Valid Points: How CME Ether Futures Work and Why They Matter

Trading in ether futures went live on the Chicago Mercantile Exchange (CME) late last Sunday with the February contract registering an opening price of $1,669.75. 

In less than two weeks, the open price of the February contract has jumped 5% to $1747.75 as ether spot prices have continued to climb upwards of $1,700.

In terms of weekly trading volume, CME ether futures contracts surpassed $160 million in its first full week of trading. 

CME ETH Futures Daily Volume

Source: Skew

According to Tim McCourt, Global Head of Equity Index and Alternative Investment Product at CME Group, the initial activity of the CME’s market for ether futures is promising but there’s still a long way to go before the product is fully established and mature enough to support other derivatives products such as options. 

“We’ve done a really good job the first few days but obviously we want to see more in terms of on-screen liquidity. Right now, about five out of the eight maturities have an active market. So we want to continue to round out that term structure. … We have some work to do in terms of continuing to onboard clearing members and customers. So ether futures will certainly keep us busy for a while,” said McCourt in an interview with CoinDesk.

Ether futures aren’t new

The CME Group isn’t the first to launch an ether futures product. In 2018, digital asset trading service Crypto Facilities based in the U.K. announced the launch of its ether futures product. Last year, U.S.-based crypto derivatives platform ErisX announced the same. 



What is significant about the launch of CME ether futures is that it is the first financially settled ether futures product that is also regulated in the U.S., meaning expiry of any futures contracts don’t warrant the transfer of 50 ETH to a U.S. buyer but rather an equivalent amount in dollars. Being financially settled, according to McCourt, is a feature that was in high demand from the CME’s customers. 

“Certainly when you’re looking at financially settled futures contracts, you have the ability to avoid some of the barrier to entry around wallets [and] custody of the assets,” said McCourt in an interview with CoinDesk. “Some of the institutional clients would need different types of insurance of the [crypto] assets if they do sort out their custody solution so financially settled just makes it easier for a lot of people.” 

A financially settled ether futures product relies heavily on a robust and reliable reference rate for price while also removing and abstracting away the need for interactions with Ethereum, the underlying technology behind ether. 

The only impact the Ethereum blockchain could have on CME ether futures products is if its issuance schedule and technical upgrades like Eth 2.0 were to somehow impact its listing on the five major exchanges that the CME pulls data from in order to calculate its ether-dollar reference rate. (More information on the CME CF ETH-USD Reference Rate here.)

But just as Ethereum 2.0 is crucial for the technical development of Ethereum, a U.S.-regulated and financially settled ether futures market is a crucial component for the market development of ether. 

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Why CME ether futures matter

The launch of ether futures on the CME, the world’s largest derivatives exchange platform, is the key to bringing new institutional players to market, according to James Putra, VP of Product Strategy at TradeStation Crypto. TradeStation Crypto’s sister company, TradeStation Securities, recently began offering its clients the ability to trade CME ether futures contracts on its platform.

“There’s a lot of firms that want crypto exposure but just can’t get access to [the spot market]. So they need to interact with futures,” said Putra in an interview with CoinDesk. 


Futures contracts enable the ability for traders and investors of an underlying asset to hedge against future price movements. They are also an important tool in the hands of market participants for price discovery. 

“Futures give you a long-short optionality so you don’t only have to bet one side,” said Putra. “[In the spot market,] you’re pretty much limited to long only. You can just buy and hold.”

Finally, futures are a critical step in the maturation of markets that pave the way for other sophisticated products and tools for investors to leverage. Tim McCourt, Global Head of Equity Index and Alternative Investment Product at CME Group, said:

“It is critical that the futures market take root [first] and develop that robustness such that it can support [ether] options overlaid on top of the futures.”

McCourt added that the upwelling of interest and demand for an ether futures product, in his view, mirrors increasing interest in what’s being built on Ethereum, pointing to innovations and ongoing projects such as Ethereum 2.0, decentralized finance (DeFi) and stablecoins.

“Interest in [CME ether] products also follows in a congruent manner to the interest in the network that has been growing in the past year,” said McCourt. 

The promise of Ethereum 2.0

Pulse Check Feb. 17

Source: Etherscan

On Ethereum 2.0 specifically, McCourt affirmed the benefits to scalability and energy efficiency that this new proof-of-stake network could achieve. However, like the ether futures market, he also mentioned that it would take time to see if the promise of Eth 2.0 truly comes to fruition. 

Now 11 weeks into its launch, Ethereum 2.0 is secured by over 90,000 active validators each staking 32 ETH, worth roughly $55,600 at time of writing. This represents about 2.7% of the total ETH supply locked in Ethereum’s proof-of-stake network. 


On average, Eth 2.0 validators are earning 0.007554 ETH/day or $13.08/day. In total, validator rewards only make up roughly 2.6% of the rewards that Ethereum miners earn daily. 

Validated takes

  • The evolution of Ethereum 2.0’s roadmap (HackMD post, Ben Edgington)
  • CME ether futures explained (Article, CoinDesk)
  • Coinbase opens waitlist for Ethereum 2.0 staking (Article, CoinDesk)
  • Crypto market cap breaks $1.5 trillion as buyers show up for the dip (Article, CoinDesk) 
  • Ethereum 2.0 deposit contract tops $5.5 billion in staked ether (Article, CoinDesk)
  • Tim Beiko on how Ethereum governance works and the upcoming EIP 1559 (Podcast, cryptotesters)
  • Quick update on Eth 2.0 (Blog post, Ethereum Foundation)
  • Mark Cuban on why ETH has an advantage over BTC as a store of value (Podcast, The Defiant)

Factoid of the week

Factoid of the Week Feb. 17


Open comms

Feel free to reply any time and email research@coindesk.com with your thoughts, comments or queries about today’s newsletter. Between reads, chat with us on Twitter.

Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 

You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb. 

Search for it on any Eth 2.0 block explorer site!

Finally, if you like what you read today and want more original insights about Eth 2.0 development, be sure to check out Will Foxley and I’s weekly podcast, “Mapping Out Eth 2.0.” New episodes air every Thursday. 



Disclosure

Source

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Valid Points: CoinDesk’s Ethereum 2.0 Validator Is Officially Staked

After two months of hard work, time and effort, we’re pleased to say the CoinDesk Ethereum 2.0 validator node is set up and our 32 ETH officially staked. 

Here’s our public validator key: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb

Now that CoinDesk is in the queue for validators pending entry into the network, we expect our operations to begin earning rewards in roughly two weeks. For real-time updates on the status of the CoinDesk Eth 2.0 validator, you can find that information on BeaconScan or beaconcha.in by searching for our public validator key. 

This Thursday you’ll also be able to download and listen to our first podcast episode of the series “Mapping Out Eth 2.0.” We will be discussing in more detail how plans for the launch of CoinDesk’s Eth 2.0 validator node came together with CoinDesk Director of Engineering Spencer Beggs. 

New frontiers: Developers regroup on Eth 2.0

Ethereum 2.0 developers haven’t rested on their laurels since the deployment of the Beacon Chain Dec. 1.


On Tuesday, Eth 2.0 researchers gathered online to regroup and discuss long-term thinking on sharding and a potential merge of the Eth 1.x blockchain and the Beacon Chain in 2021.


Presentations followed along three specific topics: the math needed to support sharding, sharding itself and a newer line of logic for moving along the eventual merge of Eth 1.x into Eth 2.0 called the Executable Beacon Chain.

Kate commitments

Ethereum Foundation researcher Dankrad Feist provided Tuesday’s math lesson; it was a doozy.

Specifically, Feist gave an analysis of a polynomial expression known as Kate commitments (pronounced kah-tay) for Eth 2.0 client teams who may have to encode the math into their projects in the near future. 

Also known as KZG commitments, these polynomial commitment schemes provide a computationally cheap yet robust framework for securing data across the 64 independent blockchains known as shards yet to be ingrained in Eth 2.0. It’s thought that Kate commitments provide a superior alternative to fraud proofs or Merkle roots typically used for verifying the authenticity of data included in a block or shard, as Vitalik noted in a recent blog post. 

Although still referred to as “magic math,” basically similar ideas are already being used for zero-knowledge proof schemes such as PLONK, Vitalik Buterin said on the call.

Sharding

The conversation then turned to a recent blog post written by Buterin on Data Availability Sampling (DAS), a schematic for verifying the “availability of high volumes of data without requiring any single node to personally download all of the data.” 

In other words, how do validators know which block is valid if they don’t have all the information about the chain’s history? Nodes with only partial histories, such as light clients, need a method to protect themselves from malicious actors.


Buterin proposes using a technology called “erasure coding.” This tech – similar in a general sense to a fraud proof – allows validators to probabilistically guarantee that votes cast on data processed by the chain are not malicious. Moreover, erasure coding and DAS allow validators to accept or reject data even when a full data set is not available.

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Executable Beacon Chain

Lastly, the group turned to a new proposal for moving Eth 1.x onto Eth 2.0.

Called the Executable Beacon Chain, the proposal is a technical method of taking the best parts of Eth 2.0 – its functional proof-of-stake (PoS) consensus mechanism – and the most functional part of Eth 1.x – its data execution also known as its ability to execute transactions – and mashing them together for an accelerated transition to a more-functioning Eth 2.0 network.

The current Eth 2.0 roadmap calls for transactions and account data (AKA executable data) to be implemented after the deployment of Eth 2.0’s 64 shards. This proposal would bake those functions right into the Beacon Chain itself, which would be quicker. 

It’s comparable to a jet with Eth 1.x being the “engine” that processes transactions, while the Beacon Chain acts as the wings and rudder turning the network to and fro.

On the call, Ethereum Foundation researcher Guillaume Ballet and ConsenSys researcher Mikhail Kalinin described an early prototype called “Catalyst.” The model is basically a stripped down version of popular Eth 1.x client Geth paired with a code bridge to the Beacon Chain.

Yet for now, Catalyst remains in testing. Indeed, Ballet noted a few significant hurdles before the Executable Beacon Chain is a viable merging solution, such as incompatibilities between Geth and the Beacon Chain or even inadvertent block re-organizations.

Checking the pulse of Ethereum 2.0

(Data as of 2/2/2021 @ 21:17 UTC)

Source: Etherscan

There are over 77,800 active validators on Ethereum 2.0 who are earning 0.0075 ETH per day, or roughly $11.47, on average. The combined income of all validators on Eth 2.0 over the last seven days amounted to over 4,600 ETH, worth over $6.8 million at time of writing. 

It’s worth analyzing how these figures might fluctuate, given the continued inflow of new validators and the consistency of network participation rate upwards of 95%. 


Validator rewards are positively correlated to the number of blocks being produced on the Ethereum 2.0 Beacon Chain. However, this number since Day 2 of the network going live has consistently been more or less the same at around 7,100 blocks. 

Assuming the number of blocks produced per day doesn’t change, total validator rewards are also positively correlated to the number of validators participating on the network. The more validators there are actively progressing the Beacon Chain and producing new blocks, the more rewards in total are generated by the Eth 2.0 network. 

However, the average amount of rewards in ETH an individual validator may receive on Eth 2.0 is negatively correlated to the total amount of stake securing the network. The higher the amount of ETH locked into Ethereum 2.0, the lower the amount of rewards an individual validator can stand to earn, even though collectively the total amount of rewards generated by the network to all validators has gone up. 

To illustrate in more detail the competing forces acting upon validator rewards, I’ll be using the Staking Calculator on beaconcha.in to generate a few estimations of my annual percentage return as an Eth 2.0 validator. 

Estimating Eth 2.0 validator returns

Assuming I am running my own independent validator operations without giving any percentage of my rewards to a staking-as-a-service provider, and a consistency of network participation rate at 97% and the total amount of ETH staked on the network as 2.5 million, I stand to earn 9.73% APR. 

(Note: The total ETH staked on Ethereum 2.0 is not the same amount as the total ETH staked in the Ethereum 2.0 deposit contract. The latter illustrated in the Pulse Check graphic is a higher figure that represents the stake of all Eth 2.0 validators whether pending or active, while the former only accounts for the stake of active Eth 2.0 validators who have passed the queue for entry into the network.)

Expected validator income given the total ETH staked on Eth 2.0 is 2.5 million

Source: beaconcha.in

It’s a highly unlikely assumption that the total amount of ETH staked on the network will stay at 2.5 million. New validators, each staking 32 ETH, are being added by the hundreds every single day to Eth 2.0. As such, a more realistic assumption is to expect the current total ETH staked on the Beacon Chain to double by the summer or fall. 

At roughly 5 million ETH staked by 155,000 active validators, APR drops down to 6.88%, all other factors being equal. 

Expected validator income given the total ETH staked on Eth 2.0 is 5 million

Source: beaconcha.in

One final note on this topic of validator income projections: I haven’t made any assumptions about ETH price. For all these calculations, I’ve used the spot price of ETH at time of writing. 

While I’m confident in my estimations based on the last two months’ data in most respects (the network participation rate, the number of blocks produced, the number of active validators and what total ETH staked on the beacon chain will be in the near future), I’m not at all confident about my assumptions when it comes to ETH price, which lo and behold hit yet another all-time high on Tuesday above $1,500. 


How do you predict that? 

Validated takes

  • A comparison of all available Ethereum 2.0 mainnet clients based on their latest performance metrics (dev.to post, Afri Schoedon)
  • The frequency of slashings continue to fall on Eth 2.0 (HackMD post, Ben Edgington)
  • Aave’s founder Stani Kulechov has made angel investments into nearly 40 DeFi projects (Article, CoinDesk)
  • Decentralized exchange volumes hit record above $50 billion in January (Article, CoinDesk) 
  • Ether cryptocurrency reaches record high, briefly tops $1,500 amid WSB trading buzz (Article, CoinDesk)
  • Ethereum miners earned record $830 million in January (Article, CoinDesk) 
  • Galaxy and Coinbase bet $25 million on decentralized finance using Terra stablecoins (Article, CoinDesk)
  • Grayscale reopens its Ethereum trust to investors (Article, CoinDesk)
  • Reddit joins with the Ethereum Foundations to build scaling tools (Article, CoinDesk) 
  • How stablecoins are driving decentralized finance on Ethereum (Blog post, ConsenSys)
  • How wrapped tokens like WBTC bring more liquidity to DeFi (Blog post, Consensys)
  • Interview with long-time crypto advocate and CEO of ShapeShift Erik Voorhees (Podcast, The Defiant)

Factoid of the week



Valid Points incorporates information and data directly from CoinDesk’s own Eth 2.0 validator node in weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post. 



Disclosure

Source

Tagged : / / / / / / /

Valid Points: CoinDesk’s Ethereum 2.0 Validator Is Officially Staked

After two months of hard work, time and effort, we’re pleased to say the CoinDesk Ethereum 2.0 validator node is set up and our 32 ETH officially staked. 

Here’s our public validator key: 

0xad7fef3b2350d220de3ae360c70d7f488926b6117e5f785a8995487c46d323ddad0f574fdcc50eeefec34ed9d2039ecb

Now that CoinDesk is in the queue for validators pending entry into the network, we expect our operations to begin earning rewards in roughly two weeks. For real-time updates on the status of the CoinDesk Eth 2.0 validator, you can find that information on BeaconScan or beaconcha.in by searching for our public validator key. 

This Thursday you’ll also be able to download and listen to our first podcast episode of the series “Mapping Out Eth 2.0.” We will be discussing in more detail how plans for the launch of CoinDesk’s Eth 2.0 validator node came together with CoinDesk Director of Engineering Spencer Beggs. 

New frontiers: Developers regroup on Eth 2.0

Ethereum 2.0 developers haven’t rested on their laurels since the deployment of the Beacon Chain December 1.


On Tuesday, Eth 2.0 researchers gathered online to regroup and discuss long-term thinking on sharding and a potential merge of the Eth 1.x blockchain and the Beacon Chain in 2021.


Presentations followed along three specific topics: the math needed to support sharding, sharding itself and a newer line of logic for moving along the eventual merge of Eth 1.x into Eth 2.0 called the Executable Beacon Chain.

Kate commitments

Ethereum Foundation researcher Dankrad Feist provided Tuesday’s math lesson; it was a doozy.

Specifically, Feist gave an analysis of a polynomial expression known as Kate commitments (pronounced kah-tay) for Eth 2.0 client teams who may have to encode the math into their projects in the near future. 

Also known as KZG commitments, these polynomial commitment schemes provide a computationally cheap yet robust framework for securing data across the 64 independent blockchains known as shards yet to be ingrained in Eth 2.0. It’s thought that Kate commitments provide a superior alternative to fraud proofs or Merkle roots typically used for verifying the authenticity of data included in a block or shard, as Vitalik noted in a recent blog post. 

Although still referred to as “magic math,” basically similar ideas are already being used for zero-knowledge proof schemes such as PLONK, Vitalik Buterin said on the call.

Sharding

The conversation then turned to a recent blog post written by Buterin on Data Availability Sampling (DAS), a schematic for verifying the “availability of high volumes of data without requiring any single node to personally download all of the data.” 

In other words, how do validators know which block is valid if they don’t have all the information about the chain’s history? Nodes with only partial histories, such as light clients, need a method to protect themselves from malicious actors.


Buterin proposes using a technology called “erasure coding.” This tech – similar in a general sense to a fraud proof – allows validators to probabilistically guarantee that votes cast on data processed by the chain are not malicious. Moreover, erasure coding and DAS allow validators to accept or reject data even when a full data set is not available.

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Executable Beacon Chain

Lastly, the group turned to a new proposal for moving Eth 1.x onto Eth 2.0.

Called the Executable Beacon Chain, the proposal is a technical method of taking the best parts of Eth 2.0 – its functional proof-of-stake (PoS) consensus mechanism – and the most functional part of Eth 1.x – its data execution also known as its ability to execute transactions – and mashing them together for an accelerated transition to a more-functioning Eth 2.0 network.

The current Eth 2.0 roadmap calls for transactions and account data (AKA executable data) to be implemented after the deployment of Eth 2.0’s 64 shards. This proposal would bake those functions right into the Beacon Chain itself, which would be quicker. 

It’s comparable to a jet with Eth 1.x being the “engine” that processes transactions, while the Beacon Chain acts as the wings and rudder turning the network to and fro.

On the call, Ethereum Foundation researcher Guillaume Ballet and ConsenSys researcher Mikhail Kalinin described an early prototype called “Catalyst.” The model is basically a stripped down version of popular Eth 1.x client Geth paired with a code bridge to the Beacon Chain.

Yet for now, Catalyst remains in testing. Indeed, Ballet noted a few significant hurdles before the Executable Beacon Chain is a viable merging solution, such as incompatibilities between Geth and the Beacon Chain or even inadvertent block re-organizations.

Checking the pulse of Ethereum 2.0

(Data as of 2/2/2021 @ 21:17 UTC)

Source: Source: Etherscan

There are over 77,800 active validators on Ethereum 2.0 who are earning 0.0075 ETH per day, or roughly $11.47, on average. The combined income of all validators on Eth 2.0 over the last seven days amounted to over 4,600 ETH, worth over $6.8 million at time of writing. 

It’s worth analyzing how these figures might fluctuate, given the continued inflow of new validators and the consistency of network participation rate upwards of 95%. 


Validator rewards are positively correlated to the number of blocks being produced on the Ethereum 2.0 Beacon Chain. However, this number since Day 2 of the network going live has consistently been more or less the same at around 7,100 blocks. 

Assuming the number of blocks produced per day doesn’t change, total validator rewards are also positively correlated to the number of validators participating on the network. The more validators there are actively progressing the Beacon Chain and producing new blocks, the more rewards in total are generated by the Eth 2.0 network. 

However, the average amount of rewards in ETH an individual validator may receive on Eth 2.0 is negatively correlated to the total amount of stake securing the network. The higher the amount of ETH locked into Ethereum 2.0, the lower the amount of rewards an individual validator can stand to earn, even though collectively the total amount of rewards generated by the network to all validators has gone up. 

To illustrate in more detail the competing forces acting upon validator rewards, I’ll be using the Staking Calculator on beaconcha.in to generate a few estimations of my annual percentage return as an Eth 2.0 validator. 

Estimating Eth 2.0 validator returns

Assuming I am running my own independent validator operations without giving any percentage of my rewards to a staking-as-a-service provider, and a consistency of network participation rate at 97% and the total amount of ETH staked on the network as 2.5 million, I stand to earn 9.73% APR. 

(Note: The total ETH staked on Ethereum 2.0 is not the same amount as the total ETH staked in the Ethereum 2.0 deposit contract. The latter illustrated in the Pulse Check graphic is a higher figure that represents the stake of all Eth 2.0 validators whether pending or active, while the former only accounts for the stake of active Eth 2.0 validators who have passed the queue for entry into the network.)

Expected validator income given the total ETH staked on Eth 2.0 is 2.5 million

Source: Source: beaconcha.in

It’s a highly unlikely assumption that the total amount of ETH staked on the network will stay at 2.5 million. New validators, each staking 32 ETH, are being added by the hundreds every single day to Eth 2.0. As such, a more realistic assumption is to expect the current total ETH staked on the Beacon Chain to double by the summer or fall. 

At roughly 5 million ETH staked by 155,000 active validators, APR drops down to 6.88%, all other factors being equal. 

Expected validator income given the total ETH staked on Eth 2.0 is 5 million

Source: Source: beaconcha.in

One final note on this topic of validator income projections: I haven’t made any assumptions about ETH price. For all these calculations, I’ve used the spot price of ETH at time of writing. 

While I’m confident in my estimations based on the last two months’ data in most respects (the network participation rate, the number of blocks produced, the number of active validators and what total ETH staked on the beacon chain will be in the near future), I’m not at all confident about my assumptions when it comes to ETH price, which lo and behold hit yet another all-time high on Tuesday above $1,500. 


How do you predict that? 

Validated takes

  • A comparison of all available Ethereum 2.0 mainnet clients based on their latest performance metrics (dev.to post, Afri Schoedon)
  • The frequency of slashings continue to fall on Eth 2.0 (HackMD post, Ben Edgington)
  • Aave’s founder Stani Kulechov has made angel investments into nearly 40 DeFi projects (Article, CoinDesk)
  • Decentralized exchange volumes hit record above $50 billion in January (Article, CoinDesk) 
  • Ether cryptocurrency reaches record high, briefly tops $1,500 amid WSB trading buzz (Article, CoinDesk)
  • Ethereum miners earned record $830 million in January (Article, CoinDesk) 
  • Galaxy and Coinbase bet $25 million on decentralized finance using Terra stablecoins (Article, CoinDesk)
  • Grayscale reopens its Ethereum trust to investors (Article, CoinDesk)
  • Reddit joins with the Ethereum Foundations to build scaling tools (Article, CoinDesk) 
  • How stablecoins are driving decentralized finance on Ethereum (Blog post, ConsenSys)
  • How wrapped tokens like WBTC bring more liquidity to DeFi (Blog post, Consensys)
  • Interview with long-time crypto advocate and CEO of ShapeShift Erik Voorhees (Podcast, The Defiant)

Factoid of the week






Disclosure

Source

Tagged : / / / / / /

Valid Points: What to Expect When Ethereum 2.0 Undergoes Its First ‘Hard Fork’

Eth 2.0 is looking at its first hard fork this year.

The Ethereum Foundation-backed research team is currently organizing schematics for a  mid-2021 backward-incompatible change to the Beacon Chain, according to a Jan. 14 developer’s call.

This hard fork is really not a hard fork in the traditional sense, Teku client project manager Ben Edgington pointed out. Rather, it’s a warmup before sharding and a merge of the Eth 1.x and Beacon Chain. 


“The word ‘fork’ is heavily overloaded in blockchain usage. In fact, there shouldn’t even be a fork when this upgrade is done, in the sense of the network ending up with multiple competing chains,” he wrote in his Eth 2.0 blog post on Jan. 15.

The upgrade is likely to include the following code changes, although these changes have yet to be fully agreed upon:

  • Infrastructure for light client support through sync committees. Light clients enable verification of the chain without needing as much overhead as a typical validator rig.
  • A new function, called balance_denominator, changing in-activity penalties against non-participating validators. The current penalty method is a denial-of-service (DOS) vector while the new function increases the chain’s efficiency, Eth 2.0 researcher Danny Ryan wrote on GitHub.
  • Rewards will be calculated over an epoch (similar to a block) instead of after the epoch closes as is currently done. Egington notes the change should help limit the number of incorrect attestations.

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Ice Age on Eth 2.0?

One additional feature that is being considered is the inclusion of the difficulty bomb, also known as the “Ice Age.” The difficulty bomb – which kicks into gear at pre-set block heights – is a mining adjustment mechanism originally added to the Eth 1.x blockchain in 2015. It makes mining incrementally more difficult over time in an effort to keep developers motivated to build Eth 2.0.


To date, the Ice Age has been postponed three times on the proof-of-work (PoW) Ethereum blockchain in the Byzantium (2017), Constantinople (2019) and Muir Glacier (2020) hard forks.

The difficulty bomb is a staple of Ethereum as it pushes economic incentives on developers to keep innovating on the baselayer. Yet, it’s unlikely to be included in Eth 2.0 as there’s already an economic force pushing Beacon Chain development, Ryan told CoinDesk in a yet-to-be-released Mapping Out Eth 2.0 podcast.

“There is no Ice Age on the Beacon Chain, but it essentially has a forcing function because right now there is 2.5 million ETH locked into the system,” Ryan said. “There’s no way developers in the community at that order of magnitude would allow it to live in parallel and not have it do anything more.”

The decision to include or not include a difficulty adjustment feature like the Ice Age into Eth 2.0 itself comes down to how you see the Ethereum blockchain progressing after Eth 2.0 is complete, he said. Some want further innovation while some think ossification similar to Bitcoin’s blockchain is the way to go.

“Some want to continue to upgrade and iterate and bring in the latest cryptography into Layer 1. I’m sure the debate whether an Ice Age should exist in Ethereum 2.0 will center around some of those ideas of ossification versus continual upgrades,” Ryan said. 

Eth 2.0 reaches all-time high for network participation 

Pulse Check jan 27

Source: Etherscan

The Ethereum 2.0 network continues to grow at a steady pace and at near-perfect user participation levels. On Saturday, Jan. 23, Eth 2.0 reached its highest daily average network participation rate at 99.46%. This indicates that, despite a growing number of participants, validators on Eth 2.0 are largely engaged in securing the network and earning rewards. 

As background, the economics of Ethereum 2.0 operates on a sliding scale of rewards that adjusts dynamically based on the total number of active validators. The larger the number of validators staked on Eth 2.0, the lower the total amount of rewards issued on the network. (Read more about Eth 2.0’s monetary policy here.)


The daily average of rewards earned per validator dipped to a seven-week low on Thursday, Jan. 21, at 0.007235 ETH. However, due to the bullish price activity of ether in the crypto markets, the value of rewards earned on the network has increased 81.47% over the same time period. In other words, because the ETH price has risen, validators are earning more on average per day in U.S. dollar (USD) terms. 

Breakdown of Eth 2.0 user deposits

One other useful metric for evaluating ongoing network health and decentralization is the breakdown of user deposits on Eth 2.0. According to a tool still in beta testing by blockchain explorer Etherscan, roughly 50% of all ETH deposits are made by cryptocurrency exchanges and staking pools. 



This suggests an equal balance between individuals choosing to stake using their own hardware and software and those who choose to rely on a service provider to do it for them. Shifts in this distribution over time will indicate growing advantages as well as disadvantages, swaying users towards one method of staking on Eth 2.0 versus another. 

For now, the even distribution of Eth 2.0 depositors is a strong indicator that running hardware independently versus relying on a provider to do it for you are both equally attractive options for users. 

Validated takes: Further reading from the past week

  • The bull case for cryptography by Justin Drake (Podcast, Bankless)
  • Big investors stacked up ether as price rose to record high (Article, CoinDesk)
  • Ethereum-based ConsenSys Quorum partners with China’s BSN blockchain (Article, CoinDesk)
  • Minority mining pools threaten to collude against contentious Ethereum upgrade (Article, CoinDesk)
  • More institutional investors are buying ether and seeing it as a store of value (Article, CoinDesk)
  • Ethereum NFTs are getting merged with augmented reality (Article, Decrypt)
  • Smart contract platforms and DeFi are outperforming in 2021 (Blog post, Into The  Block)
  • Ethereum 2.0 client team Prysmatic Labs’ summary of 2020 (Blog post, Prysmatic Labs)

Factoid of the week

Factoid of the Week Jan. 27


We’ll soon be incorporating data directly from CoinDesk’s own Eth 2.0 validator node in our weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.



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Valid Points: Why Ethereum 2.0 Shifts How Investors Value ETH

What is the intrinsic value of ether? 

This is a question I’ve been wrestling with this past week as the ether price set a new all-time high of $1,439.33, according to CoinDesk’s price index.

Similar to how many view the current bitcoin price bull run as being credibly different from previous cycles for reasons to do with greater institutional involvement and mainstream interest, among other reasons, I get the sense that the valuation of ether by investors is being looked at this time around in a different light. 

The primary reason for why I believe ether’s valuation has shifted in fundamental ways this market cycle compared to previous ones is because this December Ethereum officially launched its parallel staking network, Ethereum 2.0. 

Pulse Check Jan. 20
(Data as of 1/19/2021 @ 20:12 UTC)

Source: Etherscan

If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about jargon and terminology used throughout this newsletter. 


The daily average income of Ethereum 2.0 validators in terms of ETH has been on the slight decline since last week. According to BeaconScan, average income has dropped over the month of January from 0.008063 ETH/day to 0.007768 ETH/day. In dollar terms, however, income has been on the rise given bullish price trends pushing the value of ETH up 66.03% year-to-date. 


User participation on the Ethereum 2.0 network has also been increasing at a steady pace of close to 900 new validators each day. There are over 65,000 validators, each staking 32 ETH worth roughly $45,000, at time of writing. An additional 16,000 validators are in a holding queue for entry into the network over the next few weeks. 

Because of the continued growth of new users on Eth 2.0, a greater percentage of total ether supply is getting locked away and becoming unusable on the original Ethereum blockchain. Roughly 2.4% of all ETH in circulation is now immovable from Eth 2.0. Some Ethereum investors believe this percentage will grow to be as high as 30% in the future. 

Eth 2.0 Staking Rate (%)

Source: CryptoQuant

A large percentage of total supply being removed from active circulation among decentralized applications (dapps) and transactions between users impacts the velocity of ether as a digital currency. Velocity is the rate or frequency at which units of a currency are exchanged in an economy, or in the case of Ethereum, in a blockchain system. If we think about ETH as money, ETH’s velocity is negatively impacted as a result of Ethereum 2.0.

However, as certain Ethereum experts have pointed out, ETH, unlike BTC, is much more than an asset for transfers of value, or even a store of value for that matter. ETH can be likened to a commodity asset needed for fueling a new decentralized web and financial system. ETH can also be viewed as a capital asset inextricably linked in value to the popularization and adoption of proof-of-stake blockchain protocols. 

With the advent of Ethereum 2.0, long-term holdings in ETH represent long-term bets on the decentralized web and/or finance, as well as the viability, scalability and security of proof-of-stake blockchains to the same, if not higher degree, than proof-of-work blockchains. 

There are a number of other use cases for Ethereum’s native crypto asset, ether, besides its use as payment for decentralized applications and staking on Ethereum 2.0. However, these are two that are likely to continue motivating investments in ETH as Ethereum 2.0 development advances. 

New frontiers

Ether has set a new record price at $1,439 for the first time in two years, some five days to the date.

A lot has changed since then. In this week’s New Frontiers, we’ll take a look at some major headlines – good and bad – that have defined the cryptocurrency’s journey since January 2018:


$6.3 Billion: 2018 ICO Funding Has Passed 2017’s Total – April 2018

Initial coin offerings (ICOs) raised more money in the first three months of 2018 than the whole of 2017, according to data collected by CoinDesk.

In April 2018, the company known for having raised the most amount of funds from an ICO was messaging app provider Telegram. The funds raised accumulated to a total of $1.7 billion. However, in just a few months, blockchain startup Block.one would raise $4 billion through its yearlong ICO for the crypto asset EOS. 

Ethereum’s ASIC Rebellion Heats Up With New Effort to Brick Big Miners – September 2018

Mining is a nuisance to many Ethereum fans, which is why it’ll slowly be phased out with Eth 2.0. 

A new mining algorithm called Programmatic Proof-of-Work (ProgPoW) sparked life into this conversation before the February 2019 Constantinople hard fork. ProgPow would have made it easier for small miners to participate in the mining game. Yet, it ultimately failed to be implemented. It’s failure now stands as a lesson in “how to do” decentralized governance.

Ethereum Upgrades as Hard Forks Activate on Blockchain – February 2019


The Constantinople and St. Petersburg hard forks were pushed live to the mainnet. The sixth and seventh backward-incompatible code changes prepared Eth 1.x for its future marriage with the Eth 2.0 Beacon Chain. Ethereum hard forked twice again one year later with the Istanbul and Muir Glacier updates.

‘Scam’ or Iteration? At Devcon, Ethereum Diehards Still Believe in 2.0 – October 2019

CoinDesk reported live from DevCon 5 in Osaka, Japan, – the last physical Ethereum DevCon before the Covid-19 pandemic. The annual gathering of Ethereum developers reacted to Ethereum co-founder and venture firm ConsenSys CEO Joe Lubin acknowledging that Ethereum wouldn’t be able to scale under the original roadmap. Of course, that’s what Ethereum 2.0 is for.

Matter Labs Unveils Layer 2 Scaling Solution for Ethereum Payments – December 2019

Ethereum startup Matter Labs unveiled its layer 2 solution, Zk-Sync, for increasing how many transactions Ethereum can handle from its decentralized applications (dapp). Within a year, rollups would widely become considered a part of Ethereum’s long-term scaling roadmap.

Note: Startup Optimism launched its own rollup variant called the Optimism Virtual Machine (OVM) last Friday. 

Why DeFi’s Billion-Dollar Milestone Matters – February 2020


For Ethereum, 2020 was the year of decentralized finance (DeFi). These Ethereum native applications allow for the trading, lending and borrowing of digital assets. The total value locked (TVL) – a metric not dissimilar from assets under management (AUM) – broke over $1 billion by February 2020 and has since shot past $25 billion, according to DeFi Pulse.

Ethereum 2.0 Beacon Chain Goes Live as ‘World Computer’ Begins Long-Awaited Overhaul – December 2020

Eth 2.0 came into reality some five years after the launch of Ethereum with the release of the Beacon Chain on Dec. 1. The new chain acts as a backbone to a future Ethereum network intended to handle more transactions for cheaper that purports to be more environmentally friendly than proof-of-work alternatives such as Bitcoin.

Validated takes

  • A network upgrade, commonly known as a hard fork, is planned for Ethereum 2.0 in the mid-year (HackMD post, Ben Edgington)
  • ETH sets new all-time price high near $1,440 (Article, CoinDesk)
  • Lido Protocol does Ethereum 2.0 staking but with a DeFi twist (Article, CoinDesk)
  • Optimism soft launches an new Ethereum throughput solution with Synthetix (Article, CoinDesk)
  • Valuecoin, an algorithmic stablecoin like DAI, goes live on Ethereum (Article, CoinDesk)
  • Cryptocurrency exchange Kraken introduces a “bonding period” for earning rewards on Ethereum 2.0 (Blog post, Kraken)
  • Making the case for decentralization transparency (Blog post, stakefish)
  • Interview with DJ Justin Blau, better known as 3LAU, on why he became interested in blockchain technology (Podcast, The Defiant) 

Factoid of the week

Factoid of the Week Jan. 20


Sign up to receive Valid Points in your inbox, every Wednesday.


We’ll soon be incorporating data directly from CoinDesk’s own Eth 2.0 validator node in our weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.



Disclosure

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Valid Points: Price Dips, 60K Validators and Eth 2.0’s ‘Graffiti’ Messages

It’s been a rough start to the week for crypto investors, although numbers are starting to point upwards once again.

Eyes were anxiously set on a new all-time high for ether that failed to materialize as Bitcoin miners largely pulled the price rug last weekend out from under the entire crypto market.

Let us not despair too much, however. There’s much to be discussed in the world of Ethereum 2.0. This week, we’ll look at some network stats that continue to show healthy growth among multiple key metrics such as active validators and slashing events. After that, we’ll look at the role of graffiti messages – the secret notes you can sign to on-chain messages.

Pulse check

Source: Beaconcha.in, Dune Analytics and Staking Rewards (Data as of 1/12/2021 @ 19:20 UTC)


Ethereum investors are still picking their teeth up from the floor after a 30% drop in the price of the cryptocurrency over the weekend from a high of $1,334 to $926, according to the CoinDesk 20.


And while red became the unofficial color of many decentralized finance (DeFi) users, Eth 2.0 stakers kept reeling in that sweet, sweet ether. Indeed, Eth 2.0 spits out steady rewards regardless of market conditions, and funds are locked for at least a year or more. So what’s there to worry about in the short run, right?

Looking at the network, the total amount of ether staked increased on the network roughly 5% since Jan. 5, although the total value locked on the contract dropped by about $2 million as the price of ether tumbled.


The Beacon Chain is also showing some 98% network participation, meaning the network is humming along just fine. There are almost 60,0000 active validators on Eth 2.0 as well, according to Beaconcha.in.

Finally, Eth 2.0 almost went a full week without a slashing event. Unfortunately, validator 57976 failed to attest a vote correctly and was subsequently slashed and exited from the validator pool. That event joins 35 other slashing events to date, according to Beaconcha.in. 

New frontiers

The launch of a new blockchain is a historic event. To mark the occasion, a little note is often included in the chain’s Genesis block; for example, Bitcoin’s first block included The Times headline below:

The Times 03/Jan/2009 Chancellor on brink of second bailout for bank

A note also accompanied the launch of Ethereum 2.0 on Dec. 1. But it ended up being a smidge less dramatic than Satoshi Nakamoto’s call to arms against central banks: “Mr. F was here,” the block’s graffiti reads. 

As Trustnodes reported, Mr. F is a decentralized application (dapp) developer who happened to be at the right place at the right time. No, it doesn’t have any significance. Yet, it does fit Ethereum community’s quirky nature pretty well, Ethereum co-founder Vitalik Buterin pointed out.


You may be wondering what “graffiti” is in the first place – at least, what it is in the context of blockchains. The Eth 2.0 spec describes graffiti as essentially arbitrary data with “no protocol level significance.” Graffiti is signed on the block level versus other arbitrary data inclusion points on the transaction level.

To date, graffiti has mainly been used by staking firms to identify the blocks they’ve validated. A few corny jokes have also been inserted here or there such as “why hodl when you can stake -P.”



Arbitrary on-chain data

There are a few ways to include data such as signed messages into the Eth 1.x blockchain, Teku project owner at ConsenSys Ben Edgington told CoinDesk in a direct message. 

The extra data field is perhaps the best corollary to the graffiti field as both occur on the block level and allows for inputting a limited amount of arbitrary info, he said.


(You can also upload information in a separate function, Ethereum’s data field, similarly to Bitcoin’s op_return function. These functions operate on a transaction level rather than the  block level, Edgington said. Eth 2.0 can’t yet send transactions so this function does not exist).

Storing random arbitrary data is easier on Ethereum than on Bitcoin, Edgington said. 

Indeed, Buterin and most Ethereum developers have never been too concerned with so-called “bloating” the blockchain with data, compared to Bitcoin developers, as CoinDesk reported in 2014 during the thick of the op_return conflict. Data can be stored on-chain as long as it pays the necessary fee to do so. 

“The ability for the miner to put a small amount of arbitrary data into a block has always been a feature of Ethereum, and uncontroversial. It’s usually used for input data to smart contracts, but doesn’t have to be,” Edgington said.

Validated takes

  • Bitcoin Goes Institutional, Ethereum Spreads Its Wings: CoinDesk Q4 2020 Review (Research, CoinDesk)
  • Scaling Solution Hermez Network Adds Tether Token to Tackle High Ethereum Fees (Article, CoinDesk)
  • Ethereum at $1000, redux (Blog post, Evan van Ness)
  • DeFi Top 20 with Arthur0x, Su Zhu and Hasu – Part Two (Podcast, Uncommon Core)
  • Why we need wide adoption of social recovery wallets (Blog post, Vitalik Buterin)
  • An Incomplete Guide to Rollups (Blog post, Vitalik Buterin)

Factoid of the week



Sign up to receive Valid Points in your inbox, every Wednesday.


We’ll soon be incorporating data directly from CoinDesk’s own Eth 2.0 validator node in our weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.



Disclosure

Source

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Valid Points: Forget Staking, There Are Still Coins to Be Mined on PoW Ethereum

‘Twas the penultimate night before Christmas, when all through the network, every machine was stirring, down to even the smallest Raspberry Pi. 

While businesses, the stock markets and many restaurants will be closed for the holidays, Ethereum 2.0, like all other blockchain networks, will be humming along the same as any other day of year without interruption. 

This has implications for validators, the main participants of Eth 2.0, who are responsible for keeping the network secure all year round, 24/7.

(Data as of 12/22/2020 @ 18:58 UTC)

Source: Source: BeaconScan and Dune Analytics

Luckily, most of the programming to keep the Eth 2.0 network online and active falls to validators who, in large part, simply have to ensure their internet connection is stable and their machines are connected to a steady source of electrical power. 

The incentive for validators to do this work and ensure their operations are running smoothly,  even through the holidays, is an average daily income of 0.0089 ETH, which is equivalent to $5.57 at time of writing. 



Running an Eth 2.0 validator node may not be a full-time job, but it is a responsibility that requires participation 365 days of the year (or 366 if it’s a leap year) in order to maximize income. 


Judging by the 15,600 or so validators who are queued up for entry into the network over the coming days, and the 99% participation rate of validators who are already admitted into Eth 2.0, it would seem for many the rewards do outweigh the responsibility. 

New frontiers for Ethereum mining

A long-awaited highly efficient and powerful Ethereum mining machine first promised in 2018 is making its market debut three weeks after the launch of Eth 2.0’s Beacon Chain – the proof-of-stake (PoS) blockchain meant to replace mining entirely.


Shenzhen, China’s Linzhi Inc. has begun to roll out a new Ethereum ASIC miner reportedly  three times more powerful than the nearest categorical competitor, the A10+ Pro. The new machine was demoed by mining pool F2Pool in a YouTube video Saturday. 

Although it may seem odd at first glance, it’s a good reminder that Eth 1.x is still around and isn’t going away anytime in the near future. Indeed, Ethereum continues to settle similar or even more value than its crypto cousin Bitcoin, according to Money Movers.

Chen Min founded Linzhi in 2018, following her departure as CTO from Canaan Creative, another prominent mining rig manufacturer. As reported by CoinDesk at the time, Min wanted to create a more powerful ASIC Ethereum miner, all the while knowing the network would eventually transition to proof-of-stake (PoS), making her firm’s Ethereum specific work obsolete.

Still, miners have at least a two-year runway with Proof-of-Work (PoW) on Ethereum. The current network, Eth 1.x, won’t be moved over to the new PoS blockchain until phase 1.5 of Eth 2.0.

“New investment decisions to build out more mining hash power for Ethereum do now have an additional time-risk factor as the reward stream now appears finite,” ConsenSys Head of R&D Robert Drost told CoinDesk in an email. “On the other hand, Eth has been trending upwards nicely, so as you say there can be money to make in battling for as many coins as possible beforehand!”


The product’s initial tests seem to be living up to expectation. According to F2Pool, the Phoenix outpaces the A10+ Pro at a near three-to-one clip in megahashes per second (2,600 MH/s to around 500 MH/s) while also being more energy efficient (3,000 watts per hour to the A10+ Pro’s 1,300 W).

Mining pools such as SparkPool and Etherchain will continue to fight out who gets the last coins issued on the proof-of-work Eth 1.x blockchain. If Eth 1.x continues chugging along for another two years, back-of-the-envelope calculations value those coins at some $3 billion dollars under current prices. 

There are also transaction fees up for grabs if Ethereum’s next hot thing sticks around: decentralized finance (DeFi). This past August and September, fees on Ethereum reached all-time highs not once but twice, as DeFi applications spit out high returns on investments in what is called liquidity mining or yield farming. As reported by CoinDesk, miners enjoyed daily profits last seen during the tail end of the 2017-2018 bull market. 

Lastly, Eth 2.0 may need specialized hardware orthogonal to what Linzhi and other mining firms manufacture, with the ability to support zero-knowledge proof (ZKP) computations, for example. Other blockchains such as Ethereum Classic use the same hashing algorithm as Ethereum, too, and will continue to be mined after Ethereum’s transition.

“There is significant research into on-chain computing workloads, zero-knowledge and so on,”  Linzhi’s director of operations, Wolfgang Spraul, told CoinDesk in a Telegram message. “Our technology is relevant in that area as well, that’s the ETH 2.0 stuff. We do not only invest in the PoW use case, we can add programmability and then target other workloads.” 

So, while many eyes are on staking, sharding and every other Eth 2.0 buzzword, Ethereum miners continue to see an upside to Eth 1.x investments.

Validated takes

  • What crypto looks like when viewed from outside the bubble (Podcast, Bankless)
  • The three types of slashable events on Ethereum 2.0  (Blog post, Blox Staking)
  • DeFi startup brings corporate lending terms to miners, traders and market makers (Article, CoinDesk)
  • More than $1 billion of ETH staked on Ethereum 2.0 (Article, CoinDesk)
  • Uniswap is the number one gas guzzler on Ethereum (Article, CoinDesk)
  • Compound chain foreshadows cross-chain DeFi lending (Article, The Defiant)
  • Gemini to support Ethereum 2.0 trading and staking (Blog post, Gemini)
  • The state of Ethereum Improvement Proposal 1559 (HackMD post, Tim Beiko)

Factoid of the week



Sign up to receive Valid Points in your inbox, every Wednesday.


We’ll soon be incorporating data directly from CoinDesk’s own Eth 2.0 validator node in our weekly analysis. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.



Disclosure

Source

Tagged : / / / / / / / / / /
Bitcoin (BTC) $ 37,682.10 0.10%
Ethereum (ETH) $ 2,035.77 0.58%
Litecoin (LTC) $ 69.42 0.25%
Bitcoin Cash (BCH) $ 222.41 0.49%