Welcome to The Protocol
Welcome to The Protocol, CoinDesk’s weekly wrap-up of the most pivotal stories in cryptocurrency technology development. I’m Ben Schiller, CoinDesk’s Opinion and Features editor. In this issue:
- Ethereum’s Wall Street cheerleader
- Avalanche cuts fees by 75%
- Arbitrum integrates Bitcoin
- UBS tests ZKSync for gold
This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time. Sign up here to receive it in your inbox every Wednesday.
Network News
ETHEREUM’S WALL STREET CHAMPION:
Ethereum is experiencing a significant identity crisis. Its native cryptocurrency, ether (ETH), has been underperforming compared to its competitors, leading long-time developers to question whether the chain’s technological advancements are lagging and if its community is losing focus. The Ethereum Foundation, the nonprofit organization responsible for guiding Ethereum’s development, has faced criticism for numerous network challenges. Co-founder Vitalik Buterin is initiating a major leadership restructuring within the organization; however, his dominant role in the process has sparked its own share of controversies. Meanwhile, rival ecosystems, such as Solana, are capitalizing on Ethereum’s uncertainty, attracting top talent and surpassing ETH in market performance.
Amid this turbulence, a new initiative called Etherealize is seeking to connect Ethereum with Wall Street. Founded by former banker Vivek Raman, Etherealize aims to bridge the gap between traditional finance and Ethereum, positioning ETH as a legitimate asset class. Raman, who spent a decade in the banking sector before transitioning to crypto, believes his background in traditional finance provides him with a unique insight. Over the past four years, he has laid the groundwork for Etherealize, deciding to launch in January during a period of heightened market optimism fueled by expectations of a crypto-friendly White House, despite Ethereum’s internal disputes and stagnant prices. In an interview with CoinDesk’s Margaux Nijkerk, Raman discusses the inception of Etherealize, its marketing strategies for ETH on Wall Street, and how banks perceive layer-2 rollups. Read more.
AVALANCHE CUTS USER COSTS:
The cost of utilizing Avalanche, a DeFi-centric smart-contract blockchain, has plummeted since the implementation of the Avalanche9000 upgrade on December 16, resulting in a more than 33% increase in transaction volume. Following the upgrade, the proof-of-stake blockchain’s average gas fees have dropped by approximately 75% compared to previous months, according to data from Flipside and Bitquery. The daily transaction count has surged by 38%, reaching an average of 354,691 transactions.
As the fifth-largest smart-contract blockchain by market value of its native token AVAX, Avalanche features a multichain structure comprising the C-Chain for smart contracts, the P-Chain for managing staking and validator coordination, and the X-Chain for asset transfers. The upgrade included seven improvement proposals, notably ACP-125, which reduced the base fee for executing smart contracts on the C-Chain from 25 nAVAX to just 1 nAVAX. Furthermore, the hefty validator fee of 2,000 AVAX was replaced with a monthly subscription ranging from 1 to 10 AVAX, facilitating projects of all sizes to introduce layer-1 (L1) protocols on Avalanche. The objective of this upgrade was to make every component of the Avalanche technology stack more affordable by lowering C-Chain fees and eliminating capital requirements for L1 validators, as explained by Stephen Buttolph, Ava Labs’ chief protocol architect, in an interview with Decrypt. Read more.
UBS TESTS ZKSYNC:
Swiss banking giant UBS has announced the successful completion of a proof-of-concept for its UBS Key4 Gold offering on the Ethereum layer-2 network, ZKsync. This simulation, conducted on a ZKsync test network, reflects a growing interest in blockchain technology among traditional financial institutions. This isn’t UBS’s first foray into blockchain; the bank previously launched a tokenized money market investment fund, uMint, which is also built on Ethereum.
The UBS Key4 Gold offering allows Swiss clients to purchase a direct claim to physical gold, enabling fractional gold investments with real-time pricing, deep liquidity, secure physical storage, and optional physical delivery. While the project already exists on the UBS Gold Network, the bank sought ways to scale its operations while maintaining privacy. Pearl Imbach, a Senior Business Development Manager at Matter Labs, the primary development firm behind ZKsync, explained in an interview with CoinDesk that the bank concluded that zero-knowledge technology was essential for their goals, focusing on practical applications for an existing product. ZKsync, utilizing zero-knowledge rollup technology, aims to enhance blockchain transaction speed and reduce costs through advanced cryptography. A validium, a different kind of layer-2 solution, stores transaction data off-chain. This test transaction may indicate that UBS is considering layer-2 technologies for other business activities, although the bank did not confirm plans for its own layer-2 solution. Imbach stated that while a rollup may not be the best fit for UBS, the discussions around potential use cases are ongoing. Read more.
ARBITRUM BRINGS BTC:
Arbitrum, a leading Layer-2 network, has announced a groundbreaking integration with Bitcoin through BitcoinOS, a smart contract system designed for the leading cryptocurrency. This integration facilitates a “hybrid rollup,” offering new ways for Bitcoin holders to engage with Ethereum. Nina Rong, Head of Partnerships at the Arbitrum Foundation, stated, “BitcoinOS’s integration with Arbitrum demonstrates how our technology can support innovative Bitcoin ecosystem expansion. This collaboration showcases Arbitrum’s capacity to enable trustless bridging and programmability for Bitcoin while preserving the network’s core security principles. We are excited to see BitcoinOS leverage our network to unlock the immense $2 trillion Bitcoin liquidity pool for DeFi and smart contract applications.” Currently, Arbitrum boasts the highest total value locked (TVL) of any Ethereum Layer-2, estimated at around $16 billion, along with 8,333 Wrapped Bitcoin (WBTC). Read more.
Money Center
Top Cats
- Taproot Wizards plans to utilize $30 million in new funding to develop an ecosystem of applications leveraging the OP_CAT Bitcoin improvement proposal, which introduces Ethereum-like smart contract functionality for Bitcoin.
Bitcoin Ransom Down Payments
- The volume of ransoms paid in Bitcoin is declining as more victims refuse to comply, according to Chainanalysis.
Regulatory and Policy
- Fresh stablecoin legislation is set to be introduced in the U.S. Senate, marking the beginning of several anticipated crypto bills in the upcoming weeks. The bill, proposed by Senator Hagerty of Tennessee, divides oversight responsibilities for stablecoin issuers between state and federal authorities.
Calendar
- Feb. 1-6: Satoshi Roundtable, Dubai
- Feb. 19-20, 2025: ConsensusHK, Hong Kong.
- Feb. 23-24: NFT Paris
- Feb 23-March 2: ETHDenver
- March 18-19: Digital Asset Summit, London
- May 14-16: Consensus, Toronto.
- May 27-29: Bitcoin 2025, Las Vegas.
