Scaling Ethereum...no longer, can it wait.
It needs to happen, and it needs to happen this year!
Not only for the sake of our crypto wallets due to gas fees, but for the sake of decentralization.
Decentralized needs to show it can compete with centralized, or centralized is going
to take over decentralization.
So are you ready to find your center?
I hope it starts with a D, because it’s time for Chico Crypto!
The base layer of Ethereum is about as decentralized as you get.
In its current form it’s just behind Bitcoin based on hashpower.
But hashpower isn’t everything...Combining the distributed network of proof of work miners,
and the ever growing number of nodes due to proof of stake, ethereum is getting close
to flipping bitcoin in node count…
The switch to proof of stake, is going to be a fateful time in crypto.
It promises to be more secure than proof of work, while providing Ethereum the base layer
in needs for scaling into the future…
Can Ethereum do it, can it scale?
Well we need to start questioning everything, and to begin, we need to look into the past...
Well where do we begin...where Scaling Ethereum started.
With Plasma.
Ethereum Plasma was hailed as THE scaling solution, the one to bring Ethereum to the
next level.
The solution was drafted & proposed by of course the man Vitalik Buterin, but another
character.
Joseph Poon.
Poon, was actually the 1st person to present the solution to the community at large publicly,
in October of 2017
Buttttt Plasma failed, January of 2020 Coindesk put out this article “Did Ethereum Silently
Give Up on Plasma?” with the subheading “Previously touted as the holy grail of
Ethereum scalability, Plasma’s significant weaknesses appear to have made the developers
quietly drop the technology.”
So what was the problem with Plasma?
Well you just need to look at an Ethereum Layer 2 solution, still relying on it to this
day.
OMG network, formerly OmiseGo!
Plasma’s idea was to take the ethereum main chain, as the source of truth.
And create a series of blockchains on top, aka sidechains.
These side chains would execute and store transactions their own transactions, which
were confirmed as truth by the mainchain in the case of a dispute.
This child chain concept, could build on top of itself, and theoretically scale to infinity
using the same concepts.
So what went wrong?
Well with The OMG network, there is an intermediary to the child chain, called the operator.
This is controlled by a single block producing node, which validates all the transactions
on the child chain before submitting them to Ethereum.
A single node.
A single point of failure.
How could you trust this Operator??
Well any funny business was supposed to be stopped by the watchers!
Watchers were nodes, which anyone could operate, they would monitor the Operator and the network
for suspicious activity.
And if they found it, they could submit a “fraud proof” stopping the fraud!
Well, the OMG network went live on the mainnet in June of last year.
And in conjunction with the go live, one of Ethereum’s big gas spenders, and congesters!
Tether, USDT, announced they would be deploying on OMGs childchain.
Tether said in their announcement article “USDt holders will obtain the benefits of
transacting on the OMG Network, which is built to reduce Ethereum congestion and gas fees
with improved transaction speeds.
The integration will result in a reduction of confirmation times delivering faster payments
while fees will be reduced without compromising on-chain security.
The OMG Network will also facilitate USDt deposits and withdrawals at Bitfinex.
This will allow traders to react faster to trading opportunities and take advantage of
arbitrage more efficiently between exchanges as the network grows”
Did this work out?
Did this save Ethereum and gas fees like the news outlets were claiming??
Well let’s just go check out the OMG block explorer today.
Over 24 hours, not a single block was produced.
The last blocks were 6 days ago, and held a total of 4 transactions combined.
OMGs child chain is not being used, whatsoever, and not being utilized at all by bitfinex.
Why?
Something wasn’t right, something was still fully centralized!!
And if you guys didn’t know.
OMG had a full on breakdown, the originals sold off the company, in December, and now
it’s being run by new entities, backed by a VC firm….
The new entities, put out their first developer update in early March of this year and as
we can see, they speak of the child chain v2.
V2?
So obviously v1 had some issues, which they list below like “Improve Chain to Watcher
communications protocol.
The watchers were not working!!!
So now we understand why Plasma, didn’t plan out.
What are the next scaling solutions for Ethereum?
And which are the most decentralized??
Once again there are sidechains.
There are Roll Ups, with 2 main flavors.
Optimism and ZK.
And there are statechannels.
Out of this group, rollups are getting the BIG freaking look!
Rollup is hailed as the solution, until sharding is ready.
But, question everything….I love Ethereum, and I love decentralization.
Are these rollups going to be decentralized?
Well we will find that out soon, but first it’s time for a short sponsored segment
of this video, supported by our friend over at yAXIS.
First, what is yAXIS?
Their goal is to make DeFi easy, through a decentralized application where users can
create a set and forget continually optimizing yield portfolio.
You get the y in yAXIS now?
They are all about making yield returns, easy for the user by finding the best performing
ones for you!
So how does it work?
Well let’s dive into their dapp to understand.
At the overview page, let’s dive into product #1.
The Metavault.
This is their flagship product.
A pooled yield farming portfolio that secures some very attractive returns, as we can see
over 81 percent APR and over 113 percent APY, for a pool that over 186 million TVL in it.
Not bad, and the Meta Vault is simple, you deposit what it wants for the currently best
selected strategy.
In this case it's with Curve finance, and it needs their LP token.
Don’t worry if you don’t have that asset, it can convert from stablecoins within the
app too!
Once deposited, this is when you can see it’s power..it tells you your future balance, if
the returns stay the same.
That 501 bucks we deposited, would grow to over 1200 in the future.
This is in 12 months, but you can change your future scale to 6 months, or even just 1 month.
So how does it perform this high APYs and APRs?
By just accepting deposits of 4 tokens?
USDT, USDC, DAI and the 3CRV LP token?
Well by what they do with the tokens.
The strategies are picked and chosen by strategists.
Their strategies are voted and approved by the DAO, the token holders.
Who can also vote in and out strategists.
Aka the tokens go into other DeFi protocols, where harvest and token rewards are sent right
back up into the flow of funds.
WHich results in higher than normal total yields for the pool as a whole.
Although the vaults are soon moving to v3, a Canonical Vault with delegated strategies.
It's the same concept of v2, but applied to any ERC20 token.
What that means in practice is: BTC, ETH and LINK vaults to begin, more assets to deposit,
more strategies, and a much higher TVL.
The next product with dapp right now, is the staking vault, and this just had a major update.
The governance token YAX migrated with a token swap to yaxis.
From an erc20 to erc677.
So if you haven’t done the swap, do it...link is in the description
Why did they do this?
Well for staking!
You can “transfer and call” in one transaction.
This means you don’t need to first approve, before actually staking.
You can both approve and send tokens in the same transaction...much cheaper gas for the
stakers.
Which a deposit is intriguing, their APR for staking right now is over 383 percent, and
APY is over 4,400 percent!
And just like the metavault, you can see your future returns, even based on different time
frames.
So, the complex taken out of yield farming, while getting those type of returns, link
for the yaxis dapp is below as the dapp has much more coming!
Now back to those Ethereum scaling solutions!
What is the most decentralized and what are the options?
Let’s begin with rollups, as they take many concepts from plasma, but just apply them
in a different and supposedly better way.
Rollups and Plasma are similar in many ways: they both scale Ethereum by moving transactions
off-chain onto a sidechain.
Ethereum mainnet like plasma is the source of truth for the sidechain and maintains proof
of the sidechain state.
The sidechain itself is maintained by users and operators offchain, separate from the
L1 main chain.
This means rollups need a sequencer.
And looking at one of the popular rollup flavors, Optimistic and their architecture...its complex,
but a small piece of it, is the sequencer.
A very important piece….
Which Vitalik spoke of in August of last year.
In a reply to Steven Goldfeder, who is working on another flavor of rollup based on optimism,
arbitrum...Vitalikd said: If you attempt to withdraw, and the sequencer does not accept
your withdrawal, then you have to publish a self-withdrawal to chain, and then wait
a week to get your coins out (which is a liveness failure).
So the sequencer can unilaterally cause liveness failures.
And then the question is, is the sequencer a single party or are they distributed?
Aka decentralized…
That’s the issue with rollups, there may be full liveness failures from bad actors.
That isn’t good with centralized sequencers!
That is why you see a major stop, in bold on optimism’s roadmap is the Decentralized
sequencer!
Which doesn’t have a quarter or date, just maybe sometime in 2022.
The sequencer, who can submit a batch to a rollup, many of the flavors, optimism and
the zks, is still up for debate, how to make it decentralized.
Is there a rollup that isn’t relying on a sequencer?
Well Steven actually said that in reply back to Vitalik.
He said “First can we not assume that all Optimistic Rollup protocols have a sequencer?
Arbitrum doesn’t and we believe it’s a fundamentally bad design.”
But if you go to Offchain Labs documentation, they have a section on sequencer mode and
say “Sequencer mode is an optional feature of Arbitrum chains, which can be turned on
or off for each chain.
On mainnet launch, the flagship chain will use a sequencer that is operated by Offchain
Labs”
Aka Arbitrum, will be centralized by a single sequencer at mainnet launch just like Optimism.
Which they called a fundamentally bad design.
What is going on??
Who is going to release the decentralized sequencer first?
A ZK rollup, we didn’t speak much of, Optimism, or Arbitrum??
Someone else?
I’m questioning all of them, as decentralization calls for it!
Cheers I’ll see you next time!