Staking equilibrium, Ethereum alignment and more - The Daily Gwei Refuel #672 - Ethereum Updates

Transcript

hello everyone welcome to another episode of delway refu whereing C the latest news in the ethereum E system I'm your host anthy s the 16th of October 2023 all right everyone let's get into it so kicking off today is an announcement that came out uh Friday and I talked about this announcement last week actually and this was around the SEC appealing or not appealing their grayscale ruling now just for some uh refresher here the SEC lost in court over this ruling a few weeks ago I think it was or maybe a little while ago now uh where essentially the judge was like why did you deny grayscale's petition to convert their trust or their existing trust gbtc product into a proper spot ETF um and yeah the judge was just like it doesn't make any sense for that uh

and the SEC had the chance to appeal that ruling and they ended up not appealing it on on Friday there so yeah you can see here that James saart one of the um ETF analysts that I talk about on the refill quite regularly is quote tweeting the news here saying that uh he doesn't think they're going to appeal appeal to the Supreme Court either and dialogue between grayscale and the SEC should begin this week uh and hoping for more info on next steps sometimes uh sometime this week or the week after so yeah very positive news uh I think not not unexpected I think very much expected news here as I've been saying for I guess a couple of months now in particular the SEC seems to have softened its stance on crypto especially when it comes to the ETF stuff obviously

they they recently approved the eth Futures ETFs which was not necessarily a surprise but definitely a positive development even though the products themselves are kind of like not great it's more of a positive positive development for eite and how the views e and of course we also have the spot BTC ETS that I've discussed to death at this point that we can expect uh any time really between now and I guess Jan 10th which is that that final deadline for Ark the ark spot Bitcoin ETF because I really don't think they're going to deny arcs and then Force Arc to refile and then wait till mid-march for the rest of them to hit their deadline in order to approve it I really do think that we could get an approval anytime between now and Jane 10th like that's the window right now and you know it's like a 3mon

window or something like that right 3 four month window um and within that window that the SEC can appeal can can approve or deny I guess but can approve or deny the ETF at any time the odds of them approving it to me are pretty much like 100% like I'm not exactly 100% but pretty much 100% at this point I just don't see why they would deny it after doing all of this you know they didn't appeal this case they've been they had an open dialogue with all the issuers for for for I guess a couple months now obviously black rock is one of the the big Heavy Hitters in the entire kind of tra traditional Financial system so we all know what uh you know them submitting an application for a spot Bitcoin ETF basically dramatically increased the chances back from a few months ago so yeah as I said anytime

between now and Jan 10th which is the final deadline for the arc spot ETF uh decision there we can expect an approval or a denial and as I said I expect them all to be approved at the same time and it's going to be interesting to see what happens after that right you guys know my kind of my play on this I would much rather them them approve it in the new year right in in in January and then that would give us like the narrative fuel to begin the new year really really well and obviously I would expect positive price action to follow that and then we have the Bitcoin harving in April and it all just comes together as like a narrative soup so to speak where essentially it kickstarts the next bull market that's that's kind of my thesis you know fouryear cycle and stuff

playing into as well and obviously things like the the WID macro stuff you can make an argument for too but I'm not going to go on about them all again you guys know my thesis at this point and really the the bulk of the thesis is going to be defined in the next 6 to n months I think if if if we're not out of the crab range in like 9 months which I I think we will be but if we're not out of the crab range in like N9 months uh I would start to begin to doubt my thesis or at least that get I get a little bit worried I'd be like oh okay well maybe I'm completely wrong on these things but as it currently stands as I've explained plenty of times on the reef you'll be before nothing has changed my thesis yet

it seems to be playing out the exact same way still and I really do think that we're in for a really positive year next year but anyway we'll keep you guys updated on the ETF news as things progress all right so it finally happened the entry and exit Q for staking on ethereum is now zero so obviously the exit Q has been zero for quite a while but that's not news there but the enq being zero is news because it hasn't been zero for quite a long time now at least since uh obvious withdrawals were enabled back in April but even before then I'm I don't think it was was Zero I think it was always that um you know there was always a Quee there so yeah it is zero now and you know what this is the way ethereum staking is supposed to work it's

supposed to find an equilibrium point where it doesn't actually make sense for more people to stake their eth because the yields don't make enough sense for them and if we look at the yields from the last I guess seven days we can actually see this play out um exactly so if we go here and I'll just bring that up on my screen there from rider. Network we can look the last 7 Days the yield is if it wants to load if I clicked it yeah so the yield is under 4% right it's 3.7% is across all of the different kind of staking providers here so that seems to be the equilibrium between 3 and 4% now as you guys know the rewards are defined by consensus layer rewards and the execution layer rewards and the execution layer rewards have been quite small for a while now

because gas fees are low network activity overall is low because the market is very quiet right so it remains to be seen what happens obviously a bull market we expect the the um uh the network to get used heavily again and for gas fees to spike and all that stuff there but generally if you just look at the Yi over the last 7 days is 3.7% the last 30 days I think it's a bit higher at about 4% but yeah that I mean it makes sense because the consensus layer rewards for everyone have gone down as well because of the fact that uh more stake has come online and the execution layer rewards are down a lot because of the fact that the gas fees are lower and there's less M payments because the M opportunities are lower thanks to the market being quiet quiet right right so

that really is I guess the way ethereum staking is designed to find that equilibrium there and this is why I pushed back on a lot of people who who have said that they figured the amount of eth staked would get to like 70 or 80% of all eth which is similar to what other networks have staked and I've pushed back on this a lot of times in the past actually and for a very long time because I don't think people still understand that ether as an asset is not just a dumb staking token right there are so many more uses for eth as an asset and on top of that eth's monetary policy basically makes it um uneconomical or essentially makes it not make much sense in order for for 70 or 80% of e to be staked and on top of that as well 70 or 80% of e staked would lead

to a huge number of validators which would probably make the network unstable to begin with but we haven't done anything to prevent that you know that EIP 7514 churn limit EIP hasn't gone live yet that's going live in Denon I mean you guys know my argument about that we don't we don't even need it and I think the fact that the queue is zero is proof that we don't need it but regardless of my opinions on it that's not live yet so we haven't actually changed anything all that's happened is that the network has reached that equilibrium where essentially it is not worth it for a lot of people to stake right now because they think to themselves well you know if I get between 3 and 4% yield on my eth eh whatever maybe I can go get more elsewhere maybe they want to put their

eth into something else I mean obviously you can get an LST and use that with in defy and stuff like that or maybe we've basically tapped out all the people who are holding eth and want to stake it at this point because I think a lot of people are still holding eth as obviously a store of value and maybe they just don't want to stake it um they don't want to risk staking it maybe they don't uh want to solo stake but they also don't want to risk staking it with a centralized exchange or with one of these LST providers which is definitely a portion of the market as well but generally if you look at the amount of percentage of eth Stak it's only like 23% so you can look at where all the other eth is you can do some onchan analysis stuff like that a lot of it

just sits with people who are who are basically using it as a store of value you know there is 7 77% of e that is not staked right now so I I kind of like implore people to go look at and and and see where that eth actually is and there's a bunch of different tools you can use I've showed them before as glass node dun analytics um a few others out there ether scan has some some things there you can actually see you know people either trading it holding it as a story of value or it's in uh defi as well obviously a lot of eth locked up there it's on l2s and as I as I said just before eth is not just a dumb staking token that's why you're not going to see a huge amount of eth steak Le that's one of the reasons why second

reason is that eth is not a dumb delegated proof of stake Network where essentially in my mind delegated proof of stake is fake staking because you're not actually putting any Capital At Risk right there's no slashing risk or anything like that um for most of the dpos networks uh there's basically okay well there's a validator someone's running this validator and then you can delegate your tokens to them but your tokens are never actually at risk so to me it doesn't really do anything it's it's kind of like an excuse to to for people to just kind of hold and stake the token in order to get a reward and that reward is coming from fresh issuance which means that you're getting diluted if you're not U taking advantage of that and usually these rewards are quite high as well like up 5 plus percent and this

is 5 plus perc token inflation rate this is not 5 plus per yield this is actual token inflation rate so if you're not if you're not uh staking your tokens then you're being inflated away uh by that by that um inflation rate and on top of that a lot of these l1s have other tokens that are unlocking as as well right such as investor tokens and team tokens so when you look at it like that like I I just cannot consider delegated proof of stake to be a real proof of stake system maybe some sort of hybrid where there's still Capital At Risk like the two- tiered staking stuff that I've spoken about a lot on the ref field before maybe that could could could be better uh remains to be seen of course but I've I've just always been bearish on those models because if there's no

Capital at stake if there's no risk for the Staker so to speak then what's the point because you're not giving any Economic Security to the network it's not actually counting for anything um and really a lot of the times it centralizes it too into a handful of um of different validator entities which more often than not know each other can collude with each other can can turn into a cartel it's just a bunch of really bad incentives there but anyway enough of my rants about dpos I just wanted to highlight that the entry and execute are both at zero and we've reached an equilibrium for now which could change very quickly mind you I mean if we do get that bull market in or I guess like the beginnings of a bull market in q1 next year and the mark the market really heats up again and all the

onchain gets going again we could see gas easily Spike to 30 40 50 gay which will lead to a lot of new me Revenue which will definitely lead to a spike in people staking eth again because the yields will will Spike up probably to 5 plus perent but again it finds an equilibrium and I'm just very curious to see what it actually looks like in the bull market how much stake is actually going to be exiting and will we end the bull market and the next bare Market let's just say let's let's look out two years plus time right two three years plus time what's the kind of um amount of e Stak going to look like is it going to still be 23% is it going to be less is it going to be more it's going to be very curious I'm be very curious to see

how that all plays out there but anyway we're going to have to wait a while for that uh maybe refuel number 2,000 or something in in 3 years time right uh but I'll be here you guys know I will but anyway moving on uh so ginda here put out an interesting little tweet uh on some analysis on Denon so this is analysis based on dev net 9 this is not based on Main net of course or any of the test Nets because are not on denin right now but this is essentially looking at how blobs will affect your block import latency as a validator here so this is actually one of the things that has been tested a lot and this is one of the reasons why the blobs have been uh reduced in size is because when you think about uh uh kind of

propagating these blobs around the network and and and proposing blocks in time you basically only have a short window to do it because there is kind of like what's called a slot on ethereum under Pro of AK and that's 12 seconds you know some sometimes people refer to it as well a lot of times people refer to it as a block but the block portion of it I believe is only 2 seconds whereas a slot is 12 seconds so if you look at the the chart here I've got in front of me all of the blobs come in you know before 2 seconds but the thing is is depending on what kind of Hardware you're running it may take you longer to get that block and it may take you longer to propagate the block or propose the block and you may end up missing a

block proposal if you take too long to do that based on hardware and of course Network latency as well here now of course there are things in the works to address overall Network latency and network bandwidth such as the raising the max effective balance to reduce the number of validators on the network and stuff like that uh but there just a nice little analysis from ginda here that you can check out I'll link it in the YouTube description below but as as I said this is on devet 9 this is not on Main net this is not on any test Nets yet so these numbers uh will probably change from here but you can see that most of the blobs basically get I get kind of processed within what is it I guess like 0.5 seconds so yeah definitely within the healthy range there but if they were bigger it might

it will probably take longer because as I said they have been reduced in size from the original spec but the thing about blobs is that we can just increase them again when we feel uh that you know that there is time to do that again or it is time to do that again which I expect to to happen as things progress there but anyway I'll link this uh tweet in the YouTube description below you can go check it out for yourself all right Tony has a new e research post today this time all about me burn so he titled this with in a post me burn World some simulations and stats so if you're interested into What in in uh what me burn would look like if implemented on the network based on historical data this post is for you because Tony breaks it down I'll link

the post in the YouTube description below for you to check out of course but there's a bunch of nice little charts here and he did summarize it in his um in his kind of at the top here in a tldr where he said and burn has great potential in lowering the impact of me on the consensus layer incentives but on the downside it might not be capable of getting rid of meev lotteries or disincentivizing denial denial of surface service attacks uh tired of reading the charts are self-explanatory if you got the context so this is another thing I guess in regards to uh the incentives that I was talking about earlier with that equilibrium like if we do me burn then we could so so the point of me burn I think is twofold from my understanding it's to smooth out me

um and and also to basically give the me back to um everyone instead of just two validators right to all eth holders like we did with e559 but the big Advantage is smoothing out me which leads to less kind of like of these spikes that we see and making sure that we can reach an equilibrium still with the amount of rewards that are being paid out uh out to validators of course because if we're burning it then if we're burning most of it then really uh the validated rewards aren't extremely volatile like they are today where as I mentioned before if the market hits up again then straight away M Rewards go up or gas fees go up and it it becomes uh a more of a volatile game where essentially people stake but then if it goes down again the equilibrium kind of finds it finds it hard to to

reach sort of thing finds it hard to reach that equilibrium there so that's another thing that's being worked on here but as I said before M burn is not something that's being considered for any upgrade just yet I don't even believe there's an EIP for this yet and if it was to be implemented it probably wouldn't be till 2025 at the very earliest but yeah it's still an open research thing and it's great to see more research coming out about this you can go check out this post from Tony I'll link it in the YouTube description below for you to do so all right the Talk of the Town over the last couple weeks has been the vampire attacks or various vampire attacks on Lio so of course I've talked about Diva before and how they have a vampire attack on Lido right now well

swell has launched their own so if you want to switch out of St e into swell eth or SW eth you can do so and earn 40 pearls here now for those of you who don't know what pearls are they're basically the point system that swell is using to incentivize people to stake with them and there will be some conversion to their token once they do release their token I'm not sure what the token conversion rate is from pearls but if you zap into umwe using St you get 40 pearls here so 40 pearls are awarded per each uhwe Zapped so yeah if you are thinking about uh changing from St e to to SW e here you were maybe thinking about going with Diva or or something else you can you can choose

here you can either go with Diva or swell it depends as I said like you're getting a certain reward with Diva for doing it you're getting a certain reward with swell for doing it there's no telling what the monetary value is going to be as well because you have to do assumptions based on what the token's going to be worth but still at this point in time honestly if I had St I'd be doing either of these things I wouldn't be doing it with everything because they they're still riskier they're still newer protocols especially Diva that's not even live yet right it's still very very risky but if I had any St I would definitely do this but you guys know I don't hold any St I mean I don't hold any LST I solo stake everything and I um I solo stake most of

my eth and then the remainder of it I've put into rocket pool mini pools where I don't have our eth because I I run the mini pools right R I'm a note operator there but if I did have st8 I would definitely be going for this um because of the fact that one it would be it would it would nicely kind of like a be a nice vampire attack against Lio to to reduce their market share and on top of that get me some reward for doing that as well so you can go check this out I'll link it in the YouTube description below uh and speaking of Li dominance I don't know if you guys have paid attention to it recently but it's actually been going down quite steadily it's not down that much and it's not really maybe worth paying attention to just yet but something that I've

definitely been watching but I think that there is this kind of Zone that Lio has hung around for 18 months now between 28% and 32% they've kind of hung around there now until they're below 28% and we kind of break that that zone that they've hung around in I'm not going to get too excited but anything that gets L's dominance down uh is good in my books and and as I've said before it's not going to be Pro uh people staking with uh the decentralized protocols it's going to be people staking with anything because anything that doesn't go to Lio is going to reduce lto market dominance obviously and there have been certain entities lately that have been getting a lot of inflows uh one of them is called figment they've been getting a ton of inflows you know I think more than Lio which is pretty which is pretty crazy

cuz Lio still gets a lot of inflows it's just overall they market share is going down here but what I why I think it's important to continuing to see the market share go down is because one it shows that the social layer stuff is working to um basically encourage people to stake with other providers but then the other providers are actually doing things and and putting into to motion things to attract people such as the vampire attack such as the um the token incentives such as potentially proactively reaching out to large staking uh or large large eth holders and saying hey don't Stak with Lio stti with us sort of thing right so so that to me is extremely positive so I'm I'm loving seeing that and I'm loving seeing L's dominance uh continue to come down because as I've said before we seem to

have stopped lios dominance from growing since withdrawals basically and now the fact that we're reversing it is an extremely positive sign in my eyes uh but yeah if you want to get in involved in the vampire attack if you do hold St you can swap it to SW for 40 pearls and you know the thing is is that even if you don't have St what you can do is you can go and mint or buy St and then you can swap it into into SW eth and get these pearls so if you do have eth or maybe you have some dollars that you want to convert to eth you're probably better off buying St or minting it and then swapping it forwe e um with pearl or putting it into diva and then having it automatically swapped to D.A eth once they go live uh there because um if

you're holding St you're still earning the yield there so something to think about if you are interested and and you are planning on staking more eth you can do this with any amount of eth I think um which so that that's a benefit as well there's no need to get like any kind of minimum like 32th or anything like that and it's very simple to do I should disclose that I'm an investor in swell I think you guys know that already but I just want to disclose that there but uh you know you know I guys know I'm highlighting this because I really want lios dominance to come down and I really want to support the teams putting the words into action so definitely go check this out I'll link it in the YouTube description below for you to do so all right so uh Devcon is coming

Devcon Dev connect is coming next month Devcon in Southeast Asia is coming next year don't know when yet don't know where yet but uh the the uh Devcon Twitter account has put out a blog post today saying that they've teamed up with the ethereum foundation ecosystem support program to provide small sponsorships of up to $1,000 to support community events meetups and educational initiatives in Southeast Asia so if you do live in Southeast Asia or want to organize something there and you are short on funds to do that you can uh you you can propose something to uh the ethereum foundation here uh in order to get some funds in order to run one of these things so I'll link this blog post in the YouTube description below for you to check out but the application deadline is the 31st of October so you

have 2 weeks from now basically to get your proposals in but I love these things because really at the end of the day there are plenty of people who want to run things but but running things cost money and a lot you know it's it's kind of like an outlay for you're not you're not making any money on it right like you could you could potentially sell tickets but then you're being maybe exclusionary so and and also like not many people want to pay for tickets to maybe smaller kind of meetups and things like that so being able to run them uh for basically free because you're getting a grant from the ethereum foundation here is something that uh that that I think is very positive so yeah you can go check this out we'll link it in the YouTube description below for you to do

so all right so we speak a lot about alignment in the ethereum ecosystem um and I think you know it gets made fun of a lot and it's not really well defined by a lot of people I think I've defined it a bunch on the refi before and you you guys probably know what it means to be ethereum aligned at this point but um this blog post from abdal here which you can go give a read is probably the best thing that I have ever read on ethereum alignment because it's inherently hard to Define what ethereum alignment is it lends itself to being made fun of because people just don't understand how how powerful the social layer actually is and how much it actually defines and also if you say that you're ethereum aligned you're made fun of because of

these other l1s who were like uh ethereum alignment means nothing it's just a way for E Maxes to pump their bags or something like that when that is not the case at all so if you do want to know what it means and get an overall definition um very very in-depth definition mind you uh I definitely recommend reading this blog post I'll link it in the YouTube description below for you to do so but what I do want to point out here as well is something that that happened so I I reviewed this blog post before abdell put this out um and I gave him some feedback on it but what I found amazing was that we both came up with the same framework independent of each other so I I read through the post and then I was and and then at the top I

saw that he'd come up with the set framework now you guys know the set framework that I've come up with for blockchains where I basically said that there's three main categories of of a of a blockchain network or of a crypto Network there's the social category the economic category and the technical category and you want to being kind of like the middle of all three to create the best kind of and most vibrant ecosystem now Abdul himself in this blog post at the very top put puts this set framework right there he says that the three types of alignment are cultural alignment technical alignment and economic alignment cultural alignment obviously being the social layer technical being the technical layer and economic being the economic layer so what's funny to me is that he I I I messaged him about this I'm like did you see my thread see threads about this or

did you watch my video on this when when I did the podcast with David on bankless he's like no I didn't actually uh I came up with this on on my own I'm like wow that's actually really really cool because if both of us who we don't actually talk very often I mean we talk from time to time but it's not like I'm talking to them all the time and and we're we're kind of like in sync brain wave wise but the fact that both of us have independently come up with the same framework it's not even a similar thing it's exactly the same thing right besides the word cultural here instead of social alignment it's it it basically means the same thing we came up with the same thing so that to me is incredibly powerful because it means that two people who for those of you who don't

know abdell Works within the Stark net ecosystem um and obviously I'm more of a generalist within ethereum but for two people who work in different corners of the ethereum ecosystem to come up with the same framework means that that is kind of the shelling point for what alignment is alignment is making sure that you align yourself with these three uh specific categories being cultural social Technical and economic and then those uh alignment kind of uh uh I guess uh what's the word I'm looking for here alment spokes you should say uh kind of Branch off into their own Spokes and are defined by everything that connects into them and that's exactly what abdell has has um walk through in his blog post here so as I said just highly recommend

reading this this is probably the best content I've ever read on on ethereum alignment generally because it one it's not talked about that much and two It just fits into everything that I would write to be honest I read through it I'm like holy like this is everything I would have written if I was to write this blog post we are so aligned on this pun intended right we are so aligned on the alignment which is which is quite funny and he also has this really nice diagram that summarizes this as well again using the you know a slightly mod modified version of the set framework and about how everything just kind of branches off of it as I was just talking about before those spokes you have the cultural Technical and economic and then you have everything branching off of that that defines these things you know

in the technical category you have things like research protocol development testing in cultural you have education empowering individuals at and economic you have obviously things like monetary policy fees paid in eth all that sorts of stuff there but yeah I mean I'm not going to spoil this blog post for you because I really do recommend giving it a read and I'll link it in the YouTube description below uh for you to do so here because as I said it is an amazing blog post it does the best job out of any blog post that I've seen uh at defining ethereum alignment so yeah go check this one out all right speaking of blog post Merlo who is a an accountant uh and does a lot of tax related stuff in Australia and he's also a daily gay Discord

channel uh um uh frequent uh kind of contributor in the daily gay Discord Channel I should say has put out a blog post titled who should hold crypto in a self-managed super fund so for those of you who don't know a self-managed super fund is basically um I mean the the the we in Australia we have things called super funds and a self-managed super fund is one you manage yourself the equivalent would be like a 401k in the US um so if you do live in Australia and you have been wondering about getting a self-managed superf fund in order to uh manage your crypto in your superf fund and buy crypto with it and stake eat with it and things like that like I have you guys know that I have my own smsf and it's all in eth and I'm just staking that eth and this is the blog post for

you I'll link it in the YouTube description for you to check out I think it really only applies to Australian so obviously not relevant to anyone else that's not Australian I think most of you aren't Australian that that listen to the refuel but regardless of that you should you can go check this out if you are it's got a lot of great information here and as I said Mero is very active in the daily grade Discord Channel we have an accounting taxes channel in there so if you want to join the de Discord Channel and go in there and just tag Mero he'll be more than happy to answer uh any questions you have around tax in Australia and even Beyond I mean he's been able to answer questions outside of Australia as well but obviously special specialty is within Australia and I should just give a shout

out to the company he works for tax on chain as well you can go check them out uh for yourself but yeah go go check those out I'll link it in the YouTube description below for you to do so all right 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 newsletter join the Discord Channel and I'll catch you all tomorrow thanks everyone