Best Twitter threads of the day – March 6th

In recent months I've written some VERY important articles for GMI and Real Vision Pro Macro.

The two key ones are "Broken Markets and the Cowbell", "The Truth and The Trap".

They are based around what I refer to as the "Magic Formula" which is the key to everything 1/

— Raoul Pal (@RaoulGMI) March 6, 2023

The Magic Formula:

GDP growth =

Population growth+ Productivity Growth+ Debt Growth

And therein lie all the issues we face, both economically, and as a society.

— Raoul Pal (@RaoulGMI) March 6, 2023

Population growth is in rapid decline (lowering trend rate of growth). pic.twitter.com/AiMqSROrU5

— Raoul Pal (@RaoulGMI) March 6, 2023

Productivity growth is in decline (lowering trend rate of growth) pic.twitter.com/Bn9qdq6pzc

— Raoul Pal (@RaoulGMI) March 6, 2023

And debt growth has topped out (with interest payments eating 2x GDP growth on average which lowers trend rate of growth) pic.twitter.com/fyGzlUSkif

— Raoul Pal (@RaoulGMI) March 6, 2023

And this leads to this relentless trend… pic.twitter.com/lpB5tmm5y2

— Raoul Pal (@RaoulGMI) March 6, 2023

And for reasons too long and complex to explain here, ALL the Government interest payments end up on the Fed balance sheet 3.5 year later (as debt get rolled over).

This is a STAGGERING chart… pic.twitter.com/wtkZY4RvGO

— Raoul Pal (@RaoulGMI) March 6, 2023

The issue is EVERYONE (public and private sector) reset rates at zero in 2009 and the most common debt maturity – 33 months (same as the lag in chart above) pic.twitter.com/9WBigwzD5d

— Raoul Pal (@RaoulGMI) March 6, 2023

And that makes the economy entirely cyclical (H/T @crossbordercap ). Its a perfect 3.5 year debt ReFi cycle…and nothing more. pic.twitter.com/wRIc4R7mJT

— Raoul Pal (@RaoulGMI) March 6, 2023

So QE keeps coming and rates HAVE to be forced lower (hike fast to cut inflation then cut fast to below 1.75% GDP growth for the ReFi).

There is no choice or everything becomes insolvent as interest costs eat up more than GDP growth each year, for ever…

— Raoul Pal (@RaoulGMI) March 6, 2023

Back to the Magic Formula…

We can't change population.
We can't increase debt growth (except by enough to pay interest, which explains 100% of gov debt growth since 2009).

We therefore HAVE to solve for productivity…

— Raoul Pal (@RaoulGMI) March 6, 2023

And that can only change via 2 things:

Technology (which increases efficiency of output per calorie of energy)

And/Or radically cheaper energy (via technology).

If/when you solve both we will be liberated from this economic trap.

— Raoul Pal (@RaoulGMI) March 6, 2023

My bet is we solve both over time

This is what I refer to as "The Exponential Age"… the nexus of technology that changes everything.

This is what lies ahead.

But it all takes time and we have to live with this mess until then.

So, we might as well invest in it.

— Raoul Pal (@RaoulGMI) March 6, 2023

I'll add this short summary from The Global Macro Investor pic.twitter.com/rH6H5ImYRZ

— Raoul Pal (@RaoulGMI) March 6, 2023

The media and fudders tell you that 17 million ETH ($28 billion) will be unstaked during Shanghai

But they won’t tell you this 👇🏻

Here is the truth backed by data

A 🧵 pic.twitter.com/wxt5XYd3Th

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

1/ Shanghai is the upgrade for ETH's EL (execution layer), while Capella is the upgrade for the Consensus Layer (CL) or the Beacon Chain.

However, since these upgrades will occur simultaneously, Shanghai refers to both.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

2/ While there are other EIPs included in Shanghai, the most significant one is the ETH withdrawal.

Since December 2020, when the Beacon Chain was launched, validators were able to stake ETH, but withdrawals could not be initiated, which put social pressure on EF devs.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

3/ After the usual All Core Developers' Call (ACDC) in December of last year, ETH withdrawals were scheduled for March 2023.

However, currently, it has been pushed back to April.

Now, let's delve into the details.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

4/ Due to the design of the Merge and the fusion of the Beacon Chain with ETH, all validators are required to update their withdrawal credentials to the 0x01 format in order to withdraw.

According to ETH code developer @benjaminion_xyz, there are..

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

5/ .. ~ 302,154 validators with 0x00 credentials and 186,722 with 0x01 credentials.

Once Shanghai is live, the ETH network will process 16 full or partial withdrawals on each block, which is produced every 12 seconds.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

6/ This means that it will take ~ 104 hours for the network to process all withdrawals for the roughly 500,000 validators on the Beacon Chain.

Note that a validator's credentials must be 0x01 for their withdrawal to be processed. pic.twitter.com/A8wjQsbTck

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

7/ Before we go further, let me make things clear. If I'm not mistaken, these are the facts surrounding partial and full withdrawals 👇🏻 pic.twitter.com/NdsxZXwXmZ

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

8/ Yes, 17.2M ETH is staked on the Beacon Chain, but I have something to add 👇🏻

According to data from Defillama, 7.6M ETH is staked with LSD.

P.S. 7.6M ETH has been illiquid this whole time 😼

Now, let's do some simple math— 17.2-7.6M ETH = 9.6M ETH. pic.twitter.com/gDEdOhdNw8

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

9/ The question is, will this 9.6M ETH be withdrawn?

Let's go back in time.

The total number of ETH staked in December was 1.4M ETH, according to data obtained from the Beacon Chain contract via Etherscan.

Can verify 👇🏻 pic.twitter.com/DRhQTFngiS

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

10/ According to data from CoinGecko, the average price of ETH from December 1st to December 31st, when the Beacon chain launched, was $681.10.

With the current price of ETH at $1,570, all 1.4m ETH staked in December are currently in profit. pic.twitter.com/t1WorGvG7V

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

11/ The question remains: will these 1.4m ETH be unstaked? As of now, 1,084 validators have exited the Beacon chain

Once Shanghai resumes, 34,688 ETH (1,084 validators) will be automatically unstaked

Out of the 1,084 validators, 864 left voluntarily while 220 were slashed out.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

12/ From this data, it appears that only a small percentage of validators (884 out of 500k) have left voluntarily, while the remaining validators are presumably bullish in the long term and are enjoying the yield.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

13/ 1.4 million ETH was staked in Dec 2020 when beacon chain staking was announced, without any news of withdrawals or fear of ETH dump.

Based on psychological analysis, it seems that many of these stakers are bullish on ETH in the long term and are seeking to accumulate more.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

14/ Now things are getting even more interesting, as staking pools and centralized exchanges (CEXs) are getting involved.

Through my research, I discovered that Defillama and Etherscan had conflicting data regarding liquid staking.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

15/ I found out that Defillama considers COINBASE as liquid staking, which is true.

CEXs: Some CEXs use liquid ETH, while others follow the same design as staking pools, where stakers don't get withdrawals immediately and there are locked stakes, etc. pic.twitter.com/lY2sYcXaAa

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

16/ We'll see less selling pressure.
Staking pools: I just summarized it above.

There will be less pressure here too.

Liquid staking: No selling pressure, as it has always been liquid. pic.twitter.com/tgmHcTUW37

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

17/ Based on the image, 👆🏻we can see that the total percentage for Liquid staking, CEX, and Staking pool is 69.6%.

That's 69.6% of 17 million, which is 11.9 million ETH.

If we subtract 11.9 million from 17.2 million, we are left with 5.3 million ETH for whales and others.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

18/ Whales staked a lot, so they are long-term holders and quite bullish, and yes, some will sell.

How many ETH will be withdrawn? Nobody knows, no one can tell.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023

19/ But will withdrawals be instantaneous?

No, as withdrawals will be queued up, as there are rules and restrictions guiding it.

Where will withdrawn ETH flow to? More yield, everyone wants more yield.

This leaves us to my next thread on LSD and Shanghai.

— 🐍Salazar.eth 🦇🔊 (@0xSalazar) March 6, 2023