Ethereum Faces Validator Bottleneck Amidst DeFi Shifts and AI Initiatives
This week in crypto tech development, Ethereum faces a significant validator exit queue, even as layer-2 (L2) solutions gain traction in decentralized finance (DeFi). The Ethereum Foundation is also venturing into decentralized AI, while American Express explores blockchain applications with "travel stamps."
Ethereum Validator Exit Queue Bottleneck
Ethereum's proof-of-stake system is experiencing its largest test as approximately 2.5 million ETH, valued at around $11.25 billion, awaits exit from the validator set. This backlog pushed exit wait times to over 46 days on September 14th, marking the longest in Ethereum's staking history. A major catalyst was Kiln's decision to exit all its validators as a safety measure following recent security incidents.
According to Figment, profit-taking after ETH's significant rally and portfolio shifts by institutional players also contribute to the exit queue. Ethereum's churn limit, which restricts the number of validators entering or exiting per epoch, further regulates the process.
L2 DeFi Growth and its Impact on Ethereum's L1
While ether reached record highs in late August, DeFi activity on Ethereum's layer-1 (L1) has been relatively muted compared to late 2021. Layer-2 networks like Arbitrum and Base are experiencing growth, raising the question of whether L2s are cannibalizing Ethereum's DeFi activity. AJ Warner of Offchain Labs suggests that Ethereum is evolving into crypto's "global settlement layer" for high-value issuance and institutional activity. Products like Franklin Templeton’s tokenized funds or BlackRock’s BUIDL product launch directly on Ethereum L1.
Layer-2s offer faster and cheaper transactions, making them appealing for everyday DeFi activities. TVL metrics highlight this shift as activity moves to L2s due to their efficiency.
Ethereum Foundation's Decentralized AI Initiative
The Ethereum Foundation (EF) is establishing a dedicated artificial intelligence (AI) group to position Ethereum as the settlement and coordination layer for the "machine economy." Led by research scientist Davide Crapis, the dAI Team will focus on enabling AI agents to pay and coordinate without intermediaries, and building a decentralized AI stack to avoid reliance on centralized companies.
Ethereum's neutrality, verifiability, and censorship resistance make it suitable for intelligent systems. The EF aims to foster collaboration and support the development of emerging technologies.
American Express Introduces Blockchain-Based Travel Stamps
American Express has introduced Ethereum-based "travel stamps" as a way to commemorate travel experiences. These travel experience tokens, built as NFTs (ERC 721 tokens), are minted and stored on Coinbase's Base network, according to Colin Marlowe of Amex Digital Labs. These stamps are not tradable NFTs and don't function as loyalty points, at least for now.
Fireblocks is supporting Amex as its Wallet-as-a-Service provider. The goal is to enhance the travel experience with Amex and create potential partnership opportunities over time.
Other News: RWA Tokenization and Google's AI Payments Protocol
Centrifuge and Plume have launched the Anemoy Tokenized Apollo Diversified Credit Fund (ACRDX), backed by a $50 million anchor investment from Grove, offering blockchain investors exposure to Apollo’s diversified global credit strategy.
Google is rolling out a new open-source protocol enabling AI applications to send and receive payments, including stablecoins. This initiative involves collaboration with Coinbase, the Ethereum Foundation, and over 60 other organizations, including Salesforce and American Express.
Regulatory and Policy: Stablecoins and SEC's Approach to Crypto
Coinbase's Faryar Shirzad argues that stablecoins do not pose a risk to the financial system, contrary to claims from the U.S. banking industry. He believes banks are attempting to protect their revenues, as stablecoins offer faster and cheaper money movement.
U.S. SEC Chair Paul Atkins pledges to modernize the U.S. securities rulebook and expand “Project Crypto” to bring markets on-chain. The SEC will provide clear rules for tokens, custody, and trading platforms.
Calendar
Stay tuned for upcoming events and announcements in the crypto space.
