🟣 Client Diversity Activism

With the Nethermind execution client faulting on Sunday, all eyes are on Geth.

January 23, 2024

Another day, another record-setting GBTC outflow. With over 540k BTC in total assets remaining on its balance sheet, Grayscale technically could continue to see this barrage of selling for an additional ~35 trading days.

Will this happen? Unlikely. With the FTX estate sales likely behind us, I can’t imagine there is much more forced selling left…but we also don’t know how many shares are owned by Grayscale/DCG itself, which could be sold to help pay back the $1.6B owed to Gemini. On the bright side, all US spot ETFs combined have seen over $1B in net inflows in the first seven days, showing real appetite for our beloved “digital gold.”

In other news, Ethereum client diversity has again become a hot topic of discussion with the Nethermind execution client faulting on Sunday, causing ~10% of validators to not attest to blocks for a period of time before a patch was implemented. If you remember, just two weeks ago Besu’s execution client also had a bug that caused ~4% of validators to miss their duties. These events have made the Ethereum-aligned mob turn its anger to Geth, the supermajority execution client with over 80% client dominance, with advocates pleading with Coinbase, Lido operators, and the wider community to switch to minority clients ASAP to prevent a potentially catastrophic event. This prompted Coinbase to release a thread about why it solely uses Geth today (the other clients didn’t meet their technical standards when they last reviewed them), but they did vow to re-assess and follow up with the Ethereum community by the end of February.

I’m not going to LARP as a distributed systems engineer like 99% of crypto twitter, but I’m in the “safety over liveness” camp. I’d rather the chain halt and have a coordinated restart than put tens of billions at risk due to a client bug…but thats just me. To learn more about the risks associated with running a supermajority client, I encourage you all to read this piece by THE Dankrad Feist.

Last note: Don’t use leverage. As a wise man once said - “a couple more liquidations, then up only.”

— EffortCapital

What is going on over at Sui? Despite the crypto markets having sizeable selloffs over the past few days, Sui has been quite strong and is currently up over 9% at the time of writing. Over the past month, Sui’s TVL is up over 75% despite most competing chains either down or slight up. Solana is the exception, with its TVL up over 36% in the same period. With nearly $400M TVL, Sui is close to entering the top 10 in chain TVL according to DeFiLlama and thats without native USDC or USDT. I personally have’t bridged over to Sui, but my quant told me Aftermath Finance is the DeFi app to use if you are an airdrop farmer. Will Move VMs be a new paradigm? Not sure. Do we need more high throughput, parallelized execution environments? Nope. Nonetheless, I’d watch Sui developments carefully this quarter.

Solana DEX protocol, Orca, has recently implemented its fee switch, which passed the governance vote in November 2023. The protocol stands to generate a significant amount of revenue from the fee switch, presenting a potentially attractive fundamentals based opportunity.

Yield bearing layer-2s with alternative data availability layers, decentralized AI, Solana and Sui ecosystems, Bitcoin smart contracts and DePIN are some of the themes discussed by Blockworks Research Analysts in their list of narratives to watch this year.

Polymer Labs is hoping to bring the Cosmos to Ethereum with its latest interoperability protocol.

They say money never sleeps. In crypto, that means the phishers, fraudsters and other cyberbaddies are also always working.

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.