Emerging public chains such as BSC, Heco, NEAR, Fantom, Avalanche, etc. have quickly joined the Ethereum EVM landscape.
Written by: Yan Xin, Huobi DeFi Labs
Compatible EVM is becoming the standard configuration of high-performance public chains, and applications and assets on Ethereum are beginning to migrate to other blockchains. We think this will be one of the most important trends in 2021. Ethereum is gradually becoming a standard, and its ecology is moving from a single chain to a multi-chain network.
Ethereum’s outer expansion plan enters a period of intensive launch
The long-term slow-moving Ethereum expansion problem has progressed rapidly recently. The community has suspended its expectations for sharding and continues to increase the gas limit, turning its attention to the broader Layer 2. Multiple projects in different solutions such as Rollup, Plasma, side chains, and EVM-compatible public chains are under intense development. According to the current progress, the compatibility of the public chain with EVM has begun, and a large number of Ethereum applications are about to migrate to multi-chain; Rollups, especially zkRollup, which supports smart contracts, are expected to go online at the latest, but they will still be more mature in the second half of this year. The stage. This means that the period from now to the fall of this year is a period of rapid progress in the expansion of Ethereum. After the fall, the Ethereum ecosystem with multiple expansion plans in parallel will be fully presented.
We layered the main expansion plan according to the security and scalability inherited from Ethereum. Different levels of expansion solutions have different balances in the two directions. The security of Rollup is closest to that of Ethereum, but the scalability is limited by Layer 1 block Gas Limit; the side chain and the EVM-compatible public chain are the most free, but Its independent security has not been verified.
The fastest-growing expansion network comes from the outermost layer. The focus on applications brought about by the DeFi boom has caused blockchain developers to pause the discussion on the details of the underlying design and shift their attention to how to be compatible with EVM and how to improve the developer experience. And how to guide the migration of applications and liquidity on Ethereum. The effect was immediate. HECO and BSC started quickly under the support of the exchange’s huge user base and capital. Blockchains known for their underlying innovations such as NEAR, Fantom, Avalanche, and Substrate also quickly joined the EVM landscape and became a multi-chain ether. High-performance sharding within the Fang ecology.
Different shards cover different user groups and are supported by funds from different factions. Therefore, even if their external characteristics are exactly the same, they may still coexist for a long time like mainstream cloud service providers. And its valuation model will also be redefined. The valuation of public chain projects is no longer naturally higher than that of Ethereum Layer 2 projects, but is closely related to its ecological prosperity.
Many DeFi contracts on Ethereum have actually become standards. Although the efficiency of EVM is lower than that of WASM, the exploration and accumulation of developers on it is more important. Fundamental exchange and lending agreements such as Uniswap and Compound have been operating stably for a long time with the entry of large funds, and the risks have been fully exposed. Therefore, the safest choice to build the same infrastructure on other chains is to directly deploy mature contracts on Ethereum. EVM has become the standard and boundary of the multi-chain Ethereum ecosystem.
Pay attention to the message transmission between multiple chains (Message Relay)
The multi-chain network centered on Ethereum has significantly increased the throughput of the entire ecosystem, at the expense of composability and fragmentation of funds. The latter can be alleviated by designing a cross-chain bridge with less time and cost loss.
In the traditional lock-to-coin bridge design, when users want to use two applications that reside on different side chains in succession, they need to first transfer funds from the side chain to the main chain, and then to the other side chain, and pay for both. Gas fee for Layer1 transfer, waiting for confirmation of two cross-chain transactions. The cost of gas fee has nothing to do with the amount of money transferred by users. This feature is not friendly to retail investors; the side chain that uses the fraud proof system even requires users to freeze funds for more than a week before they can be brought to Layer 1. Poor interoperability limits The flow of funds to high-performance side chains.
Recently, new projects have replaced rigid locks and issuances (mint) with liquidity pools and message relays to improve interoperability. Scenarios with excellent user experience, such as fast withdrawals, cross-chain transfers, and Swap, all use this design.
Quick withdrawal can help users quickly withdraw funds from Layer 2 to Layer 1. The liquidity provider transfers the corresponding amount directly to the designated address in Layer 1 after receiving the user’s funds at Layer 2. There is only one Layer1 and one Layer2 transaction in the whole process, which eliminates the delay of cross-chain transfer through the coin-coin bridge and the greater contract overhead. Liquidity providers regularly initiate large transfers between chains to balance the balances on both sides. This kind of quick withdrawal service is actually a kind of aggregation service, and still need to pay attention to the problem of capital efficiency of its liquidity pool.
Specifically, Starkware designed Conditional TX in Layer 2, which is a transaction that can be triggered by a clear condition (such as receiving funds). The basic process is shown in the following figure.
It is worth noting that LP only needs to transfer messages between Layer 1 and Layer 2, so users can complete withdrawals from the side chain to the main chain synchronously, without waiting for the side chain to produce a zero-knowledge proof proof before submitting it to Layer 1 for verification.
In the above process, Conditional TX and the supporting message relay service is a collaboration method between LPs and can be abstracted into a protocol. We need to standardize and third-party this kind of agreement, and make it can be deployed on other networks, to provide a smooth experience in the entire ecosystem.
Connext proposed a standard cross-chain state channel protocol, which can be deployed on any EVM-Compatible blockchain. After the state channel operator and the user jointly set up a multi-signature address, transactions that have been signed but not broadcast can be frequently transmitted as checks in the P2P network. Users can use the latest check to initiate an on-chain transaction in the network where the multi-signature address is located to change the on-chain balance to cash the check.
Through the Connext protocol, users can establish two multi-signature accounts with the liquidity provider on the two chains respectively. After the liquidity provider receives the check on chain A, it will issue a new check of equal amount on chain B. The assets are in the two chains. Cross-chain is completed within the time of confirmation of each transaction. In actual situations, Layer 2 side chains are mostly PoS, with short block interval and low gas fee. Therefore, the gas consumption for setting multi-signature is minimal, and most cross-Layer 2 transfers are confirmed within 10 seconds. Furthermore, when we set up fund pools in different currencies on the two chains, the cross-chain transfer at an agreed exchange rate is actually a cross-chain swap.
Message relay has always been a key cross-chain problem. Whether in the traditional lock-to-coin bridge or the new liquidity pool, we all need a relay who can continue to stay online. In order to trust this role, we can first expect this role to be a node group that encourages collaboration and decentralization through tokens, similar to Chainlink; the disadvantages of this may lie in inflexibility, low efficiency of decentralized governance, and inability to support long-tail scenarios . The other design is a public protocol similar to Connext and more similar to Uniswap. Users can freely become node operators or liquidity providers; this design is flexible enough to make the liquidity between different chains better match the actual needs. But it is also more unstable. These two solutions have their own advantages and disadvantages and complement each other. We are also looking forward to more and better designs.
A more complex and powerful Ethereum ecosystem
After the high-performance blockchain is compatible with EVM, it quickly replicates the entire ecosystem of Ethereum DeFI: stable currency issuance, swap, lending, asset management…but we think this path is more of a liquidity mining through a new protocol Strategies to guide the migration of liquidity. In fact, not every chain needs to copy the full set of Ethereum applications, which will only aggravate liquidity fragmentation.
We believe that different types of applications will have obvious distribution characteristics in different levels of the multi-chain Ethereum ecosystem:
- Ethereum has become the Hub of the entire network, and the most public infrastructure will be built on it, such as the cross-chain bridge to BTC, the issuance of native stablecoins, and the issuance of ERC-20 assets. When the side chains within the ecosystem hope to obtain these assets, It will first cross-chain assets from Ethereum to it, rather than build a bridge separately; this trend may eliminate other projects that provide cross-chain applications by establishing itself as a Hub, because Ethereum has essentially Became this role.
- In DeFi, projects with a large amount of funds and a lot of smart contracts, especially DeFi projects, may be more inclined to Rollup;
- For end-user-oriented prediction markets, NFTs, and games with small transaction volume, applications that want to reduce user expenditures are more suitable to be deployed on side chains or EVM-compatible public chains;
Within one or two years, terminal applications will be born directly on the outer chain, and long-tail assets will be issued directly on the side chain, and when they are mature enough, they will be reversed across the chain to Ethereum, and then into all other side chains. Mature applications will be deployed on all EVM-compatible blockchains quickly and without preference, trying to capture more value. The entire multi-chain Ethereum ecosystem has sunk into a public cloud with different partitioned computing layers and running unified standard programs.
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