EVM vs Competitors: Are High-Throughput L1s The Future?
Aptos MOVE vs EVM | xNFTS & Backpack Wallet | Exciting Apps on Solana
GM, this is your Daily Bolt briefing.
In today’s edition; we’re getting you up to speed on the latest happenings in blockchain scalability, and giving you a perspective from the Co-Founders of Aptos on why the EVM faces stiff competition when it comes to scalability and onboarding users.
In our 2nd report, we’ve provided you with notes on one of the largest TradFi market intermediaries and why they are keeping a keen eye on crypto; and what other companies think of our young but innovative industry.
After you’ve caught up on the latest in the realms of blockchain scalability and CeFi, read our Note of the Day to learn more about xNFTs, the potential of the backpack wallet for improving crypto UX, and what positive insights you can take away from Solana’s blockchain architecture. ⬇️
Stay alert in the markets.
1/ Animoca Brands - Aptos, Scalability, Move, and Business Plans
Preview: In this episode of Animoca Brands, Mehdi Farooq from Animoca Brands invites Avery Ching and Mohammad Shaikh to discuss Aptos' solution to scalability, Move programming language, Aptos’ business plans, and grants. Click here to listen to the full episode (57 mins).
Read our Note (9 mins) and save 48 mins.
Here are some key takeaways:
Shaikh believes that the process of building a Web3 ecosystem is difficult and non-scalable.
Shaikh believes that better technology is essential, but network effects are equally crucial for the success of projects around Web3.
Ching says that Aptos was designed to support billions of people using blockchain technologies through its ability to scale.
Ching discusses that Aptos' Move language provides robust developer tools to help them ship safe and trusted code faster.
Ching says that Aptos can handle one million transactions through its programming language, virtual machine, and innovative scaling techniques.
He states that Aptos aims to support as many resources as possible by taking advantage of increased CPU, memory, and storage available to validators through pipelining, batching, and parallelizing stages.
Ching thinks that while EVM has popularity and market share in the current Web3 space, it will be harder for that network to move forward in the future as the network needs to scale.
The EVM-based networks have to evolve the programming language it uses but also build or upgrade the virtual machines and smart contracts safely and securely. However, he believes that the EVM system is not efficient in evolving the changing nature of blockchain networks.
He states that Move is designed to evolve quickly, with new features being added every month, such as resource objects, resource groups, move objects, etc. He also says that this allows for composable dynamic behavior between NFTs natively and intuitively.
Ching explains that developers have responded positively to Move's tooling, documentation, and support from the community at hackathons, where they were able to build unique applications in short periods.
Ching mentions roll-ups as an example of what could be done with zero-knowledge proofs, but he doesn’t see roll-ups as a solution for scalability in Aptos.
He believes that roll-ups reduce gas fees but do not increase scalability on the base layer.
According to Ching, scalability is not something that partners want to deal with, so having multiple stacks like roll-ups adds another layer of complexity.
2/ On The Brink Ep. 421 - Simon Forster and Duncan Trenholme (TP ICAP)
Preview: In the episode of On The Brink, host Matt Walsh is joined by Simon Forster and Duncan Trenholme of TP ICAP to discuss TP ICAP's journey in the crypto/blockchain space, the market structure for institutional crypto asset trading, the future of tokenization and the types of assets that are likely to be represented on-chain, and more! Click here to watch the full episode (42 mins).
Read our Note (13 mins) and save 29 mins.
Here are some key takeaways:
Simon explains that he and Duncan have been at TP ICAP for over 10 years, with his background in equity derivatives, he joined TP ICAP after his tenure at Société Générale & Duncan joined through the graduate program.
TP ICAP is the world's largest inter-dealer broker, operating in 27 countries with 60 offices globally.
TP ICAP is a publicly listed company, and the digital assets business was approved in 2019 and they have been building their presence in the space since then.
Simon explains that they have always been ahead of their traditional customer base intentionally, as mobilizing in the crypto asset class is challenging. First, they recognized the emergence of a new asset class that was polarizing but had the potential for institutional investment. They believed their clients would look to TP ICAP to service them in the same way they do in other asset classes i.e. FX, equities, and commodities.
This led to the initial setup of the business which is more traditional covering things like the CME futures and options and OTC derivatives, focusing on frameworks and services for clients entering the crypto asset class.
Secondly, they also believed that the technology underlying Bitcoin and Ethereum would disrupt existing financial market infrastructure, particularly in terms of settlement frequency and cadence, reducing risk. And one of their assumptions was that if this technology had the anticipated impact, other asset classes would transition to blockchain. They saw this as both a hedge against disruption and an opportunity for exploration.
Matt highlights the different levels of buy-in from institutions involved in blockchain, crypto, and tokenization. He observes that the level of seniority of representatives at industry discussions reflects how seriously firms take the technology and its potential.
TP ICAP is closely monitoring DeFi innovation and the regulatory landscape, aiming to bring standards and orderliness to the space while ensuring compliance with financial regulations.
Matt states the chicken and egg problem with regulation, and lack of clear guidance in certain jurisdictions, particularly in the United States, affect infrastructure development. Unclear oversight on the spot market and token decentralization. CFTC (Commodity Futures Trading Commission) and SEC (Securities and Exchange Commission) argue over asset designation. Regulation and lack of clarity hold back capital formation initiatives.
If you read these 2 Notes on Revelo Intel you would have saved: 1 hour and 17 minutes!
0xResearch - Frictionless Capital, Solana and xNFTs
In this episode of 0xResearch which took place on May 3, 2023, Sam, Dan, Effort Capital, and Matt from 0xResearch, invite Logan Jastremski from Frictionless Capital to discuss the investing thesis of Frictionless, Solana, high-throughput networks, xNFTs, and much more. Read our notes below to learn more.
Background
Sam Martin (Host) - Researcher at Blockworks Research and Co-Host at 0xResearch
Dan Smith (Host) - Researcher at Blockworks Research and Co-Host at 0xResearch
Effort Capital (Host) - Researcher at Blockworks Research
Matt Fiebach (Host) - Alpha DeGenerator at Blockwork Research
Logan Jastremski (Guest) is the co-founder of Frictionless Capital and has a background in Expedia and Tesla.
What is going on in the Markets?
Effort Capital thinks that FDIC issued a cease and desist order to Cross River Bank due to unsafe lending practices.
He explains that Cross River Bank was Circle's new partner for instantaneous redemptions and mints.
According to him, First Republic Bank went under, and this indirectly put $USDC on the hot list.
He believes that there aren’t many other avenues that Circle can take in the event Cross River Bank does get shut down.
Coinbase and cbETH
Effort Capital says that Shapella was supposed to be a boom for liquid staking derivative (LSD) growth.
He explains that the lack of confidence in Coinbase is reflected in its stock price, which is approximately $50 as of May 1st, 2023.
He says that decentralized liquid staking token providers like Frax and Rocket Pool are both up approximately 30% over the past 30 days (April 1st to May 1st).
He states that there have been large outflows from centralized providers like Kraken and Binance and pretty large inflows into decentralized protocols.
Coinbase's Plans for Base
Effort capital says that Coinbase sees Base as a good product offering in addition to what they already offer with Coinbase Commerce.
He explains that Base can become a KYC’d decentralized application for P2P marketplaces that are Coinbase branded.
He believes that Base can be used to create future mainstream consumer applications.
Branded Decentralized Services
Effort Capital theorizes that Coinbase could eventually launch its own branded decentralized services, such as an Uber or DoorDash competitor.
He thinks that this would provide users with an alternative to Web2 providers who charge exorbitant fees.
He explains that with over 100 million active users, Coinbase is in a good position to leverage Base account abstraction and other improvements for on-chain experiences.
Thoughts on OP Stack
Effort Capital says that he was not taken aback by Coinbase choosing the OP Stack Chain because it makes sense from a business perspective.
He thinks that Ethereum is still considered the forefather of decentralized smart contracting platforms, so it made sense for them to start off on Base.
However, Effort Capital believes that Coinbase will eventually become tech agnostic and not limit itself to one horse in a race.
Future of Coinbase
Effort Capital believes that Coinbase understands that the future is multi-chain and has invested in various ventures to prove this point.
Effort Capital thinks that Coinbase will eventually build on other ecosystems such as Cosmos or Avalanche.
Base Adoption and KYC Requirements
Fiebach says he is curious about how KYC requirements will impact the adoption of layer-2 on Base.
Smith explains that Coinbase distributed Gorly ETH to developers to encourage them to build on Base.
Smith hopes that there won't be barriers to entry for building on Base.
Rocket Pool Design for Processing Withdrawals
Smith loves what Rocket Pool is doing but has questions about how they handle withdrawals during large risk-off events.
He says that in order to stake $ETH, a user needs to have at least 32 $ETH. For this reason, Rocket Pool needs $ETH depositors to be matched with the node operators and spin up 32 each validator.
Smith states that $ETH depositors have no ability to force validator withdrawals, which could be an issue during large risk-off events.
Smith reiterates that current validators are the only party that can purchase $ETH off the open market and fix the peg during a large risk-off event.
He believes that there may not be enough liquidity in a decentralized exchange like Balancer during large risk-off events, which would cause issues with the peg.
He says that validators can exit and re-enter after capturing arbitrage, but it takes time and reduces yield by 3 or 4 percent annually.
He states that the current design of Rocket Pool does not allow for forced validator withdrawals, unlike Lido's design mechanism.
Smith believes that the liquidity of the backing of staked $ETH is a concern for staking contracts.
Fiebach thinks that in a risk-off scenario, where hedge funds go dormant, there could be potential issues in Rocket Pool’s mechanism design.
Fiebach explains that Rocket Pool needs to balance incentive games between node operators and depositors to find a middle ground.
Investing Thesis of Logan Jastremski
Jastremski says that he is focused on high-throughput blockchains that can onboard the masses.
He believes that the current blockchain infrastructure does not allow many people to interact with chains or applications on chains.
Jastremski states that he focused on investing in what he calls "Next Generation" blockchains such as Solana, SushiSwap, Cosmos ecosystem, etc.
High-Throughput Networks
Jastremski says that he is excited about high-throughput networks because they make it simple for users to interact with chains or applications on chains.
According to Jastremski, Uniswap only has a very small number of active users when compared to Web2 platforms.
He believes that high-throughput networks like Solana, SushiSwap, and Cosmos ecosystem are the correct architectures to onboard the masses.
He thinks that these networks make it simple for users and engineers to build applications and support scaling when more infrastructure is required.
The New Trend - xNFTs
Jastremski explains that xNFTs are a recently introduced type of token on the Solana blockchain that consists of executable code and represents ownership rights over a particular asset.
He states that this means that an xNFT can function as a platform for operable Web3 applications by creating new kinds of blockchain-based applications and by providing a flexible and powerful foundation upon which developers can build.
Jastremski says he is focusing on xNFTs because they present an interesting moment in technology.
He explains that major projects like DeGods or y00ts migrated to Polygon and have upgraded current technology by creating executable NFTs.
The Backpack Wallet
Jastremski says that Backpack is a portfolio company of Frictionless Capital that focuses on xNFTs.
Jastremski expects the Backpack to be the best wallet option in Web3.
He believes that it allows you to essentially have ownership over a certain asset. Also, it creates an open-source experience where you're interacting with applications natively in your wallet.
He believes that xNFTs are the first instantiation of allowing developers to get distribution inside of the Backpack.
Evolution of Wallets and Backpack's Role
Jastremski reiterates that Metamask was one of the first iterations of wallets. Phantom came in later and provided a much cleaner user experience, allowing users to view their NFTs.
He says that Backpack is pushing towards creating an open-source experience for interacting with applications directly inside your wallet.
He believes that this will allow for a more seamless user experience instead of going from one application to another.
Solana's recent issues and fixes
Jastremski states that Solana had several outages recently, apart from the issues caused by FTX’s collapse.
Jastremski believes that Solana has some of the coolest tech in the game but some of these outages have made people think otherwise.
He explains that Solana implemented two fixes: QUIC and Quality-of-Stake. These mechanisms allow node operators to throttle traffic on the network.
According to him, gas fees are relatively cheap on Solana, which is great for users, but it can be difficult for node operators to handle all that high-throughput and high traffic.
Firedancer and State Compression
Jastremski states that Firedancer is Solana's second validator client. It will help with redundancy and is a clear upgrade in performance.
Jastremski says that Helium migrated to Solana and was one of the first to use compressed NFTs. They minted nearly a million NFTs for under $100 using state compression.
He believes that state compression is important for blockchains because it allows for more efficient storage of data. In this sense, they are pioneering state compression.
Jastremski explains that compression allows for building mass-market products on blockchains from an economic standpoint.
According to him, it enables storing a large number of NFTs in a single Merkle Root, making on-chain data extremely cheap to make millions of NFTs.
He believes that compression helps to bring Web2 users to blockchains, which is crucial for mass adoption.
Hardware Requirements for Validation in Solana
Jastremski explains that block builders have higher hardware requirements than validators or participants in consensus.
According to Jastremski, all blockchains are moving towards lower hardware requirements for participation in consensus and validation.
Jastremski thinks that light clients will be applied to all blockchains, including Ethereum, leading to trust minimization for users.
He believes that full node costs are currently higher but will decrease as light clients become more dominant.
Jastremski reiterates that Solana is not trading off decentralization for performance; it has chosen a different approach that prioritizes performance without sacrificing decentralization.
Value Accrual and Tokenomics of Solana
Jastremski explains that Solana is currently inflationary with almost 6-7% inflation.
According to him, the network has taken an approach to having inflationary tokenomics at the moment in hopes of being attractive to users long-term.
He believes that once they hit a critical tipping point of either on-chain transactions or users, Solana will either be deflationary or slightly inflationary at around 1.5%.
Economic Security and Proof-of-Stake Networks
Jastremski thinks that the cost of corruption is an important consideration for proof-of-stake networks like Cosmos, Ethereum, and Solana.
Jastremski explains that if a single entity controls 33% or more of stake weight, it can pause the network from achieving consensus and slow down transaction finality. At 66%, they have total control over the network.
He believes that all proof-of-stake networks will run into these issues, which is why the Nakamoto coefficient is an important measure of decentralization.
He thinks that objectivity is crucial when discussing decentralization in the blockchain. Metrics should be used to quantify decentralization rather than just beliefs.
Jastremski explains that Solana has one of the highest Nakamoto coefficients among all chains, even higher than Ethereum.
He believes that censorship resistance in real-time is essential for any blockchain network. He also thinks that high-throughput chains are going to be the future of the industry.
According to Jastremski, Frictionless aims to provide objective insights into how different networks or applications affect developers and user experience.
Parallelization in Virtual Machines
Jastresmki thinks that single-threaded virtual machines (including Ethereum) may not have a long-term future unless they can be amended to allow parallelization
Parallelization involves distributing computing tasks across multiple virtual processors or cores within a single physical machine. This allows multiple virtual machines to run concurrently on a single physical server, each with its own dedicated set of resources.
He explains that parallelization is crucial for scalability in the roll-up landscape, and Nitro and Eclipse are working on solutions with SVM (Solana Virtual Machine).
Hardware Architecture for Parallelization
Jastremski explains that the hardware architecture is being designed to take advantage of parallelization.
According to him, single-threaded virtual machines lack fee isolation, which can be a problem for users.
He thinks that layer-2s are not necessary if you have a high-throughput layer-1 that allows fee isolation and parallelization.
He states that the upper bound on data throughput is constrained by physical network constraints. Whether it's a single shard or multiple shards, the upper bound remains the same.
Jastremski thinks that single-shard design makes everyone's lives easier and new engineers are taking notice.
According to him, isolated fee markets are an exciting development in blockchain technology.
Unlocking Isolated View and Parallelization
Jastremski thinks that Solana's virtual machine enables an isolated view of specific contracts on the blockchain.
He states that this allows for prioritizing fees for certain contracts without affecting other transactions on the network.
He thinks that isolating fees to a single contract is a unique unlock that allows fees to be live on a single shard.
Parallelization Enables Better User Experience and Scalability
According to Jastremski, non-overlapping transactions can be executed simultaneously without waiting for anything. This is where parallelization comes in, allowing for better user experience and scalability.
He thinks that any blockchain that does not have isolated fee markets will face high fees, making people move to layer-2s or even layer-3s.
Other Blockchains Implementing Similar Approaches
Jastremski explains that Celestia has pioneered a unique approach with full nodes having high-throughput and light clients performing data availability sampling.
He thinks that EigenLayer is performing data availability sampling as well but is unclear if there's a sustainable business model for that feature.
Decentralization and Data Availability
According to Jastremski, sequencers, data availability committees, and other components can bottleneck decentralization. He thinks that decentralization is limited by the weakest link.
He states that a small number of people running a chain can limit throughput.
High-Throughput Blockchain
Jastremski thinks that putting all pieces together to create a high-throughput blockchain may not be effective.
He believes that creating a high-throughput blockchain with high decentralization, scale, and parallelization is more efficient.
According to him, Solana is an example of a third iteration of high-throughput blockchains after Bitcoin's self-sovereignty and Ethereum's smart contracts.
Unique Features for Unlocking Users
Jastremski believes that composability is one of the most important aspects of blockchain technology.
According to him, self-sovereignty at scale is another unique feature that will unlock users.
He thinks that useful apps are necessary for unlocking users as well.
AppChain Thesis
Jastremski believes that consensus tweaking may benefit users in some cases but it's rare, especially in high-throughput situations like exchanges.
He explains that running your own chain may seem appealing but it comes with complexity.
According to Jastremski, sector-specific AppChains are more interesting and offer composability.
Composability at Scale
He believes that applications that can compose together will be the most interesting in a few years.
He states that today's applications are not mature enough yet to see composability at scale.
Mobile First Approach
According to Jastremski, the majority of people interact with the internet through their mobile phones.
He believes that Apple and Google have taken an anti-crypto stance which makes it difficult for crypto companies to reach users through mobile apps.
Jastremski thinks that Solana's new phone and push into the mobile market is exciting because it takes a mobile-first approach.
Stablecoins on Solana
Jastremski says that stablecoins have been unanimously agreed upon as the best use case across crypto.
He believes that Solana's high-throughput and low transaction fees make it uniquely positioned for stablecoins.
Exciting Applications on Solana
Jastremski states that applications are being built on Solana that are not possible on other ecosystems.
According to Jastremski, Ethereum is trying to solve the issue of privacy at the layer-2 level while Solana has a couple of layer-2 focused projects that are also trying to solve the issue of privacy as well.
Challenges with Privacy in Blockchain
Jastremski thinks that layer-2s can be applied to Solana and work better on high-throughput networks because unlike Ethereum he states that Solana enables more data to be processed.
He thinks that the biggest cost consideration is how much it costs to post data to layer-1, which goes back to infrastructure limitations.