Synthetix founder: Why did Synthetix choose Optimism expansion plan?


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Author | Kain Warwick

The rise of Defi has sent a clear signal: Ethereum needs to achieve expansion before ETH2.0, but to maintain composability within the DeFi ecosystem, it needs to coordinate on the same expansion plan.

Fortunately, the market is very good at predicting and solving such difficulties. We now have a lot of expansion technologies online. We have had a dialogue with a number of teams of major expansion technology variants, and after evaluating them one by one, I believe Optimistic Ethereum is the most likely to reach a consensus expansion plan in the community.

This article will detail why I believe so, and the community’s worries about the launch of Optimistic Ethereum, I will also respond. It will also give the governance process design needed to implement the Synthetix variant of OVM on the main network, and explain under what circumstances another expansion technology can replace Optimistic Ethereum. This article aims to ensure that community members have the information needed to reach a consensus regarding the migration of Synthetix to Optimistic Ethereum.

[If you haven’t read Vitalik’s article “Rollup-centered Ethereum Roadmap” (), this article focuses on its discussion, but Vitalik’s is top-down, and my article is from the bottom The above, focusing on what DeFi projects need to expand, and why Optimistic Ethereum can meet these requirements. ]

Social consensus

I feel that “constantly making trade-offs” seems to have become my new mantra. But it is right-there is no perfect expansion solution. Each method has its important trade-offs, and the specific implementation of each expansion technology has further low-level trade-offs. All of this is based on a high-risk meta-collaboration mechanism, because it is not enough to choose the right design and trade-offs. We must also optimize the solutions that others are most likely to choose. Therefore, expansion becomes not just a technical problem, it is also a social collaboration game.

When I first read about Optimistic Rollups, our gas fee was not very high. It looks like an elegant solution to technical or social problems, but I have realized that no matter which expansion solution we choose, we need to cooperate with other projects. Uniswap’s Unipig demo gave Optimism a good opportunity to gain community consensus because it cooperated with one of the most well-known projects on Ethereum. Therefore, I chose to participate in this solution, not only to provide feedback to Optimism on how to solve the unique difficulties of DeFi, but also to assist them in guiding social collaboration in the community.


Technical factors

For Synthetix, Justin Moses is both its luck and its curse. He has established a rigorous engineering culture for Synthetix that is not easy to compromise, but his dislike of cognitive load is rare outside the mollusk world. This means that deploying Synthetix to Layer 2 requires a delicate balance between minimizing risks and reducing any changes to the code base. We will never agree to run two parallel and different code bases on Layer 1 and Layer 2 during the migration, because the migration will not even be implemented; and if it means rewriting the contract in another language , It is even more unlikely to happen.

Synthetix is ​​one of the most complex smart contracts built on Ethereum, which undoubtedly increases the difficulty of maintaining different code bases. This is what we first discovered in the failed attempt to port Havven network to EOS.

We also need to prove to the community that this technology is feasible and worthy of our further investment of resources, and then try to build a consensus around it as our expansion plan. The OVM transaction demonstration also helps to strengthen this. But there are still community members who are worried about this method, so even if the community consensus has been very obviously biased towards Optimistic Ethereum, we have not yet reached the point where it can be tested with SIP.

But before I start discussing the specific trade-offs, I would like to provide an overview of the existing expansion directions used to execute smart contracts:

  • Fast blockchain, the “Ethereum Killer”, other Layer 1 architecture, very fast blockchain

  • ETH 2.0, see you in 2032 (just kidding)

  • Status/payment channel, that is, “you can send tokens, what else do you want?”

  • Side chain, the xDAI set

  • Plasma, represented by Omisego, is also called “Late but Arrived”

  • Use zero-knowledge ZKrollup and other solutions, that is whether you really love solidity.

  • Optimistic EthereumOptimistic Rollup, high-energy warning

  • Lightning, smile without speaking

If there are other solutions that I have missed, I am sorry, and I look forward to seeing them on twitter.

Due to the need to maintain the same code base during the migration phase, most of the above solutions were eliminated. Of course, many solutions claim to be compatible with EVM, but this is not as simple as it sounds-although Optimism breaks through this limitation, a small amount of contract modification is required. But based on this we can quickly rule out these solutions: fast blockchain, ZKrollups, Lightning, state channels, and Plasma. Even if ZKrollup makes rapid progress, all current variants require a new language to rewrite the contract. This is not insurmountable, but the tools of these languages ​​are still very immature, which will greatly increase the risk of implementation.

There may be some fast blockchain supporters who will be emotional when reading this article. It is true that some of these projects are EVM compatible and allow solidity contracts to be deployed on them, but most of them have other problems that make us feel that they will be weakened. The feasibility. Including those very novel consensus mechanisms that have not been repeatedly tested to prove their feasibility, or their security is greatly compromised.

Currently, universal computing is the second difficult requirement for state/payment channels and Plasma.

Then only side chains and Optimistic Rollup are left. We have excluded side chains like xDAI because we need to provide protection for assets worth hundreds of millions of dollars, which will be increased by several orders of magnitude in the future. If you have objections, feel free to break your head with me

After reading all the options, we feel that the trade-off presented by Optimistic Ethereum is the best, and their team is also very capable of executing their roadmap.

Optimism in stages

Obviously, Optimistic Ethereum has not been launched yet, so there is still a significant execution risk, which is why I have not submitted the SIP to shut down Synthetix on Layer 1. However, in the above options, combined with the trade-offs and risks, we believe that Optimism proves that it is not only worthy of Synthetix’s investment in migration, but also to bring other DeFi projects to participate. This is why I decided that we need to take advantage of our position as one of the oldest DeFi protocols and take the risk of early implementation. I know this will help build consensus in the community. So far, the general acceptance of the community is high, and no one has objected to the allocation of resources to Optimistic Ethereum.

However, as we get closer to a possible mainnet migration, we have raised three major concerns.

1) Fraud proof

2) Centralization

3) Withdrawal delay

The most critical technical problem is the transformation of fraud status. Some people say that the current implementation stage does not include fraud proofs. In fact, fraud proofs are included, but automated fraud submissions are not yet supported. The Optimism team chose a phased sequential approach to test specific functions like deposits and withdrawals before adding complexity. However, this can be stated in the testnet roadmap to avoid user confusion. Although before the mainnet goes live, the function of automatically submitting fraud proof will be launched. Incomplete fraud proof function

In the case of, it is obvious that there will be no funds on the mainnet that can be deposited into the Optimistic Ethereum network. Personally, I will vote against any SIP that proposes to migrate to a low-security network, and I encourage everyone in the community to do the same. This is also one of the reasons why xDAI and other POA (Proof of Authority) networks are considered unavailable, namely low security.

Another major concern is that Optimistic Ethereum appears to be decentralized, but it has a centralized part. I believe this view is misguided, but it certainly makes sense. In the past few years, the community has invested a lot of time and resources to improve the degree of decentralization of the protocol, and now it would be a bad trade-off to go back for gas fees and throughput. But this is not the case. The sequencer greatly improves the user experience with the least sacrifice.

These worries stem from people’s misunderstanding of the sorters in the Optimistic Ethereum network. Everyone needs to know that the sorter does not have to access Optimistic Ethereum, it exists to improve the user experience. Many people think that a sequencer means a single point of failure. This situation is not ideal, but in fact this kind of failure has long existed in L1’s bad UX. Of course, the block time for returning to Layer 1 is not ideal, but there are many potential solutions, including if the active sequencer fails or is attacked, the backup sequencer can replace it. All these worries are only temporary, because the goal is always to transfer to a network of sorters as soon as possible.

The last major worry is the impact of withdrawal delays on cross-layer composability-this worry will be faced by all expansion plans except for other Layer 1 architectures. These delays mean that during the challenge period, funds will be locked in the Layer 2 network, but there are still several flexible ways to deal with it. One is to build a network of validators to provide funds for both sides of the bridge and assume the risk of providing timely withdrawals to earn fees. In fact, Connext has already started work in this area, here are more details. This does not completely solve the problem of composability, because funds still need to be confirmed on the mainnet before another transaction can be initiated, but this is basically essential for all expansion plans, and we cannot escape. This is why I believe that all major DeFi protocols should have their parallel versions online on Optimistic Ethereum as soon as possible. This will cause almost all current DeFi transactions to occur on Layer 2. It is very likely that the pledge will be completely migrated to Layer 2, and the transaction contract will continue to run in parallel on Layer 1 and Layer 2.

What needs to be clear is that before the SIP “Start Optimistic Ethereum Mainnet Migration” is proposed, all information about the fully functional mainnet needs to be made public. I am personally confident that this condition will be met in the next few months.

After the mainnet migration

How Synthetix should migrate to Optimistic Ethereum still needs to be debated in the community. First, we must reach a consensus on whether there is a need for a parallel and limited version of the network to be released on the Layer 2 mainnet. Once we reach a consensus here, we need to evaluate the results of this mainnet release and formalize the rest of the migration.

Although Synthetix’s DAO is likely to provide funding in the first few weeks after the mainnet migration, we will need a SIP proposal to allocate 1% of the final agreement reward to Optimistic Ethereum. If we distribute part of the agreement rewards to this parallel network, we can monitor adoption and enable the market to price migration risks. It is expected that the revenue will be lower than in Optimistic Ethereum due to the reduced gas fee, but it is also possible that platform risks will lead to higher revenue, because most SNX holders will choose to migrate later.

My opinion is that the SNX minting sUSD on Optimistic Ethereum is not much different from the current SNX minting sUSD escrow. We decided to allow sUSD to be minted through managed SNX to maximize the value of available collateral. For those SNX that have been migrated to Layer 2, if you want to move them back to a certain point, this is achievable, which means that these SNX will be regarded as valid collateral in the network, but it is related to the SNX status on Layer 1. different. Therefore, the sUSD minted on Layer 2 and the sUSD on Layer 1 should be interchangeable. Of course there are objections to this, and the reasons include that this implementation will be very complicated. We must adopt the most reasonable method for the entire community.

If this migration is effective, we will have a very powerful lever to affect the other parts of the migration: we only need to continue to transfer a larger percentage of inflation rewards until all are sent to Layer 2 and all active, pledged SNX It all happened on Layer 2. At that time, of course we need to support the exchange of Synth on Layer1 and Layer2. Therefore, there are a large number of interrelated dependencies that need to be dealt with in this process.

I have publicly stated that I believe Optimistic Ethereum will be the way out for DeFi between now and the launch of Eth2.0. If everyone else in the Synthetix community believes so, we need to plan how to join this network and migrate completely from Layer 1. Of course we should be cautious, but the Warriors of Synthetix have never backed down in an uncertain bet. I believe this is one of our biggest challenges.

In order to perform this work, we will need a series of SIPs and SCCPs, listing the proposed changes in each release and the reasons behind them. This will ensure maximum transparency and the consent of all token holders.

Backup plan

Generally speaking, the expansion of Ethereum and the competition of smart contract platforms are multi-billion-dollar undertakings. In this high-stakes game, there are a lot of competing teams, so although we have confidence in Optimism, there may be other teams that offer better solutions than them. If this happens, we must be prepared to transfer our work center to this more competitive technology, especially if we find that multiple DeFi projects have achieved social consensus and decide to switch from Optimistic Ethereum To another program.

We must prepare for the worst case scenario, that is, the release of Optimistic Ethereum has failed or aborted. In this case, we must quickly transfer resources to carefully research other solutions, while optimizing the existing Layer 1 system. In fact, we have already begun preparations for emergency situations. Debt snapshot The rapid implementation of SIP is an example of optimization. This optimization has been shelved for many months, but in order to solve the urgent gas problem on Layer 1, we accelerated this implementation. Fortunately, we got a temporary relief, but it cannot last long. If for any reason we cannot reach a consensus on migrating to Optimistic Ethereum, I think our community must gather together to select another expansion plan and unite to advance it. Although I think it is unlikely, it would be too light to pretend it is impossible.

in conclusion

This article aims to answer some questions raised by the community, but at the same time hope to explain how we got here and what stage we are in during the entire migration process. Nothing is unchangeable, even a SIP that has been passed and implemented may be rolled back due to changes in circumstances. However, I firmly believe that if we reach a consensus on SIP and hope to build the most feasible network for DeFi expansion, the entire community needs to do its best to promote it. I am confident that our community can achieve this. We are stronger than ever and look forward to 2021, which of course includes Synthetix being able to run on a fully functional Optimistic Ethereum mainnet.

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