Welcome to Valid Points. In today’s issue, Sam Kessler discusses what Ethereum tech trends are weathering the bear market. For the web version of this article, view the web post here.
Last weekend was exciting for crypto speculators, with the prices of bitcoin (BTC), ether (ETH) and other coins shooting up by double-digit percentages. Zoom out on that price chart and the picture becomes clearer: Things aren’t looking so hot.
A year ago, every crypto reporter’s inbox was filled with fundraising announcements from upstart decentralized finance (DeFi) firms and non-fungible (NFT) projects. From algorithmic stablecoins to yield-farming platforms to land sales in the metaverse, each new narrative seemed to draw out hundreds of millions of dollars from venture capitalists.
Today, inboxes are emptier and buzzwords are apparently no longer enough to rake in a $10 million seed round. But things haven’t quieted down entirely. Some teams have continued to woo investors and Crypto Twitter amid the market downturn.They generally seem to have more technical, infrastructure-focused pitches relative to the speculative lending platforms and colorful Web3 projects of the past.
In Ethereum-land, here are a few of the biggest areas for tech investment.
Zero-Knowledge and Scaling
Zero-knowledge (ZK) technology continues to be among the frothiest sectors for investors. The technology is complicated, but the concept isn’t: ZK proofs use fancy cryptography to allow users to “prove” something is true without showing how.
ZK proofs are used widely in blockchain privacy, security and scaling but they also have applications beyond just crypto. Some of the teams building ZK tech for Ethereum include Scroll, Matter Labs and Polygon – each of which is building a rollup to scale Ethereum using ZK proofs. It is expected that ZK rollups will eventually become the main way people access Ethereum.
Staking
Ethereum’s shift to proof-of-stake ditched crypto miners for crypto validators, also called “stakers” – people who lock up, or “stake,” crypto with the network and earn rewards for helping keep it secure.
EigenLayer is one of the buzzier staking-focused companies that’s continued to earn attention as the wider crypto market has soured. Pitching itself as a “general-purpose marketplace for decentralized trust,” EigenLayer allows people to “restake” tokens that they’ve locked up to validate Ethereum – re-using those tokens to help secure other Ethereum middleware.
On another end of Ethereum staking land is Obol Labs, which announced this week that it just raised $12.5 million in series A funding to build out its approach to distributed validator technology (DVT). Obol Labs says the tech will help validators operate more securely and in closer alignment with crypto’s decentralized ethos.
MEV: Maximal Extractable Value
Maximal extractable value (MEV) is a kind of profit that one can earn by analyzing Ethereum’s pending transaction pool (the “mempool”) to find profitable trades. Initially viewed as a scourge for the entire ecosystem, since MEV-optimizers frequently use strategies that eat into the profits of other traders, firms like Flashbots have long been at work spreading out the riches of MEV across more stakeholders.
As MEV extraction has grown more equitable, it’s continued to grow into a lucrative cottage industry, with MEV-focused firms still earning attention and funding despite wider market conditions.
Flashbots, for its part, has grown in prominence since Ethereum switched to proof-of-stake in September. Today, 94% of the blocks (bundles of transactions) written to the Ethereum ledger come from MEV-Boost, a piece of Flashbots middleware that delivers pre-made, maximum extractable value-optimized blocks to the validators that add them to the blockchain. Flashbots also made waves two months ago with the announcement that it was building SUAVE – a new blockchain that will run in parallel with other networks to provide a kind of decentralized MEV market.
Pulse Check
The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on ETH metrics.
Disclaimer: All profits made from CoinDesk’s Eth 2.0 staking venture will be donated to a charity of the company’s choosing once transfers are enabled on the network.
WHY IT MATTERS: Upcoming layer 2 network Shibarium is joining the ever-growing fray of Ethereum-based blockchains looking to solve the problems of scalability, speed and expense. A beta testnet is expected to launch in the coming weeks. The launch could further bolster the fundamentals of Shiba Inu’s three ecosystem tokens: shiba inu (SHIB), leash (LEASH) and bone (BONE), which together command over $5 billion in market capitalization.Read more here.
WHY IT MATTERS: The Ethereum-scaling project successfully completed a hard fork designed to reduce instances of spiking gas fees and disruptive chain reorganizations known as “reorgs.” Two proposals were included in the hard fork. The first proposal adjusted a mechanism that aims to keep gas prices low when there is a lot of activity on the network. The second proposal aims to reduce the amount of time it takes to complete a data block – part of an effort to prevent frequent reorgs, which occurs when a validator node receives information that temporarily creates a new version of the blockchain. Read more here.
WHY IT MATTERS: Crypto bank Silverate Capital reported a net loss of $1 billion for the fourth quarter on Tuesday, compared to a net income of $40.6 million for the third quarter and net income of $18 million for the same period a year earlier. For all of 2022, the company posted a loss of $949 million, compared with net income of $75.5 million in 2021. Silvergate’s results for the latest quarter were foreshadowed at the start of January when the company said it had $8.1 billion in outflows of customers’ deposits of digital assets during the period and that it had slashed 40% of its staff. Read more here.
Factoid of the Week
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Open Comms
Valid Points incorporates information and data about CoinDesk’s own Eth 2.0 validator. All profits made from this staking venture will be donated to a charity of our choosing once transfers are enabled on the network. For a full overview of the project, check out our announcement post.
You can verify the activity of the CoinDesk Eth 2.0 validator in real time through our public validator key, which is:
