Sep 26, 2023

This September marks one year since Ethereum transitioned from a proof-of-work (PoW) consensus mechanism to proof-of-stake (PoS).

Video transcript

Just in case you can't keep track of time. It's been one year since Ethereum transitioned to proof of stake, firm proof of work to enable a more secure and energy efficient way to validate transactions and add new blocks to the Blockchain. So how has Ethereum progressed since the transition? Joining us now to discuss for coin desks staking week presented by Foundry is Hudson Jason who is Polygon Lab's Vice President of Governance and welcome to the show. Hudson. All right, we are talking all about staking this week. You run a validator at home. Why do you do that? What are the benefits? Uh So the benefits of staking at home? Uh There's actually multiple. Number one, you don't have to pay the fees that you would normally pay to people like coin uh coin base or other institutional. Uh you know, people who allow you to deposit your e to stay. So you get more ether. Um I think it's really fun. It really teaches you a lot about uh the Blockchain and about the economics and the decentralization aspects that are supporting Ethereum. And then lastly, uh it's something that protects the network because what we're trying to do here is have as many staker decentralized as possible. So, if everyone were to go to one provider, then that would actually hurt decentralization. What are the costs to running your own validator at home? I I'm sure there are some hefty setup costs here. Uh What are, what are the, some of the uh not so great things. So actually that is something that a lot of people think uh about the hefty setup cost. It's actually cost me about $700 to start, which you would only like make up in a matter of about maybe three months, I think. So the uh set up costs are actually cheap on the hardware side. There is a learning curve on the non hardware side. Um But it's not that bad. They actually make uh machines and software to make it super easy to just point and click and deposit your ether and then pick what client you want to run. So you don't even have to be like a huge techie person. Uh One of those companies is DAP node. That's what I'm running. I used to run all my own, you know, software versions and get them to hook up with each other. But instead I'm just running DAP node now and it's incredibly easy. So uh we have the uh sec chairman who uh seems to be coming down hard on staking uh at least staking as a service for some companies any concerns that, uh, you're doing this at home, uh, that eventually that they might start looking at this and say, gee, you know what this looks like you're kind of involved in some sort of money making operation that we should be involved with as well. Any, any concerns that, uh the sec might start clamping down on staking as a, on just home staking rather than just staking as a service. Uh, you know, as far as the US perspective and the U uh policies around this, if I'm personally not like overly worried about that kind of thing. Um I think that there's a lot more bigger fish to fry. And I also think that staking is the kind of a thing where going after the institutional stakeholders, they probably believe would have like a chilling effect for people who want to run it at home. Uh It would also be very, very difficult to enforce, which obviously hasn't stopped them in the past, but is something that would need to be taken into consideration. So, yeah, I haven't seen that many people overly concerned with that. So some new data says that Ethereum has almost 800,000 active validators heading towards that 1 million, I think. Uh II I think uh is frozen. Well, here, here's what we'll do. Um Yeah, I, I'll just get to, um, to Jen Jen. Are you there? I guess she's not. Ok. All right. So, um, you know, we have a 20%. Uh So according to uh a data tracker staking rewards, 20% of all Ether and Circ right now has been stake uh according to a paper written by Tim Biko and Dap Lion. If that pace continues, the amount will be at 100% by December 2024. So you're away if the developers are working on slowing staking down by capping the number of new validators, the change will take place uh with the next major eth upgrade uh later this year. Can you unpack that for us? Sure. So yeah, what they're referring to is a specific E IP which stands for Ethereum improvement proposal. Every, you know, major change to the network has to go through this specification process, very technical, very formal and uh with that, what they identified is that yeah, if, if more people keep depositing ether and the economics uh of it, keep meaning that it's going to be profitable compared to other things they can do in the ecosystem like D I like uh you know, just like trading and things like that, then uh it's going to be, yeah, very not good for the network to have that much of the ether in uh validators even. And also kind of like can potentially uh result in certain validators that have um certain bonus qualities to them like rocket pool and lido and eventually Eigen layer uh to uh have too much stake and that can cause you know, certain economic and technical effects that we really don't want to happen. So Matt Nelson, he's at consensus. He's a product manager. Uh there, he, he said to Bloomberg that developers might look to at adjusting validator rewards to discourage taking past a certain point. Uh What does this mean for people like you and, and, and people staking at home and, and just people staking in general? Uh What does it mean for them? Is it, is it gonna be too late for them to uh to get any benefits out of staking or, or you, you seem to think there's a bright future ahead. Oh yeah, there's an incredibly bright future. Um Number one, if they were to adjust the economics on staking, I do think that that would uh potentially, you know, cause less people to join uh you know, staking at first. But uh there's something called um uh like li li liquidity tokens that you could have on top of your staker. So let's say I put 32 Ethan and then I wanna put some bonus software on there that gives me these, these other virtual coins to have security on different networks. So these uh liquidity derivative tokens, they uh are the kind of things that are going to be really popular in the future. I mentioned Eigen layer, there's other ones as well. Uh And with that, that's to provide just enough incentive for people to keep depositing because even if you're not getting like right now, I think you would get 11% return a year for staking. Um looking at the numbers I have. Yeah, my, my staker that I've had since the beginning, it's 11.38%. But uh in the future, if that lessens uh then yeah, these uh derivative tokens are going to be really huge. And even if the main chains uh low then yeah, that's gonna still affect people coming on along those lines. You know, you're, you're a polygon, it's a layer two, you've had uh you have a whole bunch of other layer twos come onto the market recently at base. Uh You, you mentioned not wanting to give money to coin base. Well, uh yeah, base went to market. What does this mean overall for the Ethereum community real quick? Sure. Uh layer twos are incredibly important for the scaling plan we've had in place for years. Um A lot of them are seem seemingly competing right now, but also going towards the same direction towards the same goal and there's a lot of synergy there. So things in the future are gonna be interoperable and I think that's going to be great for users because that's going to make things cheaper and uh potentially even more profitable for staking on these L twos. Well, thank you very much Hudson that, that very much uh looking forward to seeing what happens with staking that was polygon Labs, Vice President of Governance and Community Hudson Jamison, and check out more staking week stories on coindesk dot com this week.

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