dYdX v4 announced, Polygon ID now live and more - The Daily Gwei Refuel #392 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of the delegate refuel where are you capped the latest news in the ethereum ecosystem i'm your host dan the designer and today's the 23rd of june 2022 all right everyone let's get into it so i'm sure you all know what i'm going to spend much of this episode talking about today and that's the news out of dydx that uh their v4 is going to be a cosmos uh kind of like app chain it is not going to be a layer 2 on ethereum their v3 will remain a layer 2 but v4 of the protocol will become a cosmos app chain now i've had you know probably 24 hours to digest this think about this there's a lot to say here a lot to unpack i'm gonna miss things i'm gonna say things people disagree with but you know i'm gonna give my honest take on

this my honest opinion on this starting from the top and then working my way down the stack here so from the highest level there are two things that i have come to the conclusion of one i don't think that dydx has done this for technical reasons reasons as much as i think they've done this for regulatory reasons and i'm gonna jump into that uh and two this does not mean layer twos on ethereum are dead i've seen so many people calling for this so many people saying that oh look someone's leaving or an app is leaving the late ecosystem and turning into a kind of like app chain there you know that means layer twos are inferior or they're bad or they're dead or whatever no not at all and i'm gonna dive into that as well again there but first i wanna give a little bit of history about

i guess kind of like the sovereign app chain versus layer 2 app chain i guess debates that's been going on frog for a while now so the cosmos ecosystem has existed for for a while for for quite a while now and they've always been a little bit antagonistic towards ethereum because they disagree with a lot of ethereum's design decisions they disagree with ethereum proof of stake they they they think that um cosmos proof of stake or tendermint is is superior they disagree with the um with sharding they disagree with the overall design architecture of layer twos because they like um sovereign app chains and things like that so there is a very big disagreement in design architecture there and i think polka dot would also fall into that but their design is definitely

different to cosmos and ethereum but cosmos and ethereum uh basically i mean they've been friendly for a while but i think these days it's a lot less friendly because there's just so much fierce competition for for apps and and for for users and all that sort of stuff that's surrounding that so that's a bit of history there but then also uh there was kind of like another announcement that came out you know over two years ago now i think uh no not not over two years ago like about a year and a half ago in december of 2020 where compound actually announced something called comp chain or compound chain where they were also going to make a standalone app chain not using cosmos i believe they were going to use polka dots substrate in order to make a standalone compound chain now at the time i thought this was

bizarre i didn't understand why they were doing this but at the time the later took a system in december of 2020 was way less mature than it is today so i will kind of understand the the rationale there to some extent but then i wrote this piece back then called compounding confusion because i was confused a lot about this and i gave my reasoning here and it was a lot of the same reasons why i'm confused about dy dx's move uh to kind of like an app chain rather than a layer two so i'll link this in the youtube description for you to have a read of this piece it's one of my longer pieces in the daily way here but i just wanted to kind of like give some context that this isn't the first time a major app on ethereum has announced that they were building their

own chain um and you know comp chain didn't go anywhere i believe that it is not currently on the roadmap i believe they're going to be trying to deploy compound to layer twos and then they want to do some kind of like intel layer two kind of like thing and and i'm not up to you know completely up to date on what they're trying to do but they definitely seems like they've abandoned the compound chain here now i'm not saying that's gonna happen with uadx i do expect them to go ahead and launch their diy dxv for app chain with kind of like using cosmos uh but yeah that's i guess like orthogonal to what i wanted to talk about as well so let's jump into a couple of tweets that i saw that i think really kind of like put this into context of

why this is like not a good idea from an ethereum perspective so swagtimis uh who um who kind of spends a lot of time in the ethereum ecosystem especially on the layer two side said this standalone dapp chains are one of the worst ideas in history the downsides include token inflation to pay validators now this is something that a lot of people think about but when you have your own sovereign app chain you need to pay the validators for security you no longer get to inherit the security from ethereum layer 1 like a layer 2 does you have to pay for it yourself and the only way to do that is through token inflation or you can try and rely on fees for it and have your token capped and hope the fear of a new accounts for enough to secure the network but as we've seen from from even

like big networks like bitcoin that does is not necessarily something that works out in in practice so nine times out of ten or almost ten times out of ten you're gonna need token inflation so that would already put pressure on on a very depre sorry that would put more pressure on an already very depressed token dydx is down over 90 from its all-time high and 90 of the the supply is not circulating and 50 of the supply belongs to uh insiders inside as being team and investors which means that they would get the lion's share of the value from this anyway um from a proof of stake i guess like app chain sovereign uh network there and then swag them is next next point is that you know the low security versus being an l2 on a massive l1 again i just explained why this is the case right you're not

inheriting ethereum security you're basically leaving ethereum you're leaving the massive fortress that is ethereum and you're going off into some little camp and hoping that you can screw secure it on your own with some some kind of like guards or something like that right it's obviously very very different uh third point from spiketimist is that your dap get if your dap gets exploited your token dumps 90 and with it the security of the entire chain we saw this play out with terror right where the terror chain became extremely insecure because the lunar token kept dumping due to the death spiral with ust and then the chain uh was was made insecure it was paused by the validators and obviously we saw the fallout from from that right so the same is true for these apps because these apps in order to secure themselves they need to secure

themselves with their own native token if they want to be a sovereign app chain uh and as i said to do this they have to do token inflation a lot of the times this token is not worth anywhere near the amount that ethereum is worth it has a much more concentrated token supply and it is nowhere near as secure as ethereum layer one so that also doesn't make sense there um and then swagma say uh kind of continues by saying the biggest downside nobody talks about is how the hell are end users supposed to accurately assess the risks if every single dap has its own stupid chain do you think we're going to have dashboards comparing the economic security of every little dap i i mean yeah that's a very valid point right like if we're trying to make things easier for end users and try to

make things seamless and secure making a new app chain that has to bootstrap its own security for everything is not the way to go about it i know the cosmos people talk about shared security and stuff like that but like i'm gonna get to that like there's actually a um a cosmos person's view on this that i'll get to so i'm not going to get bogged down with that now i just want to finish what sphagnum says here and he also i think had one final point here about uh rent extraction which actually i'll talk about in a sec so uh that's the ethereum's view on this that's basically my view and what i'm aligned most with and uh that that's kind of like um what i think that most people that i've seen have talked about really um and also before i get into the

cosmos people's view i did want to talk a little bit i should have mentioned this earlier i do want to talk a little bit about dydx themselves and specifically antonio the founder of dydx he has said some questionable things in the past that i've covered on the refuel zk ben actually found this today in the discord channel where i covered a tweet from i think november 2021 that antonio put out where he said a few different things but one of the things he said was that um that he was complaining about how eip1559 didn't reduce gas fees when that wasn't the point of vip1559 right so that comment alone may seem innocent in i guess like uh in a vacuum but when you extrapolate that out and look at some of the other comments that he said it's very clear that antonio doesn't

understand the the more technical side of ethereum that he doesn't really understand how ethereum plans to scale he doesn't seem to understand uh layer twos as well which i'll get into a little bit when i talk about starkwear's role in all of this because the idex is obviously built using stark based technology and from that perspective it just feels like for some reason they believe that they can build something better on a cosmos app chain than they have today on on kind of like ethereum but that also falls into the regulatory stuff that i want to talk about as well but i'll get back to that i want to give the cosmos person's view here and this is henry who is a uh i mean from what i've seen on twitter he seems to be a pretty big cosmos maxi i'm i'm sure he's not like a

maximaxy but he's a very big cosmos person so he quote tweeted spaghettimus and a bit tongue-in-cheek here but he basically said you know building real projects on eighth is one of the worst ideas in history the downsize must be designed around each state model now i mean if this is true if you're building on layer one as far as i understand it this is not true if you're building on layer two you can build whatever model you want on layer two as long as you just post your cool data and proofs to layer 1 ethereum so he's just completely ignoring layer 2 here and just talking about ethereum layer 1 which i think is wrong but anyway that first point i guess is true for layer 1 not true for layer 2. second point paying rent to eth wales forever this is one of the

stupidest arguments that i see perpetuated throughout the ecosystem that i really don't like and for the simple reason that like people have this wrong idea that just because you're paying ethereum for security you're paying rent to kind of like big eat holders or paying rent to eat holders like what you're doing is you're paying the ethereum network for security and how does ethereum secure itself with a valuable eighth the more valuable the eth token is the more secure ethereum is right because it costs more to attack under proof of work and proof of stake the more valuable the token is so you're not paying rent for nothing it's not like ethereum is a rent-seeking middleman you're paying for the security ethereum gives you security in return for the fees that you're paying to it so i always hated this concept of people

saying oh you're paying rent like like ethereum's doing nothing for you like ethereum is some fat cat landlord that is just taking rent from you and and not helping you in any way no ethereum's giving you something really awesome in return for that right um and on top of that if you have an app chain that's secured by its own token isn't the rent just being paid to that to those token holders anyway right like for example on dli dx chain they're going to use the diy dx token to secure it aren't you just paying rent to diy decks token holders in that kind of like vein right that's that's the logic that follows on from here but anyway next point henry says you know is someone selling land to apes gas spikes nine thousand percent and with that your app is unusable again this applies to

layer one ethereum it does not apply to layer two which i think app sovereign app chains and cosmos app chain should be compared to layer 2 and this doesn't necessarily happen because there are ways for layer 2s to essentially read the chain and say okay is there a spike in gas okay we won't post our proofs and our data yet we'll wait and then we'll do it and that's exactly what arbitrary does and that's how you kind of like smoothen out the fees there so that again is not an issue for for layer twos and it's kind of disappointing that henry maybe this was just a [ __ ] post but it's kind of disappointing that he didn't kind of like talk about the fact that uh this does not apply to layer 2 cr so and then he goes on and says the only real

difference between a layer 2 and an app chain is whether it pro state routes to ethereum and judging by people's willingness to use multisig bridges nobody really cares about that so this is really dumb logic by saying the only real difference is that post-state routes to ethereum that is the major difference between being an insecure chain and being a secure chain like that is literally everything it's not only real it's not like only the real difference like just the way he's kind of like watered down how important this is kind of rubbed me the wrong way and then he said you know because people are willing to use multi-seed broad bridges no one cares about this that again goes back to the same logic that people apply to decentralization like no one cares about decentralization well [ __ ] yes they do they're going to

care about it when their funds get stolen or their funds kind of like um or the chain that they're on becomes insecure and they're kind of like funds go to zero or some other kind of like stuff that happens when the chain is insecure they're gonna care they're gonna care a lot so that attitude is really dangerous and i don't like it at all but uh yeah that's the cosmos people's view there obviously with my biased interpretation of it again guys like i am an eighth person everything that i'm saying here is going to come with bias it is impossible for me to remove my bias when it comes to these sorts of things i try to stay on the technical details but as i explained at the start the the cosmos ecosystem while technically i think it's cool it's a very different architectural vision to

what ethereum is trying to do and there actually isn't a right or wrong here there is a belief that people have that ethereum uh that the ethereum kind of like vision is better than the cosmos vision but there is no objective objectivity to a lot of these things at least not right now i think we have to wait and see how it plays out and see how it all goes like i obviously believe in ethereum's road map and believe in the layer two thesis and the roll-up thesis i don't think sovereign app chains are actually a good thing but there are people that do and they don't just believe this for their bags because the funny thing is the atom token doesn't actually accrue value from the app chains at all and they and then people will say oh well there's going to be um shared security interchange

security and it's like okay well then aren't the um the uh the sovereign app trains wouldn't they just be paying rent to cosmos in er or to adam holders in that case because why would they connect to adam sorry cosmos for shared security if they need to pay for that in in adam right then um for as far as i understand it like they can still keep their sovereignty apparently but they'd be paying for that shared security and that kind of what's the point just become a layer too and pay ethereum for your shared security like you know you know what i mean like there's all these kind of like things that come together and i spoke about yesterday how i think that a lot of these changes end up looking like ethereum in the end and i think cosmos will as well they're gonna try and keep

that sovereignty but i think that once we see these chains get probably more attacked and there's more kind of like concerted attacks on them because there are groups out there guys like the north korean hackers who hacked the axia infinity bridge they're not going to stop at that they're going to target any insecure system so let's not keep building them like let's build secure systems but anyway that's that's all that there and there's a tweet from pauline arrows here as well that i'm going to go over but i want to pause here and go back to my my kind of like points around why i believe that this is not so much a technical thing that the idex is doing and more a regulatory thing the reason i believe that is because right now starkware's technology that um that the idex is using is has a license and is

centralized it is not open source or at least it is open source and has a license attached to it or something like that and you can't use that whatever it is very close it is very vendor locking right now for those of you who don't know the term it basically means that there are vendors that exist they offer their technology to you and then they lock you into it because they're because like it's not open source it has a license attached to it all that sort of stuff there so there's that kind of like aspect to it now the reason why i think it's got to do with regulatory stuff is because right now diy dx can't actually decentralize because there's a centralized sequencer that powers their layer 2.

obviously in the future well i mean i hope in the future starkware is going to have the ability to decentralize that sequence around anyone can run a sequence up potentially right but right now that's not the case so dydx in their blog post in the announcement they kept going on about decentralization and i think this is because dydx is a us-based team they've been very very cautious of regulators they've been going as far as not even air-dropping the dydx token to u.s citizens right and i think what they're doing is they're trying to decentralize as fast as possible because they want to be able to say to realize hey we're decentralized you know we're not running the order book we're not running the exchange uh it's in the hands of token holders and they're going to kind of like beat around the bush with that as

well and not bring to the surface the fact that 50 of the token holders are the team and the investors but you know it's a it's one big sigh up i think for regulators here so i actually think it's got way less to do with the technical stuff and way more to do with the regulatory stuff which falls into the technical stuff because obviously if they were able to decentralize using stock waste technology today they may have gone down that road instead of starting their own app chain so i think eventually this is going to be a non-issue for layer 2s as they obviously decentralize out as they offer these uh kind of like applications the ability to decentralize as well but from that perspective i can kind of get it like but the thing is they're never going to say that they being the idx

they're never going to say they're never going to admit that they're never going to talk openly about that it's just speculation on my part but i'm not the only one who said this i've talked to a lot of people about this and the logical conclusion is this at the end of the day i just don't think there's any technical reason for people to do this and antonio was on twitter today saying that people have vastly overestimated how scalable layer twos are and that's just completely wrong because we know how scalable they are we know how scalable they're going to be we've seen it in practice and the funny thing is is that on stock net uh or on sorry on um on diy decks and starcraft implementation they're not even hitting anywhere close to the limits of what starcraft can do i think they're doing

like 10 tps or something like that so to use more scalability as well as a as a kind of like um as a reasoning here it doesn't really sit well with me as well there so that's that's kind of like on the regulatory front that's why i think what i think around there um but i'm going to quickly try and wrap this up because i've talked about this for a while now but probably you know i had an interesting tweet thread about this as well basically saying you know technically everything that they that dydx wants to do with the cosmos app chain can be done with uh roll-ups uh and better yet for so many reasons but there are there are two advantages for going with this kind of i guess sovereign app chain obviously one of them is sovereignty the second one is timing timing got to do with rollups not

being as mature yet because they can't decentralize and sovereignty well you're not going to be able to get sovereignty within ethereum secured roll up because you don't have your own validator set but in return in return you get security so it's kind of like a trade-off there and i'm not convinced that like most things even need sovereignty i i really don't think that anything except the settlement layer needs sovereignty but that's a discussion for another day um but that was paulina's take here as well so i think uh i think there's one more yeah there's one more thing i wanted to talk about with regards to this and that's how in i think antonio was on twitter i'm not so i'm not sure if this was said in the blog post but basically he said that uh the community dow or dydex token holders are gonna

vote on this to make the final decision on whether diy dxv4 happens which again is so stupid because i said in my tweet here that this is just like them this is basically them saying that their team and investors will ensure that the vote goes the way they want them to they're not going to get to the point where they have v4 ready to launch put the vote to the community and basically let the community vote against this and then say oh well you know we tried that's it no they're [ __ ] not going to do that they're going to get all of their friends investors insiders everyone and they're going to vote to do this because it's just decentralization theater here guys like this is not actual you know decentralized governance and that's another thing that i saw and i was just like yeah okay that's a joke for sure um

but yeah that's my overall take on the whole thing with tweets from smart people and kind of like trying to give the cosmos a view on this and giving the ethereum view and i want to end with saying that i don't think cosmos is bad tech i actually think they have a lot of interesting things going on i don't think the cosmos people are bad people they're actually one of the least kind of like maxi-like people or at least kind of like alt r1 shills that i've seen but as i said there is a very very fundamental philosophy behind the design of a blockchain the cosmos people have their own philosophy ethereum people have their own philosophy and we're not going to really know what is quote unquote the winner in terms of them in terms of kind of like long market share sorry

long-term market share uh for a while yet so we're gonna see how it plays out i think that layer twos are still gonna be the vastly superior solution but there will be some other apps that potentially do this as well trying to move to their own app chain i think it's a fool's errand i don't think they should i think that there's not going to be as many as people think there are and i really do think that uh the layer twos are just gonna keep growing and thriving and this doesn't mean that layer twos are dead it's not bearish for ethereum that's that that one of the big layer two projects has migrated to an app chain because they haven't done it yet right uh they they've just kind of like put the idea out there there's a lot of arguments as to why what they're doing

is a bad idea we've already seen that antonio the founder doesn't really understand the technicals of a lot of things and he's shown that with his tweets before uh and he and also there's no guarantee it's it's going to kind of like grow and succeed or be more successful than their layer 2 implementation now they say they're going to maintain both well what are they going to put more effort into it probably the app chain so i wouldn't be surprised to see them just kind of like let the layer 2 die off so they can basically say oh well the layer 2 is not getting any usage anymore we're just going to shut it down and focus on our app chain it's like all right guys cool like i mean if you neglect something then that's what's going to happen but we're gonna have to see i think it's

this is going planning to be launched by the end of this year so i'm curious to see how this plays out but i don't know i don't expect that many kind of like apps to do this and if they do i don't really expect them to be successful here but we'll see we'll see how it plays out uh and see how we go from there so spoken about that enough we're going to go over the last few things i want to get through for the last 10 minutes here so i put out a tweet today where i said ethereum's roadmap is very ambitious full of interesting challenges and will probably take five to ten years to be fully fleshed out if you stay around a while and pay enough attention you may just witness the creation of a new internet so i mean this is kind of related to

what i was just talking about but the ethereum roadmap is not something that can be rushed it is not something that's going to happen overnight it is something that's going to happen over the next decade or so and i'm talking about like all of the roadmap items right like not just uh the merge proof of stake sharding all that sort of stuff i'm talking like vocal tries to start uh startifying the bass layer uh historic history pruning all these sorts of like there's so much that that's coming guys like i can't even name all of it right now but there's so much that's coming and it's bleeding edge stuff it's going to take a while to to be fully fleshed out but if you stay around if you kind of like stay through the market cycles don't get scared off by bear markets you will

quite literally witness history here if ethereum succeeds at what it's trying to do it will be the creation of a new internet and a global financial settlement layer at that as well which i think is huge like i don't we've never had that before in history in human history we've never had a global credibly neutral settlement layout for anything in the world to settle on and i think that's incredibly powerful and we also have never had a a decentralized internet except in the very early days of the internet and then it kind of like centralized very quickly so if we can make a decentralized credible neutral sediment layer and a decentralized internet in in kind of like the same network yeah with a bunch of networks kind of like spinning off of that and being secured by it i think that is incredibly bullish for ethereum

and obviously ether as a token captures a lot of that value for reasons i've outlined plenty of times in the past right you know 1.59 staking users money story value all that sort of stuff there but uh yeah that is the ethereum vision at the end of the day guys it's not this day-to-day all these apps moving off and going and doing their own app chain blah blah it's not it's not really about that ethereum is not competing with dividx for example right ethereum is competing with uh basically the existing system and trying to make a better existing traditional finance system and trying to make a vastly superior system to that and and trying to do it the best it can while holding its decentralization value is very close to the chest so just wanted to put that out there as well i guess that was related to

everything i was talking about uh but yeah i i'm just looking forward to this as well like i'm not going anywhere obviously i'm looking forward to seeing how the next 10 years shakes out i think it's going to be a very interesting uh 10 years that's for sure all right so actually i should have talked about this just before but this is funny timing l2 beat released their roll up explorer and force exit tool for diy dx here so this obviously applies to the layer 2 implementation of dydx and you can see the tool here at didx.l2b.com this basically shows you i guess like uh rotten it's like a block explorer basically and it also has a force exit tool for you to be able to exit from the ui dx roll up if you would like to do that i thought this is very

cool but i thought the timing was also pretty funny considering that this came out i think an hour after dydx announced that they're doing their app chain but still cool to see this i've spoken about this before i think l2b teased this a few months ago and now it's finally live so you can go check this out play around with it if you are a user of diy dx this obviously is not going to apply to the app chain only to the l2 implementation but go check it out if you haven't already all right so galion has announced a new product today the launch of the basis yield heath index live on optimism so you can now generate organic yield during bull and bear conditions with this index which is called buy which is the token ticker which is a delta neutral leveraged basis trade uh basis

strategy using set and perpetual protocol back testing at 27 api apy in 2021 and then this thread basically explains what it is so essentially what a delta neutral leverage basis strategy is is something that a lot of traders have used for a very long time in both traditional kind of like finance and crypto markets it's it's more of an exotic kind of financial product and it basically allows you to capture the spread between uh the funding the um kind of like leverage funding being positive and uh or negative right on different kind of like platforms so by capturing that spread you basically get to capture uh the difference in the apy and that can as as kind of like the back testing showed

lead to an outsized apy here so i read this thread from galleon to get a full breakdown of this and how it all works keep in mind uh these kind of big more exotic products definitely need more understanding than just your basic products because of the fact that they they involved things that you may not have thought about before so definitely read about it before you go and like ape into it or anything like that um but yeah definitely check out this from galleon here i think it's pretty cool all right so an update from zk sync here today so they've added uh there was a kind of like a tweet that they had here which is now unavailable which is kind of annoying i think this was talking about they're kind of like i think this is the tweet here so this is their zk sync v2 test net

upgrade um okay yeah there we go and then uh it includes a bunch of new features that come with it such as account abstraction which is very very cool uh smart contract wallets uh the ability to pay uh gas in other tokens other than eth but yeah you can kind of like i haven't retweeted this year i'm gonna retweet that you can go check out this blog post for a full breakdown of kind of like everything that came with it but as i said this is on the test net this is not on mainnet just yet but yeah i guess this is really cool to see and i've spoken about this for the past few weeks so i won't dive too deep into it here uh but yeah cool to see this from mata labs on zk sync today all right finally here we have an update

from polygon that polygon id is now live so the first polygon idea integration is with the polygon dial and polygon id is a self-sovereign identity solution powered by zk cryptography that brings huge potential for dow governance so you can read this thread for kind of like a breakdown of this but as i said to you guys before i think one of the main narratives going forward is going to be this this kind of like concept of decentralized identity and how that plays into all the things that we're used to such as daos and just governance in general and and token holder governance and all that sorts of stuff i think if we can get to a truly sovereign decentralized identity solution that actually works and works at scale that's like a holy grail and i think we can do a lot of cool stuff from there we

can like just as an example here we could potentially do under collateralized lending which is something that we haven't been able to do in d5 uh and we can do that at scale as well so you'd be able to potentially one day get a mortgage in d5 without having to kind of like over claralize like you have to do today so that's something i'm definitely looking forward to that something like this enables but you can read this thread from polygon here for a full breakdown of everything and they also have a blog post i believe as well 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 the video a thumbs up subscribe to the newsletter join the discord channel and i'll catch you all tomorrow thanks

everyone