Headlines

Visa taps Solana and USDC to boost cross-border payments.
Bitcoin posts first positive-returning September in 6 years
Percentage of Bitcoin supply held by long-term holders officially reaches all-time highs
DeFi TVL on Ethereum reaches lowest level since January 2021
MetaMask adds crypto-to-fiat features.
Base experiences stall in block production.
SEC denied motion to appeal loss in Ripple case
Canto migrating to ZK L2 built on Polygon's CDK
EclipseFND announces their mainnet: ETH SVM L2
Celestia airdrop announced
StarkWare delays first token unlocks to April 2024.
Ethereum’s new test network, Holesky, experienced a failed launch due to a misconfiguration in one of its genesis files
Dencun upgrade likely delayed until 2024
Ethereum turns slightly inflationary
SEC warns more charges coming against crypto and DeFi exchanges
VanEck Ethereum Strategy ETF set for CBOE listing
Grayscale seeks to convert its Ethereum Trust to an ETF
10-year UST yields rise to levels unseen since 2007
SEC Delays 7+ Spot BTC ETF Applications Due in October and November, All Eyes on SEC’s Response in Grayscale Ruling
Su Zhu Arrested at Airport in Singapore, Sentenced to Four Months in Jail for Contempt of Court, Kyle Davies Is A Fugitive
SEC to Allow ETH Futures ETFs
Ripple Announces the Acquisition of Collapsing Custodian Fortress Trust, Then Backs Out of Deal
CFTC Settles Charges Against DeFi Protocols Opyn, 0x and Deridex

Q3 Recap

Exploits

MixinKernel hacked for $200M
Crypto Casino “Stake” Hacked for >$40mm
Coinex Hacked for $28mm
Huobi Hacked for $8mm
Goledo Finance GOL token suspiciously sells
Balancer frontend compromised, hacker stole $240k
LinearFinance LUSD exploited
Nansen third-party security breach exposes 6.8% of user emails and some blockchain addresses
Opensea 3rd party data breach

Macro

September saw Bitcoin display impressive resilience, even as a plethora of conventional assets faced notable downturns. This stability enhances the digital currency's reputation as a valuable diversification tool in investment portfolios. The turmoil in global markets appeared predominantly influenced by escalating government bond yields and a surge in oil prices.

Crucially, the underlying fundamentals of Bitcoin demonstrated their robustness. Its on-chain metrics displayed commendable progress throughout September. Another noteworthy development was the stabilization of the stablecoin market capitalization, especially after a year-long downtrend. Moreover, the digital currency realm displayed an unwavering focus on the advancements in Layer 2 blockchains. Coupled with this was the anticipation surrounding the potential nod for a spot Bitcoin ETF within the United States.

While the crypto sector showed promising signs, the overarching financial market climate could present challenges in the foreseeable future. Nevertheless, Bitcoin's commendable consistency implies a possible valuation resurgence as soon as the macroeconomic environment finds its footing.

Notably, the recent strain on global assets has its roots in the U.S. bond market. Delving deeper, the Federal Reserve's policies come into the spotlight. After their mid-September conclave, the institution indicated a likely uptick in overnight interest rates slated for later this year. In contrast, the coming year might see a more measured approach to rate reductions than previously anticipated. Such strategic shifts by the Federal Reserve played a significant role in elevating short-maturity bond yields and enhancing the U.S. Dollar's stature.

In August, the Personal Consumption Expenditure (PCE) index, the Federal Reserve's primary metric for inflation, reported a 0.1% rise month-over-month, outperforming market predictions. Remarkably, this marks the first instance of the annualized PCE inflation rate dipping below the Fed's 2% benchmark since the onset of the pandemic. Such figures bolster the growing sentiment that the Federal Reserve might abstain from elevating rates in its November session. Yet, accompanying data highlighted that American households maintain a robust savings cushion. Even with challenges like the reintroduction of student loan payments and escalating fuel costs, it appears U.S. consumer spending may prove sturdier than anticipated.

september 2023 inflation — Source: Kaiko

Ethereum’s Upgrade Delayed?

One challenge in the crypto space has consistently remained: data availability. Currently, for a complete, transparent overview of network activities, rollups are required to post transaction data, inclusive of fraud or validity proofs for settlement verification, back to Layer 1 (L1). This process, while essential, incurs considerable costs.

Enter EIP-4844. This proposed Ethereum Improvement Protocol introduces the concept of blobs—a novel vehicle to enhance data availability. The tangible benefit? Preliminary data suggests that adopting blobs could yield a substantial 10-100 times reduction in rollup transaction expenses. This monumental cost-cutting could translate to Ethereum Layer 2 transactions costing mere pennies. While this upgrade looks like it won't be rolled out until at least January 2024, let's take that time to refresh on what it is and how it will change Ethereum going forward.

What is EIP-4844 (Proto-danksharding or PDS)?

Proto-danksharding (EIP-4844) is the initial proposal of Ethereum's two-step sharding roadmap. It will establish much of the infrastructure required for full danksharding. However, it will not implement data sharding, and validators will still be required to validate full data availability. PDS will incorporate the transaction formats, verification criteria, consensus and execution logic, and gas price modifications specified by Danksharding.

Proto-danksharding provides a temporary solution by utilizing the transaction format that will be used in sharding, but not actual sharded transactions. Post-PDS data will be in the form of “blobs” rather than data in the calldata field. L1 Ethereum block space will be expanded thanks to the new transaction format that also carries an additional piece of data called a blob.

Data Blobs

With blobs, the data is merely a component of the beacon chain and is downloaded by all consensus nodes on the L1. Only the blob’s hash can be accessed via a new opcode. This guarantees the data content will never be accessed by the EVM, reducing the gas cost of posting the data compared to with calldata. Blob transactions can enable up to ~1MB average per block for data storage as opposed to the 10KB currently with calldata.

This is the idea behind blobs: huge blobs of data that are MUCH cheaper than calldata that remain inaccessible to the EVM. EIP-4844 will slash rollup fees by a factor of ten. This will inspire more decentralized applications to transition to rollups and increase developer awareness of modular blockchains.

PDS also reduces Ethereum L1's data requirement because the blob data need not be held indefinitely (discussed more below). The current line of thinking is the L1 need only retain it for a reasonably long enough time so that anyone can have it if needed (~4-8 weeks). This increases the amount of data that can be posted on L1 and hence reduces the data costs for rollups.

Polygon 2.0 is Coming

Polygon Labs unveiled its groundbreaking open-source codebase, the Polygon Chain Development Kit (CDK), on August 30, 2023. This initiative should help facilitate the development of zk Layer 2 chains and expand the Polygon L2 ecosystem. One of the standout features of the CDK is its versatility. It supports the development of not only zk rollups but also validiums. Another benefit of the CDK is the customization capabilities. Beyond data availability, developers can tailor various components to their specific needs, including virtual machines, fee tokens, sequencers, whitelisting protocols, and the Zero-Knowledge Proof (ZKP) submission timeframe. This level of adaptability ensures that blockchain solutions can be finetuned to match unique project requirements.

An additional highlight of the Polygon CDK is its innate ability to interface with Polygon 2.0's Interop layer. Any chain birthed using the CDK establishes an automatic connection, similar to OP Chains in Optimism's Super Chain system. The resultant user experience is fluid and unified, giving the illusion of a single cohesive network, even though the reality may involve multiple interconnected networks.

Several frontrunning projects have already adopted the Polygon CDK to drive their initiatives, including Aavegotchi, Immutable, Gnosis Pay, and Palm Network. Their adoption underscores the potential and efficiency of the CDK in contemporary blockchain development.

In essence, Polygon Labs' release of the Chain Development Kit signifies a monumental leap in simplifying and enhancing zk Layer 2 chain development. It accentuates the company's commitment to fostering innovation and pushing the boundaries of what's achievable in the decentralized tech space.

Canto and Astar Plans to Join

Previously an alt-L1, Canto has announced it plans to migrate to a ZK-rollup on Ethereum, harnessing the power of Polygon's Chain Development Kit (CDK). Born as a permissionless general-purpose blockchain, Canto boasts of features like an EVM execution layer and fundamental financial instruments. These include a decentralized exchange, a lending market, and a unique unit of account (NOTE). But, what makes Canto stand out is the Canto Commons—a democratic framework that guides core protocol-level enhancements and development. It champions a decentralized and open model with "protocol public goods."

So, the pertinent question is, what does this significant shift towards an Ethereum ZK-powered Layer 2 signify for the dynamic Canto community? For Canto, this transition is monumental. Once the Canto Commons reaches a consensus, core developers will possess the tools to design a ZK Layer 2 that embodies Canto's foundational principles: an unwavering commitment to permissionless sovereignty and the public availability of liquidity. By utilizing a communal ZK bridge, Canto aims to channel the vast liquidity present in the Polygon ecosystem and tap into a straightforward Ethereum bridge. When it comes to user security, it's bolstered by a top-tier ZK prover currently in use, ensuring cryptographic protection that's a legacy of Ethereum, eliminating dependence on socio-economic motivations associated with fraud proofs.

Additionally, the Astar Network, previously a parachain in the Polkadot ecosystem, has announced Astar zkEVM, its own upcoming move to an Ethereum zk-rollup built using the Polygon CDP.

New POL Proposals

On September 14, Polygon Labs unveiled its roadmap for its new Polygon 2.0 visions and "unlimited scalability and unified liquidity." Central to this ambitious endeavor is Phase 0. Here, Polygon Labs has charted its plan to transition from its existing MATIC token to a new token named POL. This POL token isn't just a replacement but is positioned to be the foundational gas and staking token within the proof-of-stake version of the Polygon platform.

Beyond token dynamics, the company is poised to release its Staking Layer, which is designed to empower validators with the capability to fortify multiple chains within the newly envisioned Polygon ecosystem.

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