The Protocol: Ethereum Learns of Potential Defector as ‘Supreme Court’ Mooted

The blockchain industry remains mired in crypto winter, with the price of bellwether bitcoin (BTC) down 11% in the past month. But there’s no slowing down in the race among technologists to position for the future. In the past week MakerDAO’s Rune Christensen, a pioneer of decentralized finance, signaled his openness to abandon the Ethereum blockchain ecosystem for rival technology from Solana or Cosmos, as the project searches for its own dedicated blockchain. Separately, a debate broke out over whether Ethereum should have its own “Supreme Court” to arbitrate disputes.

This week’s feature focuses on blockchain “sequencers” – a crucial element of the fast-growing infrastructure for “layer-2” networks atop Ethereum. Sequencers have been in the headlines recently, partly because they’re sometimes cast as single points of failure that could undermine the design principle of decentralization. Our Sam Kessler explains.

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SOLANA SEDUCTION: MakerDAO, one of the oldest and biggest decentralized-finance (DeFi) protocols on the Ethereum blockchain, is considering moving to its own dedicated blockchain. And rather than simply start a new layer-2 network within the dominant Ethereum ecosystem – as crypto-friendly firms like Coinbase and Consensys have chosen to do – MakerDAO might be looking to decamp altogether. Rune Christensen, MakerDAO’s founder, suggested last week that the project’s best bet might be to clone or “fork” the Solana blockchain – since it has the “most promising codebase.” In a governance forum post, he said Solana had demonstrated “technical quality” as well as “resilience by having gone through the FTX blowup.” (Solana was famously promoted by the collapsed FTX crypto exchange’s now-jailed founder, Sam Bankman-Fried.) Christensen went so far as to suggest the Cosmos blockchain’s technology as the “other main contender.” Ethereum co-founder Vitalik Buterin was apparently none too pleased, reportedly raising the question – in a post on a rival stablecoin project’s Discord channel – of whether “MakerDAO is torpedoing itself in weird directions” and then selling some 500 of the project’s MKR tokens (worth $579,000) that he had held since 2020. (Separately, in what might be a salt-in-the-wound moment, the credit-card network Visa announced Tuesday that it had expanded its stablecoin settlement capabilities to Solana, in addition to Ethereum.) On Wednesday, Solana Labs co-founder Raj Gokal told CoinDesk TV that the network was “battle-tested” and “ready for prime time.”

CODE VS. HUMANS: There’s an oft-repeated mantra in blockchain ideology that “code is law” – the idea that a network’s underlying programming should be sacrosanct, providing the ultimate authority to settle disputes even when serious emergencies or existential threats arise. Now, a top executive in the Ethereum blockchain ecosystem is explicitly embracing the idea that, in certain extreme scenarios, humans rather than hard-coding might be the superior arbiters of justice. Alex Gluchowski, CEO of Matter Labs, the developer of a top layer 2 network on Ethereum, has floated the idea of an “Ethereum Supreme Court” to arbitrate disputes that escalate to the point of threatening the main blockchain’s integrity. The system, which Gluchowski described on X (formerly Twitter) as “a hierarchical system of on-chain courts similar to the real-world judiciary,” would allow apps built atop Ethereum to appeal for a chain “fork” in the event that they are hacked or face some other sort of security crisis. “Code is law, bug = death,” Gluchowski wrote in a follow-up comment to his Sept. 2 post.

BASE’S NEW FANBASE: Just as the Friend.tech fad faded, sapping some of the post-launch adoration of Coinbase’s new Base layer-2 blockchain (as chronicled in last week’s The Protocol), there’s a new kid in town: Aerodrome Finance. The platform, which markets itself as the Base ecosystem’s “premiere liquidity engine and hub,” has quickly attracted more than $170 million of TVL or “total value locked,” helping to push the overall TVL of protocols on Base to more than $400 million. The secret? According to the newsletter Wu Blockchain, the project’s “native token, $AERO, offers liquidity mining rewards with an annualized yield close to 1,000% without compounding.” That’s a lot, even in crypto. Aerodrome’s TVL has now exceeded – “flippened” in crypto jargon – the $158 million on Velodrome, Aerodome’s predecessor project, which sits on the older layer-2 chain Optimism. Is it sustainable? “Money doesn’t materialize out of thin air,” Wu Blockchain noted dryly, so “it’s worth considering when this spiral might come to an end.” (A Base zit: On Tuesday, the network suffered a “major outage” that lasted a little over three hours, its biggest glitch since the launch last month.)

Also:

FIRST ON COINDESK: Coinbase has quietly created a crypto lending service geared toward large investors, helping to fill the void left by last year’s blowups of firms like Genesis and BlockFi.

X, the Elon Musk-owned social media platform formerly called Twitter, has obtained payments licenses from several U.S. states in recent months – including a currency transmitter license in Rhode Island last week.

MetaMask, the popular crypto wallet, unveiled a new “Sell” feature that “allows you to cash out your crypto for fiat currency easily,” in a post on X. The feature is available in the U.S., UK and parts of Europe, “initially supporting ETH on Ethereum mainnet, with plans to expand to native gas tokens on layer 2 networks soon,” according to the company. Funds can be sent to a bank account or PayPal balance.

Protocol Village

Highlighting blockchain tech upgrades and developments.

• Swift, the interbank messaging system, said it conducted successful experiments with several major banks including Citi and BNP Paribas, to transfer simulated tokenized assets between wallets on public and private blockchains. “Chainlink was used as an enterprise abstraction layer to securely connect the Swift network to the Ethereum Sepolia network, while Chainlink’s Cross-Chain Interoperability Protocol (CCIP) enabled complete interoperability between the source and destination blockchains,” according to a press release from Swift.
• Curve, decentralized stablecoin exchange, deploys on Coinbase’s new layer-2 blockchain, Base.
• Community members of dYdX, a decentralized derivatives-trading platform, approved a governance proposal to make its DYDX token – currently on Ethereum’s ERC-20 token standard – the native token for its new standalone dYdX application-specific blockchain chain built with Cosmos SDK. As part of the proposal, the community agreed to adopt an Ethereum smart contract commissioned by the dYdX Foundation that, once deployed, “would enable a permissionless and autonomous one-way bridge for the DYDX token to be migrated from Ethereum to the dYdX Chain.”
• Trust Machines, a startup developing applications for the Bitcoin blockchain and led by Stacks co-creator Muneeb Ali, announced Aug. 31 that it has acquired wallet assets from Hiro Systems (where Ali serves as chairman) and has now launched its own flagship Bitcoin wallet brand, Leather. According to a blog post, the wallet can secure and manage bitcoin (BTC), Stacks L2 (STX) and BRC-20 tokens, and can be used to create, trade and transfer Ordinals, Stacks NFTs and Bitcoin Stamps. The former Hiro Wallet had 375,000 total installations and more than 100,000 monthly active users, according to the company.

Money Center

Fundraisings

• EXCLUSIVE: Socket, a protocol aimed at enhancing communication between blockchains, has raised $5 million from the crypto-friendly venture-capital funds Coinbase Ventures and Framework Ventures.
• Story Protocol, set up to track intellectual property, conducted a follow-on fundraising in the third quarter, which, in conjunction to an earlier seed round, brings the total raised by the project to $54 million, according to the team. Investors include Andreessen Horowitz (a16z), Hashed and TPG Capital's David Bonderman.
• Stroom Network, a Kiev, Ukraine-based liquid-staking protocol on Bitcoin’s Lightning Network that allows users to yield-farm on Ethereum-compatible DeFi ecosystems, raised $3.5M in seed round. (Greenfield, Lemniscap, No Limit Holdings, Cogitent Ventures, SMAPE Capital)

Deals and grants

• Btrust, a non-profit organization that aims to “decentralize development of Bitcoin software,” said it acquired Qala, an organization that trains African Bitcoin and Lightning engineers, on Sept. 1. Qala will be rebranded as the Btrust Builders Programme. Btrust was originally funded by Block and Twitter co-founder Jack Dorsey along with the record producer Jay-Z.
• Endaoment.Org, which says it's the first on-chain 501(c)(3) nonprofit community foundation and donor-advised fund platform, has expanded its platform to ​Base. According to the team: "Originally available exclusively on Ethereum, Endaoment’s deployment on Base makes crypto giving more accessible while reducing transaction costs, making small gifts more affordable for donors. The deployment brings more than 7,000 new verified donation endpoints for nonprofits across 150+ countries. This integration opens new donation revenue streams for nonprofits and ensures more funds go directly to a cause, rather than fees."
• Blockchain network developer Cronos Labs has started looking for eight startups to take part in the third cohort of its $100 million accelerator program aimed at supporting early stage crypto projects. The recruitment phase of the 12-week program commenced Sept. 4 to coincide with the start of Korea Blockchain Week, which runs until Sept. 10, and has a particular focus on artificial intelligence.

Data and tokens

• DeFi protocol Synapse’s SYN token jumped 17%, rebounding after a slump earlier in the week when a wallet the protocol said was tied to venture capital firm Nima Capital sold 9 million of the tokens.
• Connext airdrop of $NEXT tokens marred by $38K Sybil bot attack.
• Stake, crypto casino, targeted in reported $40M exploit following a “private key leak.”

Regulatory, Policy and Legal

• Once one of the world's most powerful crypto executives, Sam Bankman-Fried, jailed founder of the collapsed FTX exchange, has been reduced to bickering with prosecutors over his access to a laptop computer.
• EOS Network’s token EOS approved for trading on Japanese exchanges, after being granted whitelist approval by the Japan Virtual and Crypto Asset Exchange Association (JVCEA), a self-regulated body of crypto exchanges.
• A U.S. district judge in New York dismissed a proposed class-action lawsuit against the decentralized exchange Uniswap, brought in April 2022 by investors who claimed they lost money after investing in what turned out to be “scam tokens” issued and traded on the protocol. Judge Katherine Polk Failla of the Southern District of New York likened the suit to “attempting to hold an application like Venmo or Zelle liable for a drug deal that used the platform to facilitate a fund transfer.”
• Creditors of bankrupt crypto lender Genesis Global Capital, including some users of the Winklevoss twins’ Gemini exchange, have hit out at a proposed $175 million deal with the defunct exchange FTX, accusing GGC of vote-buying to “manipulate” the bankruptcy process.

Lido Dominates Ethereum Liquid Staking Market – and Isn’t Sharing

At least four Ethereum liquid staking providers have agreed to a self-imposed limit where they would never own more than 22% of the Ethereum staking market, Cointelegraph reported, citing the X account superphiz.eth. Notably absent from the list is the biggest among them, Lido Finance, which has staked 32% of the total ETH staked.

Calendar

• Sept. 6-9: TABConf technical Bitcoin conference, Atlanta.
• Sept. 11-13: Permissionless II conference, Austin, Texas.
• Sept. 13-14: Token2049, Singapore.
• Sept. 20-22: Messari Mainnet 2023.
• Oct. 2-4: Cosmoverse 23, Istanbul.
• Oct. 12-13: Bitcoin Amsterdam conference.
• Nov. 2-4 Cardano Summit, Dubai.
• Nov. 28: EOS native consensus upgrade with “instant finality.”
• Dec. 1-3: Africa Bitcoin Conference, Ghana.
• April 2024 (estimate): Next Bitcoin halving.
• May 29-31, 2024: Consensus, Austin Texas