There’s a lot riding on the success of Ethereum 2.0, including the crypto-industry’s largest U.S.-based exchange going public.
Last week, Coinbase released its S-1 filed with the U.S. Securities and Exchange Commission (SEC). In it, the exchange listed potential adverse factors against its business, such as the doxxing of pseudonymous Bitcoin creator Satoshi Nakamoto, negative perceptions of cryptocurrencies and the growth of cryto-native finance platforms generally referred to as decentralized finance (DeFi).
A failure or slowdown in “the development and launch timeline of Ethereum 2.0, including the potential migration of Ethereum to a proof-of-stake model” was also listed as a possible negative factor for the exchange going forward.
Data may make the point even better: Ether made up 15% of volume on Coinbase in 2020, compared to bitcoin’s 44%. Additionally, 13% of all assets stored on Coinbase are ether. By trading and storing ether, you necessarily take on exposure to the Eth 2.0 project in its entirety.
New stakeholders in governance of Eth 2.0
Governance structures for the two largest cryptos by market cap is also a concern to weigh, Coinbase said.
“Informal governance led by Bitcoin and Ethereum’s core [blockchain] developers that lead to revisions to the underlying source code or inactions that prevent network scaling, and which evolve over time largely based on self-determined participation … may result in new changes or updates that affect their speed, security, usability or value,” the S-1 states.
It’s well known that Ethereum has a more flexible governance structure than Bitcoin. Being more flexible has some benefits, too, including the ability to respond to threats to the network such as high gas fees.
With Coinbase’s direct listing, it’s necessary to ask where that social pressure will push the Eth 2.0 project. Eth 2.0’s roadmap has adjusted to investor and developer demands in the past, including the early launch of the Beacon Chain in December. Will Coinbase stock holders be more interested in governance of the underlying asset in which Coinbase has a large stake? How will that change the network’s progression?
The Ethereum community has a lot on the line, too. As of Saturday, there are now over 100,000 validators staking 32 ETH on the network. That’s more than $5 billion worth of assets at time of writing locked up for a project that is still very much in the Research and Development phase.
Yet, given a $100 billion valuation, a time may soon come when activist investors, developers and users butt heads on Eth 2.0 on a larger scale. We’ve seen it before among token projects themselves: Hedge fund manager Arca demanded developer house Gnosis change its business model or pay back users. With the public listing, the teams working on Eth 2.0 could face similar scrutiny. In other words, a Coinbase public listing brings a new group of entrants into Ethereum’s governance ecosystem.
Pulse check: Improving validator performance
If you’re new to Valid Points and the topic of Ethereum 2.0 in general, be sure to check out our 101 explainer on Eth 2.0 metrics to get up to speed about jargon and terminology used throughout this article.
It’s been two weeks since the CoinDesk validator node, dubbed “Zelda,” was activated on Ethereum 2.0. Since Wednesday, Feb. 17, Zelda has earned 0.10 ETH, worth roughly $150.58 at time of writing. Of the 102,000 active validators on Eth 2.0, Zelda ranks #73,164 by income earned, according to block explorer beaconcha.in.
It’s a little disheartening to see Zelda underperform against the large majority of Eth 2.0 validators. After speaking with others who also run their own Eth 2.0 node operations, I’ve learned there are tweaks and adjustments we can try to help improve node performance.