For those who have been keeping up with Moloch – an Ethereum development grant-giving organization – you may have seen the most recent proposal from Delphi Digital to perform an Economic Audit on ETH 2.0.
Ty to @AndrewDARMACAP for championing, we’re just happy for the opportunity!
— Delphi Digital (@Delphi_Digital) February 1, 2020
ETH 2.0, also known as Serenity, marks the transition from Proof of Work to Proof of Stake via a new blockchain entitled the Beacon Chain. This transition will make Ethereum far more scalable while simultaneously increasing throughput and *hopefully* allowing transaction costs to stay low during times of high usage.
It’s been long known that validators will be required to stake 32 ETH to host a node and that early validators are likely to receive higher rewards during earlier phases to account for the risk associated with the early days of ETH 2.0.
What remains to be finalized is what these reward schemas will actually be (i.e. how much ETH a validator will get during the first X blocks) and what can be done to provide fair incentives to small organizations in order to compete with major exchanges.
In the proposal, Delphi’s scope of work includes:
- An in-depth review and analysis of ETH 2.0’s proposed token economics.
- Sustainability analysis of ETH 2.0’s economic model, profitability and yields for validators and the economics surrounding the long term move from issuance to fees to support validators.
- Projections for the amount of future economic activity on Ethereum and the opportunity costs investors are likely to face when weighing the costs/benefits of running a validator.
- A public report and model where parameters can be modified by the community to demonstrate the impact on ETH 2.0’s economics, including optimal parameter suggestions.
- Analysis of exchange staking scenarios with various parameters for group-slashing conditions to help better optimize these parameters.
With this proposal, Delphi has requested $40,000 to aid in the economic discussion, ultimately seeking to propel the conversation forward as we approach the launch of Phase 0 in the first half of 2020.
As one of the top blockchain consulting firm, Delphi has worked on a number of blockchain protocols to develop token economics aimed at incentivizing developer mindshare. Most recently, Harmony shared their tokenomics that had been heavily influenced by Delphi’s team.
More importantly, Delphi’s research on Ethereum has been geared towards larger traditional audiences, all of which can bring substantial amounts of capital and usage to the protocol so long as it’s value propositions are relayed properly.
What’s important to note here is that Delphi will be adding mindshare and analysis to either justify or ratify the existing economy work, all of which is ultimately agreed upon by the community at large.
There is likely to be a strong amount of debate leading up to the *final* schemas, and it’s likely that the more talent being aggregated towards the initiative, the more likely it is that Ethereum will move forward with a robust economic foundation.
How is this DeFi?
In the purest form, DeFi owes virtually all of its success to Ethereum. In order for DeFi to reach a mainstream audience, protocols like Ethereum must be designed properly to allow for scaling to truly reach the masses.
The trillion dollar case for ETH
— Ryan Sean Adams – rsa.eth (@RyanSAdams) January 16, 2020
While this is likely not something that will happen in the short term, it is important to recognize that in order for Ethereum to maintain it’s industry standard lead, it’s economic system must be designed properly as to continually encourage validators to move the project forward over other smart-contract competitors like Polkadot or Tezos.
Looking at ETH as an asset, the combination of total value locked with the upcoming transition to staking places a large reliance on strong design as to ensure token price doesn’t blow potential usage out of proportion.
While many tokenholders would be pleased with an ETH runup, it’s important to vocalize that in order for DeFi products to remain accessible, we must avoid exorbitantly high transaction costs and entry prices for new users hoping to take advantage of these innovative systems.
Lastly, the funding for this proposal itself is in fact decentralized. MolochDAO shareholders are voting on the disbursement of $40,000 worth of funding from an entirely community governed smart contract – something that up until this point has never reached such magnitude.
If one thing is for certain, regardless of how this proposal plays out, it’s fascinating to watch the enthusiasm and eagerness for vetted teams like Delphi to shift their attention towards what many can see as the biggest protocol upgrade of any blockchain protocol in history.
Cooper is focused on building compelling blockchain products. He currently works as the managing director at Fitzner Blockchain Consulting and is a contributor to DAOs like MetaCartel and Moloch. He is an active member of the Ethereum community and has a strong interest in for-profit businesses such as The Block Crypto and Messari.