A Journey Through Ethereum’s Roadmap | Westie

Transcript

the vision of ethereum when it comes to the surge is like a vibrant ecosystem of robust Roll-Ups all with immense transaction throughput and then they post their data to the L1 for data availability consensus and settlement and so the the idea with the surge is to make posting that data as cheap and as easy as possible for these roll-offs all right everyone welcome back to another episode of zero X research we are recording this episode on February 6th and we have a great interview on the future of the ethereum roadmap with uh with a blockworks research local Westie he does a great job kind of diving in on what's next where we're at on this road

map what's what kind of like what goals we're improving on and we really focused on the merge The Surge and the scourge so how we're going to implement and make a more robust proof of stake Network and then how we're going to make that scalable and then lastly how we're going to decentralize that and really focus on Equitable transaction inclusion and as usual we are joined by two other blockfish research analysts this time we got Ren and Matt to discuss everything that's going on in the market it never gets boring in crypto so we'll Dive Right into things kind of kick off with a cool Throne this time so I'll toss this over to you Sam what do you got and who do you got in the cool throw this week yeah we actually talked about it briefly last week I think it was David

David's Hot Seat which was bitcoiners because they're all mad about ordinals consuming box base and spiking transaction fees on the Bitcoin Network I've actually got them in the cool Throne this week just because this is actually the most I've seen Bitcoin talked about in a very long time on my timeline which you know take into account it's not as Bitcoin focused so um this is getting more like the smart contract people in on the uh in on the conversation so I think that's pretty cool seeing Bitcoin back in the Limelight a little bit uh and Matt you said this on Twitter but you know in the past whenever something's been really hard and and then there's something that comes in and makes it a lot easier to access like it's usually a good idea to try doing that thing uh while it's still hard and you know we're seeing this with

ordinals people are minting nfts on the Bitcoin Network so I think as someone who's crypto native and like really deep in this stuff I'm gonna really regret not minting ordinal nft um so that's something I Gotta Throw on my to-do list but yeah I mean you know you saw it with the uniswap airdrop you saw it with punks you saw it with the old farming like all the people who were super early and and going through the hurdles in order to do that activity they wound up getting paid out pretty well for it so I'm going to throw ordinals in the in the cool Throne this week and and go and try and uh Mint one myself Matt I know you've uh toyed around with China Mint one you want to explain a little bit of that process and what your experience has been so far

yeah so mentee and ordinal is really tough um it requires you to have a Bitcoin core wallet and to run your own full node so today it's you know a really hard process to actually have one of these to make one of these inscriptions on the Bitcoin blockchain um Orton was really cool because all the data is stored on chain so unlike a lot of ethereum nfts where you know the data is stored maybe on an AWS server or openc server or something like that all these Bitcoin ordinals are actually like on-chain nfts very cool um I think to last I checked it was something like a 5 000 and something had been minted so that's less than a 10 000 collection on ethereum pretty crazy at the end of the day the way I look at it it's just like the risk reward so your

risk is you're paying you know a couple dollars for a transaction fee on bitcoin Plus the time consumption of figuring out how to actually follow this process that's you know pretty difficult so I guess that is a little bit of a a haul for sure but at the same time the potential reward is so high and it's like you know there's no guarantees that these things take off or continue to gain momentum and steam but if they do they could be like very valuable just having minted one of the first you know couple thousand so I see no reason why if you have some time on your hands you shouldn't go play around with it and try to go uh mint an inscription so my current understanding is that there's like no Marketplace for these and they're really just like OTC deals happening over Discord and so to your

point about that being hard like you're right that's probably the case here but like my immediate reaction uh is there's like two cases like one that's like super bullish for scarcity if there's very hard to make new ones it's a process to even get them like okay so then he's going to be desired but the other case is That's So bearish for scalability um you kind of like need some element of uh to create that like mass mass need for these things if you think they're gonna like pump like some of these 10K pfp project so I really don't know which side of the fence to be on but I really like your analogy Matt of like if they're if it's hard to do it's probably worth the time yeah it will be that Marketplace and that easy mechanism when they come if someone builds them which

I'm sure they will you know keep in mind these ordinals been around for or at least I've only seen them for a week and a half or two weeks I'm not sure when the first one was actually minted but anyways like once those things are built that's when you know there's the potential for like a real fire to to be built under ordinals and see like real you know value speculation and kind of everything we see with normal nfts over the last call it three years yeah I think one interesting point to note is that someone basically ran some numbers and actually uploading a whole image of the nft onto the Bitcoin Network today is around 80 percent cheaper than trying to do the same thing on the ethereum blockchain and I think probably a lot of people when they first started buying nfts didn't read I said the actual image

itself wasn't like destroyed on chain right it's just points like a URL like an ipfs service somewhere and know I'm not sure how much people will care about that in the future but I do think that if you want like a truly decentralized future that image itself does also have to be stored on chain right and the fact that Bitcoin got it before ethereum may leave a lot of effects he's a bit mad yeah yeah absolutely um so yeah Bitcoins ordinal is definitely a cool throne for the for the books this week uh to keep the keep the cool thread and Trend going uh I've actually got fracks so everybody knows fracks as a stable coin issuer uh the frax stable coin itself still has over a billion dollars of outstanding Supply

um you know making it one of the larger uh stable coins that are trying to be a decentralized stable coin recently actually just today uh the February 6 we released an Empire episode with Sam kazimian kind of going over you know a lot we talked a lot about the philosophy of what frax is um and kind of how you know now they're like their newest product is frax ether like a liquid staking derivative and really talking about how they view it versus how the market is viewed it's been and it was kind of eye-opening right so because they're a stable coin issuer they created this stable coin this eve Peg stable coin called frax ether and so they used a two token model uh we've kind of gone over before on this show but as a brief summary um so if I'm a user and I come to frax

and to I want to Mint frax ether I give them one eth and in return I get one FRX eth and then the if I want to opt into those staking rewards I have to actually stake uh The frax Ether into a staking contract essentially and then I'm eligible for those rewards and what this does is it increases the amount of tokens that are earning rewards and only distributes it to a smaller subset of those users and so right now we're seeing outsized returns towards staked frax ether holders and we know obviously I think that has played a pretty instrumental role in the popularity of this staking derivative and so if we look at it today is only a couple months old and yet it's the fourth largest

taking derivative over 140 million tvl and just the immense growth it's had it kind of proves to me personally that there's going to be a large demand around the highest yielding liquid staking derivatives as we like zoom out and look into the future in a post-shanghai world so frax is definitely on the cool seat for the growth of their LSD and I'm really intrigued by the model they're using I think their ability they like really leaned into the fact that they they run the curved flywheel and have maybe not run but I play a large portion in the curved flywheel and we're really able to harness incentives and drive them towards their own pool so really exciting to see that and from a personal standpoint right when this thing launched I threw some Ethan there just as an experiment uh used convex the frax

convex so I'm getting fxs CVX and CRV rewards and I started doing this like you know a couple couple was probably a couple months ago now and so if I like annualized the returns I've gotten I'm on it I personally sitting in the in the curve one set of the stake teeth rewards and I'm at an 18 APR which is pretty exciting um kind of like you know my goal is obviously to beat The Ether eth yield and at 18 currently doing so so what they're doing is historically working again very short sample size but pretty exciting to see a very different implementation being properly executed if you're allocating to these liquids taking derivative protocols would you say that you know FRX ethrax ethereum is one that you would trust you know maybe you want to diversify your risk a little

bit so you put a little bit in Lido steak teeth a little bit and Rocket pool our youth a little bit in tracks FRX what like how do you see the risks in these different liquid staking narratives and how would you personally allocate you know a large portion of ethereum if you were putting them into lsds that is a phenomenal question so I mean one a couple I feel like there's like three points of consideration one is the yield like that's the very obvious one uh what am I going to get the best return on uh and if I was going through this method I would probably be ignoring the curve pool rewards that frax does and say like pure eth yield who's going to drive the best return to me um and so right now that is steak faxes last day look is around 7 seven percent

when the other providers were around four-ish percent or maybe four and a half and so I'd be looking at the yield the second one I look at is the decentralization factor right so who's running the nodes who's running the validators within that ecosystem um so as it predates to frax they're all currently core team managed uh that is obviously not ideal so I think as like they announced that post shanghais when they're going to kind of move to the decentralized uh work on decentralization right now they're kind of focused on scalability uh I think you could probably make an argument that there's a knock against frax right they've been saying they're going to decentralize the protocol as a whole for quite some time now I know we released the report saying they're going to do that at the end of 2022 of course we're two months in we haven't seen that I

know in speaking to Sam and the team that is still a point of emphasis and like that's you know they said that's going to really be what 2023 as a whole is about I know that they have a very exciting decentralization model and that is going to be that is through audits right now I believe so I think it's going to move to main net testing at to the end of February so this month but I do think that's definitely a point of consideration like if one person is managing my staked ether like that is you know that's a risk um so yield decentralization um and then obviously smart contract risk and so the amount of time that you have existed kind of like puts you through that battle-tested State uh and again in fact either it's the youngest one of the of the bunch so I think like

from a smart contract standpoint you know staked eth through Lido seems to kind of be that gold standard at the moment been around the longest zero problems I mean there's over like billions of dollars I can't I don't know the number off top of my head but has billions of dollars within staked eth so I think those are kind of like the three points of consideration you have to consider and the you know ultimately if you wanted to really balance those out evenly I think you just probably take a a mixed bag of the top four assets um so that's probably where I would look at it right because things like rocket pool prioritize decentralization over all of those uh things like staked eth kind of really prioritized composability so you can kind of use staked ether wrap steak teeth in pretty much any D5

protocol um and then you know lastly smart contract risk I think you know whenever you're interacting in D5 that's got to be a chief concern of yours but again just the length of time you've existed the amount of dollar value within your contracts makes you more attractive uh to attempt to break into and then therefore you're more secure as time goes on is at least the theory yeah the only thing I would add there would be liquidity across and I guess just composability across D5 like yes frax Eve has the best yield but if you take into consideration there's way more that you can do with Lido Steve you know you could Loop it and leverage up your yield there's there's all kinds of different strategies you could try so I think the face value argument that frax

eat is the best yield for any LSD is a bit misleading um so yeah that's the one thing I would add there Counterpoint there is they have the beauty of this whole like their whole vision is building this Trinity right so they have their own uh they have their own lending Market in fraxland that this will be integrated into they will give you the ability to Loop um and it'll be interesting to see like kind of how those parameters shake out uh because there will be permission permissionless asset listing in the future and like frax doesn't take a they don't create Revenue off fraxland uh it's solely just like give leverage to their products and so that does make it like this very attractive you know again back to the flywheel like frax built this stack to facilitate the growth of

their assets so I think like that is going to be very interesting to see how that kind of turns the corner in outstanding fraxies once it does get integrated because if you pull up the charter Lido I think it's February 2022 was the listing and it took about like 11 or so months to get to 2 million of uh staked eats through Lido and then it took it after those 11 months they hit the two million mark it only took another two months after the Ave listing to hit 4 million and double so if there is like that exponential growth factor because looping is such an attractive strategy right you're just taking like Leverage Returns on the eat staking yield and post Shanghai when assets can be I feel like their pegs can be better

managed closer to to one and it'll be interesting to see like I I personally expect looping to become a huge trade again we've already seen compound V3 list uh Lido steak death and coinbase staked eth we're seeing ave's V3 list everything under the sun when it comes to staking derivatives if you have coinbase East we have Reef we have staked and I think that's really just kind of everybody prepping for the Post Shanghai world yeah we had to add one point on sort of like the yield generated I think in addition to the common Loop trade another thing that protocols will look out for is that there are one strategies where they will use the EQ to purchase something right for example ribbon has a product where

they purely use the EQ to purchase add the money knockout barrier options and for that I would say liquidity isn't sort of that big of a deciding factors you just want to maximize the yield you generated so you can run that sort of a little more exotic strategy and I do think fax is a value proposition there is quite strong what could go wrong once We're looping our leverage 100x on our safety like I can see nothing go wrong with that one yeah that's it's a scary uh scary feature to think about honestly I don't I I don't know if any of you guys had the chance to look at the vitalik post as it relates to I think it was rye and like how they're trying to basically enable different collateral types because they have no competitive Advantage at all in terms of you know

only offering each against their stable coins and they they've got to fight against all these other lsds and and the heath staking yield um but it was interesting in the comments to see vitalik say that yeah rocket pool is not the best option because a 51 attack turns in from 32 so the amount of eat that you need to be a validator uh times n meaning like the amount of collateral that you would need to execute a 51 attack versus 16 times n and then rocketpool also is trying to lower it to eight so that way you know you could run uh 80th as collateral with three other um pooled uh users capital and and run it that way but I guess I'm just curious uh if any of you guys saw that and then

also if you know what vitalik would have to say about frack's Heath because you got to think he would not be super happy with the Sam kasmian model of running them all in your basement that's a really interesting take and actually something I didn't consider because you know rocket pools like main priority was to like create this decentralized model and like they're trying to like it's almost like a public good model where they want to benefit the network um so that's actually really interesting and I'm trying to think of something on the spot and make myself sound intelligent but the reality is I don't have anything but um where I think that gets interesting is really just the fact that just to your point um they're going down to eight eth and like you I guess you have to put the 10 uh bond in ripples or RPL

sorry uh to kind of like increase the amount that you the that validators have as an incentive to you know not act maliciously towards the network but again like the net net like that is being lowered um so yeah interesting especially because like rocketpool itself makes a zero protocol protocol revenue and all the revenue flows to the validators so if you were a malicious actor you can be like okay I'll spin these up in the attempt to get a 51 attack up and running and during that time before I make my attack like I'm making outsized returns so that's a super interesting question for the rocket pool team and maybe a potential future guest we can have on I did ask up for about this before like I mean like they can go as low as they want uh that's what they gave me was they think that four is the

theoretical limit uh that they're comfortable with in terms of how much one validator would have to provide to run a node I would add that over on netnet I do think it lost the security of the ethereum network but Rockefeller also increases the amount of Eve that can be staked in the ethereum network so there's a bit of canceling out effect there but net I do think it's worse I might be mistaken here but I think it would make sense that as long as Rocket pool had less than a 12 and a half percent market share of all state eth that having you know for youth as your minimum security validator would probably be acceptable and then it's only really once they have such a large portion of all steak teeth so much demand for their validators for sorry for you know re for their liquid staking

derivative then at that point it might be a serious concern but I guess until they reached like a dominant market share that it would probably be not too much of a risk to the ethereum network on that note there actually was a governance fault a few weeks ago both by rockefu and Lido and it was quite funny seeing everyone on Lido vote we won't ever like limit ourselves even if we become the dominant LSD players whereas the people on rocket food voted that yes we will self-limit our growth if we eventually become too big in the ethereum staking space that is easy to say as the one who isn't the dominance taking derivative provider though so but yeah you gotta like whether with her heads are out I definitely like the the rocketpool ethos

but Matt I can kick it over to you for your cool turn of the week if you're ready I actually have a hot seat this week but uh my hot seat today is uniswap's governance you just don't have governance for the last few weeks so I guess week has been a complete show for lack of better words basically uh mid-January you just swap so the way unusual governance works is they start with temperature checks off-chain voting through snapshot just to gauge sediment among uni holders like is this something that we should put on chain is there enough support that it actually makes sense to you know propose it on chain as a real proposal so mid-January there's a proposal should we deploy unit swap V3 onto BNB chain formerly Finance smart chain the vote passes with you know predominantly yes votes there wasn't really much controversy there and then

there was a subsequent vote for who should we use as our cross chain communication protocol should we use layer 0 should we use Wormhole or should we use two other options I believe D Bridge or seller but I'm less familiar with those anyways it was really between Wormhole and Stargate or sorry letter sorry it's parent company um parent protocol layer zero loses the vote Wormhole passes I believe it was something like 65 or 70 towards Wormhole and you know the vote goes up on chain okay we're going to deploy on BNB chain using Wormhole as our cross chain communication the reason that unit swap needs cross chain communication is because if you have your uni tokens on DND chain you need to be able to vote on proposals on ethereum mainnet so the you know you're using either layer zero or

Wormhole to communicate back to me and that your vote Yes No abstain whatever it might be anyways vote goes up a16z who controls a huge amount of uni tokens I believe four percent of the supply was you know a number I was seeing around Twitter um comes in and says we were not able to vote on this snapshot proposal because of technical difficulties with the way we store our coins with fire blocks as our custodian but we can vote on chain and we are going to turn this proposal down if it comes in and uses uh Wormhole keep in mind the a16z was one of the biggest uh backers of of Stargate and of layer zero so it makes sense they have a huge incentive that they would want to you know use layer zero for unit swaps cross chain communication help out their

other portfolio company unit swaps also their portfolio company anyways they come in voting with their 15 million liquid token saying no I we are not deploying on pnb chain of course they actually didn't care about deploying on pnb chain they're fine with that it was just the choice of cross-chain communication through Wormhole that they had huge issue with came in 15 million swayed the vote no following their vote no that's way to in favor of no we saw a lot of these delegates come in and vote Yes so they actually swayed it back to yes interestingly enough some of these delegates were like pens blockchain club and you Michigan's blockchain Club who have all of their tokens delegated to them by a16z so a16z's tokens actually helped sway the vote against them so

it's kind of crazy like not something we've really ever seen before it's just a big mess over there I'm sure 816z is not happy whether or not they take their tokens back from you Michigan and Penn is still up in the air I bet they don't it's probably a pretty bad look as especially because they're like a VC and they want you know if kids come out of those clubs and go create a great protocol they don't they don't want bad blood there they won't they want to be on the cap table so we'll see but you know it's just a crazy situation um and you know yeah definitely worthy of a hot seat in my opinion so I saw I think it was Fubar actually made this tweet but his so there's like all this sentiment around you know VCS are controlling these protocols like we hate the VCS

they're such bad people and this is like the same sentiment that we saw like when VCS are selling tokens like they're such bad people we hate the VCS so it's like okay so you don't want me to sell the tokens and I don't want me to use them in governance it's like what am I supposed to do with them like the whole value prop of the uni token is to vote in governance right like today it has no value accrual um so I don't know it's like this is like a byproduct of one token one vote type of governance so like this is what we're gonna have to deal with if those are the systems you implement um yeah I don't know I I think it's like it's just interesting to see how everybody wants to point fingers at somebody but not that many Protocols are

implementing unique governance techniques or strategies yeah we chatted about this a little bit on our on our morning call this morning but I feel like quadratic voting just makes a ton of sense obviously no one has figured out governance at all on this just a prime example of that so I think we should continue to experiment with different different governance mechanisms because no one has a silver bullet today and I think the more experimentation early on the better because these problems are only going to get bigger and bigger as the value at stake also increases so I'd rather experiment now than later yeah interestingly this morning one of our analysts David found out that unisoft Labs was also an investor in layer zero I believe and I think that could throw a potential kink in the entire process

because technically it is in unisoft Labs interest to utilize layer 0 as a costume communication to rather than webhole when we see a scenario where they completely ignore the governance vote I wouldn't think that's too crazy given that we're in crypto and going this is a complete champ I doubt unit swap Labs comes in and does that just because so they're already based in New York City and they've had so I've heard like you know through the grapevine that they've had a lot of uh regulator they've had a lot of eyes on them from Regulators since you know basically from their launch so I think that unit swap lab is definitely doing their very very best to you know stay away from Dow governance in the protocol um one of the main reasons that they created the unit swap Foundation this year earlier or sorry and last year at

the end of last year um so I definitely don't think that unit swap Labs will like directly go in and do that but I would not be surprised if they Lobby delegates in order to you know there's still a couple days left in this vote it hasn't passed yet so I could see them uh you know back in a16z I also saw Robert leschner was like one of the uh the larger yes voters here and I don't know like he's been around since the early days and you could see the argument that like net net we just want it makes sense for uni swap to be deployed onto BNB right because they're license around the uni V3 code ends April 1st I believe and so it's pretty fair to say that that will be four can deployed onto that chain if UD swap doesn't do it itself so like they should

be there they should be the ones that are kind of have that market share so it'd be a shame if something like more of a on the politics side of things is really what held that up yeah I think it brings up an interesting like kind of grander point on Dow governance as well like I remember maybe nine months ago or so it was all around CT like hatsu was talking about it all these big names are talking about Kobe um you know governance tokens have no value that was kind of the rhetoric governance tokens have no value this is kind of a prime example of governance tokens do have value you know like you can actually sway votes in your best interest and it might not be in the protocol's best interest or at least in lots of people's opinions not in the protocol's best interest but you know if

you're a big investor like controlling protocols really does have value and I think we're going to see more and more of this in the future as like and people people's opinions are going to sway as well to you know like controlling these treasuries controlling these protocols it's like very very valuable thing at least in my opinion yeah moving on to the next custom and the last one that we have for today we're going to talk a bit about Javi Javi listed uh FTX user depth on Sunday with the token ticker fund one of our analysts call it fear uncertainty and degenerate debt trading which I think is a little more apt considering what's happened with the price so also shout out to our newsletter if you haven't subscribed to it please subscribe to it it's great um gives you a lot of Alpha and the warning so back

to Corby they listed this fun token with a 20 million initial Supply and on their launch blog they said it should be priced between 0 and 5 usdt so assuming five your CT represents 100 chance of recovery that should be worth around 100 million dollars worth of debt as of right now that depth token is worth 66.8 on hobby which means either people are pricing in a 1 350 chance of recovery which you know doesn't really make sense um or they're pricing in Hawaii can get back a lot of the assets no one really knows what devs is actually under the soaking how much debt will be recovered by Hobby itself and hobby also plans on

doing a air job once they have confirmed how much debt that they can actually recover or how much debt is even on like the FTX accredited list so a bit of a scammy situation no one really knows what's happening the price doesn't make any sense at all but it's crypto people will find ways to make money I wonder if Justin Sun had anything to do with you know this new token um I know like he's very involved with a little bit sorry I think Justin leader he Justin might even be the owner um I forget what his exact involvement is but I know that he's very involved in the exchange so I wonder if this is kind of something to do with him and his tokens I just know uh anything that he's involved in I generally try to stay away from and you know scream Shady

business to me but obviously other people would disagree with that given that John has a huge following and large amount of stable coins and I think third largest TV all of any chain if I'm not mistaken it was just uh well last month where he was moving 100 million dollars of stable coins over to The Exchange um you know kind of sparking rumors around the solvency of the exchange and then we see them kind of pushing to this area which like the super degenerate type gambling honestly like we don't to the Ren's point we don't even know the backing like don't even know what you're trading which I guess yeah what's the difference between that and some other random coin that's basically just a number on a screen no more no less so I don't know maybe they're I don't know I don't want to speculate too hard here

but I guess I kind of like pivots to the broader area of just Tron itself because I've been like doing some stable coin digging the other day and usdc has like vastly overtaken the amount of transfer volume on ethereum relative to usdt but if you look at the market caps of the two usdt continues to Trend higher well usdc has kind of it's a little slightly down but mostly stagnant overall over the past couple months and so if you look at the where this tether is being printed to it's like almost exclusively on Tron and right now there's about 34 billion dollars of trons of usdt on Tron and finance holds roughly 14 of that 34

billion and so like I know back in the day Tron was kind of like the exchange where or the excuse me the blockchain that exchanges would use to hold stable coins just given the it was you know thought to be relatively secure given the relation to Justin sun and it was just cheaper transaction fees as a whole so but to see like tether's still being aggressively minted onto Tron really Sparks questions around like like why where is that tether going um and it wasn't that long ago that I was on in a Twitter discussion with the Croc swap founder and he was like pointing out the immense tvl on Tron uh then if you again you peel back another layer there's two billion dollars of Bitcoin collateral posted to just lend

and like okay it's it's condensed to two wallets that were made in the same month and it's like there's only one person alive that is holding two billion dollars of Bitcoin in justland so I don't know it just really gives me questions around Tron as a whole if I had to guess what's really happening on Tron and given its involvement with Justin's son it's probably the primary way for people living in China to escape the capital controls and get it out of China because if you are not familiar China has very very strict Capital controls on the amount of assets or currency that one can move out of the country if I'm not wrong it's limited to do 50 000 a year and I would guess a lot of whales in China especially during covet didn't

have as much confidence in the Chinese economy or the government perhaps cracking down very heavily on crypto and Tron is basically where they're parking a large amount of their assets and they're worth why do you think they would choose Tron versus you know ethereum or pick any l102 they probably think ethereum is controlled by like the people in the US and like they don't want to use usdc because it's probably like more heavily regulated they just want to use the most unregulated blocking Network and the most unregulated stable coin as possible yeah and the reason actually what kind of sparked that whole like research I was doing was uh there's somebody on Twitter who was like touting that coinbase partnering with usdc in circle was like this terrible thing and that tether is

really the best stable coin out there and so that's kind of what unfolded all this this trouble but uh yeah it's just interesting to see how like there really is social consensus in like different geographical areas around like what the safest stable point is um yeah so that's kind of an interesting take rent I I kind of like your perspective there because I do think it is like a geographical difference there that like what you know what stablecoin people find the most stable and we even see that with like use uh like people who use certain exchanges right like I feel like coinbase is very popular in the US where binance is very popular abroad and it's so I don't know it's kind of interesting to see how that social Dynamic kind of plays out as well yeah I think that's a good time to to

wrap this up we appreciate you guys coming on now we can head over to uh our interview with Westy on all things ethereum roadmap but first I want to tell everyone to go check out blockworksresearch.com if you go to the research Tab and toggle free research you can read some of our free reports there there's also a sign up link to the newsletter on that site which you'll see on the left hand panel which Rin shouted out a little bit earlier and also feel free to give us a follow at blockworks res on Twitter it's just blockworksres but yeah it's some of the most compelling research in the space and you'd be missing out to not check it out so uh over to Westy alrighty everyone we are joined today by Westie on the other side of the intro section of the podcast

uh he's joining us today again as a guest this time we're discussing what is next on the ethereum roadmap specifically as it pertains to the merge The Surge and the scourge so everybody knows that we migrated from a proof of work to a proof of stake Network and that's you know that I feel like the common misnomer is that was the end of the merge right but no Westie is here to tell us why it's not the case uh what we've accomplished so far and what is to come so westio kind of toss it over to you um you know how where are we on this on the roadmaps specifically as it pertains to the ethereum emerge yeah that's a good point it's good to separate the merge sort of as an event which like you said was that transition from proof of work to proof of stake and then the

merge sort of as like a road map item which you can think of as not only the implementation of proof of stake but having a like a simple robust like version of proof of stake that ethereum is proud of and can say like we're done essentially um so yeah looking back at what's happened like you said we the transaction from proof of work to proof of stake I went successfully and I think the first thing to note is just how incredible that was like as a feat of engineering I mean a lot of people analogized it to changing a plane's engine mid-flight and that's really what it was and so it's just incredible that it happened as smoothly as it did but I think the the biggest impacts were surely on specifically the supply dynamics of eth so I was playing around with ultrasound

money earlier today and basically found out that per year 4.2 million dollars more eth was being emitted under proof of work than currently under proof of stake which at current eat prices is around seven billion dollars per year in cell pressure that was taken off the market and obviously you're not going to all feel all of that at once so you're not going to feel that specifically when the merge happened you're going to feel that over time as the cell pressure sort of piles up because a lot of the market is due to flows inflows and outflows essentially and then if you pull up ultrasound.money right now you can see that since the merge eth has actually been deflationary um I think so far it's by 9 600 eth in

total since the merge at a negative 0.02 inflation rate so like so far we've already seen immense impacts uh from the merge as an event in terms of e-supply but yeah there's definitely a lot more to come um specifically with Shanghai upcoming in March that enables withdrawals speaking of Shanghai I feel like wherever you look on Twitter it's either going to be the biggest nuke of all time or it's just going to be a bullish unlock what's your take what's the literal cue look like can you kind of explain for the listeners what that uh Dynamic looks like yeah absolutely it's it's a pretty complicated process but I mean it's actually simple once you break it down so yeah I'll start with explaining sort of how the the queue

itself works or how like the withdrawal period as a whole world works so essentially you have to go through a couple different processes so you have to go through and execute or you actually like exit the validator set then some like delay period to make sure that um any validators that were slashed need to wait some extra period of time and then after that um there's like a smaller period where this essentially sweeps of the Network's addresses at 16 per block and once your address gets hit and they know you have a withdrawal then you're able to withdraw so we'll go through that one by one so the the execute is based on a churn limit and that churn limit is essentially you take the total number of

validators and you divide that by 2 to the 16th power essentially and so if we assume 500 000 validators that churn limit would be seven you round down to the nearest whole number um and so what that essentially means is that per epic or Epoch depending on how you say it um you can have seven validators exit um essentially and then after you've waited in that queue and successfully exited then you must wait a delay period and again that's based on whether you've been slashed or not so if you haven't that's like a fixed around 27 hours and then if you were slash is 36 days it's essentially like an extra way to mitigate um malicious actors essentially

um and then after that period this is also where partial withdrawals come into play so there's full withdrawals where you like exit the validator set and then partial withdrawals or you're essentially balance over 32 eth and essentially after all these periods were full withdrawals they have those sweeps that I was talking about you every 16 per block addresses are swept and they basically check do they have a withdrawal and if so then they send that to your execution layer and that like partial withdrawals only go through this sweep essentially and at the current number of validators we can expect that process to take at Max 4.4 days like if you're at the very end of that that sweeping cycle essentially

um so yeah overall I mean you asked for my my take on what will happen I think there's a lot to talk about with that my original expectation was I thought there was going to be a real really large execute once Shanghai was implemented specifically specifically because of a lot of the recycling of validators meaning that there's a lot of validators who had like specific implementations with their staking early on back when the beacon chain was live I can think of Lido as a great example where they were operated under multi-sig as opposed to how it's currently implemented and they're coming out with V2 soon so I can imagine they want to sort of recycle these validators and enter them in a different way but at the same time I was looking through the

numbers and one of the bigger things is that in order to have a withdrawal process you need your credentials to be updated so originally the credentials they called them 0x00 credentials that's how it originally was but in order to have withdrawals enabled you need to update that to 0 x 0 1 and only as of January 9th only 39 of validators had the correct credentials to even withdraw both full and partial and so if you only have 40 of values that you can even withdraw that obviously reduces the number that can essentially withdraw and sell um and and contribute to that execue um but then on top of that like with the

recycling of validators I'm sure it's of that 40 even a smaller number that are going to either Exit entirely or go through that Recycling and so well originally I thought it was going to be like 70 days plus I think my new estimates are going to be around say like 30 days like four weeks ish is what I expect out the gate and then we'll slowly slowly go down over time essentially and I think one of the most interesting points there is that there's a separate exit queue specifically for people that are looking to withdraw their rewards right because uh if you pull up that chart that says you know here's the price at which uh users have deposited into the eth2 staking contracts um you know you see that like there is a

good chunk of people that are users that deposited when and they're significantly in the money on those deposits so they deposited uh below the current price and now they've been you know this is like almost a year ago or so and they've been accruing these rewards this whole time so the question is okay if I've made you know made a ton of money on my position like maybe I want to like lock in some of those profit fits so like you know I feel like the general consensus is probably around like those people wanting to withdraw and potentially sell but the fact that you can scrape and sweep your rewards and not clog up the entire queue I think is something that's a very uh very well designed system right and then you put out a great thread on Twitter that kind of walks us

through this entire process um and I'd love to just I'm sharing screen now for the the viewers rather than the listeners but if you could walk us through this chart because I feel like if we think of what other proof of stake chains are we kind of gravitate right to the chords the cosmos ecosystem and they have most chains there have a 21 day on bonding period um so you know looking at this chart that shows us uh around like a six or so percent of the current validator stack saying uh trying to leave the system what would cause that um you know do you think that's something that's predictable going forward or is something that really is going to vary based on risk risk preferences at that point in time yeah so I can definitely explain this chart here so essentially in the x-axis you

have percentage of total validators exiting this is sort of as a way to to blank it depending on you could have 500 000 values you have a million it really doesn't matter as long as you have like the percentage of total exiting and then it shows like the amount of days that you can expect that execute to be and yeah like you said something like Cosmos has a fixed exit period whereas this has more Dynamic based on how many people are exiting at a given time and I think to equate to Cosmos like 21 days exit period um you need essentially 6.2 to 7.3 percent to leave at the same time um but also this doesn't take into account the the extra 4.4 days you may

get depending on where you are in that sweeping cycle so it could be as low as five percent exiting at any given time to have 21 day wait um which I think is pretty reasonable to expect over a long period of time I think it does converge maybe not to 21 days maybe yeah four percent exiting at any given time as that it converges to so maybe you have like a 1920 day weight is what I expect but yeah essentially that's what this chart is showing that depending on the percentage of total validators exiting you can have like a really long or really short wait time is there any Catalyst in particular you know everyone's talking about withdrawals but what about entering the queue because it's not exactly easy for people prior to this being enabled like

Shanghai and having withdrawals being able to literally just send your money into a black box for six percent yield never knowing when you're getting your money back so outside of that do you think there's any Catalyst in particular that would spur people to to to stake more aggressively than prior that's a great question so it's good to clarify that this execute also applies when you're entering to be a validator so there's an entry queue as well and yeah in terms of like what Catalyst could drive further staking I think one thing is to look at would be LSD adoption and a lot of the reasons why that they maybe haven't been adopted in the future or in the past is because like price parity like there's no way to actually Arbitrage prices when they they

fall below that youth Peg because you can't exit and basically capture that spread but now that withdrawals are enabled and specifically with LSD protocols which maybe we dive into later like their withdrawal queue is going to be way less than that of any validator actually actually exiting I think the fact that you have better guarantees around price parity of an LSD that's going to drive a lot more people into staking through these LSD protocols and then we'll sell the staking I think it's along the same veins and that like you said a lot of this in the past just like throwing your Ethan to a black box like you don't even see your rewards like you're just waiting and until withdrawals are enabled and for a lot of

people they're not up to date on a lot of these ethereum Foundation calls these dead calls essentially and are pretty which are pretty convicted in getting Shanghai and withdrawals enabled in March like they're just waiting until they are sure that they can withdraw their eth at any point in the future and that they can accrue those staking rewards to their execution layer address so I think like yeah withdrawals are definitely a big Catalyst to see staking rise throughout the course of this year after Shanghai so you mentioned liquid staking derivatives again there and so I think the Lido point is pretty interesting just given that they do need to recycle some of those validators out from the multi-cig and onto their

current governance structure but I like I don't know if they put out any statements around this or made any commentary but I personally I'd have to think like okay there's going to be some turbulence immediately following Shanghai at least that's the expectation why not just wait another month right like those valid areas have been operating under the multi-sig for for this long like you know in my view I think it would be okay to like hold on to a some multi-cig risk for like at least another month just to like almost do the network a favor like let's already let's let everybody else go through and say do we want to unstick do we want to not unstake but see what it looks like and then let's let's push this you know larger sum of of uh churn through the network at that time but

have you heard anything around that yeah it's a really good great point and one of the reasons why I don't think there's going to be as big of a cue to start is yeah like you said maybe these these LSD Protocols are the people that have to recycle I mean they've already been under this implementation for a long time they might as well wait to see okay what is the execute to wait till a little it's a little lower do I wait a month or two right there's no no reason why they have to go immediately which is a big thing and then we can also get into like lsds and how they're handling their own withdrawals as opposed to just solo staking eth or the validators behind the liquid staking so looking at Lido's implementation I can expect a lot of other lsds to follow suit although

Lido's the only one that's explicitly explained how they're going to handle withdrawals as a protocol but essentially how it works is there's an eth buffer between both people depositing their eth to be staked as well as staking rewards for the protocol and let's eat buffer can essentially help if there's any withdrawals in the short term and so by having this buffer if people want to withdraw their eth they're able to do so and they expect that the weight will be between 28 to 48 Hours on average um obviously it's going to be higher if there's a lot more withdrawals and they actually do need to exit some of their validators but you can imagine that having this buffer can sort of mitigate

a lot of the the waiting period that usually would result and so I expect a lot of LSD protocols to be the same which again contributes to that price parity because people are allowed to like easily Arbitrage the price as a Falls below Peg so there's a lot of different setups as well with onboarding you know eth stakers into liquid staking derivatives like rocket pool for example you need RPL to bond next to a validator and it kind of stunts growth a little bit but then Lido on the other hand you've got 29 hand pick node operators but that's more of a centralized approach I know as a part of the merge you also have DVT distributed validator technology can you dive into that and explain the significance of it yeah

definitely glad to and definitely we'll talk about how they fit into the LSD roadmap as well but yeah to put simply DVT like you said also known as distributed validator technology allows multiple participants to run nodes that contribute to one validator and then it essentially splits up the private key between these actors so it doesn't exist in one machine and essentially that allows for one there be to be no single point of failure both with respect to like the private key and not security but also with respect to uptime so for example if you have four nodes all contributing to one validator well really you only need one of those nodes to be online for it to achieve uptime and so you have a lot

more guarantees when it comes to that and obviously if you don't have a sufficient uptime you can be slash as a validator which is pretty huge as well um and then it also enables essentially because you can split up a validator that as an individual you don't necessarily need 32 eth to actually contribute to validation and receive staking rewards like it would split up again four nodes will you only need eight eth to actually contribute to that validator which lowers the barrier to entry for validating which I think is pretty big um but yeah heading into how lsds can Implement DVT which I think a lot of people think of DVT specifically in

terms of solo sticking for those benefits I just uh described but I think lsds can actually benefit a lot from implementing DVT and I know Lido has already done this on testnet with a couple of folks um but essentially like lsds they obviously want to improve the security uh with the the validators they have on hand and so by splitting up the private key that obviously helps there another thing the biggest thing for them is the option time right so if you like are able to ensure that none of the validators backing this liquid sticking derivative gets slashed for not having enough uptime uh I think that that's pretty huge and then it also allows and Lido's using it for this specifically to

have more permissionless validator so anyone can come in and validate because otherwise Lido was just taking in like whitelisted uh validators that they knew that they could trust to keep that uptime and that security well now that lighter can essentially run its own nodes so they contribute to validators to other people are processing they just have like better ways to ensure security by implementing DVT and I can imagine other lsds follow suit so can you just double down on why DVT improves uptime is it just because you know having multiple people running the same validator that's just like more opportunity to keep the validator online yeah I mean it's really that simple like because you have multiple nodes running the same validator only one of those

nodes actually it has to be online technically for the validator to run as intended perfect okay yeah that makes total sense then I can see that being like a really attractive opportunity for yeah not just solo stickers but also lsds but if we jump down to single uh single secret leader elections you know what how exactly these fit into all the of what we're talking about um and you know I guess why are they beneficial to the ethereum network as a whole yeah absolutely and I'm just going to refer to these as ssle because the title is such a mouthful but yeah so essentially what it is is um a group of participants can randomly choose a leader from that group or the

identity of that leader is only known to the leader itself and no one else in that group and how that pertains to proof of stake networks is you can really choose a proposer of a given block and the only person that knows that they are the proposer is the proposer themselves whereas right now in ethereum you basically know who the proposer is before that block actually happens and there's like a specific attack that is well known that results um as a result of knowing who the proposer is so let's say you're the proposer of the next block then the one that's currently happening well now you can essentially DDOS the network of the current proposer and force them to create an empty block and then for your

block you essentially not only do you have the transactions you were normally going to get but you also get the transactions of the block before you and that includes the priority fees and the nav and so um obviously this can be a profitable attack and by including ssles you can essentially mitigate this attack um I think so far I think Dan you looked into the data of how many empty blocks there there have been since the merge I think there's been 1750 so far and it's hard to tell whether these empty blocks were due to this kind of attack or just general empty blocks where no one had a transaction because you can't really tell if the network was ddosed you'd have to go to the proposal themselves or

maybe see manifold data it's really really tough um but whether or not it's happening at a large rate I think it's obviously better to not even allow this attack to happen as well as there's probably more attacks that we just haven't researched yet or haven't come up with that can come as the result of knowing who the proposer is ahead of time yeah I guess the follow-up research I need to do there is so you know there's been like about almost 2 000 blocks that uh were empty since the merge and I I guess if the idea is to get a substantial amount of Mev on the following block then if you like compared the the Mev taken on the following block to the average Med that we've seen extracted in a given block

and if it was significantly higher then I think there would be like okay maybe there is Credence to the fact that we are seeing this attack get played out in real time um but yeah no that that's super interesting as well uh and I think I guess to keep the ball rolling here the next one uh on the ethereum roadmap specifically as pertains to the merge is single slot finality um you know finality is something you hear a lot in the blockchain world what is finality why is it important to uh any blockchain especially ethereum and how are we going to improve that through time put as simply as possible finality is eventually is essentially having a very high degree of certainty that the the blocks that were created like that's it like they're done like you can't go back and change it essentially

um and so for ethereum their finality time actually takes two epics or epochs for them to reach finality whereas with something like Solana touts I think 600 milliseconds in their finality and then tendermint I think already has single slot finality um but a lot of the belief from ethereum in the past is that what they call like medium finality times not super long but obviously not single slot was good enough and they didn't think they're that improving it to single cell finality really brought that much improvement but I think they they've since changed their mind on that I think the biggest thing and the biggest reason why you want fast finality is basically to stop a reorg from happening which is

basically an alternative version of the chain so for example let's say Justin Tron lows up a billion dollars on Ave and then just like Loops it unnecessarily and all of a sudden there's a huge mov opportunity for liquidation there well then someone might you know buy a bunch of steak and try and re-org the chain so you might as well not even have that be possible and so with single with uh yeah single slot finality you basically stop any reorgs from from happening because you're able to finalize the chain in that specific slot and then another thing is just like General user experience so I know if you guys have ever bridged away from ethereum you have to wait like so long like 13 minutes for it to actually

bridge and that's because they have to wait until the chain achieves finality um and it's super annoying whereas now I think I think the bridges will probably still wait a little bit because they might as well but definitely not like 13 minutes it's going to be a lot a lot better than the user experience when it comes to bridging when it comes to getting off exchanges Etc I didn't even think about it too like in terms of payments like if you want to go buy coffee with stable coins someday you know in the future like you got to make sure that finality is near instant so that brings a lot of like real world use case examples so that's pretty cool to hear but that's uh that that's funny because we just spent 24 minutes explaining the merge and like most people honestly think the merge is over

so I guess this is a good time to switch to the surge which is kind of some of the more exciting stuff with actually scaling ethereum to to the masses so do you mind starting with the surge what it is and kind of the steps it's going to go through in order to execute it yeah healthy this is definitely the most exciting area of the road map given that yeah like you said it's the it's the goal of really scaling ethereum I think the specific numbers they want is a hundred thousand TPS whereas now the realized CPS is like 12. um and so yeah there's a lot more scaling to definitely go and sort of the vision of ethereum when it comes to the surge is a vibrant ecosystem of robust Roll-Ups all with immense transaction throughput and then they post their data

to the L1 for data availability consensus and settlement and so the the idea with the surge is to make posting that data as cheap and as easy as possible for these Roll-Ups right and that's where sort of eip4844 also known as proto-dink sharding which I might call PDS just for short and then eventually dank sharding which I'll call DS they come into play they're like the embodiment of this vision for the ethereum L1 perfect now let's let's kick it off with with Proto dang sharding eip4844 I'm sure anyone in the community has heard 4844 and like you know kind of has the idea that it improves scalability but can you kind of dive into the details of how proto-dink

charging improves scalability and what exactly it does yeah absolutely so essentially dank sharding it's extremely complex and so there's there's a few elements in it that we don't completely have the specs for and so rather than waiting a few years for those things to get sorted out proto-dink shorting is sort of like the the halfway step to dank sharding that includes elements that we know can be implemented today and so essentially what it includes is a new transaction format called blobs or data blobs and you can think of blobs as sort of like a sidecar on a normal transaction and these are called like blob transactions and then these blob transactions have their own separate fee

Market to that of normal transactions so you can think back to eip1559 where they essentially you have a Target gas per block and then sort of that the base fee fluctuates based on where you are on that Target and you can think the same goes for these blobs where instead of targeting I believe it's 15 million gas per block um under normal transactions here they're going to Target two blobs per block which is around a quarter of a megabyte in size and sort of as a result of the separation posting data to blobs instead of it's called Data directly to the chain is much cheaper and then

rather than using data availability sampling which comes in thing sharding the the nodes download all the data but they're able to prune it after 18 days so that's like a general overview of PDs and so specifically as it pertains to l2s why how do blobs help the l2s or like can users interact with blobs or is it only specific to those l2s that are posting call data to ethereum I mean technically users could use blobs but they're not going to use blobs yeah it's specifically a design for these l2s because right now what they're doing like ethereum right now is not made for Roll-Ups like a lot of the ways things are currently implemented it's kind of

like makeshift to make things work so I do it is they post call data directly like in the blockchain itself um and that that's how they do it whereas with blobs um we can we can go into like how they work specifically but instead of posting the data on-chain itself you sort of have a KGG commitment to that data um and so yeah it works a little differently and that that allows it to be cheaper and more scalable can you go into kzg commitments a little bit in the data availability sampling uh part of the equation I can do my best um yeah so kgd commitments are a polymer polynomial commitment scheme and I'm sure like when we get into dank sharding

and data availability we might get into the Paul and the little stuff a bit more and get into the math which seems a little scary but it's actually when you break it down at a high level it's not that scary at all um but yeah they use KGG commitments um instead of Merkle trees because it provides much better guarantees um under data availability sampling which is coming and again we can get into that later it's going to make more sense but essentially by like committing to the data instead of actually posting it on the EDM which is how it's done with call data it just um it's just way better in general but kg commitments require a trusted a trusted setup which essentially is like

a ceremony where a piece of data is generated and then that piece of data is used every time the protocol runs and essentially how how it's done is like data generated by a bunch of different actors that input a secret and then that secret those Secrets all together basically create that piece of data and then as long as one person forgets their secret then no one can take all the secrets and regenerate the data um so yeah that's essentially at a high level how kdg commitments work I hope that made sense oh yeah this is definitely like the Cutting Edge of of mathematics and and cryptography so it's it's tough topics to even break down but if I'm thinking about this correctly right like you know hashing is incredibly important

to blockchains in general so one of the Beauties in that's really created these things is like shot 256. you can put any input text in and get a unique output and it's only a one-way street right you can't take the output and recreate the input so when I think about uh these commitments that you just described you know you need everybody's piece of data to recreate the output but if only one of those pieces is missing then I have no ability to recreate that again because it's kind of like that one-way Street do I am I thinking about that in the right way yeah essentially and yeah kcg commitments you can think of them similar to like validity proofs where you have a bunch of like computation in this case data and it basically consumes it down to like

um specific elliptic curve Point um and you can think of Merkle trees as sort of uh I guess they use fraud proofs but you can think of it in the same way um where like kcg commitments you can actually specifically prove that the data was extended properly which we'll get to whereas with Merkle trees you need a fraud proof and so it's just like way more secure all right I'll I'll take the blame for getting us into that deep of a territory that quickly but uh I guess if we zoom out and Rewind a little bit um how much orders of magnitudes does this help L2 scale uh and if it's super drastic do we even need dank sharding which we'll discuss in a second for the time being or is that something that you

think we should maybe Kick the Can down the road until there's actual demand for Block space to that degree yeah it's a good question so yeah the original the original Target now is two blobs per block like a couple months ago the specs was eight blobs per block and I can imagine that over time they they increase from maybe two to four and then to eight something along those lines they'll have up sizes before we actually get dang sharding but it's tough to like actually specifically map out like the actual cost because again it's its own market and it's based on supply and demand but talking to to Justin Drake he seems to think that with proto-dink starting you'll have 10x Improvement on cost and then obviously with with upsizing they

might get more so but you also have to think about it in the context of supply and demand like as more Roll-Ups um start to launch on ethereum and they start to get more transactions well there's more Demand with the same amount of supply of blobs right so it obviously depends on that Supply demand Dynamic So when you say a 10x Improvement on fees does that like what will all be passed back to the user right like today you know if you just pull up L2 fees optimisms like at you know 20 or so cents a transaction uh like is that where the the 10x reduction will come in the actual cost that it takes a user to interact with the L2 yeah I think it's cost in posting the data to that one which obviously makes it that makes its way back to the actual user transactions

in the L2 but obviously these l2s today aren't really clogged as much as they theoretically could be right so again it all depends on supply and demand as a whole but yeah the 10x refers to 10x cheaper so like 10 cents per dollar that you're currently paying so net net then I guess uh you know the surge really focuses around actually creating this scalable environment to build on but that comes with like this massive increase in data and so that's where like the data availability sampling comes in right so the ability to uh just kind of test for certain pieces of data there and if you test enough times uh and it for a certain piece of data you can kind of assume all of it's there can you like really explain that process and kind of

what that looks like yeah definitely so like you said under proto-dink sharding all the nodes have to download the data but they can get rid of it after 18 days which obviously helps them but yeah we can get into dang sharding first so or now so essentially yeah like you said they Institute data availability sampling so that every node does not need to download all the data but they only need to essentially look at a small chunk which then allows the network to scale up the number of blobs they can generate per block by a large magnitude so like I said we were targeting two blobs under PDS but under DS they're targeting 128 blobs which is obviously a huge increase obviously with this requires like a specialized Builder because these blocks

will be 16 megabytes in size whereas right now they're 90 kilobytes and under proto-dink sharding with two blobs it's like um a quarter of a megabyte and so yeah it's a huge jump there but yeah with data availability sampling like I said it means each node does not need to download all of the data they only um download like a piece of the data and check it themselves and that's sort of when you hear of like dank sharding that's where the data itself is sharded and so um yeah I can get specifically into the math here and I think a lot of the stuff I said earlier would make more sense so essentially how it works under the hood is you need both a razor coating which

that like extends the data and then you need to turn it into a polynomial which is the polynomial math and like how I like to explain it is first looking at the polynomial so like going back to high school math I think we all know what polynomials look like it's like many terms with like a coefficient a variable and an exponent and you like add or subtract those together essentially and you get a polynomial and a lot of the graphs like they look like a squiggly line essentially um and one cool property of polynomials is that you can essentially recreate that polynomial only requiring one more Point than the degrees in that polynomial so the degree of a polynomial

is its largest exponent so if it's largest exponent is three like x to the third power then you need only need four points to actually reconstruct that polynomial and so if we look at like a set of data if you have like four points that we're we're measuring I essentially you need a hundred percent of the data to be available to to recreate that polynomial but this is where the the extension comes in so if you extend that data which sort of makes like fake data but derivatives of the real data then if you have eight points on that same polynomial you only need fifty percent of that data to be available right and that's where data availability sampling comes in because if you were to just do

it naively like on random data as it is well all of a sudden if you just missed that one transaction that has like a billion dollars stolen well all of a sudden like there's nothing you can do whereas this allows you to recreate actually recreate all the data and since you have 50 available in these extended polynomials you can essentially uh sample it enough times that you're like very sure do you have enough data so obviously at first to have to fifty percent of the data available it's fifty percent chance but if we sample it twice then 75 percent then again it's 87.5 and you just you sample it 30 times and like you're pretty pretty confident that you have all the data there and that you can recreate actually recreate the data and

because you can recreate the data that's where the kcg commitments you can actually prove that the data was extended correctly whereas Miracle trees like you can't actually prove that like you need to also Institute fraud proofs which exist in optimistic Roll-Ups but it's just like way better and then I don't want to get into the math of 2D kzg commitments um you can definitely look at dank rat he's talked plenty on that so I would look that up but essentially yeah k2g commitments verify that the data was properly extended and then allow like allow it so you don't have to post all the data on chain essentially um I hope that that clarified how Das Works no that was actually really good

blew away my expectations there in your explanation so it's a good job there um but I guess just to tie it all together what is the entire point of that availability sampling just so you know you can kind of put a bow on that part yeah absolutely it's just the ability so that like nodes don't have to download all the data to make sure it's available so you can essentially only have light nodes and they can make sure that the data is all there and data availability is super important because you need to know like at some point in time someone was able to download the data verify that it was correct and like give it like the thumbs up essentially and so this is like a way to do that at the most efficient level okay so it boils down to scalability while also keeping

the cost to validate relatively low so you're not you know getting all this bloat in terms of State growth and you're actually able to validate as you know an at-home person like you or I that makes a lot of sense in terms of proposer Builder separation you mentioned that in this new you know road map coming further down the line that Builders are going to have a really specialized role do you think you could dive into what role Builders play today and then also explain how that's going to evolve into the future yeah absolutely so so yeah one piece of dang sharding is that it requires PBS to be implemented because as I mentioned before they need a specialized Builder because you have 16 megabyte blocks and not like every proposer wants to create a 16 megabyte block nor the like can

they in general and so it requires a specialized Builder and right now the way things are implemented technically the proposers themselves is also the Builder um just like in the the general preset like if you're a proposer you build the blocks from the transaction to see in the mempool then you propose it to the network um as of right now I think 91 to 92 percent of uh validators are opted into Mev boost which is essentially the the external version of PBS and so yeah right now you have Builders within Mev booths that are building the blocks on behalf of these proposers and there's essentially competition between Builders

and building the most the highest value block at the Searcher level with Searchers essentially actually find the Mev opportunities um and then present that into bundles of transactions where they they give that to the block Builders and then in the end because you have competition at the Searcher level and the Builder level um they essentially like pay their way to have themselves included and so the Mev for the most part makes its way to the validators that opt into mov boost what's different under PBS is that it's implemented in the protocol so you have 100 participation instead of the 92 percent it is now and you have the at least the ability to force the proposer to take the highest value block that

they're given whereas now like if they wanted to a proposer could just make a deal with a block Builder and go around it whereas I mean that's still technically possible in PBS but it is it's a lot more enforced and you you can know if they're going around essentially um I hope that explained it and I know we had an episode in the past that I came on and explained nav boost and how how it worked so I would definitely take a look at that because that's like pretty holistically how things are going to work under PBS yeah that's actually the the inaugural episode of Xerox research so it's great to have you back on uh we'll definitely link that in the show notes if you're following along I would agree I'd highly

recommend giving that one a listen kind of gave a great lay of the land uh of how that system looks and I actually just pulled up meth boost.pics and we're actually closing in on a massive landmark of a hundred thousand eth captured through and returned uh it returned to stakers through Mev uh so it's like at current prices around 160 million uh 160 million dollars which is that's just so super exciting but obviously creates the uh opportunity for malicious actors to kind of take advantage of a very profitable system so how exactly does proposer Builder separation really hone in and focus on like democratizing these markets is that really just a separation of the uh those two entities and does that make being a builder like a

super challenging uh or like super energy uh you know Hardware intensive process yeah definitely great question so it is literally like taking nav boost and putting it um in the protocol um and so a lot of the same competition is going to result from the Searcher level to the Builder level I don't think much really changes like you said it's basically separating those two roles proposer and Builder and then things are going to look a lot like mov boost but like you said once you implement bank sharding that's when it's going to look a little different because the builders need to have a specialized role in building those huge blocks which then requires them to have Builder nodes that like have the ability to gather all the data

from the data shards all together into a block within the slot time enabled and so in my opinion like looking at this now it probably means that there's going to be more centralization centralization when it comes to that Builder role um although it's not not certain at the moment because it's likely that a lot of the builders that currently exist and maybe boost because they have their processes down because they are getting blocks included they have Revenue they'll likely scale up their operations but at the same time like you said it's a lot more cost enabled it's a lot the more expensive you need more Hardware more capability Etc so that may be a centralizing

function when it comes to these Builders because only so many people are able to afford that equipment and then generate enough Revenue through block building that they're able to sustain their operations and so that's one thing I think about that I'm not sure has fully been thought through is like having a huge huge requirement on these block Builders may be a centralizing force and then at the same time one thing I talked about in the last interview is like the builders have a lot of power and that they can see all transactions the mempool that the Searchers can and they can see the bundles that the Searchers send them like before they get them and so if they wanted to they could still front run the Mev opportunities that Searchers are looking for so maybe because of the the bigger requirements

on these Builder nodes that all of a sudden maybe they start extracting Mev for themselves and front running the Searchers I'm not sure I'm saying that like that's a possibility given the the construct that they have so I think there's a lot to think through when it comes to requiring the Builder to have so much like power and ability essentially yeah that makes a lot of sense well I see I saw you tweet I don't know a few weeks ago that you found something on the the magician magicians Forum uh talking about Mev being burned is that a part of uh The Scourge or is that uh something completely separate and overall what are your thoughts on it yes I mean MAV Byrne is yeah it's something I only heard about like a month ago but when when you look at the

the diagram for the the roadmap that vitalik released it does that Me Be Me Burn in there so it's definitely something they're thinking about implementing but yeah to to go into the specifics essentially under PBS and I guess any mov boost now Mev is essentially rewarded to validators uh stake on the network or specifically the validators that propose that that block um but under Mev burn instead of paying that to that specific validator that eth is burned which sort of has like a different structure when it comes to Rewards or rather than rewarding that specific proposer you're rewarding all etholders because it essentially contributes to the e-supply as a whole

um and they've already been thinking about Mev smoothing as uh like a thing they want to implement because when you have right now it's essentially a lottery system like it all depends on the Block that you're validating whether you get like a lot of mov opportunities or very little a lot of transactions with priority fees are very little so it's especially with Mev it's like a lottery model I know I've seen a lot of Twitter Bots that report like when a huge mov block has been created it's like dang I wish wish I got that um it's like a different style and it for ethereum researchers they think that it incentivizes people to pool their eth

because sort of like um the median eat is higher than the average eth under a lottery system there's a lot of people that just want like a general yield as opposed to a lottery or maybe they hit it big but really maybe they only get rewarded very small and they become the specific composer for a block and so by smoothing it helps to stop that centralization because otherwise people will be chasing the the median yield and we'll pull the capital together and so they think that it's a better way to incentivize more decentralization and this is just like a different implementation of that yeah the smoothing makes a lot of sense to me I mean I know people obviously

like the sound of a lottery especially in this industry but um you know I guess the beauty of of liquid stakey protocols you know that essentially is what that is right there nobody gets nobody in a liquid like if I own steak teeth I don't like pick which blocks I get the Mev reward words for you know we just share the total rewards from Lido validators but when I think about like Mev burn like right now I personally like almost view that as an additional incentive to stake right because if I just hold eth then I get all the the base fee burn that flows to me right because that's decreasing total Supply so that kind of like flows to to me as a holder um and right now I ran this number these numbers for our year-end report uh so I

haven't looked at the last two months but Mev made up for around like 15 10 to 15 or so percent of total staking rewards and so it's like does it make sense to burn all those rewards incentivize just holders and it's like you know because then if I'm like as a holder I'm making all this I'm making money right but like I'm getting this these flows to me through burn that like it's like why you know do I need to stake or like I'm doing fine not staking so what do you think about that like does it truly make sense to be burning this or could you potentially make some like Dynamic element you know at certain times based on certain conditions we burn Mev like I don't know what are your thoughts there yeah for me personally I've thought through this and I'm more

so against Med Byrne for a couple reasons I think there's a lot of people who stake especially like individual solo stakers that only do so because of that Lottery like they want the chance to get a bunch of eth in a random block um and I'm sure like I know me personally like I would certainly sell the steak for that Lottery opportunity and so I can imagine other a lot of other people want that um although maybe it doesn't matter what most people want like you're trying to stop the the centralization of ethereum which I understand but also with the MVP burn itself um ethereum researchers are looking at this also from the supply lens which I'm not sure they need to but essentially

like you said like there's less of a reason to stake because there's less staking rewards and these rewards are essentially democratized all etholders well as a result you get less people staking Which is less issuance and any of you burn which burns more eth so on the whole um like ethereum Supply uh it can be a lot more deflationary than it is although I don't think it needs to be all that deflationary I think it's perfectly deflationary one as is and to like even if there's a slight inflation I think think that's still way better than under proof of work and I think giving the Mev rewards to stakers um it's just like a a better better outcome like because more people are

willing to stake which um obviously is better for network security as a whole and yeah so for me personally I'm like sort of against MAV Byrne but I think the ethereum researchers are more so for it I think I'd take for it honestly like just from what you described just because if you're staking eth you're not contributing to any Mev right so why should you be entitled to those rewards like the users transacting should be the ones who get rewarded and then on top of it the consensus Lair Awards still outweigh the Mev so hold or non-stakers are still in the end getting diluted daily in comparison to stakers but yeah that's an interesting question one I'll be uh paying attention to

closely over the next few years I think that's a perfect spot to end at Westy thanks so much for coming on uh we'll have to have you on again here soon um to explain kind of the rest of the things going on in ethereum yeah thanks for having me guys it's super fun I I know I'm super excited about where the road map is headed specifically with the scalability of Roll-Ups and yeah is definitely glad to to get my thoughts out and to to explain to the listeners sort of where eth is headed uh in the next few years yeah great you want to tell people where they can find you absolutely yeah you can find me on Twitter at Westy capital and then definitely read blockworks research if you can at blockbridge research.com we've got a lot of free reports uh we have our governance product coming up

and then data later in the summer there's definitely a lot to be excited about when it comes to blockworks research Perfect all right we'll catch you later Westie