Shanghai-Capella: ETH Staking Withdrawals with Tim Beiko, Justin Drake, and Anthony Sassano

Ryan, David, Tim Beiko, Justin Drake, and Anthony Sassano unpack everything you need to know about today’s, highly anticipated Shanghai-Capella: ETH Staking Withdrawals. Also, the five cover ETH staking mechanics, withdraw upgrade FUD myths, what’s next for Ethereum, and Justin’s prediction around, staking airdrops?!... ------ BANKLESS SPONSOR TOOLS: ⚖️ ARBITRUM | SCALING ETHEREUM https://bankless.cc/Arbitrum 🐙KRAKEN | MOST-TRUSTED CRYPTO EXCHANGE https://bankless.cc/kraken 🦄UNISWAP | ON-CHAIN MARKETPLACE https://bankless.cc/uniswap 👻 PHANTOM | FRIENDLY MULTICHAIN WALLET https://bankless.cc/phantom-waitlist 🦊METAMASK LEARN | HELPFUL WEB3 RESOURCE https://bankless.cc/MetaMask ------ Topics Covered 0:00 Intro 8:20 Shanghai-Capella Explained 10:09 ETH Staking Mechanics 14:33 Deposit Queue 18:10 Why Shanghai-Capella 21:04 Importance of Shanghai-Capella 24:52 Validators & Finality 28:12 Sassal’s Thoughts on Shanghai-Capella 32:26 Major Derisk Event? 34:30 Demystifying Withdraw Upgrade FUD 42:35 Where Will Ether Accrue? 46:20 Benefits of Competition for ETH Stakers 48:55 Bear Case for ETH Price 55:35 Solo-Staking 1:01:30 Making Solo-Staking Easier 1:04:30 Re-Keying 1:06:00 What is Next for Ethereum? 1:09:48 Anthony Sassano’s Tinkering Setup 1:15:50 Staking Airdrops?! 1:19:00 Closing & Disclaimers ------ Resources: Tim Beiko https://twitter.com/TimBeiko Justin Drake https://twitter.com/drakefjustin Anthony Sassano https://twitter.com/sassal0x ----- Not financial or tax advice. This channel is strictly educational and is not investment advice or a solicitation to buy or sell any assets or to make any financial decisions. This video is not tax advice. Talk to your accountant. Do your own research. Disclosure. From time-to-time I may add links in this newsletter to products I use. I may receive commission if you make a purchase through one of these links. Additionally, the Bankless writers hold crypto assets. See our investment disclosures here: https://www.bankless.com/disclosures

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Speaker 00

  You don't have to pay any fees when you're solo staking. So already that puts you above the rest from a rational standpoint. But the other thing I want to highlight is that my prediction is that there is going to be special airdrops specifically for solo validators.

• 0:22Ryan Sean Adams?

  Bankless Nation, it is a special day. Today, we are hard forking. ETH staking withdrawals is enabled. David, what is going on? Who do we have on?

• 0:31David Hoffman?

  Yeah, the Shanghai, now called Chappella, upgrade coming to Ethereum, coming to a blockchain near you. The long awaited withdrawals hard fork that allows stakers to withdraw Ether. We hard forked into proof of stake a while ago, created the beacon chain, did the merge, but in an abundance of caution, we left out this one ability called withdrawals just to not overcomplicate things. It's really the only reason why we didn't include withdrawals in this original merge was to not to make the merge as least complicated as possible. So fast forward to where we are now. We are now enabling withdrawals. And so this has caused a bunch of conversations around the cryptosphere. Is this bearish? Is the ETH price going to dump?

• 1:16David Hoffman?

  Is actually this bullish? And more people are going to stake as a result of this. What happens to LIDDA? What happens to Rocketpool? What happens to the insane supply of Ether that is in Coinbase? There is a lot of second order consequences as a result of this merge. There are 18 million Ether that is locked up in the beacon chain and that becomes to be unlocked later today. I believe at 9:00 PM, no, 6:00 PM Eastern Time, 6:30 PM. And so this episode's going live a few hours earlier than that. And this is just a conversation with three guests from around the Ethereum ecosystem. We got Anthony Cizano, Ethereum community member and content producer, also solar staker and solo staker tinkerer.

• 2:01David Hoffman?

  He gives his perspectives as what his role is in the Ethereum ecosystem as a result of being a solo staker and what he's doing. And the four different Boxes that he runs to SoloStake. So he's got Anthony. We got Anthony. We also got Justin Drake, and we all know Justin Drake, EF researcher and ether economic thought leader. And then we also got Tim Baker as well, who leads the all core devs calls. So three diverse perspectives to all give their takes about this Shanghai Chappelle upgrade.

• 2:29Ryan Sean Adams?

  Yeah. And if we're talking about upgrades, we're also talking about staking. We're talking about staking reward. And you know what that means, David?

• 2:38David Hoffman?

  Tell me.

• 2:39Ryan Sean Adams?

  It means we're talking about taxes. That's why.

• 2:41David Hoffman?

  Oh, my gosh. Here we go.

• 2:43Ryan Sean Adams?

  You you receive rewards and you get taxed on those rewards. And if you are sweating bullets right now, because it's almost mid April, and you have not filed your taxes, and you're looking at this tangled mess of transactions across a whole bunch of different wallets and blockchains and DeFi and NFT, and you don't know what to do. We got the easy button solution. It's called Crypto Tax Calculator. These are our friends and sponsors. And because you are a Bankless listener, they have reserved 30% off with the coupon code called bank30. And you can get on this and you can allow crypto tax calculators sort out your tax situation. David, I use this tool. I've started using it this year. I've abandoned my previous tax software because this is just so awesome. Oh, my God, what are we looking at right now? Is this?

• 3:30David Hoffman?

  So we had this meme made. And so everyone knows that I'm super resistant to taxes. And so I had this doing taxes. This is why I pay other people to do my taxes for me. But this is why crypto tax calculator is such a great tool. And so I made this meme. I'm not going to explain it for the audio.

• 3:46Ryan Sean Adams?

  I will explain. If you're on the podcast listener, it's a picture of David crying. You may have seen this before. And then David happy with some like whoa, Jack massaging his back. Nice touch there. Meme makers. Anyway.

• 3:58David Hoffman?

  This is the product of crypto tax calculator in a nutshell. Happy David.

• 4:02Ryan Sean Adams?

  All we had to do was show this. I didn't even need to say anything. Anyway, get that discount, guys. It's bank 30. And you could find that at cryptotaxcalculator.io or a link in the show notes.

• 4:12David Hoffman?

  All right, David.

• 4:13Ryan Sean Adams?

  If you are a Bankless Nation citizen, there is a code, a secret code for 40% off 10 more percent inside of the Bankless Nation Discord. You're a trader, that pays for itself in the first month. Easy. Man, okay. Guys, we're gonna get right into the episode. Maybe a few last thoughts here as we get in. So we're going through the what's happening, why is it a big deal, why it's called what it's called, the effect on price, liquid staking, and what's next for Ethereum. So this is a really interesting episode. We hope you stay tuned for it. We'll be right back with Tim and Justin and Anthony. But before we do, we want to thank the sponsors that made this episode possible.

• 4:53David Hoffman?

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• 5:37David Hoffman?

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• 6:21David Hoffman?

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• 7:05David Hoffman?

  the task at hand, giving you actual, practical experience for navigating Web3. The purpose of MetaMask Learn is to teach people the basics of self-custody and wallet security in a safe environment. And while MetaMask Learn always takes the time to define Web3-specific vocabulary, it is still a jargon-free experience for the crypto-curious user. Friendly, not scary. MetaMask Learn is available in 10 languages with more to be added soon, and it's meant to cater to a global Web3 audience. So, are you tired of having to explain crypto concepts to your friends? Go to learn.meta mask.io and add MetaMask Learn to your guides to get onboarded into the world of Web3. Bankless Nation, we are here with Tim Baker, protocol supporter of the Ethereum Foundation.

• 7:46David Hoffman?

  He leads the All Core Devs Call, which is the only true source of hard fork dates. Tim, welcome to the show.

• 7:54David Hoffman?

  Thanks for having me. Also, we've got Justin Drake, another researcher at the Ethereum Foundation, lead of the ultrasound.money website project, and also meme. Justin, welcome back.

• 8:05Speaker 00

  Thanks for having me, too.

• 8:07David Hoffman?

  And last but not least, Anthony Cisano, Ethereum community member, also content producer, solo staker and solo staker tinkerer. We'll get into what that means towards the end of the show. Anthony, welcome back.

• 8:19Ryan Sean Adams?

  Thanks for having me on, guys.

• 8:21David Hoffman?

  So, guys, it is a big day in Ethereum history. I think this will be the last hard fork that is relevant to the proof of stake project. But since, Tim, you are the herder of cats as it relates to what it takes to make a hard fork come to be, I'm wondering if we could start with you and just kind of give us the high level details for people who need to catch up to what Chappella is. From the protocol perspective, what is the Chappella hard fork? And what does it do for Ethereum? And why is it significant?

• 8:52Speaker 03

  Of course, yeah. So, the most obvious thing that Chappella brings is the introductions of withdrawals on the beacon chain. So, I assume anyone listening to Bankers knows this. But today, if you launch a validator on the beacon chain, you're basically depositing your funds into a smart contract, which gets read by the beacon chain, activates your validator there, credits your fund on the beacon chain. You can earn rewards and penalties depending on if you do a good or bad job. But then there's no way to actually get your funds back out on the execution layer to either, you know, sell your ETH, use it in DeFi, anything like that. And since the merge, validators have been able to receive transaction fees.

• 9:36Speaker 03

  So, when they produce a block, the transaction fees they get are not on the beacon chain. You know, this gets sent to any ETH address. So, the main thing we're introducing with Chappella, this upgrade that's activating today, is kind of closing the loop and allowing validators the ability to withdraw their stake. And again, you know, for your listeners, some of those validators have locked their stake since 2020. So, it's been a while. And so, yeah, after this upgrade, they'll be able to withdraw it. There's a couple other small changes that we're introducing as well, but this is really kind of the big one.

• 10:08Ryan Sean Adams?

  So, within hours, as soon as that hard fork happens, Tim, those listening who have staked ETH will be able, for the first time, to withdraw that staked ETH. Is that correct? And is there some sort of queuing mechanism as well? Let's say there's a run on the ETH staking.

• 10:23David Hoffman?

  Run on the protocol.

• 10:25Ryan Sean Adams?

  Yeah. Does that put us into trouble? Like, you know, tell us the mechanics of how this might work.

• 10:31Speaker 03

  Okay, yeah. So, and there's many, many different ways to break this down, so please bear with me. So, there's two types of withdrawals you can think about. There's full and partial withdrawals. And the way that they work is that... Every block, basically validators scan over, uh, the validator who's producing a block scans over the validator set and tries to find the first sixteen validators for whom they can do either a full or a partial withdrawal. And they, they process those, they add them into the block, and then the next validator, you know, picks up where the last one left, left off, scans the chain, tries to find the next sixteen, packs them into a block and so on. Um, so if you're a staker and you don't want to stop staking, um, those partial withdrawals will

• 11:14Speaker 03

  basically happen automatically as long as you set, uh, uh, ETH, uh, ETH, uh, address as a withdrawal credential. And if you've been a validator for a long time, you might not have done this, it'll be possible to change it after the fork. Um, but this is basically what, what happens every block is a validator checks, finds sixteen validators who either are fully exited or have a balance bigger than thirty to ETH, withdraws that back on the execution layer and, and then moves on. Um, if you're a validator and you do not want to be a validator anymore, you need to exit before you can get your full withdrawal process. Um, and just like when we, uh, have new validators join, we kind of want to throttle them so that the validator set can't change too quickly. If there's

• 11:58Speaker 03

  a bunch of validators who want to leave at the same time, we also throttle this process. And the reason for this is, is basically security where, you know, you could imagine if we didn't have this on both sides, somebody could either hack a bunch of ETH, you know, acquire a bunch of ETH, replace the entire validator set or the majority of it, do some bad stuff, exit and kind of not be penalized. Um, so because we want to prevent this, we, we sort of slow down the flow of validators on both ends. Um, and so this means that if you are a validator today and there's a bunch of other validators who want to stop being a validator at the same time as you, you need to send this exit message and then it gets processed, uh, basically in the order that nodes receive them. Um, and there'll be kind of a delay between when your message was received and, and when you can fully exit your funds. And during that period though, you still basically earn rewards and penalties.

• 12:43Speaker 03

  You, you could still get partial withdrawals processed, but, um, to get like your thirty two ETH back or, or potentially less, you know, if you, if you were slashed or whatnot, um, you need to wait until you've, you've like cleared that queue. Um, and I'm not quite sure, Justin probably knows the exact number that we clear every block. Um, but it's, uh, yeah, it's a constant number per block, uh, that actually, well, it's a constant number. It depends on the total stake size. So, um, but on the order, it's less than ten per block, basically. Yeah.

• 13:09David Hoffman?

  Yeah, I am familiar that even with simple updates to Ethereum, there are these like edge cases that get really, really complex, even though simply put Shanghai is withdrawals. And then there's like a bunch of like rabbit holes and things to pull apart. But let me summarize what I think you just said, Tim. There's this bottleneck called the withdrawal or deposit queue. And that bottleneck is the same on both sides. So it's equivalent. And all that really does, like imagine just like water sloshing back and forth between two buckets. And there's like a pipe between these two things. And one is staked ETH on the on the beacon chain and the rest is ether everywhere else in the world. And there is a pipe between these two things that constrains how fast ether can move in either

• 13:52David Hoffman?

  direction and it's the equivalent size. And the reason why we have that constraint is that we're talking about the security of the Ethereum protocol. We don't want things to move too quickly. We don't want to go from 18 million ether staked to 2 million ether staked to 25 million ether staked really, really quickly. So we put in this constraint that we call the deposit and withdrawal queue. And that just helps things settle and the foundation of Ethereum to not churn too quickly. Yet it still is sufficiently large enough that if you want to withdraw, you are going to be able to get your ether within a pretty reasonable amount of time. Tim, I don't know if you guys have done any like simulations, but like, what's the longest

• 14:35David Hoffman?

  somebody would expect to wait after pressing the withdrawal button before getting their ether in the in normal circumstances, like non FTX type weird stuff? I know this is almost an impossible scenario to ask you about, but just like, can you kind of put a time box on this thing?

• 14:50Speaker 03

  So honestly, I don't spend my time doing simulations on this. Maybe Justin does. Yeah, but you know, I think you see with like the deposit queue, like it's mostly empty most of the time. You know, sometimes there's like a couple of hours, maybe a couple of days, but it's like rare that you get these massive, these massive spikes. That said, you did get like, you know, a pretty big initial set of people wanting to be validators, like at the launch of Ethereum, at the merge and whatnot. So I wouldn't be surprised, like, obviously, this is the first time we're going to have withdrawals. There's probably a whole set of people who want to or have to like exit their validators. So, you know, we'll, we'll see some churn. And I suspect we'll probably see some churn on both sides. Like we'll probably see some people who didn't want to like stake their ETH until withdrawals were live and now now can.

• 15:36Speaker 03

  But once we've processed that initial chunk, like I You know, I don't see why there would be like a huge exit queue on a day-to-day basis, except in cases when like, yeah, there's a massive amount of the stake that has to exit. And whether this is, you know, like the Kraken thing that happened or something like that, where they represent like a non-trivial part and they all have to exit at once. Then obviously you'd have a delay. Similarly, if you know, there's a new cool liquid staking pool that shows up and people want to stake with that, and they launch a bunch of new validators, then they'll have a delay in getting them activated. And one thing, sorry, one last thing I'll add is for most people who just want to stay a validator, the scan happens, I think it's every four or five days that you get your rewards after this.

• 16:20Speaker 03

  So even imagine, you know, you haven't set your ETH withdrawal address yet. You set it tomorrow and like you sort of missed the first scan. You'll get it like five days later. So I think for the average validator who's just getting their partial rewards, it'll be a pretty regular process. And there's no, there's nothing that would like extend the duration of that scan significantly, except the number of validators. So if we double the number of validators, then you know, it'll go from four or five days to like eight or 10. But that's what, how it's bounded. Yeah.

• 16:50David Hoffman?

  Well, and Justin, I'm wondering if you can comment on the economics of these things. I think the last time I remember, it was around 1,800 validators per day that can fit through that pipe of withdrawals or deposits. I don't know if that's the right number. Is that, is that right?

• 17:07Speaker 00

  That sounds a bit too high. I think it's in ETH terms, it's about 50,000 or 60,000 ETH per day. Now, just to give you an order of magnitude, since Proof of Stake happens, we've had on average 20,000 ETH per day. So the activation is, queue is definitely not, not full.

• 17:27David Hoffman?

  Cool. Okay, so 50,000 ETH per day times $1,900, basically round up to $100 million at the current ETH price can flow between the beacon chain and the withdrawals. And the withdrawals is what's being unlocked today. And so today, for the first time, at maximum, $100 million of value can go from the beacon chain back into the rest of the world. And that is the thing we're celebrating. Ba-da-ba-da.

• 17:55Speaker 03

  I didn't know Bank Fest had nominated in USD.

• 17:59David Hoffman?

  A significant portion of our listeners do. And so we're doing the big computational work on their behalf.

• 18:07David Hoffman?

  Okay, so where do you guys want to go next? Justin, I know that this is the proof of stake world and the ETH staking is something that you pay a lot of attention to. So when we see the Shanghai, the now called Chappella upgrade, like why is this so significant to you? Like when you, this upgrade, like I think everyone kind of sees something different in it. A lot of people want to talk about liquid staking derivatives. A lot of people want to talk about ether cell pressure. When you look at the Chappella upgrade, what do you see?

• 18:36Ryan Sean Adams?

  And guys, as we get into that, Justin, can someone just, I feel like I went on vacation and it was called Shanghai. I came back and now it's called Chappella and I wasn't ready for that. What's with the name change? How did, how did this come about?

• 18:49Speaker 03

  Okay, I feel, I feel strongly about this. So Ethereum has like this execution layer, this consensus layer. You know, before the merge, we were all doing our own thing. Obviously the networks communicated, but in terms of the network upgrades themselves, they were pretty independent. So, you know, we had London with 1559 and then on the, on the beacon chain, they had Alter, which was their first fork. And then we had the merge and we sort of had to specify like the set of changes on both sides of the chain, right? Like there's some stuff that happens on the beacon chain, some stuff that happened on a proof of work chain then. And so those upgrades actually had separate names as well. So like the set of changes on, on the proof of work chain was called Paris. And on the, on the proof of stake chain, it was called Bellatrix.

• 19:33Speaker 03

  We were lucky that we could just call it the merge and move on with their, with our day. But knowing that we would be in this situation, we started to think, okay, what's like a way we can name these things? That people don't have to like follow two different names. So right now, the set of changes on the consensus layer side is called Capella. They use stars to do those changes. On the execution layer side, it's called Shanghai because we use the DevCon city names in order. But then most people like don't want to know that like Shanghai and Capella are the two sets of changes. And so proto from optimism have the idea that we should just merge the names together. It gets us a new name. So Chappella in this case. And this is kind of neat, because if you have a weird funky name, you can know it's like an upgrade on both sides.

• 20:16Speaker 03

  But then say that like, we just changed something on the beacon chain, we can just use a star. We just changed something on the execution layer, we can just use a Devcon city. So we can, you know, we can call this Chappella because it's like the the sum of the two upgrades. And then the next one, you know, it'll be Cancun and Deneb. So we can call it Dancoon. And no one has to know about Cancun or Deneb. So Chappella, Dancoon, and we'll keep going from there.

• 20:38David Hoffman?

  So every time that we talk about the naming nomenclature of Ethereum upgrades, I just remember that nerds are taking over the world.

• 20:46Speaker 04

  I thought it was named after Dave Chappelle, and he's just like, y'all got any more of that eight stake, right? It did give us a feeling.

• 20:57David Hoffman?

  Yeah, okay. That was a fun detour. Thank you for for guiding us through that that one. Tim, Justin, I'll throw this back to you. The kaleidoscope that is the Chappella upgrade. What do you see in it?

• 21:11Speaker 00

  Right. So I guess before we get into that, I just want to do a couple of clarifications. The first one is proof of stake. Yes, I agree. It's now functionally complete. And so if we were to leave Ethereum as is for the rest of time, it would be a functioning system. Having said that, there's a bunch of security upgrades and improvements that are coming to proof of stake. So we have, for example, secrets, single leader election, we have single slot finality, which reduces the time to finality. We have what's called Enshrine PBS, we have VDF, and we have maybe a dozen or so security upgrades that will eventually make Ethereum World War III resistant. And the second detail that I wanted to, it's

• 21:51Speaker 00

  really a minor one, is differentiating the activation and exit queues versus the deposit and withdrawal queues. So really, the throttling of the validators is is at the activation and exit level. The deposit and withdrawal queues are basically there because the beacon chain needs to process all of these things. And it's a bit of a DOS vector if they have to process too many deposits or withdrawals at the same time.

• 22:20Speaker 00

  Now, in terms of the big picture of why withdrawals is important, I think there's several aspects. One of them is, of course, liquidity. You know, it's a big de-risking event because so far we've mostly had early adopters come in. And the way that I see it is the big picture is we're going to go from the early majority to the late majority. So we're about halfway through, let's say. We have 18 million ETH staked and over the next two and a half years, what I'm expecting is that to roughly double.

• 22:52Speaker 00

  And if you were to zoom out and look at the shape of the amount of ETH staked over time, it's surprisingly, shockingly linear.

• 23:03David Hoffman?

  Yeah, it's a straight line up.

• 23:05Speaker 00

  It's a straight line up and I expect that to continue. The one blip that we're going to have is basically right after the fork, what's going to happen is that both the activation queue and the exit queue should be completely clogged. And the reason is that entities like Kraken and Celsius and whatnot will be exiting extremely fast. And on the other hand, we're going to have people restaking. So for example, Lido will be setting up automatic deposits to restake. And so these two queues, which are DQ at the exact same rate, will mean that the amount of ETH stake will be staying constant, possibly for a few weeks. But then that's just a blip and then we just continue up only, at least that's my prediction.

• 23:49David Hoffman?

  So you think the shape of the curve is going to be, it's been linear. You think at the moment of the hard fork that comes later today in something like nine hours, you think it's going to be flat for a short amount of time, maybe a couple of days? And then you think it's going to resume its linear uptrend? So it's not going to go down, importantly.

• 24:11Speaker 00

  Well, yeah, I think it's going to plateau potentially for a few weeks. It is possible that there's a bit of a race condition. Basically, who can set up their infrastructure first to make automatic deposits versus Kraken doing the automatic withdrawals. We've seen today, if you go to rated.network, they have this new dashboard which shows your withdrawals, and Kraken has already started withdrawing. Now, my expectation is that Lido will start the automatic restaking of issuance, beacon issuance, very, very soon. And then, once these two processes have kicked in, then we should have a plateau for a few days, maybe a few weeks.

• 24:52Ryan Sean Adams?

  The other thing I was curious about, Justin, is so you're anticipating like, kind of like, final state being like a doubling of the amount of ETH staked right now, which, what does that, what does that put us at? Like 30 to 40% of the total ETH in the network is staked, something like this? And if so, that, I believe, is a lot less than some other networks, crypto networks, that have had staking for a while, right? So like, looking at some other networks, and they're closer to like, the 60% or 70% range. If that's the case, why do you think ETH won't, Ethereum won't get to like, higher numbers of staked ETH, you know, closer to 60 to 70% of the supply?

• 25:35Speaker 00

  Right. So, we actually don't want too many validators, and that's for a number of reasons. One of them is that we don't want to be unnecessarily overpaying for economic security. So, the way that we pay for economic security is with issuance. And if we have enough economic security with, let's say, 30 or 40% of staked ETH, then we don't want to be overpaying by unnecessarily diluting ourselves. The other very important thing, in my opinion, is that we want to have plenty of pristine economic bandwidth. So ETH has two macro uses. One is as staking, and the other one is as a collateral asset in the context of, for example, backing decentralized stablecoins.

• 26:17Speaker 00

  And we want to have plenty of kind of raw, pristine ETH to be used by applications that want to consume the best-in-class collateral asset within Ethereum.

• 26:29Speaker 00

  Now, there's also other technical reasons. One is that we already have half a million validators, which is a lot of validators. And we don't want to have too much computational pressure on the beacon nodes. So the clients that have been built so far, you know, Prism, Lighthouse, etc., you know, maybe they can handle a million validators. But do we really want them to handle 2 million validators? That's maybe pushing things a little far. Especially that we want to do this upgrade called "single-slot finality." And what does "single-slot finality" mean? It means that you get finality within a few seconds. And in order to get finality,

• 27:11Speaker 00

  we need every single validator to be making an attestation and to aggregate these attestations. So we're talking about aggregating hundreds of thousands of BLS signatures in just a few seconds. And this is a very challenging technical process. So we actually want to be in a position where we cap the number of validators. And there's various ways to do that. One of the ways we could do it, for example, is by having an issuance curve which goes negative as soon as we get very, very close to the cap that we want to get to.

• 27:47Speaker 00

  Another idea, which is not really a cap, but is more of a way to slow down the growth, is called MEV burn. It's this idea that we do something very, very similar to IP1559 did for base fees, but this time we do it for MEV. And that should give us a little bit of relief and remove the urgency on capping.

• 28:12David Hoffman?

  Beautiful, beautiful. Okay, so a lot of those subjects, I know, are highly related towards this question that we have at the end, which is, "What's next for Ethereum staking?" So I think we'll perhaps return to some of these subjects later on. But Anthony, I want to turn the same question to you. Thank you for waiting. The kaleidoscope of the Chappelle upgrade, there are so many things to talk about. We got liquid staking derivatives. We got solo stakers. When you see this upgrade, what does it mean to you?

• 28:42Speaker 04

  Yeah, I think I agree with like pretty much everything that Tim and Justin have said. And I really resonate with the view that while this is kind of a big milestone for Ethereum staking, it's not the final stop, so to speak. Like for me personally, I view it as like a 1.0, right? And people are going to kill me for saying something like eat staking 2.0 because we don't want to bring up the 2.0 terminology again. But, but I think there are, as Justin said, like there are other upgrades coming to proof of stake on Ethereum that are going to harden proof of stake, right? And make it better, make it more secure and all that good stuff there, make it more resilient. Which means that proof of stake, you know, in its current form can, can work and can work just fine. That's why you would call it a 1.0. But it is not, you know, as complete as we can make it, so to speak.

• 29:25Speaker 04

  There are a lot of different things that we can add to it to make it a much better system, which will be added, you know, over time, especially things like, as Justin mentioned, single slot finality and the secret leader election and stuff like that. I actually personally think they're pretty critical that they actually do need to be shipped and stuff like PPS as well. I don't think they're nice to haves. I think they're, they're pretty much must haves at this point. So yeah, that's why like with withdrawals being shipped, we kind of finished the 1.0 version of staking. But then we move on to all of these other upgrades that could be considered like a 2.0 version of Ethereum staking. But like, that's my own kind of take on it. I don't suggest adopting that terminology for sake of not confusing everyone even more than we already have.

• 30:04David Hoffman?

  Yeah, the Ethereum community does not have a good track record of not doing that.

• 30:08Speaker 04

  Yeah, exactly, exactly. But in terms of, of just the significance of it, I, I think that the biggest thing for me is showing, well, there's, there's two probably major things. It's showing the, I guess, like ecosystem that Ethereum is still shipping like at a, at a, at a better pace than it's ever done. Right? It's still shipping major upgrades. It's still executing on its roadmap and that is sending a strong signal to the rest of the ecosystem that Ethereum is, is, is evolving, Ethereum is, is executing even post the merge, which obviously was the biggest upgrade in Ethereum's history. We haven't really slowed down at all, you know, even all these things happening in, for Cancun or Dancun. As Tim mentioned, like ERP 4844, they have made amazing progress. Like there are dev nets, there are things happening.

• 30:51Speaker 04

  There is and it's slated hopefully for later in the year or maybe, you know, it depends maybe early next year. But with the pace that the shipping is going right now, it just inspires a lot of confidence. So I think that's a strong signal being sent out. And secondly, just related directly to withdrawals, I think it acts as an absolutely huge de-risking event. And I strongly agree that we're going to see much more ETH staked because of that. And we're going to see a much healthier staking ecosystem because of that as well. Because now no longer are the LSDs themselves limited by market forces where essentially the only way that these LSDs could re-peg is if the market basically re-peg them. And I know they're not a peg, so to speak, but like to make them actually kind of at fair value. You couldn't do that arbitrage with the beacon chain directly.

• 31:36Speaker 04

  Now you'll be able to do that, which I think even though it may seem something that's kind of simple and gets done every day and it's not something to be excited about. I think it's absolutely huge because it means that staking with LSDs is going to be much safer, much more efficient. And it's going to mean that these money market protocols are going to feel more comfortable with adding them as collateral, making their collateral factor kind of higher so that people can use them to borrow more assets against them. And then it opens up the whole other world of other things that are coming to staking, such as the restaking stuff from Eigenlayer, distributed validator technology, like all these other things that can be built on top and around staking. It makes those things possible and much more exciting. So those are the two major things that I kind of look at. But yeah, there's a lot. I mean, as you said, it is a kaleidoscope.

• 32:20Speaker 04

  People have their own different views on it and there's always a lot to talk about when it comes to Ethereum upgrades.

• 32:26Ryan Sean Adams?

  I know we're going to talk about price and sort of, you know, whether the amount of staking is going to like to how that's going to impact price and whether stake ETH is going to go up or down post-merge because there's been a lot of discussion on this. I could say for me personally, I see withdrawals as a huge de-risk event. And I have some of my own personal ETH staked, but I've literally been waiting for this moment for like, well, we have months of trust in the network, post-merge. You know, and you know, David's gas on breaks, right? So I'm a bit more risk averse, but I don't know what David, you've been doing with your ETH, whether how much you're staking versus not. I've literally been waiting for this event and maybe for like. Me to start seeing some withdrawals to to start getting more bullish on on staking

• 33:10Ryan Sean Adams?

  my own ETH. And then, once it's staked, if you're a long term holder of ETH, why unstake is is kind of the question. So I know we'll get to the kind of the whether this is bullish or bearish for ETH price and in how this impacts kind of sentiment. But that's my own personal take. I'm curious, David, like, what do you? What? How do you see this event?

• 33:29David Hoffman?

  Yeah. So well, for the Ethereum archetype person, I think the I think, well, I guess it almost just by proxy of the fact that the network increasing in total stake like we're at 18% of all Ether staked. My percent of personal Ether staked has has trended upwards since the beginning of the beacon chain as well. It's like, oh, I think I'll take some of those a little bit more today. And so like, perhaps that's a sentiment that's shared by the entire network, which is why we see it going up and to the right. But like the this last event is the final like, bridge that needs to be crossed, where like the ETH staking, the idea of ETH staking, which I like, you know, pulled out my calculator back in 2018. I was like, all right, I need this much ETH staked, and I need the ETH price to be this high, and then I'll have this much income to retire on. Like,

• 34:14Ryan Sean Adams?

  There's usually that there's literally a bankless video about this.

• 34:18David Hoffman?

  Yes, exactly. And so this is finally the event that allows that to to come true. We are not currently at the ETH price that that I envisioned, but we're still only 2023. It's still quite quite early. Anthony, I want to actually turn back to you because a lot of what you do at the Daily Guey is just to provide accurate and informed information about Ethereum, kind of a fractal off of your activity with ETH Hub way back when, which was just to fight Ethereum FUD. And there is plenty of FUD abound, per usual, about this particular hard fork, simply because of the nature of what it is. All of the Ether is going to get unstaked, and it's going to go sell the sell the price

• 35:03David Hoffman?

  down to zero. Ethereum security is going to go to zero. Like, what's some of the biggest Twitter FUD that you see out there that you think is totally just like ridiculous? There's certainly some criticism. And critiques and bearishness about the staking, the withdrawal upgrade because like simply put, when you add more supply into the market, like there's more people that are able to press the sell button. So like not, I'm not discounting that at all. There are some people who are just like fighting this whole thing left and right. And I'm wondering what's like the biggest piece of like Twitter drama that that's worth addressing.

• 35:37Speaker 04

  So some of the most ridiculous takes I've seen around it were from people who don't actually understand how it works at all. Basically, they don't understand that there is a queue for staking and unstaking, withdrawing and all that. They don't understand that 70% of the stake is already in LSDs and smaller stakers can exit, you know, almost at fair value a lot, a lot of the time now, because a lot of these LSDs are not trading at a discount, right? They don't understand that we added more than half the existing validators in 2022 during, you know, one of the most brutal kind of like bearish periods for crypto. People were still adding validators, right? Because they still wanted to stake their ETH. And there's just like a lot of different things that fall off of that. People saying, oh, they added a queue because they don't want people to exit too quickly so that the price doesn't dump.

• 36:22Speaker 04

  It's like, I mean, there are so many different considerations here from the economic security perspective that that Justin went through and why it kind of exists. So when people say that, I just laugh. But I think a lot of the misunderstanding comes from the fact that people just don't understand how Ethereum proof of stake works, how it differs from other proof of stake networks, because a lot of the other ones, pretty much, you know, all of them are some flavor of delegated proof of stake, whereas Ethereum is very, very different. It doesn't have that kind of in protocol delegation there. And that's why we have a lot of these LSDs that are quite popular. But the deposit and withdrawal queue is definitely a huge kind of source of confusion for a lot of people. And they don't understand why it exists and why it's needed.

• 37:04Speaker 04

  And they, they think it's just been done as a way to like stem the bleeding or something like that, which is obviously untrue. And I think that they, they, they kind of, they form this bias around it as well. They look, they look at it and like, oh, look at all the ETH that's going to be unlocked. And look at all the other unlocks that have happened in the past and what happens to the price of the asset. Well, you have to contextualize this. If some token has a massive VC unlocked. Well, that's going to be a very different unlock to to what Ethereum is doing with with staking withdrawals, right? And there is no actual kind of, um, uh, uh, what's the word I'm looking for? Kind of, oh, there's, there's a word for it. I'm saluting me right now. There's, there's no prior events like this that has happened before, where a major network like Ethereum has enabled staking withdrawals later,

• 37:46Speaker 04

  and there's been all this value at stake. And there's nothing been like it. So people can very easily form their own views on this, just based on nothing, because there's nothing to point to. And I, and I think that leads to, as I said, like people forming their biases, and then, uh, and then reasoning about it from that with all the lack of information that they haven't got around how Ethereum proof of stake works. So that's why I've tried for, for many months now to correct all of this. But it is really, really hard, because as I said, when people make up their mind, they have their own biases. They're not really open to reason about this, especially when it comes to the price, where they're like, oh, you know, this is going to be really bad for the ETH price because billions of dollars is hitting the market. And then you try to explain to them, that's literally not what is going to happen because of all these reasons.

• 38:25Speaker 04

  They're going to be like, oh, crap. Oh, what? No, I already made up my mind. That, that's not actually true. It's going to be really bearish. So I, I think that's, that's what kind of happened.

• 38:33Ryan Sean Adams?

  Anthony, most basically, I was told, like, right after the merger, I was told for months, don't stake your ETH from, like, you know, Fuddsters, be, because you'll never be able to un-stake it. Withdrawals will never be enabled. Or if they are enabled, it's up to Vitalik, and he might do that, you know, by his good graces, five years away, right? Like, it's just the amount of misinformation about Ethereum is, um, is pretty staggering, particularly on this point.

• 38:57Speaker 04

  Never seems to go down. That, that, that Fudd point is pretty funny. And I, I just noticed I didn't even mention that because it actually is so unbelievably stupid that I, I think it was.

• 39:06Ryan Sean Adams?

  It's just about to be disproven in a few hours. So I mean.

• 39:09Speaker 04

  Well, and that too, right? But, but yeah, again, that just goes hand in hand with people having their own biases towards Ethereum. If, if you already don't like Ethereum, then of course you're just going to not care what the relevant truth is here, right? You're not, you're not going to care that they're going to, withdrawals are going to be shipped, especially after, for years, if you said the merge was never going to happen, and then the merge happened, and you're like, internally in your brain being like, oh, crap, what do I pivot to now in order to Fudd Ethereum? And then you pivot to this next thing.

• 39:35Ryan Sean Adams?

  This is what happens.

• 39:36Speaker 04

  It's just, it's just a forever kind of goalpost move. So, yeah, I mean, we're about to ship it. At the end of the day, what these people say is irrelevant. I doubt any of the core devs or researchers give a crap about what these people say. They just do the work that they want to do, and they focus on what they want to focus on, and, and the community keeps moving forward at the end of the day.

• 39:54David Hoffman?

  So guys, I think we've covered a decent amount of the low hanging fruit about the this conversation, like what it is, the withdrawal and deposit skew, why we call it Chappelle when we previously called it Shanghai, some of the, some of the FUD. But there's some more nuanced conversations that I think probably a lot of listeners are waiting for. And that's really just the big question of like, okay, 18 million Ether can now move. It can be sold. It can also be moved from liquid staking project to liquid staking project. More Ether could be staked because of this de-risking event. So like, I think these are the three big umbrellas that, that I see, like how much is going to be sold, how much is going to be reshuffled, and how much more Ether will come in as a

• 40:36David Hoffman?

  result. I think these are kind of the three big categories. So I think that's where I want to turn to next. But first, a moment to talk about some of these fantastic sponsors that make the show possible. You know Uniswap as the world's largest DEX with over 1.4 trillion dollars in trading volume, but it's so much more. Uniswap Labs builds products that lets you buy, sell, and use your self custody digital assets in a safe, simple, and secure way. Uniswap can never take control or misuse your funds, the bankless way. With Uniswap, you can go directly to DeFi and buy crypto with your card or bank account on the Ethereum Layer 1 or Layer 2. You can also swap tokens at the best possible prices on uniswap.org. And you can also find the lowest floor price and trade NFTs across more than seven different

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• 41:38David Hoffman?

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• 42:22David Hoffman?

  So get on the Phantom waitlist and be one of the first to access the multi-chain beta. There's a link in the show notes, or you can go to phantom.app/ waitlist to get access in late February. Bankers Station, we are back with the questions that you guys really want answered, which is what's going to happen to the 18 million Ether that gets unlocked? And so, Justin, I actually wanted to get your perspective on this because you have this mental model of like frozen liquid and boiling Ether, and I think this kind of slightly relates to that whole idea. We have a bunch of frozen Ether that's available to be thawed. We've got 18 million Ether that's frozen in the beacon chain. It's going to, some of it might go through the hole and become thawed and become liquid Ether that can go to DeFi,

• 43:07David Hoffman?

  that can go back into a different staking derivative project like Lido or Rocketpool or some of the long tail ones. It might be sold on the secondary market. And so of all the destinations that Ether could go, do you have an opinion or an idea as to where the most of the Ether might accrue?

• 43:29Speaker 00

  Right, so just thinking in qualitative terms, I think there's two very healthy things that happen once you can for ETH. One is competition. So for two and a half years, if you've been staking with one service provider, you've been locked in. And I think that has kind of led to a little bit of staleness in terms of innovation and competition. So I don't want to pick specifically on Coinbase, but it's an easy one to pick on. They're a very large operator and they charge a 25% fee. And I think a lot of their users have joined the staking service maybe a year ago, 18 months ago, or even more. And in crypto land, 12 months or 18 months is an eternity.

• 44:10Speaker 00

  It's maybe enough time for you to get comfortable with the concept of staking, comfortable with the fact that now it's been de-risked and you understand what's going on. And so I'm hoping that there's going to be a move outside of these very large pockets of stake, like Coinbase, towards maybe solo validating. Because really withdrawals is an unfairly good upgrade for the solo validators. Because they haven't been able to access liquidity, whereas projects like Lido and Coinbase, they get a tiny upgrade. So as was mentioned, they have a slightly stronger peg because now it can be economically arbitrage.

• 44:53Speaker 00

  But really, the key upgrade comes for the solo validators.

• 44:59Speaker 00

  Now, another interesting thought experiment is in terms of Lido. And I think that there might be an opportunity for a vampire attack. So basically, Lido right now is huge, right? It's something like 31% or 32% of all staked ETH. And so the question I have is, could a competitor come in and basically set up a smart contract? So that you deposit staked ETH and then it gets automatically unstaked with Lido and then restaked with the competitor. And the competitor says, if you do that, we're not going to charge you any fees for the next X years. And so that could be a very interesting dynamic that we see shortly,

• 45:44Speaker 00

  maybe a few months after withdrawals are enabled.

• 45:47David Hoffman?

  Is this a Justin Drake brainchild thought experiment? Or is this something that you've seen out in the wild and have seen perhaps a liquid staking derivative project actually talk about?

• 45:59Speaker 00

  No, I haven't seen anyone talk about it, so I guess it's brainchild.

• 46:03David Hoffman?

  I told you we'd get one of those in the episode. I told you.

• 46:10Speaker 00

  So yeah, this is a huge opportunity, I think, for competitor to step up and maybe provide healthy competition in the ecosystem.

• 46:18Ryan Sean Adams?

  And Justin, can you just underline that healthy competition? How does that benefit ETH stakers? Does it lower fees? So you mentioned Coinbase with a 25% fee. I mean, I guess implicitly, that would be unsustainable if you bring more competition in the market. So does it lower staking fee prices? What are the other benefits for ETH stakers when you have more competition?

• 46:41Speaker 00

  Right. So one thing could be lower fees. So right now, Lido charges 10% fee, but maybe that could be reduced to 6% or 7%. I don't know. But the other big improvement is that it makes Ethereum stronger, more robust. And so as an ETH holder, you want Ethereum to be maximally successful. And this competition will kind of make the value of your principal, your 32 ETH, hopefully grow because of that competition. So there's almost like this notion of activist staking where you will consciously make a decision to move away from the large pockets of staked ETH and go to the smaller ones.

• 47:25Speaker 00

  Now, this is not only rational just from a memetic standpoint, but it's also rational from a fundamental standpoint. And the reason is that within the protocol, we have infrastructure, which we call anti-correlation incentives. So if there's some sort of correlated failure, so for example, if many validators get slashed at the same time, or many validators go offline at the same time, this is where the penalties really start hitting you hard, because the more validators are affected around the same time, the greater the penalties. And so you want to try and avoid being correlated with many other validators. And so, for example, if there's some sort of smart contract bug within Lido, or if

• 48:09Speaker 00

  there's some governance issue with Lido, well, you're going to get the maximum penalty if things go really wrong. And the reason is that the penalty for slashing at least is three times the amount that is staked. So there's 31% of all ETHs staked with Lido, three times 31.

• 48:28Speaker 00

  Would be 93%, you'd get slashed 93% in the worst case. Whereas if you're in a much smaller pool, which only has 1%, then the worst that you could get slashed would be 3% if that whole pool gets slashed and only that pool.

• 48:45Speaker 00

  So it's kind of a way to buy insurance against tail risks. And people don't often think about these tail risks, but they are there.

• 48:54David Hoffman?

  I definitely want to focus back on that comment of Chapella Shanghai withdrawals upgrade, whichever you want to call it, benefits this solo staker the most. But first, before that, I think that's where we'll kind of tie off this conversation. First, I want to go back to that idea of this withdrawal curve. So like Justin said earlier, it was linear. He thinks it's going to be flat because of the withdrawal slash deposit queue. They're going to cancel each other out while these things settle. But I think it's pretty reasonable to assume that withdrawals will ultimately outpace deposits just because of the pent up demand to withdraw. That's built up over the last like two plus years that the beacon chain has been online.

• 49:38David Hoffman?

  Now, whether that amount, that extra withdrawal pressure that in my opinion, perhaps will exceed the deposit pressure, whether that just returns into new deposits into Lido or Rocket Pool or some others taking derivative, or perhaps goes into DeFi, or perhaps gets sold, I don't know. But let's present, let's put on the bear caps because it's bear season and say that like a decent amount goes to the secondary market to, it's also May, or excuse me, it's also April. So it's also tax season. So like perhaps there is some sell pressure out in the market. So Anthony, I want to turn this one to you. Can you put on your, I know this, this hat does not fit well on you, but put on your bear hat. What's the bear case for Ether and the ETH price? Why is the ETH price going to go down?

• 50:24Speaker 04

  This is an impossible question to ask me, sir. You know that. So, so you, you mentioned, you mentioned taxes, right? I, I, I think that like, there are a lot of taxes that have been accrued by stakers via the consensus layer rewards, obviously, that they have not been able to sell those rewards to cover those taxes. They could cover those taxes using other funds that they have, if that's the way they're being taxed. Or if the tax office or the guidelines basically say that you're not taxed on that ETH until it's actually unlocked as part of the, the Chappelle upgrade, you may need to sell that. And I, I ran through some rough numbers on, on my show a bunch of times where I basically said, let's just say 30% has to be sold for, for taxes, right? 30% of the consensus layer rewards, which I believe is like 350,000 ETH or something like that.

• 51:09Speaker 04

  Uh, I don't know the exact numbers off the top of my head. Uh, but at the same time, like all of that's not going to be sold at once, right? There are going to be people that are not going to want to sell that ETH. Uh, they're just going to cover their taxes with other fear that they have, right? Not everyone's going to be at a 30% tax rate. So the, the, the numbers are very hard to get for, for that kind of scenario, right? For the, for the tax selling purposes. Now, in, in terms of the actual ETH stake itself, but how many people are going to sell the stake that they, that they put in? Well, I've seen many charts floating around that basically say that most stakers, based on the USD value of when they actually staked their ETH are underwater. Now, that's not going to be totally accurate either, because people could have bought ETH at a cheaper price and then staked it later, right? It's going to be, it's very hard to get those accurate numbers there.

• 51:52Speaker 04

  But the, you know, you look at that and you're like, okay, well, who's gonna, who's gonna sell? The people underwater, they might sell because they're like, oh, you know, I need the liquidity. I, I, I need to panic out of this position. Um, you know, it's been locked for a while, want to get out now. But I doubt many of those people are solo stakers. I think those people would have staked with LSDs and they already have the exit liquidity available to them. If they wanted to exit, uh, their fully staked position, even if they took a haircut from selling their LSD for ETH and then selling that for, for, um, dollars or something like that, that would have been an option for, for most people already. So it is actually very hard for me to come up with a bearish scenario where a lot of ETH is going to be suddenly unlocked from staking and sold on, on the market. The most bearish I can think of is Think of is really just the tax selling for the consensus layer rewards.

• 52:37Speaker 04

  And even that, I don't think is that much sell pressure. Given how much liquidity there is for ETH as an asset already, it's not like this is some random ERC20 token on Uniswap. This is ETH we're talking about, which has a huge amount of liquidity and a huge amount of people ready to buy it. I think for a number of different reasons.

• 52:53Ryan Sean Adams?

  So Anthony is accurate to say, and by the way, when we're talking about like price, we're talking about short term price, right? Obviously this, you know, people have forgotten this in like three months, basically like withdrawals would be the thing. And so, but, but short term, people are still curious. And it seems like there are two opposing forces here. There's, there's the one force that's like, my ETH has been unlocked and I've been wanting to sell it for a long time, but I haven't been able to. And I'm underwater and I was panicking and now I, the ETH is unlocked so I can sell. And maybe I have to pay some taxes. So that's one force over here in the sell pressure. And I guess maybe the, the stake pressure over here is like, isn't it great? ETH, Ethereum continues to ship. It's incredible. They just pulled off another successful hard fork.

• 53:36Ryan Sean Adams?

  And now this entire staking thing has been de-risked. It's sort of the sentiment I was expressing a little bit earlier. Some of the long-term holders might be like, now's my chance to really pile into ETH staking. And these two opposing forces are sort of fighting the bull in the bear case, you know? And like the market will decide whether ETH price goes up or down. Is that a way to think about it? Is that how you think about it or where do you add something to this?

• 54:00Speaker 04

  No, that's a good way to think about it, I think. And there are also a lot of other demand factors for just ETH as an asset as well. Like if you're talking about what the price can move, even in the short term, based on supply entering the market. Well, obviously you have to consider the demand case as well. And every day we have millions of dollars of ETH being used as gas fees, right? On the network. So there's a demand driver as well. People have to buy ETH in order to use the network. And then there's ETH as an investment vehicle and ETH to stake. So, so yeah, there are those opposing forces, but I feel like the demand side is just stronger than the, than the supply side.

• 54:33Ryan Sean Adams?

  Overall, Anthony, I would expect nothing less, but you think the withdrawal is getting deployed is more bullish? Like, and good for ETH price than bearish, even in the short run?

• 54:43Speaker 04

  Well, yeah, because people have been saying that it's bearish for the ETH price since ETH was $1,100 and now ETH is like $1,900. So and that wasn't that long ago. It was like, what, two, three months ago or something like that? So like, that's why, as I said, it's very hard to find the bear case if you run through all the scenarios and you try to make it. Maybe I'm not the best person to make a bear case, of course, but I think that just going on the on the logic that I've I've put out there, it'd be very hard for anyone to do that. And you know what? The people that I've seen that are the most bearish are the ones that don't actually have any arguments to back up their bearishness. They just put these kind of views out there and say, all this ETH is going to be unstaked and sold. It's like, okay, but but why? Why is that going to happen? Oh, you know, because of this. And then I don't really have any reasons, right?

• 55:25Speaker 04

  So that's why I kind of say that. And that's why I try to reason about it from these first principles, rather than coming to a conclusion first and then working my way back.

• 55:35David Hoffman?

  Okay, so I want to turn this conversation to the thing that makes the entire Ethereum ecosystem tick, which is the solo staker. And so we said earlier that the Chappelle upgrade unduly benefits solo stakers the most. But I feel like there's just some other conversations about what solo, how this impacts the solo staking environment. And Tim, I'm wondering if you could kind of guide us through that conversation. What's the significance of Chappelle as it relates to solo staking?

• 56:04Ryan Sean Adams?

  And guys, as we do, can we just define a solo staker? So when we say solo staker in our world, what we're saying is basically somebody who is staking, runs their own validator, staking their own kind of

• 56:14David Hoffman?

  It's their ether and their validator.

• 56:16Ryan Sean Adams?

  Okay, so this is not Rocket Pool. This is not Lido. We would not consider these pools kind of stake. It's definitely not Coinbase. Someone who's running their own validators, a solo stake, a solo staker, is that correct?

• 56:29Speaker 03

  Yeah, cool. I think I think that's good. Yeah, I think there's probably two things that like make solo staking significantly better than it currently was. Like the obvious one is just like getting the rewards periodically, right? Like, because what you're saying is, you know, you're locking that capital and, and, you know, staking ETH, but you're also getting sort of compensated for it and, and can receive part of those rewards over time. And this has been like a bit true since the merge because of the transaction fees. Um, but obviously there's a big difference between, you know, locking up your ETH and getting absolutely nothing out of it. Um, versus, you know, locking it up and being able to actually get the funds, get the funds out. Um, and I think the other thing that's really neat with, with this upgrade is you can also try it, right?

• 57:12Speaker 03

  Like being a solo staker was a pretty big ask to people, uh, prior to withdrawals being live. Because you were sort of signing up for this indefinite amount of time, right? Some people signed up in like 2020 and, you know, had no idea that like April 2023 is what they would, they would be able to withdraw. Um, whereas now it's like, you know, if, if you've been on the fence, you know, you, you're, you're not quite sure about it. Like, I would, I would probably wait until this, you know, this, this, uh, straight line that Justin mentioned has gone through. Like this sort of flow of withdrawals and deposits has like passed. But, you know, after that, you should be able, you can spin it up, your validator will activate within a couple of days. You can try it, run it and like, you know, keep it running if you want.

• 57:54Speaker 03

  And if you don't want to, you can shut it down and get your funds back out, you know, and in a couple of days as well. So I think there is something there where like, once you've done it and you've sort of run through the flow, like, you know, putting your funds up, locking it, running the validator, getting your funds back out, seeing that it's actually working. It was not rocket science, or you know, maybe you messed something up on the first try. You want to try it differently the second time. Um, you can do that, right? Um, especially when it comes to things like potentially, you know, changing your setup, changing clients and whatnot. Like this is something where I think solo stakers are like extremely anxious. And like, you know, you can shut it down and get the penalty in the meantime, but I think just.

• 58:33Speaker 03

  Even if it's economically worse, like from just like anxiety of managing your validator, knowing you can like fully exit the thing if it was running on, I don't know, like Geth and Prism, and you want to try like Nimbus and Bezu, you can like exit that validator, get your money back, literally, you know, formats that drive like that you were using, wipe it clean and start again. So I think hopefully like we'll just see like a bit more experimentation on that front. And one thing we've been trying to do as well, the EF has set up like some ephemeral testnet for stakers as well. So like we have this new thing called ephemery where we have these testnets that like launch and completely reset every two, three days.

• 59:15Speaker 03

  So you can like start from scratch, you know, get some like Genesis ETH on the testnet, launch your validator, make sure that it works, exit your funds and run through that process. Because I think up to now, it's felt like something where a lot of people who are less experienced or like knowledgeable about this, like set it up and like somehow it works and then they never want to touch it again. And they're afraid of like any mistake. And to be fair, you know, a mistake was costly if it means, you know, you get your validator slash or whatnot, and then you have to wait two years for it to be exited. Whereas now it's like, yeah, I think you get a little bit more confidence of like, if something goes wrong, you can at least get most of your funds back pretty quickly and try and change your setup. So yeah, hopefully it leads to more experimentation.

• 1:00:01David Hoffman?

  Yeah, and Tim, this gave me kind of just like flashbacks to the first few times I set up my own private keys. And so like wrote down my private keys, loaded them up in my ledger, erased my ledger, loaded them up again, made sure the addresses were the same, deposited a small amount of Ether, erased my ledger again, loaded up the same private keys, made sure the Ether was still there. And that's how I got like comfortable with like.

• 1:00:28Speaker 03

  I've done the exact same thing, yes.

• 1:00:30David Hoffman?

  And you were scared every single time. Every single time I was super scared, right? And so Tim, what you're saying is like, okay, we have that same pattern, but now we're doing it for solo staking, but we weren't able to have those people who were timid and kind of exploring the frontier. Because of they weren't able to withdraw, they weren't able to complete the loop. And so like now, like, once upon a time, we were all doing our practicing our self custody with writing down our own private keys. And now what you're saying is like, people can practice their own self validation of the chain. And so this is like the self custody, but now for validators. And now that this loop is complete, people can go one step further beyond just self custody and do the thing that Ethereum was,

• 1:01:10David Hoffman?

  has always been set up to do, which is apply self custody and self validation as closely as possible. And so you're saying that now that this loop is here, people can explore one step further into this crypto economic frontier and feel safe doing it. And if it's not for them and they just want to go store it with Coinbase, then they can freely withdraw. But at least they were able and enabled to do that in the first place. This is what you're saying, correct? Yeah, 100% Yeah.

• 1:01:35Ryan Sean Adams?

  Yeah. Do you know what I feel like we need, though, on solo staking is for this to be, like, there are people who will never self custody because setting up a ledger in MetaMask is too difficult, right? And you'll see.

• 1:01:46David Hoffman?

  Hi, mom.

• 1:01:47Ryan Sean Adams?

  There's a lot of people that are able and willing to do that. But there's a smaller subset of people who are able to kind of maybe run their own validator and like work through client command line and do the dev ops and feel confident on that front. Like, I might like throw up my hand as as one of those individuals as well. Are there any steps to make solo staking as easy or close to as easy as just running like a ledger? For example, because to me, that's what it's going to take to actually get the big takeoff.

• 1:02:18David Hoffman?

  Maybe that's. Does not include Lido or Rocketpool in your answer.

• 1:02:22Ryan Sean Adams?

  Exactly, exactly, because Lido and Rocketpool are sort of the the easy button right now. The the question to me to to see solo staking really take off is can we make solo staking maybe as easy as running a as self custody on a ledger? Do we see anything like that on the market?

• 1:02:39Ryan Sean Adams?

  What do you got?

• 1:02:40Speaker 00

  Justin has an answer. Yeah, so the term that I use for unstaking and restaking is rekeying, basically creating a new set of keys. And this flexibility comes with various advantages because it means, for example, that you can improve your security setup. So for example, some of the institutions, they might have the really fancy MPC to generate the keys. They have what's called remote signing, where there's like a separate piece of hardware maybe that is air gapped or segregated in some way or another. And for solo stakers, there's actually this technology called SGX from Intel that can be used to basically mimic the functionality of a hardware wallet.

• 1:03:24Speaker 00

  It's kind of a way to have your staking keys in a hardware wallet in such a way that you can't be slashed. So the service provided is kind of anti-slashing protection. And there is a company working on it, for disclosure, I'm an advisor, called Puffer Finance, puffer.fi. And they provide this for free, so you can just go download it and then you basically have a hardware wallet, the same kind of grade of security as an institution in the context of remote signing. Now, another really healthy thing with rekeying is that it might unlock certain services for some of the operators.

• 1:04:06Speaker 00

  So for example, insurers might require that the keying process follow certain standards. And the fact that you can now rekey means you can satisfy the requirements of the insurers. And so now we could start seeing service providers provide slashing protection or provide all sorts of insurance.

• 1:04:27Ryan Sean Adams?

  And refresh us, Justin, when you say rekeying, what do you mean there? What is rekeying?

• 1:04:32Speaker 00

  Right, so when you are a validator, you have a private key, which is your staking key, and you use this private key to sign messages on a regular basis. So every epoch, every 6.4 minutes, you're going to be signing what's called an attestation. Basically, a vote on what you think is the current state of the chain. And then every once in a while, every few months, roughly every six months, you kind of you win a lottery and you get selected as a proposer. And here you're going to sign a block, a proposal. Now, one of the things that you don't want to happen is that this private key gets leaked. And I think what's happening right now is that solo validators are today kind of YOLO-ing it without even realizing it.

• 1:05:17Speaker 00

  And the reason is that they have a computer where the staking key is essentially in hot within their machine. And if there's some sort of virus or whatever it is, then they are liable to get slashed. So it's kind of this unnecessary kind of psychological fear that at any point in time, because you don't really have this strong protection, you could be slashed. So really, what we need is the equivalent of a hardware wallet for staking. And this thing does exist. You can use SGX to provide the anti-slashing protection.

• 1:05:53Ryan Sean Adams?

  Very cool. Well, this has been definitely a big moment for Ethereum. And it's good to see hard forks, major upgrades, so close, so back to back. I mean, it feels like only yesterday, when we were on a massive call as a community celebrating the merge. And now here we are with another hard fork. So we got to conclude with this and end the show in this way. What is next for Ethereum? So let's look beyond Chappelle to the next portmanteau that you were talking about, Tim, which is the next Ethereum hard fork and upgrade. What is the next area of focus for core devs and the development team?

• 1:06:32Speaker 03

  Yeah, of course. So the next big upgrade is called Dan Kun, so Danab and Ken Kun together. But and the main thing we've started to work on for that is EIP 4844. There's been several bankless episodes about this already, but at a high level, it's a scalability upgrade to Ethereum, which introduces a data availability layer, which will reduce the data costs for rollups. And so if you look at the transaction fees on a rollup today, it's like 90 to 95% the cost of posting data on Ethereum. 4844 will massively reduce that cost, basically because the network won't store the data forever.

• 1:07:13Speaker 03

  So because we have like a bound on how long the network needs to retain that data, whereas right now the rollup data is like stored in the nodes forever, we can charge much less for it. So and those savings kind of get passed on to users in the form of lower transaction fees. So this is extremely important if we want rollups to scale and, you know, the general usage of Ethereum to scale. So that's the main thing we're working on. The other big thing I will mention is changing how self-destruct works. So right now on Ethereum, if you deploy a contract, you can basically delete it. There's an op code called self-destruct for that. This is nice in that, you know, it allows you to delete a contract, but it's kind of the one area of the EVM

• 1:07:58Speaker 03

  where we don't know how long it's going to take to execute the code that's running before we run it. So you can think of like, if you delete the tiny contract, you know, it deletes super quickly. But imagine you deleted like the Uniswap contract or the CryptoKitties contract. You know, deleting all those records takes the computer way more time than deleting like a tiny contract. And partially because of that, it's kind of incompatible with a lot of changes we want to do in the future. And a lot of the changes around statelessness and whatnot. Can't deal with this, this idea that like, we need to delete an arbitrary amount of data. Um. So this is something that is used by contract developers. So right now, like, we're

• 1:08:41Speaker 03

  looking at all the different designs that we can use to, you know, deactivate this in a way that like ideally does not break any existing contracts. Um. But do you fear a smart contract dev listening to this? Um, it's linked in the blog post, we have like a deactivation EIP, just as a, or sorry, a deprecation EIP as like a notice to people. Um, but that's something that I think contract developers should be aware that uh likely within, you know, the next year or so, self-destruct as it exists today will not work. Um, though, you know, the idea that like the funds get sent back to the caller address will be preserved. Um, but like, what actually happens with the contracts? Um, and you know how possible it is to like deploy something and replace it with something else.

• 1:09:25Speaker 03

  Um, that's, that's gonna be changing.

• 1:09:27David Hoffman?

  And, and if we let it time maybe slip out there within the next year or so, I noticed you saying.

• 1:09:32Speaker 03

  Yeah, I'm trying to be extremely conservative on, yeah, you know, so then people will be happy when Dankun doesn't happen in April 2024. Yeah.

• 1:09:41David Hoffman?

  There you go. Dankun's great. Tim, I know you got a drop, so feel free to, to hop off if, if you need to, but I do want to ask about Anthony and his solo staker tinkering. Anthony, uh, as somebody who explores the, the frontier of solo staking, what does it mean to tinker? What you, what you up to over there? What you, what you doing?

• 1:10:00Speaker 04

  I think I have one of the weirdest staking setups or solo staking setups out there uh for a few different reasons. So I, I said on Twitter recently that I'm currently running four different EL CL uh kind of combos. Uh, and it's put a lot of strain on my network and my networking devices, which has caused me to tinker a lot with, with different things. So the reason I'm running four is because I have my soul, my normal solo staking box, which has my personal funds on it. I have my Rockerpool Odal box, which is my mini pools and uh my, obviously my, my role in the Odal. Uh, I have another box, which is my archive node box, which I'm running for the Rockerpool Odal, but it's a separate box altogether. So that's running another combo.

• 1:10:43Speaker 04

  And then I have another solo box, which is my retirement fund. So my entire retirement account is in ETH. But I can't stake that ETH with my personal funds because of some regulations. So I have to have another solo staking box for that.

• 1:10:57David Hoffman?

  So I think that's so funny. So he has his personal staking box and his retirement staking box. It actually kind of fits. And literally there are two different boxes because of nation state regulations. And like you can literally put them on top of each other if you wanted to.

• 1:11:09Speaker 04

  Yes, and my, and the funny thing is my retirement box is a little device called a ProTS, which is something Joe from the Rockapool community sold. So it's basically a Rock 5B board in a nice 3D printed case. And it's a low powered device, but it's running a bunch of solo validators on there. That is my retirement one. So it's literally sitting right in front of me. I can see it right here next to my Rockapool box. My solo staking box is in the other.

• 1:11:35David Hoffman?

  Don't commingle them.

• 1:11:36Speaker 04

  But yeah, but that's it. Like as long as, as long as they're separate, that's apparently okay. But, and yeah, and they're all running off of my home network. So my home network is 100, 1,000 megabits down, so one gigabit down and 40 megabits up. Unfortunately, the up is, is pretty, pretty crappy and I haven't got anywhere around that. But it does put a lot of load on my network. I'm using currently 15 terabytes a month just on my staking boxes because they're all using different EL and CL combos. So they're basically running their own Ethereum full node essentially, and I'm running an archive node as well. So that put a lot of strain on, and I had to replace some networking gear because some of it was leading to missed, missed attestations on some of my boxes because it just was overloading my network.

• 1:12:18Speaker 04

  So yeah, that's, that's a lot of the tinkering that I've done, but there's so much more. But yeah, it's, it's been fun. It's been a lot of fun, but when you're running such a weird setup like I am, yeah, you run into these issues that no one really runs into. And I was troubleshooting things with actually a core dev and he was like, what's going on? And it was the network, it was the networking equipment issue because he's like, you shouldn't be missing attestations. You're doing nothing wrong. I'm like, I don't know, man. I don't know. And it took me a while to figure it out, but I figured it out in the end. So that was okay.

• 1:12:48David Hoffman?

  Yeah, the the surface area that you have to be a solo staker, I think is pretty immense these days. And we've come, we've come a long ways away from where we were previously bullied by the Bitcoiners for not ever being able to run a full node, which was never ever true in the first place.

• 1:13:02Ryan Sean Adams?

  I still think culturally, we should totally honor solo stickers. Like, I just want to say, good job, Anthony. Like, that's totally, I know it's, it's, it's more difficult. What you're doing right now is more difficult than just kind of staking it with some sort of pool provider. But you're performing your civic duty as an Ethereumian.

• 1:13:20David Hoffman?

  Above and beyond, yeah.

• 1:13:21Ryan Sean Adams?

  I think that should be celebrated, for sure.

• 1:13:23David Hoffman?

  You should put on a little cape today, Anthony.

• 1:13:26Ryan Sean Adams?

  Today.

• 1:13:27Speaker 04

  I mean, I would be doing it a service to everything I believe in if I was not solo staking. That's, that's the way I view it, right? And I think solo stakers are the beating heart of Ethereum. They are the beating heart of Ethereum values and decentralization. We didn't create Ethereum proof of stake the way we did to just go stake with centralized exchanges, right? And, and I've been a solo stakeer since day one, literally part of the genesis of the beacon chain. You know, a bunch of my validators, which, yeah, I'm very, obviously very proud of. But my setup, just for people that listened and heard how complex it was, this is not a normal setup.

• 1:14:00Ryan Sean Adams?

  You don't have to do that. We can, we can make it easier than what you just said. Is that what you're saying?

• 1:14:04Speaker 04

  Yeah, it's a lot easier than that. You can, you can very, setting up a solo staking box is actually very easy. Oh, and actually, just one other quick thing. My solo staking box, while I was in Denver, for Eve Denver, decided to basically, or while the SSD that it runs on, decided to just like die. And it caused my solo staking box to go offline. And I had no idea this was the case until I got back home. And then I got back home and I looked at it. So I had to basically redo my entire setup again. So I had to reinstall everything. But it only took me like half an hour because there's a guide that I follow from, he's name is Suma, Suma E-Sat. He's on Medium. And there's a CoinCashew guide, they're very, very similar.

• 1:14:45Speaker 04

  You follow that and it tells you all the commands to put into the command line, to do it, to generate everything and to do everything. And it only took me half an hour to get back up and running with a new SSD. It's obviously not going to be like that the first time you do it. But I think there's this misconception that solo staking is really hard when I don't think it is. And as I said, you can do it on very low powered hardware. My my Pro TS box is, um, I think it was like 700 US dollars or something like that, around that. For the whole kit and it comes preloaded. If you don't want to solo stake, but stake as part of Rockerpool, it comes preloaded with the Rockerpool smart node stack. So you can get started straight away. So and and for solo stake is there's the Avado or DAP node boxes, uh, which you can also use. So there are multiple different ways to get started.

• 1:15:27Speaker 04

  And I think that there is definitely a misconception that solo staking is this really hard thing. That's only reserved for the super technical people. I'm not very technical, the command line, I'm a beginner at it. I'm not, I can't do the all

• 1:15:38Ryan Sean Adams?

  You just copy and paste.

• 1:15:39Speaker 04

  Other people. Yeah, I mean, a lot of the time I just copy and paste and and learn how I go. And and it is, it is a lot of fun as well. So I just, I figured that was worth mentioning too.

• 1:15:49David Hoffman?

  Well, I think that was a great exploration down the world of solo stakers. Justin, uh, yeah, give us your, give us your last thoughts while we sign off here.

• 1:15:55Speaker 00

  Yeah, just to try and show solo, uh, staking a little bit more. You know, you don't have to pay any fees when you're solo staking. So already that puts you a- a- above the rest from a, from a rational standpoint. But the, the other thing I want to highlight is that my prediction is that there is going to be special airdrops specifically for solo

• 1:16:18Speaker 00

  And the reason is that, um, for example, Eigenlayer, some of the services that they require is that pure economic security. So just lots and lots of if, but some other services are maybe more subtle. They kind of require, you know, proof of humanity or they require proof of decentralization. And what is happening right now, this is, you know, information that I know internally is that like there's some people that are kind of looking at the set of metadata for validators. And there's a lot of metadata. You can look at deposit addresses, you can look at withdrawal addresses, you can look at fee recipients, you can look at IP addresses. You can look at correlated failures. When did they go offline at the same time? You can look at

• 1:17:01Ryan Sean Adams?

  So it's a fairly simple resistant data set of like your most involved Ethereum citizens.

• 1:17:08Speaker 00

  Exactly, yes. And then you can identify, okay, we know who Kraken is, you know, we know who Coinbase is, and we can just not give them an airdrop. If the purpose of the airdrop is to airdrop to specific individuals that are running solo validators.

• 1:17:24Ryan Sean Adams?

  That's a cool incentive, possible incentive, hypothetical incentive to sign off on. And as we always say, crypto pays you to learn about crypto. Maybe crypto can pay you in a way to learn how to go through the, some of the more difficult steps that Anthony was just talking about. David, you want to say something?

• 1:17:42David Hoffman?

  Yeah. And if anyone just had the gut reflex of this benefits whales who can afford 32 ETH and above, and not the people who are fractional ETH stakers, but would desire to be a solo staker. I'm wondering if something like Obel and Shared Secret Validator could actually solve for something like that, where four people could come together with eight ETH or each and count as a solo staker. That technology is not here yet, but I think it's right around the corner because that is something that Anthony I know is tinkering with. It was actually one of the answers I was looking for you to get to say, but yeah, so.

• 1:18:17Speaker 04

  I can't, I can't reveal everything just yet, but I've been leaking the alpha on my show that D V T technology is, is live right now on, on mainnet. And yeah, I've been tinkering with it a lot. And it is definitely a solution to that. You know, people can pull their ETH together in a, in a solo staker.

• 1:18:36Ryan Sean Adams?

  Team solo staking, basically.

• 1:18:37Speaker 04

  Yeah.

• 1:18:37Ryan Sean Adams?

  Squad staking.

• 1:18:38Speaker 04

  Yeah.

• 1:18:39Ryan Sean Adams?

  Squad staking. Oh, wow. Are we using that? Are we doing that?

• 1:18:42Speaker 04

  Squad staking is a good meme. I like that meme. Yeah.

• 1:18:46Ryan Sean Adams?

  You heard it here first. Guys, this has been a fantastic episode. Thanks for guiding us through Chappella. You can now withdraw your ETH, but why would you want to? I don't know.

• 1:18:55David Hoffman?

  Just put it back in.

• 1:18:57Ryan Sean Adams?

  See if you can, and then put it back in. Just go through the pipeline once. Anyway, guys, this is very exciting for Ethereum. We're glad you're with us on Bankless. We'll include some links in the show notes to a few of the things we reviewed. Got to end like this, as we always do. None of this has been financial advice. It wasn't tax advice either, despite what Anthony was getting into a little bit earlier. Don't get your tax advice from Bankless at all. ETH is risky, crypto is risky, so is DeFi. You definitely lose what you put in, but we are headed west. This is the frontier. It's not for everyone, but we're glad you're with us on the Bankless journey. Thanks a lot.