AMA Summary: Can ETH Still Rise? The Ethereum Foundation Responds Personally

Original Author: Jaleel Jia Liu, BlockBeats

The resurgence of Solana, the market performance of ETH falling short of expectations, the continuous new lows of ETH against Bitcoin, coupled with the frequent selling of ETH by the Ethereum Foundation's address, with an annual expenditure budget of about 100 million USD, has forced Vitalik to disclose his annual salary of 182,000 SGD. Recently, the Ethereum Foundation has received unprecedented attention.

After 8 months, the Ethereum Foundation's research team held the 12th AMA on the reddit forum, directly addressing many questions. On September 5th at 9 PM Beijing time, the Ethereum Foundation's research team began to answer questions, covering topics such as the reasons for ETH price increases, how long the Ethereum Foundation's funds will last, blob (EIP-4844), ZK and Rollup, etc.

Rhythm BlockBeats has filtered and compiled the Q&A into a document. It is important to note that core developers have their own views and speculations on certain topics, and to avoid misinterpretation, please refer to the original post link provided.

What are the reasons for the increase in ETH price? Does the Ethereum Foundation care about the price of ETH?

Q: What is the main logic behind the increase of ETH in 2024?

Dankrad Feist: Ethereum is building a financial platform that will become the most neutral platform, allowing for the issuance of financial assets, trading of these assets, and the creation of new financial products, such as derivatives, based on these assets without permission.

This is a very valuable activity. Value capture from it may occur through some fee mechanism. I believe Ethereum L1 will be the intersection of multiple subfields, with a large amount of valuable activity generating fees (assuming L1 scaling is sufficient). If this is not the best mechanism, there are other options, such as capturing value through data availability fees, with ETH as the primary medium of exchange, or using ETH as collateral (which is the riskiest option).

Anders Elowsson: When Ethereum facilitates sustainable economic activity, ETH will appreciate. By "sustainable," I mean activities that bring utility to the participating economic entities and ensure their long-term continuity. In this case, the native ETH token will appreciate because: ETH is a trustless asset in the Ethereum ecosystem, making it worthwhile to hold and use as currency; economic activities settled/guaranteed by Ethereum are paid in ETH and burned, effectively distributing value to all ETH token holders.

Justin Drake: ETH is money :)

Q: Does the Ethereum Foundation care about the continuous growth of ETH price? Why?

Dankrad Feist: The Ethereum Foundation has no opinion on this; as researchers, we each have our own views.

Personally, I think it is best to focus on building an ecosystem on Ethereum that generates value, and I believe value capture will eventually happen naturally. This does not mean I do not consider it, but focusing on value capture when value generation is not yet sufficient is a huge mistake.

Anders Elowsson: The EF may not consider everything, but individual researchers do, and I suspect quite a few people think the appreciation of ETH is important. One obvious reason is that Ethereum is secured by staked ETH, so the price increase of ETH ensures economic security. Another reason is that ideally, currency should maintain its value over time, and ETH is the best currency in Ethereum. Having a reliable trustless currency in a decentralized economy is very valuable, and thus the value of ETH makes Ethereum a better platform.

The third point is that a significant portion of future investments in the Ethereum ecosystem may be held in ETH. This also includes the EF's (not particularly large) treasury. Fourth, there is a deeper consideration that the accumulation of ETH value is closely related to the success of Ethereum, as further discussed in the answer to the next question.

Justin Drake: Personally, I believe the price growth of ETH is crucial for the success of Ethereum. I believe that if ETH does not become the de facto "programmable currency of the internet," Ethereum cannot become the settlement layer of the "value internet."

The currency premium will only concentrate on one particular asset (considering the tens of trillions of dollars). This currency premium is necessary for the following aspects: supporting decentralized stablecoins worth trillions of dollars ("economic bandwidth"); providing undeniable security, even against nation-level attacks ("economic security"); attracting the attention of all major economic participants ("economic significance").

Q: If the outcome of completing the remaining roadmap is that various rollups settle on Ethereum L1, there are a large number of decentralized applications on L2, user transaction fees are below one cent, the ecosystem is developing well, but the price of ETH does not show significant growth, does this mean the success of the Ethereum roadmap?

Dankrad Feist: Again, I do not speak on behalf of the Ethereum Foundation; I am just expressing my personal opinion as a researcher.

When I start a startup, of course, I hope to make money, but even if I end up with nothing, if it is useful to my customers, I would still consider it a success.

Applying this idea to Ethereum, if we have a diverse rollups ecosystem that can provide interesting applications to the world, I would consider that a success. But if this ecosystem can also make the ETH asset more valuable, that would be an even greater success.

Many people believe that a rollup-centric roadmap will weaken Ethereum's fee revenue and MEV, and that ultimately rollups may become parasites. I do not think this is correct. The highest value transactions will still occur on Ethereum L1, while rollups will expand the entire ecosystem by providing users with a large amount of transaction space. This relationship is symbiotic: Ethereum provides rollups with cheap data availability, and rollups make Ethereum L1 a natural hub for high-value transactions.

Anders Elowsson: In the long run, the sustainable economic activity facilitated by Ethereum is directly linked to the appreciation of ETH price. If you design a system for sustainable economic activity, you are also designing for ETH price growth. Conversely, when designing for ETH appreciation, it is essential to ensure that Ethereum facilitates sustainable economic activity.

Focusing solely on "price growth" in the short term without considering its source may lead to long-term value reduction. Personally, I believe the current roadmap is actually a "price growth roadmap." If Ethereum succeeds but ETH does not appreciate in price, I would be surprised and even somewhat disappointed; however, this might actually be an opportunity to buy ETH, as the market will eventually realize this theoretical price growth.

Justin Drake: Personally, I believe the price growth of ETH boils down to capital flow and currency premium. For capital flow, the key metric is total fees, not the fee per transaction.

As I mentioned in my talk, the ultimate success of Ethereum is to reach 10 million transactions per second, which can still generate billions of dollars daily revenue even if the fee per transaction is below one cent. For example, a fee of $0.002 per transaction could yield about $2 billion in daily revenue.

For currency premium, the key metric is the proportion of ETH used as collateral currency, such as supporting DeFi.

How long will the Ethereum Foundation's funds last?

Q: How does the Ethereum Foundation ensure that the network remains neutral and does not require validators to censor certain specific transactions due to government pressure?

s0 isp0 ke: Over the past year, we (the Ethereum Foundation's "Robust Incentives Group" (RIG) and other researchers) have been working to enhance the Ethereum network's censorship resistance (CR) characteristics, primarily through iterative design of "Inclusion Lists" (IL).

In short, ILs allow decentralized validators to collectively enforce the inclusion of transactions in the blocks constructed by block builders. This effectively reduces reliance on a few complex entities that may arbitrarily decide which transactions can be included in Ethereum blocks (e.g., censoring transactions interacting with sanctioned addresses).

We have published some related posts on ethresear.ch, with the most recent proposal being "Fork Choice Enforced Inclusion Lists" (FOCIL): FOCIL Proposal. This proposal relies on multiple proposers to jointly create an inclusion list, where transactions must be included in blocks to be considered valid by validators. If you want to know more or have other questions, feel free to reach out!

Q: How long can the Ethereum Foundation's funds last? What is the contingency plan when the funds run out?

Justin Drake: To my limited personal knowledge:

1. A financial report similar to previous ones should be released soon.

2. The Foundation spends about 100 million USD per year—see Aya's tweet.

3. The Foundation's main Ethereum wallet currently holds about 650 million USD in ETH.

4. The Foundation also has some fiat reserves, sufficient to cover expenditures for the next few years. (This part is what I know the least about. As Aya mentioned, due to regulatory reasons, the sale of ETH was temporarily paused, so this reserve was only recently replenished.)

A rough estimate suggests that the Foundation has about 10 years of funding reserves, but this timeframe will vary significantly with fluctuations in ETH price.

Ethereum Layer 1 Related

Q: Once the rollup-centric roadmap is completed, is there still a plan to scale Ethereum's L1? If so, what scaling methods are currently being considered?

Dankrad Feist: I do believe that scaling L1 execution should be a goal, running in parallel with building rollups. However, they do not necessarily conflict:

1. Data availability can be scaled almost infinitely—the ultimate limit is the interest in Ethereum (i.e., how many people are seriously running full nodes and how many are willing to record all data).

2. Execution will always be subject to some limitations, with the ultimate limit being single-threaded constraints; currently, state access is a direct limitation on scaling L1 execution.

3. Through zkEVM and parallelization, I still believe we will see L1 scaled to 10-1000 times its current capacity. Rollups will provide the remaining part to achieve "world scale."

The good news is that all this work is ongoing—and thanks to the rollup-centric roadmap, many teams are working in a more decentralized manner in parallel.

Justin Drake: The Ethereum Foundation's long-term sustainability plan is to use SNARKs to scale the mainnet's EVM execution, which is essentially limitless.

Through real-time L1 EVM SNARKing, validators can verify low-cost SNARKs without having to re-execute EVM transactions. This will allow us to significantly increase the gas limit without increasing the burden on validators. All the heavy EVM execution work will be done off-chain by specialized nodes operated by entities like seekers, builders, and explorers. The burden on users and consensus participants will become much lighter, such that they could run nodes on their phones or watches.

In addition to the vertical scaling advantages brought by significantly increasing the L1 EVM gas limit, there is also the opportunity to use EVM-in-EVM precompiles for arbitrary horizontal scaling, verifying EVM execution within EVM at low cost. This precompile will allow developers to programmatically launch new L1 EVM instances, unlocking a boosted version of execution sharding, where the number of shards is unlimited (instead of capped at 64 or 1024 shards), and each shard is a programmable rollup (with programmable governance, ordering, gas), referred to as "native rollup."

Q: What are the main areas of zk research currently being pursued by the Ethereum Foundation? What theoretical or practical applications are being explored?

George Kadianakis: Here are some zk projects related to L1, at different stages of research maturity:

Using STARKed hash binary trees to achieve statelessness; using recursive SNARKs for large-scale recursive signature aggregation; enhancing network layer robustness through zk anonymous credentials; using STARKs to achieve post-quantum aggregatable signatures (instead of BLS); providing privacy in single secret leader election design using ZK; using ZK and zkEVM for L1 execution (long-term goal!).

Additionally, the EF cryptography team has a broad interest in ZK research. You can find some of their work on the cryptography team website.

Antonio Sanso: In a recent statement released by Ethereum Research, the cryptography research team emphasized the need for a deeper understanding of verifiable delay functions (VDFs) before integrating them into Ethereum. The team currently does not recommend using VDFs in Ethereum and notes that ongoing research and significant improvements are crucial for potentially revising this position in the future. For more details, please refer to the full statement here.

Justin Drake: I am very excited about the SNARKification of L1 EVM. Significant progress has been made in the past few months. Succinct's Uma shared new data with me today: the cost of proving all L1 EVM blocks is now about 1 million USD per year, and significant optimizations are still underway. If by this time next year, due to SNARK ASICs and the various levels of the stack (compiler, arithmetic, proof systems, prover algorithms). Another exciting development is that the EF is accelerating the formal verification of zkEVM. This is a project led by Alex Hicks, supported by a budget of 20 million USD.

Blob (EIP-4844) Related

Q: What research areas are most researchers currently focusing on? Have the blobs in EIP-4844 brought about discoveries or adjustments that change the research direction?

Davide Crapis: We are doing more work around blob pricing, driven by previous analyses and the observation of its increasing importance as a resource, with its market being quite different from other resources (most demand comes from "enterprise customers" like L2, which are less elastic in the short term). We have conducted new research with some partners, and the results will be published in a few weeks.

Q: Are there issues with the existing blob base fee mechanism? Is there a risk that blob gas fees could become too high, adversely affecting L2?

Davide Crapis: The current mechanism does have room for improvement (see other questions about "blobs"). However, the situation you mentioned is not a cause for concern: remember that the data costs of L1 will be passed on to L2 users, becoming part of L2 fees. Therefore, when data costs increase due to congestion, the demand for L2 transactions will decrease, putting downward pressure on blob demand, which in turn lowers blob prices. The third part of the Arbitrum Nitro whitepaper is also a great resource for understanding the L2 fee structure.

Dankrad Feist: If blob fees increase, Rollups will charge users more transaction fees. This will naturally lead to a decrease in transactions on L2, just like what is currently happening on Ethereum L1.

Q: If the usage of blobs does not meet the target (e.g., 3 blobs per block), should the target be lowered to ensure the fee mechanism works correctly?

Davide Crapis: It should not be lowered. The mechanism is designed to price congestion, so if there is no congestion, it is normal for prices to remain low. However, current demand is far below the target, which affects price discovery in congested situations. In this case, price discovery is very important, and we should improve the efficiency of the mechanism. In the short term, adjustments like raising the minimum fee (but still keeping it very low!) or changing the update speed can help.

For details, see the discussion here: EIP-4844 Fee Market Analysis; latest proposal: EIP-7762 Increase Minimum Base Fee per Blob Gas.

Dankrad Feist: Ethereum is currently creating a new market for rollups—the data availability market. Many alternatives (like Celestia, Eigenlayer, Avail, etc.) hope to capture market share from Ethereum. They cannot compete on security, so they aim to win on price.

Even with 3 blobs per block, the revenue generated will not significantly increase Ethereum's protocol revenue. I believe that in the coming years, we should strive to expand this area as much as possible without rushing to extract fee revenue from it.

In any case, I do not believe blob fees will become Ethereum's best value capture mechanism. The data availability market changes too quickly—while Ethereum provides the best security, other "close enough" solutions can easily capture market share, making it less than ideal to extract value from it. Ethereum L1, as the natural financial hub in the ecosystem, will have the highest value transactions, which is the best price growth mechanism for ETH.

Justin Drake: Blobs will not fall short of targets—we just need to be patient :) Demand stimulation takes time to manifest. Another consideration is that some recent rollup projects (like Base, Scroll, Taiko) have found better ways to utilize blobs. These rollup optimizations have extended the timeline for blob price discovery, which is well justified.

Others

Q: What is the progress on the proposal to solve Ethereum's over-issuance? Can the staking ratio be adjusted using something like a PID controller instead of relying on a fixed issuance curve?

Davide Crapis: Controllers are feasible, but I think they are too complex. We can express the demand curve and do not need to aim for a specific staking ratio value, but rather a range, so we should choose this simpler option. I discussed both options in my talk at CEE 2023 (the second option has received more research since then): Ethereum Staking: State of the Union.

Justin Drake: In my opinion, having a smarter issuance curve that gradually approaches zero at a certain soft cap (like when 1/4, 1/3, or 1/2 of ETH is staked) is undoubtedly the right choice. The main bottleneck is social coordination. We need a savvy and motivated person to push this EIP to mainnet. This is a very high-impact task, and I expect the community to support it wholeheartedly.

Q: What are the new developments regarding historical data expiration (EIP-4444) and portal networks? What is the status of Multidimensional EIP-1559? What are the current research directions for MEV? Additionally, are there any resources (like verkle.info) or recommended people to follow that can help me stay updated on these developments?

Barnabé Monnot: Hello! Regarding the third question, I recommend checking out this note prepared for an internal research meeting last month; it can help you learn more. For ePBS, we have launched a tracker and are continuously updating new materials as issues arise.

More broadly, the current MEV protocol research can be divided into two major directions. On one hand, there are some relatively specific protocol upgrade proposals, such as ePBS and FOCIL (committee-based, multi-proposal style inclusion lists), which are under discussion. On the other hand, there are larger directions, such as APS (a broad concept around execution receipts/auctions) or Braid. I personally hope that specific work can guide more exploratory research.

Q: You are researching VDFs (Verifiable Delay Functions); can you share how you plan to use them? What improvements have you made to existing VDFs?

Antonio Sanso: Mary Maller discussed VDFs in her talk at Devconnect, which you can view here. I also presented related topics at the 2024 IC3 Winter Retreat; for event details, click here.

Justin Drake: VDFs have two aspects: a) building production-grade VDFs as cryptographic primitives, and b) using that primitive in applications.

Let me start with b) applications. The incentive use case for VDFs on Ethereum L1 is to strengthen RANDAO for unbiased randomness in leader elections. IMO, VDFs are the ultimate goal for L1 randomness and remain a "lavish" project in Vitalik's roadmap. So far, there is no evidence that RANDAO is being abused, so VDF R&D has certainly been deprioritized compared to when I first entered the rabbit hole years ago. Other L1 projects (like inclusion lists, staking caps, SNARKifying L1) are more important.

Besides L1 leader elections, another important use case for VDFs is lotteries. In my view, establishing a "world lottery" is a readily available opportunity that is provably fair, globally accessible, and commission-free. If you want to build this, please DM me :) Another interesting recent application of VDFs is facilitating simultaneous block releases in the context of multi-proposals. In an unexpected turn of events, Max Resnick has become a VDF bull.

Now onto a), it turns out this is much more challenging than I expected (years of work!), but there is light at the end of the tunnel. We now have MinRoot VDF ASICs, and I believe they can be used for lottery production, although the theoretical MinRoot analysis has not conducted actual attacks on 256-bit MinRoot. We now need a team to complete the integration work to verify MinRoot SNARK proofs on-chain (e.g., Nova or STARK proofs). This is easy for BN254 MinRoot, but the Pasta curve requires wrapper SNARKs. If you are interested in doing this integration work, please DM me :).