Welcome to The Protocol, CoinDesk's weekly wrap of a very powerful tales in cryptocurrency tech improvement. I’m Margaux Nijkerk, a reporter at CoinDesk.

On this situation:

• Ethereum Faces Validator Bottleneck With 2.5M ETH Awaiting Exit
• Is Ethereum’s DeFi Future on L2s? Liquidity, Innovation Say Maybe Sure
• Ethereum Basis Begins New AI Staff to Help Agentic Funds
• American Categorical Introduces Blockchain-Based mostly ‘Journey Stamps’

Community Information

ETHEREUM VALIDATOR EXIT QUEUE FACES BOTTLENECK: Ethereum’s proof-of-stake system is going through its largest check but. As of mid-September, roughly 2.5 million ETH — valued at roughly $11.25 billion — is ready to depart the validator set, based on validator queue dashboards. The backlog pushed exit wait instances to greater than 46 days on Sept. 14, the longest in Ethereum’s quick staking historical past, dashboards present. The final peak, in August, put the exit queue at 18 days. The preliminary spark got here on Sept. 9, when Kiln, a big infrastructure supplier, selected to exit all of its validators as a security precaution. The transfer, triggered by current safety incidents together with the NPM supply-chain assault and the SwissBorg breach, pushed round 1.6 million ETH into the queue directly. Although unrelated to Ethereum’s staking protocol itself, the hacks rattled confidence sufficient for Kiln to hit pause, highlighting how occasions within the broader crypto ecosystem can cascade into Ethereum’s validator dynamics. In a weblog submit from staking supplier Figment, Senior Analyst Benjamin Thalman famous that the present exit queue construct up isn’t solely about safety. After ETH has rallied greater than 160% since April, some stakers are merely taking income. Others, particularly institutional gamers, are shifting their portfolios' publicity. On the similar time, the variety of validators getting into the Ethereum staking ecosystem has been steadily rising. Ethereum’s churn restrict, which is a protocol safeguard that caps what number of validators can enter or exit over a sure time interval, is at present capped at 256 ETH per epoch (about 6.4 minutes), limiting how rapidly validators can be a part of or depart the community. The churn restrict is supposed to maintain the community steady. With greater than 2.5M ETH lined up, stakers on Sept. 16 face 44 days earlier than even reaching the cooldown step. — Margaux Nijkerk Learn extra.

IS L2 DEFI EATING AT ETHEREUM’S L1 DEFI?: Ethereum is within the midst of a paradox. At the same time as ether hit report highs in late August, decentralized finance (DeFi) exercise on Ethereum’s layer-1 (L1) appears to be like muted in comparison with its peak in late 2021. Charges collected on mainnet in August had been simply $44 million, a 44% drop from the prior month. In the meantime, layer-2 (L2) networks like Arbitrum and Base are booming, with $20 billion and $15 billion in whole worth locked (TVL) respectively. This divergence raises a vital query: are L2s cannibalizing Ethereum’s DeFi exercise, or is the ecosystem evolving right into a multi-layered monetary structure? AJ Warner, the chief technique officer of Offchain Labs, the developer agency behind layer-2 Arbitrum, argues that the metrics are extra nuanced than simply layer-2 DeFi chipping on the layer 1.In an interview with CoinDesk, Warner mentioned that focusing solely on TVL misses the purpose, and that Ethereum is more and more functioning as crypto’s “world settlement layer,” a basis for high-value issuance and institutional exercise. Merchandise like Franklin Templeton’s tokenized funds or BlackRock’s BUIDL product launch immediately on Ethereum L1 — exercise that isn’t absolutely captured in DeFi metrics however underscores Ethereum’s function because the bedrock of crypto finance. Ethereum as a layer-1 blockchain is the safe however comparatively sluggish and costly base community. Layer-2s are scaling networks constructed on prime of it, designed to deal with transactions sooner and at a fraction of the associated fee earlier than finally settling again to Ethereum for safety. That’s why they’ve turn out to be so interesting to merchants and builders alike. Metrics like TVL, the quantity of crypto deposited in DeFi protocols, spotlight this shift as exercise is moved to L2s the place decrease charges and faster confirmations make on a regular basis DeFi way more sensible. — Margaux Nijkerk Learn extra.

EF STARTS DECENTRALIZED AI TEAM: The Ethereum Basis (EF) is making a devoted synthetic intelligence (AI) group to make Ethereum the settlement and coordination layer for what it calls the “machine financial system,” based on analysis scientist Davide Crapis. Crapis, who introduced the initiative on X, mentioned the brand new dAI Staff will pursue two priorities: enabling AI brokers to pay and coordinate with out intermediaries, and constructing a decentralized AI stack that avoids reliance on a small variety of massive corporations. He mentioned Ethereum’s neutrality, verifiability and censorship resistance make it a pure base layer for clever methods. The EF is a non-profit group based mostly in Zug, Switzerland, that funds and coordinates the event of the Ethereum blockchain. It doesn’t management the community however performs a catalytic function by supporting researchers, builders and ecosystem tasks. Its remit consists of funding upgrades reminiscent of Ethereum 2.0, zero-knowledge proofs and layer-2 scaling, alongside neighborhood packages just like the Ecosystem Help Program. The inspiration additionally organizes occasions reminiscent of Devcon to foster collaboration and acts as a coverage advocate for blockchain adoption. In 2025, EF restructured to deal with Ethereum’s progress, emphasizing ecosystem acceleration, founder assist and enterprise outreach. The brand new dAI Staff represents a continuation of this shift towards specialised models addressing rising applied sciences. — Siamak Masnavi Learn extra.

AMERICAN EXPRESS DABBLES IN BLOCKCHAIN TRAVEL STAMPS: American Categorical has launched Ethereum-based “journey stamps” to create a commemorative report of journey experiences. The journey expertise tokens, that are technically NFTs (ERC 721 tokens), are minted and saved on Coinbase’s Base community, mentioned Colin Marlowe, vp of Rising Partnerships at Amex Digital Labs. The journey stamps, which could be collected anytime a traveler makes use of their card, will not be tradable NTF tokens, Marlowe mentioned, and neither do they perform like blockchain-based loyalty factors — not less than in the interim. “It's a worthless ERC-721, so technically an NFT, however we simply didn't model it as such. We needed to talk to it in a method that was pure for the journey expertise itself, and so we discuss these items as stamps, they usually're represented as tokens,” Marlowe mentioned in an interview. “As an identifier and illustration of historical past the stamps might create attention-grabbing partnership angles over time. We weren't making an attempt to promote these or kind of generate any like quick time period income. The angle is to make a journey expertise with Amex really feel actually wealthy, actually completely different, and type of set it aside,” he mentioned. Fireblocks can be concerned, supporting Amex as its Pockets-as-a-Service supplier for the passport product, a Fireblocks consultant mentioned. The Amex journey app additionally features a vary of instruments for travels and Centurion Lounge upgrades, the corporate mentioned. – Ian Allison Learn extra.

In Different Information

• Blockchain-based actual world asset (RWA) specialists Centrifuge and Plume have launched the Anemoy Tokenized Apollo Diversified Credit score Fund (ACRDX), backed by a $50 million anchor funding from Grove, a credit score infrastructure protocol throughout the Sky Ecosystem. The fund provides blockchain buyers publicity to Apollo’s diversified world credit score technique, spanning direct company lending, asset-backed lending and dislocated credit score, a sort of mispriced debt on account of market stress and lack of liquidity. ACRDX will likely be distributed by Plume’s Nest Credit score vaults below the ticker nACRDX, making the technique accessible to institutional buyers on-chain. By packaging Apollo’s portfolio in tokenized kind, the fund goals to decrease entry limitations and enhance transparency for buyers looking for publicity to non-public credit score markets, based on a press launch. — Ian Allison Learn extra.
• Google is taking a step towards merging synthetic intelligence (AI) and digital cash, rolling out a brand new open-source protocol that lets AI purposes ship and obtain funds, which incorporates assist for stablecoins, digital tokens pegged to fiat currencies such because the U.S. greenback, based on a press launch. To include stablecoin rails, Google teamed up with the U.S.-based crypto trade Coinbase, which has been growing its personal AI-integrated funds infrastructure. The corporate additionally labored with the Ethereum Basis and coordinated with greater than 60 different organizations, together with Salesforce, American Categorical and Etsy, to cowl conventional finance use instances. The transfer builds on Google’s earlier work to set up a regular for “AI brokers.” These digital brokers might ultimately deal with complicated duties, reminiscent of negotiating mortgages or looking for garments, with out direct human enter. — Oliver Knight Learn extra.

Regulatory and Coverage

• Opposite to claims from the U.S. banking trade, stablecoins don’t pose a threat to the monetary system, based on the chief coverage officer at crypto trade Coinbase (COIN), Faryar Shirzad. Banks' claims that they do are are myths crafted to defend their revenues, he wrote in a weblog submit. “The central declare — that stablecoins will trigger a mass outflow of financial institution deposits — merely doesn’t maintain up,” Shirzad wrote. “Latest evaluation exhibits no significant hyperlink between stablecoin adoption and deposit flight for neighborhood banks and there’s no purpose to imagine massive banks would fare any worse.” Bigger lenders nonetheless maintain trillions of {dollars} on the Federal Reserve and if deposits had been actually in danger, he argued, they’d be competing more durable for buyer funds by providing greater rates of interest relatively than parking money on the central financial institution. In response to Shirzad, the actual purpose for banks' opposition is the funds enterprise. Stablecoins, digital tokens whose worth is pegged to a real-life asset such because the greenback, provide sooner and cheaper methods to maneuver cash, threatening an estimated $187 billion in annual swipe-fee income for conventional card networks and banks. He in contrast the present pushback to earlier battles in opposition to ATMs and on-line banking, when incumbents warned of systemic risks however, he mentioned, had been finally making an attempt to guard entrenched income. — Jesse Hamilton Learn extra.
• U.S. SEC Chair Paul Atkins mentioned crypto’s time has come, pledging to modernize the U.S. securities rulebook and broaden “Mission Crypto” to deliver markets on-chain. Talking in Paris on Sept. 10 on the OECD’s inaugural Roundtable on World Monetary Markets, Atkins mentioned the SEC is shifting away from enforcement-driven policymaking and can present clear guidelines for tokens, custody, and buying and selling platforms. “Coverage will now not be set by advert hoc enforcement actions,” he mentioned, calling the brand new method “a golden age of monetary innovation on U.S. soil.” Atkins mentioned most tokens will not be securities and promised bright-line guidelines for figuring out when crypto belongings fall below SEC oversight. He mentioned entrepreneurs should be capable to elevate capital on-chain with out “countless authorized uncertainty” and pledged a framework for platforms that combine buying and selling, lending, and staking below one license. Custody guidelines will even be up to date to permit buyers and intermediaries a number of choices. — Siamak Masnavi Learn extra.

Calendar

• Sept. 22-28: Korea Blockchain Week, Seoul
• Oct. 1-2: Token2049, Singapore
• Oct. 13-15: Digital Asset Summit, London
• Oct. 16-17: European Blockchain Conference, Barcelona
• Nov. 17-22: Devconnect, Buenos Aires
• Dec. 11-13: Solana Breakpoint, Abu Dhabi
• Feb. 10-12, 2026: Consensus, Hong Kong
• Mar. 30-Apr. 2: EthCC, Cannes
• Might 5-7, 2026: Consensus, Miami