Blockchain software development company ConsenSys published its latest edition of the Ethereum 2.0 Economics review on July 16, a report which examines the state of the Ethereum (ETH) network as it prepares for the Ethereum 2.0 upgrade. It was authored by ConsenSys Corporate Development personnel Tanner Hoban and Thomas Borgers.
The report covers the team’s efforts to analyze the proof-of-stake based economic incentive system of ETH 2.0, and also featured interviews with key stakeholders in the Ethereum ecosystem.
One of the most notable highlights from the report is that roughly 78% of all ETH supply held outside exchanges exceeds the amount required to stake on ETH 2.0. That equates to roughly 86.6 million ETH, with 32 ETH being the minimum amount required for staking.
The report states that an effort should be made to convert these wallets into active validators, which form a “compelling serviceable addressable market.”
The report also examined the security of the ETH 2.0 network, saying that it was dependent on the amount of ETH staked, the price of ETH and its volatility. It adds that attacks on ETH 2.0 are easier to scale than ETH 1.0, partly due to the reduction in hardware restrictions - but also due to the “flourishing of DeFi and eventual connectivity to Eth2.”
Referring to the flash loan attacks that have occurred, the authors state that derivatives could become the favored avenue of attack for adversaries.
As recommendations for increased security, the report suggests that the network pay more for security and have a more dynamic system (“a safety net”) in place to deal with sudden change, like in the event of an ETH price collapse.
It recommends increasing the base reward factor of the protocol to 128 from 64 and that it would be wise to “err on the side of caution during its phased migration to proof-of-stake.” The dynamic method to scale rewards should be implemented as a fail safe, should Ethereum’s price drop suddenly. The report concludes that price stability of ETH combined with the ability to rapidly scale attacks on ETH 2.0 prove a strong concern, and that solutions must be examined to prevent such a scenario.