Bankless

ROLLUP: Base Kicks-Off Onchain Summer

Fri Aug 11 2023

Crypto marketEthereum scalingStablecoinsLayer 2 solutionsDecentralizationNetwork securityWallet innovationsRegulatory developmentsCrypto market outlook

Description

The episode covers various topics including the crypto market, Ethereum scaling, stablecoins, layer 2 solutions, decentralization efforts, network security, wallet innovations, regulatory developments, and the future outlook of the crypto market. Key insights include the potential impact of PayPal's stablecoin launch, the growth of layer twos in Ethereum's ecosystem, and ongoing debates about data availability and naming conventions for rollups. The episode also highlights the importance of vigilance against scammers and the bullish sentiment towards layer twos and public goods funding.

Insights

PayPal's stablecoin launch

PayPal's entry into the stablecoin business is expected to have significant implications for the adoption of cryptocurrencies and the normalization of crypto in the fintech mainstream.

Layer twos and Ethereum scaling

Layer twos have played a crucial role in increasing Ethereum's data throughput and scalability, with potential scaling factors estimated to be between 24 and 30 times compared to 2015.

Decentralization efforts and future use cases

Efforts towards decentralization, such as Base on layer 2B and Arbitrum Bold, are paving the way for permissionless validation and governance-free protocols, enabling new use cases and applications.

Wallet innovations and user experience

The future of crypto relies on easy-to-use wallet UX for mass adoption, with projects like Turnkey, Zora, and Toku introducing innovative features to enhance usability and compliance.

Regulatory developments and industry challenges

Regulatory scrutiny, insolvency rumors, and executive arrests continue to pose challenges for the crypto industry, highlighting the need for self-regulation and vigilance against scammers.

Ethereum's role as reserve currency

Ether has the potential to become the reserve currency for multiple networks, while layer twos act as value-added resellers of layer one block space, driving economic activity within these networks.

Crypto market outlook

As the crypto market enters a new phase, it is important to be aware of potential scams and grifters, while also recognizing the value of layer twos and public goods funding in accelerating innovation and adoption.

Chapters

Crypto Market and Innovations
Ethereum Scaling and Inflation
Crypto Market Trends and Developments
PayPal's Stablecoin and Ethereum Layer 2
Ethereum Layer 2 Solutions and Coinbase's Role
Decentralization Efforts and Future Use Cases
Enhancing Network Security and Fraud Prevention
Crypto Exchange News and Wallet Innovations
Layer 1 and Layer 2 Integration and Future Possibilities
Crypto Exchange News and Regulatory Developments
Wallet Innovations and Future Possibilities
Ethereum's Role as Reserve Currency and Layer 2 Debate
Crypto Market Outlook and Conclusion

Summary

Transcript

Crypto Market and Innovations

00:00 - 06:30

The bull market in 2024 and 2025 is expected to be driven by Coin base's focus on a base layer 2
PayPal's launch of a stablecoin on Ethereum is significant news
Coinbase has already locked $105 million in total value for their base launch
Arbitrum is becoming more decentralized with a new proposal
Polygon and ZK Sync are engaging in Twitter battles
Recent breakthroughs in wallet user experience have improved usability
The SEC continues to take action in the crypto space
Rumors suggest that Joe Biden may be a Bitcoiner
Despite positive news and innovations, the price of Bitcoin has remained relatively flat
Total value locked on Layer two's is $10.57 billion, with a scaling factor of 4.8x compared to Ethereum layer one

Ethereum Scaling and Inflation

06:05 - 12:48

The throughput of Ethereum has increased 6 times from 2015 to 2023 due to layer one client optimizations, networking improvements, and hardware advancements.
Layer 2 solutions have further increased the data throughput by 4.5 times on top of the layer one improvements.
The total scaling factor for Ethereum is estimated to be between 24 and 30 times compared to 2015.
Inflation in the US rose by 3.2% year over year in July, which is a small increase from June's inflation rate of 3%.
This slight increase in inflation is seen as a positive sign that inflation is moderating.
The Federal Reserve aims for an inflation rate around 2%, and during the peak of COVID, it reached around 9% before decreasing again.
Increasing political debates are expected regarding inflation as the US approaches the presidential election in 2024.
There is ongoing debate about whether money printing causes inflation, especially considering the $1.8 trillion budget deficit and tightening measures by the Federal Reserve.
Asset inflation continues to rise despite uncertainties surrounding general inflation rates.
Home Depot's stock price surpasses Ethereum's market cap, highlighting its significant value in comparison to other assets like Nestle and Bank of America.
The current market cycle is considered favorable as it appears rational with builders focusing on fundamentals rather than hype or irrational behavior.

Crypto Market Trends and Developments

12:26 - 19:11

The favorite part of the market cycle is just before things get stupid.
We are in a Goldilocks zone in the crypto era where only those who are here for the long haul remain.
In the bear market, alpha is easy to find because there are fewer people left.
There was a period between the bear market and the bull market where ETH broke $300 and people were leaving their jobs to start ventures.
The die savings rate is now live, paying out 8% at no additional risk.
Chai is the die savings rate version of die.
The yield comes from demand for die and not many people currently use DSR.
WorldCoin has spent $500k on Ethereum block space in the last 40 days, indicating companies hoarding ETH as access to block space.

PayPal's Stablecoin and Ethereum Layer 2

23:58 - 30:45

PayPal is launching a stablecoin on Ethereum called PYUSD, backed by short-term US treasuries and similar cash equivalents
PayPal has a significant user base with 450 million active user accounts
The stablecoin market is not saturated, as indicated by PayPal's entry into the game
PayPal's stablecoin has a $27 million market cap and 12 total holders
The stablecoin contract allows owners to pause transfers, freeze addresses, and increase total supply at will
These centralization vectors are expected for centralized stablecoins and are necessary for compliance
PayPal's stablecoin provides a more direct bridge to Ethereum and enables easier access to decentralized stablecoins
This is a step towards banklessness and increases adoption of cryptocurrencies
PayPal's entry into the stablecoin business normalizes crypto in the fintech mainstream
Every time PayPal pays gas fees on Ethereum, it makes Ethereum more secure

Ethereum Layer 2 Solutions and Coinbase's Role

30:26 - 37:10

Stablecoin transfers are the second most gas intensive activity on Ethereum, after swapping.
PayPal's stablecoin contract will also burn Ether, which can be turned into revenue.
PayPal could create its own layer two solution for stablecoin transfers and collect sequencer fees.
Circle and Coinbase are partnering to make Circle USD transfers on base free and turn base into a payments network.
The addition of PayPal's stablecoin doesn't eliminate decentralized options like Ether and Dai.
The US government may want stablecoins to work as a way to export the supremacy of the US dollar.
Some politicians, like Maxine Waters, express concern about PayPal creating a stablecoin without federal approval.
Banking regulators have stated that banks can only issue stablecoins on private blockchains, putting pressure on Congress to pass a stablecoin bill quickly.
Base layer two is now live with over a hundred applications and service providers ready to go inside the system.
There is an NFT limit on base, and over $3.6 million in transactions has already occurred on Uniswap V3 on base.
$155 million of the $10.5 billion TVL on layer twos belongs to base in the last 24 hours.
Coinbase is promoting Ethereum's roadmap through mainstream marketing at events like Friends with Benefits Festival in California.

Decentralization Efforts and Future Use Cases

36:54 - 43:34

Base on layer 2B is already decentralized and ranked number five.
Base needs three more slices of the decentralization pie to turn green from red.
The first step for Base is launching a roll-up.
Base is governed by the optimism collective and is part of the super chain.
Coinbase, a centralized company, is showing Fortune 500 companies how to become on-chain.
Jesse and Brian discuss their collaboration with the OP collective and the value of decentralization.
Permissionless panel will unpack the relationship between Coinbase and the OP Collective.
Vitalik will speak remotely at Permissionless about Ethereum's future use cases.
Arbitrum Bold improves decentralization by enabling permissionless validation for all Arbitrum chains.

Enhancing Network Security and Fraud Prevention

43:12 - 49:32

Bold is a protocol that enhances network security in the Arbatrum infrastructure.
It follows an N over one security model, where only one honest person is needed to maintain the network's honesty.
Bold allows a single honest validator to win disputes against multiple evil validators.
Arbitrum will have the most green slices out of all layer 2s once bold gets merged into mainnet.
Before bold, fraud proofs required defeating malicious opponents individually, but now it's a collective fight with God mode powers.
Hobi, Curve hacker, and Ripple's ruling precedent in the Terraform Labs case are upcoming topics.

Crypto Exchange News and Wallet Innovations

49:10 - 55:51

Curve finance experienced a bug exploit, but some of the stolen funds were returned by the exploiter.
Michael, the founder of Curve, sold CRV tokens to generate $42 million and pay back some loans.
A bug bounty of $1.85 million is offered to anyone who can identify the exploiter.
The trauma in Curve seems to be over as Michael's positions become more secure.
Governance of lending protocols like Aave has been criticized for not being able to determine appropriate risk parameters.
Governance-free protocols are seen as a core component of decentralized finance.
Governance should be minimized as much as possible in order to avoid potential risks and vulnerabilities.
Phantom is exploring adding optimistic roll-ups to connect with Ethereum, aligning with the trend of layer ones becoming layer twos.

Layer 1 and Layer 2 Integration and Future Possibilities

55:23 - 1:01:43

"Eath Classic" would be hilarious.
"Tesos" will never do it.
You think so?
Yeah, probably not.
Near "Mite," "Tron," probably not.
Anyways, we have "Sello" and "Phantom."
So we have one, two, three, four, five, five, five, five, 25.
I actually think "Tron" might, David.
I think so? I could totally see Justin's on doing that.
Yeah, actually that's a good point.
Okay, so we've got 25 squares with 25 layer ones.
Two of them are turned green because of "Sello" and "Phantom."
"Phantom" actually has to do it at one and a half.
But this has been a bankless thesis for so long.
And I'm just, I just sit back and be like sometimes theses just play out exactly how you expect.
Oh is David Hoffman victory laughing?
I am victory laughing so hard. (laughing)
Well I do think this is a narrative to watch right?
Which side chain EVM side chain is going to become a roll up next?
And that's what this is kind of articulating. This is a tweet from Sam CZ-Sun who's kind of the savior of crypto a white hat. White hat of white hat that finds our issues before they happen in most cases. Over the past few days I've been working with a group of white hats auditors and other security leaders to try and solve the hardest part of responsible disclosure finding the right person to talk to. And he's got an image of the bat signal here.
What's the take for this? Why are we including this in the agenda.
So this is a telegram bot is basically what's going on. So there's a telegram bot that anyone can use during emergencies to get in touch with trusted members of the security white hat community. So trusted white hat hackers and their extensive network of contacts. It's basically 911 for defi...
I'm not talking about articles. (laughing)
I actually think I'm so proud of Sam. Obviously he doesn't need to be anyone anymore proud.
Just like 911 is.
Yes. Except it shows, it is an example of self regulation and self management of this own industry

Crypto Exchange News and Regulatory Developments

1:01:20 - 1:08:05

Rumors of insolvency and executive arrests surround the cryptocurrency exchange Huobi.
The head of the SEC, Gary Gensler, is shifting his focus from crypto to AI.
Gensler's move to AI is seen by some as trend-following and lacking foundation.
An FTX lobbyist attempted to buy an island to create a genetically modified human species.
Gold Finch Wallet's demo showcases an easy-to-use wallet with biometric signing and gasless transactions.

Wallet Innovations and Future Possibilities

1:07:35 - 1:14:39

The future of crypto requires easy-to-use wallet UX for a billion users
Turnkey is now available for people to use, allowing creation without limits
Zora introduces protocol rewards for creators and developers through Mint fee
Bankless Ventures invests in Puffer Finance, an LSD protocol with trusted execution environments
No significant raises this week except for Puffer Finance's $5.5 million seed round
Polygon Labs unveils Polygon 2.0 with ZK-powered innovations for scalability and liquidity
Toku simplifies token compliance for companies like Protocol Labs and Gitcoin
Implementation of lower-cost L2s may not significantly impact the demand for Ether
Layer twos induce new economic activity and ETH becomes money within these networks

Ethereum's Role as Reserve Currency and Layer 2 Debate

1:14:23 - 1:20:58

Ether can be the reserve currency for multiple networks in the future.
Layer twos are value-added resellers of layer one block space.
The ETF integration into the financial system will have significant benefits, such as tax-free ownership, mortgage recognition, borrowing against shares, lending out shares, and increased credit within the system.
The ETF is crucial for getting Bitcoin into traditional finance (tradfi) and creating reservation demand for Bitcoin.
According to Dankrad, if a rollup doesn't use Ethereum for data availability, it cannot be considered an Ethereum rollup.
There is ongoing debate about the definition of layer twos and rollups in terms of consensus on Ethereum and data availability on Ethereum.
EIP-4844 allows layer twos to use Ethereum block space but still requires them to use Ethereum for data availability.
Until there is clarity on naming conventions, it's important to differentiate between Ethereum roll-ups and other types of roll-ups like validityums.
Scammers continue to be a threat to the industry, and vigilance is necessary to avoid repeating past mistakes.

Crypto Market Outlook and Conclusion

1:20:34 - 1:27:17

2024 to 2025 chapter of Scammers is about to begin
SEC and mainstream media aren't going to help us, it's up to us
Bull markets attract grifters, we should be aware and learn from past experiences
Bullish on the OP stack and the vision of connecting transaction ordering to public goods
Coinbase launching a layer two using the OP stack, creating the OP collective for funding public goods
Bullish on all layer twos and their crafty approach in accelerating experiments
Ethereum plans to enshrine the best private company projects as public infrastructure
Meme of the week: Crypto companies' pitch deck meme about not being hacked or in jail
Standard risks and disclaimers mentioned, no financial advice given