History and justice are quite alike, they have to be taken with a strong grip. - xh3b4sd
"But what about the inverted yield curve", can we hear them asking. And to me it is just all noise. People in crypto land are concerned with so many inversions on the 4D chessboard, and often I can't help but think, you are all just playing against yourself. If you want to make it, long term, then all you need to do is to bet on human progress. Technology equals human progress. And however you wish to express that bet on the human race, somewhere there between the lines of technology you will find the answer. Now, all tech is not created equal. And not all tech will survive the next day. And this is the part where you will notice that I start talking my book again. Because in the context of progress and time, Ethereum is being build to last. The other day I was thinking how we are building hyperstructures nobody has ever seen before, and how those hyperstructures will shape the world of tomorrow. In one version of such a cypher punk tomorrow, I think chances are that a hundred years from now, the people building Ethereum will be acknowledged as the founding fathers of a network state and its constitution, the protocol enforcing Ethereum itself. On that line of thinking, let me take you on a trip back to the future. In the early 21st century, Vitalik Buterin laid out a blueprint for what would eventually become Ethereum. His original vision, articulated in the Ethereum White Paper in 2013 was further formalized in the Ethereum Yellow Paper in 2014. Those early documents can be seen as the Declaration of Independence for a new digital frontier, that was further described as network state. Just like the American colonies sought independence from British rule, Ethereum tried to break free from centralized control of corrupted institutions. All in the promise of a platform for decentralized applications that provide anyone with equal access, regardless their individual background or belief. The Ethereum Yellow Paper, authored by Gavin Wood, defined the technical foundations that govern the Ethereum blockchain today. It represented the formal breakaway from incumbent monopolies and power structures, setting the groundwork for a decentralized, self-sovereign digital economy. In the way the Declaration of Independence laid out the colonies' grievances and aspirations for freedom against King George the 3rd, the Yellow Paper articulated the technical grievances with existing systems such as Bitcoin's limited programmatic expressivity. In that light, the Yellow Paper subsequently provided a vision for a more robust and flexible world computer. Henceforth, the values imprinted in this declaration sparked a movement of pioneers, much like the early US colonies united under shared values. The Yellow Paper was a call to once again go west, and build a new digital economy based on principles of decentralized consensus and permissionless innovation. As Ethereum matured over the years and decades to come, its protocol became the constitution of this new network state. Just as the US Constitution from 1787 formalized the structure of the American government, delineating the powers and responsibilities of its branches, the Ethereum protocol defined the rules for its governance and execution branches for everyone onchain to follow. Myriads of smart contracts, much like the articles of the US Constitution, laid down the law for the emergent behaviour within the Ethereum ecosystem. In an effort to scale its reach, the dawn of L2 rollups was Ethereum's moment of assembling the Federal Union. Each chain, like the Arbitrums and Optimisms of this world, created their own operational autonomy while remaining anchored to the security and governance of the Ethereum protocol on mainnet. With every joining L2 rollup this union grew stronger, attracting more economic activity due to the economic security this network state could provide as one. And united by one protocol, free to execute as they pleased, this network state became later known as the United Chains of Ethereum. And with that conclusion, we are coming full circle, back to where we are at right now, today. I think chances are that a hundred years from now, the protocol guild, and all the people that believe in Ethereum and build on top of it, will one day be acknowledged as the founding fathers and pioneers of the constitution, that we call today, Ethereum.
I had kind of a revelation earlier this week thinking about ETH as money across L2 rollups. There is often a debate about the onchain user experience nowadays, because using a blockchain network requires users to pay for the blockspace that they want to use. One narrative that chains started to push is the idea of allowing the user to pay for gas with any token that they may already own. The benefit of that would be that you do not force users to get one specific token, but allow them to use the tokens that they already own. That mechanism reduces a lot of the friction that especially new users face when using the chain. The reaction to this idea is often the following. What about the value accrual of that very gas token, if users can pay gas in anything other than my bag? Well, as long as the underlying network denominates its block space in that original gas token, I do not see any issue with allowing users to pay in whatever token they like. Because, block space is still denominated in the original gas token, meaning the token that the end user has, still has to be swapped for that native gas token anyway. In the context of Ethereum that means the following. Even if users want to pay for gas with other tokens, it will still be ETH as long as the underlying networks stay true to their vision. We are already allowing for better UX with EIP-4337 via gas sponsorships. And we are already allowing to pay gas in alternative tokens. That is all ok. Furthermore, here is the kicker. ETH is used and burned in either case, plus, the swapping required to exchange user tokens for ETH increases gas consumption again, which is again, still denominated in ETH. All of the UX improvement efforts happening already today will ensure that ETH becomes ever stronger money across all of Ethereum, as long as the execution networks remain true, or as we call it, aligned. The users doesn't have to care too much about any of the technical details here. I think this is a win win situation, with the optionality that users can then still use ETH as collateral in DeFi if they really want to.
Recently I noticed that I made a mistake in the Powerlaw memo of W30 back in July of this year. I was looking at the L2 related ETH burn and said that it was steady at 7% for months on end. That was wrong, because I was looking at the wrong Icons on the L2Beat dashboard, which gave me the wrong numbers, causing me to draw the wrong conclusions. Back then it was in fact about 3%, not 7% of L2 related ETH burn. I noticed that mistake because I saw the numbers the other day again and realized that the L2 related ETH burn was now at 5%. I wanted to mention the mistake here and get the record straight. The bad thing all along was that the L2 specific burn wasn't as high as I thought it was. But the good thing is now this. Those numbers increased ever since anyway. So in the end, not all shall be lost! We keep scaling Ethereum. And we keep burning that ETH in the process.
Let's look at some numbers then, shall we?. There is roughly an equivalent of 14.5 million ETH bridged over to L2 rollups today. That means the amount of value bridged over is basically locked in those supply sinks. Why is this relevant? First of all, supply sinks make it easier to move asset prices. And then, all that economic value bridged away from mainnet lends more credibility to those secondary execution environments. And that means the rollup centric roadmap works! In other news, we just saw the second net positive week for ETH ETFs, with over 70 million USD of inflows. Having said that, we also have to acknowledge that we are still 400 million USD short of being net positive in total since ETF launch, which is now about two months ago. So far the appetite for BTC ETFs has remained an order of magnitude larger than the appetite for their ETH counterparts. So far it hasn't been very pretty at all. Some ETF vendors posted articles about the idea that Ethereum is like Microsoft, and that temporary slumps in market performance do by no means take away from the fundamental value underlying it all. That I agree with. Because, eventually, fundamentals will matter.