Happens Even in the Best Families: Pre-Holiday Ethereum Drama
Also, new DeFiZap feature and Enigma testnet
Hello defiers! Merry Christmas Eve and happy Hanukkah if you celebrate :) Here’s what’s going on in decentralized finance,
New Ethereum hard-fork drama
DeFiZap feature allows users to earn interest on cDai and Uniswap trading fees
Privacy protocol Enigma launched its testnet
🎄Also: The Defiant holiday schedule:
This week: There will be no newsletter on the 25th, 26th, but will be back on the 27th with my Year in DeFi review.
Next week: No Defiant except for a recap on Sunday. This will be the first time since I started the newsletter in June that I take a full break. I’ll be back fully recharged after a family trip on Jan. 5!
Ethereum Upgrade Mess Shows Devs Are Spread Too Thin
Ethereum, the base layer for most of DeFi, is undergoing an upgrade at the worst possible time –New Year’s day– just one month after its latest upgrade because developers miscalculated an important issue.
To some critics, this shows lack of professionalism, to others it highlights the need to allocate more resources to the current Ethereum chain, when so much of the focus has gone towards building Ethereum 2.0.
So what happened?
💡First a reminder about Ethereum’s Difficulty Bomb, a mechanism that’s programmed to increases the difficulty in Ethereum’s mining algorithm, which starts out slowly and then increases exponentially until a near freeze of the blockchain in a process known as the Ice Age. This was built into the system to deter miners from continuing to work on Ethereum’s proof-of-work chain, when the new proof-of-stake chain is launched.
There’s no proof-of-stake chain yet, so the Difficulty Bomb needs to be pushed back. Earlier this year developers estimated the bomb wouldn’t start going off until mid 2020, and so a delay wasn’t so urgent. Those estimated were wrong and the difficulty bomb already started going off. There was an unfortunate comment by Geth’s lead developer Peter Szilagyi saying,
Nobody forgot the ice age. Someone ran some rough calculations and figured there's ample time. The calculations were wrong. People had better things to do than double check. The moment someone did and realized the ice age is here, we acted as fast as we could.
The delay could have been added to the Istanbul hard fork, implemented on Dec. 7, but it would have meant delaying that upgrade, so Ethereum developers decided to have a separate hard fork. And that’s the Muir Glacier, whose only purpose is delaying the Difficulty Bomb for another 4,000,000 blocks, or approximately 611 days, according to this post by the Ethereum Cat Herders. When it was planned about a month ago, it was estimated that block number 9.2 million, on which the upgrade is scheduled, would land around Jan. 6, but turns out it will actually be closer to Jan. 1.
Some developers were less than pleased to see they’d have to work on New Year’s, though others were quick to point out that nodes can be upgraded before the deadline. Still, someone will have to be up and sober in case anything goes wrong when the fork happens.
Ethereum critics were having a field day criticizing the mess that is the Muir Glacier hard fork.
Ethereum developers are spread too thin: There’s just a handful of them, earning below-market salaries, maintaining the second largest public blockchain. They’re bound to make mistakes. I called out Szilagyi earlier for his comment on not double checking, but he also said something that gets at the core of the issue: “The entire Ethereum ecosystem relies on 10 people working their ass off to keep $15B afloat and they you call them incompetent.”
It’s been the Ethereum Foundation’s role to support Layer 1 development, but funds have increasingly gone to Ethereum 2.0. The Muir Glacier hard fork mess is a consequence of Eth1 working with insufficient resources.
[Read my analysis on EF grants here.]
It’s a difficult balance to strike, when the long-term potential of Ethereum is arguably riding on a less wasteful, more scalable blockchain, while actual activity and growth is happening on the current chain.
It will be impossible for the EF to come to a perfect distribution of funds that leaves Eth1 and Eth2 teams happy. This highlights the important role community-led funding efforts like MolochDAO play; hopefully these decentralized organizations will step in with where funding is most needed. For-profit DAOs being built will make external funding even more sustainable.
You Can Earn cDai Interest and Uniswap Fees in One Click
DeFiZap, which enables users to get exposure to multiple DeFi protocols in one transaction, added the ability to add liquidity to the cDAI/ETH pool on Uniswap Exchange in one click and using just ETH.
DeFiZap will automatically: 1) convert half of the ETH provided by the user into DAI (using Kyber Network) , 2) Dai is then used to mint cDai (a token earning interest on Dai) on Compound, 3) cDai and ETH is then supplied to the cDai/ETH liquidity pool on Uniswap.
The feature allows users to earn a portion of the 0.3 percent fees generated on the trading pair, while also earning interest on cDAI.
Privacy Protocol Enigma Launches Testnet
Enigma, which wants to bring privacy to private blockchains, launched its first networked testnet.
The first independent nodes successfully connected to Enigma testnet, and the secret contracts for Salad, Enigma’s coin-mixer implementation, have also been deployed to the Ethereum testnet and Enigma.
Public blockchains allow anyone to access the full transaction history and tokens held by any address son the network. While pubic addresses are pseudonymous but there’s a risk they can be tracked down to the owner, which has been a factor in preventing institutions from adopting public chains, like Ethereum.
Enigma is an open-source protocol, which aims to make smart contracts and transactions private by allowing users to perform computations on encrypted data.
A post focuses rather narrowly on the economics of Proof-of-Work versus Proof-of-Stake, I’ve left all else aside for brevity.
The Defiant is a daily newsletter focusing on decentralized finance, a new financial system that’s being built on top of open blockchains. The space is evolving at breakneck speed and revolutionizing tech and money. Sign up to learn more and keep up on the latest, most interesting developments. Subscribers get full access, while free signups get only part of the content.
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About the author: I’m Camila Russo, a financial journalist writing a book on Ethereum with Harper Collins. (Pre-order The Infinite Machine here). I was previously at Bloomberg News in New York, Madrid and Buenos Aires covering markets. I’ve extensively covered crypto and finance, and now I’m diving into DeFi, the intersection of the two.