Global Web3 Ecological Innovation Observation Report

foreword

This is the world’s first comprehensive report to look at the industry with a complete Web3 perspective. As long-term practitioners, we clearly see that with the continuous maturity of blockchain technology, computing power, encryption market, Metaverse, Web3 and other fields are flourishing, and the boundaries of this industry are expanding step by step.

And our report is undoubtedly a new look on the shoulders of giants: Messari’s Crypto Theses for 2022, a16z’s Sate of Crypto 2022, McKinsey’s “Value Creation in the Metaverse” report, etc.. …. They all describe the past or present of the industry from a Web3 side, our report not only stands from the perspective of the whole Web3, but also like them, can only be responsible for the present history.

Our report starts with the idea of ​​Web3, which can be traced back to the budding ideas when the Internet first appeared in the last century. Next is the infrastructure at the technical level and the current mainstream applications, as well as the hottest development areas of Web3 such as DeFi, NFT, chain games, DAO, etc. This period basically corresponds to the genesis block of Bitcoin to the release of the report. the moment before. After that is the Metaverse world we can now see. Finally, we talked about the investment and regulation associated with the industry. We are fortunate to witness the birth of this industry, so I hope this report can accompany the growth of this industry.

Chapter 1 Web3: The Renaissance of Cyberspace

Beginning in late 2021, the search volume of “Web3” keywords on the Internet has grown rapidly. People are starting to talk about Web3, and it seems that the Web3 ideal will become a reality tomorrow. Web3 is not a product that appeared out of thin air, but a continuation of the spirit of cyberpunk and cypherpunk in the 1980s and 1990s. The current hot Web3 revolution is more like a renaissance after injecting native economic blood into the cyberspace.

Section 1 Cyberspace Declaration of Independence

On February 8, 1996, the founder of the Electronic Frontier Foundation, John Perry Barlow, issued the Declaration of Independence of Cyberspace, declaring that the online world is an independent spiritual home, free from any traditional domination of power.

The declaration mainly embodies the following three propositions:

1. Matterlessness: Our world is omnipresent and ethereal, but it is by no means a world in which reality exists.

2. Borderless: where everyone can join, without privilege or prejudice arising from race, economic power, force or place of birth.

3. Non-discrimination: where anyone, anywhere, can express their beliefs without fear of being forced to remain silent or obedient, however peculiar such beliefs may be.

Barlow’s manifesto quickly became famous and spread widely on the Internet. Nine months after publication, it received approximately 40,000 website retweets.

We will create a civilization of the Mind in Cyberspace.

——John Perry Barlow

However, with the development of the Internet, his manifesto has been questioned by more and more people. In 2002, the number of sites reproducing the manifesto had dropped to approximately 20,000. Even himself, in a 2004 interview, Barlow reflected on the work he did in the 1990s, particularly the optimism he held at the time. “We’re all getting older and wiser,” he said. Obviously, the scene described in the “Manifesto” was not realized at the time, but this did not affect the continued pursuit of idealists.

Section 2 Early Attempts of Cyberspace Sovereign Currency

If currency is the indispensable blood for the efficient operation of modern economic society, a cyberspace independent of the physical world should also have a native currency system and carry out economic activities accordingly.

The Cyberspace Declaration of Independence came about at the same time that the cypherpunk movement was thriving.In the “Cypherpunk Manifesto” published by Eric Hughes in 1993, the mission and goal of the cypherpunks were stated, that is, to build an anonymous system to defend people’s privacy through methods such as cryptography. At the same time, the declaration also mentioned that “software cannot be destroyed, and a completely distributed system will never stop.”

We the Cypherpunks are dedicated to building anonymous systems. We are defending our privacy with cryptography, with anonymous mail forwarding systems, with digital signatures, and with electronic money.

——Eric Hughes

In 1983, David Chaum proposed an anonymous electronic cash system based on blind signature technology, which is the predecessor of the later electronic currency eCash. But it didn’t catch on in the end, and DigiCash, the operating company behind it, also declared bankruptcy in 1998. DigiCash could fail for many reasons, but essentially it could be due to their centralized architecture, because once the centralized company, the central server crashes, the system will be unsustainable. It is hard to imagine that in the future we will use a company’s product as a common currency standard for the Internet to conduct transactions.

In the same year that DigiCash collapsed, another cypherpunk, Wei Dai, proposed b-money, an anonymous and distributed electronic cash system. b-money can be said to have the basic characteristics of all modern cryptographic currency systems, but due to various technical implementation reasons, b-money has never been officially launched.

In 2005, Nick Szabo designed a decentralized digital currency mechanism called bit gold. All data in cyberspace can be easily copied and pasted, which means that the design of digital currency needs to solve the “double spending problem”.Most digital currencies solve this problem by introducing a centralized authority to record the balances of all accounts, but Saab does not agree with this solution, “I want to imitate the safety and security of gold as much as possible in the cyberspace. Trustworthy features, most importantly, it does not depend on a trusted central authority.” The bit gold architecture is considered a “direct precursor to Bitcoin”, but unfortunately it has never been implemented.

From eCash to b-money to bit gold, the many attempts made by the early cypherpunks to create the native sovereign currency of the cyberspace have not been practically applied.

Section 3 Software is eating the world

At the same time, the Internet has also completed the transition from the Web 1.0 stage to the Web 2.0 era, but it has also encountered development bottlenecks that are difficult to solve with the existing architecture.

Web 1.0 is a retrospective that refers to the first phase of the development of the World Wide Web, which ran from approximately 1991 to 2004. At this stage, there are very few content creators, and the vast majority of users are just consumers of content, “run out and go.”

In the era of Web 2.0, ordinary network users can exchange information and collaborate on various Internet platforms at a very low cost. At this time, the core concepts of Internet products are interaction, sharing and association. It was also during this period in 2011 that a16z partner Marc Andreessen shouted the slogan “software is eating the world”. “We firmly believe that many well-known emerging Internet companies are building real, high-growth, high-margin, and high-walled business models,” he wrote.

After that, we did see the rapid rise of Internet technology giants such as Meta (formerly Facebook), Amazon, Alphabet (Google’s parent company), and Tencent. Although the businesses of these giants are different, one thing in common in their rise is the ability to obtain state from users. In a computer system, “state (

state)” refers to the state of a thing at a certain time, and stateful means that the same input, the output value will change according to the state at different points in time. For example, if a user uses the search service provided by Google, each click on the search result page can help the search engine to provide more accurate search results for the next user.

In the Web 2.0 stage, users are not only users of Internet services, but also become part of Internet products. The state of Internet services will grow compounded, and users trust the platform and surrender the state in exchange for better services. At the same time, platform service providers also have higher valuations.

But at the end of the honeymoon period and the growth of the platform enters a bottleneck period, they will often betray the trust of users, and the relationship with users will change from a positive-sum relationship to a zero-sum relationship.Platforms need to extract all kinds of data, including privacy, from users to keep growing, turning former partners into competitors. At the same time, the Internet platform has obtained a very high status wall through the accumulation of status over the years, which is insurmountable for new entrepreneurs, hindering the emergence of competition and innovation.

Software is eating the world, and the services above the software are beginning to erode the interests of participants. The Internet urgently needs a paradigm shift.

Section 4 Blockchain Genesis

On October 31, 2008 EST, Satoshi Nakamoto published the Bitcoin white paper on a cypherpunks mailing list. And two months later, on January 3, 2009, the genesis block of Bitcoin was dug. This marks the advent of the trust-free Internet-native currency that the cypherpunks have been seeking for the past few decades, and the cyberspace has gained the blood of economic activity. 

Global Web3 Ecological Innovation Observation Report

On January 24, 2014, Vitalik Buterin officially announced the birth of the Ethereum project at the Miami Bitcoin Conference. On the basis of Bitcoin, Ethereum provides developers with higher flexibility: Ethereum introduces a Turing-complete virtual machine into the blockchain, turning the entire network into a universal virtual computer shared by the world. The emergence of DeFi protocols such as Uniswap and Compound means that people can engage in more and more complex business activities such as transactions and lending in the cyberspace. After that, the emergence of new things such as NFT, GameFi, and DAO also provided more venues for the aborigines in cyberspace.

In April 2014, the co-founder of Ethereum, Gavin Wood, who was the CTO of Ethereum at that time, first systematically expounded the concept of Web3. Jarvan believes that in the post-Snowden era, Internet users can no longer continue to trust companies, and companies will only manage and use user data for their own profit-making purposes. Therefore, it is necessary to build trust-minimized Internet infrastructure and applications. According to Jarvan, “Web 3.0 is an eclectic set of protocols that provide application developers with the building blocks to build applications in entirely new ways. These technologies enable users to verify the (authenticity) of information received and sent, ensuring that they are used in transactions. Reliably give and receive in the process. Web 3.0 can be seen as an enforceable Magna Carta of the Internet and a cornerstone of individual freedom against authority.”

So far, the resurgent cyberspace has taken shape, which will be a decentralized network system:

1. Open and verifiable, participants control the controller and ownership of the state;

2. Inclusive and non-discriminatory, all participants can use network services equally;

3. There is no single point of failure, and the network structure is extremely robust;

4. There is no centralized decision-making governance, and all changes require the authorization of the participants;

5. Cyberspace has a native trust-free economic system.

The thriving community DAOs and Web3 applications have shown us the power of the cyberspace where strangers on the Internet come together based on the same values ​​and mission. And as infrastructure evolves, countless possibilities remain to be discovered in the future.

Epilogue

Finally, I would like to conclude this chapter with a quote from Kyle Samani, co-founder of Multicoin Capital:

Trust is the foundation of all economic relationships. The greatest investment opportunity of our life is to bet that this is not necessarily the case.

Chapter 2 Infrastructure (Public Chain)

The Web3 revolution may have started a long time ago, but the era of blockchain history only began in 2009 when Bitcoin was born. In this revolution marked by the blockchain, the public chain is undoubtedly the most important foundation.From Bitcoin’s PoW, to ETH 1.0 loaded with smart contracts, to PoS’s various L1 networks. The public chain has had three major iterations in the past 13 years. Today’s Web3 is a mixed system of three modes. The public chains of each mode have their own strengths and coexist in prosperity.

Section 1 Bitcoin’s “Rashomon”

This is already the fourth halving cycle for Bitcoin (BTC). As Bitcoin’s blocks continue to grow, it becomes harder and harder to tell what Bitcoin is. There are too many meanings added to this “coin” born in 2009. Therefore, we can only observe Bitcoin’s “Rashomon” from a constantly changing perspective.

1.1 BTC vs Fiat

Bitcoin enthusiasts still believe that Bitcoin will replace fiat currency and become the universal payment tool in the world.As written in the Bitcoin white paper: a peer-to-peer payment system. In September 2021, El Salvador first recognized bitcoin as one of the national legal tenders, which also gave bitcoin payment believers a lot of encouragement.

But this top-down Bitcoin promotion has been met with resistance from the bottom up. There are anti-Bitcoin protest marches, and a considerable number of people just download the wallet for the first $30 withdrawal and no longer use it, and the proportion of retail merchants is not high.

El Salvador’s $1 billion bitcoin “volcano bond” that it planned to sell in March has not yet been listed. Other countries are also considering accepting bitcoin as legal tender, but only the Central African Republic has officially announced it. Will Bitcoin ever replace fiat currency? Can Bitcoin replace the US dollar as the world’s currency? The Bank for International Settlements, in a special section of its annual economic report, The Future Monetary System, published on June 12, 2022, thinks not. Governments and regulators in various countries also consider it impossible.

Maybe so, but the payment systems and wallets that BTC brings to the table may bring financial services to the unbanked.In fact, even though El Salvador may not ultimately be able to popularize bitcoin, the bitcoin Lightning Network wallet they promoted has allowed a considerable number of locals to receive dollar remittances from relatives overseas. They have at least one more option.

1.2 BTC vs Assets (Gold & Stock)

Bitcoin has always been a “mine”. It’s just that the personal gold rush era has passed. For whatever reason, institutions have become the main force of “mining”.

Global Web3 Ecological Innovation Observation Report

Source: Global Hashrate Distribution

The energy dispute in 2021 has caused some countries to clear “mining” (Bitcoin’s verification mechanism PoW needs to consume energy for random “puzzle solving” to create blocks); some countries have banned virtual currency transactions; the market has turned bears; ether Fang is turning to PoS… The computing power has gone up and down, and it has undergone a migration, but it has never disappeared, just as it has been going on for the past ten years.

Bitcoin has been cannibalizing the gold market for most of the last 10 years. And regardless of the external market, holding Bitcoin becomes a hedge against risk. As Ray Dalio (Ray Dalio) and many investors add Bitcoin to their portfolios in small proportions.

In recent months, however, things seem to have changed, with gold showing a resurgence.

Global Web3 Ecological Innovation Observation Report

Source: Woobull Charts

However, BTC, which has maintained a low correlation with the US stock market for a long time, has become more and more related to the Nasdaq, especially large-cap technology stocks, in the past six months. This shows that for the asset attribute of BTC, the attribute of “mine” is weakening, while the attribute of technology stocks is increasing.

Global Web3 Ecological Innovation Observation Report

Source: Bloomberg

1.3 BTC vs Crypto

BTC represents more of the core values ​​from the perspective of blockchain. In terms of market value, BTC occupies more than 40% of the entire market all year round. In a bull market, the market will turn to other tokens, and

When the market turns bearish, the share of BTC will increase. This also leads to the perception that BTC is the collateral of last resort. Hence the argument that PoS is feasible because PoW is feasible.

In terms of the structure of the blockchain, the network architecture and verification mechanism of PoW are no longer mainstream in the development of new blockchains. However, the main chain of BTC has also determined its own positioning and values ​​after several hard forks: extreme security and value storage functions. The payment function is handled by L2’s Lightning Network. Smart contracts mostly run on ETH and other L1 chains, and communicate with BTC through cross-chain bridges (or centralized trading platforms).

The November 2021 Taproot upgrade is long overdue. But this brings new security, privacy and scalability to BTC. We haven’t seen mainstream applications yet, but the world of BTC has undoubtedly become more imaginative.

1.4 BTC vs DAO

In addition to providing one of the most credible native assets of the crypto world, what BTC may mean for Web3 lies in a newer way of organizing. At least a job that requires large-scale world collaboration can be completely trustless.

There is a successful case of cooperation between man and machine, or between man and man through code.

1.5 BTC vs World

In previous BTC narratives, people called it the cornerstone of the blockchain world. Over the years, the blockchain world on the cornerstone has become more and more rich. At present, this cornerstone is more deeply connected to the real physical world, and has more and more influences on reality, such as financial institutions on Wall Street, regulatory authorities in various countries, civilians in the third world, and players in the technology industry. The addition of these people made BTC take on a different form than before. Therefore, BTC becomes a bridge, connecting the two worlds. One virtual, one reality. Somehow, WAGMI (maybe, we all make it).

Section 2 Ethereum: The Smart Contract Platform

Ethereum (Ethereum) is a public blockchain platform with smart contract capabilities, allowing anyone to build decentralized applications on the platform. Since Bitcoin opened the blockchain era in 2009, the most representative technological innovation is the emergence of Ethereum smart contracts, which provide the most solid underlying foundation for the emergence of DApps, the explosion of DeFi applications and the craze of NFTs.

2.1 Smart Contract

A smart contract can be a programmable contract, that is, a program segment that is automatically executed. A very important prerequisite for smart contracts to generate application value is to have an immutable storage and execution layer, so that they cannot be destroyed by physical factors.

The immutability provided by the blockchain also allows the blockchain and smart contracts to be naturally integrated, so that the blockchain technology can be separated from the simple cryptocurrency payment function, and has Turing completeness, breaking the Bitcoin as a whole. The limitations of simple ledgers enable complex value transfer. At the same time, the rich application scenarios also put forward greater requirements on the performance of the blockchain, which indirectly gave birth to various high-performance public chains and Layer 2 projects in the future.

At present, Ethereum, as the largest smart contract platform, its contract language Solidity is the most widely used and most popular programming language. In various applications built with Solidity language, the locked asset value accounts for the total locked value of the entire DeFi (TVL) 85% of the ecological application value.

Global Web3 Ecological Innovation Observation Report

Source: The Block

Global Web3 Ecological Innovation Observation Report

Ethereum ecological applications are concentrated in the DeFi field, mainly including: DEX (Uniswap), lending (Aave, Compound), derivatives (dYdX), stable coins (MakerDAO, Frax), other applications are mainly distributed in NFT and chain games and other fields.

At present, the TVL on the Ethereum chain is 47 billion US dollars, which is equivalent to the market value of MediaTek and Kuaishou. The top three ecological applications are MakerDAO, Lido and Uniswap, respectively, accounting for 16.7%, 10.3% and 9.9% of the TVL of Ethereum.

Global Web3 Ecological Innovation Observation Report

Source: DefiLlama

2.2 Ethereum and compatible EVM chains

Compatible with the Ethereum Virtual Machine EVM, it is a necessary choice for many public chains and Layer 2. As the public chain with the largest ecosystem and the largest number of developers, Ethereum plays a pivotal role in the entire public chain field. At present, there are hundreds of active public chains and EVM-compatible chains in the market, but few of them can form their own ecological moats. Each public chain has changed from the past TPS-only theory to the dual-wheel drive of ecological construction and capital incentives.

The ecological development of Ethereum has always been unstoppable. With the gradual progress of the merger of Ethereum and the final fragmentation, the irreplaceability of Ethereum has been further strengthened, and various public chains have begun to be actively compatible with Ethereum, allowing developers to easily realize the migration of DAPPs with deployment. As a result, a large number of EVM compatible chain ecosystems have also been formed, and compatible EVM also allows DAPP

Multi-chain deployment of applications becomes easy. E.g:

BNB Chain(BSC)

On September 1, 2020, the Binance Smart Chain was launched. As the first EVM-compatible public chain launched by the trading platform in the summer of DeFi, BSC has undertaken most of the traffic from the Binance platform, and has also achieved BSC’s place in the public chain field. BSC adopts a DPoS mechanism similar to EOS. TPS can reach 30-70 times that of Ethereum, but the number of effective nodes is only 21, and the degree of decentralization is not in the same order of magnitude as Ethereum.

Avalanche-C

Avalanche is an interoperable and highly scalable decentralized public chain network. Avalanche is divided into X chain, C chain, and P chain. Among them, C chain is an EVM compatible chain and a smart contract chain; X chain is a DAG structure, transaction The fastest speed, mainly used for transfers; P chain is a chain related to nodes, mainly used for Staking, similar to Polkadot’s relay chain.

Phantom

Fantom is a high-performance public chain based on DAG technology and supports EVM compatibility. With the background of Andre Cronje, the ecological development of Fantom has ushered in explosive growth in the past year. However, with the withdrawal of Andre Cronje at the beginning of the year, Fantom also Ushered in its darkest moment, its TVL fell from the highest of 11.81 billion US dollars to 980 million today, a drop of 91.7%.

In addition, public chains that were originally incompatible with EVM have successively launched Layer 2 compatible with Ethereum, such as: Near launched Aurora, Polkadot launched Moonbeam, Evmos on Cosmos, Neon on Solana, etc. At present, the mainstream public chains are basically All are compatible with EVM, which will further strengthen the influence of Ethereum in the field of encryption.

2.3 Ethereum Merger: From PoW to PoS

As one of the cores of the underlying components of the blockchain, the consensus mechanism is the golden rule for maintaining the consistency of the state of the blockchain network, and determines the ownership and distribution of accounting rights. At present, the verification mechanism of the public chain has evolved many different versions, but in terms of the breadth of application, it is mainly divided into two major factions, PoW and PoS. Among them, PoW is mainly represented by Bitcoin, and PoS is mainly represented by new-generation public chains such as BSC and Fantom, as well as the merged Ethereum. For the PoS mechanism, the verifier will no longer need to spend a huge amount of computing power to compete for the accounting rights, but only need to create and submit blocks when they are randomly selected, or verify the blocks submitted by others when they are not selected. way to get rewards.

The Ethereum merger refers to the merger of the Ethereum main network and the beacon chain (The Merge). According to the Ethereum Foundation, the consensus layer and the execution layer are merged. The consensus layer is the beacon chain, and the execution layer refers to the existing and Ethereum Square for interaction level. The merger is an important step for Ethereum to transition to the era of sharding. After the merger, Ethereum will abandon the PoW part of the existing execution layer and fully turn to the PoS era. At that time, the Ethereum network will be packaged and verified by the stakers, and the PoW node miners and computing power miners will withdraw from the historical stage.

The low scalability, high energy consumption, high GAS and other problems of the Ethereum network have seriously restricted its ecological development. As the optimal solution to solve the above problems, sharding has become the top priority of the future development of Ethereum. , and merging is the premise and foundation of building shards.

In fact, the transition from the current PoW to PoS has long been reflected in the development roadmap of Ethereum. Among them, the setting of the difficulty bomb is a special mechanism set for the conversion of the consensus mechanism, the purpose is to promote PoW miners Turning to PoS, the “difficulty bomb” is a mechanism algorithm that adjusts the chain difficulty according to the block time. With the increase of block height, the difficulty of producing blocks will increase exponentially. The final result is that miners are unprofitable after measuring the cost. Figure and exit, from PoW to PoS. Difficulty bombs have been delayed several times due to repeated delays in mergers, and the launch of the Grey Glacier hard fork in June 2022 also heralds an Ethereum merger that won’t happen until at least September.

There are three main changes brought about by the merger.

First of all, the output of Ethereum Token has been greatly reduced. Under the PoW mechanism, Ethereum produces about 12,000 pieces per day. After switching to PoS, the daily output is only 1,280 pieces, a drop of 89.3%. Coupled with the existence of the EIP-1559 burning mechanism, Ethereum may be fully deflationary.

Secondly, the threshold for validators is lowered, which is conducive to the further decentralization of the network. Under the PoW mechanism in the past, verifiers needed professional machine hardware, and it was difficult for ordinary users to enter, but under the PoS mechanism, verifiers no longer compete for computing power, and the hardware standards are greatly reduced. Node, participating in the operation of the node network. Coupled with the emergence of various pledge service providers, the threshold for becoming an Ethereum verifier has been further lowered. Finally, significantly reduce energy consumption and gradually move towards the era of carbon neutrality.

The PoS mechanism gets rid of the continuous pursuit of high computing power mining machines, which will bring about a significant drop in the demand for electricity. The current annual energy consumption of the Ethereum network is about 51.32 TWh, which is equivalent to the energy of a country in Portugal, with an annual output of 28.63 tons of carbon dioxide. According to the calculation of the Ethereum Foundation, after the merger, the energy consumption of the Ethereum network will drop by 99.95%, and the energy consumption of each node for a day will be equivalent to that of a home computer.

Global Web3 Ecological Innovation Observation Report

Source: Digiconomist

It should be emphasized that this merger is not enough to bring about improvements in scalability and gas costs, and the gradual implementation of sharding will bring about significant changes in the interactive experience.

Section 3 Ethereum Layer 2

In order to expand the performance of the Ethereum network, various expansion schemes have been born in the industry. According to the different levels of protocols involved, they can be mainly divided into two categories: Layer 1 and Layer 2.Layer 1 is the expansion on the chain, usually by changing the block capacity or the underlying data structure to achieve performance improvement. The sharding of Ethereum belongs to the Layer 1 expansion. Sharding is further divided into transaction sharding and status sharding. Transaction sharding refers to dividing the calculation of data to different sharding nodes for processing according to certain rules. Parallel processing in different shards to achieve the purpose of improving network performance.

Layer 2 generally refers to off-chain expansion, that is, data computing, transactions and other services are migrated to the second layer outside the main chain to reduce the burden on the main chain, so as to improve the interaction speed and reduce costs. However, how to ensure the availability and security of the second-layer data under the chain has also spawned different Layer 2 expansion schemes such as ZK Rollup, Optimitic Rollup, Validium, Plasma, etc. Before the era of Ethereum sharding has really arrived, Layer 2 will be ether The best choice for the expansion of the workshop. At present, Ethereum Layer 2 is mainly based on two Rollup solutions, ZK Rollup and Optimistic Rollup.

Rollup, which means aggregated transactions, as the name implies, is to aggregate multiple transaction data and submit them to the main chain at one time to reduce the frequency of interaction with the main chain, reduce network congestion and improve network performance. Under the Rollup scheme, it can ensure that the original transaction data is recorded on the Ethereum main chain, and users no longer rely on specific verification nodes, which is the most secure among the above-mentioned Layer 2 schemes.

3.1 ZK Rollup

ZK Rollup, a zero-knowledge summary, was first proposed in 2018. It relies on zero-knowledge cryptography to ensure the security of funds (which can fully prove that one is the legal owner of certain rights and interests, and does not leak relevant information, that is, to the outside world. “Knowledge” is “zero”), and uses the Ethereum main chain as a storage medium and confirmation of the final state, so it also inherits the security properties of the main chain.

The ZK Rollup scheme can protect the user’s funds from confiscation and censorship, but the immaturity of the ZK Rollup technology and the difficulty of building a universal network also limit the application of the ZK Rollup scheme. For ZKRollup adopters, it is much more difficult to create a general EVM execution environment than Optimistic Rollup. Typical projects of ZK Rollup are zkSync and StarkNet.

zkSync

zkSync is developed by the Matter Labs team, and the universal 2.0 testnet that is fully compatible with EVM has been launched. In zkSync 2.0, the L2 state is divided into zkRollup with on-chain data availability and zkPorter with off-chain data availability, similar to StarkNet and StarkEx under StarkWare . There are nearly 100 officially announced on-chain ecological projects, focusing on infrastructure, cross-chain bridges and DeFi fields. In the zkSync network, other Tokens can be used to pay for gas without necessarily using ETH.

StarkNet

StarkNet is a general-purpose platform for Layer 2 expansion led by StarkWare. Although it belongs to the ZK Rollup family with zkSync, the solution is slightly different. The former uses zk-SNARKs, which requires relatively small on-chain storage space and gas fees. The user adopts zk-STARKs, which is better in network security.

In May, StarkNet completed a $100 million financing at a valuation of $8 billion, becoming the highest valuation of all Layer 2 projects. Currently, StarkWare is actively testing the official website L1-L2 bridge starkgate, and it is expected that the StarkNet network will be officially opened soon. , there are more than 70 ecological projects displayed on the official website of StarkNet, mainly in the field of DeFi.

3.2 Optimitic Rollup

What Optimistic Rollup uses is not a zero-knowledge proof, but a fraud proof. It draws on the early Plasma expansion technology and relies on the game between the verification node and the challenger to ensure the security of funds. Therefore, when the verification node finalizes the transaction data on L2 When the status returns to the main chain, it will enter a challenge period of about 7 days. During the challenge period, the funds will be locked. If there is a problem with the verified transaction data, other verification nodes can submit fraud proofs and will obtain the pledge of the original verification node. gold.

Compared with ZK Rollup, a significant advantage of Optimistic Rollup is that it can be compatible with more complex smart contracts, which also makes the Layer 2 projects that have been launched and have formed an application scale belong to the layout of Optimistic Rollup, such as:

Optimism

Optimism is the first to develop an EVM-compatible Optimistic Rollup solution. It guarantees that the data synchronized to Layer 1 is valid through a single-round interactive fraud proof. This is the main difference between it and the Arbitrum solution. At the same time, Optimism is also one of the four major Layer The first project to issue Token in 2.

Arbiter

Arbitrum was developed by the OffChainLabs team and was born at Princeton University. It is currently the project with the most complete ecological development and the highest TVL among all Layer 2 projects. The multi-round interactive fraud proof adopted by Arbitrum, that is, after the verifier submits the fraud proof, Arbitrum will first pass multiple rounds of interaction on the second layer to narrow the scope of the dispute before going to the main chain for simulation, which reduces the cost of resolving disputes on the chain. , which is the main difference between it and the Optimism scheme.

3.3 Validium and Plasma

Validium (StarkEx)

Validium is a hybrid expansion method developed by StarkWare, a zero-knowledge proof R&D institution. It is very similar to ZKRollup’s solution. The key difference is that Validium’s transaction data does not exist on the main chain like ZK Rollup. The validity certificate is published on the chain, but the data is stored outside the chain, and the security is not as good as the ZK Rollup scheme. For example, the operator of StarkEx Validium can freeze the user’s funds.

Additionally, it has limited support for general-purpose computing and smart contracts, and generating zero-knowledge proofs requires high computational power and is not cost-effective for low-throughput applications. Its advantages are mainly reflected in no withdrawal delay and very high throughput (TPS is about 10,000). Representative projects that apply this solution are: Immutable, DeversiFi.

Plasma

In 2017, Plasma was the mainstream in the field of Ethereum scaling solutions, and it belongs to the early scaling technology. At present, with the maturity of the Rollup solution, Plasma has gradually stepped out of people’s field of vision as a Layer 2 solution with low security.

In the Plasma scheme, borrowing technology from the past Bitcoin Lightning Network, it has an independent blockchain anchored to the Ethereum main chain and uses fraud proofs to arbitrate disputes. Its advantages are high throughput, low cost per transaction, and its disadvantages are also obvious. It is difficult to support general computing, and only supports a few transaction types such as basic token transfers, exchanges and other specific logics. In addition, it also needs to be regularly monitored. Or entrust others to monitor the network to ensure the safety of funds. The most representative Plasma expansion solution is OMG Network.

Looking at the above Layer 2 solutions, we can find that the essence of Layer 2 expansion is different trade-offs in terms of security, performance, and decentralization, and different solutions are derived from this.

Global Web3 Ecological Innovation Observation Report

Section 4 Avalanche: Avalanche Protocol, EVM, Subnets

Avalanche focuses on high performance and high scalability. The former is realized by the design of the avalanche protocol itself, and the latter is realized by supporting developers to deploy customizable subnets. At the same time, Avalanche has high compatibility with EVM to attract mature protocols of the Ethereum ecosystem to facilitate developers to build Avalanche’s native protocols.

4.1 Avalanche Protocol

According to the research of Team Rocket (2018), the consensus process of the avalanche protocol is just like its name. The avalanche is a random collapse at the beginning (statistics of random sample results), and finally a large area collapse (that is, consensus formation). Its core idea is that by repeatedly sampling nodes in the network and collecting their responses to a proposal, all honest nodes can eventually be directed to the same consensus result.

The advantages of the Avalanche protocol are: high performance, low latency, resistance to Byzantine attacks, resistance to double-spending attacks, non-intersecting interests of miners and users, and relatively fair.

Possible problems are:

Random sampling achieves non-deterministic consensus.

Conflicting transactions are not protected.

Requires the support of a large number of participants.

(See: ipfs.io/ipfs/QmUy4jh5mGNZvLkjies1RWM4YuvJh5o2FYopNPVYwrRVGV)

4.2 Avalanche’s design and native cross-chain bridge

Global Web3 Ecological Innovation Observation Report

Source: Avalanche official website

The Avalanche mainnet consists of three chains:

1. Responsible for creating the X chain (Exchange Chain) of assets and transactions;

2. Responsible for storing data on the chain, coordinating nodes, and establishing the P chain of the subnet (

Platform Chain);

3. Responsible for executing smart contracts and supporting EVM’s C chain (Contract Chain).

Native cross-chain bridge Avalanche Bridge supports the cross-chain of Ethereum ecological assets to Avalanche, and recently added native cross-chain support for BTC for the use of BTC assets in the Avalanche DeFi ecosystem.

4.3 Ecology

Avalanche’s extremely high compatibility with the Ethereum ecosystem and the foundation’s continuous incentives for the ecosystem have attracted a large number of Ethereum-native projects and birthed many Avalanche-native protocol ecosystems. Users only need to add the Avalanche-C chain to the MetaMask to participate in the Avalanche ecosystem.

There are currently $2.8 billion in TVL on Avalanche, and the top five DAPPs are:

Aave (Ethereum native, cross-chain deployment to Avalanche lending protocol)

Trader Joe (DEX native to Avalanche)

Wonderland (Avalanche’s native DeFi 2.0 protocol, or OlympusDAO fork)

Benqi (Avalanche’s native lending protocol)

Platypus Finance (Avalanche’s native stablecoin exchange)

Other distinctive native protocols such as:

Avalaunch (the largest Launchpad on Avalanche)

Crabada (the most active GameFi protocol ever on Avalanche)

Yeti Finance (lending protocol on Avalanche, supports leverage)

Yield Yak (yield aggregator on Avalanche)

Step.app (M2E project on Avalanche)

Ascenders (RPG genre GameFi project on Avalanche)

4.4 Subnet

Avalanche supports developers to deploy DAPPs to Avalanche subnets to build their own multi-chain application chain network. The subnet is easy to deploy, EVM compatible, and the security uses Avalanche’s “specified subset of validator pools”, which is partially shared and secure; currently there is no direct communication between subnets, which is more suitable for self-contained DAPPs with low composability protocol. The first project to deploy the Avalanche subnet was DeFi Kingdom. Subsequent projects such as Crabada, Step.app, and Ascenders plan to use Avalanche subnets.

Section 5 BNB Chain: Binance, EVM, BAS

The BNB chain has a close relationship with Binance, the world’s largest centralized trading platform, adopts an EVM-compatible architecture and develops a BAS side chain.

5.1 Architecture

Global Web3 Ecological Innovation Observation Report

Source: Binance Blog

BNB Beacon Chain: Responsible for the governance of the BNB chain (staking, voting)

BNB Smart Chain (BSC): Compatible with EVM, consensus layer, the center connecting multiple chains

BNB Sidechain: Develop PoS solutions for customized blockchains and DAPPs using existing BSC functions

BNB ZkRollup (coming soon): ZkRollup solution to scale BSC into an ultra-high performance blockchain

BSC Partition Chain (BPC): Similar to Ethereum L2, it is used to carry some calculations on the BNB Beacon chain

5.2 BNB

Different from the main Token of other public chains, BNB is not only the main Token of the BSC chain, but also the platform Token of the Binance trading platform. In addition to being affected by the activity of the BSC chain, BNB is also closely related to the activities and business revenue of the Binance trading platform.

BNB passed the burning plan of the BEP-95 proposal in November last year, and the proposal for the total burning of BNB was passed, which is not conducive to the complex smart contract interaction of GameFi projects in the long run, and may greatly increase the threshold for use of such projects. Combined with the establishment of BAS by BSC, it is speculated that the BSC chain will mainly put high-frequency smart contract interaction on the side chain in the future.

5.3 Ecology

According to the data of DefiLlama, the TVL on the BSC chain is now about 6 billion US dollars, accounting for 7.8% of the TVL on the entire chain.

Global Web3 Ecological Innovation Observation Report

Source: DefiLlama

Among the ecological projects, PancakeSwap accounts for 48.86%, and among the top ten projects with TVL, almost all of them are native projects of the BSC chain, and 7 of them have been listed on the Binance trading platform.

Global Web3 Ecological Innovation Observation Report

Source: DefiLlama

Due to the relatively low development cost of BSC, a large number of ecological projects are actively developed on BSC, which once reached 16 million daily transaction hashes in November 2021.

Global Web3 Ecological Innovation Observation Report

Source: defiprime.com

There are a large number of active DeFi projects (such as Tranchess), GameFi projects (such as Binary X) and Metaverse projects (such as SecondLive) on the BSC chain, the only thing lacking is a relatively mature NFT trading market.

BSC has a very luxurious support for the development of ecology. It regularly organizes the MVB plan to select and support excellent ecological projects. In October 2021, it launched a BSC ecological incentive of 1 billion US dollars.

5.4 BAS side chain

According to Mehta (2022), each BAS chain will have its own 3-7 validators and is expected to run a PoS-based supermajority (2/3) consensus. Each BAS chain will operate with its own pledge and utility tokens. Additionally, the state and state transitions of each sidechain will be completely independent of other sidechains.

BAS chains will need third-party bridges to communicate with each other. In this case, BSC will use Celer’s third-party bridge to connect to each BAS in the form of “lock + minting”, and each BAS is also connected through this mechanism.(See Shanav K Mehta, Jump Crypto: Flavors of Standalone Multichain Architecture for details)

At present, the projects that have been confirmed to participate in BAS include Meta Apes (BSC chain-native battle game GameFi), Project Galaxy (multi-chain deployment on-chain identity certificate project) and Cube (BSC chain-native game platform).

Section 6 Cosmos: Open Architecture, Modularity, and Airdrops

Instead of running a smart contract on a public chain and competing for gas resources with thousands of other smart contracts; why not run a blockchain yourself on Cosmos, with public validators providing consensus?

——Cosmos official website

As the founding project of the multi-chain architecture, if there is only one word to describe the concept and ecology of Cosmos, it must be: open.

6.1 Open Architecture: Shared Security and Interchain Accounts

Schematic diagram of Cosmos architecture

Global Web3 Ecological Innovation Observation Report

Source: X Consulting

In the schematic diagram of the Cosmos architecture above, the core part is the TenderMint consensus engine in the middle layer. This encapsulated consensus generation module can theoretically be called by any application chain through ABCI (Application Blockchain Interface). (Note: ABCI is the green column connecting TenderMint and the upper center Cosmos Hub in the picture.)

The upper-layer chain is divided into two types: the main “router” relay function of the Hub chain and the main application of other Zone chains. The two chains communicate through the Inter-Blockchain Communication (Inter-Blockchain Communication) protocol. Then the cross-chain function has been further upgraded, and it has been upgraded to an inter-chain account, which can complete operations on different chains in one stop.

In theory, such an architecture allows each Zone to be connected to TenderMint through ABCI to form a completely independent chain. But independence also means autonomy. The security of the chain can be easily attacked without enough stakers. Therefore, after the official launch of the first Hub, Cosmos Hub, many Zones chose to directly connect to it to share the security brought by the huge ATOM stakers on the Cosmos Hub chain, and by the way, indirectly through the Cosmos Hub with all other ecosystems Zone is connected. So Cosmos shares security as a whole.

6.2 Modular Cosmos SDK Development Tools

The Cosmos SDK toolbox packaged into modules is the most friendly development tool for blockchain application developers. By calling each common module, developers can quickly complete the general part of their application and focus on developing special modules. At the same time, the SDK also standardizes and encapsulates recently commonly used modules for later developers to use to avoid repeated development.

Global Web3 Ecological Innovation Observation Report

Source: cloud.tencent.com/developer/article/1446970

6.3 Airdrop

Due to shared security, the verification work of the newly added Lisk is largely done by other chains. So in order to repay this contribution, new projects generally airdrop their own tokens to pledgers of ATOM and several other major chains (such as Osmosis, Juno, Secret).

And frequent airdrops brought another unexpected result: experimentation and thinking about the DAO airdrop mechanism, and the accompanying governance improvements.

Several major airdrops include: Osmosis (2021.7.4); Juno (2021.8.27); Evmos (2022.4.19).

Among them, Juno’s airdrop also caused a major controversy about the governance of the DAO.

summary

Cosmos, represented by openness, modularity and airdrop, has the potential to become the bottom layer L0 of all blockchains in the eyes of many people, just like the label of Cosmos: the Internet of blockchains. But such a consensus needs to be created a little bit. I don’t know if the world will give Cosmos this time.

Section 7 PolkaDot: Relay and Parachains, Slot Auctions, Hackathons

Polkadot was once known as the “King of Cross-chains”, but it has been rarely mentioned recently. On the one hand, because Polkadot’s own “ambition” is bigger than cross-chain, Polkadot hopes to build a network that can transmit all data on all blockchains; on the other hand, Polkadot’s current development direction is more focused on itself Ecological project construction, development model and other L1 development

Begin to converge.

7.1 Architecture: Relay Chains and Parachains

Global Web3 Ecological Innovation Observation Report

Source: Polkadot White Paper

In Polkadot’s multi-chain ecosystem, all chains are divided into relay chains and parallel chains. Provides the underlying PoS verification, shared computing and consensus at the level of the relay chain; parallel chains run different applications and are connected to the relay chain by slots. Other chains that are not parachains (such as ETH and BTC) can communicate with the relay chain through bridges (Bridges, a special kind of parachain that is specifically responsible for cross-chaining).

(See the Polkadot white paper for technical details: polkadot.network/PolkaDotPaper.pdf)

7.2 Slot auction

In order to use the relay chain and join the Polkadot ecosystem, the project party needs to bid for slot positions (the upper limit is about 100), and the lease period is two years. DOTs that are successfully bid will be locked during this period. page 31

A Review of Global Web3 Eco Innovation (A Review of Global Web3 Eco Innovation) The first auction of slots (2021.12) totaled 99.1132 million DOTs (8.6% of the total), Acala Network, Moonbeam Network, Astar Network, Parallel Finance , Clover Finance obtained these 5 projects. In the second round, six projects, Efinity, Centrifuge, Composable Finance, HydraDX, Interlay and Nodle, won the auction with 27 million DOTs (2.4% of the total). Compared with the first round, the average cost is 77.3% less.

Of course, the number of slots in the Polkadot chain is limited (about 100), so the Polkadot ecosystem still has many pioneering networks that are isomorphic to the Polkadot chain, such as the well-known Kusama, which is also constantly running slots. auction.

7.3 Hackathon Decoded

Starting from 2020, the Polkadot Hackathon Decoded will be held every year to promote and publish the latest news of the project.

summary

Polkadot has experienced the transition from the “king of cross-chains” to L0 and then to “similar to L1”, which to some extent also reflects the change in the design thinking of the blockchain public chain. But unlike the finality of block records, the iteration and evolution of the chain can be endless.

Section 8 Solana: PoH, Ecology, Downtime Events

Among all mainstream public chains, Solana is absolutely unique. From the design concept, Solana is like a “counterattack” by “outside the circle” programmers against their counterparts in the blockchain. The special asynchronous PoH verification mechanism, the adoption of Rust, the perfect and unified bottom layer of DeFi and NFT, and the DDOS attack that the Internet “likes to hear” all contribute to Solana’s special temperament.

8.1 Mechanisms: Rust, POH and “Triangle”

Rust is not the mainstream in the blockchain, and more chains use the Solidity system of EVM. But in a 2020 Stack Overflow survey of developers, Rust was the “most popular programming language,” and about 86% of respondents said they would like to continue coding in Rust in the future. (See Supra Labs: “Blockchain Programming Languages ​​Explained: For Ambitious Developers”)

In a tripartite meeting between Solana, Zcash and Parity on September 24, 2018, Solana founders summed up 6 reasons why Rust is suitable for blockchain development: (1) as fast as C/C++; (2) like Haskell General type safety; (3) There is no garbage collector, variables will be automatically reclaimed and memory released when they are out of scope; (4) Null pointers and dangling pointers are eliminated, both of which cause the C/C++ system to crash and are unsafe The root of the code; (5) The rules are rigorous; (6) The realization of concurrent programming. Solana’s PoH (Proof of History) consensus mechanism is a very innovative asynchronous structure.

Generally speaking, the blockchain requires the entire network to be synchronized when the state is updated. That is to say, the next block will not be produced until all nodes are updated synchronously. And this reduces the efficiency of each node to a certain extent. In order to maximize the performance of each node, Solana introduces a sharded clock and a global clock. At this point, the update of the state no longer requires synchronization of the global time, and each node will periodically synchronize its own clock with the global clock. Clock synchronization.

At the same time, in order to solve the trust problem of transactions, Solana also introduced VDF (Verifiable Delay Function). When each transaction is packaged and put on the chain, PoH will record a timestamp, which is convenient for nodes to use VDF to verify the history of operations on the chain. The efficient Rust language and the PoH consensus of running nodes at full capacity have minted “extremely fast” Solana. In the impossible triangle of blockchain (decentralization, scalability, security), the mainnets of Bitcoin and Ethereum have abandoned scalability, while Solana has abandoned decentralization.

Currently the Solana Foundation is the only entity developing core nodes on the blockchain. According to Solana beach data (https://solanabeach.io/), the current number of Solana nodes is 1793, and the Nakamoto coefficient is 26 (Nakamoto coefficient: the minimum number of entities required to compromise a subsystem ). So in theory, only 26 sections are needed

One click can paralyze Solana.

8.2 Ecology: Serum and Metaplex

According to Solana’s official website information, as of June 25, there are 301 DeFi projects on Solana (175 DEXs, 25 AMM mechanisms, and 150 Order Book mechanisms), while 929 NFT projects (including 100 related to Metaplex), Game There are 271. These are divided into Serum-based DeFi systems and Metaplex-based NFT systems.

Half of DeFi projects are DEXs, thanks to Serum, the DeFi infrastructure on Solana. Serum is an Order Book DEX, and all DEX liquidity on Solana will be gathered in Serum.

In other words, if you place a pending order on any DEX, the final matchmaking transaction is Serum, and your counterparty is also all the Makers of the DEX on Solana. This ensures the concentration of liquidity on Solana, sufficient depth of transactions, and all DEXs are just a GUI for Serum. In addition, Solana’s close relationship with the centralized exchange platform FTX also gives Serum a de facto opportunity to share some of the off-chain liquidity.

Compared to DeFi projects, there are twice as many NFTs on Solana. In terms of NFT infrastructure, this may be the most suitable public chain for NFT at the moment. Metaplex, the underlying NFT protocol on Solana, supports users to complete the one-stop process of casting, pricing, and sale.

In this era where everything can be NFT, the threshold for NFT creation has been greatly lowered. Design a good vision, tell a good story, and the NFT can go public. Therefore, when the Ethereum NFT market is cold, the popularity of NFTs on Solana does not decrease but increases. In the sluggish May of the market, the trading volume of OpenSea (Ethereum chain) fell by 31.6% month-on-month. The trading volume of Magic Eden (the largest NFT trading platform on the Solana chain) in May increased by 39.79% month-on-month, and OpenSe (aSolana) increased by 286.02% month-on-month.

8.3 Downtime events

Although Solana mainly promotes high TPS and fast transaction processing speed, it is often very unstable. The following is a list of several serious mainnet accidents in recent years: 2022.5.1, Solana mainnet flooded with 4m requests per second, resulting in insufficient node memory to stop generating blocks, and no blocks were generated for nearly seven hours. On May 26, 2022, the block clock of the Solana mainnet was shifted, and the on-chain timing was about 30 minutes behind the real-world time.

2022.6.1, Solana’s mainnet was interrupted for about 4.5 hours due to the failure to reach a consensus on the block. The period was also interspersed with dozens of “mainnet performance drops”. (See https://status.solana.com/history for details, and Twitter for node updates: @SolanaStatus.)

The reason is that most of the new chain games and NFT minting activities or Genesis NFT sales have attracted a large number of scientists and their robots. With the click frequency of each robot at least double digits per second, Solana continues to suffer from DDOS attacks. (A large number of invalid requests prevent normal requests from being submitted). For example, the downtime of 5.1 was also caused by the robot attacking the candy machine (a tool for mint NFT launched by Metaplex). The overheating of the front-end time StepN also caused the congestion of Solana. Solana has also introduced a solution. If a wallet submits an invalid NFT transaction, the wallet will be deducted 0.01 Sol as a penalty.

Looking at it this way, the main source of Solana’s problems comes from two points: the underlying technology and the popularity of NFTs. Solana may be able to withstand the arbitrage bots brought by Defi liquidation, but it loses to NFT bots.

summary

If high-speed asynchrony is Solana’s biggest label, then downtime is the price it pays. But compared to last year, Solana’s performance has gradually improved, TPS has recovered and transaction failures have decreased. Perhaps, as Solana Labs founder Anatoly Yakovenko puts it, these are just “a labor of pain.” Thanks to the high speed, DeFi, NFT and Game may bring some unexpected combinations.

Section 9 China Blockchain: Digital Collection + Consortium Chain

After the regulatory event in 2021, China’s blockchain is mainly based on digital collection (NFT) platforms; and it is dominated by consortium chains with a limited number of nodes and mostly in the hands of developers. Among the top 100 platforms according to the statistics of Guo Zhihao, there are not many big companies.

Global Web3 Ecological Innovation Observation Report

Global Web3 Ecological Innovation Observation Report

But there are also Bilibili, Bigverse (NFT China), etc. that use ETH to issue NFTs, as well as companies that use Solana and Polygon.

In terms of decentralization, the alliance chain has been controversial. The failure of Meta’s (formerly Facebook) Libra project also appears to be an example of a consortium chain failing. But it is too early to say that there is no room for consortium chains in Web3.

Summarize

The history of blockchain can be almost identical to the history of public chains. Different public chain iterations actually reflect different community groups’ different understandings of the current world and different solutions to different problems. But like all solutions in the world, old solutions become new problems. So one thing is certain about the future of Web3, the public chain will become the core of the bottom layer for a long time, and it will continue to iterate.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/global-web3-ecological-innovation-observation-report/
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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