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Eth 2.0 Staking with Alchemy’s Mike Garland

Notes from a 1.5 hour webinar by Mike Garland from node operator Alchemy on Eth 2.0 staking, hosted by Jehan Chu of Kenetic Capital.

The post Eth 2.0 Staking with Alchemy’s Mike Garland appeared first on Bits on Blocks.

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In early June, Mike Garland from node operator Alchemy gave a 1.5 hour presentation on Ethereum 2.0 staking, hosted by Jehan Chu of Kenetic Capital. I thought it was interesting so I took some notes. Errors and omissions are my own.

Eth 2.0 rollout

  • Eth 2.0 Rollout will be in 3 phases:
    • Phase 0 – Beacon Chain – July 2020
      • Validators and basic Proof of Stake functionality
      • No smart contracts, no accounts
      • Staking rewards start when the threshold number of validators are reached
    • Phase 1 – Sharding – 2021
      • Addition of 64 “Shard Chains” for scalability
    • Phase 2 – Accounts and contracts – 2022
      • Remainder of the “normal” Ethereum functionality – smart contracts, etc.

Promises of Eth 2.0

  • Promises of Eth 2.0
    • Scalability (send more transactions through the network without paying tons of gas or waiting a long time)
      • Sharding is the main mechanism.
      • Eth 1.0 – 14tx/s and getting slower and more expensive
      • Eth 2.0 – up to 7,500tx/s and scales with the number of shards
        • (Visa processes 1,700tx/s)
      • Reminder: Phase 0 of Eth 2.0 will have 0 tx/s. No transactions. Initial beacon chain is for staking only. No transfers, state changes, or smart contracts. Eth 2.0 only becomes “useable as expected” in Phase 2.
    • Accessibility (make sure the features are available to all users, not just miners or those with lots of compute power)
    • Security (greater security of the chain, related to staking decentralisation)

Proof of Stake vs Proof of Work

  • Proof of Work mining is more energy hungry than gold digging: 14 MJ/$1 of BTC vs 5MJ/$1 of gold!
  • Proof of Stake is more energy efficient (no mining), in theory more decentralised (no specialised hardware required), more secure (more diverse set of miners so 51% attacks are more unlikely) than Proof of Work.

The role of validators

  • Validators
    • Vote on the validity of the next block (called “attesting”)
    • Can propose new blocks to be voted on
    • Can earn rewards for successful participation in the network
    • Can be punished in two ways:
      • Slashing: Large fines, and kicked out, for appearing to attempt to cheat (whether accidentally or with intent to cheat)
        • eg voting for multiple blocks at the same height
      • Penalties: Small fines for downtime / unresponsiveness

Validator lifecycle

  • Validator lifecycle: Initial deposit → Pending → Active → Exiting or Slashed → Exited.
    • Spend most of your time in “Active” state: Proposing on blocks, voting on blocks etc
  • Initial Deposit
    • Deposit of ETH is made to a specific contract on Eth 1.0 Network.
    • Validator remains in “depositing” state for approx 7.5 hours to avoid any potential of block reorgs (due to probabilistic nature of Eth 1.0 PoW).
  • Pending State
    • Deposit is recognised by Eth 2.0 chain
    • Validator is officially recognised by Eth 2.0
    • If the deposit is at least 32 ETH, validator joins a queue / waiting list. Mininum wait estimated at 25 mins if the queue is empty, up to days/weeks if the queue is full. This helps slow entry/exit of validators.
    • Eth 2.0 wants to have a stable validator set, so only small number of validators can start/stop at one time.
    • At the front of the queue, the validator can become active.
  • Active State
    • Validators spend most of their time here.
    • As an active validator, you must attest to blocks, else there are (small) penalties.
    • Attest at least once every 6 minutes (once every epic)
    • Occasionally can propose blocks if you want.
    • Validator will remain active unless:
      • Funds drop below 16 ETH
      • Validator asks the network to stop (voluntary exit)
      • Validator is caught cheating (specific types of cheating)
  • Exiting State
    • Validator joins a queue to exit
    • Exiting validators must continue to behave as active until exited, and are still subject to penalties while in the exit queue.
    • Validators cannot stop attesting immediately, without penalty
      • Reduces “hit and run” types of fraud
  • Slashed State
    • Occurs if a validator is caught cheating
    • Validator is immediately fined 1 ETH
    • Labelled as a cheater, forced to exit and marked for additional penalties
    • Slashing can occur even when exiting, or in retrospect when exited
  • Exited State
    • End of lifecycle, no more need to attest or propose
    • 1 day delay before funds can be collected
    • If validator was slashed, Fund delay is increased to 36 days, and after 18 days, validator will be penalised an additional amount based on how many other validators were slashed.
  • Exited for Slashing
    • If 1/3 of the validator set are slashed at the same time you lose 100% of your stake. If it’s just you, it’s like 4% or something then straight line up to 100% at 33% of validator set.
      • Note: this is counterintuitive so will say again. The more validators that are implicated in a cheating event, the more each validator is punished. The opposite of “safety in numbers”.
  • Slashed funds redistributed to other “healthy” validators (at a guess based on other staking mechanisms)
  • Penalties – differ under circumstance. Eg if multiple validators go offline at once, they’re punished more than if only one goes offline. Attempt to prevent centralisation of technologies, centralisation of clouds etc. You are incentivised to run on a different cloud provider vs others.

Minimum requirements to run a validator

  • One validator one vote (not one coin one vote, which is what many other PoS protocols do)
  • 32 ETH is the minimum stake to be considered a valid validator.
  • Your income from validating is based on the number of validators you run, not the amount of coins you have on each validator.
  • If you have more than 32 ETH you can get slashed more than 32 ETH. So no reason to stake more than 32 ETH per validator.
  • Essentially, you just want to run as many validators as you can in lumps of 32 if you are trying to maximise yield per ETH staked.
  • Staking won’t happen unless more than 100k ETH are staked (threshold).

Validator setup

  • 3 components of a basic validator setup
    • Beacon Node = Stores Chain State (think Eth full nodes).
    • Validator = Node registered with Eth 2.0. Doesn’t need to store the chain. Lightweight, need to trust a Beacon Node.
    • Signer = Connects to or is part of a Validator

Implications

  • Validators have are disincentivised to stake more than the minimum of 32 ETH (can be slashed for full amount, so minimise the amount at risk).
  • Cheating or unintentional cheating can be very expensive. Eg accidentally double signing (running hot hot and one goes down etc).
  • So, to get the most juice, run more validators.
  • A fund holding 100k ETH = Need to run 3,125 validators! Significant burden on infra. With sharding, this could get hairy – up to 64x particularly on Beacon nodes.
  • Infra will be expensive.
  • Rewards: Up to 11% annual staking returns (if staking 32 ETH on a validator. If stake eg 64 ETH on one validator, then rewards would be max 5.5%)

What’s next?

  • First multi-client testnet of Eth 2.0
  • Beacon Chain rolling out as soon as July
  • Start preparing early!

Alchemy

  • Alchemy’s goal will eventually be to make it easy for retail investors who have at least 32 ETH to easily become a validator.

Cloud costs

  • ETH full node might cost $500/mth on cloud providers, most of that is on storage.
  • Validator (not beacon node) estimated at sub $100 monthly costs.

My thoughts (not part of the presentation)

  • To be a profitable validator, your revenue needs to exceed your costs.
  • Your annual revenue per validator is (based on 11% interest) 11% x 32 ETH = 3.52 ETH.
  • So your profit is 3.52 ETH less costs of running a validator (cloud / hardware costs, management time etc)
  • Let’s say your cost is $100 / mth, = $1,200 per year (mentioned in the presentation)
  • To break even, 3.52 ETH needs to equal $1,200
    • This implies a break-even price of $1,200/3.52 ETH = $340 per ETH
    • Plus you need to account for the risk of getting slashed.
    • If ETH is below $340, it’s not financially worth you staking.
    • Obviously this number is sensitive to your costs of running a validator node. If your costs are half that (eg $50/month) then you will be profitable at $170/ETH
  • There is a price of ETH below which it becomes loss-making to validate (just like Bitcoin).
  • The real winners are the cloud providers!

Source: https://bitsonblocks.net/2020/06/28/eth-2-0-staking-with-alchemy-mike-garland/

Blockchain

Robinhood Testing New Cryptocurrency Wallet as Demand Rises

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The millennial-focused trading portal is edging closer to launching a long-awaited app that will enable its growing user-base to send and receive cryptocurrencies.

A beta version of Robinhood’s iPhone app showed the company’s latest upgrades on the new digital asset features, according to Bloomberg.

There is a hidden image showing a waiting list for users eager to get their hands on the app and code referring to crypto transfers, it added.

Delving Deeper into Crypto

Robinhood users can already buy and sell cryptocurrencies on the platform but they need to convert them to and from USD. With a native app, users will be able to send crypto assets to each other directly and set up two-factor authentication for additional security.

Robinhood Chief Executive Officer Vlad Tenev stated that adding crypto wallets is a priority for the company’s developers and they are actively working on such.


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“The ability to deposit and withdraw cryptocurrencies is tricky to do with scale, and we want to make sure it’s done correctly and properly.”

He did not specify a launch date, but the beta app leak suggests it is not too far away. Users of the new functions will need to activate crypto sending and receiving and the registration page will require an identity check, the report added.

On Sept. 11, CryptoPotato reported that Robinhood had launched incentives to promote longer-term cryptocurrency investing. The zero-fee recurring purchase feature enables users to schedule digital asset purchases for regular intervals with buys as low as a dollar.

This will encourage customers to build their cryptocurrency portfolios over time and “become a whole coiner,” stated Robinhood.

Robinhood Users Hungry For Crypto

Cryptocurrency trading has been one of the biggest drivers of revenue for Robinhood this year. Dogecoin has been the crown jewel, according to the company. It reported that 62% of its $233 million in second-quarter crypto income came from DOGE trading.

It added that more than half of all transaction-based revenue on the platform came from digital asset trading. The firm did warn that Q3 would not be as prosperous due to “seasonal headwinds and lower trading activity across the industry.”

Robinhood share prices have already fallen 43% since their all-time high of a little over $70 in early August. They are currently trading down 1.68% since Monday’s open at $40.70 according to Yahoo! Finance.

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Source: https://cryptopotato.com/robinhood-testing-new-cryptocurrency-wallet-as-demand-rises/

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Blockchain

Taker Protocol Raises $3M to Transform NFT Liquidity and Utilization

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[PRESS RELEASE – New York, United States, 20th September 2021]

Taker Protocol, a crypto liquidity protocol for NFTs, has raised $3 million from a number of reputable investors to build new financial primitives into the burgeoning NFT market.

The round was led by Electric Capital, with DCG, Ascentive Assets, Dragonfly Capital, Spartan Group, The LAO, Sfermion, and Morningstar Ventures participating as well.

Taker Protocol focuses on improving the liquidity available in the NFT market. Due to the unique non-fungible structure of NFTs, existing DeFi primitives are difficult to integrate into the market, resulting in significant issues in terms of overall liquidity. The value of an NFT is extremely volatile and often effectively becomes zero as no buyers can be found at any reasonable price. Furthermore, NFTs are difficult to use productively after purchase and often end up forgotten in the user’s wallet.

Taker Protocol aims to solve the worst of the liquidity issues. Allowing lenders and borrowers to liquidate and rent assets that aren’t cryptocurrencies creates new liquidity streams and opportunities. For Taker, these assets will include NFTs, financial papers, synthetic assets, and much more.

The TKR token defines membership in the Taker DAO, which has several key functions in the system. In addition to setting loan-to-value rates and other parameters in the protocol, the DAO will also contribute in fairly appraising a particular NFT or NFT collection. This means that each asset supported by Taker will have a guaranteed fair floor price. In return, TKR holders will be able to obtain rewards and receive a portion of platform income.

The funds received will help Taker launch the full version of the protocol across multiple chains, including Ethereum, Polygon, Solana, BSC and Near. The support of major stakeholders and participants in the NFT ecosystem will also help further development of the project.

Taker DAO contains many different Curator DAOs (Sub-DAOs), each sub-DAO will manage their own whitelist and a floor price for any NFT on their whitelist if the borrower defaults on the loan. We believe that it is best to mitigate the risks for our lenders by carefully selecting the NFT assets that our community desires and trusts the most. Aligning the interest of the DAOs with that of the lenders, we will mitigate the risk exposure for the lenders and optimize the profits for the DAOs. Moreover, each sub-DAO will have its own funds and can choose to focus exclusively on a specific type of NFT assets. For example, it could be artworks-only or Metaverse-only.

Taker Co-Founder Angel Xu comments:

“We are absolutely thrilled to welcome so many well-established investment funds to the team. Their participation heralds an exciting new phase for the protocol as we seek to address persistent problems in the NFT lending market for the benefit of end-users. This investment will enable us to further optimize liquidation of NFT assets across multiple blockchains, removing the barriers to entry that prevent new players from entering the market.”

“Taker Protocol is using an innovative approach to solve the biggest problem in the NFT space — lack of liquidity. With Taker, we are one step closer to the world where anyone anywhere can use their NFT assets to take out a loan.” (Maria Shen, Partner at Electric Capital)

About Taker

NFT DeFi: Taker is the first protocol to provide liquidity to the NFT market through a DAO. It is a multi-strategy, cross-chain lending protocol for lenders and borrowers to liquidate and rent all kinds of crypto assets, including financial papers, synthetic assets, and more. Taker provides ensured liquidity via our lenderDao infrastructure and extensions that could be integrated into NFT marketplaces.

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Source: https://cryptopotato.com/taker-protocol-raises-3m-to-transform-nft-liquidity-and-utilization/

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Binance to cease these crypto-derivative offerings in Australia

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Once upon a time, regulators around the world weren’t confident about handling the crypto-ecosystem. This attitude, however, has changed of late thanks to the industry’s growth and the interest it has seen from traditional institutions and major investors.

The aforementioned change isn’t universal, alas, with some crypto-entities still coming under a lot of regulatory fire. Binance is a case in point. The platform has come under increased scrutiny from a growing number of regulators worldwide, including regulatory authorities from the U.K, the U.S, the Netherlands, and Canada.

Australia too has now been added to this ignominious list.

According to an official announcement made by the exchange, Binance will no longer offer Futures and Options trading in Australia. It read,

“As Binance constantly evaluates its product and service offerings to comply with local regulations, we will cease offering the following products to existing Australian users: Futures, Options, Leveraged Tokens”

Moreover, it revealed that ‘existing Australian users will have 90 days to reduce and close their positions for these products.’ Post 23 December, users will no longer be able to manually reduce their positions, and all remaining open positions will cease.

What does this mean for Binance and its executives?

Well, the aforementioned step is in alignment with its executives’ aim – To create a sustainable ecosystem around blockchain technology and digital assets. In fact, according to one of its executives,

“Binance welcomes developments to our industry’s regulatory framework as they pose opportunities for the market players to have greater collaboration with the regulators. We are committed to working constructively in policy-making that seeks to benefit every user.”

This move followed last month’s restrictions on Options, margin products, and leveraged tokens (New accounts were barred from engaging in).

And the “nightmare” continues… 

Binance took a similar hit in a different part of the world less than two weeks ago. It discontinued support for trading pairs in the Singapore dollar (SGD), again due to regulatory crackdown(s).
Binance found itself in troubled waters earlier this year, with regulators around the world zeroing in on the top exchange. The regulatory pressure forced the leading crypto-company to adopt a proactive approach to compliance. That being said, the jury is still out on whether these steps have been making any difference?
Moreover, US authorities are probing possible insider trading and market manipulation allegations involving Binance. The exchange, for its part, has denied these speculations. Binance has a “zero-tolerance policy for insider trading,” a statement said.
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Source: https://ambcrypto.com/binance-to-cease-crypto-derivative-offerings-in-australia

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