LSD landscape chat, Bullish ETH and more - The Daily Gwei Refuel #595 - Ethereum Updates

Transcript

hello everyone welcome to another episode of the early gray refuel where we cup latest news in ethereum ecosystem I'm your host Anthony sassano it has the first of June 2023. all right everyone let's get into it so I kind of kicked the Hornet's Nest today or I guess the Hornet's Nest may have already been kicked when it comes to ethereum staking and in particular the centralization concerns around liquid staking derivatives tokens or liquid staking service providers such as the Lido Lidos of the world right another such providers obviously lighter is the biggest centralized player and the biggest player in the ecosystem at the moment whether it be centralized or decentralized and I saw a bunch of discussions happening around this and this is something that I've talked about a lot on the refuel before uh it's not a

new topic by any means but I put out this tweet that ended up being a lot longer than I thought it would um they had Twitter's new kind of feature where you can basically tweet up to I think like 5 000 characters is actually pretty useful when you've got something to say instead of threading it so I want to go down this tweet that I put it out like kind of line by not line by line like paragraph by paragraph and kind of expand on what I've said here because I think it's critically important to both understand the points that I'm making but also understand the points other people are making and see how this is a multi-faceted and complex issue and not something that is going to change overnight not something to be tackled uh lightly and not something that that can be changed by just the social layer

which is kind of the main point of my tweet and you'll see why so I started off the Tweet by saying you know many of my fellow ethereums are going to hate me for this tweet but it needs to be tweeted maybe you hates the wrong word yeah I think that many people might disagree with me but I think this is just a harsh reality of the situation so I said centralization centralization concerns around lsds are well founded and I agree with a lot of them but the solutions presented often leave a lot to be desired particularly putting too much emphasis on what the social layer alone can do and I've talked about this before I've said the social layer is quite powerful but it can't just be used on its own you can't just keep yelling at someone to do something and then expecting them to do it there needs to

be action that accompanies that uh that kind of um I guess like social error initiative and then I continued by saying the social layer was able to fix the client diversity issue at least on the consensus layer side because it is a fundamentally different issue to the LSD centralization uh concerns I would go as far as to say they shouldn't even be compared and I really don't think they should and the number one reason is that with staking centralization or I guess like with with staking generally and and talking about changing providers there is a very direct and apparent economic incentive uh kind of game going on there that isn't as apparent or nowhere near as apparent as it is it is with client diversity so for example when an

everyday user I'm not talking about whales or anything like that I'm talking about an everyday user who has like 5 8 for example when they're looking for somewhere to stake if they're more clued in then your average just investor that Stakes on a centralized exchange they're going to look at what's providing them the most APR and a lot of the API calculations honestly leave a lot to be desired a lot of them tend to it depends on what interface you're looking at but a lot of them tend to just do backward looking by like a day or seven days which I think isn't a long enough time frame I think at least 30 days you need to back you need to look at the backward APR there and backward API isn't exactly accurate to to forward APR either because we don't exactly know what it's

going to be going forward it's kind of hard to calculate given that the execution layer awards are so volatile but people are just going to look at that and they're going to go with uh well not all of them but a lot of them are going to go with what's paying out the most right and the people that are using lsds are not the people well most of the time are not the people that are running the validates and running the the nodes so they're not even thinking about things like client diversity whereas the people running the nodes running the validators they want to make sure that they're not offside they want to make sure that they uh are doing what's best for the the network and doing what's best for themselves too in case something was to go wrong and they are a lot more technical in nature if

they're running the the validators if they're running the nodes they're a lot more clued in obviously and if they're a big provider they're definitely including definitely aware of everything happening in the staking space so the two in my mind there's just so many reasons why they shouldn't be Con in compared and why it's actually easier to change uh clients because literally changing uh clients is is not something that needs to go through a cure or anything like that you don't have to like unstake your eighth and then restart it somewhere else there's no risk to your there's not I mean there is maybe a tiny risk to your Capital maybe you accidentally get double um I get slash for double signing or anything like that but the risk is very minimal there and you can change your clients very very quickly and there are a number of different ways to do it

whereas changing staking providers I mean if you're if someone's telling you you need to change because uh like you know for example lighter's got too much marketer you need to go somewhere else well okay uh that would require them to sell their LST right which would most likely incur tax life abilities for them it would require them to then go ahead and re-buy the other LST make sure that they aren't suffering some kind of slippage or that they're not buying the thing at a premium so they aren't suffering any loss there and then also you have to convince them uh that the APR uh that they've been getting is going to be better or the same with this new service so it's just a whole mess of things right so that's why I think that that the two things shouldn't actually be compared

and why the social layer alone is a lot weaker with uh I guess like the LSD space than it is with the client diversity space and then I continued in the tweet and I said if my fellow ethereans want lighter dominance to go down then then they need to create and promote better liquid staking protocols and then vampire attack the hell out of Lido with them and I continued and I said we all know the most powerful force in crypto is economic incentives but too many people still want to sit around and hope that their social signaling will somehow lead to change with this issue I'm here to tell you that it most certainly will not so when I say kind of vampire attack yeah this is a term that's taken from defy summer where essentially it was popularized by Sushi swap uh I guess

like is a fork of Unison was originally a fork of uni swap came along and said hey everyone migrate their liquidity to Sushi Swap and we'll pay you out with sushi tokens and liquidity mining rewards in order to uh to come you know provide your liquidity here and the capital moved quite quickly there was a pretty massive outflow from uni spot but pretty massive influence of sushi swap but it was a very very short-term game uh and it didn't really work and it obviously didn't work out for sushi swap over the longer term they don't hold the candle to unisop in terms of usage and and volumes here but that's not to say that something similar can't be done in the LSD space and I'm not talking about something that appeals to djans and some some crazy inflated apis of like 100 or something like that I'm talking about

just layering on some token incentives uh and some kind of other incentives for people to migrate from Lido or to stake with your service if you're if you're um if you're a founder or part of the team that's that's spinning up a staking shows uh to to do that with you instead of going with Lido and I actually think a lot of the the um a lot of the new stake if we can get a lot of that new steak to go with providers other than Lido that is a huge win because getting people to rotate out of Lido is going to be a more of an uphill battle and to get their actual dominance down uh would require the stake actually being withdrawn from lato itself so unless there's like a Max Exodus which I don't expect there to be anytime soon unless

there was a kind of bug with lighter that that scared people off uh was going to be glido's dominance is most likely going to go down uh because people are going with other services instead of of Lido uh and as I said like we we all know the most powerful force is crypto economic incentives so let's use them to get people to not stake with light on to stake with someone else and let's hopefully keep chipping away at lighter's dominance with those incentives in order to get people to potentially leave later to go stake with somewhere else and as I said I'm not talking about doing short-term degenerative yield farming games I'm talking about doing a longer term you know years worth of incentives to get people to stay with you and to switch to you and if they're happy with the product they're not going to leave and I

think this is a a pretty big um uh a thing that people don't talk about Lido isn't something that just came along and was able to get you know whatever 30 something percent of market share of of the um ethereum staking space later has been around for a long time they were the first mover they have put in a lot of work to get to where they are and now they're just reaping the rewards of that work of having an amazing product of doing the the groundwork to get it to that point and the other uh projects need to do that rocketpool is amazing right don't get me wrong I love rocket but it hasn't been around as long it hasn't been well I should I should say hasn't been live as long they uh they they were the second mover here they weren't the first mover so they have

that as a disadvantage honestly because first mover Advantage is a pretty big deal but they are growing right they're continuously growing and they're continuously improving but they have a lot of work to do still and then you have other ones coming online that are even younger so when thinking about things from a product perspective Lido is an amazing product for the people that use it people that use it have no issue with it they get to earn a yield on their eighth they get to say they're staking because they're holding an LSD and they're not operating a node obviously and a lot of the times those people don't care about decentralization they don't care about um the health of the network because they're obviously not uh people who are very include in to ethereum and that's that's totally fine but in saying that these other protocols have a lot of

opportunity now to eat into lighters market share to let in lead to eat into the market that Lido has proven out which I think is going to definitely play out as time goes on and then I continue continued and I said social signaling then you that you want lighter or really anyone to self-limit is a non-starter and I've been saying this for a long time it's just not going to work the definition of insanity is doing the same thing over and over again and expecting different results this is what is happening with the self-limit talk and I've criticized the the self-limit talk before because there's just no way that any rational kind of I guess like for-profit business is going to vote to a self-limit its market share like it's just not going to happen right and the more that you social signal that they should be doing

it the more they probably start to resent you and the more they don't want to do it I know this is it this sounds silly and this sounds something it sounds like something that shouldn't be happening but you have to look at the reality of the situation you can't just keep hoping and coping that it's gonna basically turn into the way you want it to be you always have to look at the reality of the situation which is what at least I try to do and this is the reality this is the harsh reality and as I say I know people are going to hate me for these opinions but I don't think they're just opinions based on nothing I think they're based on the reality that we see today and then we just add some positivity here I said in saying all of that there is importance and Power in

Social signaling because it makes people aware of the issue encourages tackling of that issue and signals to The Wider ecosystem that ethereum wants to meet its problems head on and this is ethereum's I think one number one superpower or close to to its number one superpower is that that the ethereum ecosystem is not afraid of tackling the hard questions it's not afraid of doing this in public it's not afraid of people throwing fight at ethereum over certain things ethereum develops out in public there you know there are a lot of people who who give their thoughts on Twitter for better or worse and then we hopefully get to a good outcome in the end and this stuff being openly talked about uh without people trying to sugarcoat it or anything like that is Incredible strength and that is where I think the the most strength comes from

when it comes to social signaling so I'm still very happy to see the social signaling but we have to turn that into action and that's why and that's when I ended the Tweet by saying Social signaling without action is useless I want to see action so everyone who is building an LSD or part of an LSD Community this is a call to action for you it's time to kick it into high gear and eat lydo's breakfast lunch and dinner and its second dinner and of course I'm here to support in any way that I can it really is time there's no more waiting withdrawals alive there's nothing left to wait for get your projects live do what you need to do in terms of capping it early on to ensure safety and things like that start doing incentives to get people to switch to you make sure that you've built great

software for nerd operators to use make sure it's easy for them to use it and do aggressive marketing do aggressive Business Development hire the right people to do all this sorts of stuff and you will see success I don't think that Lido has a monopoly that it can just maintain forever I do think that lydo's dominance can be chipped away at it's not going to happen overnight though the staking system as it exists today is probably going to look very different in a few years right but it is a slow moving Beast as I've discussed before it's not going to happen overnight it's not going to be something that you're going to have to you're going to be able to pay attention to in the short term I mean lighter withdrawals have only been live for two weeks and I know we didn't see anyone really withdrawing from Lido

but that doesn't mean they won't in the future all it really takes honestly on on the on the Lido side of things is if there's a major bug I think a lot of people would actually leave if there was a major bug but then all it takes on the other side is for all these other staking protocols to eat into Lido's dominance about offering incentive to to do so this is exactly what happens in the real world with other businesses right not just in crypto businesses but just generally with other businesses they all vampire attack each other they all offer incentives to get market share from their competitors and that's exactly what should be happening in the ethereum staking space so that was the the kind of overall tldr or maybe not tldr but a longer version of my tweet here and there are a few related tweets

that I wanted to highlight one was from uh Paul and IA here who said uh when it comes to ethereum staking small players may reshuffle but in a Pluto plutocratic game like proof of stake or proof of work smaller players are marginalized to State the obvious it mostly matters what Wales institutions custodians and family officers do unfortunately many many of these entities do not have an alternative Beyond Lido so that's another important point is that Lido caters to these uh these kind of entities because later is huge St liquidity is deep uh you know lighter has a good reputation behind it with these players they do the business development they do all this kind of work that gets them um or has gotten them to where they are today and then uh Paulina offers some a kind of advice here how of how to be

more competitive with Lido for the other providers you need to be as scalable as lado uh you can be more decentralized and decentralized faster than later you need lower commissions and higher returns and incentives to compete aggressive BD Target institutions and when I say aggressive here guys I'm talking like next level aggressive you need someone who is so hungry uh to increase the market share of your staking service provider and so hungry to take market share away from Lido that that's all they think about that's what you need right to to tackle these sorts of stuff um and those people do exist but you need to incentivize those people too right you need to pay them the right uh right way you need to give them token incentive stuff like that right and then of course D5 integration is also very important and that's obviously being

done as well and working in the background but that comes with all the other stuff that comes with dominance the more dominance you have the more people want their their favorite apps to integrate your LST and the more that will happen so that that's all a natural flow on from there and there was a tweet here from Ethan Hughes who I basically went over what the market share looks like of different lsds uh six weeks after the Chapala hard Fork so you can see a percent change in respective liquid staking uh derivatives or LSD market share uh with a bunch of the providers uh listed here which I'll link in the YouTube description below um but yeah I mean Lido is pretty flat rockable has been growing really nicely coinbase lost a bunch I think because of the Arbitrage that was happening between CBE and The Ether coinbase had on the

beacon chain frax has been growing as well but as far as I know fraxism in its current state is quite centralized but that's okay because I think that even if steak is going to other centralized players it's better than it going to Lido because it's all about getting their dominance down right at the end of the day but you can check out this tweet I'll link it in the YouTube description below Danny Ryan also reshared his blog post around um or I guess like his GitHub Pro Str around lsds being above critical consensus thresholds opposing risks to the ethereum protocol it's a short read but a very apt one so I'll link that in the YouTube description below and that's it for I guess like a lot of the opinionated stuff on staking but there's one last thing around lsds here so I came across this project uh called

Prisma finance that kind of came out of stealth I believe yesterday so there are non-custodial and decentralized ethereum LST backed stablecoin so essentially what they're trying to build is a stable coin I think this is from the curve guys but a stable coin called AC USD that is fully collateralized by lsts such as Ste cb8 R8 frax eighth and uh uh binance 8 or Bay athia which I think is is really important too because it means that there's going to be hopefully more liquidity driven to these uh these lsts and then in turn creating a better stable coin for everyone now you can go check out this project they also announced their fundraise here I'll link it in the YouTube description below but this kind of stuff is going to what's

going to kicksteaking into high gear I think because collateralizing things with lsts is really cool because what you end up getting is you get this stable coin that basically has uh is basically collateralized not just by eighth but by the but by staking and then that yield that is on the staked eth can be fed into it and then it can be all kind of different games you can play here and different things you can do here which I I think is pretty fascinating but anyway you can go check this out for yourself I'll link it in the YouTuber description below all right so Lucas from the nethermine team has shared that never mind uh nevermind sinking is now very very fast because it scales with your resources

and uses them to the max to to achieve it so you can see here that he was saturating his processor as well as like 100 megabit connection um and apparently he was able to sync a full node or uh in about 1 hour and 50 minutes for a node to start validating blocks here uh which and then in parallel um he was sinking old bodies that's really cool because it means that within probably under two hours both the El if you're using the other mind and the CL if you're doing a um a a snap sync on the CL it's not called Snap sneak it's called something else I can't remember the name right now uh uh but if you're doing that you can get started in under two hours obviously you would need more beefier Hardware to do this because

you need that hardware and that connection to to do it this fast but yeah it's pretty cool to see that never mind scales with Hardware here so yeah I'll link between description below you can check out more info from Lucas himself and a bunch of replies in the Tweet as well all right so terencia has written a document for the new validate validator and Builder interaction for the upcoming uh dencoon ethereum upgrade so this is basically a more technical post here that I just wanted to highlight for everyone to check out this is the kind of stuff that uh I guess um developers need to be aware of or developers that are using uh that are interacting with uh the beacon chain and and node software and stuff like that

particularly need to be aware of so you can go check this out I'll link it in the YouTube description below but not much to say beyond that honestly uh it's just something that I figured was worth mentioning for you guys uh to check out there all right so Tony from the Mev boost.peaks website has open sourced a data set with validated public Keys mapped to labels such as Lido Kraken rockable Etc including the individual Lego not operators you can now access this at mevboost.pics data dot HTML up it's updated on a daily basis and the deposit addresses and the necessary heuristics for specific validators were primarily gathered by hilldobby so this is basically a data set that you can use to build really cool sites like the ones that I've been showing lately like

raider.network for example or anything like Meb boost stock picks and anything that visualizes uh the ethereum staking ecosystem is particularly around Mev boost so if that's something that you're interested in you can go check this out the data sets are available at that website and I'll link the website of course in the YouTube description below for you to check out as well and you know what I've it's funny I've highlighted uh Tony so much on the refuel in the past he's just doing a bunch of amazing work around uh around data I mean the Mev Boo stoppix website is probably at this stage the best website for keeping on top of what's happening in Mev in terms of in terms of metrics and easy to read metrics here so just a huge shout out to him for doing this and he doesn't just maintain this

website by the way he's actually an ethereum researcher and uh working on a bunch of other projects as well so just a machine of of a guy here in the ethereum ecosystem is just a shout out there and also while I'm on the topic of giving shout outs Hill Dobby as well has done so much work around getting uh amazing Dune analytics dashboards up and running and just playing around with all the all the data he can get so shout out to both of these guys for their amazing work in the ethereum ecosystem all right so Sovereign Labs here has announced their SDK has entered Alpha so this is a toolkit for developers to easily launch their own applications as ZK Roll-Ups which is very cool because I've been talking a long time about how

I believe there's going to be a proliferation of after specific Roll-Ups and there's going to be a lot of these tools that allow developers to quickly and easily spin up their own app specific roll up and The Sovereign SDK is definitely one of those tools so you can check out this blog post for full details on that and also I should mention not to be an eighth Maxi here but to not be an Ethics Maxi yacht is that it's not just limited to ethereum this will also work with other ecosystems once they're live such as Celestia and Avail um and it basically is aiming to be plug and play with pretty much every ecosystem whether it be a layer one settlement layer like ethereum or maybe you want to use ethereum layer one as just settlement and uh and kind of like

dispute resolution and stuff like that or sorry for proofs because it's a ZK Rolex up and then you can use Celestia or Avail as your data availability layouts you can kind of create like a validium type construction different adapters for your ZK VM such as risk zero here all different kinds of things that you can do so really the uh I guess like where the um the goal here is to provide a modular kind of development ecosystem or SDK that people can use the developers can use to build their app specific chains so really great to see this you can check this out and I should disclose here that I'm actually an investor in Sovereign because I love investing in all things roll ups and l2s all right lastly here we have an announcement from a redstone oracles so

they've announced their recent funding around the recent Angel rounds uh that had a participation from a bunch of high high uh I guess like quality and high influence Builders such as stani from Avi uh avestani uh Sandeep from polygon Alex from ZK sync and a bunch of other people here as you can see and they're also named uh in the uh the thread key now for those of you who don't know what Redstone oracles is if they are a modular Oracle Suite uh that are trying to basically compete with I guess a chain link and other Oracle providers to deliver cost-efficient oracles for uh defy for l1s and l2s and all that good stuff there so you can check them out for yourself I'll link this in the

YouTube description below but congrats to them on the Rays here it's great to see more competition here I know there are a lot of channeling fans out there and there's nothing wrong with chain link I love chain link right I love all the work that chain link has done or not just the Oracle side but everything they're trying to do across very various different domains but at the end of the day I think you know more competition is always healthy no matter where it is right you know I even think and ironically enough I even think that the competition within the L1 space even though the L1 competition has been just really bad like most of the other l1s aren't even trying to compete with ethereum I still think it's been it's been overall probably net positive for ethereum because for every other L1 that

fails or dies it just strengthens ethereum and it shows us what not to do it shows us why the path that ethereum is on is the best path to continue down and why and ethereum keeps winning because of that so actually ironically enough think that the other l1's as as kind of extractive as they've been in a scammy as a lot of them have been probably overall net positive for ethereum in in the longer and longer run here so the same is true for for just like any any kind of competition and I think that uh that Redstone Oracle series is hopefully going to make chain link a better product as well and other oracle's better products by just bringing that competition to the Forefront here so yeah you can check this out I'll link it in the YouTube description below now

I've got a few minutes left yeah and you guys have been enjoying my uh my market talk recently and I want to talk a little bit not about the markets in particular but about something that I I don't really talk about too much on the refill because it's more of something that I think that is like if there's like 10 levels of crypto or of like ethereum this is like level nine or ten I would say in terms of of the understanding that you need to actually grasp what uh I'm going to talk about here now what am I talking about exactly well I'm talking about the value of eth as influenced by things that are indirectly driving value to it on the surface but directly driving value to it under to the surface now what are these

things well these things are things like credible neutrality censorship resistance decentralization security you know distribution of stake all these other all these sorts of things that people don't look at when they look at evaluating eth as an asset because you'll have seen plenty of valuation kind of attempts of eth usually they'll take an assumption of okay well this is how much either is going to be staked this is how much it is going to be burned let's slap a monetary premium on it whatever that means in whatever report you're reading right let's type a store value premium on it let's do a PE calculation and hello let's spit out a number and I'm sure you saw the other week there were some people on Bank lists are saying that they had a price prediction for eighth of like 50 000 by the end of the decade but a low price of

like 300 and these kind of uh numbers are just insane to me um and not you know just the volatility that that is there is just just crazy and a lot of it is just based on those kind of surface level valuation metrics whereas a lot I strongly believe that a lot of its value is derived from those under the surface things it's derived from what I was just talking about the fact that that ethereum's competitors just keep dying basically and just keep failing to actually gain market share it's derived from ethereum continuing to execute on its roadmap continuing to prove out its road map continuing to prove out the success of things like layer twos it it drives value to eth Via ethereum

continuing to prove out its censorship resistance ethereum had its biggest test of its censorship resistant properties uh since the ofak sanctions right since August of last year and it has passed it with flying colors we uh we really did uh uh not fix it entirely obviously there are still some level of censorship on the network but we have mitigated it a lot and there are plenty of other Solutions coming down the pipeline like PBS and Mev burn to eliminate that even more then ethereum's credible neutrality as a network has been proven out and and the longer ethereum exists as a credible neutral networkably neutral Network the longer it gets proved out the more Lindy that has and how I Define credible neutrality here is that the ethereum network doesn't bias any one participant or any one entity it doesn't do things

that favors any one party it just exists as permissionless neutral infrastructure as much as it can maybe it's not 100 neutral maybe it does by some sort of things like some people would argue that the ethereum network is biasing layer twos because it's not focusing on uh layer 1 scalability and I think that's kind of a silly way to look at it I think when I look at it I look at it's focusing on on biasing layer twos uh and and scaling for layer twos because that is where the users are going to sit and that is how we retain all these other properties and then other things like ethereum's decentralization uh ethereum's ability to to tackle its problems head on like like what I was talking about the beginning of the episode with lsds and stake centralization and and stuff around that I think all of that feeds so strongly

into ether as an asset and gives it so much value but it really is something that you need to be at like level nine or ten right out of ten for of the ethereum ecosystem to actually understand and to actually understand why it drives value and why it's important and the only way you get there is by hanging around for a long time because these things are long-term things these things play out over decades right they don't play out overnight they don't play out even over one market cycle it takes multiple Market Cycles over potentially decades for it to play out and ethereum is coming up on 10 years since it's Ico next year and then in 2025 it will be ethereum's 10th birthday so it will have been a decade of ethereum proving out all of this sorts of stuff and then when you compare this to other networks that

are competing with ethereum they are basically at the beginning and they have to do all of this and pretty much none of them have even attempted to do any of this so yeah anyway as I said not exactly Market talk but more kind of talk around what drives value to ether's an asset below the surface because it's all well and good to look at the surface level staff because that's easy to explain you can say to someone hey you know we're burning this much Ethan this is what eats issue is now and look how much atheist locked up in staking but what really drives value to eth over the long term what makes it a strong story of value what makes it a competitive asset in the marketplace of assets is all of that stuff that I just talked about so hopefully that gives you a lot

of extra context around how I think about Eve and why I'm so bullish on either about you know beyond the surface level stuff and hopefully you can be too but anyway that's going to be it for today so thank everyone for listening and watching be sure to subscribe to the channel if you haven't yet give it a thumbs up subscribe to newsletter join the Discord Channel and I'll catch you all tomorrow thanks everyone