Introduction to The Protocol
Welcome to The Protocol, CoinDesk’s weekly summary of significant developments in cryptocurrency technology. In this edition, we cover Ethereum’s latest Pectra test, Hyperliquid’s new features for token transfers, Celo’s migration to a Layer-2 network, and the challenges Bitcoin’s DeFi sector faces regarding forks.
Ethereum’s Final Pectra Test Underway
Ethereum’s last major test for the forthcoming Pectra upgrade took place on Wednesday, marking a crucial step in the blockchain’s most significant changes in over a year. This testing phase, conducted on the new Hoodi testnet, was particularly important due to previous failures in the Holesky and Sepolia test networks, which did not complete successfully. To address these issues, developers launched Hoodi, providing stakeholders, especially staking providers, another chance to trial the changes before the Pectra upgrade is implemented on Ethereum’s mainnet. This test involved introducing various code modifications aimed at enhancing user-friendliness for both developers and end-users. Notably, one modification allows wallet software to support smart contracts, enabling features such as paying transaction fees using cryptocurrencies other than ether (ETH). Testnets function as replicas of the main blockchain, allowing developers to experiment with significant code alterations in a risk-free setting, which helps identify and resolve any bugs prior to deployment on the mainnet. Hoodi was the final of three testnets to simulate Pectra, and if the outcomes are favorable, developers plan to monitor the upgrade for approximately 30 days before launching it on the mainnet.
Hyperliquid Simplifies Token Transfers in DeFi
The decentralized finance (DeFi) sector plays a pivotal role in generating value and revenue for crypto projects; however, its complexity often confuses users who navigate multiple blockchains, wallets, and tokens. Hyperliquid has introduced a technical update that streamlines this process, allowing developers and users to directly link tokens across its HyperCore and HyperEVM platforms. HyperCore serves as the native platform for spot assets—tokens available for direct trading—while HyperEVM operates as an Ethereum Virtual Machine (EVM) network that runs smart contracts on Ethereum. Tokens from HyperCore, referred to as “Core spot,” can now be connected to their EVM counterparts, termed “EVM spot.” This direct linking facilitates seamless transfers through simple actions, such as “spotSend” on HyperCore or a standard ERC-20 transfer on HyperEVM. By enabling direct token movement without needing a third-party intermediary, developers can create user-friendly products that simplify the asset transfer process, benefiting both seasoned crypto users and newcomers.
Celo Completes Migration to Layer-2 Network
The Celo blockchain has successfully completed its long-anticipated transition to an Ethereum Layer-2 chain, marking the conclusion of a nearly two-year journey, as confirmed by key stakeholders on Wednesday. This migration process began in July 2023 and included a community vote in July 2024, alongside intense competition among various Layer-2 networks, ultimately won by Optimism. The upgraded network, like other Layer-2 solutions, promises expedited and cost-effective transactions built on Ethereum’s mainnet. It leverages Optimism’s OP Stack, a customizable framework that enables developers to construct Layer-2 networks based on Optimism’s technology. According to Rene Reisberg, CEO of the Celo Foundation, this migration represents a pioneering achievement within the Ethereum ecosystem and could serve as a model for other EVM-compatible blockchains seeking to transition to Layer-2 solutions.
Bitcoin DeFi Confronts Fork Challenges
Bitcoin developers aiming to enhance the blockchain’s decentralized finance (DeFi) capabilities are reportedly considering the integration of zero-knowledge (ZK) proofs, a feature not currently supported and necessitating a soft fork—an update to the software—to implement. This presents a significant challenge, as articulated by Edan Yago, a seasoned Bitcoin developer and core contributor to the Bitcoin operating system, BitcoinOS (BOS). Yago likened the process of forking a blockchain, especially one that holds $2 trillion in value, to performing open-heart surgery. ZK proofs utilize cryptographic techniques to validate statements while preserving privacy by concealing sensitive information. Although Bitcoin’s software does not currently support this functionality, proposed implementations like OP_CAT and OP_CTV could pave the way. Yago emphasized that developers must demonstrate innovative engineering solutions to introduce ZK proofs without resorting to a fork. The BitSNARK protocol, developed by BOS, aims to facilitate this by enabling ZK verification on Bitcoin and establishing connections with other blockchains, such as Ethereum, Solana, and Cardano.
Additional Developments
In a recent two-hour discussion with CoinDesk Senior Anchor Christine Lee, Strategy Executive Chair Michael Saylor shared insights on the concept of a U.S. Bitcoin strategic reserve, his concerns regarding securities holders, and his perspectives on economic sustainability. Additionally, the crypto startup Plasma has unveiled the technical specifications of its blockchain, engineered for rapid and efficient global stablecoin transfers, utilizing a consensus mechanism inspired by HotStuff.
Regulatory Insights
U.S. Senator Kirsten Gillibrand (D-N.Y.), a prominent advocate for crypto legislation, cautioned the industry against seeking a diluted version of the long-anticipated stablecoin legislation currently progressing through the Senate. She argued that robust regulations are essential to encourage innovation while safeguarding investors from potential bank runs, such as those experienced during the collapse of Silicon Valley Bank in 2023 and the downfall of the crypto exchange FTX in 2022.
