Bankless - Shanghai-Capella: ETH Staking Withdrawals with Tim Beiko, Justin Drake, and Anthony Sassano

Episode Date: April 12, 2023

Ryan, David, Tim Beiko, Justin Drake, and Anthony Sassano unpack everything you need to know about today’s, highly anticipated Shanghai-Capella: ETH Staking Withdrawals.  Also, the five cover ETH staking mechanics, withdraw upgrade FUD myths, what’s next for Ethereum, and Justin’s prediction around, staking airdrops?!...  ------ BANKLESS SPONSOR TOOLS:  ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum  🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken  🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap  👻 PHANTOM | FRIENDLY MULTICHAIN WALLET https://bankless.cc/phantom-waitlist  🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask  ------ Topics Covered 0:00 Intro 8:20 Shanghai-Capella Explained  10:09 ETH Staking Mechanics  14:33 Deposit Queue  18:10 Why Shanghai-Capella 21:04 Importance of Shanghai-Capella 24:52 Validators & Finality  28:12 Sassal’s Thoughts on Shanghai-Capella 32:26 Major Derisk Event?  34:30 Demystifying Withdraw Upgrade FUD 42:35 Where Will Ether Accrue?  46:20 Benefits of Competition for ETH Stakers 48:55 Bear Case for ETH Price  55:35 Solo-Staking  1:01:30 Making Solo-Staking Easier  1:04:30 Re-Keying  1:06:00 What is Next for Ethereum?  1:09:48 Anthony Sassano’s Tinkering Setup 1:15:50 Staking Airdrops?!  1:19:00 Closing & Disclaimers  ------ Resources: Tim Beiko https://twitter.com/TimBeiko  Justin Drake https://twitter.com/drakefjustin  Anthony Sassano https://twitter.com/sassal0x  ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures 

You know, you don't have to pay any fees when you're solo staking. So already that puts you above the rest from a rational standpoint. But the other thing I want to highlight is that my prediction is that there is going to be special add drops specifically for solo validators. Bankless Nation, it is a special day. Today, we are hard forking. Heath staking withdrawals is enabled. David, what is going on? Who do we have on?

Yeah, the Shanghai now called. Chappella upgrade. Coming to Ethereum, coming to a blockchain near you, the long-awaited withdraws hard fork that allows stakers to withdraw ether. We hardforked into proof of stake a while ago, created the beacon chain, did the merge, but in an abundance of caution, we left out this one ability called withdrawals just to not overcomplicate things. It's really the only reason why we didn't include withdrawals in this original merge was to not to make the merge as least complicated as possible. So fast forward to where we are now. We are now enabling withdraws. And so this has caused a bunch of conversations around the cryptosphere. Is this bearish? Is the ETH price going

to dump? Is it actually this bullish? And more people are going to stake as a result of this. What happens to LIDA? What happens to the insane supply of ether that is in Coinbase? There is a lot of second order consequences as a result of this merge. There are 18 million ether that is locked up in the beacon chain and that becomes to be unlocked later today. I believe at 9 p.m. no, 6 p.m. Eastern time, 6.30 p.m. And so this episode's going live a few hours earlier than that. And this is just a conversation with three guests from around the Ethereum ecosystem. We got Anthony Sizzano, Ethereum community member and content.

producer, also solar staker and solo staker tinkerer. He gives his perspectives as what his role is in the Ethereum ecosystem as a result of being a solo staker and what he's doing in the four different boxes that he runs to solo stake. So he's got Anthony. We got Anthony. We also got Justin Drake. And we all know Justin Drake, EF researcher and ether economic thought leader. And then we also got Tim Beko as well, who leads the all-core devs calls. So three diverse perspectives to all give their takes about this Shanghai Chappellella upgrade. Yeah. And if we're talking about upgrades, we're also talking about staking. We're talking about staking reward. And you know what that means, David? Uh, telling. It means we're talking about taxes. That's why. Oh my gosh. Here we go.

You receive rewards and you get taxed on those rewards. And if you are sweating bullets right now, because it's almost mid-April and you have not filed your taxes and you're looking at this tangled mess of transactions across a whole bunch of different wallets and blockchains and defy and nfts and you don't know what to do we got the easy button solution it's called crypto tax calculator these are our friends and sponsors and because you are a bankless listener they have reserved a 30% off with the coupon code called bank 30 and you can get on this and you can allow crypto tax calculators sort out your tax situation david i use this tool i've started using it this year. I've been my previous tax software because this is just so awesome. Oh my God, what are we looking at

right now? Is this? So we had this meme made. And so everyone knows that I'm super resistant to taxes. And so I had this doing taxes. This is why I pay other people to do my taxes for me. But this is why crypto tax calculator is such a great tool. And so I made this meme. I'm not going to explain it for the audio listening. I will say if you're on the podcast listener, it's a picture of David crying. You may have seen this before and then David happy with some like WoJack massaging his back. Nice touch there. Meme weight makers. This is the product of Cryptotax Calculator in a nutshell.

Happy David. All we had to do is show this. I didn't even need to say anything. Anyway, get that discount, guys. It's Bank 30. And you could find that at Cryptotaxcalculator. Dotio or a link in the show notes. All right, David.

Also, if you are a bankless nation citizen, there is a code, a secret code for 40% off. 10 more percent. Inside of the Bankless Nation Discord. Your trader, that pays for itself in the first month. Easy. Man, okay. Guys, we're going to get right into the episode. Maybe a few last thoughts here as we get in.

So we're going through what's happening. Why is it a big deal? Why it's called what it's called? The effect on price, liquid staking, and what's next for Ethereum. So this is a really interesting episode. We hope you stay tuned for it. We'll be right back with Tim and Justin and Anthony. But before we do, we want to thank the sponsors that made this episode possible.

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protocol support of the Ethereum Foundation. He leads the all-coraner. core devs call, which is the only true source of hard fork dates. Tim, welcome to the show. Thanks for having me. Also, we got Justin Drake, another researcher at the Ethereum Foundation, lead of the ultrasound. Dot Money website, project, and also meme. Justin, welcome back. Thanks for having me too. And last but not least, Anthony Sizzano, Ethereum community member, also content producer, solo staker, and solo staker tinker, tinker. We'll get into what that means towards the end of the show. Anthony, welcome back.

Thanks for having me on, guys. So, guys, it is a big day in Ethereum history. I think this will be the last hard fork that is relevant to the proof of stake project. But since Tim, you are the herder of cats as it relates to what it takes to make a hard fork come to be. I'm wondering if we could start with you and just kind of give us the high-level details

for people who need to catch up to what Chappella is. From the protocol perspective, what is the Chappellella hard fork and what does it do for Ethereum and why is it significant? Of course, yeah. So the most obvious thing that Chappellella brains is the introductions of withdrawals on the beacon chain. So I assume anyone listening to Bankless knows this. But today, if you launch a validator on the beacon chain, you're basically depositing your funds into a smart contract, which gets read by the beacon chain, activates your validator there, credits your fund. your fund on the beacon chain. You can earn rewards and penalties depending on if you do good or bad job.

But then there's no way to actually get your funds back out on the execution layer to either, you know, sell your eth, use it and defy, anything like that. And since the merge, validators have been able to receive transaction fees. So when they produce a lot, the transaction fees they get are not on the beacon chain. You know, this gets sent to any eth address. So the main thing we're introducing with Chappella, this upgrade that's activating today. is kind of closing the loop and allowing validators the ability to withdraw their stake. And again, you know, for your listeners, some of those validators have been, have locked their stakes since 2020. So it's been, it's been a while. And so, yeah, after this upgrade, they'll be

able to withdraw it. There's a couple other small changes that we're introducing as well, but this is really kind of the big one. So within hours, as soon as that hard fork happens, Tim, those listening who have staked eath will be able for the first time to withdraw that staked eath. Is that correct? And is there some sort of queuing mechanism as well? Let's say there's a run on the ETH staking. Run on the protocol. Does that put us into trouble?

Tell us the mechanics of how this might work. Okay, yeah. And there's many different ways to break this down. So please bear with me. So there's two types of withdrawals you can think about. There's full and partial withdrawals. And the way that they work is that every block, basically validators scan over the validator who's producing a block, scans over the validator set and tries to find the first 16 validators for whom they can do either a full or a partial withdrawal.

And they process those, they add them into the block. And then the next validator picks up where the last one left off, scans a chain, tries to find the next 16, packs them into a block and so on. So if you're a staker and you don't want to stop staking, those partial withdrawals will basically happen automatically, as long as you set ETH address as a withdrawal credential. And if you've been a validator for a long time, you might not have done this. It'll be possible to change it after the fork. But this is basically what happens every block is validator checks, find 16 validators who either are fully exited or have a balance bigger than 32Eath, which draws that back on the execution. layer and it moves on. If you are a validator and you do not want to be a validator anymore, you need to exit before you can get your full withdrawal process. And just like when we

have new validators join, we kind of want to throttle them so that the validator set can't change too quickly. If there's a bunch of validators who want to leave at the same time, we also throttle this process. And the reason for this is basically security, where you know, you could imagine if we didn't have this on both sides, somebody could either hack a bunch of Eath, acquire a bunch of Eath, replace the entire validator set or the majority of it, do some bad stuff, exit, and kind of not be penalized. So because we want to prevent this, we sort of slow down the flow of validators on both ends. And so this means that if you are a validator today and there's a bunch of other validators who want to stop being a validator at the same time

as you, you need to send this exit message and then it gets processed basically in the order that nodes receive them. And there'll be kind of a delay between when your message was received and when you can fully exit your funds. And during that period, though, you still basically earn rewards and penalties. You could still get partial withdraws processed, but to get like your 32-Eth back or potentially less, you know, if you were slashed or whatnot, you need to wait until you've cleared that queue. And I'm not quite sure Justin probably knows the exact number that we clear every block, but it's, yeah, it's a constant number per block that actually, well, it's a constant number

it depends on the total stick size. So, but on the order, it's less than 10 per block, basically. Yeah. Yeah, I am familiar that even with simple updates to Ethereum, there are these like edge cases that get really, really complex, even though simply put Shanghai's withdrawals. And then there's like a bunch of like rabbit holes and things to pull apart. But let me summarize what I think you just said, Tim. There's this bottleneck called the withdrawal or deposit queue.

And that bottleneck is the same on both sides. So it's equivalent. And all that really does, like, imagine just like water sloshing back and forth between two buckets. And there's like a pipe between these two things. And one is staked eth on the beacon chain. And the rest is ether everywhere else in the world. And there is a pipe between these two things that constrains how fast ether can move in either direction. And it's the equivalent size.

And the reason why we have that constraint is that we're talking about the security of the Ethereum protocol. We don't want things to move. too quickly. We don't want to go from 18 million ether staked to 2 million ether staked to 25 million ether staked really, really quickly. So we put in this constraint that we call the deposit and withdrawal queue. And that just helps things settle and the foundation of Ethereum to not churn too quickly. Yet it still is sufficiently large enough that if you want to withdraw, you are going to be able to get your ether within a pretty reasonable amount of time. Tim, I don't know if you guys have done any like simulations, but like, what's the longest somebody would expect to wait after pressing the withdrawal button before getting their ether in normal circumstances like non-FTXE type weird stuff?

I know this is almost an impossible scenario to ask you about, but just like, can you kind of put a time box on this thing? So honestly, I don't spend my time doing simulations like this. Maybe Justin does. Yeah, but, you know, I think you see with like the deposit queue, like, it's. it's mostly empty most of the time. You know, sometimes there's like a couple hours, maybe a couple days, but it's like rare that you get these massive spikes. That said, you did get like, you know, a pretty big initial set of people wanting to be validators like at the launch of Ethereum, at the merge and whatnot.

So I wouldn't be surprised, like, obviously this is the first time we're going to have withdrawals. There's probably a whole set of people who want to or have to, like, exit their validators. So, you know, we'll see some churn. And I suspect we'll probably see some churn on both sides. like we'll probably see some people who didn't want to like stake their eath until withdrawals were alive and now now can. But once we've processed that initial chunk, like I, you know, I don't see why there would be like a huge exit queue on a day-to-day basis, except in cases when like, yeah, there's a massive amount of the stake that that has to exit.

And whether this is, you know, like the crackin thing that happened or something like that, where they represent like a non-trigger part and they all have to exit at once. then obviously you'd have a delay. Similarly, if there's a new cool liquid staking pool that shows up and people want to stake with that and they launch a bunch of new validators, then they'll have a delay in getting them activated. And one thing, sorry, one last thing I'll add is for most people who just want to stay a validator, the scan happens.

I think it's every four or five days that you get your rewards after this. So even imagine, you know, you haven't set your eth withdrawal address yet. You set it tomorrow and like you sort of missed the first. scan, you'll get it like five days later. So I think for the average validator who's just getting their partial rewards, it'll be a pretty regular process. And there's nothing that would like extend the duration of that scan significantly except the number of validators.

So if we double the number of validators, then you know, it'll go from four or five days to like eight or 10. But that's what how it's bounded. Well, and Justin, I'm wondering if you can comment on the economics of these things. I think the last time I remember, it was around 1,800 validators per day that can fit through that pipe of withdrawals or deposits. I don't know if that's the right number. Is that right?

That sounds a bit too high. I think it's in the terms, it's about 50,000 or 60,000 Eve per day. Now, just to give you an order of magnitude, since proof of stake happens, we've had on average 20,000 each per day. So the activation is curious. definitely not full. Cool. Okay.

So 50,000 each day times $1,900, basically round up to $100 at the current ETH price can flow between the beacon chain and the withdrawals. And the withdrawals is what's being unlocked today. And so today, for the first time, at maximum $100 million of value can go from the beacon chain back into the rest of the world. And that is the thing we're celebrating. But da-p-da. I didn't know Bank Fest nominated in USD.

A significant portion of our listeners do, and so we're doing the big computational work on their behalf. Okay, so where do you guys want to go next? Justin, I know that this is the proof of stake world, and the e-staking is something that you pay a lot of attention to. So when we see the Shanghai, the now called Chapella upgrade, like why is this so significant to you? Like when you, this upgrade, like, I think everyone kind of see something different in it.

A lot of people want to talk about liquid staking derivatives. A lot of people want to talk about ether cell pressure. When you look at the Chappellella upgrade, what do you see? And guys, as we get into that, Justin, can someone just, I feel like I went on vacation and it was called Shanghai. I came back and now it's called Chappellella. I wasn't ready for that. What's with the name change? How did this come about?

Okay. I feel strongly about this. So, okay. So Ethereum has. as like this execution layer, this consensus layer, you know, before the merge, we were all doing your own thing. Obviously, the networks communicated, but in terms of the network upgrades themselves,

they were pretty independent. So, you know, we have London with 1559. And then on the beacon chain, they had Altair, which was their first fork. And then we had to specify, like, the set of changes on both sides of the chain, right? Like, there's some stuff that happens on the beacon chain, some stuff that happened on the proof of work chain then.

And so those upgrades, actually have separate names as well. So like this set of changes on the proof of work chain was called Paris and on the on the proof state chain. It was called Galatrix. We were lucky that we could just call it the merge and move on with our day. But knowing that we would be in this situation, we started to think, okay, what's like a way we can name these things that people don't have to like follow two different names. So right now the set of changes on the consensus there side is called Capella. They use stars to do those changes on the execution layer side. It's called Shanghai because we use the DevCon city names in order.

But then most people don't want to know that like Shanghai and Capella are the two sets of changes. And so proto from optimism have the idea that we should just merge the names together. It gets us a new name. So Chappellella in this case. And this is kind of neat because if you have a weird funky name, you can know it's like an upgrade on both sides. But then say that like we just change something on the beacon chain, we can just use a star. If we just change something on the execution layer, we can just use the DevCron City. So we can, you know, we can call this Chappellella because it's like the sum of the two upgrades.

And then the next one, you know, it'll be Cancun and Deneb. So we can call it Dengun and no one has to know about Cancun or Deneb. So Chappellella, then Coon, and we'll keep going from there. So we're doing this point about the naming nomenclature of Ethereum upgrades. I just remember that nerds are taking over the world. I thought it was named off to Dipe Chappelle, and he's just like, you all going to be more of that eight steak, right? It didn't give us fortunately not.

That's a neat tower though. Yeah. Okay. That was a fun detour. Thank you for guiding us through that one, Tim. Justin, I'll throw this back to you. The kaleidoscope, that is the Chappellella upgrade. What do you see in it?

Right. So I guess before we get into that, I just want to do a couple of clarification. The first one is proof of stake. Yes, I agree. It's now functionally complete. And so if we were to leave a firm as this for the rest of time, it will be a functioning system. Having said that, there's a bunch of security upgrades and improvements that are coming to proof of stake. So we have, for example, secret single leader election.

We have single slot finality, which reduces the time to finality. We have what's called enshrined PBS. We have VDFs. And we have maybe a dozen or so security upgrades that will eventually make a firm World War III resistant. And the second detail that I wanted to, it's really a minor one, is differentiating the activation and exit cues versus the deposit and withdrawal cues. So really the frotling of the validators is at the activation and exit level. The deposit and withdrawal cues are basically there because the beacon chain needs to process all of these things. and it's a bit of a dos vector if they have to process too many deposits or withdrawals at the same time.

Now, in terms of the big picture of why withdrawals is important, I think there's several aspects. One of them is, of course, liquidity. You know, it's a big de-risking event because so far we've mostly had early adopters come in. And the way that I see it is the big picture is we're going to go from the early majority to the late majority. So we're about halfway through, I'd say. We have 18 million Yves staked. And over the next two and a half years, what I'm expecting is that to roughly double. And if you were to zoom out and look at the shape of the amount of EF staked over time,

it's surprisingly, shockingly linear. Yeah, it's a straight line up. It's a straight line up. And I expect that to continue. The one blip that we're going to have is basically right after the fork, what's going to happen is that both the activation queue and the exit queue should be completely clogged. And the reason is that entities like Cracken and Celsius and whatnot will be exiting extremely fast. And on the other hand, we're going to have people restaking.

So, for example, Lido will be setting up automatic deposits to restake. And so these two cues, which a dequeue at the exact same rate, will mean that the amount of eF stake will be staying constant, possibly for a few weeks. But then that's just a blip and then we just continue up only. At least that's my, that's my prediction. So you think the shape of the curve is going to be, it's been linear. You think at the moment of the hard fork that comes later today in something like nine hours, you think it's going to be flat for a short amount of time, maybe a couple days, and then you think it's going to resume its linear uptrend?

So it's not going to go down, importantly. Well, yeah, I think it's going to plateau, potentially. for a few weeks. It is possible that there's a bit of a race condition. Basically, who can set up their infrastructure first to make automatic deposits versus Cracken doing the automatic withdrawals. We've seen today, if you go to rated.network, they have this new dashboard which shows you withdrawals and Cracken has already started withdrawing.

Now, my expectation is that Lido will start the automatic, you know, restaking of issuance, beacon issuance, you know, very, very soon. And then once these two processes have kicked in, then we should have a plateau for a few days, maybe a few weeks. The other thing I was curious about Justin is, so you're anticipating kind of like final state being like a doubling of the amount of ETH staked right now. Which, which what does that put us at? Like 30 to 40% of the total ETH in the network is staked, something like this. And if so, that I believe is a lot less than some other networks, crypto networks that have had staking for a while, right? So like looking at some other networks and they're closer to like the 60% or 70% range. If that's the case, why do you think Ethereum won't get to like higher numbers of staked ETH, you know, closer to 60 to 70% of the supply?

Right. So we actually don't want too many validators. and that's for a number of reasons. One of them is that we don't want to be unnecessarily overpaying for economic security. So the way that we've paid for economic security is with issuance. And if we have enough economic security with, let's say, 30 or 40% of stake deep, then we don't want to be overpaying by unnecessarily diluting ourselves. The other very important thing, in my opinion, is that we want to have plenty of pristine economic bandwidth.

So, EF has two macro uses. One is staking and the other one is as a collateral asset in the context of, for example, backing decentralized stable coins. And we want to have plenty of kind of raw, pristine EF to be used by applications that want to consume the best in class collateral assets within Ethereum. Now there's also other technical reasons. One is that we already have half a million validators. which is a lot of validators.

And we don't want to have too much computational pressure on the beacon nodes. So the clients that have been built so far, you know, Prism, Lighthouse, etc., you know, maybe they can handle a million validators. But do we really want them to handle two million validators that's maybe, you know, pushing things a little far? Especially that we want to do this upgrade called single slot finality. And what does single slot finality mean? It means that you get finality within a few seconds.

And in order to get finality, we need every single validator to be making an attestation and to aggregate these attestations. So we're talking about aggregating hundreds of thousands of BLS signatures in just a few seconds. And this is a very challenging technical process. So we actually want to be in a position where we cap the number of validators. And there's various ways to do that. One of the things, ways we could do it, for example, is by having an issuance curve which goes negative as soon as we get very, very close to the cap that we want to get to. Another idea, which is not really a cap, but it's more of a way to slow down the growth.

And it's called MEV burn. It's the idea that we do something very, very similar to IP159 for base fees, but this time we do it for MEV. and that should give us a little bit of relief and remove the urgency on capping. Beautiful, beautiful. Okay, so a lot of those subjects I know are highly related towards this question that we have at the end, which is what's next for Ethereum staking? So I think we'll perhaps return to some of these subjects later on. But Anthony, I want to turn the same question to you.

Thank you for waiting. The kaleidoscope of the Chappellella upgrade. there are so many things to talk about. We got liquid staking derivatives. We got solo stakers. When you see this upgrade, like what does it mean to you? Yeah, I think I agree with like pretty much everything that Tim and Justin have said. And I really resonate with the view that while this is kind of a big milestone for Ethereum staking, it's not the final stop, so to speak.

Like for me personally, I view it as like a 1.0, right? And people are going to kill me for saying something like eat staking 2.0 because we don't want to bring up the two point no terminology again. But, but I think there are, as Justin said, like there are other upgrades coming to proof of stake on Ethereum that are going to harden proof of stake, right? And make it better, make it more secure and all that good stuff. They make it more resilient, which means that proof of stake, you know, in its current form can work and can work just fine.

That's why you would call it a 1.0. But it is not, you know, as complete as we can make it, so to speak. There are a lot of different things that we can add to it to make it a much better system, which will be added, you know, over time, especially things. like as Justin mentioned, single slot finality and the secret leader election and stuff like that, I actually personally think they're pretty critical that they actually do need to be shipped and stuff like PBS as well. I don't think they're nice to haves. I think they're pretty much must haves at this point. So yeah, that's why with withdrawals being shipped, we kind of finish the

1.0 version of staking, but then we move on to all of these other upgrades that could be considered like a 2.0 version of Ethereum staking. But like that's my own kind of take on it. I don't suggest adopting that terminology for sake of not confusing everyone even more than we already have. Yeah, the Ethereum community does not have a good track record of not doing that. Yeah, exactly, exactly. But in terms of just the significance of it, I think that the biggest thing for me is showing, well, there's two probably major things. It's showing the, I guess, like ecosystem that Ethereum is still shipping, like at a better

pace than it's ever done, right? It's still shipping major upgrades. It's still executing on its roadmap. And that is sending a strong signal to the rest of the ecosystem that Ethereum is evolving, Ethereum is executing even post the merge, which obviously was the biggest upgrade in Ethereum's history. We haven't really slowed down at all. Even all these things happening in for Cancun or Denkun, as Tim mentioned, like EIP 4844, they have made amazing progress. Like there are dev nets, there are things happening. And it's slated hopefully for later in the year or maybe, you know,

it depends, maybe early next year. But with the, the pace that the shipping is going right now, it just inspires a lot of confidence. So I think that's a strong signal being sent out. And secondly, just related directly to withdrawals, I think it acts as an absolutely huge de-risking event. And I strongly agree that we're going to see much more eath staked because of that. And we're going to see a much healthier staking ecosystem because of that as well, because now no longer are the LSDs themselves limited by market forces, where essentially the only way that these LSDs could re-peg is if the market basically re-pegged them. And I know they're not a peg, so to speak, but like to make them actually kind of

at fair value, you couldn't do that arbitrage with the beacon chain directly. Now you'll be able to do that, which I think even though it may seem something that's kind of simple and gets done every day and it's not something to be excited about, I think it's absolutely huge because it means that staking with LSDs is going to be much safer, much more efficient, and it's going to mean that these money market protocols are going to feel more comfortable with adding them as collateral, making their collateral factor kind of higher so that people can use them to borrow more assets against them. And then it opens up the whole other world of other things that are coming to staking, such as the restaking stuff from eigenlayer, distributed validated technology,

like all these other things that can be built on top and around staking. It makes those things possible and much more exciting. So those are the two major things that I kind of look at. But yeah, there's a lot. I mean, as you said, it is a kaleidoscope. People have their own different views on it. And there's always a lot to talk about when it comes to Ethereum upgrades. I know we're going to talk about price and sort of whether the amount of staking is going to like to how that's going to impact price and whether Stakeith is going to go up or down post-merge because there's been a lot of discussion on this. I could say for me personally, I see withdrawals as a huge de-risk event.

And I have some of my own personal ETH staked, but I've literally been waiting for this moment for like, well, we have months of trust in the network, post-merge. You know, and you know, David's gas on breaks, right? So I'm a bit more risk averse, but I don't know what David you've been doing with your Heath, whether how much you're staking versus not. I've literally been waiting for this event and maybe for like me to start seeing some withdrawals to to start getting more bullish on staking my own Eith. And then once it's staked, if you're a long-term holder of Eith, why on-stake is kind of

the question. So I know we'll get to kind of the, whether this is bullish or bearish for Eith price and in how this impacts kind of sentiment, but that's my own personal take. I'm curious, David, like, what, what, how do you see this event? Yeah, so, well, for the Ethereum archetype person, I think the, I think, well, I guess almost just by proxy of the fact that the network increasing in total stake, like we're at 18% of all ether staked. My percent of personal ether staked has, has trended upward since the beginning of the

beacon chain as well. I was like, oh, I think I'll take some of those a little bit more today. And so like perhaps that's a sentiment that's shared by the entire network, which is why we see it going up into the right. But like this last event is the final like bridge that needs to be crossed where like the eat staking, the idea of eastaking, which I like, you know, pulled out my calculator back in 2018. I was like, all right, I need this much east staked and I need the price to be this high. And then I'll have this much income to retire on. They're like there's usually in that there's literally a bankless video about this. Yes.

I remember we ran through the calculations. And so this is finally the event that allows that to come true. We are not currently at the ETH price that that I envision, but we're still only 2023. It's still quite, quite early. Anthony, I want to actually turn back to you because a lot of what you do at the Daily Gway is just to provide accurate and informed information about Ethereum, kind of a fractal off of your activity with ETHUB way back when, which was just to fight Ethereum FUD. And there is plenty of FUD abound per usual about this

particular hard fork simply because of the nature of what it is. All of the ether is going to get unstaked and it's going to go sell the price down to zero. The Ethereum security is going to go to zero. Like what's some of the biggest Twitter

FUD that you see out there that you think is totally just like ridiculous? There's certainly some criticisms and critiques and bearishness about the staking, the withdrawal upgrade because like simply put, when you add more supply into the market, like there's more people that are able to press the sell button. So like not, I'm not discounting that at all. There are some people who are just like fudding this whole thing left and right. I'm wondering what's like the biggest piece of like Twitter drama that that's worth addressing.

So some of the most ridiculous takes I've seen around it were from people who don't actually understand how it works at all. Basically, they don't understand that there is a cue for staking and and non-staking withdrawing and all that. They don't understand that 70% of the stake is already in LSDs and smaller stakers can exit, you know, almost that fair value a lot of the time now because a lot of these LSDs are not trading at a discount, right? They don't understand that we added more than half the existing validators

in 2022 during, you know, one of the most brutal, kind of like bearish periods for crypto, people were still adding validators, right? Because they still wanted to stake their ETH. And there's just like a lot of different things that fall off of that. people saying, oh, they added a queue because they don't want people to exit too quickly so that the price doesn't dump. It's like, I mean, there are so many different considerations here from the economic security perspective that Justin went through and why it kind of exists. So when people say that, I just laugh. But I think a lot of the misunderstanding comes from the fact that people just don't understand how Ethereum proof of stake works, how it differs from other proof of stake networks, because a lot of the other ones, pretty much, you know, all of them are some flavor of delegated proof of steak. Whereas Ethereum is very, very different, doesn't have that kind of in-proticle delegation there. And that's why we have a lot of these LSDs that are quite popular.

But the deposit and withdrawal queue is definitely a huge kind of source of confusion for a lot of people. And they don't understand why it exists and why it's needed. And they think it's just been done as a way to stem the bleeding or something like that, which is obviously untrue. And I think that they kind of, they form this bias around it as well. They look at it and they're like, oh, look at all the ether's going to be unlocked. and look at all the other unlocks that have happened in the past and what happens to the price of the asset. Well, you have to contextualize this.

If some token has a massive VC unlock, well, that's going to be a very different unlock to what Ethereum is doing with staking withdrawals, right? And there is no actual kind of, what's the word I'm looking for, kind of, there's a word for, and it's alluding me right now. There's no prior events like this that has happened before where a major network like Ethereum has enabled staking withdrawals later, and there's been all this value at stake. There's nothing being like it. So people can very easily form their own views on this just based on nothing because there's nothing to point to. And I think that leads to, as I said,

like people forming their biases and then reasoning about it from that with all the lack of information that they haven't got around how Ethereum Proof of Steak works. So that's why I've tried for many months now to correct all of this, but it is really, really hard because as I said, once people make up their mind, they have their own biases, they're not really open to reason about this,

especially when it comes to the price. where they're like, oh, you know, this is going to be really bad for the ETH price because billions of dollars is hitting the market. And then you try to explain to them, that's literally not what is going to happen because of all these reasons. They're going to be like, oh, crap, oh, what? No, I already made up my mind. That's not actually true. It's going to be really bearish. So I think that's what kind of happened.

Anthony, most basically, I was told, like, right after the murder, I was told for months, don't stake your ETH from like, you know, fudsters because you'll never be able to unstake it. Withdrawals will never be enabled. or if they are enabled, it's up to Vitalik, and he might do that, you know, by his good graces, five years away, right? Like, it's just the amount of misinformation about Ethereum is,

is pretty staggering, particularly on this point. Never seems to go down. That fun point is pretty funny, and I just noticed I didn't even mention that because it actually is so unbelievably stupid that I think it was just about to be disproven in a few hours. Well, and that too, right? But, yeah, again, that just goes hand in hand

with people having their own. biases towards Ethereum. If you already don't like Ethereum, then of course, you're just going to not care what the relevant truth is here, right? You're not going to care that they're going to withdrawals are going to be shipped, especially after for years, if you said the merge is never going to happen. And then the merge happened and you're like internally in your brain being like, oh, crap, what do I pivot to now in order to flood Ethereum? And then you pivot to this next thing. It's just the forever kind of goalpost move. So yeah, I mean, we're about to ship it. At the end of the day, what these people say is irrelevant. I doubt any of the core devs or researchers

just give a crap about what these people say. They just do the work that they want to do and they focus on what they want to focus on. And the community keeps moving forward at the end of the day. So guys, I think we've covered a decent amount of the low hanging fruit about this conversation, like what it is, the withdrawal and deposits queue, why we call it Schipella, when we previously called it Shanghai, some of the some of the fud. But there's some more nuanced conversations that I think probably a lot of listeners are are waiting for.

And that's really just the big question of like, okay, 18 million ether. can now move. It can be sold. It can also be moved from liquid staking project to liquid staking project. More ether could be staked because of this derisking event. So I think these are the three big umbrellas that I see. Like how much is going to be sold, how much is going to be reshuffled, and how much more ether will come in as a result. I think these are kind of the three big categories. So I think that's where I want to turn to next. But first, a moment to talk about some of these fantastic sponsors that make the show possible. You know Uniswap as the world's largest decks with over $1.4 trillion in trading volume, but it's so much more.

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Dot app slash waitlist to get access in late February. Bankless station, we are back with the questions that you guys really want answered, which is what's going to happen to the 18 million ether. that gets unlocked. And so, Justin, I actually want to get your perspective on this because you have this mental model of like frozen liquid and boiling ether. And I think this kind of slightly relates to that whole idea. We have a bunch of frozen ether that's available to be thawed.

I got 18 million ether that's frozen in the beacon chain. It's going to some of it might go through the hole and become thawed and become liquid ether. That can go to defy, that can go back into a different, staking derivative project like Lido or Rocket Pool or some of the long-tail ones, it might be sold on the secondary market. And so of all the destinations that Ether could go, do you have an opinion or an idea as to where the most of the Ether might accrue?

Right. So just thinking in qualitative terms, I think there's two very healthy things that happen once you can for Eiff. One is competition. So for two and a half years, if you've been staking with one service provider, you've been locked in. And I think that has kind of led to a little bit of staleness in terms of innovation and competition. So I don't want to pick specifically on Coinbase, but it's an easy one to pick on. They are a very large operator and they charge a 25% fee. And I think a lot of their users, you know, have joined a staking service maybe a year ago or 18 months ago or even more.

And in Crypto Land, 12 months or 18 months is in eternity. It's maybe enough time for you to get comfortable with the concept of staking, comfortable with the fact that now it's been de-risk and you understand what's going on. And so I'm hoping that there's going to be a move outside of, you know, these very large pockets of stake like Coinbase towards maybe solo validating. Because really withdrawals is an unfair, fairly good upgrade for the solar validators because they haven't been able to access liquidity, whereas projects like Lido and Coinbase, you know, they get a tiny upgrade. So, you know, as was

mentioned, you know, they have a slightly stronger peg because now it can be economically arbitraged. But really the key upgrade comes for the solar validators. Now another interesting kind of thought experiment is in terms of Lido. And I think that the, there might be an opportunity for a vampire attack. So basically Lido right now is huge, right? It's something like 31 or 32% of all staked if. And so the question I have is, could the competitor come in and basically set up a smart contract so that you deposit staked if and then it gets automatically on stakes with

Lido and then restaked with the competitor and the competitor says, if you do that, we're not going to charge you any fees for the next X years. And so that could be kind of a very interesting dynamic that we see shortly maybe a few months after withdrawals are enabled. Is this a Justin Drake brainchild thought experiment? Or is this something that you've seen out in the wild and have seen perhaps a liquid taking derivative project actually talk about? No, I haven't seen anyone talk about it.

So I guess it's a brainchild. But yeah, I'm trying to... I told you to get one of those in the episode. I told you. So yeah, this is a huge opportunity, I think, for a competitor to step up and maybe provide healthy competition in the ecosystem. And Justin, can you just underline that healthy competition? How does that benefit Eith Stakers?

Does it lower fees? So you mentioned Coinbase with a 25% fee? I mean, I guess, you know, implicitly, that would be unsustainable if you bring more competition in the market. So does it lower staking fee prices? What are the other benefits for eth-stakers when you have more competition? Right. So one thing could be lower fees. So right now, Lido charges 10% fee, but maybe that could be reduced to 6% or 7%, I don't know. But the other big improvement is that it makes Ethereum stronger, more robust. And so as an EF holder, you know, you want Ethereum to be maximally successful.

And this competition will kind of make the value of your principle, your 32Eaf, hopefully grow because of that competition. So there's almost like this notion of activist staking where, you know, you will consciously make a decision to move away from the large pockets of steak teeth and go to the smaller ones. Now, this is not only rational just from a memetic standpoint, but it's also rational from a fundamental standpoint. And the reason is that within the protocol,

we have infrastructure, which we call anti-correlation incentives. So if there's some sort of correlated failure, so for example, if many validators get slashed at the same time, or many validators go offline at the same time, this is where the penalties really start hitting you hard, because the more validators are affected around the same time, the greater the penalties. And so you want to try and avoid being correlated with many other validators.

And so for example, if there's some sort of small contract bug within Lido or if there's some governance issue with Lido, well, you're going to get the maximum penalty if things go really wrong. And the reason is that the penalty for slashing at least is three times the amount that is that is staked. So there's 31% of all EFs staked with Lido, three times times 31 would be 93%, you'd get slashed 93% in the worst case. Whereas if you're in a much smaller pool, it just only has 1%, then the worst that you can't get slashed would be 3% if that whole pool gets slashed and only that pool. So it's kind of a way to buy insurance against tail risks. And people don't often, you know, think about these tail risks, but they are there.

I definitely want to focus back on that comment of Chappellea Shanghai withdrawals, upgrade, whichever you want to call it, benefits this solo staker the most. But first, I think that's where we'll kind of tie off this conversation. First, I want to go back to that idea of this withdrawal curve. So like Justin said earlier, it was linear. He thinks it's going to be flat because of the withdrawal slash deposit queue, they're going to cancel each other out while these things settle. But I think it's pretty reasonable to assume that withdrawals will ultimately outpace deposits

just because of the pent-up demand to withdraw that's built up over the last like two plus years that the beacon chain has been online. Now, whether that amount, that extra withdrawal pressure that, in my opinion, perhaps will exceed the deposit pressure, whether that just returns into new deposits into Lido or Rocket Pool or some others taking derivative or perhaps goes into defy or perhaps gets sold, I don't know. But let's present, let's put on the bear caps

because it's bear season and say that like a decent amount goes to the secondary market to, it's also May or excuse me, it's also April, so it's also tax season. So like perhaps there is some cell pressure out in the market. So Anthony, I want to turn this one to you.

Can you put on your, I know this hat does not fit well on you, but put on your bear hat. What's the bear case? for ether and the eth price. Why is the ether price going to go down? This is an impossible question to ask me, sir. You know that. So, so you mentioned, you mentioned taxes, right? I think that, like, there are a lot of taxes that have been accrued by stakers via the consensus layer rewards, obviously, that they have not been able to sell those rewards to

cover those taxes. They could cover those taxes using other funds that they have if that's the way they're being taxed, or if the tax office or the guidelines basically say that you're not taxed on that ETH until it's actually unlocked as part of the Chappellella upgrade, you may need to sell that. And I ran through some rough numbers on my show a bunch of times where I basically said, let's just say 30% has to be sold for taxes, right? 30% of the Consensus Layer rewards, which I believe is like 350,000 ETH or something like that. I don't know the exact numbers off the top of my head.

But at the same time, like all of that's not going to be sold at once, right? There are going to be people that are not going to want to sell that ETH. they're just going to cover their taxes with other fiat that they have, right? Not everyone's going to be at a 30% tax rate. So the numbers are very hard to get for that kind of scenario, right, for the tax selling purposes. Now, in terms of the actual eat stake itself and how many people are going to sell the steak that they put in, well, I've seen many charts floating around that basically say that most stakers, based on the USD value of when they actually stake their ETH, are underwater. Now, that's not going to be totally accurate either because people could have bought ETH at a cheaper price and then

it's going to be it's very hard to get those accurate numbers there but you know you look at that and you're like okay well who's going to who's going to sell that people underwater they might sell because they're like oh you know i need the liquidity i need to panic out of this position um you know it's been locked for a while i want to get out now but i doubt many of those people are solo stakers i think those people would have staked with lsds and they already have the exit liquidity available to them if they wanted to exit their fully staked position even if they took a haircut from selling their LSD for ETH and then selling that for $4 or something like that, that would have been an option for most people already.

So it's actually very hard for me to come up with a bearish scenario where a lot of ETH is going to be suddenly unlocked from staking and sold on the market. The most bearish I can think of is really just the tax selling for the consensus layer rewards. And even that, I don't think is that much sell pressure, given how much liquidity there is for ETH as an asset already. It's not like this is some random ERC20 token on Uniswap. This is ETH we're talking about, which has a huge amount of liquidity and a huge amount of people ready to buy it, I think, for a number of different reasons.

So, Anthony is accurate to say. And by the way, when we're talking about price, we're talking about short-term price, right? Obviously, people will have forgotten this in like three months, basically, like withdraws to be the thing. But short-term, people are still curious. And it seems like there are two opposing forces here. There's the one force that's like, my ETH has been unlocked. And I've been wanting to sell it for a long time, but I haven't been able to. and I'm underwater and I was panicking.

And now the eth is unlocked so I can sell. And maybe I have to pay some taxes. So that's one force over here, the cell pressure. And I guess maybe the stake pressure over here is like, isn't it great? Ethereum continues to ship. It's incredible. They just pulled off another successful hard fork. And now this entire staking thing has been de-risk.

It's sort of the sentiment I was expressing a little bit earlier. Some of the long-term holders might be like, now is my chance to really pile in. to eat staking. And these two opposing forces are sort of fighting the bull in the bear case, you know, and like the market will decide whether either either price goes up or down. Is that a way to think about it? Is that how you think about it? Or would you add something to this? No, that's a good way to think about it, I think. And there are also a lot of other demand factors for just ether as an asset as well. Like if you're talking about what the price can move, even in the short term, based on supply entering the market, well, obviously you have to consider

the demand case as well. And every day we have millions of dollars of ETH being used as gas fees, right, on the network. So there's a demand driver as well. People have to buy ETH in order to use the network. And then there's, ETH as an investment vehicle and ETH to stake. So, yeah, there are those opposing forces. But I feel like the demand side is just stronger than the supply side. Overall, Anthony, I would expect nothing less. But you think the withdrawals getting deployed is more bullish, like, and good for ETH price than bearish, even in the short run. Oh, yeah, because people have been saying that it's bearish for the Eath price since ETH was $1,100. And now ETH is like $1,900.

So, and that wasn't that longer. I was like, what, two, three months ago or something like that. So, like, that's why, as I said, it's very hard to find the bear case if you run through all the scenarios and you try to make it. Maybe I'm not the best person to make a bear case, of course. But I think that just going on the logic that I've put out there, it'd be very hard for anyone to do that. And you know what?

The people that I've seen that are the most bearish are the ones that don't actually have any arguments to back up their bearishness. They just put these kind of views out there and say, all this is going to be unstaked and sold. It's like, okay, but why is that going to happen? Oh, oh, you know, because of this. And they don't really have any reasons, right? So that's why I kind of say that. And that's why I try to reason about it from these first principles, rather than coming to a conclusion first and then working my way back. Okay, so I want to turn this conversation to the thing that makes the entire Ethereum ecosystem tick, which is the solo staker. And so we said earlier that the Chappellea upgrade unduly benefits solo stakers the most.

But I feel like there's such as some other conversations about how this impacts the solo-saking environment. And Tim, I'm wondering if you could guide us through that conversation. What's the significance of Chappelle as relates to solo staking? And guys, let's be due. Can we just define a solo staker? So when we say solo staker in our world, what we're saying is basically somebody who is staking, runs their own validator, staking their own kind of 32. It's their ether and their validator.

Okay. So this is not rocket pool. This is not Lido. We would not consider these pools kind of stake. It's definitely not coinbase. Someone who's running their own validators, a solo staker. Is that correct? Yeah.

Cool. I think that's good. Yeah, I think there's probably two things that like make solo staking significantly better than it currently was. Like the obvious one is just like getting the rewards periodically, right? Like because what you're saying is, you know, you're locking that capital and, you know, staking ETH, but you're also getting sort of compensated for it and can receive part of those rewards over time.

And this has been like a bit true since the merge because of the transaction fees. But obviously there's a big difference between, you know, locking up your ETH and getting absolutely nothing out of it versus, you know, locking you up and being able to actually get the funds get the funds out. And I think the other thing that's really neat with the subgrade is you can also try it, right? Like being a solo staker was a pretty big ask to people prior to withdrawals being live because you were sort of signing up for this indefinite amount of time, right? Some people signed up in like 2020 and, you know, had no idea that like April 2020 is what they would be able to withdraw. Whereas now it's like, you know, if you've been on defense, you know, you're not

quite sure about it. Like, I would probably wait until this, you know, this, this straight line that Justin mentioned has gone through, like this sort of flow of withdrawals and deposits has, like, passed. But, you know, after that, you should be able, you can spin it up, your validated will activate within a couple days. You can try it, run it, and like, you know, keep it running if you want. And if you don't want to, you, you can shut it down and get your funds back out, you know, in a couple days as well. So I think there is something there where, like, once you've done it and you've sort of run through the flow, like, you know, putting your funds up, locking it, running the validator, getting your funds back out,

seeing that it's actually working, it was not rocket science, or maybe you mess something up on the first try. You want to try it differently the second time. You can do that, right? Especially when it comes to things like potentially, you know, changing your setup, changing clients and whatnot. Like this is something where I think solo stakers are like extremely anxious. And like, you know, you can shut it down and get the penalty in the meantime. But I think just even if it's economically worse, like from just like an anxiety of managing your validator, knowing you can like fully exit the thing if it was running on, I don't know, like, geth and prism and you want to try like Nimbus and Bezu,

you can like exit that validator, get your money back, literally, you know, formats that drive like that you were using, wipe it clean and start again. So I think hopefully like we'll just see like a bit more experimentation on that front. And one thing we've been trying to do as well at the EF is set up like some ephemeral test net for Stakers as well. So like we have this new thing called ephemerie where we have these test nets that like launch and completely reset every two, three days. So you can like start from scratch, you know, get some like Genesis Eath on a test net, launch your validator, make sure that it works, exits your funds and run through that process. Because I think up to now it's felt like something where a lot of people who are less experienced or like knowledgeable about this, like, set it up and like somehow it works and then they never want to touch it again and they're

afraid of like any mistake. And to be fair, you know, a mistake was costly if it means, you know, you get to your validator slash or whatnot and then you have to wait two years for it to be exited. Whereas now it's like, yeah, I think you get a little bit more confidence of like if something goes wrong, you can at least get most of your funds back pretty quickly and try and change your setup. So yeah, hopefully it leads to more experimentation. Yeah. And Tim, this gave it. me kind of just like flashbacks to the first few times I set up my own private keys. And so like wrote down my private keys, loaded them up in my ledger, erased my ledger, loaded them up

again, made sure the addresses were the same, deposited a small amount of ether, erased my ledger again, loaded up the same private keys, made sure the ether was still there. And that's how I got like comfortable with like throwing my own ether. And you were scared every single time. Every single time I was super scared, right? And so, Tim, what you're saying is like, okay, we have that same pattern, but now we're doing it for solo staking. But we weren't able to have those people who were timid in kind of exploring the frontier because of they weren't able to withdraw. They weren't able to complete the loop.

And so now, like, once upon a time, we were all doing our practicing our self-custody with writing down our own private keys. And now what you're saying is like people can practice their own self-validation of the chain. And so this is like the self-custody, but now for. validators. And now that this loop is complete, people can go one step further beyond just self-custody and do the thing that Ethereum has always been set up to do, which is apply self-custody and self-validation as closely as possible. And so you're saying that now that this loop is here, people can explore one step further into this crypto-economic frontier and feel safe doing it. And if it's not for them and they just want to go store it with Coinbase, then they can freely

withdraw. But at least they were able and enabled to do that in the first place. is what you're saying, correct? Yeah. 100%. Yeah. Do you know what I feel like we need, though, on solo staking is for this to be, like, there are people who will never self-custody because sitting up a ledger in Madibasca is too difficult, right?

And, you know, see. Hi, mom. There's a lot of people that are able and willing to do that. But there's a smaller subset of people who are able to kind of maybe run their own validator and, like, work through clinic command line and do the DevOps and feel confident on that front, like I might like throw up my hand as as one of those individuals as well. Are there any steps to make solo staking as easy or close to as easy as just running like a ledger, for example? Because to me, that's what it's going to take to actually get the big takeoff.

That does not include Lido or Rocket Pool in your answer. Exactly. Exactly. Because Lido and Rocket Pool are sort of the easy button right now. The question to me to see solo staking really take off is can we make solo staking maybe as easy as running a let as self-costing on a ledger. Do we see anything like that on the market? What do you got to have? It has an answer. Yeah. So what the term that I use for for kind of unstaking and restaking is re-keying, basically creating a new set of keys.

And this flexibility comes with various advantages because it means, for example, that you can improve your security setup. So for example, some of the institutions that might have the really fancy MPC to generate the keys. They have what's called remote signing where there's like a separate piece of software, hardware maybe that is agapped or like kind of segregated in some way or another. And for solo stakers, there's actually this technology called SGX from Intel that can be used to basically mimic the functionality of a hardware wallet. It's kind of a way to have your staking keys in a hardware wallet in such a way that you can't be slashed. So the service provided is kind of anti-slashing protection.

And there is a company working on it for disclosure. I'm an advisor called Puffer Finance, Puffer.5. And they provide this for free so you can just go download it. And then you basically have a hardware wallet. The same kind of grade of security as an institution in the context of. remote signing. Now, another kind of really healthy thing with re-keying is that, you know, it might unlock certain services for some of the operators. So, for example, insurers might require that the keying process follow certain standards. And the fact that you can now

re-key means that you can satisfy the requirements of the insurers. And so now we could start seeing service providers provide slashing protection or provide or, or, or, or, you can satisfy, all sorts of, all sorts of insurance. And refresh us, Justin. When you say re-keying, what do you mean there? What is re-keying? Right. So when you are a validator, you have a private key, which is your staking key, and you use

this private key to sign messages on a regular basis. So every epoch, every 6.4 minutes, you're going to be signing what's called an attestation. Basically, a vote on what you think is the current state of the chain. And then every once in the while, every few months, roughly every six months, you kind of, you win a lottery and you get selected as a, as a, as a, as a proposal. And here you're going to sign a block, a proposal. Now, one of the things that you don't want to happen is that this private key gets, gets leaked. And I think what's happening right now is that solar validators are today kind of yoloing it without even realizing it. And the reason is that they have a computer where.

The staking key is like essentially in hot within that machine. And if there's some sort of virus or whatever it is, then they are liable to get slashed. So it's kind of this unnecessary kind of psychological fear that, you know, at any point in time, because you don't really have this strong protection, you could be slashed. So really what we need is the equivalent of a hardware wallet for staking. And this thing does exist. You can use SGX to provide the anti-slashing. protection.

Very cool. Well, this has been definitely a big moment for Ethereum. And it's good to see hard forks, major upgrades, so close, so back to back. I mean, it feels like only yesterday when we were on a massive call as a community celebrating the merge. And now here we are with another hard fork. So it got to conclude with this and end the show in this way. What is next for Ethereum?

So let's look beyond Chappellella to the next portmanteau. that you were talking about, Tim, which is the next Ethereum hardforking upgrade. What is the next area of focus for core devs and the development team? Yeah, of course. So the next big upgrade is called Dan Koon, so DeNab and Cancun together. And the main thing we've started to work on for that is EIP 4844. There's been several bankless episodes about this already, but on a high level, it's a scalability upgrade to Ethereum, which introduces a data availability

layer, which will reduce the data costs for roll-ups. And so if you look at the transaction fees on a roll-up today, it's like 90 to 95 percent, the cost of posting data on Ethereum. 444 will massively reduce that cost, basically because the network won't store the data forever. So because we have like a bound on how long the network needs to retain that data, whereas right now the roll-up data is stored in the nodes forever, we can charge much less for it. And those savings kind of get passed on to users in the form of lower transaction fees. So this is extremely important if we want roll-ups to scale and the general usage of Ethereum

to scale. So that's the main thing we're working on. The other big thing I will mention is changing how self-destruct works. So right now on Ethereum, if you deploy a contract, you can basically delete it. There's an upcode called self-destruct for that. This is nice in that, you know, it allows you to delete a contract, but it's kind of the one area of the EVM where we don't know how long it's going to take to execute the code that's running before we run it.

So you can think of like, if you delete the tiny contract, you know, it delete super quickly, but imagine you deleted like the uniswap contract or the CryptoKitties contract, you know, deleting all those records takes the computer way more time than deleting like a, a tiny contract. And partially because of that, it's kind of incompatible with a lot of changes we want to do in the future. And a lot of the changes around statelessness and whatnot can't deal with this idea

that we need to delete an arbitrary amount of data. So this is something that is used by contract developers. So right now, like we're looking at all the different designs that we can use to deactivate this in a way that ideally does break any existing contracts. But D.F. You're a smart contract dev listening to this. It's linked in the blog post. We have like a deactivation EIP just as a errs or a deprecation EIP as I can notice to people. But that's something that I think contract developers should be aware that likely within, you know, the next year or so self-destruct

as it exists today will not work. You know, the idea that like the funds get sent back to the caller address will be preserved. But like what actually happens with the contracts and, you know, how possible it is to like deploy something and replace it with something else, that's going to be changing. And if we let a time maybe slip out there within the next year or so, I noticed you're saying. Yeah, I'm trying to be extremely conservative. You know, so that people will be happy when Dan Koon doesn't happen in April 2024. Yeah.

Dan Koon is great. Tim, I know you got to drop. So feel free to hop off if you need to. but I do want to ask about Anthony and his solo staker tinkering. Anthony, as somebody who explores the frontier of solo staking, what does it mean to tinker? What's you up to you over there? What you're doing?

I think I have one of the weirdest staking setups or solo staking setups out there for a few different reasons. So I said on Twitter recently that I'm currently running four different EL-CL kind of combos. And it's put a lot of strain on my network and my networking. devices, which has caused me to tinker a lot with different things. So the reason I'm running for is because I have my normal solo staking box, which has my personal funds on it. I have my Rockapool O'Dow box, which is my mini pools and my, obviously my role in the O'Dow. I have another box,

which is my archive node box, which I'm running for the Rockerpool O'Dow, but it's a separate box altogether. So that's running another combo. And then I have another solo box, which is my retirement fund. So my entire retirement account is in ETH, but I can't stake that ETH with my personal funds because of some regulation. So I have to have another solo staking box for that. So I think that's so funny. So he has his personal staking box and his retirement staking box. It actually kind of fits.

It literally are two different boxes because of nation state regulations. And like you put them on top of each other if you want to do. Yes. And the funny thing is my retirement box is a little device called a protease, which is something Joe from the Rockapool community sold. So it's basically a Rock 5B board in a nice 3D printed case

and it's a low power device but it's running a bunch of solo validators on there that is my retirement one. So it's literally sitting right in front of me. I can see it right here next to my Rockapult box. My solo's thinking box is in the other room. Don't come in them. As long as they're separate, that's apparently okay.

And yeah, and they're all running off of my home network. So my home network is 100,000 megabits down, so one gigabit down and 40 megabits up. Unfortunately, the up is pretty crappy, and I haven't got any way around that, but it does put a lot of load on my network. I'm using currently 15 terabytes a month just on my staking boxes because they're all using different EL and CL combo. So they're basically running their own Ethereum full node, essentially, and I'm running

an archive node as well. So that put a lot of strain on, and I had to replace some networking gear because some of it was leading to missed attestations on some of my boxes because it just was overloading my network. So, yeah, that's a lot of the tinkering that I've done. But there's so much more. But yeah, it's been fun. It's been a lot of fun. But when you're running such a weird setup like I am, yeah, you run into these issues

that no one really runs into. And I was troubleshooting things with actually a core dev. And it was like, what's going on? And it was the networking equipment issue because he's like, you shouldn't be missing attestations. You're doing nothing wrong. I'm like, I don't know, man. I don't know.

And it took me a while to figure it out, but I figured it out in the end. So that was okay. Yeah, the surface area that you have to be a solo staker, I think is pretty immense these days. And we've come a long ways away from where we were previously bullied by the Bicorners for not ever being able to run a full note, which was never, ever true in the first place. I still think culturally, we should totally honor solo stakers. Like, I just want to say good job, Anthony.

Like, that's totally, I know it's, it's more difficult. What you're doing right now is more. difficult than just kind of staking it with some sort of pool provider. But you're performing your civic duty as an Ethereum. Above and beyond. I think that should be celebrated for sure. You should put on a little cape today, Anthony. I would be doing it a disservice to everything I believe in if I was not solo staking. That's the way I view it, right? And I think solo stakers are the beating heart of Ethereum. They are the beating heart of Ethereum values and decentralization. We didn't create Ethereum proof of stake the way we did to just go stake with centralized exchanges,

right? And I've been a solo staker since day one, literally part of the genesis of the beacon chain, you know, a bunch of my validators, which, yeah, I'm obviously very proud of. But my setup, just for people that listened and heard how complex it was, this is not a normal setup. You don't have to do that. We can make it easier than what you just said. So what you're saying? Yeah, it's a lot easier than that. Okay. You can, you can very, setting up a solar staking box is actually very easy. And actually just one other quick thing. My solar staking box while I was in Denver for Yves Denver decided to basically, or

well, the SSD that it runs on decided to just like die. And it caused my solar staking box to go offline. And I had no idea that this was the case until I got back home. And then I got back home and I looked at it. So I had to basically redo my entire setup again. So I had to reinstall everything. But it only took me like half an hour because there's a guide that I follow from, his name is SummerEASAT.

He's on Medium. And there's a coin cashew guide. They're very, very similar. You follow that. And it tells you all the commands to put into the command line to do it, to generate everything and to do everything. And it only took me half an hour to get back up and running with a new SSD. It's obviously not going to be like that the first time you do it.

But I think there's this misconception that solar staking is really hard when I don't think it is. And as I said, you can do it on very low powered hardware. My pro T. My pro T. Box is, I think it was like 700 US dollars or something like that. around that for the whole kit. And it comes preloaded, if you don't want a solar stake, but steak as part of Rockapool, it comes preloaded with the Rockapool Smart Node stack.

So you can get started straight away. So, and for SolarStakers, there's the Avado or Dap node boxes, which you can also use. So there are multiple different ways to get started. And I think that there is definitely misconception that solar staking is this really hard thing that's only reserved for the super technical people. I'm not very technical. The command line, I'm a beginner at it. I'm not, I can't do the all the wizardry stuff.

other people. Yeah, I mean, a lot of the time I just copy and paste and learn how I go. And it is, it is a lot of fun as well. So I just, I figured that was worth mentioning too. Well, I think that's a great exploration down the world of solo stakers. Justin, yeah, give us your, give us your last thoughts while we turn off here. Yeah, just to try and chill solo staking a little bit more, you know, you don't have to pay any fees when you're solo staking. So already that puts you above the rest from a, from a rational standpoint. But the, the other thing I want to highlight is that my prediction is that there is going to be special airdrops specifically for solar and the reason is that for example eigenlayer some of the services that they require is that pure

economic security so just lots and lots of eif but some other services are maybe more subtle they kind of require proof of humanity or they require proof of decentralization and what is happening right now, this is, you know, information that I know internally is that like there's some people that are kind of looking at the set of metadata for validators. And there's a lot of metadata. You can look at deposit addresses, you can look at withdraw addresses, you can look at fee recipients, you can look at IP addresses, you can look at correlated failures. When did they go offline at the same time? You can look at... So it's a fairly simple resistant data set of like your most involved Ethereum citizens.

Exactly, yes. And then you can identify, okay, we know who Cracken is. You know, we know who Coinbase is, and we can just not give them an e-drop if the purpose of the ad-drop is to add-up to specific individuals that are running solar validators. That's a cool incentive, possible incentive, hypothetical incentive,

to sign off on. And as we always say, crypto pays you to learn about crypto. Maybe crypto can pay you in a way. to learn how to go through some of the more difficult steps that Anthony was just talking about. David, you want to say something? Yeah, and if anyone just had the gut reflex of this benefits whales who can afford 32 eth and above and not the people who are fractional eth stakers but would desire to be a solo staker,

I'm wondering if something like Oble and shared secret validator could actually solve for something like that where four people could come together with eight ether each and count as a solo staker that technology is not here yet but i think it's right around the corner because that is something that anthony i know is tinkering with was actually the answer i was looking for you to get to say but yeah so i i can't i can't reveal everything just yet but i've been leaking the alpha on my show that diva technology is is live right now on on main nets and and uh yeah i've been tinkering with it a lot and it is definitely a solution to that um you know people can pull their east together You know, as a solo staker.

Team solo staking, basically. Yeah, squad staking. Oh, wow. Are we using that? Are we doing that? I like it. Staking is a good meme. I like that meme.

You heard it here first. Guys, this has been a fantastic episode. Thanks for guiding us through Chappellella. You can now withdraw your Eith, but why would you want to? Oh, no. Just put it back in. See if you can and then put it back in. Just go through the pipeline once.

Anyway, guys, this is very exciting for a thing. We're glad you're with us on bankless. We'll include some links in the show notes to a few of the things we reviewed. Got to end like this, as we always do. None of this has been financial advice. It wasn't tax advice either, despite what Anthony was getting into a little bit earlier. Don't get your tax advice from bankless at all. ETH is risky. Crypto is risky. So is Defi. You definitely 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.