Just some Two Degens updates to share. George had a great chat with his friend and crypto OG Daniel Hwang (who’s been in crypto since early bitcoin mining days, worked at Terra among others, and just knows a TON). Pardon the bit of background noise there.
I’ve also been doing the daily 5 minute crypto update. With a few breaks here or there lol
Check ’em out, and please let us know how we can do better. I have to admit it’s been a joy to get back to making content. We’ll probably add video soon so you can see our filtered faces ;)
I’ve been recording a daily 5 minute crypto news update for the last few weeks. Today I asked GPT-4 to rewrite the show notes (which you can see here) into a “simple concise article”. Here’s what it gave me – color me impressed!
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Title: Crypto Daily Update: Onchain Billionaires, Ethereum’s Next Upgrade, Dune Dashboards, Market Structure, and Arthur Hayes
On Tuesday, April 25th, Bitcoin is trading at around $27,300, and Ethereum is at $1,800, both experiencing a 1% drop in the last 24 hours.
Blockworks recently published an article discussing “onchain billionaires” who own identifiable crypto wallets with assets worth more than $1 billion. Among them are Ethereum’s Vitalik Buterin, Ripple’s Jed McCaleb, TRON’s Justin Sun, and the mysterious Bitcoin inventor Satoshi Nakamoto.
Ethereum’s next upgrade, called Cancun-Deneb, was announced by the core developers. The upgrade will consist of two parts: Cancun as the execution layer and Deneb as the consensus layer. The most significant part of the upgrade is EIP 4844, dubbed proto danksharding, which will lower transaction costs for layer 2 solutions like Optimism and Arbitrum.
Dune dashboard data provided by 0xkofi reveals insights into rollup economics. Arbitrum has more than double Optimism’s total transaction fee revenues, with ZKSync coming in third. Arbitrum also posts twice the amount of transaction data and has had nearly seven times more builders deploying smart contracts this month compared to Optimism.
A tweet thread by Zero IKA covers basic market structures, including bullish, bearish, and neutral/ranging. Moving averages can be utilized to understand market shifts, such as 9-day or 200-day moving averages.
Q1 insights from Electric Capital highlight the growth of crypto developers. Notable takeaways include the presence of 7,000 full-time developers, a dip in the number of new developers and repositories, and high growth ecosystems such as Aztec Network, Metamask, and Hyperledger.
GOP Majority Whip Tom Emmer criticizes SEC Chair Gary Gensler in a tweet thread, accusing him of incompetence, abuse of power, and contradictory statements that create chaos in the market.
Ethereum is a unique triple-point asset, combining properties of capital assets, transformable assets, and store-of-value assets. This unprecedented combination creates a new investment and ownership paradigm.
Arthur Hayes shares his latest essay, “Exit Liquidity,” discussing the future of trade, the use of multiple currencies, and potential roles of gold and Bitcoin in the global economy.
Went through the a16z 2023 State of Crypto and pulled out some interesting slides + my own notes. I also recorded a podcast episode about it (as part of the 5 minute daily update):
Here we gooo:
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Web1 was decentralized (email protocol, web protocol) but limited functionality, and no value accrual
Web2 was centralized into Google, Facebook, etc, advanced functionality, but value accrued to big tech
Web3 is decentralized again, community governed, and value accrues to participants
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Web2 take rates are something like 30-100%
30% for services like Spotify and Apple App Store
100% for FB, Twitter
Web3 take rates are much lower – or even pay participants (like ETH’s PoS)
OpenSea is 2.5%, Uniswap is 0.30%
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With each cycle, the market gets larger
-higher price
-more usage
-more developers
-more projects
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ETH is scaling through rollups
In 2022, L2s paid less than 2% of all ETH fees
Now it’s closer to 7%
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The big brands are all here – from mass consumer brands like Starbucks and Adidas and Budweiser to luxury brands like Tiffany and LV and Porsche
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DAO governance is growing
From barely 50K monthly proposals in 2021 to more than 200K today
2M unique DAO voters
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More than 50K monthly crypto developers on Github
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Active addresses steadily growing
From less than 5M in 2018, to more than 15M today, across all blockchains
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What A16z expects in the coming years
-Zero knowledge tech will accelerate
-On chain games will grow in popularity
-Light clients will accelerate web3 and mobile
-in the US, bipartisan crypto regulation will pass
Hosts: Hasu and Mike
Hasu – advisor to Flashbots, Lido
MEV value chain
-money from reordering / censoring transactions
–any value a privileged actor can extract – eg, Central Bank printing money, can be considered MEV
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People use crypto to escape MEV in real world
Should build crypto systems resilient to MEV
Principles in reducing MEV
-more competition = lower fees, less MEV
-more private = harder to extract MEV
-more user control
MEV is invisible – even looking at transaction data in Etherscan, won’t see sandwich attack
MEV schools
1. Democratizing MEV – hard to minimize MEV, isolate builders role, make it competitive
2. Minimize MEV –
User/wallet layer – order flow auctions – users don’t send to public mempool or block builder, auctions off right to execute your transaction, if there are competing bidders, the price rises, and value goes to user (instead of to MEV capturer)
Mike: “Payment for order flow” – Robinhood offering zero fees, selling order flow to Citadel / hedge funds
Mike: In past, equity brokerages would charge you for trades – now people have opted for free trades / invisible fees (eg, Robinhood)
We can do better in Defi – especially the transparency
World of Cosmos and Ethereum are converging – ETH community has been better at executing Hard to say in future if X project is ETH or Cosmos project – there’s increasing convergence
MEV accrues to whomever gets to order the transactions
Mike: MEV will accrue to execution layer
L2 sequencers today are centralized – with plans to decentralize – will eventually face same MEV problems as ETH L1
L2s all need PBS (proposer builder separation)
Sequencers today in L2 does 4 things
-receive transactions
-decide on ordering of transactions
-give user a receipt
-send order batch to data availability layer — that’s what creates finality
MEV should not be counted towards security budget — that’s how core devs think about it, want to minimize and not enshrine it
Minimum security should be paid from inflation + base fee
“MEV is very hard to track”
Different forms of MEV
-arbitrage – different prices on different exchanges, or underpriced asset
-sandwich attacks – buy before a user, then sell it to the user at higher price
-liquidations – searchers typically do this
Statistical arbitrage – take balance sheet risk, small period of time where you have to hold asset before selling it
Many top Defi traders are also block builders – want to maximize inclusion guarantee, greater control over trading strategy – can make trade at last moment, can see all other transactions and order / cancel them
In systems we build, must make sure they’re not sensitive to latency — otherwise there’s incentive to colocate near each other, more centralization
Phil Daian post on this: https://collective.flashbots.net/t/decentralized-crypto-needs-you-to-be-a-geographical-decentralization-maxi/1385
Turn latency into price / auction, auctions are generally more fair, and price (ability to pay) is easier to decentralize than geographic proximity
Users love Robinhood because good feature is very visible (free trades) and bad feature is very invisible (selling user order flow)
Mike: Optimism and Arbitrum have very different approaches to MEV
“Solana is case study for why to not build low latency blockchains”
1 of 2 Solana block builders is operating liquid staking protocol
If you don’t have robust mempool and fee market design, get a lot of spam 58% of Solana transactions are failed arbitrage transactions
What’s novel in Cosmos —
-Osmosis doing something very interesting – onchain block building and searching
-Noma (sp?) & Penumbra – intent based transaction framework
Mike: Cosmos has very different opinions, diversity of ideas
Hasu: Big drawback is everyone has different validator sets, but as shared security grows, what compromises will be made?
How does regulation bump into MEV?
Crypto is about fair and equitable markets for users with less manipulation and exploitation Execution on public blockchains is continually improving
Regulators are largely pragmatic
“If a single regulatory regime can make rules in crypto, then crypto has just failed”
Lucky to have Imran Mohamad, Kyber’s marketing lead, to discuss in his words:
What happened with $ARB? What's going on with @CreditSuisse & QE? How did Kyber back to being in the top DEXes? What's our longterm ecosystem strategy? My fav NFT? All and more here, thanks @habits + @bridgexplore for having me on your podcast! https://t.co/xQ34wGqNLh
— Imran.knc | KyberSwap (@imranfaststart) March 27, 2023
And in a separate episode, Jorge and I catch up on all the latest crypto shenanies and macro hankies and bank bailout pankies. Yup.
