Ethereum Shanghai Upgrade Grows Closer

We spent a lot of time last year talking about the Ethereum Merge. As one of the most significant events in crypto history and the programming equivalent of swapping out a jet-engine mid-flight, it was hard not to.

The Merge has already paid dividends for Ethereum, with ETH now deflationary and having carbon emissions decrease by 99.99%.

However, the Merge was just step one in an ambitious roadmap for Ethereum.

Next up is the Shanghai upgrade, which took a big step forward this week with the successful launch of the Zhejiang testnet.

Shanghai and Zhejiang
Currently, it is impossible to withdraw staked Ethereum. Shanghai, slated for release in March, changes this. After the upgrade, all 16.5 million staked Ethereum will be able to be withdrawn.

However, before Shanghai can be released, it must undergo a series of dress rehearsals (or, stress-tests). The first of these rehearsals was the Zhejiang testnet, which was flawlessly completed this week.

What This Means For ETH
Every time there’s an event as significant as something like Shanghai, it’s important to consider how the market is going to react.

And while it’s always difficult to predict, here are the potential different scenarios:

On one hand, the new ability to unstake ETH at any time might encourage more people to stake their ETH. This would be bullish for Ethereum, as sell pressure would be reduced, and for Ethereum staking protocols like Lido, which would potentially pick up more staking users, and, thus, earn more fees.
On the other hand, it’s also possible that people who have had Ethereum staked for (in some cases) years, will rush to withdraw and sell their ETH, or portions of their staked earnings. This would obviously be bearish for Ethereum. Add in the fact that March is pretty close to tax season (historically a time for selling), and it’s easy to see a world in which the price of ETH takes a hit post-Shanghai.

Ultimately, short-term price moves are always unpredictable. The important point is Shanghai is another step toward Ethereum fulfilling its roadmap, and if it does, these short-term price moves won’t matter in the long-run.

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VCs Fight Over Uniswap

Crypto governance is often referred to as a “meme”, and for good reason. Whether it be low participation rates, whales and VCs deciding votes, or goofs of almost unbelievable proportion, crypto governance just doesn’t work all too well at the moment.

Well, the Uniswap bridge wars have put crypto governance back in the news.

Is it another case of dysfunction, or is decentralized governance actually working this time?

Let’s break it down.

The Backdrop
Uniswap is the largest decentralized exchange (DEX) by a mile, but that position isn’t guaranteed to last.

That is because Uniswap’s Business Source License is expiring in April. Once it expires, anybody can create their own version of Uniswap by copying and pasting Uniswap’s code. This isn’t a problem on chains Uniswap already dominates and has a loyal user base (such as Ethereum), but it is a problem on chains that Uniswap has yet to reach. If copy-cats can deploy first, it is possible their first-mover advantage would suck up the user base, leaving Uniswap out in the cold.

One such chain is the BNB Chain. If Uniswap wants to dominate BNB like they have every other chain, they have to deploy Uniswap on it, and fast.

Without getting too technical, to do this, BNB Uniswap will need to implement the use of a bridge. And that is where the governance battle begins.

The Bridge Wars
The battle of which bridge to choose came down to LayerZero or Wormhole. Both are behemoths in the bridge space, and are backed by some of the largest players in crypto.

LayerZero is backed by crypto VC giants a16z and Sequoia, while Wormhole is funded by crypto VC firm Jump.

Both had obvious incentives to be chosen as Uniswap’s bridge, and both put on an intense lobbying effort.

Before we move forward, it is important to understand that the way Uniswap votes work is that there are two voting rounds:

An off-chain vote (which they call a temperature check). This allows the token holders to get a good idea of how the community stands.
An on-chain vote which is based upon the feedback from the first round of voting and that decides what actually happens.

In the first round of voting, Wormhole ended up prevailing. So, case closed? Uniswap’s going to use Wormhole with maybe a few feedback changes. Right?

Not so fast.

In the first round there was one significant voter that was unable to cast their vote: a16z.

We won’t go deep into the details of why, but you can learn more here.

Considering a16z controls 15 million UNI governance tokens (representing enough to sway votes in their favor), people were worried that they would kill the proposal, putting the future of Uniswap on the BNB Chain at risk.

Well, it turns out those 15M tokens didn't make much of a difference:

Final Thoughts
So, did crypto governance work this time?

We’d say yes. The two sides rallied votes, and the bridge that people most preferred is going to win. That’s how it should work.

But, it’s still a fraught process.

If Wormhole wasn’t backed by fellow large entities, there’s a good chance that a16z’s 15 million tokens would be enough to win the vote. Is it right for any one party to have that much power? Do we want crypto to simply be a battle between VCs? Didn’t we get into crypto to break away from the whims of the rich and powerful?

Unfortunately, there’s no easy way to do crypto governance. Voting based on tokens ensures that the rich control the outcome, but getting rid of tokens would remove the financial aspect of crypto, its current main draw.

Until a better form of governance is discovered, we’ll just have to hope that the VCs act in our best interests.

Optimism (OP) Up 204% So Far This Year. Why?

There’s not a hotter cryptocurrency right now than Optimism (OP).

The Ethereum layer-2 (L2) rollup is up a staggering ~204% in 2023, and now, its much-anticipated Bedrock upgrade is officially up for a vote.

What Is Optimism?
Optimism is an Ethereum L2 rollup. Using Optimism is exactly the same as using Ethereum. The difference is what happens on the back-end.

What Optimism does is take transactions, batch them up (roll them up), and send them to Ethereum. Ever try buying an altcoin on Uniswap or SushiSwap, but the transaction fee is quadruple the price of the token itself? Well, that's where L2's like Optimism come into play. Instead of purchasing your tokens through Ethereum's mainnet, users often take advantage of Optimism because the fees are ~20x cheaper.

With $927 million locked in the protocol, Optimism has become one of the most popular layer-2 rollups.

Why Is It Skyrocketing?
Because L2 rollups are widely seen as the future of Ethereum scaling, and Optimism is currently the largest L2 with a token. This makes it the best way to get direct exposure to L2s.

The combination of Optimism’s size, the success of native protocols like Velodrome and Synthetix, and anticipation of Bedrock have led to the 204% rally in less than 6 weeks.

What Is Bedrock?
Bedrock is Optimism’s first protocol upgrade, and the improvements are numerous:

Lower fees
Shorter deposit times
Improved node performance
Improved Ethereum equivalence

Overall, it’s a huge upgrade for Optimism.

Why Is It Important?
Optimism has gotten off to a hot start, but the L2 space is increasingly growing more competitive.

Its main rival, Arbitrum, just recently underwent its own protocol upgrade, and there is widespread speculation that an Arbitrum token is coming soon.
Multiple zero-knowledge rollups, which Ethereum founder Vitalik believes is the future, are beginning to hit the market, including zkSync, StarkNet, and Scroll.

Optimism will need more upgrades like Bedrock if it wants to maintain its market share.

How Should You Play It?
Bedrock is definitely exciting, and Optimism has a bunch of momentum right now.

But, as we’ve advised you here multiple times on CoinSnacks, you should only invest in things you are familiar with. If you think you have the chops to keep up on the brewing L2 wars, look to add Optimism to your watchlist.

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Ethereum Shanghai Upgrade Grows Closer

America’s Next Super-Boom Is Coming

VCs Fight Over Uniswap

Optimism (OP) Up 204% So Far This Year. Why?

Joe Didn't Talk About This Crisis...

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