Arthur Hayes Questions PoS Ethereum’s Decentralization, Suggests Rising Price


Controversial Arthur Hayes asks a pressing question in His last post on his blog. Is PoS Ethereum vulnerable to centralization? The ex-CEO of BitMEX compares it to the Binance smart chain, i.e. famous Admittedly focused. Arthur Hayes also describes how validator disagreements with the majority will end, predicting disaster for dApps that build on a platform that does not prioritize resistance to censorship. In the short term, though, he is bullish on Ethereum.

Before getting into all of that, Artur Hayes describes a disturbing fact that many people on Twitter have noticed and discussed. It’s about auditors:

“As of September 21, Lido Finance, Coinbase and Kraken together control more than 50% of the total ETH stack on the beacon chain. This means that they are the most powerful validators, and they can essentially control the types of transactions that are processed. What do these have in common? The three central entities? They are all US-owned corporations or DAOs with significant investment from venture capitalists in the US.”

For those keeping score, this is a central factor and some individual points of failure. All of these companies are under US jurisdiction, and it is one of the most restrictive in the world. Of course, Arthur Hayes acknowledges the “protection in place to help ensure decentralization” and that the system penalizes auditors who control transactions. However, the point of sale system appears fragile. The big institutions that the government can sue are auditors. The biggest auditors will control the entire system.

Arthur Hayes sees central

How will you play the cutting mechanism that punishes unruly checkers? According to Arthur Hayes, this is how the regime would deal with the rebels:

  • “There is a way to slowly lose your ETH if <33% of the network refuses to validate the bans. Losing your ETH slowly means that the validator is penalized by reducing the deposit on the node. If the deposit drops below 16 ETH, the validation node will be removed. From the network. This capital becomes dead capital because for the foreseeable future you cannot get rid of ETH.”
  • “A quick way to lose your ETH is if >33% of the network refuses to certify on bans. Penalties get so much worse so quickly that opposing validators quickly drop below the 16 ETH threshold and are booted from the network.”

Hayes predicts that everyone will allow this to happen over and over again, and compares it to the original DAO story. The Ethereum developers decided to branch out and “everyone at the time implicitly went on the side of developers who abandoned the protocol so people could get their money back, instead of sticking to Ethereum’s supposed ‘code is the law’ ethics.”

ETHUSD Price Chart 09/27/2022 - TradingView

ETH price chart on OkCoin | Source: ETH/USD on TradingView.com

Bullish short-term Ethereum

Don’t get me wrong Arthur Hayes, despite his criticism of the platform and PoS systems, he still believes that Ethereum will do well in terms of the dollar.

“ETH as a financial asset – fully tied to the US-led financial system and under the pretext of ‘decentralization’ – can still do very well in the near future. The problem I am grappling with is whether truly decentralized financial and social applications can exist on a large scale. (i.e. with hundreds of millions of users)”

In the end, it all comes down to the most important factor: scarcity. According to Hayes, the only thing that matters in the next three to six months is “how the ETH issuance per block fits into the new proof-of-stake model. In the few days following the merger, ETH emissions dropped on average from +13,000 ETH per day to – 100 ETH.” If this continues, Arthur Hayes is optimistic:

“ETH price continues to smoke due to deteriorating USD liquidity, but it is giving changes in supply and demand dynamics enough time to filter. Check back in a few months and I think you will notice that the significant drop in supply has created a strong and upward price floor.”

Is the ex-CEO of BitMEX right about this? We’ll find out soon enough.

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



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