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Ethereum 2.0 Validators Will Earn Up To 10% As Staking Reward

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Ethereum 2.0 Validators Will Earn Up To 10% As Staking Reward
Ethereum 2.0 Validators Will Earn Up To 10% As Staking Reward

Ethereum 2.0 validators can expect to earn from 4.6% to 10.3% as rewards for staking on an annual basis, a senior ConsenSys exec says.

Collin Myers, head of global product strategy at blockchain firm ConsenSys, reportedly claimed that in order to become a validator on the Ethereum 2.0, one is required to maintain a minimum amount of 32 Ether (ETH), which is worth $5,760 at press time. Myers revealed the news at a recent blockchain event Devcon 5, Coindesk reports Oct. 25. Ethereum 2.0 is a major network upgrade on the Ethereum blockchain that is poised to shift its current Proof-of-Work consensus algorithm to Proof-of-Stake, passing block validation function from miners to special network validators. As previously agreed by Ethereum core developers, the first stage of the Ethereum’s transition to Ethereum 2.0 is expected to take place on Jan. 3, 2020.

At the same event, Myers also revealed a tool allowing validators to calculate annual gross and net returns, taking into account hardware and energy costs. Dubbed ETH 2.0 Calculator, the new web application is planned for launch in conjunction with Ethereum 2.0, Myers noted.

The calculator’s model is discussed in Telegram group ETH 2.0 Calculator. Yesterday, Ethereum co-founder Vitalik Buterin expressed his stance towards the Google’s much-discussed quantum computing progress, which could allegedly impact Bitcoin (BTC) and other crypto. In a tweet on Oct. 24, Buterin pointed out that recent quantum supremacy is as far from real quantum computing as hydrogen bombs are to nuclear fusion, explaining them as:

“Proof that a phenomenon and the capability to extract power from it exist, but still far from directed use toward useful things.”

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Ethereum-based Compound raises $25 million from Andreessen Horowitz

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Ethereum-based Compound raises $25 million from Andreessen Horowitz

The Decentralized Finance or DeFi ecosystem has been one of the most discussed fields in 2019, with the industry now worth over $650 million. It is owing to this success that various foundations today are launching their own DeFi protocols on the Ethereum network. The compound is one such player in the space.

According to reports, the San Francisco-based company has raised $25 million over its Series A funding round from popular VC firm Andreessen Horowitz, with Compound successfully convincing the influential investment firm about the future of DeFi.

The lending and borrowing market in the crypto-industry has significantly grown over the past few months, with Blockchain.com also unveiling its lending desk on 14 November. Tagomi, another prominent crypto-broker, also launched its lending platform on 12 September.

In a recent interview with Fortune, Robert Leshner, Founder of Compound, claimed that the organization already had assets valued at over $150 million on its lending platform. Presently, the company’s new objective is to make its service accessible to the mass population. Leshner added that the organization is currently heading towards integration with major exchanges so that customers are able to lend out their digital assets via the services of maybe Coinbase or Kraken.

After the announcement, Chris Dixon, General Partner at Andreessen Horowitz, stated,

“Compound is a lending protocol that is open to anyone in the world, that disintermediates banks and allows anyone to earn interest on their money. We’ve worked with Robert and his team for over two years and think they are world-class technologists and entrepreneurs.”

Additionally, Leshner suggested that the organization is aiming to slowly gravitate towards defined decentralized governance, in order to catch the interest and attention of crypto-enthusiasts. The Compound Founder added that the company hierarchy will not be able to enforce any form of influence on the lending protocol, like other traditional banking set-ups.

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The Ethereum Token Ecosystem Is Thriving

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The Ethereum Token Ecosystem Is Thriving

The so-called Ethereum killers never arrived. The network thrives as ERC-20 tokens approach Ethereum’s capitalization. Other smart contract platforms are not even close to Ethereum in terms of relative activity.

Coin Metrics employed an analysis developed by Chris Burniske of Placeholder, a New York-based venture capital partnership, to measure the health of the Ethereum network. The metric compares the market capitalization of Ether to that of all the tokens launched on the network. This network value to the token value ratio evaluates the health of Ethereum’s token ecosystem.

A value of one indicates that Ether’s market cap and the aggregated market capitalization of the tokens it hosts are equivalent. That implies a healthy, possibly undervalued smart contract platform. Coin Metrics found that the ratio has declined significantly since Q2 2017 from just under 35 to 1.9.

Courtesy Coin Metrics Network Data Pro, Ethereum Network Value to Token Value

What Caused the Fall?

ERC-20 tokens blossomed during the ICO frenzy of 2017. Most of those were utility tokens that enjoyed explosive initial price growth before rapidly descending — though Ether followed a similar trajectory. ICOs generally accepted ETH or BTC in return for their tokens, placing demand pressure on the platform’s native token.

Ether went through the same crypto winter endured by the whole market — perhaps exacerbated by ICO projects selling out of Ether into fiat to fund their activities.

According to Coin Metrics, stablecoins were responsible for the majority of the growth in non-native token value since mid-2018. Their capitalization rose from $109 million to more than $2.8 billion in that year-and-a-half period — going from one to 28 percent of the entire ERC-20 ecosystem.

In contrast, utility tokens fell by almost $2 billion, from 70 to less than 50 percent of the ERC-20 market capitalization. Exchange tokens remained fairly steady, representing about a quarter of the value of ERC-20 tokens.

Meanwhile, ETH Hasn’t Fared so Well

The growing health of Ethereum-hosted tokens only paints half the picture. Since mid-2018, stablecoin growth and a dwindling ETH price have combined to lower the relative value ratio to where it currently stands. On Jul. 1, 2018, Ether’s capitalization was just under $50 billion. Now it is around $20 billion.

The ERC-20 market essentially remained stable. Its makeup swayed with the growing relative importance of stablecoins, but its total value of approximately $10 billion increased only slightly over the period.

According to Coinmarketcap, Tether remains the dominant stablecoin at a market capitalization of over $4 billion. That is ten times the market cap of the second-largest ERC-20 stablecoin, USDC.

Tether could propel an even lower network value to the token value ratio. Tether is built on a number of protocols. The most important are Omni and Ethereum. As Coin Metrics noted, “Over the last several months, usage has been shifting from the Omni-based version to the Ethereum-based version of Tether.” If that trend continues, Tether will play an increasingly significant role in the aggregate value of the tokens hosted by the Ethereum platform.

How Are the Ethereum Killers Faring?

Burniske compared the network-to-token value ratios of ETH, EOS, XLM, WAVES, and NEO.

He found that activity on the Ethereum, WAVES, and NEO platforms was quite healthy with ratios under 10. On the other hand, EOS has a ratio of more than 200 — far higher than Ethereum. Burniske suggested that at least one of the assets is priced inadequately compared to its token hosting utility:

The graph illustrates that despite its own ups and downs, the Ethereum network remains a healthy platform for token activity. Crypto investors would be wise to stay alert to this metric. At current prices, Ether could be significantly undervalued.

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Will ETH 1.0 and ETH 2.0 have the same price?

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Will ETH 1.0 and ETH 2.0 have the same price?

As final preparations are underway for the beginning of the process to launch ethereum 2.0, starting with the deposit contract and testnet which should be out soon, many are wondering whether there will be two different coins at different prices.

As you may know, ethereum is to launch the Proof of Stake (PoS) Beacon chain which is a completely new blockchain that can be described as midway between a testnet and a mainnet or a dummy blockchain.

Anyone can send eth to this blockchain by sending it to the deposit contract once it goes out, which then basically destroys this eth and gives you the same amount on the beacon chain.

So there will not be two coins, it’s not a fork, it’s more of a migration. However, initially this eth on the beacon chain won’t quite be able to move, with it just for staking. Making it effectively locked eth.

There were some whispers at Devcon about exchanges providing liquidity for this eth2.0, so at some point, exchanges will have to decide whether they list it as just eth or whether they add a new listing of eth2 or beth.

That’s because the Proof of Work (PoW) chain will continue running for at least three years or more at the same time as the PoS chain. Yet while eth can be transferred to PoS, it can not be transferred back to PoW.

Danny Ryan, the eth 2.0 coordinator, suggested this is more of a sort of policy decision, rather than because technically it can’t be done.

He said allowing transfers back to PoW would slow down the eth 2.0 development, but technically you would “require 1.0 clients to be light clients of 2.0 and finalize 1.0 with 2.0 and expose beacon chain state root to 1.0 [and] add additional consensus rules to 1.0 and 2.0 to handle the reminting on 1.0 with proof of burn on 2.0.”

So you’d do the same thing as for the transfer to the Beacon but in reverse. Making eth on PoW or PoS indistinguishable.

It’s not clear they plan to add this transfer, however, with much seemingly in flux. Justin Drake, seemingly the mastermind of this eth 2.0 plan, and ethereum’s co-founder Vitalik Buterin have suggested it might be implemented by the end of 2020, but Joseph Lubin of ConsenSys stated phase 1 and 2 are to be merged and are likely to go out by the end of 2020.

So what exactly is the situation remains somewhat unclear, but exchanges have a few options.

ETH 2.0 Listing Politics?

From what we understand exchanges will be able to list ethereum coins on the Beacon chain soon after it launches, with validators seemingly able to transfer eth to other validators.

It’s not clear whether such eth can be transferred to someone that just has a beacon chain address, or whether there will be non-validator addresses at all on the beacon chain, to begin with.

That’s because the beacon is meant to be just a coordinator of where and which shard the eth should validate, but there would initially be no shards in which to move and do things, with it being a dummy blockchain to start off.

Why this eth would be listed at all during this period is not very clear. Obviously stakers might want to not stake anymore and give this eth to someone else who doesn’t want to bother going through the deposit contract, but they could also just wait.

Otherwise, you’d think there would have to be an eth1 and eth2 listing as they obviously sort of different coins because one has the defi and everything, while the other is just staking.

If they wait instead for full sharding before listing, then arguably it’s still two different coins because one is on the PoS chain, while the other is on PoW.

To what extent they’re different coins may depend on how wallets are implemented and just what the addresses are.

If we’d have two different address formats, which you’d think there would be as it’s different blockchains/networks, then trying to send PoS eth to a PoW address might be no different than sending it to a bitcoin address.

That suggests there might be no choice but to have two listings, as the only way these blockchains can connect is through a “centralized” point by going through the deposit contract at either end.

Otherwise, they’re kind of different worlds with no relation to each other from a usability perspective until they merge with eth1 becoming a shard of eth2.

So there might actually be no listing politics as it may be the case objectively there will have to be two listings, to begin with until the merger, but that can become quite a bit messy.

Primarily because which one is actually eth? They both are, but at least for some time, they’re not quite one eth.

Twilight Cryptoeconomics

Analyzing this from the prospective of a consensus that two eths will initially be listed, is not easy at all because eth1’s supply will fall as it burns, while eth2’s supply will rise to the same extent.

People will not have both eth1 and eth2, so it wouldn’t be a ‘doesn’t matter because the combined price’ situation.

So as supply falls you’d think eth1’s price would rise, but only if demand remains constant or increases. Some such demand might actually fall as it goes to eth2, otherwise the latter wouldn’t have a market.

Eth1 would probably be the dominant chain for some time because eth 2 would basically have to start from scratch presuming they have different addresses which you’d think they would.

So this is both a migration and a split like btc/bch but without cloning accounts in as far as every single eth business/service would have to upgrade.

It’s different networks. Even with eth1 sharded into eth2, the eth infrastructure might itself be “sharded.” Hence perhaps why Buterin initially said such merger would be in many, many years.

Does it Matter?

Not if you have eth1, excluding what demand it might attract because of the eth2 plans. That’s because if eth2’s price is much higher, then you just go to eth2.

Likewise, if the price of eth1 is much higher, since technically apparently it’s just a smart contract deposit to go back from eth2, you just go to eth1.

Meaning at an individual level it might not matter much, and this ability to go back and forth can be done by bots, but it’s not clear whether much value would be lost to these bots as unlike in a chain-split, everyone has only one coin, yet there could well be two different prices.

Nor is it clear which one would be called eth exactly. Justin Drake, as far as we are aware, distinguished some time ago between eth and beth, unless we misremember and it was someone else. Point being ethereans themselves are already calling the place they’re going beth.

The Ethereum Foundation has the trademark for ethereum as far as we are aware, but it’s not clear whether there’s any trademark for eth. So there could well be a situation where what is intended to be eth ends up being beth.

Making all this quite a bit of a mess that can’t even be avoided because obviously it’s a fairly big ecosystem with some unfriendly exchanges which, in some cases, should be expected to do what is the most damaging for eth.

Or there are just two eths with their own use cases during some transition period of years, with this then somehow to become one eth even though you have to move the entire global network, without a clear answer as to why they should move.

Capacity, obviously, but BCH has capacity yet not much use. Eth has smart contracts dapps, is more decentralized, and has adoption, but that’s eth1.

Does MakerDAO, for example, go to eth2, when, how? Do they just cut it off at eth1 and pack their bags to eth2, or copy-paste on eth2 with it being on both. If the latter, how long would that take after the launch?

Replicate that for the entire ecosystem, and you have to wonder whether this isn’t going into some wilderness.

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