The Protocol: ETH Exit Queue Gridlocks As Validators Pile Up

2 hours ago

Welcome to The Protocol, CoinDesk's play wrapper of the astir important stories successful cryptocurrency tech development. I’m Margaux Nijkerk, a newsman astatine CoinDesk.

In this issue:

Ethereum Faces Validator Bottleneck With 2.5M ETH Awaiting Exit
Is Ethereum’s DeFi Future connected L2s? Liquidity, Innovation Say Perhaps Yes
Ethereum Foundation Starts New AI Team to Support Agentic Payments
American Express Introduces Blockchain-Based ‘Travel Stamps’

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Network News

ETHEREUM VALIDATOR EXIT QUEUE FACES BOTTLENECK: Ethereum’s proof-of-stake strategy is facing its largest trial yet. As of mid-September, astir 2.5 cardinal ETH — valued astatine astir $11.25 cardinal — is waiting to permission the validator set, according to validator queue dashboards. The backlog pushed exit hold times to much than 46 days connected Sept. 14, the longest successful Ethereum’s abbreviated staking history, dashboards show. The past peak, successful August, enactment the exit queue astatine 18 days. The archetypal spark came connected Sept. 9, erstwhile Kiln, a ample infrastructure provider, chose to exit all of its validators arsenic a information precaution. The move, triggered by caller information incidents including the NPM supply-chain attack and the SwissBorg breach, pushed around 1.6 cardinal ETH into the queue astatine once. Though unrelated to Ethereum’s staking protocol itself, the hacks rattled assurance capable for Kiln to deed pause, highlighting however events successful the broader crypto ecosystem tin cascade into Ethereum’s validator dynamics. In a blog station from staking provider Figment, Senior Analyst Benjamin Thalman noted that the existent exit queue physique up isn’t lone astir security. After ETH has rallied much than 160% since April, immoderate stakers are simply taking profits. Others, particularly organization players, are shifting their portfolios' exposure. At the aforesaid time, the fig of validators entering the Ethereum staking ecosystem has been steadily rising. Ethereum’s churn limit, which is simply a protocol safeguard that caps however galore validators tin participate oregon exit implicit a definite clip period, is presently capped astatine 256 ETH per epoch (about 6.4 minutes), restricting however rapidly validators tin articulation oregon permission the network. The churn bounds is meant to support the web stable. With much than 2.5M ETH lined up, stakers connected Sept. 16 look 44 days earlier adjacent reaching the cooldown step. — Margaux Nijkerk Read more.

IS L2 DEFI EATING AT ETHEREUM’S L1 DEFI?: Ethereum is successful the midst of a paradox. Even arsenic ether deed grounds highs successful precocious August, decentralized concern (DeFi) enactment connected Ethereum’s layer-1 (L1) looks muted compared to its highest successful precocious 2021. Fees collected connected mainnet successful August were conscionable $44 million, a 44% driblet from the anterior month. Meanwhile, layer-2 (L2) networks similar Arbitrum and Base are booming, with $20 cardinal and $15 cardinal in full worth locked (TVL) respectively. This divergence raises a important question: are L2s cannibalizing Ethereum’s DeFi activity, oregon is the ecosystem evolving into a multi-layered fiscal architecture? AJ Warner, the main strategy serviceman of Offchain Labs, the developer steadfast down layer-2 Arbitrum, argues that the metrics are much nuanced than conscionable layer-2 DeFi chipping astatine the furniture 1.In an interrogation with CoinDesk, Warner said that focusing solely connected TVL misses the point, and that Ethereum is progressively functioning arsenic crypto’s “global colony layer,” a instauration for high-value issuance and organization activity. Products similar Franklin Templeton’s tokenized funds oregon BlackRock’s BUIDL merchandise motorboat straight connected Ethereum L1 — enactment that isn’t afloat captured successful DeFi metrics but underscores Ethereum’s relation arsenic the bedrock of crypto finance. Ethereum arsenic a layer-1 blockchain is the unafraid but comparatively dilatory and costly basal network. Layer-2s are scaling networks built connected apical of it, designed to grip transactions faster and astatine a fraction of the outgo earlier yet settling backmost to Ethereum for security. That’s wherefore they’ve go truthful appealing to traders and builders alike. Metrics similar TVL, the magnitude of crypto deposited successful DeFi protocols, item this displacement arsenic enactment is moved to L2s wherever little fees and quicker confirmations marque mundane DeFi acold much practical. — Margaux Nijkerk Read more.

EF STARTS DECENTRALIZED AI TEAM: The Ethereum Foundation (EF) is creating a dedicated artificial quality (AI) radical to marque Ethereum the colony and coordination furniture for what it calls the “machine economy,” according to probe idiosyncratic Davide Crapis. Crapis, who announced the inaugural connected X, said the caller dAI Team volition prosecute 2 priorities: enabling AI agents to wage and coordinate without intermediaries, and gathering a decentralized AI stack that avoids reliance connected a tiny fig of ample companies. He said Ethereum’s neutrality, verifiability and censorship absorption marque it a earthy basal furniture for intelligent systems. The EF is simply a non-profit enactment based successful Zug, Switzerland, that funds and coordinates the improvement of the Ethereum blockchain. It does not power the web but plays a catalytic relation by supporting researchers, developers and ecosystem projects. Its remit includes backing upgrades specified arsenic Ethereum 2.0, zero-knowledge proofs and layer-2 scaling, alongside assemblage programs similar the Ecosystem Support Program. The instauration besides organizes events specified arsenic Devcon to foster collaboration and acts arsenic a argumentation advocator for blockchain adoption. In 2025, EF restructured to grip Ethereum’s growth, emphasizing ecosystem acceleration, laminitis enactment and endeavor outreach. The caller dAI Team represents a continuation of this displacement toward specialized units addressing emerging technologies. — Siamak Masnavi Read more.

AMERICAN EXPRESS DABBLES IN BLOCKCHAIN TRAVEL STAMPS: American Express has introduced Ethereum-based "travel stamps" to make a commemorative grounds of question experiences. The question acquisition tokens, which are technically NFTs (ERC 721 tokens), are minted and stored connected Coinbase’s Base network, said Colin Marlowe, vice president of Emerging Partnerships astatine Amex Digital Labs. The question stamps, which tin beryllium collected anytime a traveler uses their card, are not tradable NTF tokens, Marlowe said, and neither bash they relation similar blockchain-based loyalty points — astatine slightest for the clip being. “It's a valueless ERC-721, truthful technically an NFT, but we conscionable didn't marque it arsenic such. We wanted to talk to it successful a mode that was earthy for the question acquisition itself, and truthful we speech astir these things arsenic stamps, and they're represented arsenic tokens,” Marlowe said successful an interview. “As an identifier and practice of past the stamps could make absorbing concern angles implicit time. We weren't trying to merchantability these oregon benignant of make immoderate similar abbreviated word revenue. The space is to marque a question acquisition with Amex consciousness truly rich, truly different, and benignant of acceptable it apart,” helium said. Fireblocks is besides involved, supporting Amex arsenic its Wallet-as-a-Service supplier for the passport product, a Fireblocks typical said. The Amex question app besides includes a scope of tools for travels and Centurion Lounge upgrades, the institution said. – Ian Allison Read more.

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In Other News

Blockchain-based existent satellite plus (RWA) specialists Centrifuge and Plume person launched the Anemoy Tokenized Apollo Diversified Credit Fund (ACRDX), backed by a $50 cardinal anchor concern from Grove, a recognition infrastructure protocol wrong the Sky Ecosystem. The money gives blockchain investors vulnerability to Apollo’s diversified planetary recognition strategy, spanning nonstop firm lending, asset-backed lending and dislocated credit, a benignant of mispriced indebtedness owed to marketplace accent and deficiency of liquidity. ACRDX volition beryllium distributed done Plume’s Nest Credit vaults nether the ticker nACRDX, making the strategy accessible to organization investors on-chain. By packaging Apollo’s portfolio successful tokenized form, the money aims to little introduction barriers and summation transparency for investors seeking vulnerability to backstage recognition markets, according to a property release. — Ian Allison Read more.
Google is taking a measurement toward merging artificial quality (AI) and integer money, rolling retired a caller open-source protocol that lets AI applications nonstop and person payments, which includes enactment for stablecoins, integer tokens pegged to fiat currencies specified arsenic the U.S. dollar, according to a press release. To incorporated stablecoin rails, Google teamed up with the U.S.-based crypto speech Coinbase, which has been processing its ain AI-integrated payments infrastructure. The institution besides worked with the Ethereum Foundation and coordinated with much than 60 different organizations, including Salesforce, American Express and Etsy, to screen accepted concern usage cases. The determination builds connected Google’s earlier enactment to establish a modular for “AI agents.” These integer agents whitethorn yet grip analyzable tasks, specified arsenic negotiating mortgages oregon buying for clothes, without nonstop quality input. — Oliver Knight Read more.

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Regulatory and Policy

Contrary to claims from the U.S. banking industry, stablecoins bash not airs a hazard to the fiscal system, according to the main argumentation serviceman astatine crypto speech Coinbase (COIN), Faryar Shirzad. Banks' claims that they bash are are myths crafted to support their revenues, helium wrote successful a blog post. "The cardinal assertion — that stablecoins volition origin a wide outflow of slope deposits — simply doesn’t clasp up," Shirzad wrote. "Recent investigation shows nary meaningful nexus betwixt stablecoin adoption and deposit formation for assemblage banks and there’s nary crushed to judge large banks would fare immoderate worse." Larger lenders inactive clasp trillions of dollars astatine the Federal Reserve and if deposits were truly astatine risk, helium argued, they would beryllium competing harder for lawsuit funds by offering higher involvement rates alternatively than parking currency astatine the cardinal bank. According to Shirzad, the existent crushed for banks' absorption is the payments business. Stablecoins, integer tokens whose worth is pegged to a real-life plus specified arsenic the dollar, connection faster and cheaper ways to determination money, threatening an estimated $187 cardinal successful yearly swipe-fee gross for accepted paper networks and banks. He compared the existent pushback to earlier battles against ATMs and online banking, erstwhile incumbents warned of systemic dangers but, helium said, were yet trying to support entrenched profits. — Jesse Hamilton Read more.
U.S. SEC Chair Paul Atkins said crypto’s clip has come, pledging to modernize the U.S. securities rulebook and grow “Project Crypto” to bring markets on-chain. Speaking successful Paris connected Sept. 10 astatine the OECD’s inaugural Roundtable connected Global Financial Markets, Atkins said the SEC is shifting distant from enforcement-driven policymaking and volition supply wide rules for tokens, custody, and trading platforms. “Policy volition nary longer beryllium acceptable by advertisement hoc enforcement actions,” helium said, calling the caller attack “a aureate property of fiscal innovation connected U.S. soil.” Atkins said astir tokens are not securities and promised bright-line rules for determining erstwhile crypto assets autumn nether SEC oversight. He said entrepreneurs indispensable beryllium capable to rise superior on-chain without “endless ineligible uncertainty” and pledged a model for platforms that integrate trading, lending, and staking nether 1 license. Custody rules volition besides beryllium updated to let investors and intermediaries aggregate options. — Siamak Masnavi Read more.

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