The Protocol: Ethereum Developers Warn on 'Diversity Problem'

In this week's issue, we're covering crypto developers' renewed focus on the Ethereum blockchain's controversial overreliance on a single software "client" called Geth, and the grumbles of crypto users who were hoping for a bigger token airdrop from the Manta project.

We've also got:

• Sam Kessler's Q&A with Ripple Labs CTO David Schwartz.
• Top picks from this week's Protocol Village column of blockchain project updates:
• Highlights from the annual Electric Capital report on crypto developer activity.

Network news

ETHEREUM'S DIVERSITY PROBLEM. In the blockchain tech context, "client diversity" refers to the goal of having multiple software programs – known as "clients" – available for node operators and validators to access networks; as the thinking goes, if one of these clients goes down, due to a bug or some other mishap, there are plenty of other clients that would remain largely unaffected, preserving the blockchain's uptime. Ethereum's problem, based on a debate that erupted on the social-media platform X over the past few days, is that it's heavily reliant on the client software Geth, which powers around 85% of the blockchain's validators. As our Sam Kessler reported this week, a bug on the "minority" client software Nethermind, which powers around 8% of the validators that operate Ethereum, knocked out a chunk of those operators on Sunday. Since the share was relatively small, the blockchain kept running as designed. But some experts took the opportunity to point out how bad things could have gotten if Geth had gone out. Cygaar, a crypto educator, noted in an X post that "Ethereum has terrible client diversity," adding that, "A critical issue in Geth can lead to potentially millions of ETH being destroyed from validators running Geth." DCinvestor, a pseudonymous crypto investor with a large social media following, claimed in an X post that they were pulling their staked funds from Coinbase until the company switches its validator operations to a system that relies less on the Geth client: "I can't ignore the risks." Per the website, ClientDiversity.org, which billboards the mantra, "Diversify Now," the goal is for no individual client software to have more than a 33% market share.

MANTA RAID: So much of the drama in the blockchain industry revolves around the pursuit of airdrops – token giveaways to early adopters, designed to incentivize growth and build community. Rarely do these things come with hard-and-fast expectations; there's a leap of faith; users ape into protocols, hoping they'll get rewarded. Last week's airdrop of MANTA tokens to users of the Ethereum layer-2 network Manta shows what it looks like when the airdrops fall short of expectations. According to The Defiant, Manta allocated 3% of its total supply to early users, quickly derided as "the most disappointing of the year." CoinDesk's Shaurya Malwa reported that, as the rewards trickled out, the network was hit with a distributed denial of service (DDoS) attack, leading to longer-than-expected withdrawal times and a slow network. "We know the community has mixed feelings right now, and we are very thankful to those that have reached out to support and help us get through this," a representative of the project tweeted on Jan. 18. The project, for what it's worth, describes its new Manta Pacific network as "the first Ethereum L2 using Celestia" for data availability – a coup given how large Celestia looms in the increasingly dominant "modularity" push among blockchain developers.

ALSO:

• Leading Ethereum layer-2 ecosystem Arbitrum's newly released "Expansion Program," which lets builders develop new layer-2 chains that settle directly to Ethereum, requires them to "promptly transfer 10% of the protocol net revenue to the foundation," under the terms of use.
• Bitcoin could see explosive growth in its layer-2 ecosystem, drawing on Ethereum's experience, a Spartan Group report suggested. Almost on cue, Conflux Network announced plans for a new Bitcoin layer-2 network compatible with Ethereum's EVM standard, and a mainnet launch targeted for May.
• Zero-knowledge proofs and related technology attracted more than $400 million of investment in 2023, Coinbase Ventures Principal Jonathan King wrote last week in a report. (Link)
• Independent investigative journalist Chris Brunet, who exposed now-former Harvard president's plagiarism, used the Polymarket prediction market platform to bet on her departure. (Link)
• Mt. Gox, the crypto exchange whose customers lost a combined 850,000 BTC (now worth $33 billion) after a 2014 hack, appears to be moving toward repayment of victims. (Link)
• DOOM, a videogame released in 1993, is now inscribed on Dogecoin blockchain. Our Shaurya Malwa reports: "The first-person shooter game was among the first computer games that went viral in the 90s. It was deployed on Doginals on its 30th anniversary, as per @minidogeart. The version is a so-called shareware - which contains nine levels of the game that can be published without the possibility of legal issues. (Link)
• "Genesis Cat," a digital art image minted atop the Bitcoin blockchain's Ordinals protocol by the Taproot Wizards team, sold for $254,000 in a Sotheby's auction, more than 12 times the initially estimated range of $15,000 to $20,000. The cat image was sold as part of the "Ordinals Curated Sale," consisting of 19 lots from 11 different artists, collectively raking in about $1.1 million.
• "Lord, You Told Me to Do This," Colorado pastor says in video message, defending himself after being accused by state authorities of pocketing $1.3 million in crypto proceeds while more than 300 investors had no way to recover their money. (Link)

Protocol Village

Top picks of the past week from our Protocol Village column, highlighting key blockchain tech upgrades and news.

• Ruby Protocol, which describes itself as an "intent-centric account and access layer for Web3," is building the "Ruby-TON MiniApp" on the TON Blockchain and LayerZero, to simplify integrations and user-centric dApp creation.
• Matter Labs (the developer behind zkSync) and iCandy, a game developer in Southeast Asia, announced a strategic collaboration that will see the joint commitment and allocation of resources to the development of a dedicated zkSync gaming and AI-focused hyperchain, to be called zkCandy.
• Oval, described as "the oracle value aggregation layer built to disrupt Ethereum’s MEV supply chain," has gone live on Ethereum mainnet, according to the team: "Created by the visionary DeFi project UMA in collaboration with Flashbots, Oval creates a new revenue stream for Ethereum’s leading DeFi protocols by letting them capture MEV when they request oracle updates."
• Orderly Network, a provider of decentralized-exchange infrastructure focused on NEAR Protocol, has "partnered with the Optimism Collective to build Orderly’s critical Settlement Layer, powering Orderly’s vision of a single, unified order book for crypto across multiple chains without the risks of bridging or wrapped assets,"according to the team.
• COTI Protocol is strategically shifting from adirected acyclic graph (DAG) to an Ethereum layer 2, powered by Garbling Circuits technology, according to the team.

See the entire Protocol Village list from this past week here.

Ripple's David Schwartz Talks 'Bottom-Up Growth' on XRP Ledger, Rebuts Critics: Q&A

Ripple Labs CTO David Schwartz is hailed as a guru in some corners of the cryptocurrency industry – especially among the XRP Army, comprised of fans of the cryptocurrency XRP.

But the XRP Ledger, the blockchain that Ripple Labs created, has had critics ranging from Bitcoin and Ethereum purists to the U.S. Securities and Exchange Commission.

When Ripple scored a win six months ago in its years-long legal battle with the SEC, the result capped off years of limbo for the blockchain tech firm. The lawsuit made it difficult for Ripple Labs to attract banks and other customers to its institution-focused RippleNet – a cross-border payments platform powered by the XRP Ledger and the XRP cryptocurrency. But it's not just Ripple Labs' legal drama that hampered adoption: Since inception, Ripple and the XRP Ledger have failed to break into the same developer zeitgeist as Bitcoin, Ethereum and other crypto mainstays. Ripple's legal victory could draw more developers into its fold.

All this and more was on the table when Schwartz sat down for an interview last week with The Protocol. Schwartz discussed the aftermath of Ripple's SEC win, his method for dealing with XRP's rabid fanbase, the XRP Ledger's approach to decentralization, and much more.

For the full Q&A by David Schwartz, please go here

Money Center

Fundraisings

• Polymer Labs has raised $23 million in Series A funding to advance the building of its Ethereum-based interoperability hub.
• Ethereum staking platform Kiln has closed a $17 million funding round, the company said in a press release. The round was led by 1kx, with participation from IOSG, Crypto.com, Wintermute Ventures, KXVC and LBank.
• Root Protocol, a digital identity service aiming to unify access to Web3 platforms, has raised $10 million across two seed rounds. The funding rounds, which gave Root a $100 million valuation, were led by Animoca Brands and included contributions from a slew of other notable investors, including Signum Capital, Ankr Network, CMS Holdings and angel investors Tekin Salimi and Meltem Demirors.
• Masa, a provider of privacy-preserving Web2 and Web3 behavioral analytics for blockchain applications and networks,announced a $5 million seed round led by Anagram, co-founded by Solana Foundation and former Polychain president, with participation from Avalanche Blizzard Fund, Digital Currency Group and GoldenTree.
• Bagel Network, a decentralized machine learning database, announced theclose of a $3.1M pre-seed round led by CoinFund. According to a press release, there was also investor participation from Protocol Labs, Borderless Capital, Maven11 Capital, Graph Paper Capital and Breed VC."
• Subsquid, a decentralized query engine that offers developers permissionless access to on-chain data from more than 100 chains, announced details of a $6.3M fundraise on CoinList.

Deals and Grants

• Klaytn, a public blockchain designed for enterprise-grade reliability and compatible with Ethereum's EVM standard, could merge with another blockchain, Finschia (formerly LINE), under a new proposal. “The proposed merger will bring together South Korea and Japan’s leading blockchains to form an ecosystem of over 420 DApps" and a user base of more than 250 million across Asia, Klaytn said in a social media post on Tuesday.
• Aave DAO has approved the deployment of Aave v3 on Neon EVM mainnet, an important move for the future of DeFi within the Solana ecosystem, a recent verdict captured on the Snapshot page showed.
• Paper Ventures has launched as a new blockchain venture capital fund with support from leading industry figures. According to the team: "An initial $25M fund has been created to be used for investment in early stage web3 and blockchain projects."
• Core Chain, a layer-1 blockchain that brings decentralized applications to Bitcoin, announced the launch of the Core Africa Innovation Fund, a $5 million initiative dedicated to providing resources and networks to support local Web3 builders and projects across the African continent.

Data and Tokens

• No More Than 50% Chance of Spot Ether ETF Approval By May, JPMorgan Says
• Ether Could Soar in 2024 on the Back of Dencun Upgrade, ETF Narrative: Analysts
• Trading Volume on Proshares Bitcoin ETF Tanks 75% As Focus Shifts To Spot ETFs
• Dogecoin, Floki Bullish Bets Rise on X Payments Speculation
• Avalanche Foundation Puts Rules on Plans to Buy Meme Coins
• Donald Trump-Labelled Wallet Has Over $1M of TRUMP Meme Coin

Scroll, Ethereum Layer-2 Network, Has Fastest-Growing Ecosystem of Blockchain Developers, Electric Capital's Annual Report Shows

Electric Capital, an investment firm, came out with its annual report on crypto developer activity in 2023, providing a sweeping view of the overall ecosystem – including which projects are up, and which ones are down. Usually we just provide one chart in this section of the newsletter, but since the Electric Capital report is viewed as an industry benchmark, we decided to include a few of the key slides. (Hey there were 181 in all!) The big picture emerging from last year's crypto winter shouldn't be surprising to regular readers of The Protocol, who were subjected to our regular updates on just how many jobs were getting cut at some of the largest blockchain projects. But here's what the final tally looked like – a 24% drop in the total number of active developers to 22,411:

Not surprisingly, Ethereum (blue in the chart below) and Bitcoin (orange) accounted for a big percentage of all crypto developers:

Among larger ecosystems, defined as those with at least 150 developers, these were the fastest-growing, led by the Ethereum layer-2 "zkEVM" network Scroll:

Calendar

• Jan. 30: Stellar upgrade for Soroban smart contracts, public network readiness date.
• Feb. 22-24: Bitcoin++, Buenos Aires.
• Feb. 23-March 3: EthDenver.
• March 12-13: Sub0 Asia, Polkadot developer conference, Bangkok.
• April 2024 (estimate): Next Bitcoin halving.
• April 8-12: Paris Blockchain Week.
• April 18-19: Token2049, Dubai.
• May 9-10: Bitcoin Asia, Hong Kong.
• May 29-31: Consensus, Austin Texas.
• June 11-13: Apex, the XRP Ledger Developer Summit, Amsterdam.
• July 8-11: EthCC, Brussels.
• July 25-27: Bitcoin 2024, Nashville.
• Sept. 19-21: Solana Breakpoint, Singapore.
• Sept. 30-Oct. 2: Messari Mainnet, New York.
• Oct. 21-22: Cosmoverse, Dubai.
• Nov 12-14, 2024: Devcon 7 Southeast Asia, Bangkok.