#42 Vitalik's recipe: "go boring"
Vitalik Buterin suggests we focus on the boring side of crypto. Also, Apple to star the battle between Web 2 and Web 3, Uniswap's fee switch is back and FTX episode ∞
We’ve been playing with chatGPT to assist in writing this issue (see the chapter on Chainlink below), and we will probably continue to do so in the future. So far, it doesn’t look like it will take our jobs away, but it can definitely help us be more productive. Let us know what you think!
For a collective that speaks so much about decentralization and reinventing power dynamics, (us) crypto people are surprisingly prone to embracing charismatic figures. There are things that technology will never change.
Vitalik is one of them; we all hope he doesn’t join the dark side. Ethereum founder and chief scientist has expanded his area of influence way beyond technology with his sharp takes and writings. Today we turn to him for a small dose of hope. In the aftermath of the FTX collapse, Vitalik has written the article we didn’t know we needed. In “What in the Ethereum application ecosystem excites me, " he gives us reasons to hold on to the boat. We could summarise his take in two words: go boring.
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“My excitement about Ethereum is now no longer based in the potential for undiscovered unknowns, but rather in a few specific categories of applications that are proving themselves already and are only getting stronger.”
However, he doesn’t say if this is a bear-specific approach or if his view extends to a healthy market moment.
He mentions the five areas where he believes crypto is adding more value. In similar phases of development, there are five obvious features of crypto, where tech and human ingenuity have a lot to say.
Crypto as money. Payments are one of the most obvious areas that might get disrupted by crypto. There are still many technical hurdles to avoid before it can be fast and cheap. Still, crypto already offers a reliable alternative to fiat currency in developing countries, especially those in financial distress or underserved by the banking system. But Vitalik also claims that developed countries require a decentralized, censorship resistance form of payment that can help remove monopoly and ideology from financial transfers. He mentions certain sectors, like voluntary donations or pornography, where some institutions hold excessive power over individual freedom.
Stablecoins are a proven use case, in Vitalik’s opinion. And he sees three ways these shall develop, showing three levels of centralization: centralized stablecoins, modeled by the likes of USDC, and USDT; DAO-governed RWA-backed stablecoins (DAI) and Governance-minimized crypto-backed stablecoin (RAI or LUSD)
2. DeFi, after the hangover. According to Vitalik, DeFi must let go of the siren calls of unsustainable yield farming and self-referential tokenomics and focus on the “few applications that are particularly valuable.” Aside from the obvious (decentralized swapping, lending, etc.), Vitalik points out some areas that he likes: prediction markets (token-based, crowdsourced predictions) and synthetic assets (tokenized version of other assets, in stablecoin fashion).
3. The identity system. Crypto offers an alternative to the current digital identity model, which heavily relies on third parties. Your online presence is probably dependent on email or social media accounts that, at the end of the day, you do not fully own: Google, Twitter, or Facebook own your data, and a change in their policy could any day leave you out of your accounts. Crypto offers unique tools for authentication and ownership of your identity.
4. DAOs, are one of the most exciting and, at the same time, most immature corners of crypto. The promise of a new form of government needs to tone down and leave some space for research, experimentation, and common sense. What Vitalik writes sounds like profound musings, still detached from reality.
5. Hybrid applications. Other systems can use blockchain to support existing solutions and add the virtues of trustworthy digital exchange of assets or information: voting systems, gaming, or corporate accounting are some areas where this could happen.
"Many of the more stable and boring applications are not built because there is less excitement and less short-term profit to be earned around them.”
Less excitement and less short-term profit seem like a reasonable starting point for an industry that aims to reset the world in many aspects.
We asked Dall-E to draw “Rodin’s thinker under a storm” to represent the current mindset in crypto. You can get hold of this NFT on OpenSea.
⬡ Six Angles
We select six topics to illustrate the different angles from which crypto can be approached. We could choose dozens, but six is the atomic number of carbon… and otherwise, we’d be writing for ages.
1. Web 2 vs Web 3 | Apple blocks Coinbase Wallet
Apple takes 30% of every payment made through its platform, like app purchases or in-app payments. Twitter provides a very recent example of how this plays out: their re-launched verification service costs $8 unless you’re paying from an Apple device, in which case you’ll pay $11.
This fee is the pinnacle of the platform economy, the ruling business model of the Web 2 era. But it doesn’t fit too well with Web 3.
Apple wants its 30%, but how can this tax be enforced in the NFT market? When a user purchases a non-fungible token through Coinbase Wallet, Coinbase has little power over the transaction. Exchanges take place on these decentralized backends called smart contracts that Apple ignores.
“For anyone who understands how NFTs and blockchains work, this is clearly not possible,” Coinbase Wallet posted. “Apple’s proprietary In-App Purchase system does not support crypto, so we couldn’t comply “even if we tried.”
BTW: remember that if you want to get acquainted with what happens behind the scenes of an NFT purchase, we have a crash course for you.
2. TradFi | Goldman Sachs shopping for bargains
This may not be the type of institutional interest in crypto that signals recovery, but it’s an interesting take nonetheless. Goldman Sachs has reportedly been spotted flying in circles over crypto, looking for companies to invest in.
"We do see some really interesting opportunities, priced much more sensibly," says Mathew McDermott, Goldman's head of digital assets.
Goldman Sachs has always regarded crypto with interest. They’ve openly defended the advantages of DeFi and stablecoins over some TradFi regions and shared their excitement about the metaverse. Now they’re eying an opportunity to participate in a hype-less
"It's definitely set the market back in terms of sentiment, there's absolutely no doubt of that," McDermott said. "FTX was a poster child in many parts of the ecosystem. But to reiterate, the underlying technology continues to perform.”
3. DAOs | Constitution DAO Reloaded
One year ago, in November 2021, we were all rooting for one DAO who was trying to perform the ultimate stunt. A group wanted to go Web 3 Nic Cage and scoop an edition of the US Constitution on an upcoming Sotheby’s auction. They raised millions and failed. This time, the relentless transparency in crypto worked against it: everyone knew how much money the DAO had raised, so it was very easy to understand when they would run out of fuel. Worst auction strategy ever.
But restitution DAO is back (the pun is mine), now renamed ConstitutionDAO2. It is formed by a consortium of DAOs ready to win where the original DAO lost and claimed to have learned from their mistakes.
4. Oracles | What is Chainlink?
Chainlink recently launched its much-anticipated staking service. So it seems like a great moment to introduce oracles, one of blockchain’s most important fundamentals, to those who don’t know about them.
Oracles provide smart contracts with data external to the blockchain. For example, imagine a Web 3 casino where you could bet on World Cup games in a decentralized manner: you deposit tokens into a smart contract, and the smart contract distributes the proceeds according to the result. But how can a smart contract tell how a football (or soccer) game ended? Chainlink has the answer, and chatGTP can explain what it does.
Chainlink is a decentralized oracle network that connects smart contracts on the blockchain with external data and events. It allows smart contracts to access off-chain data, such as stock prices or weather data, and perform actions based on that information.
Here's a simplified explanation of how it works:
A smart contract is deployed on the blockchain and contains the rules for executing a contract.
The smart contract sends a request for data to the Chainlink network.
Chainlink nodes, which are decentralized entities that run on the network, receive the request and compete to provide the requested data.
The nodes collect the data from various off-chain sources and submit it to the Chainlink network.
The Chainlink network verifies the data and sends it back to the smart contract.
The smart contract uses the received data to execute the contract according to its pre-defined rules.
This process allows smart contracts to access external data and events, enabling them to be more useful and versatile. It also ensures the integrity and reliability of the data used by the smart contract, as the data is sourced from multiple independent nodes and verified by the Chainlink network.
5. DeFi | Uniswap Fee Switch
The debate on the fee switch is back and in good shape. Uniswap has been debating and researching the implication of activating it.
If you don’t remember the fee switch, here’s the explanation we wrote back in August. TL;DR, instead of distributing transaction fees from decentralized liquidity pools 100% to liquidity providers, Uniswap suggests keeping some for the project’s treasury.
After relaunching the proposal, (initially brought forth in July), Uniswap Foundation made the following reminders and observations.
Reminder number one: This pilot project is expected to produce insights. The fee switch will be implemented in a limited number of pools to collect data to understand user behavior in this new landscape.
Reminder number two: the fees accrued will not be distributed to token holders. This would create legal and fiscal obligations that Uniswap wants to avoid facing now.
Consideration number one: as explained in this blog post by the Uniswap Foundation, Uniswap is aware of these potential legal and fiscal obligations, but they’re not scared of them.
We have made efforts to be thoughtful and analytical about these issues. And we believe that, in light of the uncertainties which exist in this realm today, there may be ways to design proposals that minimize these types of concerns. Uniswap Protocol Fee Switch Considerations
This is the most prominent case of value extraction from a Web 3 project, something that feels at the same time intuitively contrary to the spirit of distribution of crypto and intuitively necessary to create a project with a real, sustainable business model (something crypto needs these days badly).
6. FTX | Chapter ∞
The FTX drama keeps giving headlines (or, say, headaches). Tomorrow, Dec 13th, SBF is expected to appear in front of a Congressional committee, where he has been invited, not subpoenaed, to give explanations. SBF, after initial hesitation, finally has agreed, so tomorrow, we will have more of his
The crypto community feels that Sam is deliberately and convincingly playing the dummy card in front of politicians and friendly media. However, crypto natives do not buy that and keep providing data to back up the thesis of deliberate fraud. The general feeling is that SBF is unfairly getting preferential treatment thanks to his generous donations and successful PR.
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