Arthur Hayes questions PoS Ethereum’s decentralization, suggesting price increases

The controversial Arthur Hayes asked a burning question His latest blog post. Is PoS Ethereum vulnerable to centralization? The former CEO of BitMEX compares it to Binance Smart Chain, that is Famous and acceptable central. Arthur Hayes explains how the verifier’s disagreements with the masses will play out and predicts doom for dApps that build on platforms that don’t prioritize censorship resistance. In the short term, however, he is bullish on Ethereum.

Before we get into all that, Arthur Hayes reveals an alarming fact that many people on crypto Twitter have noticed and discussed. It is related to certifications:

As of September 21st, Lido Finance, Coinbase and Kraken together control over 50% of all ETH held on the Beacon chain. This means they are very powerful validators and can essentially censor what transactions take place. What do these three centralized entities have in common? All US companies or DAOs are heavily invested by US venture capitalists.

For those who score, that’s a centralized situation and a few single points of failure. All these companies are under US jurisdiction, one of the most restrictive in the world. And of course, Arthur Hayes notes that “safeguards help ensure decentralization” and that the system penalizes validators who verify transactions. However, the PoS system seems weak. Big institutions that the government can sue are verifiers. And the biggest validators control the entire system.

Arthur Hayes sees centralism

How is the truncation mechanism that penalizes non-compliant verifiers implemented? According to Arthur Hayes, this is how the system lives with the rebels.

  • < 33% of network blocks refuse to testify There is a way to slowly lose your ETH. A gradual loss of your ETH means that a validator will be penalized by reducing the deposit on a node. If the deposit falls below 16 ETH, the validation node will be removed from the network. This capital becomes dead capital because you cannot withdraw ETH in the future.
  • “If 33% of the network refuses to witness blocks, there’s a quick way to lose your ETH. The penalties get worse very quickly, so adversarial validators quickly fall below the 16 ETH threshold and get booted from the network.”

Hayes predicts that everyone will allow that again and again and compares it to the original history of The DAO. Ethereum’s developers decided to fork it and “go along with the devs who forked the protocol so that everyone could get their money back, rather than sticking to what is supposed to be the “code is the law” for Ethereum.”

ETHUSD Price Chart for 09/27/2022 - Trading View

ETH price chart on OkCoin | Source: ETH/USD on

Bullish on Ethereum in the short term

Don’t get me wrong, Arthur Hayes, despite the criticism of the platform and POS systems, still thinks that Ethereum will do well against the dollar.

“ETH as a financial asset – fully tied to the US-led financial system and pretending to be “decentralized” – can still be very good in the near future. What I’m struggling with is whether truly decentralized financial and social dApps can exist at scale (ie, with hundreds of millions of users). If they can.

Ultimately, it all comes back to the most important thing: scarcity. According to Hayes, what will matter in the next three to six months is “how ETH blockchain will fall under the new proof-of-concept model.” In the few days after the merger, the ETH release rate dropped from an average of +13,000 ETH to -100 ETH per day. If this continues, Arthur Hayes is optimistic:

ETH prices continue to smoke as US dollar liquidity continues to weaken, but allow time for supply and demand dynamics to weaken. Check back in a few months, and I bet you’ll see that dramatically the reduction in supply has created a strong, higher floor in prices.

Is the former CEO of BitMEX right about this? We will have enough information soon.

Featured Image by GuerrillaBuzz Crypto PR on Unsplash  | Charts by TradingView

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