 What's up everyone? Good afternoon. I'm Colin Myers and today we're gonna walk through validating ETH2 and the economics and rewards that you will receive as a validator. But we're gonna do it in space. So we're gonna make it fun, we're gonna make it interactive, it's gonna be quite cool. So overall, those of you look into this space, this is a topic that doesn't have a lot of transparency. It's super crucial. These are distributed systems with incentive models and there's been a few people in the ecosystem published research on what the incentives for ETH2 are. But most recently, consensus in the EF, we've been working together on a grand effort to put out a work on the ETH2 calculator, which we will release. And I have a model that everyone can have. And a telegram group that will launch after this. But also this is a way to kind of educate everyone on the super important topic that's not talked about too much. So let's get started. So today, we have a special guest star, her name is Alice. She's gonna be validating the ETH2 chain in space. So over the journey, we're gonna touch on a few topics, kind of leading up to what the ETH2 calculator is. We're gonna start with what is the vegan chain. I'm sure everyone here has heard about the vegan chain. DEF CON is basically the ETH2 conference. Like how do I become a validator? What is Alice responsible for? How does she stay a validator? And then ultimately, what does she get in return for doing so? We're gonna walk through some economics of phase zero, as this is the big thing that we're all hearing up for. It's the event that basically bootstraps the vegan chain. We're gonna walk through the results and then we'll talk about the ETH2 calculator and how everyone can get involved and what the ultimate intentions of it are. So let's just start at a high level. I'm sure everyone has also probably seen this chart a million times, but we're gonna primarily be focusing today on the vegan chain, which is the coordination layer of the spine of ETH2. It's the main part where all the action happens. This is where Alice and all her friends hang out. So the coordination layer itself, you can think of it, it does a few key components. It stores and manages Alice and all her friends. It provides a random component to basically select who gets to validate. This is where the block proposal takes place. This is where I get slash or I get to return for my actions and then committees and processing, which is a bit more will place and make sense once they're starting in, but in the future, this is also all of that is included. It takes place inside of the vegan chain. So let's just talk about the phases. I'm not going to talk about phase two today because it's a bit out there and it's a bit still unknown. There's a lot of good work being done by teams like quilt to make phase two a reality and kind of get people on board and skipping ahead now that zero and one the specs are firm and people are spending time on phase two. The big thing is that between phase zero and phase one, the economics do not change, but between phase zero and phase two, the economics will change and we'll get into that. So let's just talk about what phase zero does not include. There's no EDM. There's no smart contracts. You cannot transfer assets and there's no accounts. So it's basically, it's the heavy lifting in the system. However, there's really no activity inside of it. It's just basically propagating and applying FFG, handing out your returns and slashing. But we hope that everyone acts honestly during this time period and that doesn't happen. I also won't address slashing in this today. That is kind of a B2 of the model and essentially what we're just going to do is talk about the perspective of an honest validator. Phase one, you can think of as bootstrapping for crosslinking. This is going to be empty shard blocks, but they will be all communicating together, but there will be anything inside of them. So in phase one shards exist, but there's really nothing inside of them. We're just making sure that the machine operates as it's supposed to. So I'm Alice. I have 32E. I want to join. How do I do so? So the first thing that you're going to need is a beacon node. A beacon node can mean a few different things. It can mean a laptop, it can mean a desktop computer, or it can mean a VPS. If you are doing this with larger quantities, or you're worried about consistency of time in your household, or if you're a no man. To be honest with you, most people in this industry are that have largest tax of Ethan. We've faced the model and some analysis on VPS being a key option for these people. You'll need to choose your client of choice. This includes Artemis. This includes Prism. There's six to seven different ones. Everyone I'm sure is seeing the recent interop news behind all that. So there's really great progress being made on that side of the equation, but that's kind of how you get started. You need to have those two core things to be a part of this. So once that takes place, there will be a deposit ceremony. It was supposed to happen at DevCon, but it has been recently delayed due to VLS. So now we're kind of targeting January 2020, or at some point during the beginning of next year. There's a few more technical steps here that we'll go through about generating a PK and then basically having a withdrawal key, which could be both, but your PK at all times needs to be hot. So you can continually add activity to the chain. It's not transferable to each of these you get in return. So a requirement that's not technical is something more of like a risk tolerance. So if you participated in this level of it, you must understand that there's going to be a time gap, which is not more defined than what it was before. But your ETH one gets burned and you get that in return for it. And you can't do anything with it until a certain point of time and it's unclear. It's more clear than what it was in the past, but it's more of a human risk parameter that you have to think about. So, you know, what do I have to do? I've done all the pre-steps. I have my ETH. I've gone through the process. I've figured out how to use the command line. I've done all this complex stuff. So now what do I actually have to do? So there's two main things that take place as a participant inside of ETH 2. You propose new blocks. This happens frequently in a new test, which is the signing of new blocks. This happens much more often and is much more important to the overall system. So there's two main things. There's some other small nuanced things that exist, but it's a lot to get through in 20 minutes. So we're just going to keep a high level. Those are two main things that you do. Those are your two actions. So now let's talk about, you know, where do these come from? What are they? I'm given tokens in return for certain actions. I have to have certain things to give them. So now let's talk about what they are and where they come from. So the FFG award is what you receive in phase zero. That has actually broke up into five components of it, two technical for what we're going to talk about today, but essentially that is chopped up into five different things. And that's the base reward is what you will receive in phase zero and phase one for good strapping the system. There will be no network fees until phase two, and then later on in phase two as well you can essentially, you know, call people out for this award and you can receive something in return for doing that as well. In the model that we built, it includes all of it and it can be toggled, but the primary analysis today will be phase zero. So let's talk about the system, right? How is this thing designed? Where are the main rewards coming from? And ultimately what are the key drivers? All economic models consist of key drivers that can be sensitized or they can be played with. ETH2 has, in my opinion, some very different and actually mature group of state design methodologies behind it, even though POS is just reduced. So let's talk about a few of those. So number one, total ETH state. Number two, base reward. Number three, what is the average network percent online of all the participants inside the system? Total ETH at stake. You can think of this as, you can see in the chart here, the more that it's taken the network the less that I get. These two red dots are two key points of bootstrapping this system. Two million ETH state is the first red dot and four point two million ETH is the second red dot and we'll dig a bit more into what those mean and why they're important. But ultimately I guess a comment that I'd like to make about how this system is designed is that, you know, people have different ways of saying what the return is or what the reward level is on a group of state protocol. Most people are launching POS from dead star with like zero token distribution. This model that ETH2 is based on is actually more of a mature POS where unless you have a proper token distribution and everything is already in the ecosystem, you aren't able to do this. Also a big component of not having a cap. So people run POS network sometimes with essentially mining schedules with like a fixed amount of tokens. A period when it's a big debate of should there be a cap on the supply or not. I personally believe that you can't run this economic model if there is a cap. But would love to have a debate about it if people have different thoughts. Second part of it, based reward factor. Right now the spec is at 64 and this is basically showing you from 2 to 10 million ETH what you would receive with a bunch of fixed variables which will all be inside of the model. But the primary point of this is to show that as the base reward increases what I get in return also increases and as the amount of value in the network of states it decreases over time. So it's saying true to its design principles and it matches what we just looked at. The third factor is your average network percent online. This one I think is quite cool and not really spoke about too much. So it's basically like a collective reward mindset. Where if everyone in the network is providing up time and being consistent with their behavior then everyone else gets something in return for it. So what it does is it incentivizes collectively better behavior for everyone to stay online and to stay live. It's a primary driver of what of what you get out in return and I haven't seen it collectively implemented inside of other POS protocols. So I find this person to be one of the more genius things that these two interesting see how it plays out. But again two million ETH take 4.2 million and just remember those two. Those are very crucial levels and for a relative comparison right now inside of all D5 protocols there's 2.8 million ETH unlocked. But again as you can see from 70 percent to 100 percent your what do you receive from the protocol increases over time as you provide more up time. The fourth component which is not included in the last two days is something I think we should talk about is a lot of POS protocols not going to name names but they what you get in return is based on how many tokens you have which is quite a centralized element of all this. So like this is like a whale scale. We have different amounts of clients that you could run on the bottom of stretches from 1 to 50 which basically means at a protocol level X cost. If I'm validating with 32 ETH or I'm validating with 1600 I receive the same thing in return for it. So achieving economies of scale at the protocol level inside of ETH 2 is not something that is possible it's more about how many clients just have been on each node. So ultimately at the end of the day kind of the premise of this being designed to be the most decentralized actually holds true. So I think it's a really cool thing to after running the numbers and seeing this come out it's something important to remember because you know it stays true to the mission. So the hypothesis of money. When is this going to happen? This is kind of how everything starts. January 2020 are kind of some of the dates that people have been throwing around. It was supposed to be here at DevCon but it kind of gives us a bit more time to educate on economics in my opinion kind of gather more of a a collective inclusion of people to be a part of this. The two million ETH so let's talk about that but that's important. So to get the change started that's equivalent to 65,536 validators. So looking at what my rewards would be in the economics at two million ETH state is something quite interesting to look at. The next number that's been unleashed on all the charts is 4.2 million ETH. So you can think of this as once we enter phase two and charts are live what is the minimum amount of ETH that needs to be skaked for a fully charted system to be secure. So I personally think that getting the two million ETH would be fine and we'll get there but ultimately I think what we really need to do is in this first sprint of all this pushed to 4.2 million so that when phase two kicks in you know the call to action won't have to be too severe and distracting and ultimately when charting takes place everything will be in there. Again phase zero network fees not included and your graph is not transferable until phase one. So let's talk about some of the assumptions in the model some of the charts that we're about to go through. So on the network side of it we take a look at between two and 10 million ETH states. I personally think that that's achievable at the 10 million plus and maybe not in this first phase zero push but ultimately I think that's kind of where the equilibrium will be fit between 10 and 20. 90 percent average online kind of just the base running the model based on that but sensitizing the different charts based on word 64 and again no fees. We'll take a look at our validator how Alice is acting. She's a single individual validator she only has 32 ETH she's providing 98 percent up time she has a $250 computer with a two and a half year life on it so that's basically her cost is scheduled over two and a half years. We don't include router and ISP as cost in this equation it's kind of some cost we assume that most of your average humans that will be participating in this earlier stage will have this but the model that you can toggle it and you can decide whether or not you think this is needed or unedited. ETH price is set at 182. It was a bit lower but you know DEF counts for one other bit so I changed everything in the evening yesterday. So it's talking about phase zero. Now here's what you're going to get at a pure protocol network level. This includes no cost this includes nothing like that so you will receive in ETH denominated token inflation 10.4 percent at that two million level which gets the ETH pick off. Call it secure as starting which is our 4.2 million level you'll receive 7.2 percent. Call it 7.4 percent over what time period? It's any less. Now let's take a look at what you would receive when applying a net cost. So when these numbers first came out and we run a bunch of models on it at the beginning of the year they weren't net positive. It was in the red which led me to believe that I don't believe it's a protocol or foundation responsibility to base the design of a protocol on real-world cost but it must be considered when thinking about making this a reality since it's such a human-based technology. So at our phase zero two million to get the beacon chain started you'll receive a 6.9 percent which I think is quite competitive considering the risk profile and how built out of theory it is compared to other proof of stake. So at 4.2 million as well they'll get a 3.6 percent so that's that's the ideal setting of when we think that the system will be secured and for starting to go live technically at that level I'm pretty comfortable with that to be honest with you. I do think that out in the lower end you get a 10 million by low but then again it's kind of a call to action of what we're doing here when we're putting this together is getting insight from people who are economists. People who actually look at and understand human behavior and how it flows through economic cultures because right now it's a bunch of technologists and ex-bankers trying to figure this out which has got us pretty far but ultimately this needs further insight from other people as well. So this is kind of interesting one being at DEF CON this is kind of the whale scale. I do believe that from a phase zero perspective like we're going to need not an element of centralization but we're certainly going to need some larger e-folders to come in here and bootstrap this thing. So this model this chart within the model is based on using the VPS to visual ocean at $20 a month and it assumes that you can fit 16 clients on each machine which is quite conservative but that can all be flexed inside of the model and ultimately this is what your return schedule would be. Again just to comment on the decentralized design of the protocol as you can see economies of scale can only be achieved to a certain degree as a large person on the network which I think is quite cool but anyway else in the room this is what you can expect for phase zero if you're interested in helping out. So you know what do we this has been four or five months of putting this together what is the point of all of it what we want to do with it essentially we're launching an E2 calculator and the purpose of this is to educate the purpose of this to inform this is for people who want to validate this is for people who do research this is this is for anyone who wants to add feedback to it so it'll be an advanced calculator that has a series of validator assumptions and network assumptions basic and advanced there's going to be a feedback form as well which we think is probably going to be the most important thing where we want all the feedback and comments about this back and about the economics to take place in one setting because ultimately at this point if people aren't stoked on the economics there's going to be a hard force that's going to need to entail a lot of coordination and a lot of thought at this point so we're like where are we now with all this we haven't signed we have all the business logic involved built into it today we're going to launch this group here where i will drop the model into it and anyone that has questions or anyone that has comments i'm not going to do that during the talk today but ultimately we'll do all of that and house it in one kind of single source of truth so that we can continually get feedback on this because it's super visual to do so so to kind of close it out there was a lot of people who helped with this effort both inside the consensus at the ef outside this is kind of the main list of people here that helped out with all this so it was a coordinated effort for everyone so shout out to everyone involved because it was a lot of get this done and that's it if you want to hit me up here's my telegram and my twitter i can't believe both of which were not taken but they weren't so please feel free to reach out if you guys have any questions and i'll drop the model into the telegram group and we can start jamming thanks everyone