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Comment by humanizersequel | Hacker News Reader

For the record, I'm most familiar with Ethereum and am reasoning from there, Solana may be different.

>It's like if the bank gave my currency (USD), to a different business owner (who needs it to run their business), who then puts it at risk (e.g., bankruptcy risk), to earn a return (i.e. profits).

Who is the "different business owner" in this case? Coinbase isn't giving my coins (rhetorically, I do not use Coinbase Earn or own any significant amount of blockchain assets) to anyone, they're interacting with a decentralized protocol on my behalf.

The risk profile also isn't exactly comparable, as in your example the bankruptcy and the potential profits are directly linked, while slashing is a punitive measure imposed by the protocol to punish bad behavior. The risk is that Coinbase mismanages their validators, but that's an error in service not in investment. More like a package getting lost in the mail than a business going bankrupt.

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>Coinbase isn't giving my coins (rhetorically, I do not use Coinbase Earn or own any significant amount of blockchain assets) to anyone, they're interacting with a decentralized protocol on my behalf.

This is an incorrect assumption that is true of ETH, but not the majority of coins that Coinbase Earn ingests.

From the 10-k:

We operate staking nodes on certain blockchain networks utilizing customers’ crypto assets and pass through the rewards received to those customers, less a service fee. In other cases, upon customers’ instructions, we may delegate our customers’ assets to third-party service providers that are unaffiliated with us. Some networks may further require customer assets to be transferred into smart contracts on the underlying blockchain networks not under our or anyone’s control.

>The risk profile also isn't exactly comparable, as in your example the bankruptcy and the potential profits are directly linked, while slashing is a punitive measure imposed by the protocol to punish bad behavior.

What? Do a good job, make money. Do a bad job lose money.

>we may delegate our customers’ assets to third-party service providers

Interesting — an aside, I did not realize just how many protocols are supported on Coinbase Earn, otherwise I would have simply gone through each to see — but probably moot if these "third party service providers" are just doing the busywork of interacting with the protocol, on behalf of Coinbase, on behalf of the user. I grant that this involves a kind of custody management you don't see in other non-securitized IT services, but as long as everything is spelled out clearly (which it seems to be in the excerpt you posted) I maintain my position.

>What? Do a good job, make money. Do a bad job lose money.

This is more accurately phrased as "Do nothing out of the ordinary, make money. Do a bad job lose money." Nobody can "stake better" and expect more rewards out of it.

>but probably moot if these "third party service providers" are just doing the busywork of interacting with the protocol, on behalf of Coinbase, on behalf of the user.

I'm sorry, you can't just use the word protocol to change the first principles of the interaction. A bank is just doing the busywork of interacting with a borrower on behalf of me.

>Nobody can "stake better" and expect more rewards out of it.

This is such an interesting logical fallacy. The implication is that the default state is success and the 'other' state is failure. You can definitely stake better than others - that's the point of slashing.

Staking isn't nothing, it's an activity that requires skill, otherwise, why does it even exist? Shouldn't a centralized computer just do all the staking/validating if that's the case?

Like I thought crypto maximalism was about how incentives and competition solve problems that exist in trad finance?

>you can't just use the word protocol to change the first principles of the interaction. A bank is just doing the busywork of interacting with a borrower on behalf of me

Unless Coinbase Earn is fraudulent — maybe it is, I don't know — I would argue you can and should. In the case of Ethereum, Coinbase is providing an IT service. In the case of [other protocol], Coinbase is hiring a contractor to provide an IT service on their behalf. For any reasonable understanding of what financial lending is, there is no "borrowing" here.

>Staking isn't nothing, it's an activity that requires skill, otherwise, why does it even exist? Shouldn't a centralized computer just do all the staking/validating if that's the case?

These claims demonstrate a profound, ignorance of how these protocols work — something I'm calling into attention not to berate you personally, but so that people who stumble across this thread later appropriately discount your claims.

> These claims demonstrate a profound, ignorance of how these protocols work — something I'm calling into attention not to berate you personally, but so that people who stumble across this thread later appropriately discount your claims.

Please enlighten me then? I’d love to understand why they call it “rewards” and “penalties” if you can’t be good or bad at it.

Like from[0]:

The key concept is the following:

Rewards are given for actions that help the network reach consensus.

Minor penalties are given for inadvertant actions (or inactions) that hinder consensus.

And major penalities—or slashings—are given for malicious actions.

How can you read the above and make the point that everyone gets the same expected benefit from staking? Were you unaware of the minor penalties point?

[0]https://launchpad.ethereum.org/en/faq

And to be clear, since I think you're way missing my point here - consensus requires the potential for diversity, otherwise, if validation is deterministic (as you imply), then there is absolutely no need to decentralize it.

p.s. I won't criticize you personally, but I will remind you that when one feels like someone really doesn't understand something, there's a decent possibility they themselves don't.

Also, to lighten the mood - isn't it funny that ETH spells things wrong on its website so often? If only there was decentralized spell-check!

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