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Last week, Shenyu, co-founder of Cobo & F2Pool, was a guest on Mars Finance Live, where he debated with several guests on the pros and cons of Ethereum’s EIP 1559 proposal, discussing layer 2, Ethereum expansion plans, on-chain governance models, cross-chain, etc. The live broadcast had a lot of useful information and insights shared. This article excerpts Shenyu’s views and shares them with everyone. What exactly is EIP 1559? According to the explanation of Ajian, the editor-in-chief of Ethereum Enthusiasts: EIP 1559 introduces 3 changes to the Ethereum protocol. The first is that when users send transactions, they must pay a basic fee based on gas. This basic fee will be automatically adjusted according to the actual gas usage of the previous block. As a price, the basic fee itself is adjusted to make the actual gas usage tend to the content of the EIP 1559 proposal, which is exactly half of the block size of the protocol proposal. When the actual usage is higher than the target, it will be adjusted upward, otherwise, it will be adjusted downward. Secondly, the basic fee paid by the user will be burned and will not be given to anyone. The third point is that when users trade, they no longer specify the gas fee, but give two parameters. The first is the upper limit of the unit price they are willing to accept, and the second is the upper limit of the packaging fee they are willing to give to miners. This is the main content of 1559. Why did Shenyu vote for 1559? Moderator: I noticed that there are about a dozen mining pools that are against 1559, and less than 10 support it. Most of them are against it, and there are also a few neutral ones. F2Pool, the leading mining pool of Ethereum, firmly voted in favor of 1559. I'm curious why Shenyu voted in favor? Shenyu: From our perspective, this matter is relatively simple. We look at the development of this proposal from a slightly longer-term perspective. Will it be beneficial to the entire ecosystem? In the current Ethereum ecosystem, especially from the perspective of senior users of DeFi, Ethereum has a very big fatal problem, that is, every transaction sent out is uncertain. I don’t know whether the current or speculated gas fee will change dramatically. In order to confirm their transactions faster, many miners will pay a higher-than-average gas fee, but then the network changes quickly in a short period of time, causing the transaction to be unconfirmed. I believe that many DeFi players will encounter this situation and keep accelerating transactions. If multiple transactions are initiated at the same time during this process, it is very likely to be messed up, causing DeFi to fall into a chaotic experience. In a better performance, such as the exchange public chain BSC, the tps is very high and the experience is very smooth. The experience difference between the two is still very large. The experience on Ethereum is very bad. It even takes hours to wait for a few transactions to be confirmed, which makes the entire DeFi ecosystem develop very slowly. This is also one of the reasons why many users have to move to other public chains. 1559 has fundamentally changed the experience, especially the experience of high-frequency users.
Second, 1559 changed the monetary policy. Previously, there was no upper limit to inflation, but now it can increase everyone's expectations for ETH prices and allow ETH to truly capture the ecological value of Ethereum. These two points will greatly improve the Ethereum ecosystem. Another point is that 1559 will charge a basic fee, which may change the current transaction pattern of Ethereum. There are currently about one million transactions on Ethereum, which basically exhausts Ethereum resources. But after careful analysis, we found that there are a lot of transactions, about 100,000 transactions, which are arbitrage transactions. In addition to generating economic benefits for the sender, there is no particularly good value, just wasting resources on the chain. After the implementation of 1559, some specific arbitrage behavior standards are difficult to carry out, especially arbitrage behaviors related to mining pools. So based on the above analysis, we think that if we look at the development of the Ethereum ecosystem with a slightly longer-term perspective, we should support such proposals, rather than a short-term perspective. Will Ethereum fork? Host: Dragonfly, a venture capital firm, once wrote an article saying that Ethereum is unlikely to fork again because of DeFi. Ethereum’s previous fork resulted in ETC, which was hacked twice last year. Weiss Ratings said that the ETC public chain no longer has value and necessity. So if miners object now, do they have the ability to fork? If users are willing to pay more for gas fees, will miners get higher fees? Shenyu: I think forking is a game process. Forks can be made at will, by anyone. We saw a lot of forks in 2017, and everyone seems to be accustomed to forks. Whether a fork can develop its own ecosystem is a more critical issue, because an ecosystem comes from an old fork and carries many users and assets. If some users have disagreements, they will throw away their assets. When a new ecosystem truly grows up, something different from other ecosystems will be born. So it depends more on the developers and users of the ecosystem. Miners only ensure the basic security of the ecosystem. We can see that most forks have not developed their own unique ecosystems, nor do they have many applications, and even many miners do not support them. As a result, the computing power is very low. Under the same algorithm, it is easy to attack at a very low cost, and the security will not be basically guaranteed. Basically, it depends on whether the ecosystem after the fork is a positive cycle or a negative cycle. Most of what we see now are negative cycles. It is difficult for innovative projects to run on forked chains because there is a lot of selling pressure. But in the DeFi protocol, we see similar situations such as sushi, such as founder operations and community development. However, compared with the original chain before the fork, there are still many areas for improvement and application, but I have not seen a very successful fork project yet, but I do not rule out the possibility of success in the future. 1559 Impact on Ethereum’s Economic Model Moderator: Vitalik Buterin himself also called for 1559, which is at least beneficial to Ethereum's economic model. And I see that most of the community supports it, but I also see that many people in the market may think that this proposal is not very helpful, and may even have some opposite effects. So I would like to invite two more guests to talk about it. What potential impact will 1559 have on Ethereum's economic model? Shenyu: We can look at the impact of this monetary policy from two perspectives. I think one advantage is that Ethereum is in a relatively bearish cycle. If Ethereum successfully expands, shards, and layer2, a large number of user behaviors and transactions will go to the second-layer network, and the handling fees that the first-layer network can capture will be relatively small. Assuming that the lower network is not congested in a bear market, most economic activities develop in the first-layer network. Under such conditions, if the block reward gradually decreases and approaches 0, the network security of Ethereum is very worrying. If it is in the PoW state, miners actually do not have a strong motivation to maintain security. There will be some similar problems in PoS, so after the monetary policy retains this block reward, I think it will play a role in ensuring the long-term network security. Because the final performance and a large number of economic activities will occur on the second-layer network according to current estimates. The second factor is that when the market is relatively good, the entire economic cycle is in an upward phase. A large number of economic activities may not be captured by Ethereum at this stage. Then, by forcibly destroying the token handling fee, the entire Ethereum can capture the ecological development. Because there are various tokens and various economies on it. But Ethereum itself cannot capture value. Every ETH holder may not be able to obtain the value brought by the prosperity of the Ethereum ecosystem. I think it is contradictory, so if it is destroyed in a preemptive way, it will bring personal incentives to ether holders. Let’s talk about on-chain governance Shenyu: Regarding on-chain governance, I think there are many imperfections, including PoW and PoS. PoW has actually encountered a long-term dilemma in the control of Bitcoin, that is, developers. The core participants and miners in the community have been arguing for years about some future routes. In this process, it is very difficult to reach a consensus because everyone holds different opinions, no matter how big or small the matter is. When a community develops to a certain extent, multiple voices are bound to appear. At this time, how to maintain a relatively unified opinion and move forward together will become very difficult, and multiple routes may branch out. At present, whether it is the PoW voting mechanism or the locked-up voting of PoS, or the signature verification of some DeFi protocols off-chain, none of them actually solve the problem. Some elites may control the entire public opinion, which will affect the development of the entire ecosystem, and many stupid things may also happen. For example, many DeFi protocols have not been clearly seen, and most of the public sentiment is not conducive to the development of the entire ecosystem. However, because of the large base and the large number of voting rights for transactions, the development of the entire ecosystem can be dragged down. I think this may be a very complicated problem. But a very perfect solution has not yet been found.
Layer2 and Ethereum Scalability Host: We have talked a lot about 1559 topics, let's talk about the recently popular layer2. For example, the "optimistic" plan has received investment from a16z, zk rollup has received venture capital support from Dragonfly and other venture capitals, and the exchange public chain has also begun to develop, such as Binance Smart Chain, which runs 1inch and DODO, and Huobi HECO. After the development of these exchange public chains, are you still optimistic about layer2? Shenyu: I have always been optimistic about the development of layer2. I think the blockchain world should be layered. The resources that can run in the top layer of the network are very limited. It is actually a big contradiction to ensure absolute security and high performance. In this case, different application layers will inevitably run on different layers. Back to Ethereum, because there are a large number of application scenarios and DeFi protocols that can be combined on the chain, but at present, we have seen that layer2 does not have a particularly perfect solution, such as being able to fully guarantee sufficient security and the composability of DeFi protocols. However, I am very optimistic about the short and medium term, and I am looking forward to some breakthrough developments. Host: Feng Bo once said during Wang Feng's 10 Questions that we should believe that we will solve the scalability problem of Ethereum, just like the Internet finally solved the bandwidth problem. Now, if you don't have hundreds of thousands of dollars, you really can't play around on Ethereum. DeFi on the Ethereum chain has almost become a toy for big players. If Ethereum's scalability is really solved this year, what impact will it have on the price of the currency, the Ethereum ecosystem, and the competitive landscape of the public chain? Shenyu: After the gas and performance issues are resolved, the entire blockchain ecosystem should be greatly developed. Because I see that now, both the number of user participants and the transaction scale are subject to the performance of the entire blockchain. CryptoKitties in 2017 caused the entire Ethereum to be blocked. This year, there are many DeFi protocols with a large number of user groups, and they are starting to look for some native applications on the blockchain. Even when some cross-industry applications begin to intensively use blockchain technology, they must solve this performance problem. Our future imagination space and the application scenarios that can be implemented will be greatly expanded, so the value of the entire industry will be improved. Moderator: Rollup is about to be launched, and the official Ethereum community seems to be saying that the scalability problem will be completely solved before the end of this year. Do you think the performance problem can be completely solved this year?
Shenyu: I don’t think it will be solved once and for all, it may be done step by step. Because these problems are still very complex in terms of technology, there will not be a perfect solution, it may just be a geometric improvement. |
