite centralized as you can see here it already is where essentially uh five uh um Builders five entities uh building most of the blocks on ethereum today and the the and and the concept behind PBS

and inclusion lists and censorship resistant lists and things like that is to is to basically live in that reality where block building is very concentrated very um very centralized but that's okay because the block Builders are not the ones that are proposing the blocks that's the validators and they're not the ones that are attesting to blocks as well which is what we care about when it comes to decentralization and uh security of the network but obviously when it comes to censorship resistance we care about uh I I we care about that in the context of block building here uh and when you look at the kind of uh block building Market yeah I mean it's it's quite concentrated and centralized today so if we live in that reality how can we work around that and make it so that it can be essentially resistant as resistant as

possible and that's the whole idea behind PBS right that's the whole idea behind PBS and and Pepsi and all those things that fall off of that so you can go check out this site for yourself now I've also talked about raider.network a lot on the the refuel but for those of you who don't know a really cool thing about raider.network is that they actually show you each of the staking entities and what their block space distribution looks like so you can actually see here uh each of the staking entities such as Lido and the centralized exchanges and rocketpool what what their block space distribution looks like over the last 30 days let's say and you can hover over it and say that over the last 30 days for example uh all uh rocket pool node operators uh proposed blocks from 37 were proposed

were um relayed by blocks route uh 20 was ultrasound money 16.9 was flashbots and so on and so forth so if you want to see what each uh kind of big staking entity is doing here in terms of block space distribution AKA where they're getting their blocks from uh which realize they're getting it from you should definitely go check this out as well all right that's enough on all of that going to move on to the next biggest piece of I guess like news from the last 24 hours which is tangentially related to what I was just talking about and this is a new privacy paper that has been published by uh vitalik buterin uh Jacob olume who works at chain analysis uh Matthias Nadler here who I don't know where he works uh he's a PhD student um and also Fabian Shah Yahoo is a

professor at the University of Basil along with Amin solimani uh and and this privacy paper is basically covering the um the app or I guess like the uh the the the uh the I mean yeah I probably actually the right term yeah the app that amine came up with called privacy pools which is something that I've covered on the refill before which is basically this this concept of making tornado cash or at least forking the tornado cache and making it regulatory uh League compliance now the way that they do this is that essentially they split uh the pools into um into kind of like isolated pools where essentially you can prove to a regulator and say to them hey I I've got here's my whole trail of transactions while still preserving your privacy and

you can prove to them that your funds didn't actually co-mingle with the quote unquote bad actor funds right now this idea is is I think really cool uh in in theory I think in practice it's going to be fun to see how this plays out and because there's a few different concerns with this right some people brought up the concern that this is basically normalizing uh normalizing this kind of censorship that's that's been happening around um Toyota cache and also normalizing uh uh Financial surveillance on blockchains and stuff like that and I get that view but when it comes to building practical privacy tools you've got to take this view as well what happens if we build privacy tools without the I guess like tools that that

privacy pools wants to wants to implement here and we build them all like uh similar tornado cash or we build them in a way where you can't actually show the authorities um the the kind of trail of funds here in order to prove to them that you weren't part of uh funds that were co-mingled with Bad actors if you can't do that and if we just build all the Privacy tools where you can't do that what do you think is going to happen to all those privacy tools when they get big enough they're going to get sanctioned so you and I know I've said before that uh obviously um sanctioning it doesn't kill it because tornado cash still runs on the network there's still funds that move through it but it does have a pretty big chilling effect on it right it does reduce the usability of

the app it basically locks out a whole country from using it I mean any U.S citizen or even us person um it's illegal for them to use that and if they do use it it being tornado cash they stand and to uh face a prison sentence of up to 30 years right so there's a practicality trade-off here where it's like yes we would love to live in a world where we didn't have to have this trade-off of bit of having a trail where we could prove to the authorities and to The Regulators that we weren't commingling with with the quote-unquote Bad actors right and satisfy their needs um but then the other side of it is that we just build it without these tools and we just get sanctioned and we can never really have privacy now I think that there is a third way this could go as

well where you basically um have it so that we and and this is maybe a much more a less likely way but you basically have it where the governments around the world uh especially in places where you expect there to be Freedom like in the US right understand that it is not practical to uh it is not practical um to be able to I guess like adhere to every different regulatory agency around the world because you know the U.S let's just say for example example the U.S sanctions tornado cash or they did sanction to another cash and then let's say some country or the EU let's just say the EU sanctions another privacy protocol but doesn't sanction tornado cash so okay this starts becoming very murky now where you're like okay well no

one in the EU can use this privacy protocol but they can use tornado cash and no one in the US can use tornado cash but they can use this other one and then essentially what you do is you split off the the network into these Regional pods and it does it no longer becomes a Global Network it just becomes fragmented so I think that we really do need to educate Regulators around this and say Hey you know validators um uh if you start at the bottom validators are supposed to be like the dumb pipes of a blockchain right the block Builders validates are supposed to be the dumb pipes they just pass through the the data through them like the internet pipes and they're not opinionated about it right and then you can go beyond that and you can say okay the Privacy tools built on top of

ethereum are in a different different kind of League here uh because obviously these privacy tools are used by both good actors and Bad actors but that's subjective right a good actor in one country is a bad actor in another country for example if you are donating to the Ukraine war effort and you're a U.S citizen you're considered a good actor but if you were doing that as a Russian citizen you would be considered a bad actor so what ends up happening is you start being opinionated about these things and you start bringing subjectivity into it which doesn't scale so I think that educating The Regulators and the authorities about this is the only way that we would be able to get them to even start to consider what that looks like and start to consider okay well if we just start kind of putting

trying to put all these guardrails in place it's not going to practice practically work and it actually ends up putting them in a worse situation than they otherwise would have been in but yeah as I said that is like probably the least likely thing to happen because as we know educating these these people in power is really really difficult to do um and it's really difficult to educate The Wider populace about this as well and it's a war that's going to be fought for for many years to come but anyway back to the paper itself you can check it out I'll link it in YouTube description below I thought it was quite interesting I really do think it's an interesting way to do privacy well still kind of like walking that that tightrope of needing to comply with certain regulations in different nation states uh but yeah you can go check this out

for yourself I'll link it in the YouTube description below all right so just a shout out here for the Aussies Among Us so block earner a uh a um a company that I'm an investor in just as a disclosure here are now offering crypto backed loans so you can essentially go to block earner with your eth or BTC uh well okay you can sign up to the wait list to do this so if you're accepted as part of as part of the wait list um you can go here use your Ethan BTC uh and basically uh take an AUD loan against it at competitive rates you can see here what the rates look like uh and these rates are Australian rates so these interest rates may seem weird to anyone that's not Australian but this is

basically what the going rates are right now in Australia but the reason why I bring this up is because I know there's a fair few Aussies that listen to the to the show and obviously being Australian myself I thought this was very interesting but this is cool I mean you know when you're using money markets in D5 uh as an Australian it's quite frustrating because we can only borrow us these stable coins there's no AUD stablecoin right so for me personally I've avoided really using these using these kind of like money markets uh for the most part because of that that's and and it's just a headache from a tax perspective as well but being able to use something like block earner which is not defy by the way guys it's a centralized platform just thought I'd put it out there but being able to to

use them and take an AUD loan is pretty cool now I'm not saying that you should do it uh do it where you take like a mortgage through it I don't think um that'd be very wise to do and they probably won't even let you do us uh that that sort of size there but I think it's really cool for things like maybe you want to buy a car or something uh and you or you want to buy a new bike or something you don't want to cash out anything because it's the end it's the crab market and cashing out now doesn't really make much sense for you well then you can go uh kind of get a loan through this so as I said disclosed I am an investor in this company but the reason I bring this up is because um it is something unique for the

Australians Among Us and I was pretty excited to see it all right so socket has announced a fundraise so they've raised five million dollars in a Strategic investment round from coinbase Ventures and framework Ventures and they said here with this investment we expand our collaboration with coinbase to bring cross-chain Primitives to their products like coinbase wallet and bass now you guys know all about sockets they're basically a bridging protocol between the different kind of chains and l2s that we all have that we all know and love but they're also trying to go beyond that they're trying to become a interoperability protocol similar to things like uh connects and chain link ccip of course uh and they're just like another player in that game there but I mentioned socket scan yes on yesterday's

refuel are basically the ability to search through uh basically an ether scan for Bridges so they've got that product there but they've also got um uh they're they're kind of like bridging products as well that you can use as like an aggregator for different Bridges and stuff like that but yeah great to see them raising I mean I think you know right now it's probably the worst time for teams to be raising so if you are able to raise it really speaks volumes about the product that you're building I think um and especially if it's like not array a first time race I think socket has raised um at least once before so it's a kind of a follow-on race here and especially from Big players like coinbase Ventures and and framework Ventures who are very well-known players in the ecosystem especially when like coinbase right for example it makes a

lot of sense here so yeah just a congrats to socket on this investment and you can read more about them I'll link this in the YouTube description below all right there's a new dashboard from hilldobby today well maybe not a totally new dashboard but a rework dashboard so this is his gas dashboard so there's fewer visualizations to focus on what matters and you can toggle between chains now on this dashboard so I'll link this in the YouTube description below for you to check out but I've just got it up on my page right now so you can see really interesting starts like you know median gas price over time uh also got the top gas guzzlers gas Spenders and such and such and there's all these different kind of Statistics here eth Burns how much EIP 1559 transaction adoption there is I know

it's funny the transaction adoption never got close to 100 it like basically peed it out at 85 to 90 I think well not even that I mean how high did it go here I think the highest it was was about yeah 90 or something like that currently it seems to be at about 85 percent um but that's just a cool little a little fact there but here you can see here uh he's kind of updated it um for and this is obviously for for ethereum um layer one whereas you can kind of uh okay I have to sign in in order to in order to basically uh click this drop down and check the other chains but if you are signed into Dune you can actually click this drop down and search the other chains I think he lists up here what chains are supported arbitrim

optimism base B and B polygon Avalanche cello gnosis so basically all the ABM chains of course uh but yeah you can go check out this rework dashboard from hilldobby I'll link it in the YouTube description below for you to do so all right so there was this question from Jason Choi uh on Twitter I think uh today or yesterday where he asked if you're still in crypto what are your non-ideological reasons uh for being in crypto now I gave my answer here but I'd be curious to know what your answer is to this question so leave a comment in the YouTube comments or coming to the Daily Discord Channel we can have a discussion about it but my reply to this after thinking in my head my first reply to this was in my head where I jokingly said money right because you know most

people are in this are in crypto for monetary reasons right so I joked about that in my head I was just like no but that's not that's not something that that I'm in it for uh even though I you know it's funny because I'm in crypto uh for a lot of ideological reasons but I thought to myself you know what's a non-ideological reason and I answered and I said I missed watching the internet uh Slash computers developed from its early iterations to becoming globally adopted because I was born in 1992 so I was too young I mean by the time the.com bubble happened I was what not even 10 years old yet so I was just way too young to understand any of this stuff I didn't have anyone around me that was into computers so it's not like I was exposed to it I think my my only

exposure to computers before I turned like 13 was just game boys and Nintendo 64s and things like that um I started uh playing World of Warcraft when I was 14. I was playing some PC games before that and then from then I started getting into computers but by that point I mean when I was 14 I think I was it was it was 2006 right so we were just going to the smartphone era which I got to experience which is pretty fun but I missed the early internet and computers uh and that informed a lot of I guess like why I got into crypto where I said yeah I didn't want to miss watching another technological Revolution play out and now I'm old enough to follow along with that because when I first got into crypto in 2013 I was 10 years ago I was

21 so I was definitely old enough to start experiencing it and then when I got back into it in 2017 with ethereum um I was uh if I'm doing a math correctly in my head right now 2017 I I was I was 25 so I was definitely in a position to to uh to kind of like take that opportunity and run with it one because I was working uh and and bringing in paychecks I was able to and and bring in a decent paycheck where I was able to invest in crypto I had a lot of time to invest into crypto as well um uh because you know what I was doing in my free time was basically just hanging around with friends and playing video games so I replaced that with with ethereum um and and then from there it kind of just snowballed and I've just been glued

to the ethereum ecosystem since then and been just so excited to be able to watch it all play out because in a couple decades time when ethereum you know is ruling the world and ethereum is the backbone of the new Financial system I'll be able to tell my kids and be like hey I experienced that from not day one but like the very early days and I'll be able to tell them quote unquote War stories about ethereum and talk about everything that happened and say yes I was there for the merge like that's the kind of stuff that kind of excites me because I would have loved to been able to do that around the internet and computers but I was too young it was simply just being born at the wrong time I guess but I think I've I feel like I was born at the exact right time to

experience crypto and experience ethereum to its fullest there but yeah let me know your non-ideological reason for still sticking around and still being in crypto right now uh you can comment that on YouTube comments or in the Discord Channel but I think 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 the newsletter join the Discord Channel and I'll catch you all tomorrow thanks everyone