#44: All Gas No Brakes

Effects of ETH gas prices on node operators, NuCypher worklock, Coda Snapps, Tezos Harbinger and Delphi, Ethermint, and more!

This newsletter is supported by Chorus One, a provider of staking services in decentralized networks.

Gas Price Effects on Node Operators

A looming bull market combined with lots of yield farming activity led to gas price levels unseen since peak CryptoKitties hype in 2017 (see e.g. Etherscan’s historical chart). Vitalik’s thread on the supply and demand economics of gas is really helpful and shows why scaling really is the only viable solution:

As a side effect of the high gas prices, node operators on protocols managed on Ethereum are experiencing costs that threaten the profitability of their business and, as a result, the viability of the protocols themselves. As an example, ChainLink node operators have paid roughly twice as much on gas in dollar terms as they’ve earned in LINK tokens last week (based on Felix’ observations for Chorus One) to keep prices updated for the $3bn locked in DeFi protocols that rely on ChainLink price oracles. Livepeer orchestrators are also feeling the pain when calling daily rewards. For example, Chris recently paid $100 to send a call reward transaction. The Livepeer team submitted this proposal to mitigate the high reward calls gas cost. ChainLink also reacted quickly and adjusted LINK payments, but this highlights that protocols built on a shared platform like Ethereum will need to take into account gas price fluctuations and scenarios like the one we are seeing play out now.

There is a need for developers to make use of layer-2 scaling solutions and a potential opportunity for other layer-1 or application-specific chains to gain some market share from people migrating away from Ethereum. One recent example is the NFT project Mintbase migrating to NEAR based on the unsustainability of continuing on Ethereum, check out founder Nate’s reasoning and evaluation of alternatives here.

Network Updates

  • NuCypher Worklock: NuCypher’s innovative WorkLock token distribution mechanism went live on September 1st and lasts until September 28. This is the escrow period, during which participants can escrow ETH in exchange for NU. The minimum escrow amount is 5 ETH and participants who escrow that amount are “guaranteed to receive 15,000 NU.

  • Coda Snapps: Coda’s testnet is upgrading to a new proof system Pickles in stage 3.3, which will enable efficient smart contract applications powered by zk-SNARKs (Snapps).

  • Tezos Harbinger and Delphi Upgrade: The Tezos protocol is gearing up to nurture the development of a DeFi ecosystem running on top of it by introducing a decentralized price oracle named Harbinger. This set of tools and reference contracts allows price feeds to be posted onto the Tezos blockchain. Harbinger also includes a reference signer that can be deployed at low cost by exchanges. Furthermore, Delphi, an interim upgrade proposal has been suggested and injected to be voted on by governance. If implemented, Delphi improves the performance of the Michelson interpreter and Tezos’s gas model.

  • Cosmos Ethermint Release: Last week marked the release of Ethermint v0.1.0. Ethermint is a Cosmos SDK module that provides standard Ethereum functionality for Cosmos blockchains. With Ethermint, Cosmos chains implementing the module can be fully harmonious and interoperable with the EVM, Ethereum smart contracts, tooling, etc. Ethermint is also designed to be IBC compatible and marks the next step in Cosmos' vision of an internet of blockchains.

  • Secret Network: The Secret Network will activate “secret contracts”, privacy-preserving smart contracts on its mainnet in the coming weeks. There will also be a staking derivative contract that will allow users to earn SCRT staking rewards while maintaining liquidity.

  • Serum Launch: Serum, the highly anticipated, non-custodial decentralized derivatives exchange platform built on Solana launched on August 30th. Serum’s initial product is an on-chain central limit order book (CLOB). Serum is set out to build a thriving DeFi ecosystem supporting various stablecoins, oracles, as well as cross-chain assets swaps. The project actively calls for community engagement, so if you have an idea or want to get engaged, head over here.

  • Terra 2020 Roadmap: Terra hit the 2 million account milestone and released a huge roadmap update including information on upcoming CosmWasm smart contract capabilities, tooling, as well as the state of the Anchor protocol.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with contributions by Chris Remus (Chainflow), and Robert Dörzbach (Staking Facilties). Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of our companies. All content is for informational purposes only and not intended as investment advice.

#43: Staking Academy

New contributor Robert and intro to the Staking Academy. NEAR and SKALE token sales and other staking network updates.

This newsletter is supported by Chorus One, a provider of staking services in decentralized networks.

Dear readers,

Today we’re excited to announce that we have a new contributor joining us to assist with Staking Economy updates: Robert Dörzbach. Robert is working on communications and marketing at Staking Facilities, a validator and node operator based in Munich, Germany focused on providing industry-grade staking services for a thoroughly vetted portfolio of networks.

Robert joining our newsletter is based on a shared greater goal that all of our companies strive towards: making it easier for people to participate in and understand the staking ecosystem through educational and informational content.

Introducing the Staking Academy

The Staking Academy is a content aggregation platform focusing on Proof-of-Stake networks and their ecosystem. It provides new users with an information source to get started. More seasoned stakeholders (pun intended) can browse through a curated list of articles, podcasts, and events. Despite being launched and maintained by Staking Facilities, the Staking Academy is a collaborative effort with the ultimate goal to accelerate the diffusion and adoption of PoS protocols.

The Basics of Staking

Felix recently wrote an article on the basics of staking for Crypto Valley Journal, a Swiss-based outlet that seeks to objectively inform readers about cryptocurrencies and blockchain. This guest post gives an overview of the market and players in the staking ecosystem, highlighting how this industry developed over the past two years.

Network Updates

  • Polkadot Parachains and Transfers: Almost three years after the first token sale, DOT tokens became liquid this week after a governance vote enabled transfers. In addition, the supply of DOT tokens was adjusted by 100x following a vote to change the denomination. More here. In addition, the first testnet (Rococo) to experiment with cross-chain messaging was launched.

  • Cosmos Peggy Bridge and GaiaFlex Testnet:GaiaFlex, a test network to experiment with governance-gated smart contract ability for Cosmos blockchains went live. Furthermore, the Althea team published an update about how Peggy, their Cosmos-based Ethereum relayer, and its performance. Peggy is slated to go live as a module on the Althea chain at the end of this year and could potentially be added to other Cosmos blockchains, including the Hub itself.

  • NEAR Sale and Rainbow Bridge: With a few complications, the NEAR token sale on CoinList concluded raising more than $30m. Shortly after this first public sale, the NEAR team published details about the design of their trustless bridge to Ethereum.

  • Eth2 Testnet Bug: The Medalla testnet stopped finalizing blocks for about 90 minutes due to an issue with the Prysm Eth2 client. An incorrect automatic clock adjustment, caused by one of 6 default roughtime servers configured by the Cloudflare client library was found to be the root cause. The adjustment caused validators to incorrectly propose blocks and attestations for future slots. The Prysm client has since been updated to not automatically adjust clocks of client machines. One takeaway is the importance of a beneficial distribution of validators across a variety of Eth2 clients. Read more in the well-written post-mortem and response report.

  • SKALE’s token launch was delayed after a wave of bot activity was detected in the minutes leading up to the launch. The SKALE and Consensys teams decided to postpone the auction, to prevent a small number of investors from purchasing a majority, if not all of the token supply. Since then, new details have been announced. A new distribution method will be used to ensure that all interested parties have an equal chance at participating.

  • Solana Wallets and Custody: $SOL holders are now able to store their assets with Coinbase Custody. This announcement comes just a short while after Dokia Capital launched Solflare, a non-custodial Solana wallet with staking functionality and Ledger support.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with contributions by Chris Remus (Chainflow), and Robert Dörzbach (Staking Facilties). Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of our companies. All content is for informational purposes only and not intended as investment advice.

#42: Scaling Strategies

Reddit Bake-Off, Staking Taxation in the US, Ethereum Medalla, SKALE token sale, The Graph Mission Control & more.

This newsletter is supported by Chorus One, a provider of staking services in decentralized networks.

The Great Reddit Scaling Bake-Off

The third most popular website globally, Reddit, hosted a challenge to scale their Community Points system, which is currently based on Ethereum. Numerous layer-2 solutions like Matic, SKALE, and StarkWare, as well as a few layer-1 projects including NEAR and Solana submitted entries to showcase how one could use their project for this specific use case and how they would improve throughput and gas cost as a result. The Reddit team is currently reviewing submissions, find an overview of the challenge and the submissions here.

Competition and Trade-Offs

A minor Twitter war broke out between Avalanche and Polkadot following a post by Gavin Wood comparing the two protocols. Collin Cusce, engineer at Ava Labs, rebutted in a tweetstorm. Overall, the best reaction on this standoff came from Cosmos Co-Founder Ethan Buchman:

https://twitter.com/buchmanster/status/1288172971190820867

Staking Rewards Taxation in the US

In the US, four members of Congress sent a letter to the Internal Revenue Service (IRS), asking the agency to reconsider their current position on taxing staking rewards. Current regulations tax rewards when they are received. The letter makes the case for taxing rewards when they are sold, rather than when they are received.

Network Updates

  • Ethereum Medalla: Eth2’s Medalla testnet went live on August 4th. Medalla’s"the official public multi-client testnet" and intended to be the final testnet before Eth2’s mainnet launches. The network launched with 57% of the stake required to achieve block finality, less than the expected 80% participation. The 67% finality requirement was met not long after launch, in Epoch 6.

  • Cosmos Ecosystem: Messari published an analysis of the burgeoning Cosmos ecosystem showing how the Cosmos SDK has seen traction across many different verticals in the DeFi space. Check out this tweetstorm for an overview. In addition, Starport and CosmWasm 1.0 were released, and the first Cosmos community pool-funded development project of governance-controlled smart contracts (as reported on in issue #39) for Cosmos SDK chains was completed.

  • SKALE Token and Mainnet: SKALE announced their token sale will go live August 17th on the Consensys Activate platform. The token sale is a precursor to SKALE’s mainnet launch, which will happen 21 days after the launch date. You can learn more about SKALE’s Activate partnership by listening to the newest episode of Chris’ Staking Defense Podcast.

  • The Graph Mission Control: Ethereum indexing protocol The Graph, which has been serving billions of queries to various front-ends for DeFi projects like Synthetix and Uniswap launched phase 0 of their incentivized testnet. In this phase, node operators will familiarize themselves with the protocol and set up their indexer nodes. The competition will run for multiple weeks and trial the protocol’s staking mechanism and economics, as well as stress test the network by simulating queries. Learn more here.

  • Kava Downtime: The Kava network halted on July 29th at 14:00 UTC. The halt lasted approximately 8 hours. According to the post-mortem “this failure was relatively non-complex in terms of the logic involved, and represents a failure of robust testing in the Kava codebase.” It also sounds like the failure of one of the larger exchange validators to apply the required patch in a timely fashion contributed to extending the downtime.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#41: Empirical Economics

Economic review of Eth2, empirical data on Tezos staking, Avalanche and SKALE sale, state of Cosmos interoperability, and more.

This newsletter is supported by Chorus One, a provider of staking services in decentralized networks.

Eth2 Economic Review

paper reviewing the incentive model of Ethereum’s Proof-of-Stake design. The authors set up a framework to evaluate economic security in Eth2 and model the impact on yields in various scenarios. The main results are a bunch of interesting conclusions and recommendations (at the beginning of the paper):

  • At 13.8% of ETH staked, security levels of Eth2 will match those of Eth1 PoW given historical prices.

  • 77.7% of the total ETH supply is held in non-exchange wallets with over 32 ETH.

  • Network inflation will likely be significantly lower with PoS compared to PoW.

  • Lack of liquidity in phase 0 and 1 might cause unpredictability and centralization caused by exchanges and other secondary market derivative activity.

Tezos Staking Study

An interesting data-driven study by Blockwatch Data on the state of staking on Tezos. Lots of interesting tidbits on how XTZ holders have participated in the protocol since it launched 2 years ago:

  • When published, there were 440 active validators and 56k delegators on the network.

  • Of the total supply, Tezos validators stake 16.2% themselves, 63.8% of XTZ are delegated, 5.9% of all XTZ were never claimed, 1% delegate to inactive bakers, and 20% are not staking at all.

  • Delegators are loyal! There is a relatively low churn rate of 2–10%, suggesting delegators stay with their validators 10–50 months on average.

Network Updates

  • Avalanche SaleThe AVAX token sale concluded successfully raising $42m within 4.5 hours for 10% of the token supply (50% are reserved for inflationary staking rewards).

  • Cosmos IBC is Coming: The first Stargate proposal that will ultimately bring Inter-Blockchain Communication functionality is being voted on by Cosmos governance. In the meantime, lead IBC architect Chris Goes wrote a post highlighting the work that is done by various organizations, and a stable new version of the Cosmos SDK (Launchpad) has been released.

  • Eth2 Attacknets: The Medalla community multi-client testnet for Ethereum 2.0 phase 0 will launch Aug 4 with support by at least 4 clients. In addition, the Ethereum Foundation has issued bug bounties for white hat hackers that manage to bring down testnet versions of different clients. Check out the details here.

  • SKALE Token Sale and Economics: SKALE, Ethereum layer-2 scaling solution with a unique adaptive sidechain design, will hold a public sale through ConsenSys’ new Activate platform starting Aug 17 after launching its restricted mainnet earlier this month. 125m SKL tokens will be sold through a dutch auction and remain locked until they have been staked for a minimum of 90 days (proof of use). Furthermore, SKALE’s Conner Murphy published a comprehensive blog post about the tokenomics of the network covering details on SKL staking and how SKALE sidechain pricing will adapt to utilization levels.

  • Polkadot Goes Permissionless: Polkadot is now fully controlled by stakeholders after the “Sudo” module, which granted special privileges to the Web3 Foundation, was removed via governance.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

#40: Staking is DeFi

Liquid Staking Report, European PoS Working Group, Polkadot decentralization, Cosmos Stargate, and more.

This newsletter is supported by Chorus One, an operator of validating nodes and staking services on Proof-of-Stake networks.

Merging DeFi and Proof of Stake

Last week, Chorus One released the Liquid Staking Research Report. It is the culmination of months of research into the interplay between staking and (decentralized) finance. The report dives into capital efficiency and protocol restrictions in Proof-of-Stake, explores how centralized exchanges are able to abstract these restrictions for their customers, and dives into the tokenization of stake and its implications as well as current projects in the space.

The full 88-page report includes sections on risks and benefits, as well as legal considerations for liquid staking (often also referred to as staking derivatives). This blog post explains the top 5 topics. Felix also spoke with Mirko, Founder of Staking Rewards, to discuss core insights from the report. You can find that interview here.

In addition, Tarun Chitra (Gauntlet Network) and Alex Evans (Placeholder) published a paper analyzing the mathematical similarities of tokenized staking derivatives in decentralized finance and mortgage-backed securities. One conclusion of the paper aligns with the Liquid Staking Report, which is that staking and DeFi are intrinsically linked, and what is in the process of emerging in the decentralized economy is not too different from what exists in traditional finance. Questions around whether and how this interplay will introduce systemic risk to the crypto ecosystem are important and I encourage everyone to check out the papers and to participate in the discussion, as this will likely become one of the most important topics to deal with as the decentralized finance and staking ecosystems become more interwoven.

Rocket Pool and ConsenSys Staking

Rocket Pool, a delegated staking protocol for Eth2, recently overhauled their design and will now also tokenize positions staked through the protocol, the liquid staking report above dedicates a section to describe their current design. In addition, ConsenSys announced a Staking-as-a-Service product that they will offer for Eth2 with partners like Binance and Huobi. For a current update on Eth2, make sure to check out Danny Ryan’s comprehensive post about the state and vision of the ambitious project.

European Staking Regulation

The European Blockchain Association released the Staking Infrastructure Provider Position Paper, the first project of the Proof of Stake Working Group (EUPoS), which seeks to educate European regulators about the staking industry to advance conversations to establish the EU as an innovation center for Proof of Stake. The EUPoS Working Group is analogous to the Proof of Stake Alliance (PoSA) in the US. European staking-related businesses are welcome to join the Working Group alongside current members that include among others companies like Cryptium Labs, Dokia Capital, Staking Facilities, T-Systems, and Chorus One.

Network Updates

  • Decentralized Polkadot: After the Polkadot mainnet was launched with Web3 Foundation nodes a few weeks back, the transition to Proof-of-Stake successfully took place Thursday June 18 with the first 20 validator slots filled via the NPoS election scheme (e.g. featured in SE #15). Check out the network on the polkadot.js block explorer. If you are a DOT holder seeking to participate, read the Polkadot nomination guide and choose up to 16 validator nodes to back with your stake, e.g. the Chorus One validator(s) ;).

  • Game of Zones Conclusion and Stargate: The Cosmos interoperability competition concluded and participating entities were awarded prizes for contributions, as well as performance during the different phases that took place in May and June. The upcoming Cosmos Hub upgrade Stargate will bring IBC capability and much more to the ecosystem. Read Figment’s overview post on Stargate here.

  • Avalanche’s Denali testnet and breached 1,000 nodes participating in consensus. The Avalanche mainnet is slated for July 2020. The team just raised $12m in a private sale with a public sale with the same terms to follow in mid July. Learn more here.

  • Oasis Quest Conclusion and Amber Release Candidate: After the Oasis QuestNet competition concluded with over 400 participating nodes, the mainnet release candidate Amber launched Thursday June 18.

  • Band, the decentralized oracle network built on the Cosmos SDK, launched its mainnet. Find more info on their block explorer.


Follow Staking Economy on Twitter or subscribe to the newsletter to make sure you don’t miss an issue.

Staking Economy is written by Felix Lutsch from Chorus One with assistance from Chris Remus, operator of the Chainflow validators. Join us in the Staking Economy Telegram to discuss staking. Opinions expressed are our own and do not necessarily reflect the opinions of Chorus One. All content is for informational purposes only and not intended as investment advice.

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