Staking chat, Flux Finance U.S treasuries and more - The Daily Gwei Refuel #537 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of The Daily gray refuel where we cup latest news in the ethereum ecosystem I'm your host Dan this is honor and says the 9th of February 2023 alright everyone let's get into it so a bit of regulatory news over the last 24 hours uh so it was announced here while I guess Brian Armstrong put out a tweet thread here where he starts off by saying we're hearing rumors that the SEC would like to get rid of crypto staking in the US for retail customers I hope that's not the case as I believe it would be a terrible path for the us if that was allowed to happen uh and on top of this as well uh the DB account here on Twitter said that staking made up 11 of coinbase's Revenue in Q3 of 2022. so obviously coinbase has a big vested

interest in staking not going away right just um in of themselves not just eat staking but all of the change that they support there because it is a huge Revenue driver for them and it is something that doesn't rely on Exchange trading fees which is what the majority of coinbase is uh Revenue right now relies on so obviously it's a great little a little business for them but I want to talk more broadly about what this actually means and what I guess like the SEC may be trying to do here now obviously I'm not a legal expert and I've talked about this a bunch in the past I don't think that this what the SEC is doing here is trying to get eth and these other tokens uh labeled as Securities what they're trying to do is get the products offered by the centralized institutions like coinbase

um they're staking products they offer and label those things as Securities and to be fair and to be totally fair with respect to the the law or I guess some interpretations of the of the law the Howie test those products can be considered a security like eighth the asset isn't a security and Ethos doesn't have to be a security for the products offered by these institutions to be considered Securities because they are products that may you know use either as the underlying assert or an underlying part of that product but the product itself is the security not the you know the part to that product if that makes sense so from that lens definitely you know I simply sympathize with that view but at the same time it doesn't really make any sense because staking uh

through a centralized exchange is a very low risk thing to do really the only risk that you're taking for I guess like most of the networks or pretty much all the networks is uh is custody risk where you're basically handing over custody of your funds to this exchange to stake on your your behalf but people already keep their funds on exchanges anyway so the the extra risk that they're taking on is very minimal in ethereum's case they're taking on uh potential slashing and offline risk right but for that to happen with something like coinbase it would be I guess it would be um for something that happened with with coinbase with like a slashing event for example it would be a very rare event uh you know coinbase is really great at infrastructure they've been doing this

for a very long time so if something like that to happen would be a rare event going offline doesn't really penalize you that much at all and I'm sure coinbase has the funds to cover and of these scenarios are to a point right so to cover that for their customers here so by putting their funds into staking if their funds are already on centralized exchanges the extra risk that they're taking is very very minimal here whereas the SEC and other regulatory bodies what they're meant to do is to protect investors right that's their mandate so by going after their staking products they're not really protecting anyone because as I just explained to you the risk that these people are taking to stake with with coinbase or whatever other centralized U.S based institution um is very marginal compared to the risk that they're already taken by having

these um exchanges cut to do their funds but on top of that coinbase and Kraken and other us-based exchanges are already regulated to the fullest extent of the law and as I said before they are regulated more harshly than banks at this point than than traditional banks at this point so what exactly is the SEC doing here well the SSC is following in their long pattern of just being very hostile towards crypto and there is a larger issue at hand as well Nick Carter I'll put out a post I don't have it handy um he did a guest post on someone's sub stack about how the Biden Administration has been tightening the Noose around crypto generally from all fronts right not legislatively like not creating new laws around it but essentially uh uh

doing um enforcement through these different agencies and basically uh having chilling effects on the industry right the chilling effect with tornado cash for example that's one of the most extreme examples with ofax sanctioning tornado cash but other examples include going after the banks that service these crypto exchanges and basically scaring them into not wanting to service these exchanges anymore they're not basically telling them they can't do it they're not Banning them they're not writing laws but what they are doing is that they're essentially scaring the banks into compliance essentially which is a really shitty thing that happens with with governments and nation states and it doesn't just happen in the US obviously it happens everywhere uh but that is what's happening here and Nick Carter does a great job of explaining this you can go to his Twitter profile and and check it uh Nick's normally a

bitcoiner but I think what he he wrote applies to all of crypto doesn't just apply to to bitcoin obviously here and what the SEC is doing by going after staking products uh in the US for retail customers that's that that's actually the key term here uh fits in with that now on that key term being retail customers this means that uh what they're trying to do basically is lock this product into just institutions and corporates being able to do this because they have much more visibility over institutions and and corporates than they do over individuals and obviously if you buy into I wouldn't call them conspiracy theories but if you buy into the theories that uh generally the you know nation states and and the ruling

class don't want the wealth to be transferred from the quote-unquote plebs you know sorry from the ruling class to the quote-unquote plebs to increase their standing in society well that falls in that as well so unfortunately this is just what we're going to have to deal with you know crypto was obviously founded on being anti-government anti-nations date like as I've explained before ethereum is definitely not like anti-nation state anti-government but ethereum allows people to Route Around governments allows you to do regulatory Arbitrage that is its main use case I mean ethereum is a censorship resistant blockchain even with ofax sanctioning to another cache it hasn't stopped people from being able to use tornado cash because the ethereum network is censorship resistant so from that lens you can understand why these um these

regulatory bodies are doing this uh and you can also understand why they're doing it from so aggressively is because it works the chilling effect works scaring people into compliance works there's no need for them to go through the pesky and and time and very um time consuming process of getting things legislated and getting things written into law all they have to do is use their existing power and keep kind of uh gaining more and more power through a creep of sorts uh and who's going to stop them right they're unelected bureaucrats at the end of the day they don't have to answer to anyone except except I guess like the uh the elected politicians but they've got so much other things to worry about and a lot of the time it's very rare for them to fire the people that they appointed themselves because it looks bad on them

like for example if um I believe Biden did a point uh against a lot to the SEC as chair if he was to fire against la which I'm not sure if that he can actually do that in in so much of in so much of that sense but if he was to do that it would obviously reflect badly on him it would cause him to lose some sort of support and lose political points so again it all comes down to politics there so when you look at it from from that point of view these people being unelected is is really bad and I've always thought this is really bad the fact that these unelected bureaucrats have so much power to uh to set policy and to use that policy to scare different entities uh into compliance which is obviously very damaging to the crypto space because crypto space

doesn't want to lose its banking license doesn't want to fall afoul of the law because the penalties are quite High especially for things like the ofak sanctions and stuff like that but uh but yeah anyway I'm gonna uh leave that at that one there because as I said before I'm not an expert on any of this stuff this is just my general read I'm taking in as many Imports as I can around this to understand it better but I did want to get through the the main point here was that the you know the SSC isn't going after e specifically here they aren't going after ethereum staging specifically they're going after all staking but they're specifically going after staking products and trying to to basically say that those things are securities not necessarily saying that the underlying assets are securities now of course they have alluded to that or

at least Gary Gensler has alluded to that in the past of basically saying that he thinks that everything except Bitcoin is a security but that's a whole nother topic and that doesn't really fit into this I think that they're two distinct uh and separate things here uh but yeah hopefully that gives you a bit of a summary of what's been going on there I will definitely keep on top of this and update you guys as more updates come out oh and actually finally here before I move on from that stuff Paul who is the chief legal officer at coinbase also put a tweet out where he quote tweeted Brian's thread and said staking is not a security validators form no horizontal Community or commonality there's no vertical commonality either validators don't expect rewards from significant managerial efforts of other validators they expect respect rewards primarily

from their own efforts and fun so he's basically arguing that even mistaking products that these um that these institutions offer such as coinbase uh uh aren't Securities either doesn't make sense for staking to be considered a security now I did mention before that the argument could be made that some of these products are and it really depends on a case-by-case basis and what these products look like and uh what kind of mechanisms they use under the hood because there are some products that are just hey you know we'll take in your assets we'll stake them on your behalf and then we'll pay out the rewards and take our own fee um but then there are other schemes where different things can go on like the assets get mistake and then the lsds get kind of like lent out here or there's something else that gets done

here and then the yield that he's promised is more because of that and then that starts looking you know more like a security than than um than just kind of vanilla staking here so it's definitely on a case-by-case basis but I do agree with Paul here that just vanilla staking products that these exchanges offer definitely don't look like Securities at least uh in the Howie test terminology there all right Peter from the guest team he has announced today that they've merged into guests Master Branch a new database backend which is called Pebble uh from cockroach database so uh while Peter Peter says here whilst we don't expect improvements improvements it's an active project versus go level DB which became problematic from a maintenance perspective you can try it yourself if you're running Geth with uh this com um

this kind of flag here dash dash a DB dot engine equals Pebble but it will require a fresh data directory otherwise if a level DV database exists it revert to using that take it for a spin and tell us if you see any errors just a a pretty big update there uh two guests today but as Peter says they don't expect any performance improvements right now but this is the database uh architecture that they definitely want to move towards going forward for a gif all right just wanted to give a shout out uh to a call that's happening between each Staker and eigen and the eigenlayer team uh on February 9th at 10 45 a.m CST which is 4 45 p.m UTC eigenlayer as superfuse says here eigenlayer is a really interesting

concept that he's excited to learn more about you can watch the call live on the YouTube live stream on the e-staker YouTube channel which of course I'll link in the YouTube description below for you to set a reminder the reason I bring this up and the reason I give a shout out here is because a lot of you are still asking about eigenlayer a lot of you are still asking about um you know how how you'll be able to be part of the eigenlayer network how it works uh you know what what's the potential risks with it all that's those sorts of questions well hopefully they'll be answered as part of this call which you can go check out as I said it'll be linked in the YouTube description below all right so uh a bit of a discussion around ultrasound money again today so I

put a tweet out uh earlier today or yesterday where I said the ethereum network has been above the ultrasound barrier for almost every hour of the last seven days this means that eth has been net deflationary for that entire time and it's still a bear Market this is ultrasound money now you can see the screenshot I've taken here off the ultrasound money website that basically shows the ultrasound barrier at 16.7 gray and all the orange above the line is basically when more eth is being burned than he's being issued and the little bits of blue that you can see is when more it is being issued than is being burned so I've talked about this a lot recently and how we've basically been above the ultrasound barrier with sustainable demand well it seems that we're like I'm so so far above the ultrasound barrier now that we haven't

actually gone into uh in inflationary territory very much over the last seven days at least and if we kind of look at look at that on the ultrasound money website and look at the last uh seven days again you can see that uh as the new days come in the older days getting pushed out and this blue is basically getting pushed out as well so if the current Trend continues with gas prices in the next few days time but we'll have a full week of net deflationary eath which is just insane right and what's really cool about this is you can actually see that it comes in waves you can actually see that obviously people you know sleep and I think uh the ethereum gas market is definitely dominated very heavily by the US time zone and and the time zone here is done in UTC time so you can see that there

are Peaks during the day and then if we look at the timing here you can see that the quiet period starts at around what 11 A.M UTC time and then continues to around I guess like midnight to midnight or 1am so quite a I guess like a longer period of a quiet time it depends where you take it from right I mean if you take it from from here it's about 1pm UTC until uh what 1am so about you know not even about 12 hours of quiet time here and then it spikes back up so there are quiet periods there are Spike eating Spike periods So that obviously um definitely coincides with waking hours for most of the world here which is a positive development I think it means that this activity is actually real it's not just driven by Bots because obviously Bots don't need to sleep there

is a lot of activity driven by Bots but uh you know if there is these kind of Trends here on on when people are actually awake it shows that the activity is more than just Bots activity is actually people interacting with the chain and uh doing many different things on the Chain which is obviously very very cool to see here now if we go and sort by the last 30 days we can see that it's the same kind of pattern here of of these Peaks and and troes I mean it it's basically been the same pattern for a little while hasn't always been like this by the way um but it's kind of hard to see on the longer time frames but definitely um you can see over the last seven days that very clearly and over the last 30 days as well here but uh yeah I just

wanted to mention that because I've seen a lot of people talking about this lately and it's definitely something to keep an eye on the cool thing is that we are you know we have been in that deflationary territory for I guess what since Jan 16th which which is I guess over three weeks now we've been in net deflationary territory and we have uh negative 14 000 each now the really cool thing uh since the merge I should say now the really cool thing here is that if you go and take the simulate proof of work uh toggle here we would have issued a net 1.7 a million eighth so this is including the burn since the merch we would have issued 1.7 million each since the merge if we hadn't merged whereas now we are basically a more than 100 reduction here because we have uh only

we have not issued any we've actually burned more about 14 000 more Ethan than has been issued since the merge which is obviously a very very exciting now we'll just continue into the future I don't know I mean I suspect it will considering as I said it is currently a bear market so what happens when demand really starts coming back in and a bull market starts start starts happening or something like that right and as I've said before this is actually a sustainable demand now this isn't just ponzis anymore like you go the last seven days and look at the burn leaderboard all of these things uh sustainable it's uni swap it's open says eth transfers it's stable coins it's metamasks swap um it's uh it's nft marketplaces right it's it's layer twos so people can't just say oh well this is just a flash in

the pan thing it's just a Ponzi or it's just an nft mint that was true in the past for a lot of different days but over the last seven days over the last 30 days it's been a very sustainable demand um in you know in uh on on the ethereum network yeah and in USD you can see how much we're burning I mean it's kind of crazy when you look at the last 30 days openc alone has burned nine million dollars worth of eth which translates to uh 5700 Ethan they're the number one gas guzzler uh and then they're I think they're yeah they're on the second behind each transfers for all time each burned as well which is which is pretty crazy but essentially you can see that the leaderboard is a looking very sustainable right now so really really great to see this I think it fits in

with a lot of the thesis that or thesis is that people had when it came to post merge burning and it comes to kind of gauging the demand here versus the price of eth and obviously it hasn't been reflected in the price just yet I think that it's kind of hard to say when or when it's not reflected in the price because some people will say well until ethi's back at all-time high then it doesn't really matter or you know it hasn't actually been um you know doing much lately it's only up what 2x from its bottom there but it's still below 2K and all that you know people just come up with random numbers but as I've said for a little while as I've maintained for a little while I think the biggest story of eats performance is not against USD it's again in this bear Market it's

not against USD it's against other assets especially BTC go look at the eve BTC chart it is pretty much flat on on you know for this whole bear Market still and and and when we're when demand really comes back I expect the BTC ratio to Rock It Up I really really do I I think that for a number of different reasons but I'm not going to detail them now because I have detailed them in the past and if I don't continue on from here I'm going to run out of time for today's episode so moving on from that uh on to the next update which comes out of flux Finance so this uh was basically them announcing that they are now live so what flux is doing is that they're bringing U.S treasury yields on chain to permissionless lenders everywhere creating the substrate upon which a new

on-chain economy can form so essentially what they're doing is bringing more of these kind of real world assets uh like products in to the ethereum ecosystem here which I've talked about before and obviously reward assets are just becoming bigger and bigger as time goes on uh and I've discussed all the reasons before about why I think that's happening but basically what flux allows you to do is essentially leveling the playing field here for investors so any investor with any check size anywhere in the world can now access yield from U.S treasuries this yield comes in the form of a stablecoin loan against ousg a form of tokenized U.S treasuries from ondo Finance so as I said Real World assets coming on chain here lenders can earn interest on their stable coins by supplying them to flux

those stable coins can only be Borrowed by users who post ousg as collateral to flux Supply borrow rights are algorithmically determined based on supply and demand similar to compound so you know this obviously answers where the yield comes from here for you guys it's coming from the official US Treasury um uh bond yield here because I know everyone's going to ask that you know where's the yield coming from that seems to be everyone's favorite question whenever uh the the word yield is uttered these days but it's pretty transparent about where this is coming from now what are the risks well of course there are custody risks here of course there are risks uh with something happening with the um the treasuries that ondo Finance has tokenized because it is just an IOU it's definitely not a digitally native thing but still I mean generally if you're going to get access

to U.S treasuries anyway you'd be going through a custodial service so the risk is basically the same the benefits are vast yeah it means that you can basically do this on chain without having to go through the traditional system which as you guys know is very inefficient and very slow compared to crypto so I think this is a great little thing that flux Finance has been able to bring on chain here in partnership with ondo but if you want to learn more about that I'll link it in the YouTube description below for you to check out all right a big announcement out of the maker ecosystem today so Sam McPherson from the protocol engineering team at maker announced the launch of something called a spark protocol today which is a growth focused arm of maker so the first product is as part of spark protocol is

spark lend which builds upon are there V3 to bring the best lending Market features to a maker so a spark lens advantage over Aver is a credit line from maker called a die direct deposit module or d3m which I've spoken about on the refill before Mecca does not need to pay liquidity providers so users will be able to borrow any amount of dye at the die savings rate which is currently one percent and this is by far the best rate in D5 that is actually a crazy weight rate to be borrowing die at I mean one percent when uh rates are generally quite High um and uh and this is the borrow state but you know borrow a stable coin against that's that's a really good rate there and then Sam goes on to say pending approval from maker governance sparklend will launch in April with an

initial debt ceiling of 200 million die and then he goes on to say missing piece of Defy is fixed rates that work in a capital efficient way so Spike protocol is actually going to achieve this by partnering with fixed fixed rate protocols such as element finance and sense protocol to offer market-driven fixed borrow rates at scale so this is really cool I talked about how element Finance launched their hyperdrive thing yesterday well essentially uh Sam is hoping that an integration with the hyperdrive architecture the element Finance built for sparkland uh will allow borrowers to take a three to six to 12 month term without needing to attach a sorry to attach an arbitrary maturity date to it so basically getting a fixed rate potentially a fixed one

percent rate uh there on their diet borrower and there's a little graphic here explaining how this could potentially happen as well and I mean a bunch of different Graphics explaining how this can happen and a detailed Twitter thread from Sam McPherson here so you can go um check this out for yourself I'll link it in the YouTube description below but great to see make them making some uh Innovative moves here they definitely are the slower moving D5 protocol but but they're still kicking they're still out there they're still growing and they're still doing a lot of interesting things all right so I should have talked about this at the start of the refuel actually I should have talked about this yesterday but uh Tim baiko published a blog post about the interoperability uh I I guess uh event that happened with all the core developers on top of a

mountain in Austria so this is a week-long event with court developers from all over the world coming together and all the different teams coming together to discuss all the things all things protocol development basically so obviously the major things they discussed were uh the chappella upgrade or the Shanghai Cabela upgrade for withdrawals uh Proto dank sharding uh the eof update and everything else from vertical trees to SS SSD encoding um and and more so if you want a quick recap of exactly what was discussed and a bit more details about that you can check out the blog post that's Tim put together here but you know generally this is just really great to see that the teams and all the individuals were able to get together here to talk about the next big part of ethereum's future obviously with the merge behind them uh

there is now a focus on all these other things on the ethereum roadmap and there is a there is a strong focus on getting these things done much faster than we've done things in the ethereum ecosystem in the past because obviously as you guys know a lot of things in the ethereum ecosystem have taken a long time to get to mainnet especially proof of stake and I think that all the court developers want to avoid uh making you know avoid having things take that long to get to mainnet again so kudos to them for doing this uh and I'm hoped they had time in Austria here all right so a new seismo East badge is now available for ZK developers and contributors you can showcase your contribution to the bright future of zero knowledge by claiming your badge here uh and this thread from 2140

explains exactly what this is I just wanted to shout this out here that you can that you can essentially um claim this badge I'm not sure what the exact requirements are but I think that uh oh yeah here's the requirement so basically contributors to ZK development on GitHub are maintainers of ZK information portals and dedicated users of ZK products eligible to claim this badge the badge supports GitHub Twitter and wallet-based eligibility criteria so yeah if you think that you're eligible for that you can definitely go check this out for yourself I'll link it in the YouTube description below for you to do so all right Brendan from the polygon uh well one of the polygon um ZK team teams here put out a tweet thread where he said a year ago polygon was seen as a stop gap an evm side chain that served

an immediate need before we all transitioned to L2 and I've talked about this a bunch on the retail before I mean I've talked about this for for a very long time about how the polygon POS chain definitely is a stop Gap solution until these kvms come online uh and then Brendan continues by saying today polygon has the fastest ZK Tech and the first production ready ZK evm uh hell and then he says with a thread on feedback loops and specialization so it's a short thread here explaining how this has come to be so I definitely recommend checking it out and giving it a read but it has definitely impressed me the pace at which polygon has achieved this now you guys know I'm an advisor to polygon have been for quite a while so just wanted to disclose that there but the pace at which these ZK VMS

not just from polygon obviously but from the other teams as well have Has Come Together uh has been staggering I mean as has has been said plenty of times before many people thought in 20 2021 the DK VMS were at least at least three years away well I mean they're not within a couple of years we've gotten to the point where they're basically going to be production ready live on mainnet you know this year um whereas before it was thought that at least it would take three years with uh more realistic Target of five years so 2026-ish which is definitely not the case here I think this definitely speaks to the Builder culture and The Innovation culture within all of these layer two teams obviously the ZK team specifically but the other layer two teams that don't do Z don't specifically focus on ZK VMS such as arbitrine

optimism have also been working on this front and doing a lot of improvements to their core architecture to support this stuff as well and obviously things are happening at layer one to support this too but yeah I mean this is the fruits of all that money that polygon invested in ZK Tech really I mean and it's not just polygon that's going to benefit from this it's all of the community that's going to better from this it's all the ZK ecosystem that's going to benefit from all that money that's been spent hundreds of millions of dollars I mean over 500 million dollars I believe up to a billion dollars probably at this point of money that was spent acquiring and funding the CK research uh which is going to pay dividends for decades to come I believe yeah so anyway you can go give Brendan Street thread a read if you

like I'll link it in the YouTube description below all right so a bit of I don't know if I'd call it drama but a bit of a Talk of the Town of the last day was that ETA scan changed their user interface and I said yeah you know I like the new interface but and the only reason you don't like it is because it's different don't at me I think generally with interfaces that you're used to when it changes even slightly it can throw you off right and because you're so used to uh you know the previous interface you can you can just automatically think that the new one is bad but I don't think it is I think the new one's actually really cool and I've got it up here if you haven't been on etherscan website since the update was made you can go check it out for yourself but

I've got it up here so basically I mean you can see it better in light mode so if I switched to light mode here you can see that it's become a lot more I guess bubbly of an interface right it's become a lot more modernized than it has been in the past and there are a few different things depending on which section you go to here but there's not actually that much of a difference and that's why I said that people seem to really only dislike it because it's it's a change right it's something that's changed on them and they didn't expect the change to come now if you click into you usual things you'll click into like blocks and transaction IDs and things like that it all looks very similar right like latest transactions you can see here all experience very similar it's just a lot more bubbly a lot more

modernized and then if you go to a specific address for example there there is a bit of white space that's wasted up here where you can see that um you know the additional info is wasted unless you've actually added a private name tag and other info as well I think that's a valid criticism of it but generally I thought it was a really great update I just wanted to highlight that and explain some rationale there I actually use either scan in light mode most of the time that may seem crazy to people uh because I think the dark mode is actually a bit too dark and I can't really get used to it so but they have both options anyway light or dark whatever your preference is and obviously um you can change between different uh test Nets as well on on etherscan 2 as

you normally could with the top right uh option here but anyway I'm going to leave it at that for today so thank everyone for listening and watching be sure to subscribe to the channel if you haven't yet give it a thumbs up subscribe to newsletter join the Discord Channel and I'll catch you all tomorrow thanks everyone