Is Ethereum's Issuance Proposal Already 'Dead in the Water'?

Transcript

So Jerome, since you are actually one of the authors of this EIP, let's have you start. Explain what problems you're trying to solve for uh with EIP8363. >> Um sure. Um so we today have a curve that rewards the validators. So if you put if at stake, you become a validator and you get rewarded. And under today's curve, the more if is staked, uh the more if is printed. uh we print new EE to reward the validators and there are incentive to stake that never really switches off uh the the the reward continue to uh to appear and to uh to pay whatever the the staking ratio is how many uh if stake so

at the at the same time every holder that doesn't stake uh pays for the staking through delusion and um and thus we we want to implement a mechanism that um uh burn a rising portion of uh the validator rewards so that as the staking ratio climbs um the reward actually gets lower until the markets find its own level with the market find an equilibrium in terms of staking. So that's the that's a proposal in itself um a burn that grows with the staking ratio. So uh the rewards tappers towards zero uh at around the level of half the EA at stake and in practice the market stops well before that um at

whatever yield sters required to participate and staking remains attractive uh when participation is is low uh in our uh in our model that's overstaking stop being subsidized and thus u uh it's also stopped the delusion that the holders uh are facing above certain levels. And so why did you come up with this as the best solution? >> Yeah. Um so there's a in the in the v this there's a uh a couple of things we should uh we should clarify. Uh there's a the max issuance level. That's that's one of the thing because the the curve itself has a maximum issuance.

Uh there's also uh the transition period like how fast does this change um gets implemented. Uh there's also the the the ultimate level like at what rate and do we even reach zero in term of uh of rewards. Um and uh yeah I think that the shape of the curve itself uh uh that can be that can be discussed. Um so we took a different thing into consideration. Uh so there's um probably like four four to five years of research on uh on the current state of the curve and how we should modify it. Um it's well we're building on top of research from many different

researchers that I I won't name them all. Um but we have a research backing that u the minimum viable issuance of Ethereum should be around.5%. that would be the the minimum amount that we have to issue so that we we guarantee our economic security and um pay for our econom security budget and uh this boils down to 0.5. So first we we selected um a curve that match this uh minimum viable issuance of 0.5. uh then we uh targeted the ideal uh staking ratio which sits between uh 20 to 30%. Uh and so the the payout is

maximal around this uh the payout in term of issuance is maximal around this range. uh and then in term of uh of um making sure that the the the market actually finds an equilibrium um and we avoid also to go beyond 50% at stake um the the curve tends towards zero and reach zero uh around after 50% of E at stake. So that was also one of our reasoning we wanted to make sure that we never cross the 50% at stake uh level and I think finally if I'm not mistaken whatever whatever yeah transition period um we wanted to make sure that also this uh this transition doesn't happen from one day to the next like okay EIP has now proposed maybe it will get

considered and then it would get scheduled and then ego goes live and then suddenly we go from this amount of yield to a much lower amount. So we never wanted to uh to have this kind of u um u extreme transition from one day to the next. Uh we chose a pretty long transition u ready to argue if it's long enough or not long enough. But between the time that this proposal gets discussed right now and the time that this proposal gets in full force. will be a period of uh uh year and a half to two years um like 18 months kicking in um for sure after you go live and uh probably a little while before we get a final date for the implementation of of a good. So we uh we picked the different

things that we considered from the research side from our perception of uh how the market will react and how the the industry will react. try to u to to come up with the the best of those world. Um and uh now we are getting feedback on what we've missed, what we should consider to adjust the curve and also uh what kind of um of adjustments we should uh we should make in the in the short to long run. >> Yeah. Yeah. And you're getting a lot of feedback actually. Um so let's actually move to that. Um, so I would say that you know what seems to me and again I so I was on vacation so I

didn't see this in real time but it feels like so first of all a lot of people in the community are against it. Um it even feels to me like it's kind of mostly concentrated amongst the business people in the community which is funny because in my book I talk about sort of the business people versus the devs. That was a whole controversy in the beginning of Ethereum, but I feel like I kind of see this over and over again in crypto. Um, but you know, Oshene, you were one who wrote a very detailed critique and it wasn't even like a complete critique. You said this is just like some of my thoughts. So, go ahead and uh, you know, give us your topline thoughts on why you oppose this proposal.

>> Yeah, happy to. Um, so the main reason I not super happy with at least the current proposed curve is this idea of it like going to zero and particularly I want to highlight that there's like more than one ratio like metric that meet like matters for Ethereum security but Jerome's like put up in front there is this idea of finality. So it's like we have um this amount of ETH and that will be guaranteed burned if this transaction like ever becomes undone ever changes and I agree that the research there says you know tens of billions of dollars getting destroyed is probably enough disincentive at this part of um the world where I think we kind of um diverge in opinions is that's not the

only thing that can go wrong with Ethereum. Um, we also have this risk where the people that are staking their ETH decide to be particular about what they will include and not include in a block. And they can say, "We're going to only attest to block that do what we want that don't have, you know, people we don't like in them." And if they do that, um, there's no penalty. So long as there's 51% of them or more doing it, um, it costs them nothing. um the like pack like plan we have is like oh no maybe we'll coordinate as a group and we'll like destroy all our ether for doing so but I think that's a very big risk to kind of hedge all of Ethereum security on and I don't really think we should be sacrificing you know this type

of resistance to censorship or the staking ratio um the kind of fancy word you'll maybe hear me say it again is like Nakamoto coefficient kind of come from Bitcoin but it's this idea of how few orgs make up 50% of hash power state weight and I can talk about lots of other things but I think that's the kind of main one is that um we don't really have hundred billion dollars of security we really have five million a day at the current curve and depending on you know what people think about equilibrium for this new one it might be a million dollars a day or less and I don't really know if that's enough to protect a kind of a a trillion dollar computer like we wanted to be >> yeah like basically the number of entities required to kind of control

something or sort of break the system or just yeah make it much more centralized is already like kind of low. So um yeah, anything that centralizes it further is a bit risky. I'd love to. So before we go to Kevin, I don't know if Jerome if you want to respond to to that. >> Uh yeah, well I uh I I have lots of response to that. Uh and I also uh spent some time uh reading uh Oshin's uh post and uh gave a full on uh uh write written response to uh to his comments uh earlier today uh a few few hours before. I was kind of back to back today. So sorry for the for the delay and I'm trying to get a uh an answer to everyone one by one. So I'm I'm

currently around the comments number 25. So we have like 180 90 uh 190 comments. So that's a lot of reactions. But I I want to commence first on the fact that uh uh when you said like everybody's against it. That's not really the case. Like people that write about it are uh kind of there are some people that are pro it uh uh pro pro EIP change. Uh not the majority that people are writing. But that's normal like we are getting feedback from people that are uh looking for answers that are looking for uh comment or clarification or that just log in and say like I hate this don't do that. Uh but that's that was the case for every single changes that we did in the past regarding the Amir issuance. So it's not a it's not a surprise. Um and the people that came to speak against it

in first place are were people that had their business more or less directly affected by this and this is expected as well. So we're not we're not we're not trying to hide it. Uh it's a contentious uh proposal. Uh but it's also worth having this discussion right now. And now specifically on the on the security side of things um sec security is a spectrum um from the uh from the Ethereum perspective and from the blockchain perspective at large. So we need to to to consider different level of attack, different type of attacks and how we protects against them. Um I'm not going to uh to say that uh what Oshin uh try to put out is wrong. I I honestly think it's the it's it's um it's it's

true indeed. uh how much it costs per day to uh to uh to to bribe or uh coers uh different validators to to not do something or to do something specifically is rather low uh in the in the range of a couple of million per day. Um so depending on uh how much uh is at stake sorry how much how much is how much money you can uh you can uh uh divert this kind of attack the the couple of million per day maybe maybe not not that much um considering that we want to be uh the the network that secure the future of the settlement of the world. So um but nevertheless there is also the the security consideration of uh how much it's it's

um how much is needed to to revert finality and our EIP mostly focus on uh this side of uh the security spectrum uh making sure that uh we maximize this because from from uh my understanding and maybe uh well ocean you can tell me if uh if I'm I'm putting words in your mouth or not like the uh the the second part of the like the the security of how much it costs to prevent someone to write a transaction or to to to not include a transaction and so on. Uh this is something that uh will always be lower than uh our uh big security thing for uh for big security budget for preventing u um uh messing up with the

finality. But also this is something that uh mostly uh uh DVT tax and uh and fossile uh are taking care of for which I I I both support and uh I don't think the issuance is something that really can uh can influence on on this specific part of our of our security. But I I hope we'll have the the chance to to discuss also the NECA motorto coefficient and concentration effect because I think also our views on uh what's uh the uh the um um the the the state that we should wish for um is a bit is a bit different uh you and me on the on the matter. So, as we mentioned earlier, a number of

business leaders have opposed this proposal such such as Stonnie Kulichav, Mike Siligodsi, Joe Shalom of um Sharplink. And Shalom's article had a succinct header. It would undermine DeFi and DeFi is Ethereum's superpower. So, suffice it to say that a lot of entrepreneurs have made business decisions on this yield. You know, I heard on the chopping block they kind of compared this proposal to how a central bank might come out and make a decision that has a lot of economic and business consequences. So Kevin, you know, I'm curious to hear what impact you think this would have on the different businesses in def in Ethereum and DeFi broadly.

>> Yeah, thanks Laura. Well, uh, I'll just say before I answer that, um, I'm undecided about this EIP and I'm trying to contain all of the feedback and discussion in my mind, which, uh, uh, you know, I think is a feat in itself. But, uh, it would suffice to say that, uh, the business community has had a lot of strong feedback about the proposal. Uh, Stani from A said he ran the math and if validator income falls from about 3% down to 1.5%, that's a 50% cut. So, does a more zero zero yield regime accelerate uh the capture that this EIP is meant to deter? Uh does this kill the case for borrowing ETH? Uh does it create a tax landmine? Those are some of

the feedback that we've heard from the business community. Ryan Sean Adams from Banklist called this dead in the water. Uh, so I think this is valid feedback and what I want to talk about for just a minute here is how does the community come to consensus about whether or not this EIP goes live. And I think that with EIPs like this, there's not one right answer. This is not an engineering problem. This is a political economy problem. There's sort of like a quantum superposition of possible solutions for what the best issuance of ETH is. And I think that these camps are in a debate about what is ETH? Is it ultrasound money? uh or is it a productive asset that can be used in uh in in DeFi? And so the political economy has to come to

consensus uh before the next fork about whether this is going to go into Ethereum mainet and the debate has been stuck for about the last two years. These camps have not moved uh from each other. Uh and so uh quick primer on Ethereum governance. Ethereum has off-chain governance. There's a meeting called the allcore devs in which they try to come to rough consensus about which EIPs are going to come into the network and uh ACD has never really passed something with this level of contentiousness or like active push back or conversation. Um there's a precedent for controversial things being killed like Praguepow uh was a was a thing that was killed many years ago. And so I

think the question is who makes the decisions and how and how do we come to rough consensus about this uh and how much will the core developers risk fissures in the community uh in order to uh pass this EIP? There has not been a major fork of Ethereum since uh the DAO hard fork and um the so so the real question is what happens in all core developers. Uh all core developers meeting number 185 is scheduled for Thursday August 20th at 1400 UTC. So that'll be the uh thing that you want to tune into to see if this passes or not, but uh it would suffice to say that there's a lot of active discussions happening right now. They'll probably reach a boiling point around ACD this Thursday.

>> You just caught a piece of Unchained. I'm host Laura Shin and the full conversation is in the description below. We go live every Monday and Thursday. Subscribe so you never miss it. $540 million. That's how much concentrated liquidity sat idle in a given week in the first half of this year. About 30% of the DeFi TVL if you're wondering. That's according to Dune Research commissioned by 1 in. But there's a solution. 1in Aqua is the new shared liquidity platform. It lets LPS back multiple positions with the same token balance and keep their tokens in their wallet till a swap comes. Why does that help? Because the LPS don't have to split their tokens across positions.

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