Ethereum Moves Toward ETH 2.0 With ‘Super Experimental’ Testnet

In brief

  • Steklo launched today.
  • The testnet involved participation from Eth1 and Eth2 clients.

Ethereum 2.0—the forthcoming proof-of-stake blockchain that promises to be faster and cheaper than the current network—is getting ready to deploy.

Developers at several Ethereum software labs, as part of the ETH Global Scaling Hackathon project called Rayonism, today launched what one researcher termed “a super experimental Eth1-Eth2 post-merge testnetwork.” 

The testnet, known as Steklo, is aimed at exploring a new way of executing and finalizing transactions.

Since its creation, Ethereum’s consensus mechanism—the way in which it validates transactions and adds new blocks to the blockchain—has mimicked Bitcoin’s. 

Bitcoin and Ethereum both require users to “mine” tokens, which equates to dedicating their computing power to solving difficult cryptographic puzzles—and then being rewarded in tokens and fees if they’re the first to do so on the network. 

Ethereum 2.0, which was launched in December but is not yet a functional network, changes that. Currently in development, the new proof-of-stake blockchain will rely on users locking up their Ethereum as a way of verifying the legitimacy of transactions. Validators who keep connected to the network and help secure it earn ETH as a reward. Those who try to attack the network or fail to stay online can lose their “staked” deposit.

While the initial thought from Ethereum core developers has been to continue adding upgrades to Ethereum 2.0 until it supplants the current Ethereum network, the new “Rayonism” approach—if adopted—would maintain and merge two different systems: transactions would occur on the current network while consensus, or finalization, of those transactions would happen on what we currently think of as Ethereum 2.0.

But, to test out the concept, developers first need, well, a testnet. Which is where Steklo comes in. The work involved collaboration from three Ethereum clients—including Geth, the software client used by over 80% of the computers running the Ethereum blockchain, as well as Besu and Nethermind. But it also needed Eth2 clients Teku, Prysm, Lighthouse, and Nimbus to participate.

Besu client senior product manager Sajida Zouarhi told Decrypt it’s all part of the process of building a better network—and something that teams were happy to participate in: “What we hope to learn through the Rayonism Hackathon is how we are going to scale Ethereum. More specifically, what do we need to get to Ethereum 2.0 in terms of specifications, performances and development. So we are experimenting with Merge and Sharding Eth1-Eth2 tesnets to figure it out.”

That said, “Steklo is going to be a short lived testnet,” she said. “It’s not supposed to run for more than a day.” A longer-running testnet is due out next week, according to Ethereum Foundation researcher Diederik Loerakker.

So, if you’re hoping this means the speedier, more secure Ethereum 2.0 is around the corner, you still have to wait awhile. Said Zouarhi, “Steklo is just step 1 of N on the way to Eth2.”

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After $4.2 Billion Earthquake Sends Bitcoin Sharply Higher, Investors Brace For May Crypto Price Volatility

Bitcoin has suddenly shot higher, climbing after the expiration of $4.2 billion worth of bitcoin options contracts—allowing investors to buy or sell bitcoin at a specified price within a set time period—sent shockwaves through the crypto market.

The bitcoin price, still on track to end April down, jumped around 5% after the options expiry, climbing to just over $57,000 per bitcoin before falling back—though “joke” cryptocurrency dogecoin has left bitcoin in the dust this week.

With the bitcoin price breakout helping the crypto market to a strong end to the month, traders and investors are closely watching what May could bring.

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Following the hotly-anticipated market debut of cryptocurrency exchange Coinbase, the bitcoin price came off the boil, falling back from an all-time high of almost $65,000 set on April 14.

Many bitcoin investors had been hoping April would bring a flood of fresh all-time highs, but bitcoin is set to close the month down around 3%.

“Needless to say, bitcoin didn’t move the way many derivative traders expected this month,” Nate Cox, the chief investment officer of digital assets investment company Two Prime, said via email.

However, expectations are already building for the month of May, with some bitcoin and cryptocurrency market watchers pointing to bitcoin’s previous performances in the aftermath of other major options expiries as evidence the late April rebound will follow through to May.

“Historically, we have seen prices drop in the days leading up to bitcoin options expiry, only to rebound afterward, confirming the continued bullishness around bitcoin,” Steve Ehrlich, the chief executive of Voyager Digital, said in emailed comments.

“We can look to the bitcoin options expiry in February as an example: we saw the price close around $57,540 on the Monday of the week of expiry and watched it fall steadily to around $46,340 by Friday, February 26, 2021, the day of the expiry. Afterward, we saw the price shoot back up, even breaking the $60,000 mark less than a month later on March 13. So while we experience a price drop in the days leading up to expiry, the bullishness around bitcoin picks the price back up thereafter.”

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Looking further ahead, June and its quarterly futures contract expiry could be shaping up to be the next milestone for options traders.

“It’s interesting to see the next highest open interest is on the June expiry with 54,200 open interest, rather than May with only 35,700 open interest,” Justin Chuh, senior trader at digital asset manager Wave Financial, said via email.

“Market participants may be looking to align themselves with the June quarterly futures contract and use that as price discovery for spot. Also, there seems to be a more even put:call ratio in June, usually we’ve seen heavier interest in calls [bets that the bitcoin price will rise], and buying puts [bets the price will fall] are expensive, but this may be an early indication that more investors may be worried about downside protection as time goes out.”

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2 key Ethereum price metrics prove pro traders are behind ETH’s new highs

As Ether (ETH) made a $2,800 all-time on April 29, so did its futures open interest. The $8.5 billion figure marks a 52% monthly increase and shows robust trading activity behind the meteoric price rise.

Some analysts might dismiss Ether derivatives, considering CME’s future has $355 million in open interest compared to Bitcoin’s $2.4 billion. However, Ether contracts were only launched a couple of months ago. Both FTX and Deribit require 100% full-KYC for their clients, and these markets hold a combined $2 billion in ETH open interest.

Ether futures aggregate open interest, USD. Source: Bybt

To this in perspective, the open interest on silver futures currently stands at $22.6 billion. The precious metal has decades of trading history and a $1.4 trillion market capitalization. However, a simple analysis of the number of outstanding contracts isn’t really helpful as these can be used for hedging.

Growth in futures is positive but not a guaranteed bullish indicator

To assess whether the market is leaning bullish, there are a couple of derivatives metrics to review. The first one is the futures premium (also known as basis), which measures the price gap between futures contract prices and the regular spot market.

The 3-month futures should usually trade with a 10% to 20% annualized premium, which should be interpreted as a lending rate.

24-hour average OKEx 3-months ETH futures basis. Source: Skew

As the above chart depicts, ETH’s futures premium went berserk in mid-April, peaking at 45% annualized. Although traders’ FOMO played a role, this also signaled extreme optimism. While professional traders most frequently use monthly futures contracts, perpetual contracts are the go-to instrument of retail investors.

Retail investors are flat at the moment

Perpetual contracts are also known as inverse swaps, and these contracts have a funding rate usually charged every 8 hours. This fee increases as longs (buyers) use higher leverage, so their accounts get drained little by little. When a retail buying frenzy occurs, the fee can reach up to 5.5% per week.

Ether perpetual futures 8-hour funding rate. Source: Coinalyze.net

As the above chart displays, the 8-hour funding rate recently peaked at 0.18% on April 14, equivalent to 3.8% per week. While this certainly contributed to the highly optimistic monthly futures’ basis, the impact has completely faded as the funding rate has been negligent over the past couple of days.

This data suggests that, compared to retail investors, professional traders are more bullish on Ether as the 3-month basis currently stands at 25% per year. This rate is higher than most stablecoin lending services offer, meaning longs (buyers) are willing to pay a premium to keep their positions open.

The views and opinions expressed here are solely those of the author and do not necessarily reflect the views of Cointelegraph. Every investment and trading move involves risk. You should conduct your own research when making a decision.