 Supply since the network's genesis. This is going to be a two-part presentation. First, we're going to discuss how 60% of total e-supply today was generated all in one single block and how that very large sum of ETH got distributed over time. And then second, we'll discuss total staked ETH supply, which is actually a very small percentage of total supply, but now it has an extremely outsized impact on network security and censorship resistance. So before I dive into the data, I want to elaborate a little bit on why I think this is such an important research topic for Ethereum. I started investigating this back in the summer because it was becoming clear that Ethereum was soon going to transition to proof of stake after many years of delays and lots of uncertainty around whether this upgrade would happen. And this would mean that soon and today, now that the merge has happened, the amount of ETH that users hold can be directly translated into influence over Ethereum's consensus and block building process. So to understand how resilient Ethereum is against attacks, such as, for example, like a 51% attack, one of the key questions to ask is who controls staked ETH supply and how easy is it to seize control of staked ETH supply? And the more concentrated that your stake's ETH supply is, the easier it is to disrupt network consensus. It's like a centralized point of failure. But the less concentrated your stake ETH supply is, the harder those types of attacks are. And the second reason is very closely related to security. It's a one that goes part and parcel with security. And that's because the supply distribution of Ethereum, it matters more than ever also to the decentralization of Ethereum. And that relates to censorship resistance and credible neutrality, because validators are now the block proposers of Ethereum. They are the block proposers of a proof of stake blockchain. And for those of us who are from the US, this really does matter also from a regulatory point of view, because for regulators like the SEC, decentralization is a key criteria determining what type of financial asset ETH should be classified as. And finally, the third reason is because this topic helps to illustrate who the biggest winners are from proof of stake, from aka the merge upgrade. The biggest ETH holders on Ethereum are in the best position to profit now that the merge upgrade is complete. And the capital that they hold will now be able to generate more capital on the network. So whoever holds a lot of ETH now stands to generate and continue to hold on to a lot more ETH. And this is a little different from proof of work mining, whereas where miners weren't to some extent incentivized to sell off their ETH due to their due to their high operational costs. So when you're mining ETH, you sell it off once you've mined it because you have to pay a very high electricity bill. But for validators, that's not the case. The operational costs are in comparison extremely negligible. So I hope this has got you interested. So now on to the data. As of the beginning of October, about 120 million ETH has been generated on Ethereum since Genesis. This value, there's actually quite a lot of dispute around the exact decimal points of the value. But for that conversation around some of the nitpicky stuff of how we even know what total supply is, I encourage you to read the full report that I've written on this research topic at galaxy.com. But more than mining or validating combined, the majority of supply was allocated before the network even launched. So 60 million ETH representing about 50% of total ETH supply today was distributed at the network's Genesis to participants who had, who were involved in the initial coin offering. So the ICO sale of Ethereum basically sold off ETH to the general public, anyone with an internet connection who had Bitcoin could participate in this fundraising effort for Ethereum. And that sale took place in 2014, a year before Ethereum even launched and it raised funds for about 42 days. Around $18 million was raised at the time. Now the second part that I want to highlight is 12 million ETH, so roughly around 10% of Ethereum's total network supply was also generated at Genesis. And this ETH went to early project contributors to Ethereum and the Ethereum Foundation, which is an organization that was set up to help steward the development and the growth of the Ethereum ecosystem, which if you guys were there for the opening ceremonies, I had a really good talk of what her vision for the EF is. But for the 12 million ETH that was generated, it was basically split up between the foundation and a bunch of founders. So like some of those names, big names are like Vitalik Buterin, Charles Hoskinson, Nihailisi, Gavin Woods, Joe Lubin, there's more. But it's not clear the distribution of how much of that 12 million went to those contributors. And we also don't know exactly what the full list of contributors were at the time. There's sources to say that, you know, it was split up around 85 early project founders. So a lot of critics of Ethereum do note that the distribution of coins through processes that take place before the public launch of a cryptocurrency. So before mining starts, before validating starts, this is called a pre-mine. And it can be easily manipulated by a few select instructors. And it's not a very transparent process to understand who got what. And to some extent, this is very true. If there's two really great books that discuss a lot of the drama and the difficulties around figuring out how much of this ETH should be distributed to early project contributors, Lawrishans, Cryptopians, and Kami Russo's Infinite Machine are two books that discuss that history. And when you think about the ICO, there is on-chain data to show that, you know, that 60 million ETH, it was distributed across 8,800 different on-chain accounts, which sounds really decentralized. But the thing is, we don't know how many of those accounts were actually owned by the same person. It's a very difficult... There's known videos explaining how you could actually participate in Ethereum's ICO using multiple fake identities. So there's no way to really double check how clean the ICO was and how, according to the rules, people were playing at the time. So from Genesis, it's very hard to know how decentralized ETH supply was. And in some ways, it does look like a bunch of insiders were getting a really big part of the pie. So for the next few slides, I really want to do a case study on some of the biggest ETH holders from Genesis and explain and hopefully show you that we can see a lot of evidence to suggest that Ethereum supply has distributed a lot over time. So let's start with the Ethereum Foundation, the biggest, the top recipient of the pre-mine. Over the past seven years, you can see in this black shaded area that its supply has decreased dramatically. Starting with the 12 million, it's reported that the Foundation gave roughly half a way to those 85 early project contributors. We don't know exactly how they are, how it was divvied up. And then another 3 million was set aside for Foundation employees through something called the Developer Purchase Programs. And for the 3 million that's remaining from 12 to 6 to 3, it's well documented that the Ethereum Foundation had to sell off their ETH in 2018 and 2021 to pay off operational expenses and just keep the foundation going. But of course, this is really just one account. This is a publicly labeled account on ETHerScan. And you might be asking, well, what if Ethereum Foundation has more accounts on chain that we don't know about? Well, as of March 31st, 2022, the Ethereum Foundation self-reported their financials. They said, hey everyone, in the spirit of transparency, here's how much ETH we control today. And they've said and self-reported that they currently only control about $1.3 billion worth of ETH. That's probably less now that ETH price has gone down a little bit since March. But that represents 0.3% of total ETH supply. So we went from 12 million to now 0.3% of total ETH supply. And the EF has sold off some of their ETH to hold other assets. And a lot of this analysis, I will explain that it depends on self-reporting. It depends on these individuals, major individuals to self-report how much ETH they still hold. So Vitalik has talked about this openly. I've asked Joe Lubin on stage at CoinDesk Consensus, like how much ETH do you hold, sir, now? And his answer was basically less than 0.5%. But of course, not everyone is super altruistic and not everyone is going to just explain how much ETH they hold. So it's worth also looking at some on-chain data. Who are the biggest ICO recipients? Well, the top receiving addressed from the ICO received 1 million ETH. And over time, outflows from that account reveals that the funds have been dispersed to several other accounts. So this one account that received 1 million ETH, you can see that they sent some of that ETH to centralized exchanges. They invested in the Dow, a very infamous token sale back in the day that caused the Ethereum Classic creation, different smart contracts. And a lot of these flows actually converge to one tertiary account domain called Verturnity ETH. And that account only currently holds about 800 ETH today. Shout out to Breadcrumbs, who was able to create this visualization and be able to track the flows out of that account over time. And similarly, if you do this same exercise for the second and the third top accounts that received the ICO, they received around 935,000 ETH and then 933,000 ETH. That's the second and the third largest recipients. 95% of the funds that they received has since been transferred over to centralized exchanges. So that basically means that the funds have been moved off chain. They can't be really traced without further supporting evidence. But the movement of funds to exchanges generally suggests that the funds have either been sold or traded. And that's kind of like a case study of the three. But if we take a little bit more of a broader look at where all of the ETH has since flowed to, this is data that was compiled from Nansen. But it sums up the first outgoing transaction between 2015 and 2018 from accounts that received ETH from the Genesis block. And it shows that the top 10 receiving entities, it shows like the top 10 of like how much ETH they received. And most of them are exchanges. Only 2.3% of Ethereum's pre-mine supply was held unmoved from 2015 to 2018. So this analysis does suggest that many investors that did participate in Ethereum's ICO likely sold off their ETH within the first three years of the network's launch. And on-chain data of the known account balances of these early ICO investors and talking with self-reported figures from project contributors, many of them have not retained that large supply of ETH over the years through market fluctuations, through the evolution of Ethereum's DAP ecosystem. And of course, it wasn't clear exactly when Ethereum would transition over to proof of stake five years ago. This has been a very long time coming. So in the report that I have written on this topic, I actually go into a lot more detail using other on-chain metrics like a bird's eye view of Ethereum supply. Holistically, I use metrics like hodl waves, supply equality ratio, network distribution factor. So definitely be sure to check out that report if you want more supporting evidence for this idea that Ethereum supply distribution has changed over time and how the biggest winners of the proof of stake merge most likely aren't the ICO recipients and early founders. That report is on galaxy.com but because of limited time, I now want to jump to showing you guys some data around total staked ETH supply and how we're seeing that data kind of evolve over time and the trends around stake ETH supply that we're seeing over time. So in comparison to how much total ETH supply there is, only roughly 12% has been staked on Ethereum, which is kind of small. That's $18.5 billion on Ethereum and that's very surprising kind of to me because if you're not staking your ETH, you're essentially getting diluted and liquid staking solutions basically means you don't have to make that trade-off of oh if I lock in my ETH then I can't use it for DeFi applications. It's surprising that it's only at 12% but that's probably because number one, you can't actually withdraw your stake right now. There is a big risk factor in that you know Shanghai we're not exactly sure when Shanghai is going to be and up until very recently until last month it was very uncertain when the merge would actually happen and there were tons of risks associated with the merge that probably made people a little bit iffy about should I be staking my ETH into the beacon chain. So there were core like developments in the protocol that needed to happen in order to grow more confidence in staking your ETH and so I actually suspect this figure to start rising now that the merge has happened and especially after Shanghai is complete and you can see that this trajectory like year over year it's getting higher and higher and if we're if we start to see more total supply of ETH becomes staked it's important to ask the question who's holding that ETH and how has that distribution changed over time. So for the past since 2020 since when the beacon chain started you can see that initially independent stakers basically stakers that were not associated with a staking provider it was pretty high it was around 70% of the total stake ETH supply was controlled by independent stakers but over time we can see very quickly that we're starting to see more concentration see the black to staking providers like Lido and Coinbase and of course take some of this data with a grain of salt because this requires on-chain address labeling which is not always an accurate science and shout out to Hill Dabi from who's like a Dune Analytics wizard because I basically took his dashboard but so why why do we see this happen why do we see it going from from 70 to like smaller well I think number one it's because it's a lot easier to stake with a staking provider than it is to run your own validator node especially after the merge with the execution layer client and the consensus layer client and making sure that those communications happen in the right manner and not getting slashed it is much easier to just kind of offload that technical capability to somebody else and ask somebody else to run it and the second thing is you can't actually have liquid staking if you're an independent staking provider there's a ton of benefits of going to Lido and then being able to rehypopicate your stake ETH and get additional yield so I think a big a big plus of Lido is is this idea of liquid staking that you don't get as an independent staker and then finally this is the theoretical more theoretical benefit of joining us a large staking pool but theoretically if you join a staking pool that has control over more than one third of the ETH or like key thresholds like one fit like one half of the ETH then you also have this ability to theoretically achieve outsized profits by deploying um cross like multi block multi block MEV strategies and you're able to like manipulate block times and do these fancy things that you can only do if you're a very large staking provider and in those ways like increase your reward so left unchecked I really do think that this trend of of um increasingly centralized um players dominating the stake ETH um arena I think that's a trend that we could start to see um grow a lot stronger over time um if we don't start talking about solutions now so for the the last slide I wanted to talk about some of these solutions um and I'm not going to go much into distributed validator technology because that was explained in much detail in the last presentation um so the first one it was proposed earlier this year by Justin Drake um and he suggests the creation of a liquid staking derivative token called LSD which is the name of drug but um it stands for liquid staking derivatives um yes and this would basically allow independent node operators running their own validators as opposed to other um to that of other users you'd be able to enjoy the benefits of basically rehypothecating your assets without having to rely on a on a staking provider like Lido and the setup would really circumvent that need for um you to to trust in a smart contract that may contain like smart contract risks and bugs um but of course this would require a really heavy and major code change to ethereum's consensus mechanism its protocol and its design and as you saw in the last presentation with dank sharding statelessness all these other things in ethereum's roadmap it's kind of hard to think that liquid solo validating is in ethereum's near future um but it is a solution or a potential proposal that has been discussed but i'm just saying that's it would require a lot and there is a lot on ethereum's development roadmap um as you probably noticed from the last presentation the second one which is a more short term solution that many ethereum community members have been advocating for is um basically just altruistic behavior from the top staking protocol so Vitalik was tweeting earlier this summer about this idea that maybe staking pools should just altruistically start increasing fees for users if their share of the staked e-supply goes above 15 percent or maybe you know like the individuals like Lido should start imposing self-imposing like deposit caps into their smart contract so that their their portion of staked e-supply never goes above like 20 percent or 25 percent and i think that this kind of goodwill behavior might seem very laughable at but it's it's happened time and time again on ethereum's protocol for other for other issues so MEV is a really great example um where we saw a lot of altruistic behavior from from key ecosystem players before ethereum merged there was ethermine which was the largest ethereum mining pool by hash power and they publicly tweeted about refraining from MEV opportunities that don't align with the ethos of the ethereum community out of support for the longevity of the protocol so they're basically leaving money on the table not interacting with certain MEV strategies because it's just bad and they're not going to do that flash bots recently tweeted we're going to start giving blocks to other relays because we just want to bootstrap other relays and we want to help out the ecosystem ethereum 2.0 client diversity consensus layer client diversity even though not all teams are like have the same resources and they have the same track record for performance there was a huge push by the community to just encourage minority clients to gain more user adoption so time and time again we're seeing a lot of altruistic behavior encouraged and i actually hate this kind of solution of just like relying and encouraging the altruism of ecosystem players to keep ethereum safe but i put it on the slide because it's worked for other solutions before and we've seen examples of it happening on ethereum and it was it was one of the proposals around this topic for how we want to see stake eth being more decentralized over time and then the final one is distributed validator technology i won't go too deeply into it because again it was talked about in the last slide but this i will also specify is a research an active research initiative oval and ssv are two of like the few projects in this ecosystem that's really trying to make dbt a reality and i didn't really in this presentation go much into how me v boost is actually changing the dynamics of how validators validator node operators are competing with one another but as with many aspects of research and many topics of research on ethereum once you research one topic and and propose solutions it actually impacts and has many third order consequences to other areas of ethereum's development so as i close out my talk i'd just like to reiterate that the supply distribution of ethereum matters now more than ever um because ethereum is a proof of stake blockchain and the solutions that i discussed on this slide are really far from perfect and i urge a lot of developers and stakeholders and people in this audience to think deeply about how supply can become more decentralized and distributed over time because left in its current form there is this danger of it trending towards centralization so that wraps up my talk happy to answer any questions email and twitter is there and um yes i think we have space for one question okay who got the mic hi how do you imagine the role of latin america uh in terms of decentralizing the the upper beat i mean not the upper the the staking of the sorry the what how do you imagine the role of us latin america oh latin regarding this problem latin america regarding this problem well i think many of the validator node operators are probably based out of north america um so i think the fact that we're having this conference here and the fact that we're talking more about ethereum in other areas of the world that maybe many developers um haven't ever interacted with haven't ever come to visit and know like more of the population here and more of the ways in which yeah we can have more validator node operators independent staking node operators from latin america i think that would contribute significantly to the security and the decentralization of ethereum so i think it's really great that we're talking about this here and that we have a great audience of people who can bring other perspectives and other ideas so that it's not all from a perspective of like you know we're all educated from like universities out of like north america but many like different ideas so yes actually i can answer that question there is a group in argentina called sensei node they are pushing for geographical decentralization so you should check it out then thank you christine big round of applause and