⛓ Big Money, Big Warnings

Lead Ethereum Developer Warns Protocol Complexity is Out of Control

Last week we were all high on the news that the Ethereum 2.0 merge succeeded in a testnet. Ethereum 2.0, now called The Merge, has been a long awaited improvement moving the blockchain from Proof of Work to Proof of Stake. This week, one of the longtime core developers for the Ethereum Protocol sobered us up.

Péter Szilágyi is a team lead, and 7 year veteran core developer, working on Ethereum. Péter’s warning came in a Tweet thread about how the complexity of Ethereum was getting out of hand. Complexity is a constant problem for software development. Many large companies like Google even have multi-month boot camps to educate new hires about their specific systems. Péter warned:

As good as it feels that we're approaching The Merge, I must emphasize that #Ethereum is not going in a clean direction. Tangentially it's achieving results, but it's also piling complexity like there's no tomorrow. If the protocol doesn't get slimmer, it's not going to make it.

He goes on to explain that he believes the root of the problem comes between theory and implementation. For Ethereum, much of the work is split up between researchers and development teams. Research teams can build up ideas that are effective in theory, but development teams have to make these new ideas integrate with every other component of the Ethereum protocol. As Péter puts it, developers need to “...juggle every single idea that was ever introduced, whilst surgically expanding the dimensionality of the space.”

Péter makes the point totally clear by saying:

We are already past the point of anyone having a full picture of the system. This is bad.

I can't say what the solution is, but my 2c is to stop adding features and start culling, even at the expense of breaking things.

There are less and less people knowing and willing to piece together a broken network. And each change pushes more away.

LayerZero and Stargate are Building a New Cross-Chain Economy

LayerZero is a blockchain interoperability startup offering a new generation of crypto bridge that opens up possibilities for cross-chain swaps and sending arbitrary messages across blockchains. LayerZero came out of stealth mode in September, 2021 with the announcement of a $6M Series A raise led by Binance Labs and Multicoin Capital.

LayerZero's protocol allows apps to transmit messages between blockchains. A message can be a transaction, bridging an asset, swapping assets, etc. LayerZero can handle cross-chain transfers and cross-chain swaps, where both assets are on their native blockchains.

How it works:

• A user performs a transaction on the source chain. The transaction's payload is a message.
• Off-chain relayers send the message and proof that the transaction was mined to the target blockchain.
• On the target side, Chainlink oracles push source transaction info to the target blockchain.
• LayerZero validates that Chainlink's provided transaction data is valid, then accepts the transaction on the target blockchain.

The previous generation of crypto brides is expensive, slow, and under-featured. For instance, you might buy Polygon (MATIC) on a centralized exchange that is on the Ethereum network. In order to use that MATIC on the Polygon network, you'd first have to use an Ethereum-to-Polygon bridge. So if you wanted to buy KLIMA using MATIC tokens on the Ethereum network, you'd have to bridge the MATIC from Ethereum to Polygon, then go to a decentralized exchange (DEX) and swap your new Polygon-native MATIC for KLIMA. Stargate, LayerZero's first DEX and bridge, eliminates several of these pain points.

Stargate (STG), the first bridge and DEX built on LayerZero, allows investors to bridge and swap stablecoins across L1s Ethereum, Binance Smart Chain, Avalanche, Polygon, Fanton, and Ethereum L2s Arbitrum and Optimism. This means you can swap USDC on Arbitrum for USDT on Fantom without any middle steps. In the future, Stargate will integrate cryptos that are not stablecoins.

"It works by having the contract on each chain maintain the balance of assets on other chains, along with the credits owed to the destination chain. Regularly, outstanding credit info is propagated." - Nico Deva

Stargate can facilitate these cross-chain swaps in part because it has deep liquidity pools for each token on each network. Currently, Stargate has over $3.3B total value locked across its pools. To attract investors, Stargate offers APYs on farmed stablecoins ranging from 15% to 21% with liquidity in each pool ranging from $34M to $672M.

Stargate also offers competitive gas fees on cross-chain transfers and swaps. When these Stargate gas fees were recorded, Ethereum gas cost 42 gwei and ETH was worth $3,100.

Grayscale Launched an Altcoin Investment Trust

Grayscale Investments, which most people know for launching the wildly popular Grayscale Bitcoin Trust (GBTC), is launching a new altcoin fund. Grayscale is known as the largest digital asset management firm in the world, with their publicly traded GBTC fund peaking at $60B. It currently sits at $26B due to the drop in Bitcoin price.

The new fund is called the Grayscale Smart Contract Platform Ex-Ethereum Fund (GSCPxE), and includes many major smart contract projects, minus Ethereum. The current holding as of 3/16 are:

• Cardano (ADA): 24.63%
• Solana (SOL): 16.96%
• Avalanche (AVAX): 16.96%
• Polkadot (DOT): 16.16%
• Polygon (MATIC): 9.65%
• Algorand (ALGO): 4.27%
• Stellar (XLM): 4.06%

This seems like a great way to invest in the market, right? There’s one big problem that’s not immediately obvious: this is not a spot fund. Spot funds directly track the value of the underlying assets. GBTC has been dismissed by many in the crypto community because it is not spot, and has traded at as high as 25% discounts to Bitcoin. The GBTC price also drops faster than the BTC price. Though, Grayscale is not to blame for this, since the SEC has denied their request to convert GBTC to a spot ETF. Grayscale has even requested that investors make a comment to the SEC.

Even with the asset price tracking differences, or perhaps because of the discount, institutional investors are buying up GTBC. GBTC may be a good way for institutional investors to get exposure to Bitcoin at a discount, and if they expect the SEC to approve plans to convert GBTC pricing to spot pricing, they could see as much as a 30% increase in value. In recent months, we’ve seen as much as $140M of net buying of GBTC in the last week of February.

Solana Partners with PUBG Studio Krafton

Krafton, the South Korean video game studio that makes PUBG (>1B downloads), announced an NFT gaming partnership with Solana Labs. Krafton describes the partnership as "a long-term cooperative relationship for the development and operation of blockchain- and NFT-based games and services." Krafton has not said which games will feature Solana integrations.

Gamers have not reacted positively to other recent NFT game integrations, such as centralized exchange FTX's recent purchase of F2P card game Storybook Brawl. Following FTX's purchase announcement, Storybook Brawl fans complained on Twitter and nuked the game's ratings on Steam.

The Verge's Jon Porter believes Krafton's new partnership is part of a larger pattern. As China cracked down on its domestic video game industry, Chinese competitors flooded Krafton's native South Korea. Krafton's stock has fallen since its Chinese competitors arrived. Porter sees Korean gaming firms turning to P2E and blockchain gaming to recover revenue and increase their share prices.

Solana is an Ethereum competitor offering extremely fast, cheap transactions with sub-second finality. Critics bemoan Solana’s centralization. Krafton says it favored the Solana blockchain because “Solana is the world’s most performant blockchain. It gives [...] predictable scaling without compromising security or composability.” Perhaps in business deals like this, centralization could be favorable.

In the 48 hours following the announcement, Solana's SOL token rose from $91 to $104.

How was today's email?

• 🤯 This was crazy
• 🧠 I learned something
• 👎 Meh, try again