Delphi Office Hours Call (August 18th, 2022)

Below is the full recording and transcript of the Office Hours call our team did on Thursday August 18th, 2022.

• Macro/Markets Update (00:55)
  • FOMC minutes (01:30)
  • Crypto markets (3:04)
• Ethereum Validator Censorship (05:13)
  • Is this a threat to delay the merge? (06:30)
  • MEV boost (07:10)
• Crypto’s Revenue Problem (25:50)
• Solana NFT Funding (37:28)
• Firedancer Launch (44:22)
• Bridge Behavior (46:22)

Transcript

00:36 • Brian

All right, ladies and gents, let’s get going. So welcome again to another edition of Office Hours, August 18th 2022. I’m happy to be here and have an exciting show for everybody, as we usually do, we are going to start off real quickly by throwing it over to Jason for a quick markets update. Like I was saying a second ago, not too much has happened on the macro landscape, but definitely some new information and I will hand it off to Jason.

01:06 • Jason

Thanks, Brian. Yeah, so, kind of like Brian just mentioned, between last week and this week, not much has really changed on the macro front. Right. We had some updates with the published meeting minutes that I just kind of wanted to reiterate, which is kind of important heading into the next couple of weeks and months as we get more clarity over the data that the Fed is looking at. The summary is pretty much like minutes from the Fed Reserves meeting, July 26th- 27th showed that the central bankers remained alarmed over persistently high inflation in a very tight labor market. So this kind of puts them on course to continue raising rates into restrictive territory. A key part of the last Fed meeting was when Jerome Powell said that they felt we were at neutral rates. Right? So you can have, I guess, three different rate environments: restrictive, accommodative or neutral. And so as the Fed feels that we’re at neutral policy, if they continue to raise rates, say 50 basis points, 75 basis points, whatever they see fit heading into September, that starts moving us into more restrictive monetary policy. However, the Fed caveated that by suggesting that the pace of rate hikes and balance sheet shrinkage would continue to be data dependent going forward. And at some point it would be appropriate to kind of slow the pace of tightening as they assess the impact of what their increased interest rate policy has done to the economy. So they’re kind of saying, hey, we’re still going to continue raising interest rates, so don’t get too far ahead of yourself, whilst, in the same breath, also saying that they’re trying to engineer some kind of pivot at some point in the future. They’re going to be looking at specific data points, namely probably the tight labor market they just mentioned, the continuing CPI print setting into their September meeting. So those are the things that we should be looking at as well. Crypto markets have obviously rallied. Bitcoin has kind of, at this point, found some resistance at the $24- ish- k level, which we’ve kind of been highlighting for the last several weeks. Ethereum found some overhead resistance at 2000, which is a level that we’ve also been highlighting as well. It kind of corresponds with the 2021 range lows. So as we head into the end of August and into September, where we get further macroeconomic prints, and then at the September FOMC meeting, we’ll likely see how this consolidation range for Bitcoin plays out, right? Yeah, so that’s generally what’s changed.

03:41 • Brian

So what’s the next big event to look out for? Whether it be job data, CPI prints, what’s the next thing on the horizon?

03:50 • Jason

So I’m looking at CPI prints for August, which will come out in about a month or so. I need to find the exact date. It’s usually like the first or second week of the following month where you get the data from the previous month. The thing you’re kind of looking at here is we saw that 0% month over month inflation that everybody was celebrating, right, from June to July. So we want to see if we get a continuation of that trend. Right? We want to see if the acceleration of inflation continues to go down, or if perhaps that was kind of like a one off thing and it starts to remain persistently high or maybe say prints a higher than expected inflation reading. So that’s the first thing I’m probably going to be looking at in the main thing, right? Because that’s generally the metric that the Fed has been highlighting at all of its FOMC meetings over the last several months. So that will likely be a large indicator of how they run their September meeting, which if you kind of go back and look at all the charts and just plot CPI releases and FOMC dates, they’re the largest drivers of directional moves in risk asset markets pretty much since the beginning of the year.

05:04 • Brian

Awesome. Cool. Good stuff. So, first non market topic we are going to touch on this call is Ethereum validator censorship. This has been a very hot topic on crypto Twitter, in the larger crypto sphere. It’s been hotly debated as to whether Ethereum should reconsider The Merge, whether they should postpone it, what Coinbase, Lido, Kraken, so on and so forth. All the huge Ethereum validators what they would do if they were forced by the government to censor transactions. So this has brought about a ton of heated opinions, I think on a lot of different sides. We have the maxis chiming in, as they usually do, but it’s been a very hotly debated topic. So I wanted to get everybody’s thoughts on this. You’ll see here on the screen also a tweet from Brian Armstrong where he was indicating that if Coinbase was made to censor transactions, they would strongly consider shutting down the staking service rather than complying with that, which honestly, I find a little bit hard to believe, but I think it’s the right thing to say. But I’m curious what anybody’s opinions are on this. I think Ceteris and Jon, I’m pretty sure you guys were talking about this a couple of days ago, so open it up to everybody, but especially you guys if you have any thoughts on this.

06:28 • Jon

Yeah, sure. As far as it delaying The Merge and stuff like that, I mean, we’ve talked about that – I think that’s ridiculous. It’s not like these censorship problems go away if you just delay The Merge. The dynamics do change with proof of stake, but miners can and already do censor. Flashbots is already censoring today on the OFAC lists – while the dynamics will change, the issue still exists whether you’re in proof of work or proof of stake. So looking after the merge, how things will work is you might have heard like Ethereum will have Proposer-Builder Separation that won’t be live at The Merge. So what happens is you aave what’s called MEV- Boost. So all of these Validators – if you’re running an at-home-Validator or you’re bigger, either way if you want to capture MEV,  the way that you’re realistically going to do that is you’re going to use MEV-Boost with your client to connect to this market of relays and builders who are going to build the block for you. Capture a