The silence from him considering the growing panic is odd. It might be that the Ethereum Foundation has been served a subpoena. And I'd assume the goal of that is to reach a deal where the Foundation without delay this March allows unstaking in what's called the Shanghai Fork.

The government likely preferred their staking censorship remain under wraps, until Brian Armstrong of Coinbase shitcoin casino fame broke the news via Twitter, sounding the alarm on his own company's exposed liability. From here the Kraken domino fell, and the others are figuring out what to do, and what offshore options they might have. They have none, and I think this will get significantly worse in March.

We know the bankruptcies of 2022 have courts waiting for the Ethereum Foundation to enable the unstaking button for their customers so that they can sell and satisfy their USD-denominated debts. We know many exchanges will do the same. And this brings up a curious problem. Did they already do so with staking derivatives?

Lido (a liquid staking platform) alone controls 32% of all staked Ether, and they provide an equally-pegged ETH derivative (stETH) to those who stake. People then take these derivatives and collateralize all kinds of degenerate adventures. One of the most popular are revolving loans, where they take the stETH, deposit it into a dAPP contract pool, get ETH in return, and go stake that as well. So what percentage of staked ETH providing network security is related to revolving loans and other DeFi 'nanigans? Remember, Lido is just one of many platforms that proffer staking derivatives.

So from here, the government has got the network trapped. Their [the Foundation's] fatal mistake was never allowing staking withdrawals in September with the la Merge. Has anyone bothered asking what happens if the government gets major DEX's to stop trading of staking derivatives?

There's a very real possibility a death spiral plays out if the unstaking spigot isn't controlled to a drip. In such a scenario where it isn't, it'll be like trying to drink from a firehose. It's doubtful even arbitrageurs will be able to break the transaction bottleneck profitably (because of tx costs, and time). The de-collateralization event will be up there with the Carrington or Chixilub events. Remember, the government is already busy impairing stablecoin liquidity.

Ultimately it will end in multiple forks, loss of the L2 state which is catastrophic, because with forks, everyone still has their coins on each fork...but stablecoins can't honor each fork obviously. So someone has to step in and decide the canonical chain. That should be whichever token has the most value within the network. USDC? USDT? Both of these should presumably trade at significant premiums briefly as people are willing to accept big losses for something instead of losing everything. In the case the canonical chain is decided by one of these, you have an OFAC-compliant fully captured network. Checkmate. ♛