Welcome to this week's guest writer, CoinDesk reporter Eli Tan, who is filling in for Sam Kessler. Follow him @elitanjourno.
As the Ethereum network inches toward "the Merge" and transitions from a proof-of-work (PoW) system to proof-of-stake (PoS), developers are using new testing infrastructure to assess network mechanics and client readiness.
The first major test, known as a "shadow fork," came in April - we covered the event in depth in a previous edition of the newsletter, but the gist is that the test went well and has been repeated two times since.
This article originally appeared in Valid Points, CoinDesk's weekly newsletter breaking down Ethereum's evolution and its impact on crypto markets. Subscribe to get it in your inbox every Wednesday.
These types of tests are crucial to the advancement of the network because they allow developers to find bugs in the code that could be otherwise missed using the devnets.
In the April 11 shadow fork, for example, developers uncovered a bug having to do with gas limits being artificially raised by miners.
The second shadow fork on April 23 was even more promising, with every one of the network's client combinations surviving the transition and staying in sync for the first time.
The most recent shadow fork took place on May 5 and included new tests on syncing through the Merge, which revealed a few small but fixable points of improvement.
Like many aspects of the Ethereum network, merge testing is a collaborative effort, and a crucially important one at that. Developers are encouraged to log their testing results on a shared leaderboard.
Staging the Merge
Like the network itself, Hive tests are constantly evolving. Most recently, testing teams have added the ability for Hive tests to mock the new proof-of-stake Ethereum Consensus Layer (CL) behavior. This new integration will allow it to run a simulator for the transition from PoW to PoS and see how both the CL and EL will behave.
Read more: 'Ethereum' vs 'Eth 2': What's in a Name?
The main function of Kurtosis is that it helps spin up staging networks, which are testing environments to isolate specific aspects of the Merge.
According to developers, these staging environments will allow them to monitor various network health metrics during stress testing under simulated harsher network conditions.
The following is an overview of network activity on the Ethereum Beacon Chain over the past week. For more information about the metrics featured in this section, check out our 101 explainer on Eth 2.0 metrics.
Disclaimer: All profits made from CoinDesk's Eth 2.0 staking venture will be donated to a charity of the company's choosing once transfers are enabled on the network.
Algorithmic stablecoin UST lost its $1 peg for the second time in three days.
WHY IT MATTERS: Since May 9, UST fell as low as $0.65 while its sister token LUNA dropped as low as $24.85, according to data from CoinGecko. The Luna Foundation Guard drained its $1.5 billion bitcoin (BTC) reserve and bought $850 million more in BTC in a bid to defend UST's peg. UST has since returned to $0.90 following LFG's deployment of additional bitcoin. Treasury Secretary Janet Yellen focused on the ongoing distress of the stablecoin during testimony before a U.S. Senate panel on May 10.
Total value locked (TVL) on decentralized finance (DeFi) protocols set 2022 lows at $160.74 billion as of May 10.
WHY IT MATTERS: $44.43 billion in locked value was lost since May 5, according to data from DeFiLlama. Stablecoin swap platform Curve, the largest DeFi protocol by TVL, saw a 16% drop in the past week. Lido, the leading liquid staking solution, saw a decrease of roughly 29%. TVL for Terra's Anchor slid 57%. Tokens of the broader DeFi sector lost 34% on average; by comparison, the meme coin sector lost just 16%.
Compound Treasury received a B- credit rating from S&P Global Ratings, making it the first institutional DeFi offering to be rated by a credit rating agency.
WHY IT MATTERS: S&P indicated that uncertain regulations for stablecoins, risks in converting stablecoins to fiat currency and Compound Treasury's limited capital base were some factors contributing to its assigned rating. With a B- grade, the USDC-powered yield platform is judged to be "speculative" but "currently has the capacity to meet financial commitments."
Instagram is testing non-fungible token (NFT) integrations.
WHY IT MATTERS: With over one billion monthly active users, Instagram will initially support Ethereum-based NFTs, with integrations on Polygon, Solana and Flow to be added at a later date. Instagram parent Meta (FB) is working on three-dimensional, augmented-reality non-fungible tokens (NFT) with its Spark AR software, which will first be compatible with Instagram stories. While Instagram will not charge users for posting and sharing NFTs, it hopes to turn NFTs into a revenue stream for creators.
The U.K. to introduce legislation to regulate the crypto industry.
WHY IT MATTERS: The Economic Crime and Corporate Transparency Bill will create "powers to more quickly and easily seize and recover crypto assets, which are the principal medium used for ransomware." The aim is to "mitigate the risk posed by those who cannot be criminally prosecuted but use their funds to further criminality."