AMA review: Is the Ethereum Foundation okay to deal with FUDETH?

Compiled by: Yangz, Techub News

ETH’s recent weak performance has triggered a lot of FUDs about Ethereum in the market, and many investors have asked questions, “Is Ethereum OK?” For this reason, the Ethereum Foundation (EF) research team held it on Reddit last nightThe AMA event included the previously sensational battle between L1 and L2, the value accumulation of ETH, the operation of the Ethereum Foundation, and technical topics such as Blob and Rollup.Techub News has screened and organized AMA for your reference.

About L1 and L2

Q: As the L2 solution matures, are there still plans to further expand L1?If so, what are the methods being considered?

Justin Drake:Long-term sustainable plans are to leverage SNARKs to scale L1 EVM execution, which is basically unlimited.

With real-time L1 EVM SNARKing, testers can verify low-cost SNARK instead of re-executing EVM transactions.This way, we can increase the Gas limit by orders of magnitude without increasing the burden on the validator.All heavy EVM execution work will be carried out outside of consensus and will be completed by professional nodes operated by searchers, builders, explorers and other entities.Users and consensus participants can easily run nodes on their phones or even watches.

In addition to the substantial increase in the vertical scale-up benefits of L1 EVM Gas limitations, there is an opportunity to leverage EVM precompilation in EVM to achieve arbitrary scale-up, thereby verifying EVM execution at low cost in EVM.This precompilation will allow developers to programmatically launch new L1 EVM instances, unlocking super strong versions of execution shards, where the number of shards is unlimited (rather than the upper limit of 64 or 1024 shards), a singleSharding is a programmable Rollup, called “native Rollup”.

Vitalik:L1 expansion strategies that are currently being actively considered include:

1. Implement proposals that reduce full node load (such as EIP-4444, Verkle tree or hash-based binary tree, and ultimately ZK-SNARKing EVM), and once these improvements are in place (or are about to be in place), the Gas limit can be increased.The most realistic solution in the short term is EIP-4444, because it does not require a consensus change, it only requires some work on client code, which is relatively orthogonal to other work being done on L1.

2. Further improve client execution, and once completed, the Gas limit will be further increased.Here, the keys to improvements are (i) execution, including virtual machines and precompilation; (ii) state read/write; and (iii) data bandwidth.There are known inefficiency problems in all three aspects and can be further solved.

3. Add functionality to EVM to speed up specific forms of computing.One of my favorite features is combining EVM-MAX and SIMD, which will provide EVM with numpy-like extensions to make it faster when it comes to a lot of encryption processing.This will make cryptography-dependent applications less costly, benefiting privacy protocols, while also allowing L2 to be submitted more frequently to the chain, reducing deposit/extraction time.

Dankrad Feist:Expanding the execution scale of L1 is one of the goals, which is parallel to establishing a Rollup.The two do not conflict.

1. Data availability can be nearly infinitely scaled – the ultimate limitation is people’s interest in Ethereum (i.e. how many people are running full nodes seriously and how many are willing to record all the data).

2. Execution is always subject to some limitations, and the ultimate limitation is a single thread limit; currently, state access is a direct limitation for extending L1 execution.

With zkEVM and parallelization, I still think we will see the L1 execution capability expanding to 10-1000 times the current one.Rollup will help reach “world-class scale”.The good news is that all this work is being carried out in parallel in a more decentralized way by many teams, thanks to the Rollup-centric roadmap.

Q: Max resnicks accused that the parasitic relationship between L2 and L1 is becoming increasingly close. What does the Ethereum Foundation think about this?Why is L2 not decentralized faster?

Justin Drake:I think his point is wrong.I’ve discussed this with him privately.The core premise he emphasized many times is that L2 is unwilling to decentralize because they lose the sorter fee.He also shared this view on Twitter.On podcasts and Twitter, he specifically mentioned Coinbase, which earns $200 million in annual revenue through Base.Contrary to intuition, L2 is incentivized to decentralize the sorting to maximize expenses – the opposite of what Max says.

The term “sorter fee” is inappropriate and misleading.100% of Base’s revenue comes from execution congestion fees.Base fees are determined by the Gas mechanism in EIP-1559, which mimics L1 (see documentation here).The biggest difference is that the fees for Base are sent to the Coinbase wallet, rather than being destroyed like L1.

Coinbase makes so much money because the Gas demand on Base is greater than the Gas target value.This is a virtual machine throughput problem, and congestion charges are basically irrelevant to sorting.If Base uses a decentralized sorter, then Coinbase can still earn this fee.For example, if Base uses the L1 validator to sort and becomes a “based rollup”, then Coinbase will still charge an execution congestion fee.Congestion fees come from the Base virtual machine Gas target.The sorter just informs the user of L2 congestion fees and plays a superficial role.Value creation originates from the mismatch between supply and demand of the basic virtual machine Gas target and block space.(Supplement: Base’s transaction sorting is a priority for auction, first come first served, which means that the CEX-DEX arbitrage MEV will be included in Coinbase as a sorter fee. A better DEX design does not give the MEV to the sorter, but ratherFeed back to LP.)

In my opinion, the only effective usage of the term “sorter fee” is in the MEV.In MEV, value capture comes specifically from sorting, that is, the strategic positioning of pre-run and post-run transactions.Base sorting is first come first served, and the user encrypts transactions end-to-end via private mempool and sends them to the Base sorter.Coinbase does not capture MEV, and there is no sorter fee!I don’t know which L2 captures MEV now.Base capture MEVs will be at the expense of its users, for example, Swapper will be sandwiched in the middle, or DEX LP will be more affected by adverse traffic, ultimately causing swapper prices to fall.L2 naturally does not want to reduce the quality of the user’s execution, so L2 does not extract MEVs.

Furthermore, it turns out that the sorter fee is not conducive to the quality of execution within L2, but also to the composability across L2.In fact, to extract MEVs, some kind of proprietary sorting infrastructure is required, and the shared sorter is excluded from the two proprietary sorters.Without a shared sorter, the gold standard known as “synchronous composability” is lost.See “Why is synchronization valuable?”The weakening of composability reduces the chances of cross-L2 transactions (for example, transactions from DEX aggregators like 1inch) and ultimately reduces congestion fees.To maximize expenses, L2 should maximize congestion expenses, which means maximizing composability.

To maximize composability, we need to share sorting.As a community, how do we coordinate on a typical shared sorter across Ethereum?Two competing L2s (such as Arbitrum and Base) can only agree to choose a trusted, neutral shared sorter.In my opinion, only decentralized and permissionless sorters can achieve sufficient trust neutrality.Some of you may know that I have a stronger argument: In my opinion, the only trusted all-Ethereum sorter is Ethereum itself, which will not introduce new brands, new tokens, or newSecurity assumptions.

As for why L2 is not decentralized faster?In fact, decentralization of sorters is difficult and takes time.L2 currently uses a centralized sorter for three main reasons:

1. Security: Even if there is a fraud proof or SNARK vulnerability on the mainnet, a centralized sorter prevents attackers from exploiting these vulnerabilities without authorization.Decentralizing the sorter means having multiple validation, formal verification, or some other security mechanism (such as TEE).

2. MEV: The centralized sorter provides a fast encrypted Mempool to prevent MEV extraction.Decentralizing the sorter means having other complex encrypted mempools, such as SUAVE or some other suitable MEV channel.

3. Pre-configured: Centralized sorter provides a fast user experience.Decentralizing the sorter means reaching a low-latency consensus, or using a crypto-economic pre-confirmation that is being actively developed.

About the accumulation of value of ETH

Q: What is the logic of ETH’s value accumulation in 2024?

Dankrad Feist:Ethereum is building a financial platform that will be the most neutral platform to date, allowing the issuance and trading of financial assets and also allowing the creation of new financial products, such as derivatives, on its basis.

This is a very valuable activity.I think ETH needs to obtain value accumulation from it depends on some kind of fee mechanism.In the upgrade roadmap, I think Ethereum L1 will be the intersection between all these subdomains, and many valuable activities will continue to be on them, which will also incur considerable expenses.(To achieve this, L1 must be expanded appropriately)

If this is not the best value accumulation mechanism, there are some interesting alternatives, but I personally am skeptical of these options.However, they are not impossible.For example, data availability fees are used as the main asset trading medium in the ecosystem and finally used as collateral (the risk is the greatest) to achieve value accumulation.

Justin Drake:ETH is Money 🙂

Anders Elowsson:When Ethereum promotes sustainable economic activity, ETH generates value.

The so-called “sustainable” means activities that can bring utility to participating economic entities and ensure that these activities can continue for a long time.In this case, native ETH will generate value because ETH is a trusted asset in the Ethereum system and is therefore suitable for holding and using as a currency.In addition, payments for settlement on Ethereum/guaranteed economic activities are in units of ETH and destroyed, effectively allocating value to all ETH holders.

Q: Does the Ethereum Foundation believe that the continued appreciation of ETH is important?Why?

Dankrad Feist:The Ethereum Foundation does not comment on this, but as researchers, we all have our own opinions.Personally, the best way to do this is to focus on building an ecosystem that creates value on Ethereum, and I think value capture will eventually come naturally.This doesn’t mean I haven’t considered this, but focusing on value capture when the value creation part is not yet completed is a big mistake.

Justin Drake:I personally believe that the accumulation of value of ETH is crucial to the success of Ethereum.I think that if Ethereum did not actually become the programmable currency of the Internet, ETH would not be the settlement layer of the value Internet.The currency premium only accumulates to the scale of a special asset (think hundreds of trillions of dollars).This currency premium requires guarantees for trillions of dollars in decentralized stablecoins (“economic bandwidth”), and also provides unquestionable security, even without the influence of nation-states (“economic security”), and also provides unquestionable security.To attract the attention of all major economic players (“Economic significance”)

Anders Elowsson:I think a considerable number of researchers believe that the accumulation of value of ETH is important.An obvious reason is that Ethereum is guaranteed by staked ETH, so the accumulation of ETH’s value can ensure the economic security of Ethereum.Second, ideally, the currency should maintain its value for a long time, and ETH is the best currency for Ethereum.In a decentralized economy, it is valuable to have reliable and trustless currencies, so the accumulation of value of ETH will make Ethereum a better platform.In addition, a large part of the future investment in the Ethereum ecosystem may be held in ETH.This also includes the Ethereum Foundation’s (not particularly large) vault.Finally, the accumulation of value of ETH is closely related to the success of Ethereum.

Q: If the final result is a diversified Rollup ecosystem on Ethereum L1, there are a large number of dapps on L2, and the transaction fee is less than 1 cent, but the value accumulation of ETH is almost very small or none, then EF will think thisIs it the successful implementation of the Ethereum roadmap?

Dankrad Feist:When I started a startup, I certainly wanted to make money, but if it worked for my clients and I ended up empty-handed, I would still think it was successful.

Turning this to Ethereum, I do think that if we had a diverse ecosystem that provides interesting applications for the world, I would think it was a success, but if this ecosystem could make ETH more interestingValue, that’s even more perfect.

I know a lot of people think that a Rollup-centric roadmap will take fee income and MEV from Ethereum, and Rollup may eventually parasitize Ethereum.I don’t think this is true.In my opinion, the highest value transactions will continue to happen on Ethereum L1, and Rollup will expand the cake by providing plenty of room for users to trade on Ethereum.This relationship is symbiotic: L1 provides low-cost data availability for Rollups (I think it should be low-cost, Ethereum security should be affordable for everyone), and in return, they make EthereumFang L1 becomes a natural intersection of all financial activities and allows for truly valuable transactions.

Justin Drake:I personally think that the accumulation of value of ETH can be attributed to traffic and currency premium.For traffic, the important metric is total fees, not the fees per transaction.As stated in this lecture, Ethereum’s end goal is to achieve processing 10 million transactions per second, providing billions of dollars in revenue per day even if the fee per transaction is less than 1 cent.For currency premium, an important indicator is the ETH percentage used as collateral currency, such as for underwriting defaults.

Anders Elowsson:In the long run, there is a direct link between Ethereum promoting sustainable economic activity and the accumulation of value of ETH.If you design for sustainable economic activity, you are designing for the value accumulation of ETH.If you want to accumulate value for ETH, you must specifically ensure that Ethereum promotes sustainable economic activity.

Focusing on “value accumulation” in the short term without considering methods and reasons may be disadvantageous in the long run.To some extent, while this is a sensitive topic and people may swear at me for my advice, I think the current roadmap is a roadmap that can accumulate value for ETH.

In any case, I personally think it is very surprising and maybe a bit disappointing to succeed with no ETH value accumulation, but I also think it is a reason to buy ETH, as I expect the market will eventually accept itThis view.

About the Ethereum Foundation

Q: What is the funding status of the Ethereum Foundation?How long can it last?What are the plans to deal with it when funds run out?

Justin Drake:Financial reports should be released soon.The Ethereum Foundation spends about $100 million a year (see this tweet from Aya).At current prices, the Ethereum Foundation’s main Ethereum wallet has approximately $650 million in assets.The Ethereum Foundation will have enough fiat currency buffer funds to cover several years of operating expenses.Roughly estimated, the Ethereum Foundation will have a 10-year buffer period.This period varies with the price of ETH.

Vitalik:The current rough budget strategy is to spend 15% of the remaining funds each year.That is, the Ethereum Foundation will always exist, but over time it will have less and less funding (as part of the ecosystem).

Q: Is the Ethereum Foundation research team equivalent to a “core developer”?

Vitalik:There are many core developers outside the Ethereum Foundation.The most notable examples are individual Ethereum client team members (such as Nethermind, Besu, Nimbus…) In addition, there are many independent researchers and contributors to specific topics (for example, some Optimism and Base personnel make 4844 deploymentsA great contribution).

Q: Is Ethereum development currently overmanagement and undermanagement, or is it just right?If there is insufficient manpower, which areas need manpower the most?

Vitalik:In my opinion, the entire P2P network is not only inadequate, but also inadequate in discussion.

Justin Drake:I think there is insufficient manpower!If you are interested in helping with Ethereum research, please feel free to contact me via a private message.

Other technical issues such as Blob, Rollup, DeFi, etc.

Q: If the Blob fails to reach the target average (3), should the target be lowered to ensure cost price discovery?

Dankrad Feist:Ethereum is currently creating a new Rollup market, the data availability market.Many alternative solutions want to steal Ethereum’s market share, including Celestia, Eigenlayer, Avail, etc.They can’t compete on security, so they want to compete on price.Do we really want to artificially raise prices and let one of our biggest assets (secure rollups) leave our chain?

Based on the price of 3 blobs per block, Ethereum’s protocol revenue will never be able to break through.I think we should try to scale it as much as possible in the coming years.Then consider the issue of obtaining fees from it.

In any case, I don’t think that getting fees from blobs is the best value acquisition mechanism for Ethereum.The data availability market is too fickle – while Ethereum provides the best security, it is not difficult to get “close enough” performance, so it will never be a good way to get value.Ethereum L1, as a natural financial intersection in the ecosystem, will have the highest value transactions. I think this provides Ethereum with the best value accumulation mechanism.

Justin Drake:Blobs won’t fail to achieve their goals, we just need to be patient.Another factor worth considering is that Rollup projects (such as Base, Scroll, Taiko) have recently found ways to better utilize Blobs.These Rollup optimizations extend the time to discover blob prices.

Davide Crapis:It shouldn’t be.This mechanism is priced for congestion, so if there is no congestion, it is also possible to keep the price low.However, current demand is well below the target value, which affects price discovery in congestion situations.Therefore, price discovery is very important and we should improve the efficiency of the mechanism, and in the short term, it will help to increase the minimum charge (but still low!) or change the update speed.

Q: Is there any incentive for Rollup not to decentralize its sorter to preserve the sorting fee?

Vitalik:Actually, I don’t think Rollup decentralizes the sorter as a priority.In my opinion, the fee charge and sorter decentralization are orthogonal.If the sorter is centralized, Rollup passes sorting and then charges +MEV (but puts the effort into figuring out how to get the MEV).If the sorter is decentralized, Rollup can gain benefits from the auction sorter position, and in an equilibrium state, the benefits equal to fee + MEV minus the cost of finding a way to get the MEV.These two situations seem to be symmetrical.

I think the main asymmetry may be social.While the sorter is centralized, it is easier to charge a fee + MEV instead of assigning it to token holders (or whatever allocation method is publicly agreed with the community).And decentralization requires “doing the right thing” economically.I hope L2 won’t continue to be centralized because of this, and I hope that the community (including organizations like L2beat) will take this into account and take this into consideration.

Q: What does the Ethereum Foundation think about DeFi?Do you think DeFi is the most valuable use case on Ethereum at present?

Dankrad Feist:Personally, I like DeFi, but looking at it alone, it doesn’t solve all the problems with Ethereum.

Financial markets themselves cannot create value.But DeFi does allow society to create more value through different functions, such as providing liquidity, insurance, etc.It’s all amazing.For example, one of the valuable things DeFi does on Ethereum is to provide us with decentralized stablecoins.While stablecoins are clearly heavily restricted in scalability, people are now more willing to use custodial alternatives.But I still think they are cool, especially for those who really need decentralized and censored alternatives, having decentralized stablecoins is a good thing, but they can’t scale to a billion users.

In addition, I think what DeFi lacks the most at the moment is a set of “value” assets.In fact, I do believe that with the ready-to-go DeFi system, Ethereum can become the center of future financial activities, but before that, there are still many things to be built.

Q: If Bitcoin implements OP_Cat and develops a powerful L2 ecosystem, what other unique value can Ethereum provide?

Vitalik:Compared to Bitcoin, Ethereum has a larger Rollup DA space, and L2 has more options for security (Bitcoin only has 4 MB/600s = 6667 bytes per second, which is assuming that all on-chain data are usedDA case); compared with PoW, PoS has proven its decentralized capability, providing more options for 51% recovery; Ethereum has an efficient social layer, such as censorship panic, client-centralized panic, the panic of the centralized market share of the pledge pool and many other things have been solved through coordinated actions across the ecosystem; communities, culture, values, etc.

Q: Why does Minimal Viable Issuance die?Given the sluggish demand for blocks and blobs, shouldn’t the Ethereum Foundation push MVI (and MEV destruction) to make ETH ultrasound again?

Anders Elowsson:I would say that the MVI still exists and is doing well.The current low fee destruction has put the issuance in focus, which clearly shows that under the current issuance system, we do incur high costs that can be reduced, thus making Ethereum better.However, MVI itself is very valuable and is not a tool specifically used to make Ethereum’s “ultrasound”.

MVI achieves two key points, including reducing issuances that reduce costs (hardware, risk and opportunity costs, liquidity losses, taxes, etc.), thereby improving overall benefits (see also this blog post).In addition, if everyone is staking, some LSTs may become “too big to fail” and the social class may strive to maintain the expected consensus process.The surge in LST will also hinder ETH’s status as a trustless currency, making Ethereum lose its attractiveness to development due to future monopoly pressure risks.

For these reasons, MVI is desirable in the case of 2% deflation and 2% inflation.

Q: Should ETH be a long-term net deflation?Prior to EIP 4844, users paid high fees, while ETH was deflated.After EIP 4844, users paid very low fees, while ETH was in inflation.How can we achieve ETH deflation and low fees at the same time?

Anders Elowsson:Both requirements can be achieved through scale-up, which facilitates sustainable economic activity.To scale up, millions of users need to pay cheap transaction fees, and Ethereum ensures transactions are secure.This is a sustainable way to increase the total cost.Barnabé’s answer three years ago gave a pretty incisive explanation from the user’s perspective.

Speaking of the situation around EIP 4844, I would like to add that this cannot be simply attributed to the change itself.L2 was developed on Ethereum and paid high fees to “settle” on Ethereum because Ethereum has plans to reduce fees.Without this plan, these L2s might never have been developed.Similarly, if the execution plan is not started, these L2s may end up leaving and heading to other places as well.Gas prices at a certain point in time reflect everything before and everything in the future.This suggests that abandoning expansion will not necessarily lead to net deflation on Ethereum in the long run, as transaction demand is driven in part by future expansion commitments.

Another issue worth mentioning is that permanent net deflation requires more than just a reduction in issuance or an increase in destruction fees.Under the reward curve that adapts to the amount of the pledge rather than the pledge ratio, long-term pledge equilibrium will eventually be affected by the equilibrium of circulation supply, because the circulating supply will change to balance supply, demand and agreement revenue.To achieve permanent deflation, it is necessary to change the issuance policy by changing the reward curve and normalize the circulation supply during exchange. Once the circulation supply begins to be tracked at the consensus level, permanent deflation can be achieved.