It’s only been about a month since The Merge but we’re already seeing the effects of the ‘triple halvening’ playing out with ETH issuance. As I stated below, we’ve had an astonishing 96.5% net reduction in issuance since The Merge - this includes both the triple halvening and the fees that are burned each and every block. The best bit? In the 2 days since this tweet went out the net reduction has actually changed to 97.7% (because gas fees spiked up).

As I alluded to above, the figures in the tweet are a little outdated now but the point remains the same - Ethereum’s switch to Proof of Stake has resulted in a substantial decrease in ETH issuance. Now, the figures above are net of burnt fees which had been very low up until the last few days, and because of the spike in demand (thanks to something called ‘XEN Crypto’), the supply change since merge is now 7,683 ETH and it would’ve been 330,664 ETH if Ethereum was still a PoW network. You may be wondering if this supply change since merge can go to 0 or negative and I’m here to tell you that yes, yes it can, because every single block some amount of ETH is being burned.

What the last few days of higher-than-average gas prices have shown is that even a relatively small spike in demand can make ETH go deflationary (and it has been over the last 7 days). This is because there is an ‘ultra sound barrier’ that goes up or down depending on how much ETH is staked. Currently, the barrier is at 15.3 gwei, so as long as gas fees are at or above this level, the network will burn enough ETH per slot/block to offset 100% or more of the issuance in that same slot/block. Pretty neat, huh?

What’s awesome about all of this to me is that we are currently in a deep bear market with very little demand compared to the bull market, and the net issuance reduction has still been so substantial. Of course, this reduction hasn’t played out in the price of ETH yet, though I think this is because demand is just so low and there’s lots of uncertainty in the markets so people aren’t in a rush to part with their cash for ETH right now. If you believe like me that this won’t last forever, then logically we should start seeing the impact of this issuance reduction as soon as even a little bit of demand returns to ETH.

All in all, I don’t think it makes a lot of sense to put too much weight on ETH being deflationary or inflationary over shorter periods of time (such as weekly or monthly periods). I personally prefer to measure it out over yearly periods and also like to track it from the day that EIP-1559 went live (ETH’s issuance is -1.34% since then). This is because you want to average out the burn over longer periods of time to filter out as much of the noise as possible - after all, we all know how volatile layer 1 gas fees can be!

Have a great day everyone,
Anthony Sassano

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It finally happened - Ethereum’s consensus and execution layers have merged and Ethereum is now a full Proof of Stake chain! The best part is that the transition went near-perfectly with only a very small percentage of validators falling off of the network - an incredible achievement. It’s a very happy day for me personally as I’ve been waiting 5 and a half years for this moment since Ethereum’s transition to Proof of Stake was one of the reasons I got so excited about Ethereum in the first place.

The Merge is the culmination of work by hundreds of people spanning many years and many different domains of knowledge. It began when Vitalik talked about Ethereum becoming a PoS network very early on (late 2013/early 2014). After a long while in the research phase, development started in 2018 and accelerated in 2019 and 2020 towards what would come to be known as the ‘Beacon Chain’. Then, on December 1st 2020, the Beacon Chain went live and has since accumulated over 400,000 validators that are staking over 13 million ETH. After the launch of the Beacon Chain, all attention shifted to ‘merging’ the two Ethereum chains and this would keep the core developers and researchers busy over 2021 and 2022 with many devnets, testnets and shadow forks. That, of course, brings us to today where Ethereum is finally a full Proof of Stake chain.

So you may be wondering, what’s next? Well, quite a lot actually! I’m sure by now you’ve all seen Vitalik’s flow chart of the Ethereum roadmap (check it out here if you haven’t) but in terms of immediate upgrades we can all look forward to, there’s Shanghai which could include features such as staking withdrawals, EIP-4844 and others. This upgrade is expected to happen around 6-12 months from now but this just a rough estimate and we could even see staking withdrawals be included in its own upgrade before Shanghai (since this feature is critical given recent conversations around censorship thanks to OFAC sanctioning Tornado Cash).

Finally, I just wanted to express a heartfelt thank you to every single person that made The Merge possible. Your contributions will be forever etched into the history books of Ethereum and your work has laid the foundations that the rest of the Ethereum roadmap will be built upon. You should all feel extremely proud and you definitely all deserve all the praise in the world for your efforts - thank you again.

To everyone else - welcome to the new era of Ethereum that really has only just begun.

Have a great day everyone,
Anthony Sassano

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We are now less than 2 days away from The Merge and the excitement of the community is reaching a fever pitch. As I’m sure you’re all aware of by now, Google engineers created a merge countdown timer (with the pandas!) that comes up if you search “the merge” or “ethereum merge”. And just today The Merge was featured on the front page of the Financial Times - I think it’s safe to say that the world is watching The Merge.

We all know how monumental of an event The Merge is and how important it is for Ethereum - but that’s because you’re subscribed to this newsletter about Ethereum and spend too much time on ‘crypto twitter’. Usually, network upgrades like The Merge come and go with little fanfare from anyone but Ethereans (EIP-1559 being a notable exception) but this time around it is distinctly different - The Merge is entering the mainstream consciousness and Ethereum is getting a lot of positive attention because of it.

Due to this more mainstream nature of The Merge, there has been plenty of attention on 2 things - the massive 99.95% energy reduction and the equally massive issuance reduction. The former is of interest because climate change is extremely topical and crypto has come under heavy scrutiny for its energy use for a while now. The latter is obviously interesting to people because it’s something they can speculate on and something they may stand to gain from (if they hold ETH, of course).

There are of course plenty of other positives that come with The Merge but I don’t think the mainstream media has or will clue into most of them. A big one (at least to me), is the fact that The Merge is a huge derisking event for Ethereum and shows that even though Ethereum is a large network, it can still execute incredibly complex upgrades that involve many different moving parts. Then there’s also the fact that ETH staking yields will go up post-merge since validators get fees and MEV in addition to the propose/attest rewards.

All in all, it’s an exciting time for Ethereum to be on the world stage. Given the recent energy crisis in Europe and the subsequent skyrocketing energy prices around the world, there’s never been a better time for Ethereum to be moving to Proof of Stake. If you wanted to, you could even argue that The Merge happening in a bear market is much healthier for ETH’s price since the impact will be relatively muted (imagine if we were merging in a bull market) - though for now I’ll leave the speculation to the speculators.

Have a great day everyone,
Anthony Sassano

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The Ethereum mainnet merge is now less than 9 days away (yes, really) and the final pre-merge upgrade, Bellatrix, was successfully completed just a couple of hours ago. Due to this, many people are wondering what they need to do to be ‘merge ready’ and well the good news is that unless you’re a solo staker - you don’t need to do much at all!

Now, if you are a solo staker, then by now you should’ve followed the ‘Merge Readiness Checklist’ and ensured that all of the relevant tasks have been completed. If you haven’t done this yet then at this point your validators will be offline and you’ll be losing ETH via the inactivity leak (you should go fix this right now)! Though from what I can see on Beaconcha.in, only about 5% of validators fell off the network at time of the Bellatrix upgrade which is an amazing result (I expect these validators to quickly come back online as well).

Now, as for The Merge itself, the great thing for regular users is that to be “merge ready” they don’t have to do anything at all. Since The Merge is only altering the consensus engine of the Ethereum network, regular users will be able to use the network post-merge just as they did before the merge (same wallets, same transaction flow, same fees - everything). The only difference regular users may feel is the fact that layer 1 blocks will be slightly faster post-merge (exactly 12 seconds instead of around 13 seconds).

As for any potential issues with The Merge, there’s not actually much that can go catastrophically wrong. I would say that the “worst case scenario” would be if the chain just halts because the switchover from PoW to PoS didn’t work at all - this would then require some sort of coordinated human intervention to fix. Though if we see things like validators dropping off the network due to configuration issues, missed blocks/slots or some clients having major bugs, these things wouldn’t be cause for major concern as they are relatively easy to recover from.

The Merge only happens once and will be a historic moment for not just the Ethereum movement, but all of crypto. It’s the first time a major Proof of Work chain is doing a live transition to Proof of Stake and it is the most significant upgrade in Ethereum’s history. Finally, after a very long research and development phase, we are less than 9 days away from Ethereum becoming a full Proof of Stake network.

The Merge is coming - are you ready for it?

Have a great day everyone,
Anthony Sassano

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I try not to comment or focus on the crypto markets too often since I believe that all short to medium term movements are purely noise and I’m a (very) long-term investor. Though I’ve had a few people ask me lately if the current market structure is anything like previous ones I’ve experienced and the answer is quite nuanced. It definitely does feel like the “crab market” that I experienced in 2019 but at the same time everyone is much more optimistic about crypto compared to back then (and there are many more proven use-cases).

The most interesting thing for me over the last few years has been watching how the market has changed its treatment of BTC and ETH. Back in 2019, no one except the most die-hard Ethereans thought that ETH was money or that ETH could be a store of value asset - and you’d be laughed at for even comparing ETH to BTC. Fast forward to today and ETH is accepted as the only other “blue chip” asset in crypto alongside BTC. I would go even further and argue that ETH is a much more investable asset than BTC (especially post-merge) and I think more people are recognizing this as the bear market continues and ETHs performance against BTC holds strong.

I don’t want to rag on BTC too much, but right now I can’t really see what narratives it has left. It has failed as an inflation hedge, it has failed as a payments system (the Lightning Network is a joke), the Bitcoin network has a weak long-term security policy, headwinds related to PoW are only going to get worse and the community is made up of people with an extreme case of Dunning-Kruger. Obviously I’m biased in my opinion of BTC but I don’t think anything I’ve said is false - BTC really has fallen very far from what it originally aspired to be. In saying all of this, I can still see BTC going back to its all time high against USD and beyond, but I strongly believe that ETH will both outperform and eventually flip it for the #1 spot.

I don’t just believe ETH will flip BTC because of some narrative I’ve told myself - there are very real fundamental drivers at play here and I’ve previously outlined some of them in this piece. On top of my believe that ETH is one of the best investments in the world from a risk/reward perspective, the Ethereum network itself has so many tailwinds behind it from layer 2 development/adoption, continued execution of the long-term Ethereum roadmap, serious DeFi builders sticking with Ethereum and the entire NFT/Metaverse use-case centered around Ethereum & ETH as a money. The best part is, and I know it’s a meme to say this, we really are only still at the very beginning of it all.

All in all I remain incredibly bullish on ETH and Ethereum despite the bear market that we’ve been experiencing for quite a while now. I know that the wider macro environment is not very favorable right now and I know that there is a lot of economic pain in the world, but I still believe Ethereum as both a technology and a movement can greatly help with many of the current and future issues that the world will deal with.

Sadly, I can’t say the same for Bitcoin.

Have a great day everyone,
Anthony Sassano

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The Ethereum Proof of Stake Beacon Chain went live on December 1st, 2020 and since then over 13.3 million ETH has been staked. Now, not all this ETH has been staked in the same place - solo validators, staking pools (centralized and decentralized), centralized exchanges - these entities make up the Beacon Chain we all know and love today.

Staking ETH is currently a one-way street - you send 32 ETH to the deposit contract, spin up a validator, and begin attesting to & proposing blocks (while getting paid in ETH to do it). If you want to stop being a validator, you can simply exit the active validator pool but your ETH won’t be available to you until probably 6-12 months after The Merge (when Beacon Chain withdrawals are expected to be enabled). Due to this, if you stake with a provider such as Coinbase and want to change to someone else, you won’t be able to until these withdrawals are enabled.

This is why I have a thesis that once withdrawals are enabled, we’re going to see a “great ETH stake reshuffling” where lots of ETH gets moved around between staking providers. Some reasons why people would move their stake around:

• When someone first staked their ETH they didn’t have for solo staking but now they do so they withdraw from a centralized staking provider and set up a solo staking operation

• Someone changes from a centralized staking provider to a decentralized one like Rocket Pool (which didn’t go live until this year)

• A staker no longer trusts the provider that they originally staked with

• 1 or many providers are not sharing fee or MEV revenue with their pool so people would change to a pool that does share

• Someone wants to change staking providers to improve the overall distribution of staked ETH

On top of the above, there will probably be lots of incentives offered to users once withdrawals are enabled in order to entice them to change where they stake. These incentives could come in the form of bolstered yield via token rewards or even front-loaded yield at the expense of the staking operator. The providers could also offer fee-free staking to new customers for something like 6 months in order to attract more stake to their pool. Regardless of what the incentives are, they will definitely exist and I expect many users to take advantage of them.

It remains to be seen how much stake “changes hands” once withdrawals are enabled but I expect it to at least be a non-negligible amount. All of this also doesn’t factor in the people who want to sell their ETH stake altogether but I think that’s orthogonal to my overall thesis. In any case, I’m excited to see what happens once withdrawals are enabled some time next year.

Have a great day everyone,
Anthony Sassano

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Hey readers - I just wanted to apologize for the lack of newsletters over the last few weeks. Both my real life and crypto have been much busier than usual so it has been difficult for me to keep up the daily cadence of these newsletters. I haven’t even had a chance to write about the Tornado Cash sanctions (though I did talk about them at length on my 2 recent YouTube videos here and here).

Anyway, I can’t promise that I’ll be able to maintain a daily cadence of these newsletters for the foreseeable future but I will endeavor to keep publishing them as frequently as possible - thanks for sticking with me :)

Ethereum’s “social layer” has been quite topical lately due to the discussions being had around the Tornado Cash sanctions and the possibility of censorship on Ethereum. If you’re newer to the ecosystem you may not understand the importance of a crypto-networks social layer but make no mistake - it is the most important thing for a network and ultimately our last line of defense against any adversaries.

I think Superphiz’s tweet above is the perfect example of Ethereum’s social layer in action. To give the context - a little while ago the Ethereum Beacon Chain’s validator client diversity was quite uneven with Prysm accounting for 60%+ of the network (and at one point over 66% which is the critical level we don’t want any one client to reach). Given this situation, there was a huge community push (led by Superphiz and others) to get people to switch to a minority client. Well, you can see the results of this push above - Prysm went from being around 67% of the network to just under 35% and client diversity has never been healthier that it is today!

On this topic of the social layer, there’s been a lot of talk lately about potentially “socially slashing” any validators that decide to censor transactions on the Beacon Chain. I do want to be clear that this a “nuclear option” that would only be used as a last resort (and ideally it would never actually be used). This is because socially slashing large validating entities like centralized exchanges would lead to a lot of collateral damage for the entire ecosystem and a very messy time for Ethereum. Though the point of even talking about social slashing is to send a strong signal to these entities that censorship is an attack on Ethereum and will be met with an aggressive response in the worst case.

Another way to think about the above is that there’s a “cold war” going on at the moment where a type of ‘mutually assured destruction’ is at play. If a centralized staking service provider decides to censor transactions at the base-layer, then the Ethereum community would react with its ‘nuclear option’ of socially slashing the offending validators. Because of the nature of slashing (literally burning a validators stake), entities have every incentive not to engage in any behavior that could get them slashed (socially or technically). So instead of censoring transactions because a government told them to, the staking service provider could simply exit their validators from the active staking pool (because the threat of social slashing is ever looming if they instead choose to censor).

Personally I believe that if the Ethereum base-layer was to ever engage in permanent censorship, that would be the end of Ethereum. Our currently strong social layer would begin to break down, smart people would leave the ecosystem, developers would flee to other chains and users would abandon the chain in droves. Fortunately, I don’t see a future where the Ethereum base-layer becomes permanently censored - but only because I believe that Ethereum’s social layer is strong enough to resist this.

Have a great day everyone,
Anthony Sassano

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Usage of the Ethereum network has evolved dramatically over the years from being used almost exclusively for ICOs in 2017 to the emergence of DeFi in 2020 and then NFTs in 2021/2022. The usage has also become more distributed over time going from just a few apps in 2017/2018 dominating the network to a much more diverse set as you can see below.

Casey’s chart clearly shows the extreme trends that have played out over the years with regards to Ethereum blockspace. I mean, just look at 2018 and 2019 - those years were dominated by 0x and MakerDao - 2 apps that now only take up a very small portion of Ethereum blockspace. Though this isn’t “bearish” for 0x or MakerDao since both of these apps are still heavily used, but it does clearly show how dramatic the change has been since 2018 in terms of how many new gas guzzlers we have now.

What’s even cooler about this chart is we can spot where DeFi summer began by just looking at Uniswap’s share of gas consumed. Uniswap took off in usage during DeFi summer because of liquidity mining - everyone was farming “valueless governance tokens” and needed somewhere to sell them - Uniswap was the obvious choice. On top of this, many protocols opted to create a “pool 2” for their native token which was an incentivized pool that had liquidity for people to dump into - again, these pools were almost exclusively created on Uniswap. This all lead to a massive flywheel effect that led to a substantial increase in Uniswap’s general popularity and usage which in turn led to a large increase in Uniswap’s consumption of Ethereum gas.

There’s also another reason why things have changed so dramatically over the years and that has to do with how smart contracts are coded. Back in the 2017-2020 era, smart contracts were quite gas inefficient because Ethereum gas fees were extremely low and developers didn’t feel the need to optimize their contracts. It wasn’t until DeFi summer of 2020 when developers started taking gas efficiency seriously which can be pointed to as a reason that some of the big name apps (0x and MakerDao) are now using much less gas even though they are bigger than in 2018/2019.

Obviously going forward it’s going to be harder and harder to glean real insights from this chart as users continue to migrate to layer 2’s. I would even go as far as to say this chart won’t change very much from here on out - we’ll probably see layer 2’s themselves keep growing in layer 1 gas usage, but most new apps are now opting to deploy exclusively to layer 2’s which means they won’t show up on the layer 1 gas consumed chart at all. This is of course healthy for Ethereum since its vying to be a settlement network for layer 2’s.

Ethereum blockspace is such a fascinating topic for me because we get to study things like the trends of gas consumption over time. Given Ethereum is still such a young network, we can expect these trends to evolve dramatically over the next few years and the Ethereum of today will most likely look very different to the Ethereum in 5 years - maybe I’ll do a follow-up post in 2027 to see where we’re at!

Have a great weekend everyone,
Anthony Sassano

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As I’m sure you’re all well aware of by now, the U.S Treasury Department has sanctioned Ethereum-based privacy tool Tornado Cash and associated addresses. On top of this, Circle has frozen all the USDC that had been deposited into Tornado Cash’s smart contracts. Obviously this is one of the strongest moves a government body has made against something in crypto and it may unfortunately just be the beginning.

First off, and as I said in my tweet above, this move from the treasury department really just reinforces the fact that we need to decentralize everything in crypto. From the front-ends to the RPCs to the smart contracts themselves - if any layer in the stack is centralized, then the whole app/service becomes compromised and easily censorable. I also think that Tornado Cash wouldn’t of been sanctioned like this if the app itself didn’t work - clearly it works very well as a privacy-preserving tool and it’s something that has probably given U.S law enforcement grief in the past (hence the move to sanction the app).

There are inevitably people pushing the same old line we’ve all heard before - “if you’ve got nothing to hide then you’ve got nothing to fear”. But valuing privacy has little to do with having “nothing to hide” and everything to do with not wanting people snooping around your business - especially not the government. I mean, we all very readily gave up our financial privacy by switching to digital banking instead of using cash for most transactions but I believe this is because we had little choice in the matter (aka we had no alternative). Crypto is that alternative that gives us the choice to have a fully-private digital financial life if we want to - that’s incredibly powerful and obviously scary for governments since they like having total view of everyone’s financial life (for a number of reasons).

So, where to from here? Well I’m no legal expert so I’m not sure what’s going to happen in the legal/regulatory arena - will we see a reversal of this decision from the U.S or will they double down and start applying sanctions to other privacy tools like Aztec, Zcash and Monero? Will they go even further and make it illegal for people to use non-KYC’d exchanges like Uniswap? Or will they go even further than that and force centralized exchanges to not allow withdrawals to people’s own Ethereum address? Sadly, at this time, I think that anything is possible.

I know at times like this it’s somewhat difficult to “keep the faith” in our ability to continue to build and use decentralized apps & services, but I think it’s now more important than ever for us to do so. The path we are on was never going to be easy - we are building things that the powers that be would rather not see built - but if you read some history you’ll notice that this has always been the case.

And as I’ve said before, the only way to test if something is truly decentralized is to have nation states try to control it.

Have a great day everyone,
Anthony Sassano

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There’s been a bunch of chatter over the last few weeks around a possible Ethereum Proof of Work fork at time of The Merge. Putting aside the fact that this is an obvious money grab attempt, I think walking through the potential implications is an interesting thought experiment. I’ve even come up with a term for this - ‘The ETH Milkshake Theory’.

The ‘ETH Milkshake Theory’ that I talk about above is not something that I’m going to claim will play out but I still think it’s fun to talk about. I mean logically it makes sense that if there is a fork, people would sell off their PoW-tokens for PoW-ETH and then sell that PoW-ETH for real ETH (if they can find liquidity). Though given that this fork is purely speculative and there’s not much new money coming in at the moment due to the wider bear market, I’m not sure if there’s going to be enough demand to offset the extreme sell pressure.

The above also isn’t taking into account all of the nuances around an Ethereum Proof of Work fork such as all of DeFi imploding pretty much instantly. There will almost certainly be no oracle support and no infrastructure support for the chain and then you can couple this with the fact that every DeFi protocol is going to suffer extreme volatility because none of the centralized stablecoins will be worth anything (the issuers will follow the PoS chain). There really will be a race from people to trade any forked tokens they have for PoW-ETH and then hope an exchange has liquidity for PoW-ETH so they can offload it for real ETH or stablecoins.

There’s also the risk of what is called a ‘replay attack’ where transactions you submit on the forked PoW chain could, in theory, be ‘replayed’ on the main PoS chain. From my understanding, this would only happen if the Ethereum PoW chain decided to keep the same chainID as the PoS Ethereum chain - though I’m not an expert on this particular attack vector. Regardless, I still think it’s worth ensuring that you’re aware of any risks associated with interacting with any possible fork of Ethereum so that you don’t put yourself in harms way.

All in all I do think there will be a PoW fork of Ethereum after The Merge, but I think it will be a very short-lived chain that will fade into irrelevancy within a matter of days. The fork isn’t driven by some ideological motivation (like Ethereum Classic or Bitcoin Cash) - it is purely driven by greed. Maybe it would be a more successful venture in a bull market where money is easy to come by - but in a bear market where the only players left are the experienced ones, it will quickly become a race of everyone trying to get out through the one small exit door.

Have a great day everyone,
Anthony Sassano

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There’s long been an issue in Ethereum of a lack of good critics and criticisms that come from outside of its own ecosystem. Typically the criticisms from those outside the Ethereum ecosystem will come from a place of tribalism and irrationality rather than a place of facts/reality. As I point out in my tweet below, this is why you constantly see Ethereum critics shifting the goal posts around - their criticisms are empty to begin with so they don’t cope well with the tests of reality.

The reason that this lack of good criticism annoys me is because I strongly believe that good critics are the lifeblood of a successful ecosystem. I mean, there are countless examples of big companies that went bust because they were just full of “yes men” who never questioned anything - hell, there’s even nations that have fallen apart for this same reason! The importance of good critics cannot be overstated and it’s something we as an ecosystem need to put a broader focus on.

In saying that, I do think Ethereum has compensated somewhat for this lack of good ‘outside criticism’ by bringing it in-house as you’ll rarely see the entire community fully aligned on anything. Even EIP-1559, the most popular EIP in Ethereum’s history, had lots of push-back from within the community which resulted in many studies being done to make sure that EIP-1559 would work as advertised. This is an obvious example of good criticisms leading to good outcomes but again, these tend to only come from within the community (and be limited in nature).

I think that if people were less concerned with scoring ‘dunking points’ with their respective tribe then we’d easily get better critics. But, as we’ve seen time and time again, the easiest way to get attention online is to say inaccurate or outright misleading things that lead to controversy. Saying things like “Proof of Stake is centralized” and “Ethereum is a scam” to your following made up of 90% Bitcoiners is of course going to do well engagement-wise - you’re literally preaching to the choir!

Anyway, I think as long as Ethereum retains its inner-circle critics, it should do just fine over the long-term. Though I do worry that sometimes we’re “missing something” because our good ‘outside critics’ are pretty much non-existent. Maybe this will change over time as we onboard more people into crypto who aren’t tribal about any particular network - or maybe we’re doomed to deal with the poor critics forever - I guess we’ll just have to wait and see.

Have a great day everyone,
Anthony Sassano

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An Ethereum wallet is incredibly powerful - from allowing you to store your precious ETH to being the gateway to on-chain ecosystems such as DeFi. On top of this, creating an Ethereum wallet is as simple as generating a public/private key pair which many apps allow you to do easily (MetaMask, Rainbow, Argent etc). Once your keys are generated (and your wallet has some ETH), the entire world of Ethereum is available to you.

I always find it a bit archaic when I have to ask someone for their bank account details as it’s always a game of making sure you’ve got the account numbers exactly right. ‘FinTech’ improved on this somewhat over the last decade or so with solutions like PayPal, Venmo, Cash App and more but these are just bandaid solutions. The heart of the issue here is that the traditional finance system was never built as a digital-first system - this is where blockchains came in and gave us the first real and global digitally-native value transfer system - not some pseudo-digital thing that the modern traditional finance system passes off as “internet banking”.

Ethereum takes this even further by allowing people to attach a unique name to their wallet address (like how website can attach unique words to their IP addresses). This is incredibly powerful and completely simplifies the entire experience of transferring value around. For example, I can simply tell someone that they can “reach me” at sassal.eth and they can send me ETH and tokens, send me NFTs, send me liquidity pool tokens or a yield bearing token and even hit me up on a web3-enabled chat app. Because of the open nature of Ethereum, there’s no need for them to ask for anything beyond my ENS name because it’s attached to my Ethereum address which is plug-and-play with the entire Ethereum ecosystem.

Obviously the current state of privacy on Ethereum leaves much to be desired and we only have a few early products/services that allow people to achieve some level of privacy. I think this is the number 1 thing (beside scaling) that is hampering mainstream adoption of crypto - after all, no one wants all of their finances completely exposed to the world on an immutable ledger (no matter how much better the experience is compared to the traditional finance system). We also need to make all of this stuff much easier to use as Ethereum UI/UX is typically quite confusing and can be very scary for newcomers (especially since money is involved).

I think that once scaling, privacy and general UI/UX issues are no longer a concern for Ethereum, we’re going to see an absolute explosion in the adoption of this technology that we all know and love. Not only will individuals be using Ethereum, so too will corporations, institutions, small businesses and more.

And they’ll all be doing it with an ENS name attached to their address!

Have a great weekend everyone,
Anthony Sassano

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There’s been a lot of hot debate over the years around how coins/tokens in crypto can accrue long-term value. Of course, 99% of these assets trend towards being worthless or end up at least 95%+ down from their all time highs but are there crypto-assets that actually trend up over time? Of course there is - you just have to look very closely to find them.

The first way for a coin/token to accrue value long-term is to become a money and a store of value and this is a very difficult thing to accomplish. I think the main reason for this is because a lot of the value that comes from being a money/SoV is born mostly out of collective belief rather than some hard fundamentals. For example, if BTC were valued based solely on the amount of fee revenue that the Bitcoin network generates, then BTC would be considered highly overvalued as it has a price-to-sales ratio of 2800! Obviously BTC is valued on the social belief that it is a pristine money/SoV and people mostly buy it for that purpose.

The second way for a coin/token to accrue value long-term is to become equity-like. Obviously many of the projects in crypto have avoided doing this due to securities laws/regulations and this has hampered the growth of many tokens. Instead, the tokens are usually designed to be “valueless governance tokens” and really do stay true to their name - even UNI has performed quite poorly in the face of growing Uniswap dominance (because no revenue is shared with UNI token holders). On top of this, many tokens start their life with a low circulating supply and high fully diluted valuation so even if the token does have a claim on protocol revenue, it still trends down over time because of the real (and assumed) future sell pressure from non-circulating tokens.

I think that ETH as an asset is both a money/SoV and has equity-like properties with the pseudo-dividend via EIP-1559. ETH is also used as a staking asset (internet bond), used in DeFi as collateral and is used to pay fees on not just layer 1 Ethereum, but many layer 2 networks as well (this makes ETH the defacto MoE for the Ethereum network). On top of this, ETHs supply will be net deflationary in a post-merge world which strengthens its store of value properties and causes a nice feedback loop when coupled with staking (higher ETH price > higher USD-measured rewards for stakers > more ETH staked to capture those rewards).

Obviously there are other mechanisms that have been used in crypto to try and drive value to tokens - from algorithmic stablecoin schemes to recursive liquidity schemes - but these things do not generate long-term value for tokens (they seem to do the exact opposite). This is why I’ve come to my conclusions above and why I’m personally most bullish on assets that fit into the 2 categories - especially assets like ETH that fit into both categories.

Have a great day everyone,
Anthony Sassano

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People in crypto tend to over-optimize for technical decentralization while completely forgetting about social decentralization. This is utterly bizarre to me since I believe that the social layer is the most important thing to get right in crypto. I mean, if an ecosystem doesn’t have a healthy social layer that cares deeply about decentralization, then it doesn’t matter how “good” its technology is - it will inevitably centralize.

Think about the above like this - if no one cares about decentralization at the social layer then the technical layer will be built to reflect that. For example, an ecosystem that does not have a culture of encouraging people to run their own nodes (and, more importantly, making it easy for them to do so) will inevitably centralize into the hands of the very few because everyone is just apathetic. We’ve seen this play out time and time again in crypto and it just ultimately leads to apathy at the social layer which obviously doesn’t make for a good decentralized ecosystem!

Some examples of social decentralization from the Ethereum ecosystem include the multi-client architecture and the layer 2 ecosystem. Ethereum has over 10 production-grade clients that people can use across the execution and consensus layers and this didn’t just happen overnight - it happened because the Ethereum social layer values decentralization above all else. On top of this, by prioritizing decentralization at layer 1, the Ethereum ecosystem has allowed a robust set of layer 2’s to blossom on top of it which all compete with each-other (as I wrote about last week here).

Finally, a strong social layer that values decentralization is also extremely important to thwart any attacks against a network - whether it be governance attacks, nation state attacks or attempts at censorship. It’s not just thwarting the attacks either - it’s also recovering from them - and a weak social layer will find it extremely hard to recover from any attacks no matter how “decentralized” the technical layer may claim to be.

I really wish more people understood and valued the importance of social decentralization and by extension, a strong social layer. Crypto-networks are held together by people first and foremost - we are the ones that run all the infrastructure after all. We then extend this social layer to the technical one and create the incentives for people to act honestly on these networks - it’s quite a marvel of engineering if you ask me!

Have a great day everyone,
Anthony Sassano

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It seems like work on scaling Ethereum has been happening for as long as work on Proof of Stake Ethereum has been happening. From the first mentions of sharding to state channel networks like Raiden to Plasma to the rollups we all know and love today, Ethereum scaling has gone through many iterations of research and development to get to the vibrant scaling ecosystem we have today.

I truly do believe that 2022 and 2023 are going to be pivotal years for Ethereum scaling for a number of reasons. Firstly, we’ve never had as many serious scaling teams as we have today and all of these teams are in fierce competition with eachother to win the “scaling wars”. Why the fierce competition? Because becoming the premiere rollup on Ethereum is an absolutely massive market opportunity that is still very much up for grabs - there are no clear winners in this race just yet. There won’t just be 1 big winner either - there will likely be a handful of them that go on to become absolutely massive global networks.

Secondly, now that rollups are live networks with real users, the teams behind them can focus on constant improvement and optimization of the networks for both users & developers. Additionally, the teams are able to glean unique insights into these networks and battle-test their code in an adversarial environment with real money on the line - you obviously don’t get this from a testnet implementation. The teams are also able to move very quickly in upgrading their networks and don’t have to go through the entire Ethereum governance process to improve their network.

All of this is to say nothing of the improvements coming to layer 1 Ethereum that will unlock the next era in scalability for layer 2’s. I am, of course, talking about ‘danksharding’ with its first iteration, proto-danksharding, hopefully going live in Q2/Q3 of next year. This layer 1 upgrade should, in theory, collapse the costs of transacting on rollups (for example, a swap transaction should cost 1 cent or less). This will obviously significantly improve the scalability of the existing layer 2 networks and allow for more exciting innovations to be built out.

It should be obvious by now why I’m just as excited about Ethereum’s scaling roadmap as I am about The Merge - both of these things will usher in a new era for the Ethereum network. As for timelines, The Merge hopefully happens in a couple of months with danksharding rolling out in stages over the next 12-24 months - all while the layer 2 networks themselves keep improving at all times and at a rapid pace.

So let the scaling wars begin and may the coming battles be glorious!

Have a great day everyone,
Anthony Sassano

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The Merge is coming - we’re all well aware of that by now - but the question on everyone’s mind is how to play the event from an investment perspective. As Hal Press from NRD outlines below, The Merge is not a “trade” - it is a long-term investment that will be influenced heavily by a structural shift in ETH flows as well as many things I’ve outlined previously in this post.

For those who haven’t heard yet, the Ethereum mainnet is more than likely going through the merge transition in mid-late September with the final public testnet (Goerli) running through it around August 10th. This means we are really just 2 months away from Ethereum becoming a full Proof of Stake network and newly issued ETH dropping by about 80-90%. And as Hal notes above, this is a structural shift in the flows of ETH as an asset - we are going from millions of dollars worth of freshly mined ETH being force-sold each day to basically 0 sell pressure (since withdrawals of staked ETH and rewards aren’t enabled at time of The Merge).

Given these facts, Hal is right to say that this isn’t a trade and that a long-term investment horizon should be taken when buying ETH. I mean, I’ve personally been buying ETH since basically day 1 in anticipation of a Proof of Stake Ethereum and I also wrote about the issuance reduction that was coming all the way back in January of 2019. Obviously it’s taken a lot longer for Ethereum to transition to Proof of Stake than we’ve all been led to believe, but it really is just around the corner this time.

There are many ways people are trying to get exposure to ‘The Merge trade’ such as just buying ETH itself, buying staked ETH tokens (stETH, rETH), buying governance tokens for staking services (RPL, LDO, SWISE) and even buying competitor layer 1 tokens as a “hedge” against some sort of “failed merge”. I’ve even seen people saying that they’re buying ETC (Ethereum Classic) because all the miners are going to go there after The Merge. Of course, this makes very little sense because it’s well documented that hashrate follows price and not the other way around, but these people are simply playing an attention trade with ETC.

I think it should go without saying that none of the above is investment advice and I am of course not a financial advisor - it’s just a discussion around something that everyone seems to be talking about these days. Obviously I am ultra long ETH and have been for a very long time, but as we’ve seen over the last 6 months the markets can induce a lot of pain in the face of even the most bullish of catalysts. For this reason, it’s best to know the investment time-horizon that you’re comfortable with before pulling the trigger on a purchase of any asset.

Have a great day everyone,
Anthony Sassano

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Whenever a new crypto ecosystem pops up people naturally look for ways to get exposure to that ecosystem. With layer 1’s like Ethereum the natural choice is the native asset of the particular chain - same is true for layer 2’s and sidechains. This “natural choice” is no accident - it is basically a ‘Schelling point’ of sorts for an ecosystem - after all, rather than sifting through hundreds or thousands of assets, most people will naturally just choose the asset that they feel gives them exposure to everything.

Of course, not all Schelling point assets (SPA’s) are created equal - and there is a world of difference between some of them. For example, ETH is the obvious choice to get exposure to the Ethereum ecosystem but not just because it’s a SPA - it also has fundamentally sound value drivers and is a highly desirable asset that is used in staking, as DeFi collateral, as a fee token (where most is burned), as a money/SoV and more. We can contrast this with most other layer 1 tokens which don’t have these same value drivers but still act as a SPA for their respective ecosystems (though almost all of them underperform ETH over the long term).

One major factor that acts as a ‘forcing function’ for a layer 1’s native asset is the use of the token for payment of fees. Every single sovereign layer 1 has its own token that is used to pay fees on the network - Ethereum has ETH, Bitcoin has BTC, Solana has SOL and so on and so forth. This basically guarantees that the native token becomes the SPA of the ecosystem because everyone is forced to use it if they want to use the network. Obviously most layer 2’s differ here in that they opt to use the network that they’re settling to’s native token as the fee token (mostly for an overall much simpler UX).

In saying all of the above, when people are investing in crypto they aren’t just buying 1 asset - they’re usually spread out among many different assets and weight them based on their own strategy. Maybe someone has an ‘Ethereum ecosystem’ portfolio consisting of 50% ETH, 30% DeFi, and 20% NFTs. I think it’d be very rare to find someone who’s invested in a particular ecosystem and doesn’t hold some percentage of the ecosystem’s native token in their portfolio - but it’d be very easy to find people who don’t hold particular tokens from that ecosystem (even if those tokens are very popular).

I don’t think we’re going to see a deviation from this phenomenon of Schelling point assets anytime soon - if ever. In fact, I think we’ll see this trend just get stronger over time as more and more assets come into existence and overload people’s brains with choices. The online world is an attention game after all - and what has more attention in crypto that a networks native token?

Have a great weekend everyone,
Anthony Sassano

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With over 13 million ETH at stake and over 400,000 active validators, Ethereum’s Proof of Stake Beacon Chain is kind of a big deal. Even though the Beacon Chain is already as big as it is, it still has a long way to go - especially when it comes to making it easy for anyone on the planet (or off the planet) to stake any amount of ETH that they have.

Superphiz’s tweet above is something that I really resonate with - staking isn’t very difficult today and many people would be able to get a solo staking operation going by following one of the many guides out there. On top of that, the Beacon Chain has been designed in such a way that it is very friendly to these solo stakers which means it’s very difficult to lose a large chunk or all of your ETH. For example, going offline only results in a slow ‘inactivity leak’ of the staked ETH and is easy to recoup any losses because if the validator is offline for 24 hours and then online for the next 24 hours, the rewards just net out to 0.

The other points Superphiz brings up are also crucial - staking does not require powerful hardware (you can stake on a Raspberry Pi), there is actually very little maintenance required (most of it is basically just keeping the nodes/validators up to date) and you certainly don’t need to be a “professional” to stake. In saying this, I do get the worry from people whenever they have to update their nodes or change anything related to their validators - obviously people don’t want to risk losing any precious ETH so we do need to make this process feel a lot less stressful than it is today.

In terms of lowering the barrier to entry even further there are multiple efforts happening on this front. For solo stakers there are many guides already in existence, the validator software itself is becoming easier/simpler to use over time, and lots of work is being done to provide visual dashboards for staking. Decentralized staking pools like Rocket Pool also make it very easy for anyone to stake their ETH and there are also plenty of centralized staking services - though of course these will get even easier to use over time.

Ethereum Proof of Stake was built for home/solo stakers first and it very much shows this fact in the overall architectural design of the protocol. Though of course it’s not just the design/architecture that needs to be thought through - it’s also the accessibility and general UI/UX so that the barrier to entry can be lowered as much as humanly possible. As with all things in Ethereum, we’re working on it - it’s just going to take some time!

Have a great day everyone,
Anthony Sassano

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Over the last few months we’ve all seen the perils of the ‘CeFi’ or ‘CeDeFi’ ecosystem laid bare - from billion dollar funds blowing up to centralized services gambling with user funds - it has not been a pretty sight. Of course, this is all due to poor risk management, no accountability, extreme opacity around CeFi operations and a complete lack of self-regulation and accountability.

I get why CeFi exists and I get why people use it - I use it too as a fiat on/off-ramp - but what I don’t understand is how people are willing to throw their hard-earned money into something that they have no visibility over. I mean, DeFi isn’t perfect and there have been plenty of examples of that, but at least you get the on-chain transparency so that you know where your money is at all times. With CeFi services, you have absolutely no idea what’s happening to your money - essentially, once you deposit those funds into a CeFi platform, you just get an IOU promise from the platform that may or may not be paid back at a later date.

DeFi is still the greatest innovation that Ethereum has given us - by far - and I think we all take it for granted. Think about it for a second - anyone around the world with a smartphone and an internet connection is able to be their own bank and they are able to keep track of their funds at all times. Ethereum also offers more than just transparency - it offers credible neutrality, decentralization, high levels of security and censorship-resistance. It is essentially impossible for CeFi to offer any of these - even if they were being radically transparent - because you’d still have to trust them whereas you don’t have to trust DeFi on Ethereum - you can verify it for yourself!

That’s another thing that DeFi gives us - the ability to trust code instead of people. When I deposit my funds into a truly decentralized protocol like Uniswap, I don’t have to worry about any humans interfering with those funds - the only (small) risk I’m taking is smart contract risk. At all times, from anywhere in the world, at any time, on virtually any internet-connected device, I can keep track of my funds. Think about how big of a leap that is for humanity - really think about it - it’s not just marginally better than CeFi (and TradFi); it is exponentially better.

DeFi isn’t just about building a decentralized financial ecosystem - it’s also about putting the power back into the people’s hands and allowing them to have complete control over their finances with radical transparency. So let’s stop building, promoting and using all of these CeFi services and let’s keep focusing on growing the DeFi ecosystem.

After all, we’re here to change the world, aren’t we?

Have a great weekend everyone,
Anthony Sassano

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The second public Ethereum testnet, Sepolia, ran through the merge transition with great success just 24 hours ago. Even though the merge itself was a success, there were some minor issues that showed up immediately post-merge but were quickly resolved once the root cause was identified. As far as I understand it, these issues shouldn’t show up on mainnet and aren’t considered ‘merge-related’.

The initial issues that were seen post-merge for Sepolia were that around 25-30% of the network had a misconfiguration error (which isn’t directly merge-related). Once this issue was fixed, network participation jumped up to the expected number of ~95% (it’s lower than 100% due to some validators being permanently offline due to lost keys). Nevertheless, it’s great that this “edge case” issue popped up in testing even if it’s not going to be something that we really need to worry about for the mainnet merge transition!

Sepolia’s issues also showed us, once again, just how resilient the Beacon Chain is to any sort of unexpected behavior. Even though 25-30% of blocks were not being proposed, the chain was still able to finalize because more than 2/3rds of the network was still online and validating. Of course, missed blocks on mainnet would lead to a degraded user experience, but this is the Beacon Chain working as designed as Ethereum favors liveness above all else. I would also expect an issue like the one seen on Sepolia to be rectified even quicker on mainnet since there is real money on the line.

Alright, so where to from here? Well there is an AllCoreDevs call happening on Friday where I’m sure the Sepolia merge will be discussed and then the next call will be on July 21st. I expect this call to be the one where the Goerli testnet merge transition date will be announced and I’m expecting it to be set for around early-mid August. After Goerli runs through The Merge, we can expect a mainnet merge timeline to be given - yep that’s right - we are that close to merging mainnet! Oh and there will still be ‘shadow forks’ happening every week right up until the mainnet merge.

I really can’t believe how close we now are to Ethereum becoming a full Proof of Stake network after such a long time of waiting. As an ecosystem we’ve come so far over the last couple of years across all domains but Ethereum’s move to Proof of Stake will be (by far) its greatest achievement. The light at the end of the tunnel is firmly in sight - we just need to keep walking towards it!

Have a great day everyone,
Anthony Sassano

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