The Protocol: Ethereum Struggles With Sprawl as Optimism Airdrops $27M

Last week marked the one-year anniversary of Ethereum’s historic “Merge” – the shift to a more energy-efficient proof-of-stake network. But in some ways the largest smart-contract blockchain has become a victim of its own success: Staking is so popular that the number of network validators is mushrooming toward 1 million, introducing new concerns related to the sprawl. We discuss how Ethereum developers are addressing the issue with the EIP-7514 proposal.

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Chart from Galaxy Research shows how the projected growth of Ethereum validators would slow based on the EIP-7514 proposal.

CROWD CONTROL: Ethereum has been so successful in attracting new validators for its proof-of-stake blockchain that the network is now starting to suffer from sprawl. There are nearly 800,000 active validators on the network, up about 41% since April’s “Shapella” upgrade, when withdrawals of staked ETH were first allowed, according to a Sept. 14 report by Galaxy Research’s Christine Kim. Based on certain assumptions, the number is on track to hit 1 million by mid-November and 2 million by June 2024. “Ethereum is getting close to reaching an unsustainable number of active validators,” Kim wrote. It’s pretty technical, but network “latency” is becoming a key problem, according to the report: There’s been “an increasing frequency of block reorgs and missed blocks in the first two slots of an epoch, likely due to increasing latency in attestation aggregation.” Developers have formalized EIP-7514 – an improvement proposal that would help, at least in the short term, by limiting entries of new validators to 8 per epoch (roughly 12 seconds), down from the current rate of 12. Another major concern from the rapid proliferation of validators, according to the Ethereum Foundation’s Dankrad Feist in a recent post, is that staking is becoming too concentrated in the hands of Lido, the biggest protocol for so-called liquid staking tokens. The plan to reduce the “churn limit” for new validators could be a stopgap measure for a more “elegant” fix down the road, Feist wrote.

OPTIMISM OPPORTUNISM: Much of this year’s news on the layer-2 blockchain Optimism network, supported by the developer OP Labs, has revolved around the OP Stack – a set of software tools that can be used to spin up new layer-2’s that are essentially modified clones of Optimism. Among them is Coinbase’s Base blockchain, which has quickly climbed in the project rankings since its launch last month, partly thanks to the popularity of the Friend.tech social media platform. But in terms of providing an additional jolt of, well, optimism into the project, there’s often nothing like free money giveaways. And this week, the Optimism Foundation announced its third community airdrop, with more than 31,000 unique addresses receiving about 19 million OP tokens, worth $27 million. Even in the depths of crypto winter, some teams are still flush with pools of money (often in token form) that can be used to incentivize users to transact on these nascent networks. A further 570 million OP tokens have been allocated to future airdrops.

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Highlighting blockchain tech upgrades and developments.

Fundraisings

Deals and grants

Data and tokens

The “Coinbase 10” wallet has seen a dramatic increase in its total ETH sent and received hourly. (Coin Metrics)

Blockchain sleuths have proven relentless in their efforts to identify the holders of key addresses – for insights on their underlying activity. in a report this week, Coin Metrics analyzed on-chain data for clues on the big U.S. crypto exchange Coinbase. “From the vantage point of an on-chain data analyst, Coinbase has historically proven to be a difficult entity to examine, as it has taken sophisticated actions to secure user funds across many accounts,” according to Coin Metrics. But the firm managed to identify an active address labeled “Coinbase 10” on Etherscan, and then plotted the hourly changes in ETH sent and received by the account. “With close to 150K ETH sent and received, this account is one of the top accounts by ETH volume in that same time period,” the analysts determined.(Dune Analytics/TokenInsight)

Please check out CoinDesk TV’s interview Wednesday with Fahmi Syed, CFO of the Polkadot-focused developer Parity Technologies. (7 minutes)