Ethereum staking chat, Swell Network update and more - The Daily Gwei Refuel #525 - Ethereum Updates

Transcript

hello everyone and welcome to another episode of The Daily way refuel where you kept the latest news in the ethereum ecosystem I'm your host Anthony to the 17th of January 2023. all right everyone let's get into it so a nice little recap thread on the kzg ceremony from Trent Van Epps today one of the architects of the ceremony you can see here he starts off by saying the kcg ceremony went live last Friday and already has 5.7 K contributions making it the largest event of this type and actually this was before uh how long ago was this I think this was about what 16 hours ago since then we're now up to over 7 000 contributions of the kzg ceremony which is great to see and then Trent goes on to say if you had issues where working on a fix for session sign outs hope we

to have it live this week uh and there's also this blog post here which was the uh which was published just yesterday uh announcing the kcg ceremony which I don't think I highlighted and this is from the ethereum foundation so you can go check this out for yourself and read the rest of uh Trends thread here but yeah I mean it's great to see the were already at around 7 000 contributions I know I said that I expect to see tens of thousands and potentially up to a hundred thousand contributions but as I mentioned yesterday and I think last week the quality of the contributions is what in what's important here and I'm hoping that the uh I guess people behind this slash the ethereum foundation really supporting when the summoning is or when the ceremony is over in 55 days where they basically give us a bunch of

stats like how many website hits they got you know where how many well how many unique wallets interacted with the protocol uh if they noticed any cyber activity or airdrop farming activity all that sort of stuff which I'm sure there's going to be that and I'm sure there's probably someone already working on a dune analytics dashboard or something to track this as well because you because a lot of it happens on chain you can track all over it already but there are obviously things that happen off chain uh like stuff happening within the sequence side the sequencer is run by the uh ethereum Foundation I believe here um and uh so I think that that data is not going to be publicly available just yet but we'll get that eventually and I'm hoping that they do something which I we don't think they will and maybe if

they're not maybe they're listening to the refill right now or maybe I'll just reach out to Trent and say hey it'd be cool for you guys to do a post-mortem at the end of the ceremony to recap how everything went uh during the ceremony from all those things that I just mentioned but yeah anyway you can go uh participate as I said you've still got 55 days left to participate and don't be dissuaded if your participation is taking forever to get included as I said yesterday it is random so it's not like you're in a queue so you can leave if you have to go somewhere else or you can't leave your computer on uh and you could try again and if you time out you can try again as well there is no rush here you've got 55 days and as I said it's not a queue it's randomly selected

so you can keep trying and I mean I think it's worth trying you'll be you're basically being a part of ethereum History here by doing this uh so definitely don't give up um and I think they're going to be adding improvements to this as well over time to make the experience more seamless uh but yeah just don't give up that's that's the advice I have there for you guys all right so Rodrigo here from the ethereum foundation has announced the second EF economic academic grants round with up to one million dollars to fund I could find academic research in ethereum the first round awarded grants to 39 researchers at in 18 countries and you can now apply to the second round uh until February 27th and there is obviously a detailed blog post TR with a bunch of uh of things you can read and

an FAQ as well which I'll link in the YouTube description below now I remember covering the first one originally uh back when they gave I think it was about the same amount of money maybe it was a little bit less or something away to these grantees but as I said there is a one million dollars up to up to one million dollars up for grabs for all of these things and the deadline is February 27th so just definitely go check out the blog post if this is something that interests you I'll link that in the YouTube description below but just in case you guys wanted a quick tell dear what this is it's basically for researchers with academic backgrounds as it says here or that have worked in stuff like research centers universities think tanks Educators in general uh interesting matters related to ethereum

and and ecosystem are encouraged to reply so if you're a researcher of any type or educator of any type this may be up your alley and you can check this out for yourself as I said it'll all be linked in the YouTube description below for you to do so all right so I haven't spoken about swell Network for quite a while but they have an update for us today so they said salt network is back with an exciting protocol update we are opening each staking deposits in late q1 2023 now just a quick refresher here swell network is another liquid staking protocol for ethereum uh they're trying to be a decentralized liquid staking protocol so similar to rocker pool and stakewise V3 and they I believe came out of stealth last year but aren't I believe they are live on uh uh I test

net and they're going to be live on mainnet as they said here in Lake q1 2023 so I'm guessing March 2023 here and they're introducing in this thread the SWA token which is obviously the LSD token that represents each state with swell network uh permissioned and permission less op node operators uh deprecating the old architecture supporting current stake is and the new protocol features coming in 2023 there is a blog post here and an updated light paper that you can check out so in the blog post they detail all these things that I just mentioned with uh from SWA to everything else that I talked about there and then the light paper goes into even more detail which obviously both of these things will be linked in the YouTube description below but the light paper will just uh show you much more detail than the blog Pro

so if you are interested in diving deeper into swellnetwork and what they're all about you can do that here as well now I said a while ago not in the context of swell network but in the context of lsds in general I mean I've been saying this for quite a while there's going to be more and more competition as time goes on I actually didn't um foresee something like stake wise uh I guess radically changing so much because they've changed their architecture pretty substantially with stakewise V3 which isn't live yet I believe it's going live on testnet soon but they've changed that a lot because they saw I guess a gap in the decentralized LSD market right because there really is only rockapole I'm not saying that that's not that's a bad thing or anything but we want more than rockapool right like rockapool's awesome

but if we only have one decentralized LSD provider that's uh not very great from a number of different angles so I think having at least to all three is a pretty good pretty good deal here so have rocket pool swell Network and stakewise V3 right now I think there's going to be others out there that come online too but there's not going to be that many winners there's like if you really look at it this way if there are going to be I guess lsds they a lot of them I mean they all rely on liquidity right and liquidity begets liquidity so just by nature of that there can't be that many winners in that category but we hope that the winners are the most high quality lsds and the least centralized ones as well because right now obviously Lido has I actually took today it's down to almost 29 of the

network but obviously that's only because other um other staking providers have gone up in in market share Lido itself can't go down because the withdrawal is unenabled yet but lado got to that 30 Mark like really really quickly and that wasn't good it wasn't good at all and then obviously rocketball came online has been chipping into that other uh other kind of staking providers are online like coinbase and binance adding their own LSD token like CB Ethan B eth which is eating into that but generally I think that we're not going to have hundreds of different staking providers out there uh obviously when I talk about standing providers I'm talking about kind of node operators in general so rockapole has I believe under 2 000 note operators today Lido's obviously around 29 node operators then you have

solo validators which each individual solo validator is considered a node operator but it's very hard to gauge like how many of those there are because I mean unless you were to kyc all of the solo stickers which is obviously never going to happen you wouldn't be able to have certainty that that identity maps to that up you know that node that validator and so on and so forth but we can I think we can safely say there's at least up to 10 000 solo node operators out there uh I'm just randomly throwing that number out but from what I've seen that doesn't seem to be too far-fetched from a solo validator point of view here but then if we're talking about all the other operators nerd operators you know coinbase is a nerd operator uh binance Kraken all that there's not going to be

hundreds of these things so I'm not talking about the solo validators here I'm talking about those no node operators that we can kind of map when we look at things like the raider.network website for example I expect there to be long term maybe 10 or so maybe even less than that big Winners and big Winners is like maybe five percent or more market share because when you think about it like there's only there's only a certain amount of market share that each player can have and if you were talking about big players each having five percent well you know you with 20 with 10 unique uh Services here you go up to 50 and that's not including solo validators let's just say solo validators are 20 of the network or you don't have much more room from there to add more operators if we're if they all have that five percent

so it's going to definitely I guess concentrate with like it has already I guess so to speak in a relatively small number of of operators having a healthy chunk of the network say five to ten percent but as long as those operators are distributed and uh some of them are decentralized some of them are centralized as long as they're like that I think that's a very healthy makeup of the beacon chain because it's a pipe dream to expect that every operator is going to be decentralized one I don't think it's going to happen at all and it's a pipe dream to think that every operator is going to be a centralized one like I think both those realities are not going to happen and it's not already not a reality right but I really and I also think it's gonna it's a pipe dream for things to be equally

distributed too so I think what's going to happen is you're still going to have those big big Winners maybe one or two kind of uh or maybe maybe even three of these providers with around 15 20 of market share but then you'll have these other ones with like five to ten percent or something like that right or five percent around five percent my ideal world is none of the providers having more than 15 Max of of the uh I guess like market share here but I'm also realistic in that it's it you know it's possible to happen but we don't know because we haven't had withdrawals enabled so we don't know what the makeup is going to look like so I'm personally looking forward to seeing what the staking makeup or I guess like the um the nerd operator makeup looks like in a year after withdrawals are enabled and

we won't have to wait long we're basically waiting what 14 months from today if withdrawals go live the end of March so we won't need to wait long and a year might not even be enough time to see because they can keep changing obviously over time M it depends on the market dynamics too is it a bull market is it a bear Market you know are we just sideways what's demand like there's a lot of extra protocol factors that can uh play into it too but the thing that we can do is keep supporting these new teams spinning up especially if they're spinning up decentralized lsds and making sure they keep growing I want to see rocketpool way higher than what it is today like I think that Rockefeller only being 2.2 percent of the network is way too low it needs to be much higher

than that because it is a decentralized taking pool it is the next best thing to solo is taking and we want to be encouraging that I don't want to be seeing coinbase binance and I know later has to set you know different sets of operators but they do have that monolithic LSD token across all of them I don't want to see those dominating for you know especially post withdrawals I definitely want to see more of these smaller players especially the ones that are reliable because there are smaller players that are unreliable and and we really don't want to be pushing too much adoption on them but rockapol is extremely reliable it has distributed nerd operators because of the the people running mini pools are not all just you know rather rockapool foundation for example or 30 different note operators you know there's thousands of those

people and there's going to be thousands more especially when things like the lebates and force come in where you can spin up many pools with a lot less heat than you can today that's all going to happen so I I personally that's why I'm supporting those things and Sport supporting the smaller players because they need to grow to take market share from the bigger players especially if they are better for the health of the beacon chain from a decentralization perspective and from an Effectiveness perspective as well because at the end of the day we want to be distributed and decentralized as possible but that doesn't necessarily mean that every single service has to be decentralized it just means that every every single service needs to have less than in my mind this isn't based on any kind of I guess hard data it's more of an more of

a more of a kind of like my take on things in my mind no operator should have more than 15 share of of the network at least I ideally I would love to see it below 10 but I'm trying to be at least somewhat realistic here and today really only one one of them does uh one that one being Lido I don't I mean from memory besides solo validators I'm pretty sure coinbase and binance and Kraken don't have over 15 no the second place is coinbase with 11.5 percent here so yeah if you can get later down below 15 without you know that Lido I guess market share going to a coinbase or a kraken uh and rather going to something like a rocker pool or another decentralized LSD uh that would be a huge win for the ecosystem and it's not just going to happen on its own as well

I think there will be needing a concerted push post withdrawals to make this happen and I'm confident that the community is going to keep on top of this because the ethereum community obviously really cares about these things at large and the rockable community and the swell Network community and the stakewise community they all have a vested interest in seeing obviously the protocol that they're a fan of that they're invested in grow um so they're going to be pushing for that as well and competition there's nothing wrong with it it's extremely healthy and I can't wait to see what things look like obviously a year post withdrawals which is about 14 months from now all right another thing that I wanted to quickly touch on about staking was a tweet that I put out today where I said Bitcoin maximalist asking where does the yield come from because they don't

understand how Theory improve of State works is incredible it always amazes me how confident they are in their own stupidity and the funny thing is about this is that where does the yield come from is a legitimate question to ask like there's nothing wrong with asking the question but the way they're asking this question is that they've done absolutely zero research on their own and anyone who gives them the answers is laughed at or that you know ethereum is called a Ponzi or ethereum is called unsustainable and the yield uh is being given out by the ethereum foundation or something like that right there's all this conspiracy theories so I just wanted to quickly break down where the yield comes from for each staking and relate it back to how it is very similar to bitcoin with only a couple of key differences in how it all works all

right so let's break it down quickly here there are three places that the yield comes from for each staking the first place is protocol issuance AKA consensus layer rewards this is the new eth that is created right that this gets paid out two stakers air for for performing or two validators I should say for performing three different tasks attestations of blocks which all validators obviously do quite really regularly uh being part of a sync committee which is very rare but it happens right and proposing a block which again is quite rare but it happens and you can expect to propose a block once every 60 to 90 days on average are per validator right so that's where the first bit of yield comes from from the

core Protocols are from new eath being issued the second bit of yield and I'm sorry I guess I should say the second and third bits of yield come from the execution layout so the second one is called a tip now obviously those who understand how erp1559 works and how the current gas market on ethereum works there are two parts of it there is the base fee and there there is the tips the base fee is the fee that everyone has to pay no matter what right and the base fee is determined by demand for Block space at any given time right now the base fee is 15 way and that means that uh that base fee is burned that does not go to validators that is not part of the yield that is burned forever taken out of existence never coming back right but

then there is the tip now the tip is an extra part of the fee that you would pay and the tip is determined by how much like how fast you want to get your transaction into a block right so the total fee you pay is the base fee plus the tip now the tip is not burned the tip goes directly to validators as yield so that's the second part of the yield there then the third part is Mev rewards which comes from the Mev Boost network now this is where it differs from Bitcoin because Bitcoin doesn't have Mev and I'm going to explain how the first two relate to bitcoin but this is what Bitcoin doesn't have so the third portion is where I think people get maybe potentially confused here so the Mev rewards come from the Mev Boost network which means that if you are

using Mev boost relayers and through the you know whether you're a solo validator or you're part of like a smoothing pull in rocket pool or you're obviously part of a you have steth it gets paid out and distributed evenly across um the stf holders right uh you get rewards from the people who pay the Mev Boost network to get their transaction included in their Mev boost bundle right in in the bundle that gets relayed or it gets built by the builders and it gets relayed on the Mev Boost network so in plain English it's just another form of fear Revenue right except it's specific to the Mev Boost network it is not uh I guess specific to the ethereum core protocol itself but it is still considered an execution layer reward

because it gets paid out as part of the execution layer as part of the fee Revenue right and it doesn't go to the consensus layout it goes to the execution layout so hopefully that explains those three parts to you now where it's exactly the same as Bitcoin is the first two the protocol issuance is the exact same thing as how it works in Bitcoin every single block that's mined in Bitcoin Issues new BTC to The Miner that proposed that block right and then on top of that the second part every single block contains uh fees right fees that people pay to move their BTC around on the Bitcoin Network that is exact same thing as the Fate that's paid in ethereum right whether that be the base fee and and tip it doesn't matter Bitcoin doesn't have fee burning

so it's just for for the sake of the argument just a tip in Bitcoin right so that is also going to be minor that proposed the block so or I guess like the pool I should say uh not I mean there's obviously everyone's pulled together so it's more so the pool and the pool will distribute that right uh to to the set of um of miners there but it's the exact same thing protocol issuance and fear of a new exact same right so when the Bitcoin maximalists find it hard to understand where the yield for each staking comes from it blows my mind because it's the exact same places that the yield for Bitcoin you know the yield in Bitcoin comes from because Bitcoin mining produces a yield for the miners right that is still a yield that they get yes

they're not putting up uh BTC as a collateral like you do within ethereum staking and you're not getting a yield on your BTC but you were still yielding something by being a miner right you're getting a yield on your mining equipment so to speak right so it works the same way and that yield that you get is determined by uh I guess in Bitcoin is determined by what pool you're a part of you know how successful they are at getting blocks what it looks like over time you know and there's no Mev in Bitcoin because there there's no Mev opportunities in Bitcoin but if there was again it would work the same way it would still be Mev rewards in ethereum it may be rewards in Bitcoin so I just wanted to break that down for people because you'll probably get people asking you this uh as well maybe and you

might want to answer that that's how you answer it basically there are just three parts to it you add all those up together that becomes the staking yield that you see now as I explained yesterday on the refuel this yield is highly volatile because uh you know a significant portion of it belongs to execution layer Awards which uh go up or down uh you know quite significantly depending on uh the demand for Block space on ethereum because fear Revenue goes up when demand is high and me the opportunities go up as well which means mov rewards would go up and then the opposite is true protocol issuance is also variable but in a less extreme way so protocol issuance goes up when there's more heat being staked and it goes down when there's less heat being staked but that's overall protocol

issuance right whereas issuance going to to the stake here so the yield going to stakers actually goes down with more heat being staked and the yo and goes up with less heat being stake so that's another distinction there which I guess is different to bitcoin um but it's still the same principle right where Bitcoin has protocol issuance it has it till 2140 right and ethereum has protocol issuance as well same kind of thing gets paid out to the to the block proposes right um in in Bitcoin but in ethereum I guess like it's a bit different as well because the protocol issuance doesn't just go to block proposes it goes to everyone right goes to people testing on blocks which doesn't happen in proof of work and it goes to sync committees as well but the core premise of protocol issuance Remains the Same so hopefully

that breaks it down for you guys and you probably understand it better there that is where the yield comes from and actually something that I haven't mentioned yet that I think is very very important even though this should be kind of obvious to people so people will often ask okay well you know who's you know who's paying for this yield right well no one's paying for this yield right like no one's paying for the protocol issuance the protocol was just issuing you eth and anyone paying the I guess like fees on ethereum are the regular users paying for uh to use the block space right same with Mev and then people often ask well how is this sustainable well it's sustainable as long as people are buying each basically and people are keeping each valuable as the same reason that Bitcoin is sustainable uh you know

Bitcoin mining is sustainable at a certain amount is because people are actually paying real money to buy BTC and then there is a market for it which means miners can sell BTC into the market in order to cover their expenses uh and the same is true for proof of stake where stakers can can sell and and realize that yield as well because the yield is eighth denominated right it's not USD denominated but obviously if you want to realize that into US dollars or another fiat currency you would sell it and that is why people stake because they're like okay well I can stack more eth and then potentially down line or sell this eighth and realize that and be able to buy other things with it there is a market for it that should be obvious I don't even know why I have to explain that but that's how it also

works so the yields ultimately the yield all the yield in all of crypto comes from I guess demand and and from the marketplace in general for there to be a market here and the better the market is the more valuable and more liquid the market sorry the more liquid the market is and the more valuable the asset is the better uh I guess like um uh yield or the high quality yield you're going to get because it's all well and good for someone to say you're going to get 20 AP while 20 yield on some random proof of stake coin but if it's not worth much in US Dollars uh you're not really going to be getting much right for that and it's less attractive uh and it also if the Market's not very liquid and if the price is extremely volatile it becomes less attractive than

something like eth but yeah I spent too much too long on this topic here I said I was going to be brief but I've gone over time there but yeah that's just an explanation of where the yield comes from in ethereum proof of stake all right so one last thing about staking is here from Micah McGinnis again he created a new meme about eigenlayer and restaking more broadly uh and how he thinks it's bullish for eth as an asset so this is the meme of the I believe this was the CEO of the uh one of the I think it's WWF the um the wrestling company or whatever it is I'm not into wrestling so I'm kind of butchering the explanation here but you guys know the meme where he's sitting in his chair and then he put He he um progressively gets more hyped up about

something so the first part of the meme is that you know erp1559 Burns one percent of each supply per year and he's like oh that's interesting and then the next part of the memes daily eat issuance dropped from 15 000 eighth to just under 1800 8th post merge then he starts getting a bit more excited and then e the next part is eth is officially deflationary and more scarce than BTC it gets a bit more excited and then it shows that e-staking yields are above four percent and then he's getting real excited and then uh the last part of the meme is eigenlayer opens the door for E3 staking and even greater yields and then he's about to fall out of his chair so I thought this is a great meme to describe I guess what can potentially happen with uh restaking services like eigenlayer and this also is going to I

think confuse the out of Bitcoin maximalist because maybe they'll finally get their head around where the yield comes from for vanilla eatstaking but as soon as restaking enters the mix and as soon as that's live they're gonna there's gonna be some crazy staking numbers for uh eth based on restaking yields and they're going to be like oh my God this looks like a Ponzi but in reality the new yield that you're getting for your staked teeth is coming from the I don't know eigen eigenlayer Network or another restaking Network and you can account for that it is not some kind of Ponzi yield it's coming from here and if demand for the token that's being paid out as part of any of these networks is is low uh or if there is low demand not just from protocol issuance on these networks but also on the demand

side for Block space then the yield isn't going to be very high obviously because because of that too but yeah I just thought that was a great meme to explain a lot of what I was just talking about and Beyond all right so Casper here from the Herodotus I don't I think that's how you say it but Herodotus team put together a thread where he starts off by saying uh as the number of layer twos has grown so has the fragmentation of the ethereum ecosystem most chains today generally run in isolation so the state of one chain is not easily accessible on another now I've talked about this a lot on the refill before about this fragmentation across layer twos and how we have I guess a pretty good solution with Bridges today and that work to basically allow you to bridge within a few minutes between different layer twos

and you pay a small fee for doing that for the convenience there but I have mentioned one thing in the past that kind of fizzled out but he's gaining steam again which is this concept of being able to essentially talk cross roll up uh while not bridging your assets so essentially what you would do is you would I've used this example before but I'll use it again say you wanted to trade a token that was on arbitrim's version of uni swap but you're on optimism and you don't want to leave optimism you want to do the trade and settle it all on optimism so what you would do is that you would as essentially send a message to a service that would relay this message to arbitrimp you would do the trade on arbitrim and then you would get the asset that you traded for back on

optimism without you having to do anything and this would all happen in the background within ideally you know a few ethereum blocks or less here there were some solutions looking at this there was stock where was building one I can't remember exactly what it was called uh Rari was working on on one called fuse which I believe fizzled out I don't know what's the status of stock quiz one is which is basically this concept of arbitrary message passing between different protocols but now our herodotocia is working on this as well so just another protocol that I came across that I wanted to highlight for you guys that is working on this which I think is actually pretty important for the ethereum ecosystem and obviously as layer 2's get more adoption it's more important for that as well but you can read these thread from Caspar I'll link

it in the YouTube description it just it describes this a bit better than in a bit more detail than I have just then all right so curve Finance has added a Chinese language support to their front end here now I just wanted to highlight this not because I can speak Chinese or anything like that I'm sure there are some of you out there that do it maybe you appreciate this but because I've gone on a lot in the past about how I think more of these front ends need to be supporting more uh languages they can't just support English and maybe a couple of others they need to be supporting uh at least you know the top 10 top 20 most popular languages in the world and they need to be doing it natively because Google Translate is cool and all but there are a lot of

terms in crypto that don't exactly translate one-to-one because there are a lot of new terminology or a lot of crypto specific terminology so I think that uh D5 Finance doing this natively and making sure that it all works for their users is critically important especially because ethereum is as I said before trying to be a global network not trying to be just a English-speaking Network so to speak and there are plenty of people in the world that don't speak English at all billions of them in fact that we need to cater to that we need to add support for across all of these D5 Finance so great to see that curve has added Chinese language support here I'm not sure what other languages they support but I think that they support a lot of the major ones so you can definitely go check out our curve for yourself if you

are a native Chinese speaker here and you're interested in that and even if you're not maybe they support one of the languages that you uh speak and you speak and understand better than English as I said there are billions of people out there that do not natively speak English and we shouldn't expect them to uh and we should definitely build for them all right last up here just a quick shout out to the Fe language uh project TR they announced that they're starting the second round of their bug Bounty contest uh which you can read about in this blog post and obviously in this tweet thread as well so if you are someone who is interested in participating in this bug brown tip for the Fe smart contract programming language here you can check this blog post out and check the Tweet thread out which I'll link in the YouTube

description below uh but yeah 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 that video a thumbs up subscribe to newsletter join the Discord Channel and I'll catch you all tomorrow thanks everyone