Bankless - ROLLUP: Bitcoin Top? Ethereum's Existential Risk | Restaking Summer Updates | Tornado Cash Trial

Episode Date: January 26, 2024

Bankless Weekly Rollup Final Week of January, 2024 ----- 🏹 USE PODCAST24 FOR 10% OFF https://bankless.cc/Citizen2024  ------ 🎧 Listen On Your Favorite Podcast Player:  https://bankless.cc/Podcast  ------ BANKLESS SPONSOR TOOLS: 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://k.xyz/bankless-pod-q2  ⁠ 🔗CELO | CEL2 COMING SOON https://bankless.cc/Celo  🗣️TOKU | CRYPTO EMPLOYMENT SOLUTION https://bankless.cc/toku  🛞MANTLE | MODULAR LAYER 2 NETWORK https://bankless.cc/Mantle  ------ TIMESTAMPS & RESOURCES 00:00 Start 03:45 Markets https://x.com/lookonchain/status/1749801176621846958?s=20  https://twitter.com/deitaone/status/1749453448913805514?   https://twitter.com/matt_hougan/status/1749834562547614000?s=46  https://x.com/pythianism/status/1750546708000608684?s=20  https://x.com/CoinDesk/status/1748717790737953239?s=20  11:06 Silk Road Selling 11:55 L2 Update https://l2beat.com/scaling/summary  14:32 Stock ATHs https://www.tradingview.com/chart/6pvEnBKK/?symbol=BLACKBULL%3ASPX500  21:24 Restaking Summer https://x.com/eigenlayer/status/1750208139365114087?s=20  https://app.eigenlayer.xyz/  26:33 How To Restake https://x.com/litocoen/status/1750019968639639918?s=20  https://dune.com/swell-network/swell-network  https://x.com/pendle_fi/status/1745067042867433718?s=20  30:51 Why is Restaking Important? 32:54 Altlayer Airdrop https://x.com/alt_layer/status/1750397156039499969?s=20  33:47 ETH Client Bug https://x.com/NethermindEth/status/1749508268676764118?s=20  https://twitter.com/0xcygaar/status/1749486074483654859  https://twitter.com/Labrys_io/status/1749746305738703217  https://x.com/brian_armstrong/status/1749552489509392696?s=20  https://twitter.com/matthewbarby/status/1749826741302866165  https://twitter.com/LidoFinance/status/1749860092885819577?s=20  https://app.hex.tech/8dedcd99-17f4-49d8-944e-4857a355b90a/app/3f7d6967-3ef6-4e69-8f7b-d02d903f045b/latest?tab=client-diversity  https://clientdiversity.org/#distribution  40:25 Tornado Cash Trials https://twitter.com/rstormsf/status/1749490246000238942?s=20  https://x.com/ameensol/status/1749493173444075535?s=20  https://wewantjusticedao.org/donate  45:16 ETH ETF Delayed https://x.com/WatcherGuru/status/1750246931656237518?s=20  46:54 L2 Updates https://x.com/arbitrum/status/1748073865132052689?s=20  https://x.com/0xPolygonLabs/status/1750245942261891364?s=20  50:41 AEVO is Migrating https://twitter.com/aevoxyz/status/1750013642278633510  Meme of the Week: https://twitter.com/JimmyRagosa/status/1749456437250535575?s=20  ------ Not financial or tax advice. See our investment disclosures here: https://www.bankless.com/disclosures⁠

Bitcoin's down like over 20%, like 25%, something like that. Like people saying it's over. I mean, look, I am no trader and you don't get trading advice on bankless, at least not good advice. That's not why you're tuning in every week. But like, this one is so easy to freaking call, David. This is so easy. The answer to the question is, is it over yet?

Have we topped? The answer to that question, let me give it to you. Bankless Station, it is the last Friday of January, and it is weekly. roll up time. We're going to talk about a few things. First, though, not to sugarcoat this. Bitcoin is down on the week. All right? We'll give you the numbers. But the question is, is the bull market over? And I think to answer that, we've got to answer the question. When will gray scale's BTC ETF, the new Bitcoin ETF? When will it stop selling? Seems to be a source of the trouble here. What else we got? The curse of Barry Silbert still among us. After that,

we're going to talk about some more exciting things. We're going to talk about restaking summer, what it is, what's going on? What are people doing and why it's a big deal. And then we're also going to talk about how 10% of Ethereum went down. 10% of the Ethereum network stopped producing blocks. But the network as a whole, doing just fine. That's why we have multiple clients. But Ryan, have you ever thought about what if 80% of the network went down? Because a lot of people have been thinking about that later. Only in my waking nightmares, David. That's the only time I ever think about that. But I think we as a community have to think about it. So we'll talk about that. And also, the tornado cash developers, David, Roman and Alexi, they're getting ready for their

I think this is going to be an absolutely massive court case. So we'll give you an update on that. But, David, before we get in, a little self-shill that we don't often do. And that is talking about bankless citizenship. So that is the paid membership to the bankless nation. And that is available to anyone who is listening. We actually have a discount code that will give you in just a minute. But we have added over 1,000 new citizens.

That is new members in the last two weeks. Tell people a bit about the benefits. I feel like a big reason people are flocking to this opportunity is because of what we have here, the AirDrop Hunter. I think we're looking at this on screen, testimonial from the bankless community. That was such an unexpected massiveirdrop. I think for the first time this year, I'm actually going to buy myself something. Christmas is a comment.

Another comment, yeah, myirdrop is now worth $35,000. At times like this, this is really, yeah, yeah, this is really an opportunity to kind of like do things on chain and get rewarded for those things. And the AirDrop Hunter with Bankless allows folks to do it. Anytime an AirDrop goes out, one of them went out this week. We're going to talk about it and you didn't get it. It was probably in the Bankless AirDrop Hunter. It's definitely been the hottest product that people are looking for.

It's why we've had a thousand new citizens sign up in the last week. But if you're a podcast listener, there's, of course, exclusive episodes and ad-free episodes, like the one you're listening to right now. But without ads on the Bankless Premium Feed, there's a bunch of other things. You can come hang out with us in the Discord. and you can go into in real life bankless defense like the one that we're doing at Eath Denver. So this is a call to action for all bankless citizens. If you are listening to this on the ad-free premium feed.

Wednesday, February 28th, mark your calendars. There is a link in the Citizens Discord where we're all chatting and hanging out for you to come to our meetup at East Denver. This is only available to bankless citizens and previous podcast guests that I'm slipping the link to. And so if you want to go hang out, free beer said brewery. Same brewery last year. Free beer, free beer, free beer. We almost missed this as well. The code to get a 10% discount is Podcast 24.

So you can go use that at bankless.com slash join. That's podcast 24. All right, David, let's get to the bad news, man. Markets, Bitcoin is down, and I think it's down in the double digits. Is that what you're about to tell me? No, that would be ether. Bitcoin, only down 6.5% this week. Oh, thank you.

Started the week at $42,000 and a half dollars, ending the week at $39,800. The big question, why is it so down? I think the very simple answer was it was a sell-the-news event, but that answer actually can get more and more sophisticated. Grayscale, everyone's looking at Grayscale and Barry Silbert. So Grayscale sent over $1 billion of Bitcoin to Coinbase to dump. That's what you do when you send Bitcoin to Coinbase. since the launch of the ETFs at large, since the GBT Trust was converted to an ETF, it's sent over $3 billion of Bitcoin.

The other Bitcoin ETFs, the BlackRock ones, Fidelity ones, the Bitwise ones, have absorbed a pretty good amount of Bitcoin. So there's been buying pressure from those, but it's hard to ignore the absolute gargantuan cell pressure that Grayscale has presented to the market. it. Grayscale currently holds over half a million Bitcoins, that's $20 billion. People are just waking up to the 1.5% fees that the GPTC is charging. But there's been speculation that it's actually not very much conversion from GBTC to other Bitcoin ETFs. Nick Carter, I think, put out just like kind of an ad hoc number of like 20 to 30% conversions where other people are just selling.

selling they're just trying to get out. They're finally recapitalized after the Bitcoin discount has been in the GPTC trust for so long that people are just hitting that sell button and they're getting out. Yeah, you know how sometimes it's sell the news and it's just like that's the narrative? Well, this is actual like outflows. This is actual selling of Bitcoin that I think explains a lot of the what down six and a half percent this week. And like last week, I think we were in the double digits down for Bitcoin, right? About one billion of Grayscails Bitcoin.

Bitcoin picked out of $49,000 and we are currently not $39,000, which, you know, pretty big, pretty big fall off. It's a, it's a big explainer. This is Matt Hogan here that says this is not strictly speaking ETF led selloff. The ETFs are net buyers of Bitcoin. That includes grayscale. This is an ETF expectations led sell off. The market front ran the ETF approval by piling to both spot Bitcoin and Bitcoin derivatives.

It is now expected larger net flows into ETFs than we've gotten so far. It is now unwinding that bet. Oh, that's what he's saying. This is a bit of an unwind. There's a diversity of opinions about, like, what's going on here. Matt is just saying the industry really placed bets on this being a massive by the news event. And it was actually a sell the news event. Here's Van Spencer, who says, my two-cent guess on GPT flows is that very little of the outflows have been recycled into new ETSA.

This was Vance prediction, maybe 20 to 30%. I would think Grayscale and FTCS are probably sellers in the neighborhood of $1 billion each, not recycling. that is 50% of flows. So FTCX, the FTCS treasury that is trying to source all the capital that they can, they didn't sell any of their GBTC up until now. Now that GBTC is an ETF, not a trust. Now they are selling, which will eventually go into the pockets of FTX creditors. You want to hear a silver lining here, David, if that news got you down, bankless listeners.

Okay. The silver lining is this. You know how they used to say that light coin is a silver to Bitcoin's gold? Well, it turns out Bitcoin That never made any sense, but I sure. Yeah, Bitcoin is silver to gold's gold. All right, here's what I mean. Bitcoin is now the second largest

ETF commodity in the U.S. Just took that place. There used to be gold number one, right? In this former monetary unit still has, you know, consumption value as like a, you know, consumable type of asset, commodity asset. Silver is number two.

Now Bitcoin is actually number two. So I'm sorry, Silver. Got to get out of the way. Buy a lot, too. Bitcoin, the Bitcoin ETFs are coming in at $27.5 billion across the 11 ETFs that they have. Wait, 27.5 billion? Yeah. Yeah. Yeah.

Well, I mean, you take the Grayscale trust, which is $20 billion right now. Well, it's no longer a trust. It's no longer a trust. Correct. Correct. Now it's an ETF. Yeah, with outflows. But they had years of doing that is what you're saying.

Correct. Exactly. Yeah. It started from square one at $20 plus billion. Silver. So $27.5 billion in BTC trusts. Number two. silver 11 and a half so we're already almost like two and a half xing uh silver across five

ets just out of curiosity what's gold david uh gold uh 95 billion dollars so bitcoin is a second very far distant second to gold but we are so young in the bitcoin etf lifespan that is totally within striking distance yeah that's within striking distance for sure gold had since uh in ETFs since 2004. Yeah, it's got a 20-year head start. Yeah, yeah, plus, not just that. It's got thousands of years in history as an asset, yeah. As an asset. I mean, how long is gold been? And like, we're already at 27, like we're in striking distance. That's pretty impressive. All right. Well, striking distance, 27, 96, these are different numbers. But I think, yeah, as soon as we can get rid of just this toxic selling of gray scale GAPTC. A 3X for crypto? What's that? That's easy for us.

That's a good point, actually. Actually, we don't even need necessarily any more bitcoins to flow into the ETFs. You actually just need Bitcoin to triple. And so, like, if we have half of each, you know, that's easy. Yeah, gold is done for. Sell your gold. Sell your gold. Baby boomers.

Sell your gold. This is your Bitcoin. All right. Let's talk about the ETH price, though. You said that was down in the double digit territory. And thanks to Cracken for these glorious charts, by the way. So we can really see how bad ETH is. down in high fidelity and modular charts.

Look at those red candles. It's kind of ugly, but it's beautiful when we view it like this as well. So what are we out right now? Yeah, so ether down 13% on the week, started the week at 2,500, ending the week at 2,200, which of course means the ratio down 6%. Ratio touched 0.06. Now is that 0.055. Sad. Did you know this, though, David, on January 24th? Actually, you did know this because you mentioned this.

On January 24th, we hit 2,700-Eth in the cracking charts. Can you read that? Yeah, 2,700. That was... What were you doing on the 24th? Because I don't remember that. Usually I like... Oh, yeah, I was climbing mountains.

As soon as I got back from the mountains, we started dumping. Wait, what day is that? Oh, shoot. That's 20-24. I said January 24th. That's why. It was the 12th. That happened the 12th.

Yeah, yeah. So I should have been paying attention. I was climbing mountains when it was going up, and then when I came back, it started going down. All right. Well, there's, I have a solution for that, David. I, I, I should go find some mountains. Yeah, like, we want an ETH, okay? And we want an all-time highs back again.

So, go climb some mountains. Eat Bitcoin on the ratio. What are you looking at? 0.055. And then the total crypto market cap, point 1.62. As far as L2 updates, these updates are always brought to you by. Ryan, before we get to the layer two, is I got a just got a tweet notification. on my phone from the DB with like it announced it announces like big news in the crypto space

US files notice to sell 130 million dollars of bitcoin seized from Silk Road agent we just got like the United States government telling us they're going to dump 130 million dollars 130 million yeah I guess we can absorb that yeah it's just like it's just like it's hilarious it's like here's a brand new reason no one saw coming for 130 million more dollars with bitcoin cell pressure they they know they need to and not broadcast their sales. They get a lower, lower price. There's some trading advice to the U.S. government.

The justice over there. Maybe that's not what they're optimizing for. I don't know. Anyway, okay, back to the layer two update. This is brought to you by Mantle, which is a new and up-and-coming layer two that David and I enjoy. It's also growing real fast.

Speaking of growing real fast, look at our scaling factor on the week. So remind us what scaling factor is because it says 6x. So what are we talking about with scaling factor of L2s? We're talking about six Ethereums. So we have the Ethereum layer one. And then we have the aggregate transaction volume of all the layer twos on Ethereum.

And the aggregate transaction volumes, all layer twos, are six Ethereums. So six X Ethereum. So we saw that one big, big spike where we got to like eight or nine or ten Ethereum's. But that's the one where Ordinals took down Arbitrum. And then they updated their client and everything's fine. So six, six, when 10, when sustained 10? once we hit 10, like this chart doesn't go down.

This isn't a price chart where it goes up. It's an up only chart. It's an up only chart. Because scaling is up only. Transactions per second is up only. It's up only. And it's like we're going up like one Ethereum at a time. Like one month is six.

The next month is seven. The next month it's eight. But sometimes we're going to, we're going to start by two a month. And then we're going to go by like five a month. And then we're going to go by 10 a month. And that's just how it's going to look. Speaking of going up, David.

Let's talk about some coins that we're going up. There's a bunch of year. Bit, BitTenser. man to network, but you want to focus on one, which is, I believe, the UMA token. What did that do? UMA protocol, yeah. So UMA just completely reprice itself. It went from $2 to above $6, coming back down to where it is just below $5 right now.

UMA, that is universal market access. Pretty old protocol, I'd say, like really old protocol. Like 2018, 2019, these are also the same people behind the across bridge. So this new Oval Protocol, they just renounced it this week. That's why the price pump happened. They announced this thing called OEV, maybe it was already a thing, Oracle extractable value. So when ChainLink has stale data and then they update their price feeds because that's what they do, whoever can capture the change in liquidations or the change in useop pools or like whatever,

somebody gets to have the first opportunity of arbitrage as a result of updating oracles across Defi. And Uma just announced this Oracle value extraction layer, aggregation layer, where instead of just allowing MEV to happen as a result of oracles, you can bid for that. Pretty common design pattern. And it just created like a 2.5x increase in the Euma price. So that is why Uma is the mover of the week this week. Yeah, I mean, that kind of makes sense, right? Because it's a new value accrual mechanism for an old token, which is kind of a forgotten token.

Yeah. No offense, heart. All right, David, let's talk about the other thing that's flying high this week, which is the SMP 500, my friend. Did you know that? My favorites. All right, all-time highs. Buy a lot, too.

Yeah, let's look at this chart. Look at this chart. This is the S&P price. It's just barely off its all-time high, I guess, in the last, like, couple of days. But, I mean, look at this, man. Yeah, no, it's at all-time highs. It's at all-time highs. And so this is, like, there's a big decoupling going on between the crypto markets where, like,

we ran up from, you know, below a trillion to, like, almost 1.8 trillion. and now are down to 1.6 trillion, and everyone's super bearish. And they're like, oh, is the bull market over? Meanwhile, like, Jim Kramer says, David. He said it's over. He said Bitcoin is topped. Meanwhile, the trad markets are up only.

And Bitcoin and crypto at large has been more coupled to trad than not as it's grown bigger. And so I think this is just perfect signal of just like, yeah, we had this like run up in price. We're recovering from the Bitcoin ETF party. We're a little bit like hung over at the present moment. But like overall, markets are definitely healthy as a whole. Like risk on assets are definitely a thing. We still got the Fed pivot. Bitcoin's down like over 20%, like 25%, something like that.

Like people saying it's over. I mean, like, look, I am no trader and you don't get trading advice on bankless, at least not good advice. That's not for sure. That's not why you're tuning in every week. But like this one is so easy to freaking call, David. This is so easy. The answer to the question is, is it over yet?

Have we topped? The answer that question, let me give it to you. It's no. No. It's no. We have not topped. This is so easy. This is just like this is what you see.

Bull markets will give you opportunities. They will give you shakeouts. They will give you times where it's going to go down 20%, 30%, 40%, right? You could even see 50%. And it definitely depends on the asset, right? But like what this is is sort of a shakeout. If you're still a buyer and at buyer, it's a buying opportunity. That's all I see.

I don't know. Look, could be wrong, but like 98% certainty, we ain't seen the top. That would be, this would be the dumbest bull market ever. And it would just be contrary to all of the, like, ways everything has ever played out in crypto. Now, the only thing I'll say is Black Swan event aside. Something crazy could happen. You never know, but like, you can't. Whatever.

You can't price that in. Yeah. Am I wrong? No, totally. It's going to take some time for the GPTC outflows to cease. So that is like an open wound that is currently bleeding. It'll take two weeks, four weeks, six weeks, I don't know, two months. And then eventually it'll stop.

And then there will continue to be flows into the Bitcoin ETFs, like the Black Rocks, the Fidelity, the Bitwises. And also there's like the whole concept of a Bitcoin ETF. It ages like wine. There's like a six months period where people are just like looking at it and be like, you know, we're going to revisit this in six months. We'll just buy in six months. There's like an age like wine kind of thing going on in tradflight. And so like it flows into the Bitcoin ETF or nonstop. If you're here, the nice thing about this is it gives you some time because now I think

mainstream is just like they're not interested in the Bitcoin ETF as much right now because why? Because it's not pumping. Like price isn't pumping, right? So now they have a product they can buy. But you know when they'll want to hit the buy button is when this thing shoots up, right? That's when you get the text. That's when everyone kind of piles in.

These markets are so reflexive. Can I give you a prediction, Ryan? Yeah. What's that? So markets have memory. We all just watch the Bitcoin ETF happen. Now the ETF approval is like going to be a known sell the news event. And we have the ETH ETF later this year.

There's an update for that later in the show, May or August or something later this year. It'll get approved probably this year, like most likely, more likely than not. And then the market is going to be like, oh, it's going to be a sell-the-news event because of how the Bitcoin was a sell-the-news event. Except we also have the ETH. E trust is just meaningfully smaller than the GPTC trust. And so I think my prediction is more like the markets was going to be kind of confused going into the ETH trust because the ETH ETHRUSA approval because they're not going to know. It's not going to know if it's a bullish or bearish event.

It'll be more muted going into it, but then post it will be more bullish is what I'm saying, is my prediction. David, you're getting dangerously close to trading talk, my friend. Hey, these are words, not actions. Oh, you're just going to hold all the way through that. Yeah, I'm not going to do anything about it. It's the way to do it, man. All right, what do we got coming up next?

Coming up next, we're going to talk about restaking. We got some updates from the eigenlayer LST caps for deposits. We also got some LRT protocols to talk about and the emergence of LRT-Fi with something called Pendle. It gets more and more risky. We further progress into the conversation, so we're on the frontier of restaking. And also, a bug in Nethermind takes down 10% of Ethereum, not that big of a deal, but what if it happened to Geth? And then also, tornado cash developers preparing for trial and they need your. help. So we're going to talk about all of this and more. But first, a moment to talk about some of these

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your token management and get started for free. Visit Toku at Toku.com slash bankless or click the link in the description below. David, restaking summer is here. I think this is going to be an absolutely major thing in 2024. We got to talk about the liquid restaking token wars, the LRT wars. But in order to do that, I'm looking for a base level explanation of what restaking is and why we're so excited about restaking summer. David, we've got a screen pulled up, which is the total amount restaked inside of eigenlayer. That amount is 815,000 ether. So that's like $1.5 billion. Can you explain what is going on here? Yeah, I'm explaining what. what is going on and it'll end up leading into why the liquid staking wars are so, so hot right now.

815,000 ether deposited into eigenlayer. 330,000 of that is natively restaked. And this just means that people running Ethereum validators have set their withdrawal credentials, as in when they withdraw their deposit from ether staking, it goes to eigenlayer first and then it goes to their wallet. And that is what restaking is. If eigenlayer restaking is you stake your eth, you stake it again and a eigenlayer has control over additional slashing conditions for eigenlayer networks that will come online when eigenlayer mainnet hits in Q1, Q2. 330,000 ether are just normal Ethereum solo validators that have staked to eigenlayer. Then there's this thing called liquid restaking where people are taking staked eth from Lido, R-Eth from Rocket Pool, stator

Eth, you know, all the LSTs, and they're also depositing it into Igenlayer. So instead of running your own node, you just take your liquid stake token and you deposit it into eigenlayer. And that's the remainder of the ETH and how we get up to 815,000. So these are the two concentric circles. You have native restaking, just normal vanilla Ethereum staking, but you set your withdrawal credentials to eigenlayer, making that restaking. And then next concentric circle out, you have liquid restaking where you just deposit LSTs into eigenlayer.

Are you with me so far? Because we're about to go one more concentric circle out. Oh, there's another circle. There's a few more circles. There's always another circle. All right. There's always another circle. I'm with you so far.

Then we get into liquid restaking tokens, which is the brand new war that's going on. I'm super stoked on it. I think it's a super cool thing. It is a brand new playing field for dominance over liquid restaking tokens, which are just like liquid staking tokens, just like Staked East from Lido, just like RE's from Rocket Pool,

but liquid restaked tokens from these new liquid restaking protocols that are coming out. So it's more yield when all these eigenlayer networks that are going to come online, which are called AVS's actively validated services, like eigenDA or cross-bitch protocols or fast finality layers, additional eigenlayer networks. These are all going to be spitting out yield, and that yield will be incorporated into the yield of an liquid restaking token, which will also have the yield of a liquid staking token. So ether, then staked ether, then restaked ether, all of that yield being packaged up

into a liquid resaking token, which is the subject of the most recent wars in the Ethereum in Ethereum space because people are jostling for dominance, just like how Lido was jostling with like rocket pool and all the other ones, but it's all over again. And so now applications, liquid restaking protocols are jostling for dominance over the liquid restaking market. You with me so far? Yes. So let's talk about some details with the liquid restaking wars.

But before we do, okay, so I think we need to take a step backwards. because people are hearing restaking their hearing yield. Why are people restaking their eith? So again, what is restaking? You take your eith and then you stake it again. And so what that means is you are lending out the economic security of your ether to somebody in exchange for what? You're getting some type of yield or there's some expectation of yield in the future

and there's some additional risks that you sign up for too. Is that what's going on? Are people staking their eth with the expectation, restaking their eath with the expectation, of future stacking yield. Is that why they're doing it? That's like the fundamental reason. That is like why eigenlayer exists. Yes, you will have more yield as a function of all the fees that are going to be collected from AVS's. Are any AVS is online? No. Is Eigenlayer at Maine Met? No. So what are people doing? They're farming the Eigenlayer

air drop because EigenLair points are a thing. And so that's what people are doing now. In the future, we will be able to talk about the yield produced from AVS's. But right now, that is a future conversation. Right now, people are just playing the eigenlayerirdrop farming game. Okay, so there's some speculation going on. And why are we focusing so much on eigenlayer? That's because it seems like that's where the center of all of this restaking activity on Ethereum is. Like, that is kind of the ground zero for this. And the eigenlayer network is what?

It's like channeling this ether, this economic security in order to secure other applications. So it's like a platform that you can build applications on top of. And you called these things AVS's. Am I right so far? That's right. Like think of eigenlayer as Ethereum security as a service. Got it. For networks that are not blockchains, any type of other network, like an Oracle, for example, or anything, really. Yep. So that's a refresher. And now help me with this last piece, David. So how does somebody restake? Okay. You like mentioned all of these things. But like,

how do I, as someone who's interested in exploring restaking, how do I actually do it? Are there multiple ways to do it? What are they? There are multiple ways to do it. You could go and do native vanilla native restaking, but that requires running your own node. And so that's why people have opted for liquid restaking, which is just depositing staked ether from Lido or R-Eth from Rocket Pool into eigenlayer. The problem with that, Ryan, is that there are LSC caps in eigenlayer. They have constrained the amount of deposits into eigenlayer because they want to start slowly. They don't want this thing to blow up too fast, so they are responsibly slow-starting the eigen-layer protocol by constraining the amount of LST deposits into eigen-layer. But native restaking

has always been uncapped. That's actually the news that went out this week is that they are postponing the raising of the cap by one week. So the new dates are somewhere between February 5th and 9th. And between those dates, actually all caps will be lifted because they are preparing for main net. And so sometime in the first or second week of February, LST caps will be completely lifted

and then we will be able to resume eigenlayer farming with LSTs. Okay. But the existence of these caps have created incentives for people to find ways to farm the eigenlayer air drop using protocols that can natively restake. And this accounts for the explosion of TVL in Etherfi. And also Renzo Protocol is one of the other new ones. But the Etherfi has this absolute like hockey stick growth where they were from like $50 million of TVL like just a couple months ago to over like $350 million of TVL as of now.

And the race between them and swell as number two and number one of TVL and eigenlayer. is like odd and like things are like neck and neck right now okay so so let me try to um summarize that for you so the way you restake i think i heard three different ways that somebody could restake right now it's they could restake natively so that's vanilla but in order to do that you have to have the capability to run an eth node and some additional eigenlayer validator like functionality okay that's one one way there's no cap so anybody can go do that now if you have those skills and expertise the second is if you have you know you're staked with lido you're staked with already through steak with swell, something like that.

You're just holding steak to eat, for example. You could take those tokens and just kind of like restake them, deposit them. The problem is it's caps. You can't do that now. Maybe sometime later in February those caps will and you can like slip in before it fills up again because it's going to fill up again. And then there's the third way and that is kind of the new group, like the new category that crypto is creating.

And that is restaking with like a service provider, right? So it's like restaking natively, except. you're not running the validators, you're using a service provider. In that category, that's called LRT. So it's liquid restaking tokens, right? They do the managed service, and you get a liquid token on the other side of that. And folks like ether fire kind of, and that's where the war exists right now. Is that all correct?

That's exactly correct. I think we need to do a whole entire episode. We'll do this, I think, next week, Ryan, where we need to go through like all of the different ways, ways to build an application, an LRT application, because there's Etherfi who's spinning up their own nodes for vanilla native restaking, and that's accounted for a lot of the deposits that are going into Etherfi. There's Swell, which is both an LST and an LRT, who are the number one TVL depositors of the LRTs into eigenlayer, followed by Etherfi. And then there's Renzo, and then there's Puffer, and then there's, like, other ones that haven't come online yet,

like Rio. There's a bunch of others that I'm not naming, because there's so many right now. And then after that, Ryan, we go one more concentric circle out and we talk about LRT-Fi with things like Pendle and people foregoing their airdroaps for more yield, 30% yield or people are going for zero yield and like leveraging up on eigen layer air drops. There's like this whole blossoming like LRT financialization layer. It gets very, very degenerate. But like this has accounted for a ton of activity in the Ethereum financial space lately. Okay. bankless promise we will do an entire episode on restaking and what the opportunities are and how the landscape is now i'll just kind of zoom out for for a minute and talk about why this is

important this seems very much like defy summer 2020 2020 and that's why like we're calling this others are calling this restaking summer and i will note that during defy summer a lot of these yields were kind of speculative yields and remember the point earlier that you made that none of these applications on eigenlayer, these things called ABSs, none of them are live. None of them are producing yield. So why are people doing this? They're piling in because there's anticipated value being created and anticipated airdrops and tokens that can be received. It's kind of like yield farming, yield hunting. It's defy summer 2020. If you weren't there for that, this is what that is. And so what's going to happen is what happened that time. There's going to be a lot of people that pile in risk too much

because look, smart, like, these things haven't been, like, some of them haven't been audited, some of them will go fast and loose, and they won't take security seriously. Like, there's real risk if you're playing this restaking game. And you don't have to go there if you don't want to. You can sit by, hold your eith, maybe just stake your eith, like simple stick. You don't have to restake and observe what's going on. However, if you want to be an active player in this, I would just remember that there's a lot of risk associated with these things and, like, maybe only a portion of your,

portfolio, you know, assign it to kind of explore this ecosystem because there's going to be like fortunes made and fortunes lost. There's going to be lots of shenanigans playing out. What's really exciting, though, is this is the birth of an entire new sector of crypto. Like, that's what's happening now. Of the same order of magnitude, in my opinion, of DFI in 2020. And yeah, there's a lot of chaos, but it's like a, you know, a star being born in a nebula cloud, right? It's like all of this chaos, these gamma radiation, all of this stuff. But at the other side of that, something beautiful is going to form something life-giving and it's going to propel our industry for it. So don't get caught up too much in the speculation unless you want to

play those speculation games and then, you know, enjoy the frontier. Yeah, as resaking summer continues, there's definitely going to be some blood sacrifices along the way, for sure. Don't let that be you. Do be the people that collect the restaking airdrops for restaking your ether, which one of this is Altlayer that was announced this week. Altlayer Air Drop Season 1 was just a announced by this brand new roll-up as a service provider with eigenlayer restaking networks to as like extra little modules on roll-ups. So like think of them like superpowered roll-ups. And so if you want an easy way to deploy your roll-ups with the perks of eigenlayer restaking networks,

AVS is when they come online, this is what Alt-Layer does. They just launch their token is coming in at like a $3 billion valuation. If you are a Celestia staker or you are an eigenlayer restaker or a few other criteria conditions, you have an airdrop to claim. This was in the airdrop hunter, so go check that out. Yeah, you'd know all this if you're a bankless citizen, guys. It's in the air drop hunter. You mentioned at the beginning of the show.

David, let's talk about the ETH client bug that shook up the Ethereum network, both from a technical and a social level. So what happened this week with the client bug? So Nethermind, which is the number two largest client, execution layer client on Ethereum, had a bug that took down all a Nethermind running notes, which was about 10% of the network. Including some of ours, by the way, David. You know, you and I are running some Netherline clients.

I do know that. Yeah. Okay. This went down. Uh-huh. And then they went back up. It was a relatively simple fix. And so what were the consequences of this?

Nothing, really, because 10% of the network is, you know, it's a big deal if we hit 33%. 10% were very, very safe. But this really sparked a conversation about what if it was the larger, actually, client, Geth, which has 80% of the network. So, you know, there are two levels of risk with Ethereum. There's the 33% level. And then there's the 66% level. And then there's Geth, which has 80% of the network. Coinbase uses this. Binance uses this. Crakhan uses this. Most of Lido uses this. And so our client diversity around the execution client around the Ethereum layer one, not great. Geth is a very hardened execution client. It's easy to run. It's very

stable. That's why people run it. It has just, it's just very stable. And so people, so everyone's running it. The problem is we have this like tragedy of the commons where everyone's running the same execution client. And if this was a bug in geth, while geth is less likely to have a bug, a bug in death could be massively catastrophic. And so this has kicked off a conversation in the Ethereum community about yo. It doesn't matter how stable death is. We can't have it at above 66%. And really, we need it below 33%. So switch away from guess. This has created pressure from the Ethereum community into people like Coinbase and Cracken and Lido, who all, props to all of them. Brian Armstrong comes into DC investors tweet saying, hey, dear Coinbase, I'm unstaking my ETH with you guys because you guys use Geth.

Brian Armstrong responds, taking a look. Cracken comes in and also says, hey, the team is currently exploring this. Internal discussions are happening and we will share updates as we get some decisions in place. Lido has also had some of their validators switch away from Geph. And as a result, the Geth's dominance in Ethereum has gone from 82% to 78%, I think, is where it is now. So we're down 5%, which is great. But we still have got a long way to go. We need to get down below 66% bigly.

Great summary, David. The only thing I would ask you is when you say massively catastrophic, if that was Geth, or that was kind of like a super majority client. What do you mean by massively catastrophic? So the network goes down, right? Like there's a liveliness issue. It depends upon the nature of the bug. It could be anywhere from trivial to catastrophic. The thing is, because Geth is at 80%,

whatever bug that is becomes Ethereum, where you could have a catastrophic bug in Nethermind, but Nethermind is only 14%. And so that doesn't become Ethereum. Since Geth is 80%, a catastrophic bug in Geth becomes a catastrophic bug in Ethereum. And so the worst of this would be like an inflation bug mint in ether, where ether goes from like 120 million supply to infinite supply, that breaks the network.

We would have to do a socially coordinated rollback. Then there's like other more trivial bugs where like the network just stops finalizing, but it's just totally fine. That would be best case scenario. But the problem is any bug in geth becomes a bug in Ethereum because it has such a dominance in the network. Got it. A few things to note, I guess I would say, is,

most other networks, not Ethereum networks, including Bitcoin, don't have multiple clients, right? So they have basically all on their version of gas. It's only Ethereum. Right. But the other thing I would add is Ethereum's not really getting the benefit of its multiple clients if it's not actually running those multiple clients, right? And so that is kind of the call and the social push for client distribution. So maybe the network is self-healing due to this close call.

Humans have to learn the hard way, don't we? All of us. David, what do we have coming up next? Coming up next, we got some updates on the ETH-EETF timelines and some layer two updates as well. Why, we're about to see a lot more Arbishop orbit chains coming into the fold. All of this and more. But first, I want to talk about some of these fantastic sponsors that makes this show possible, especially Mantle, one of the fastest growing layer twos that's out there,

who also has their own liquid-staked ETH protocol, which might become a restaked ETH protocol, hint, hint. Let's go here for Mantle right now. Mantle, formerly known as BitDAO, is the first Dow-led Web3. ecosystem, all built on top of Mantle's first core product, the Mantle Network, a brand new, high-performance Ethereum Layer 2, built using the OP stack, but uses Eigenlayer's data availability solution instead of the expensive Ethereum Layer 1. Not only does this reduce Mantle network's gas fees by 80%, but it also reduces gas fee volatility, providing a more stable foundation for Mantle's applications. The Mantle treasury is one of the biggest Dow-owned treasuries,

which is seeding an ecosystem of projects from all around the Web-free space for Mantle. Mantle already has sub-communities from around Web3 onboarded, like Game 7 for Web3 gaming and Buy Bit for TVL and liquidity and on-rats. So if you want to build on the Mantle network, Mantle is offering a grants program that provides milestone-based funding to promising projects that help expand, secure, and decentralize Mantle. If you want to get started working with the first Dow-led layer-2 ecosystem, check out Mantle at mantle.xy-Z and follow them on Twitter at ZeroX Mantle.

Sello is the mobile-first, EVM-compatible, carbon-negative blockchain built for the real world. And now something big is happening. Introducing the cello layer two. It's a game-changing proposal that's going to bring Sello's rapidly growing ecosystem home to Ethereum. Vitalik has shared its excitement for the Sello Layer 2 on the Selo Forum. So has Ben Jones from optimism. But why? The cello layer two will bring huge advantages, like a decentralized sequencer,

off-chain data availability, and one block finality. What does all that mean? Rock solid security, a trustless bridge to Ethereum, and more real-world use cases for Ethereum without compromise. And real-world adoption is happening. Active addresses on SELO have grown over 500% in the last six months. With the SELO layer two, gas fees will stay low and you can even pay for gas using ERC20 tokens. But SELO is a community governed protocol.

This means that SELO needs you to weigh in and make your voice heard. Join the conversation in the SELOF forum. Follow at SELOG on Twitter and visit sello.org to shape the future of Ethereum. Before we get into the ETH-EETF stuff, I got to talk about the Tornino Cash trial. So the two developers, two of the developers behind Tornado Cash, which was a privacy protocol, a set of smart contracts deployed on Ethereum. Roman Storm and Alexei Perzev are bracing for their trials at this moment. This, David, was an impassioned plea from Roman that he put out on Twitter.

Let's go hear it. Hi, my name is Roman Storm. I'm passionate software developer. And four years ago, I helped develop TernandoCash, an open source non-custodial privacy protocol. A few months ago, despite my ongoing cooperation with US authorities, heavily armed FBI agents raided my home at 6 a.m. and arrested me in front of my three-year-old daughter. My legal team and I are going to put forth a strong defense at trial, not just for my family's sake, but for the future software developers and financial privacy.

Folks, I need your help, whether you're a passionate developer like me involved with Web3, just care about software and privacy, this legal battle will affect you. So please help contribute to my legal defense, because this case will set major precedent for years to come. Justice Dow has put together a number of options to delay. Will you support this cause? Every contribution counts. Thank you. Arrested in front of his children, David. I know many people in the theorem community who know Roman and everything I have heard and everything it seems like at this point in time he's just a typical open source smart contract developer right of course like there could be some other things revealed in the court cases so we don't know for sure but that indeed is what it looks like and he was arrested

for developing and deploying open source cryptography code on chain so from my perspective this is kind of like the u.s government this is i believe fincend kind of leading the charge here and of course carried out by the U.S. Justice Department. It's kind of like them saying HTTP is now illegal. You know, you're trying to encrypt communications, okay? Well, like, you can't do that. Encryption is illegal. It's back to the cryptography wars of the early 90s, and Roman, it appears, is an early casualty. So here he is asking for some help from the crypto community for that case. I think this case is going to be a landmark case in the U.S. because it's going to, it's not just about Roman

and it's not just about tornado cash, it's actually going to set some precedent for how the U.S. court system applies, like, privacy and juxtaposes that with free speech and the right to develop code and the right of everyday, ordinary Americans who are using tornado cash just to shield their, like, transactions,

okay, the same freedom that we have with cash dollars in physical form. Will they have the right to do that moving forward in any form. So that's what this case. Why this case is so important. I think the precedent can become even larger than that is not just about achieving financial privacy using crypto. The precedent that this is setting is that smart contracts can be illegal. That is the precedent that the DOJ and Treasury are trying to prove with this court case. And so it's about privacy, but really ultimately, like if we lose this court case, it is the precedent is set that smart contracts on Ethereum,

incredibly neutral protocols are illegal to touch. Well, they currently are, David. They currently are. So it's like this hasn't been contested in court, but if you are a U.S. citizen, reminder, you cannot use tornado cash smart contracts. Right. Like, if you do, like, I just wouldn't. Just don't do it.

Don't do it. Don't do that. Amel. Like, yeah, FinCEN has already talked about what the repercussions of that might be. So Roman's trial is going to be in September, 2024. Alexi, his trial is getting started in the next two months. And if you want to get involved, if you want to help, there's a place where you can donate for the legal expenses for Roman and Alexi as well. We'll include a link in the show notes.

It's Justice Dow. There's multiple ways to donate, including if you want to use Fiat, go fund me. Hopefully they don't shut that down, David. I'll call this a pooly moment round two. Remember when there was frivolous lawsuits going after the pooled together Dow and all of crypto banded together to help support that legal case. this is one of those moments. I think the stakes are much higher. That's why we at bankless have donated $10,000.

Many other people have settled their support on Twitter about their donations to help fund this case. This is going to be a matter of just like, can we get enough money into the hands of these lawyers who are defending our rights to be able to touch neutral, credible smart contracts on Ethereum? And so there's a link in the show notes if you would like to donate to this court case.

All right, let's talk about the ETFs one more time in this episode, David. But this is not the Bitcoin ETF. the Ethereum ETF, the Ether ETF. It was, there something was delayed this week, which is the Black Rock Spot Ethereum ETF. I don't know how to parse this. Was this expected? Give me an update on this.

This was super expected. So the SEC has postponed its decision on the Black Rock proposed spot ETF, citing the need for additional time to review the proposed rule changes. The final deadline was tomorrow. And so they're just delaying it the last possible moment.

This is exactly what they did with the big. coin spot ETF. The new final decision on the BlackRock spot ETF is now expected for August 7th of this year, which to me represents a very strong backstop for when the ETH ETF could be approved. There are some other key dates as well. And so Vanek and ARC-21 shares, ETHER ETFs have final decisions on May 23rd and May 24th. So those are two dates to keep in mind. Grayscale, Invesco, Fidelity, and Galaxy, all have deadlines of June 18th, July 5th, and August third and then after that we have the black rock on august uh so sometime between may and august eth et ftf probably probably probably probably it feels likely if you want hester purse commissioner

hester purses takes someone asked her about the eth et ftf and the cc's likelihood she said this we shouldn't need a cord to tell us that our approach is arbitrary and capricious in order for us to get it right so i certainly hope that wouldn't be the case a delay was was the question she says she certainly hopes a delay wouldn't be the case. Yeah, so I'm with you, David. I think we get the Ethereum METF this year. Let's get into some L2 updates, David. Arbitrinal orbit is expanding.

Today we introduce an Arbitrum orbit expansion program, allowing you to have a self-service path to launch custom orbit chains, L2s or L3s that settle to Ethereum. What does this mean? This means that Arbitrum is going to be easier to deploy Arbitrum orbit chain, not just on top of the Arbitrum layer two,

but just anywhere across Ethereum. And so I think this was pretty hotly needed by the Arbitrum ecosystem, just more orbit chains. You know, we have all these OPAC chains. Now Arbitrum wants all these orbit chains. Two criteria. First, people that deploy an Arbitrum orbit are expected to contribute a portion of their profits back to the Arbitrum ecosystem. So that is 10%. If you want to use Arbitrum orbit technology, you have to give 10% back to the Arbitrum Dow.

Second, the deployment of the roll-up must be exclusive to Ethereum or any chain that derives its security from Ethereum. Dang. So Arbitrum is like, yo, free to use our chain. Eatmaxis. But on Ethereum, like not anywhere else, which I think is hilarious. And yeah, and so I think this is going to help bootstrap a lot of Arbitrum orbit networks across the Ethereum space and nowhere else. It's kind of like they're basically going after like the optimism play that's been so successful, right?

Which is like this is the key here, the self-service path. Anybody can launch an order to change. Yes. There is a difference here. Whereas the OP stack, forking the OP stack and deploying your own OP stack chain, you don't have to give any of fees back to the OP collective. If you want to join the optimism super chain, the collective, then you have to give 15%. So it's either zero or 15%.

And arbitram is like 10% for everything. I mean, L2s are moving and they're moving fast. Not to be outdone this week, Polygons got some news as well. This is an upcoming feature that they're going to launch as early as February. I guess maybe calling it a feature is kind of underselling it. Polygon is introducing what is its own middleware layer across all of its Polygon super nets. So these are all the Polygon chains. And since Polygon is a ZK rollup, every single ZK rollup produces a ZK proof.

What this is is an aggregation layer across ZK proofs. So every single ZK roll up from Polygon produces one. And then the aggregation layer takes all the ZK proofs and aggregates them into. another ZK proof. And this has a bunch of just composability and liquidity and atomic inclusion benefits as well. So it is a big plus one to the world of the recombination of Ethereum layer two's using a ZK proof aggregation layer. Yeah, we actually did recording an episode of Justin Drake about this. It's entitled, it's coming out in a week or two. It's called fixing fragmentation. And he talks about like the promised land that Ethereum can get to, which is

something he calls universal synchronous composability. Basically right now, the experience of Ethereum is very fractured across all the L2s. Like you got a bridge from one L2 to the other, you got a switch change in your wallet, all of that. Drake says all of that will be solved, and it will be solved relatively soon. And a polygon is actually... I mean, in the next one to three years, but this is actually accelerating, David, because this is a part of that solution. With this solution, it sounds like from Polygon, there will be universal synchronous composability, not quite to the same degree of it as a decentralized sequencer, but with some feature limitations across polygon chains. And that's a start. And other ZK chains can also opt

into this as well, which is kind of interesting. Yeah, so this is some internal composability for the internal polygon ecosystem. And then there's the larger battle, which is global composability across different standards, like between Polygon and Arbitrum and Optimism. That's a harder thing, but we have the tools to get there, according to Justin Drake. Avo, they are migrating to Celestia DA. What is this? Avo, which is a derivatives-focused layer two, built on an OP stack that previously was using Ethereum for data availability, which is very expensive, has now migrated to using Celestia for a data availability layer.

So Ethereum for asset settlement, but Celestia for DA, now becoming modular. This is the second that we've seen of this. Lyra did this like two weeks ago. I think we're about to see many, many, many more of these because that's just what the incentives played out. We saw Lyra paying 40 ether a month in fees to Ethereum Layer 1. And then as soon as they pivoted to Celeste DA, half an eth. Avo, I'm sure, is doing the same thing. And then you're going to see more of these for sure.

So that was the roll up this week. We've got to end with this. The meme of the week, David. What are we looking at here? This is the breaking up with my best friend. I found a new best friend meme format. This is net worth is not in the hands of Vitalik anymore. Peter from Geth now controls my net worth.

And this is when you learn that a bugging death could wipe out 90% of your network, of the net worth of Ethereum. If we let that happen, which is why you should switch to a minority client. Peter, of course, is the core developer behind Geith. And, you know, I just want to shout out Peter. Like, he doesn't get enough credit. Like, seriously, thank you for every.

everything you're doing. I mean, what is this? 80% of the Ethereum network, thanks to this man and others on his team at Getz's hard work. And we appreciate you. Thank you for keeping our net worth safe. I remember, okay, so there's a,

I did an interview with Peter at last DevCon. I think it's one of the few interviews that Peter's ever done. And I asked him a question of just like, imagine if like you, I think, I can't remember who the other developer was. I think we were like Preston Van Loon from Prismatic. I was like, if you and Preston like teamed up

because Preston is charismatic and Peter's geth. So we have two client team chads being able to like, you know, support the Ethereum network. It's like, if you and Preston teamed up to take down the Ethereum network, how hard would that be? And you know what his response was? What? Why do I need Preston? Oh, man. Nervous laughter.

Does that make you feel good or no? Peter. Peter. Wow. It wasn't metallic. It's always been in Peter's hands. It's always been Peter. Keep that man safe.

and like let's uh let's thank him again david as we end this show thank you feeder please no roguer let's a perfect time to end with uh risks and disclaimers in a minute but first we disclose both david and i are advisors for eigenlayer also we're investors in some of the l2s mentioned and bankless ventures is an investor in some of the restaking protocols we talked about as always you can see a link to all of our disclosures at bankless dot com slash disclosures crypto is risky so is staking so is restaking, so is whatever we think of next. You could lose what you put in, but we are headed west. This is the frontier.

It's not for everyone, but we're glad you're with us on the bankless journey. Thanks a lot.