🔮️ S3T Nov 3, 2023 - SBF, Rates outlook, consumer stress, blockchain consolidation, accessible trails, Q4 resources.

🔊 Listen to this edition on the S3T Podcast

In this edition of S3T: What change leaders are talking and learning about this week:

• Macroeconomy: SBF verdict, interest rates and consumer financials make for a volatile mix. Global indicators on dollar strength and emerging market resilience. Claudia Goldin wins the Economics Nobel Prize.
• Emerging Tech: Why the Ethereum Killers are losing: Blockchains are in a consolidation phase, but blockchain's layered architecture will allow blockchains more coexistence than your typical zero-sum game industry consolidation.
• Nature Notes: Getting outdoors to see if it's a special day or not. Plus: guides to wheelchair-accessible trails and outdoor destinations.
• For Paid Memberships: Taking care of you in Q4 and Resources to smooth your path amid all the year-end business.

👨‍⚖️️ Breaking Thursday Evening

Sam Bankman-Fried was found guilty on all seven counts, as forecasted by traders on Polymarket (For continuing developments see WIREDs min by min coverage). It was one year ago today that Coindesk published Alameda financials, kicking off the FTX implosion, wiping out billions in investor assets. Lost amid most of the headlines is the key point that FTX's scandal was able to happen precisely because it was operating like a traditional centralized financial entity rather than a truly decentralized entity.

💵️ Macro that Matters

US Interest Rates & Consumer Financials

Markets rose after the Fed left rates as is this week, and new data from the Burea of Economic Analysis shows consumers are getting pulled in two directions: a several-month trend of consumer incomes falling even as their spending has been increasing (compare the negative percent changes vs. the positive ones in the chart on p1 in this PDF). This can't continue, so be on the lookout for volatility in consumer spending patterns through the end of the year.

Global Outlook

• Intriguing data from Havre Analytics suggests the global tightening cycle may be near its end: recent forecasts of central bank policy expect rate cuts of as much as 1% by this time next year.
• Bellwether on US Dollar Reserve status? Argentina using Chinese Yuan for IMF Payments citing scarcity of US Dollars.
• Emerging Markets (other than Argentina) have demonstrated exceptional resilience lately.

For the full set of 500+ global economic indicators, see the Global Economic Dashboard.

🎉️ Worth Celebrating

Claudia Goldin has won the Nobel Prize in Economic Sciences for 2023 for her work advancing the historical and present understanding of the impact of women's earnings and labor market participation on the economy.

🔍️ Emerging Tech Closer Examination: Layer 1s and 2s are shaping Blockchain Consolidation

In spite of the recent spikes in the crypto market, most digital currencies are still way down from their hype-driven highs in the past 2 years and there are signs that the inevitable market consolidation is underway.

Blockchains that previously positioned themselves as alternatives to Ethereum are now considering whether to merge into the Ethereum ecosystem.

In July 2023 the leaders of the Celo project issued this proposal to convert themselves from an Ethereum alternative to being an Ethereum Layer 2. This is one of a number of examples.

Two rough analogies to illustrate the significance of this conversion:

• This is analogous to one nation proposing that it become a province or state within another nation in order to take advantage of the infrastructure of that nation.
• It is also roughly analogous to a regional cloud provider deciding to take its customers onto a national cloud provider (like GCP, AWS or Azure). The regional provider can continue to run its own tools and solutions on top of the national provider, but take advantage of the base layer of infrastructure and services of the national provider.

Blockchains have evolved a layered structure referred to as Layer 1 (base layer of foundational capabilities) and Layer 2 (extended capabilities tailored to specific use cases).

Fates of the Ethereum Killers

Before the 2022 Ethereum upgrades, a range of "Ethereum killers" positioned themselves as faster, cheaper, and more eco-friendly than Ethereum. Most of which was fair - until the Ethereum team executed a near-flawless series of upgrades.

Today the situation has evolved: Many projects are languishing amid lack of talent and lack of funds, and face extinction. There likely will be fewer Layer 1s than Layer 2s. But there is quite a bit of room in the industry for Layer 2 blockchains which can specialize in specific use cases while inheriting and using the core functionality of the Ethereum Layer 1 chain.

How the conversion works

Two entities are offering competing kits that help blockchain projects convert themselves to Ethereum Layer 2 chains.

• Polygon Labs is offering a Chain Development Kit (CDK) that allows projects like Celo to transition from their current chain technology and convert to an Ethereum compatible Layer 2 chain, that inherits Ethereum's Layer 1 foundational capabilities and security.
• Optimism Labs offers a similar chain development kit it calls Op Stack.

Both are being considered by multiple chain projects, and both enable a project to inherit and use Ethereum's Layer 1 capabilities while offering specialized functions in their own Layer 2.

Rollups: a bake-off

Polygon and Optimism's offerings differ in one key aspect: "rollups". Rollups refer to the method used to allow transactions to happen on Layer 2, but then be "rolled up" and preserved via the integrity and security provisions of Layer 1 (Helpful explainer here). There is a bake-off underway and its not yet clear (to me anyway) who will win: Polygon utilizes Zero-Knowledge proofs while Op Stack uses Optimistic Rollups. For a deeper dive see this comparison of Zero-Knowledge vs Optimistic and their tradeoffs.

Success factor: Offering space

It is interesting to me that Ethereum appears to be winning the fierce blockchain competition, not by speed, but by an architecture that gives others space to succeed. In today's complex highly competitive and duplicative tech world, this feels something like an emerging enterprise architecture pattern - one worth contemplating and evaluating to see where else it could be applied.

By focusing on providing exceptionally strong Layer 1 capabilities, while leaving room for others to build on top of it with their own Layer 2 innovations, Ethereum appears to be gaining critical mass, and demonstrating the resilience to continue its evolution even in the worst of bear markets.

🌄️ Nature Notes

"I had decided for myself that holidays or special days meant nothing if they were dictated by the calendar. Any day might be a special one - you just had to get outside and see if it was." - Kenn Kaufman Kingbird Highway

Ways for everyone to get outdoors

A small but growing set of places are providing wheelchair-friendly ways to enjoy the outdoors. Here are a few of the emerging guides:

• 10 Wheelchair-Friendly Trails in the top National Parks
• US Fish and Wildlife Service guide to Accessible Trails
• Guide to Wheelchair Accessible Waterfalls in the Blue Ridge Mountains

Taking care of you in Q4

It's November. Do you feel like you're stumbling toward the finish line? "Taking a few moments to focus on what makes you feel calm, centred and ready to tackle what lies ahead is always a good use of time," notes Amy Beecham in her thoughtful and timely read about taking care of yourself.

Resources to Smooth Your Path for End of Year

• Easy Guide to Finishing Strong - get the most out of the remaining days of the year
• S3T Guide for Smarter Annual Planning
• Top Leaders are Asking this Question in Annual Reviews
• Signaling and Perspective-Taking during Annual Review Season - a talent strategy guide for leaders