Cointelegraph By Viktor Bunin
We are in an unprecedented period of social, political and economic turmoil. As the decentralized financial infrastructure powering billions of dollars of value and building thousands of companies grows, we need to recognize instability around us. The systems, protocols and incentives we create now can be less susceptible to censorship, government overreach and misinformation.
Ethereum 2.0’s design has a number of attractive attributes that make it exceptionally well-positioned to reliably operate through the choppy waters ahead as a neutral infrastructure, not as a biased platform. Individuals, enterprises and governments can be confident that Ethereum 2.0 will continue functioning in the instance of individual or state-actor level attacks. It is a solid foundation on which to build economic and financial infrastructure.
Related: Ethereum 2.0: Less is more… and more is coming
Eth2’s features are particularly relevant when viewed through a broader socioeconomic context:
- Governance through rough consensus.
- Robust and performant in the face of censorship.
- Reliable money for the decentralized economy.
- Empowers and enables self-sovereignty.
Eth2 is credibly neutral
Vitalik Buterin, co-founder of Ethereum, wrote a convincing post suggesting credible neutrality, or “a basic effort to be fair,” which should be a guiding principle in protocol design:
“Note that it is not just neutrality that is required here, it is credible neutrality. That is, it is not just enough for a mechanism to not be designed to favor specific people or outcomes over others; it’s also crucially important for a mechanism to be able to convince a large and diverse group of people that the mechanism at least makes that basic effort to be fair.”
As he continues: “Mechanisms such as blockchains, political systems and social media are designed to facilitate cooperation across large, and diverse, groups of people. In order for a mechanism to actually be able to serve as this kind of common substrate, everyone participating must be able to see that the mechanism is fair, and everyone participating must be able to see that everyone else is able to see that the mechanism is fair, because everyone participating wants to be sure that everyone else will not abandon the mechanism the next day.”
Today, if there’s anything that people tend to agree on (at least in the United States) it is that “The economic system unfairly favors the powerful.” To avoid this fate and remain credibly neutral, Eth2 follows in Ethereum’s footsteps, eschewing on-chain governance, in favor of technical governance through rough consensus.
Related: DeFi-ing the odds: Why DeFi could rebuild trust in financial services
This design decision has two nice properties:
- Eth2 has rough consensus (finding general agreement, not simple majority rule) and a lack of on-chain governance (a rejection of plutocratic rule). This makes Eth2 governance difficult to capture. By design, it is much harder for entities to force Eth2 to favor or censor others.
- Keeping the community together is one of the highest priorities of rough consensus. Rough consensus largely avoids highly contentious or controversial changes whenever possible, since it is difficult to find rough consensus on them. This leaves the decision space of rough consensus to primarily technical topics, which are grounded in facts and logic, and seek to minimize controversy.
Rough consensus isn’t just applicable to or decided by the core developers, but the entire community. There have been many times in Ethereum’s history when the community made its voice heard on important issues to impact Ethereum’s direction. Programmatic proof-of-work, or ProgPoW, is the most recent example: Core developers achieved rough consensus to implement it, but the community did not, and therefore it was not implemented.
In a world that is increasingly polarized, Eth2 cannot favor or disadvantage any individual, entity or group, as it has no mechanism by which it can do so in the first place.
Eth2 is robust and performant in the face of censorship
Cypherpunks were always worried about censorship by governments, but recent times have shown that censorship can also originate with individuals, enterprises and institutions. Eth2 is starting to underpin an entire parallel financial system, making it more important than ever that Eth2 can remain operational in the face of this type of attack.
Most importantly, Eth2 prioritizes liveness over correctness. Ethereum 2.0 researcher and tech developer Carl Beekhuizen outlined how Eth2 can continue producing blocks, even if there is a massive disruption that knocks a large number of validators offline, preventing the network from reaching finality. This robustness allows essential business functions to continue operating on Eth2, despite massive network disruptions.
Robustness is also why it’s so important that Eth2’s design is incredibly forgiving of downtime. Short amounts of uncorrelated downtime (minutes, or even days) have a relatively minor impact on rewards. Validators can change setups or migrate their nodes with confidence in the event of deplatforming, service interruptions or attacks.
On Eth2, validators default to being anonymous with no delegation. When someone attempts to censor, they will have a difficult time coercing a sufficient number of globally distributed, and mostly anonymous, validators to execute their will over an extended period of time.
Eth2 is reliable money for the decentralized economy
In a time of irresponsible money-printing and rampant asset inflation, experts disagree on how to best protect yourself and where to invest your savings. The Federal Reserve has stated repeatedly that “There is an infinite amount of cash at the Federal Reserve,” and that it can print digitally at will, which leads many to question the long-term viability of the dollar and the safety of their savings.
Related: Bretton Woods 2.0 is knocking at our door, and it’s not here to help
Ether (ETH) incentivizes participation on Ethereum via mining rewards. It also serves as the base asset for the decentralized economy built on top of Ethereum by functioning as a base trading pair, loan collateral and more.
Eth2’s design builds upon and expands ETH’s moneyness characteristics in two ways:
- Eth2’s rate of inflation is expected to be less than 1%, one of the lowest inflation rates of any protocol and much lower than the dollar.
- EIP-1559 (which will likely be active on Ethereum even before the transition to Eth2) will make ETH more scarce, and therefore potentially more valuable, as Eth2 usage increases.
Related: Ethereum Improvement Proposal 1559: Is the squeeze worth the juice?
The Ethereum community follows a policy of minimum viable issuance to keep the chain secure against attacks, such as double-spending. This approach is markedly different from today’s economies, in which central banks have tremendous control over monetary policy. Users, enterprises and governments can feel confident working with Eth2 because its base unit issuance is only used for one specific purpose: security, and that raison d’être cannot be repurposed to serve alternate goals. Additionally, the entire monetary policy is known and public, so everyone has equal insight and access to understand all protocol rules.
Eth2 empowers and enables self-sovereignty
Many people, across the political spectrum, feel disempowered today, as politics and the economy seem totally disconnected from the real world and our everyday lives. The promise of crypto, for many, is flipping that dynamic on its head and giving power back to the individual. Eth2, in particular, shines here.
Eth2 allows any individual, enterprise or government to run validators, actively opt in to the rules of the protocol and enforce them for all other participants. It enables a sense of ownership, confidence and self-sovereignty that is harder to achieve solely as a consumer. It also enables all entities to trustlessly build and verify the state, which makes us all work from the same set of facts — a rare occurrence in today’s world.
Eth2 does not cap the validator active set, and only requires 32 ETH to spin up a validator. While not equally accessible to everyone, this sum is not unreasonable, as running a validator allows an entity to support the decentralized economy in perpetuity, while earning the crypto equivalent of the risk-free rate of return. And those with less than 32 ETH (most people) can always pool their funds using Kraken, Rocket Pool or other services to participate on Eth2.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Author thanks Vitalik Buterin for providing feedback on this piece.
Viktor Bunin leads protocol operations at Bison Trails, a blockchain infrastructure provider recently acquired by Coinbase. He previously worked at ConsenSys, a crypto venture studio, where he advised clients on blockchain strategy and designed economic incentives for network stakeholders. Viktor believes the community is the killer feature and helped organize ETHDenver, ETHNewYork, Lightning Summit and other gatherings.
Gelato Network launches ‘G-UNI’ Uniswap v3 management token
Cointelegraph By Andrew Thurman
While Uniswap’s highly-touted v3 has been racing to the top of TVL charts as of late, the need for active management has kept some retail participants out of their pools — a problem that a new product from the Gelato Network is aiming to fix.
First teased in a community call last week, the Gelato Network has released today the details of their “G-UNI” Uniswap v3 management system. G-UNI aims to perpetually maintain a liquidity range of 5-10% within the current price of an asset pair, with an oracle network checking prices and rebalancing liquidity pool position ranges every half hour. G-UNI also automatically re-invests trading fees for compounding returns.
“Passive G-UNIs work by just providing very broad liquidity, similar to Uniswap v2 that never has to be changed,” an announcement blog post reads. “It thus can be completely free of anyone’s control as it does not require changes in its price range.”
While Uniswap v3 allows liquidity providers to earn more fees by concentrating their funds at specific prices, it opens them up to risk of impermanent loss if the prices of the trading pair moves beyond the provider’s specified range.
Update: REKT ☠️ https://t.co/0MF0gCd9sm
— ameen.eth (@ameensol) May 29, 2021
The blog post notes that G-UNI’s auto rebalancing brings the benefits of concentrated liquidity, but with the option of passively managing the position in a manner more in line with Uniswap v2.
“The advantage of this includes that users can sit back and relax as all the difficulties that come with monitoring LP positions are taken care of.”
Composability and incentives
While the new tool will be a boon to passive liquidity providers, the real benefits of G-UNI might be for other DeFi protocols.
A self-described “Legendary Member” of Gelato, Hilmar, noted that projects can now incentivize concentrated liquidity in “pool 2” liquidity pools. Pool 2 is a colloquialism for a native governance asset paired with a popular base asset, such as ETH or MATIC.
3) Having an ERC20 wrapper around Uni V3 LP positions is extremely powerful, as this enables teams like Instadapp to offer “Liquidity Mining” incentive schemes on top of G-UNI.
This means you can now incentivize your community to provide liquidity around specific ranges
— Hilmar X 冰淇淋 团队 (@hilmarxo) June 16, 2021
Projects often have to provide ample liquidity mining incentives for participants in pool 2s, as liquidity providers take on the risk of the native governance token collapsing in price. Concentrated liquidity rewards may help stabilize native asset prices to a more regular range.
Additionally, G-UNI is a ERC-20 token as opposed to a NFT, which opens it up to a broader number of possible applications in DeFi. Many lending platforms accept liquidity pool tokens as collateral, but aren’t yet widely prepared for positions represented as NFTs; G-UNI will allow them to onboard v3 liquidity positions faster. Likewise, yield vaults like Yearn.Finance, which has been planning to incorporate exchange positions for some time, may find it easier to integrate ERC-20s.
G-UNI will be used out of the gate as part of the launch of Instadapp’s governance token. The team is setting aside 1,000,000 INST tokens for INST/ETH liquidity mining, with 3/4ths of the rewards focused on a higher INST price liquidity range.
Per the Instadapp dashboard, the incentivized pools are currently live and offering 2,200% and 1,800% APY respectively.
Alchemix patches ‘Reverse Rug’ exploit, address $6.5 million shortfall
Cointelegraph By Andrew Thurman
It’s as miraculous as Aladdin taking off on a magic carpet: in a possible first, some of the users of a decentralized finance protocol were the ones to benefit today from an exploit, turning the concept of a ‘rugpull’ on its head.
A colloquialism for when liquidity is drained from a project (often an unscrupulous founder or developer draining the funds themselves), depositors and DeFi users are most often the ones holding bad debt and/or worthless tokens — left to hope for compensation plans that can take months or even years to fully vest.
In an exploit today, however, the users are the ones who got to pull at the seams for a change.
This morning, Alchemix announced that the contracts for one of their synthetic assets, alETH, had experienced an “incident.”
There has been an incident with the Alchemix alETH contracts. Together with the fantastic team at @iearnfinance, we have identified the error and are both working on a post-mortem and a solution to the problem.
Funds are safe.
— Alchemix (@AlchemixFi) June 16, 2021
In a incident report published later in the day, Alchemix developer “n4n0” said that “an issue with the deployment script of the alETH vault accidentally created additional vaults,” some of which the protocol used to incorrectly calculate outstanding debts, which in turn meant protocol funds were used to “pay off user debts.”
As a result, for a short window of time users were able to withdraw their ETH collateral with their alETH loans still outstanding — a rugpull by the community to the tune of $6.5 million.
Alchemix innovating again… this time with the reverse rugpull.. a ‘rugput’
Joking aside there was a little incident with the new alETH vault in which nobody lost any funds but some users actually gained@n4n084191635 with a great incident report herehttps://t.co/Vo3cWRnZPx pic.twitter.com/68G3y1s3x0
— ⟠ toast.eth (@intocryptoast) June 16, 2021
Per the incident report, the team paused the mint contract for alETH two and a half hours after the exploit was discovered. The report notes that no users lost funds as a result of the exploit, and that Yearn.Finance — whose yield vaults automatically repay Alchemix’s synthetic loans — suffered no loss as well. Additionally, a “conservative” initial debt ceiling prevented the protocol loss from being more extreme.
The team, including incident report author n4n0 appear to be taking the loss in stride:
— n4n0 (@n4n084191635) June 16, 2021
A trio of solutions is being deployed to cover the shortfall, including a temporary increase in protocol fees, a injection of ETH liquidity from Alchemix’s treasury, and a sale of DAI from the treasury for additional ETH. The team says they will be deploying an entirely new vault to address the flaws of the original.
Further changes may be on the horizon for the alETH asset as well. Alchemix currently has a alETH/ETH pool live on Saddle, a VC-backed fork of Curve Finance, following Curve reportedly turning down creating a pool for the synthetic Ether. However, in the past 48 hours the Curve social media account has been making overtures in an effort to bring Alchemix’s latest synthetic asset back.
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