Censorship chat, Why ETH is valuable and more - The Daily Gwei Refuel #661 - Ethereum Updates

Transcript

hello everyone welcome to another episode of The Daily refuel where he kept the latest news in ethereum ecosystem I'm your host Anthony 26th of September 2023. all right everyone let's get into it so kicking off today's episode we have a new censorship related dashboard here from Tony at censorship dot pix now on this dashboard you can see the censorship on the network broken down by uh different categories here and those categories are censorship at the validator level at the relay level and at the Builder level now I have talked about this before and about how this is basically the life cycle of an ethereum transaction it goes from a builder to a relay to validators now as you can see on my screen here this is the current state of things so in terms of actual validators censoring or being ofak

compliant and that means they're censoring those tornado cash related transactions there's only around 6.15 of validators that are censoring with 93.85 that are not censoring that on the relay side of things it's around 60 non-censoring 40 percent censoring but where it starts to get kind of I guess like really shitty is at the Builder level because the Builder level now has almost 70 censorship and around 30 are non-censoring uh Builders here now the reason for this is is is because a 12 I believe the top five builders on the network recently started censoring and you can actually see the big jump here it was uh 40 censoring 60 non-censoring on August 9th which is

what uh gets like six weeks seven weeks ago now and then it jumped up after that uh the next day to 70 censoring so we had a massive jump of of 30 percent because two of the top 10 top five Builders decided that they wanted uh to censor here now the current state of things is as I said almost 70 censoring with 30 non-censoring now because of that and because uh the builders are I guess like the first thing that's it in line when it comes to the transaction life cycle of an ethereum transaction or ethereum layer one transaction I should say in the me Boost network it pretty much means that 70 percent of all Builders are basically censoring here so it doesn't matter that only 40 of relays

are censoring or like six percent of validators are censoring because it doesn't ever make it past the builders those 70 uh Builders it only makes it past 30 of the time uh it means that the effectively at 70 of all tornado cash um sorry of all Builders are are kind of censoring kind of cash related transactions so your chance of getting a tornado cash related transaction into a block is around 30 percent because of that in there now obviously this is not ideal at all this is a a kind of a crappy development honestly and it's really sad to see that these Builders have decided to do this I have discussed before how about how decentralization of Builders is inevitable right and it has already happened I've showed I've showed

this before but if I bring up the relayscan.io website you can actually see here who those Builders are and you can see the top five Builders account from most of the blocks being built on ethereum almost 100 of the blocks being built on ethereum and I believe that the two that recently started censoring were beaverbuild.org which is number two here and Builder 0x69 which is number five I don't believe Titan Builder um sensors yet but the thing is four of of these four of the top five are censoring so Titan Builder is the only Builder right now that in the top five that is not censoring so if they decided to start censoring then this goes up to almost 100 percent uh now that doesn't mean that it you know your transaction

onto another cash transaction is not going to get into a block but if this goes up to like 95 and there's only five percent non-censoring out of the rest of these uh these Builders here essentially that means that as I said you only have a five percent chance uh per per block of getting alternator cash transaction included at most you'd probably only need to wait a few minutes or something but still uh that's that's not ideal at all that's far from ideal uh and it's pretty much like the worst case scenario so yeah I guess like build first censorship is in a much worse position than I think people thought it was because of the fact that Builders are so centralized and Builders have their own reason for censoring here I actually was uh was discussing this with some people about why they were actually censoring

uh and there's some speculation around that I'm not going to give the reasons here because it's speculation as I said I don't want to I don't want to essentially attribute things to these entities that are that aren't true but yeah I mean at the end of the data doesn't actually matter why they are censoring right the fact that they are censoring is the problem here now Tony in his announcement thread here uh highlighted some of the ways that ethereum is working on essentially making it so that censorship is basically impossible to do at the Builder level here uh one of those things is called inclusion lists which I've covered before on the refuel and there's there's links in the in the Twitter thread here which I'll link in the YouTube description below for you to check out and there's encrypted mempools which is the shutterized beacon chain

which I've also discussed on the refuel but again this is why the censorship related stuff is so difficult because there is that transaction life cycle where at any point in this life cycle um censorship can happen now of course we are trying to address this as well with things like in protocol PBS or epbs where essentially we get rid of things like relays and it just becomes validators and Builders but the problem is is that the relays aren't exactly the issue here anymore it's really the builders themselves so okay how do we prevent Builders from from censoring well we do so with things like inclusion lists uh and encrypted mentals and a few other Solutions out there so that really is the next Frontier here is making sure that Builders have really no incentive

or ability to censor transactions because it just degrades the the network um not just credible neutrality of the network but also just overall I guess kind of uh usability of the network and I've talked about this a lot in the past but it kind of begs the question of this censorship is not scalable because let's like let's kind of think into the future and let's see come some worst case scenarios let's say that of fact decides to sanction some more addresses and contracts on ethereum let's say in the worst case scenario they sanctioned the uni swap smart contracts right do you really think these Builders who extract a lot of their profits by the way from uni swap from decentralized exchanges do you really think they're going to be

censoring those transactions I don't think so because it is definitely not in their best interest to do that and it basically kills their business so these Builders themselves should actually want the solutions that are being proposed to us such as inclusion lists um and encrypted men pools so that they don't have to do this because I believe given the choice these Builders would rather not have any kind of visibility over the the transactions that they're that they're kind of including here and have plausible deniability over it so that they can still extract those profits that they're trying to extract obviously via Mev and things like that while also not running a valve any Regulators here because is at the end of the day like if you're a builder and you have to censor uni swap transactions for

example um you're no longer going to be a profitable Builder and you will literally get pushed out by the builders that are um including unisop transactions because the Searchers aren't going to want to give these Builders uh uh um uh their their kind of like transactions because these Builders aren't accepting it the builders are basically saying well I'm not going to accept anything from related to UNI swap well okay then there goes like most of your Revenue right or there goes a large chunk of your revenue and profitability and you as a builder basically how lose market share because of that so that's just taking it to its end logical conclusion obviously with Toyota cache it's different because tornado cash didn't even before the sanctions didn't really see much traffic um uh uh uh tour into compared to UNI

Swap and also uh as far as I know there wasn't much Mev to be extracted there if any there probably wasn't really any to be extracted there um from interacting with Toyota cache but when it comes to to something like uni swap yeah for sure it's a completely different story so when you take this to its logical conclusion the censorship strategy just doesn't work right from a from a pure profitability perspective uh which is exactly what these Builders are in the game for they're in the game to extract profits via Mev they're not in the game to be um I guess like benevolent uh I kind of Builders here or in the game to do this out of altruism definitely not right and that's the whole point of the Mev game now of course we are working on ways to try to reduce Mev opportunities

on chain as well which should help with this but this is part of the whole kind of I guess like umbrella that I've talked about before with like PBS and inclusion lists and and other such encrypted mentors and other such things around that and that's how we're going to to tackle this issue here but yeah sadly this is the position that we're in today but you know what it's pretty cool that ethereum is actually facing these challenges head on um and is working on a lot of different ways to to work through them because at the end of the day the solutions only really get developed when something breaks right and this is true for everything in the world really like how many how many examples do we have of laws and regulations being Written in Blood for example like someone actually or multiple people have to die before

regulations and laws are created or before things are kind of changed in order to prevent that from happening again even if you can actually see it see it happen even if it is a risk the risk what needs to happen is that the risk needs to be made apparent and you know it needs to be made undeniable it can't just be like a theoretical thing where you bringing it back to the ethereum context dealing we're talking about censorship uh censorship was always intensive resistance was always kind of like this thing where everyone assumed okay I know ethereum is sensitive resistant because there's no evidence of censorship on the network yet but then we've got the ofax sanctions a little over a year ago now and then we started seeing censorship on the network and it became that like this critical issue where everyone's like oh

my God okay this is real we need to actually uh prioritize fixing this year uh which is exactly what people have been trying to do uh for years now and will continue trying to do well into the future but yeah Solutions are being worked on as you guys know uh but this great new dashboard from from Tony showing this uh is is awesome and there's actually a bunch of um useful links as well at the bottom here if you want to check those out but yeah I spent a lot of time on that but I figured it was worth talking about it since it is uh quite important all right so George was announced today that there's a new wrath release so alpha.9 has been released which is finally ready for Cancun here so all erps are implemented and hives tests are mostly passing passing with Next Step

being devnet 9 for red so I did discuss yesterday about uh Den Kuhn and about how we possibly might not be getting it this year and about how some clients are having uh I guess like are behind in being ready for for dencoon and I guess like ref was one of them but really ret's market share is really low right now because it is an alpha in an alpha State no serious kind of like staking provider for example is using ref and if we were to go to clientdiversity.org and actually check out the adoption of ref right now I mean it says 0.0 here but I would say that there's uh you know probably tens of of um of clients uh of reth clients running right now and if I actually go to ethernets.org maybe I'll be able to see uh yeah so there's 35

actually here I'll bring it up on my screen here so ethernodes.org shows that there's 35 ref clients being run right now um and you know that that means that uh obviously it's not a production it's not being used in huge production uh ready environments or anything like that and that's exactly because it is in an alpha State still so you know that's totally fine there but yeah if you are running red or interested in running it it is now finally ready for the Cancun which is the name of the execution layer update um ready for you to go check out there all right so Vance Spencer tweeted out an interesting image here that came from uh Caleb and brown research uh I believe or or a bunch of different sources here actually Caleb and brown research token terminal and Bloomberg and you can see

here that it's titled ethereum surpasses 10 billion dollars of Revenue in seven years and that outpaced top software companies by nearly half of the time so you can see here that this revenue is obviously being measured in uh kind of fee revenue and how much people have paid to use the network so cumulative it's been over 10 billion dollars of Revenue in seven years of ethereum's existence here um I don't know if how old this image is because ethereum is eight years old uh right it's not it's not seven years old so this may be one year old but I think the point still stands where ethereum is a huge kind of um a network here and and some people will say it's like it's like a company right or it's similar to a

company but I don't necessarily um uh like that frame because ethereum is so much more than a company and ethereum is is a network right it is a decentralized network at that so it's more than a company but if you want to do some kind of crude comparisons here to other big companies around the world and how long they took to achieve 10 billion dollars in revenues but what this image is showing here then I think it's a really really great way to show that especially because ethereum is still so small compared to what its potential is and I know that gas fees have been relatively low lately because of the bear market and activity moving to layer twos and all that but that doesn't take away from the fact that ethereum is still generating a lot of Revenue per day right it's still millions of Revenue per day in the bear

market and in a place where we're going through this transition from layer one to Layer Two now on that note that transition is something that I wanted to talk about in more detail and this is a tweet that I put out today where I said scaling ethereum is much more important than burning eth or eth being deflationary I believe eath drives most of its value from its monetary premium story value properties which only gets stronger as more people you use or and hold eth Ergo by scaling ethereum we scale eth and its value so I've talked about this a lot of times on the refuel before but basically uh my my main view of eth and how it accrues value is from its monetary premium and its store value properties not from its uh I guess like uh use as a fee token on the ethereum

network and it and from fee burning I believe those things are bonuses right but in saying that they're obviously critically important that they do add value to to ether's an asset but if you were to just look at ether's an asset and value it based on just their fee Revenue that it has then it is it is pretty overvalued right now based on a kind of like PE uh ratio analysis so if I bring up crypto fees dot info I think they still have this information here so if you go here and look at it yeah so based on the price to sales ratio ethereum's ratio would be almost 200 which is way way overvalued based on traditional kind of metrics I think that a normal PS ratio is somewhere in the range of like 15 to 20 if you talk talking about tech startups or sorry I

should say tech companies that have high growth prospects you can maybe push that out to 40 or 50 or something like that but yeah generally it's um it's definitely not 200 and that's generally regarded as something that is potentially overvalued there but that just screams to me that if ether's an asset is not valued based on its fear Revenue it is valued based on much more than that and that's why I say it's valued on monetary premium and store value properties here okay so if it's valued based on that what drives more value to eat as a money and as a store of value well what drives more value to it is more usage right so the more that we scale ethereum the network the more that we scale through and block space out whether it be at layer one or Layer Two obviously the main scaling narrative

right now or reality really I should say is Layer Two the more people use eth and the more value is driven to eat as an asset just like how you see in the real world where uh USD is the reserve currency USD is the most used currency in the world um it it is it has a very strong value because of that as measured against other Fiat currencies right and people always get this confused where they're like oh USD um it loses its purchasing power over time and it is not something that you really want to hold long term you want to invest it in order to protect your purchasing power that's true but you have to measure USD against other Fiat currencies to measure its actual relative strength and measured against other Fiat currencies it does a

lot better over the long term and there's actually a measure of this it's called the the dxy that's the ticker or the Dixie you can actually go see this on trading view or something like that you can actually see the strength of the dollar are kind of playing out here against other Fiat currencies the US dollar I should say um Australian dollars dollar reduce no one cares about that but um when you look at it like that that's that's the kind of um thing that I look at it as and and the more people that are using USD the more valuable that it is the more people accept it right the the broader its reach and the same is true for ethers an asset the more people holding it then people can they can access it and use that the more value is driven to eat now

we all know that eighth as measured against USD for example has gone up only over time yes it's it's obviously in a bear market right now but over the long term it's gone it's gone up right it's gone up in a really really big way and if you've invested in it over the long term you've protected your purchasing power a lot and uh you've increased your purchasing power by a lot as well depending on where you bought it of course you know if you bought at last bear Market between 100 and 300 you have uh not only protected your purchasing power even today we're either 1600 but you have greatly increased it by doing that if you bought even if you bought it all at 300 right you have greatly increased your your purchasing power so that's the way I kind of look at it and

that's why I believe that e thrives most of its value from monetary premium and store value properties rather than its use as a fee token rather than the burn now the reason I bring this up is because I've seen people kind of concerned trolling a little bit lately about how if this hasn't been deflationary for the last 30 days and I mean crudely I'll just say who gives a right because I don't really think it matters that much for all those reasons that I outlined before but if you actually look at the long term of what it looks like in terms of its deflationary properties since the merge which which happened just over a year ago eth is still net deflationary by 0.23 right you compare that to BTC right it is I mean it's not even worth comparing like it's so different right

b2c has plus 1.7 inflation over the year uh since the merge and then you compare it to either proof of work which is so much worse it was at 3.16 and then you go into the fact that um ethereum is now on proof of stake where the issuance is is actually uh not being sold like it was in proof of work because the costs are for free of stake validators are considerably lower like you know up to 99 lower right then you start to see the Fuller picture here so really you shouldn't be looking at the last 30 days and being like Oh my God it's inflationary over the last 30 days like this is bearish no not at all and I mean I can give you the reasons why inflation over the last 30 days one it's a bear market right gas prices being in the

single digits two a lot of activity is moving to layer twos three more ether has been staked which means that uh which means that um more eth is being issued right but if you actually look at the the issuance we're discounting the burn right the supply growth each year if you completely remove the burn is not even one percent and we can easily offset an annual issuance rate of one percent on even discounting the burn right we can easily offset that with people just naturally buying eth to use it for fees right to use it as money to use it as collateral to stake it so when you think about it like that that one percent is negligible in my mind that's as I said assuming that there's no burn at all now of course as the layer twos continue to grow and they continue to

get more activity on them the long-term thesis is that layer twos will be paying a lot of fees to layer one because uh they'll be getting a lot of activity and they'll obviously need to pay for that and then the layer two activity essentially replaces the activity that we had on layer 1 and we still end up with relatively higher fees there which means that eth is still in that deflation area but as I said even if eth is net inflationary discounting all the burn and we're at like one percent issuance per year it does not matter for each value it will not make an impact on its value a negative impact on its value in my mind because it is one greatly offset by the fact that ether's an asset has has scaled because ethereum has scaled right um and the fact that the issuance is

super super low at one percent and the fact that most of that doesn't need to be sold it really the only for selling is for taxes from for stakers right obviously because that issuance is um has issued to to stakers so all in all I I think the the net effect is incredibly negligible right but on the flip side of things I do think that the The Narrative plays into it too and obviously a burn a deflationary narrative is a positive narrative but we still have that if you can't just look at the last 30 days you have to look at the long term and I'm just looking at the last year right since the merge we are Mega deflationary here and this was during a bear market so if we go into a bull market again soon which we probably will right as I've said before I expect the market to

heat up next year layer one is still going to see activity even though layer 2 has a lot of activity on it there's still gonna be plenty of people on layer one and guess who's it gonna Spike again and then we're just going to very quickly burn all of the heat that we we net issued um because it's much easier to burn eath than it is to to issue it right so taking that all together I just don't really see the point or really understand the point of the concern trying that people are bringing up uh and I figured it was worth clarifying that for you guys there but anyway I'm gonna end that that rant there about that one uh but hopefully it explains a lot of the way I'm thinking about this and why I don't consider it to be bearish at all really

all right so the ultrasound money account tweeted out something that I thought was uh was pretty fun that I hadn't actually done the calculation on myself yet so you can see here that that they said the evm has won the tvl game the top eight chains run the evm uh evm TBL is 33.8 billion which accounts for 99 of the tvl on the top eight and the svm or this line of virtual machine tvl is only 313 million Which is less than one percent so you can see here that look the top the top nine uh ethereum Tron BSC arbitrim polygon optimism Avalanche bass and Solana and if you look at the kind of distribution here the top five account fought for most of it um but but really Solana as

um as they said here is not an evm channel it's the only non-evm chain and it has very little TV out now I know that I've said before that tvl is an imperfect metric for measuring things but I think when taking in aggregate like this to prove a point about what ecosystem is being uh kind of used uh sorry uh has the most value in it then you can see yeah the evm just absolutely dominates is the evm the best technology no does that matter obviously not right and that's why I always say to people it's not really about what's the best technology at the end of the day what it's about is allowing users to get the best experience possible and you know what users can get a good experience from shitty technology like that's been the case with every technology that we have and Technology of course improves

over time with the layer 2 ecosystem you know arbitrary and polygon optimism and bass all have their own way of improving the evm right they're all doing their own things to improve the the evm uh whether it's as a ZK VM whether it's arbitrim doing their stylus stuff or optimism with their op stack stuff right they all have their own ways of improving the evm now this isn't to say that there's not room for for other players right to to kind of chip away at that market share and and kind of uh bring more balance here obviously the svm will probably get more tvl uh as a layer two uh when When eclipse launches their svm layer 2 and that might change a little bit there but really there's no denying the fact that the evm just absolutely dominates uh right now um and I think that's going to be true

for the foreseeable future there all right so eigenths put together a tweet thread all about eigen da so if you're interested in learning more about eigen da you can check this out I'll link it in the YouTube description below but they did say that the eigen da test net is coming soon and they'll be supporting Roll-Ups to achieve high throughput and low costs and build protocols and applications that were once impossible now you guys know that eigenda is going to be an off-chain data or off ethereum R1 data availability solution using obviously restaked eth to secure itself um and and obviously be validators on the network there and I've talked about eigen da a lot on the refill so I'm not going to rehash all my points about it again here but I'm really bullish on

honestly and you guys know I'm an investor in in eigen layer here but I've been talking about eigenlayer for a very long time now but the reason I'm bullish on eigen DA's because I discussed this yesterday about how data availability is commoditized so if it's commoditized what is the actual kind of special property of any of these data availability layers well to me the special properties fall back to what makes a layer one special and that's security uh censorship resistance and uh reliability and I think that the eigen da is going to be the best of all worlds for that because it has restaked eth it has the security of restaked teeth right um it has uh the the um the potential reliability and censorship resistance of uh of the people running ethereum validators so it's just a much better

solution in my eyes than what some of the other data availability Solutions out there that can't tap into this right but remains to be seen obviously uh eigen DA's new tech is going to have potential for like a relatively high potential for bugs and and things like that and it is risky so I'm not saying it's going to be secure from the get-go but if we're talking about Economic Security it definitely has a massive leg up over the other Solutions because it is using that restaked eth but you can go check out this thread for yourself I'll link it in the YouTube description below for you to do so all right so op Labs has posted a new blog post from Proto Lambda where it explores the design of the op Stacks fpvm or fault proof virtual machine and how the full fault proof system advances

both Technical and social decentralization in the optimism ecosystem so you can see here the blog post is not that long I'll link it in the YouTube description for you to give a read but it seems like they're ramping up teasing or I guess talking about the uh op Stacks fault proof system here which is great because I feel like that means that they're close to at least releasing the fault proof system uh on either a test net uh or hopefully mainnet in in the near future here but if you want to learn more about it and about how they're thinking about this and how and the work they're doing on it you can read these blog posts from Proto Lambda I'll link it in the YouTube description below for you to do so all right just wanted to give a shout out here to the ethereum on arm tutor

account that is running an uh L2 or base synced node running on a rock 5B board so obviously bass is based on the optimism or op stack so set up the setup was really straightforward and support is coming soon in uh at the ethereum on arm images so this is pretty cool right being able to run it on a rock 5 b board here is critically important because as the ethereum on Twitter account said here keeping l2's decentralized is as important as keeping L1 decentralized and that's true right and I can't wait to run all of these nodes myself uh and and run and run potentially validators and maybe even sequences uh and provers and things like that and all the hardware that I have because yeah it's critically important to keep all this

stuff decentralized at Layer Two just like it is at layer one and I've talked about this in the context of client diversity at layer 2 before as well but yeah just wanted to hide that tweet for you guys that you can go check out all Link in the YouTube description below and just to round out today's episode I did talk yesterday about the the L2 beats new tvl framework page and they've extended it actually today with a new detailed breakdown page to provide you with even more information about the tokens that they include in their tvl calculation so with links to Smart contracts here which is uh which is really cool to see so you can go check that out on the l2b website for yourself or maybe I'll bring it up quickly now just to show you what this looks like so if you go to l2beat.com go to Value

locked click into a project I've clicked into arbitrine one here and if I go to where is this uh kind of um where is the where is it actually positioned on the website the page lists all canonically bridged external okay yeah okay there's a there must be a page here somewhere for this that I'm missing uh right now because I'm not looking at it correctly but if I go view tokens okay natively okay so this is this is kind of where it is here so if you go to view tokens and select it you can actually see the natively minted tokens externally Bridge tokens and canonically Bridge tokens and if you click into these I believe uh yeah it'll kind of show it in the chart here but uh and then you can go down to the bottom uh and I think look at the

Smart contracts and things there but yeah anyway not gonna bore you with the details you can go check out the site for yourself but I think 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