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Layer 2 DAO: MetisDAO research report

Since mature DeFi projects such as Uniswap attracted a lot of capital, DeFi ecosystem has flourished and ethereum network congestion has become increasingly serious. Although the Ethereum beacon chain was launched on December 1, 2020, there is still a long way to go before ethereum 2.0 is truly realized. In the short term, the market demand for ethereum capacity expansion surges, and the two-layer capacity expansion scheme Rollup is also selected by Vitalik as the most promising expansion scheme in the market.


1. Layer 2

1.1 Layer 2 Solution

In a blockchain ecosystem, there are generally two ways to expand capacity.

· Layer 1: Make the blockchain itself more transactional -- make blocks bigger (each block contains more transactions). But the challenge with this approach is that larger blocks are harder to verify and may increase centralization. To avoid this risk, developers can improve the efficiency of client software or use techniques such as sharding, which allows the work of verifying transactions to be "sliced" and distributed to different nodes; That's what ETH2.0 is doing.

· Layer 2: Change the way users interact with blockchain. Instead of directly placing all transaction activity on the blockchain (on the chain), the user performs most of the activity (off the chain) in the "Layer 2" protocol. There is a smart contract on the chain that performs two key tasks: processing the inflow (Deposits) and outflow (Withdrawals) contracts of assets, and verifying that all transactions occurring below the chain comply with pre-set rules. There are many ways to verify off-chain transactions, but they all have one thing in common: off-chain authentication is much cheaper than on-chain authentication.

The most essential service Layer 2 provides is linking applications to Layer 1. Layer 2 serves as its middle Layer, allowing complex DeFi applications to interact with the smart contract at the bottom of the Layer 1 main chain through calculation and storage at Layer 2 and final transaction status, ensuring a degree of decentralization.

Therefore, the core market demand of Layer 2 has two aspects: the first is the demand for the underlying public chain network; The second is whether there is demand for DeFi applications. From the perspective of application developers, Layer 2 needs to solve its development cost from two aspects. The first is to reduce the cost of network use, because the operation of Layer 2 network also needs to pay fees as an incentive. If the cost of network use of Layer 2 exceeds the cost of the original main chain, there will be no project use. The second is to reduce the difficulty of development, especially in the current Ethereum network Layer 1 has a large number of mature applications in operation, if Layer 2 requires developers to re-use the new environment for development, Layer 2 will also be hindered to attract projects.

2. Market progress

"As of the end of q1 2021, the Ethereum Layer 2 ecosystem is moving rapidly.

The Layer 2 market has made significant progress by the end of March 2021. Its technical schemes can be roughly divided into: state channel, side chain, Plasma and Rollup.

Matters Lab, which uses ZK-Rollup, plans to launch the 2.0 open testnet in May; Hermez Network has been officially launched; Aztec, the ethereum privacy technology solution, has officially launched version 2.0 on the Ethereum main network and has enabled the privacy Rollup service for ETH. In addition, Aztec is rolling out Aztec Version 2.1, which will introduce new assets like WBTC, BAT, AAVE, DAI to Rollup in the coming weeks.

In the project that adopts sanguis-rollup, Offchain Labs will give up the patent. Arbitrum has also released the fourth test network version, which will also be used as the candidate version of the main network; However, Optimism, which launched in March, is expected to be delayed until July, with star projects such as Synthetix and Uniswap V3. Polygon (formerly Matic Network), which uses the Plasma framework, has also won Aave's favor.

Optimis-rollup's hard fork, MetisDAO, also closed a $1 million angel and seed round in March and an NFT aircast on April 28.

Celer Network, based on State Channel technology, has deployed its DeFi expansion solution, Layer2.Finance test Network, to Ropsten, an Ethereum test Network, and has also launched a test competition.

Hop Protocol, the money transfer app between rollups, is being audited and is expected to go live on the main network in April. At that time, layer 2 schemes such as Optimism, xDai, Polygon and Arbitrum will be supported. Another cross-rollup transfer application, Connext (based on state channels) has launched a beta version of the XDAI-Polygon Bridge, which allows users to convert xDai to Dai on Polygon.

3. Project introduction

Metis is a Layer 2 expansion protocol that adopts Optimistic Rollup in Rollup, which is currently popular in the community. In addition, Metis adds DAO governance, Ranger, storage layer and other modules on top of the basic design. Metis also developed the business concept of decentralized autonomous corporations (DAC).

3.1 Rollup - Better Layer 2 solution at this stage

There are generally two Rollup schemes, namely Optimistic Rollup and ZK-rollup.

Optimistic Rollups, using Fraud Proofs: Rollup contracts track all history of the state roots and hash summaries of each package deal. If anyone spotted a problem in a batch of packaged transactions that resulted in the wrong status root, the user could expose it by submitting proof up the chain. The Rollup contract verifies the proof and, if confirmed, rolls back the transaction for that batch and all subsequent transactions for that batch. (Post-verification, rollback changes if errors occur)

Typical projects using OR technology: Arbitrum, Optimistic Ethereum

ZK Rollups, Validity Proofs: Each batch transaction contains an encrypted proof called ZK-snark (e.g., produced using the PLONK protocol), which Proofs that the state root is the correct result of executing the new packaged transaction. This is a very fast way to validate on the chain, no matter how computationally intensive. (Verify in advance to ensure that the recorded information is correct)

Typical projects using ZK Rollup are: zkSync (Matter Labs), StarkWare

Most rollups support The Ethereum Virtual Machine (EVM), so it is relatively easy for developers to migrate protocols already deployed in the Ethereum network to these different rollups. Ethereum founder Vitalik believes the EVM ecosystem is a big advantage, with lots of contracts and code, so for more complex DeFi tools, or existing Ethereum applications, the use of virtual machines can significantly reduce their development costs. At the same time, Rollup has a security advantage over new public or side chains because it is more closely tied to and dependent on the Ethereum network.

For users, zkRollup does not need to have a challenge period, so it does not need to wait 7 days like Optimistic Rollup when withdrawing money, so the user experience will be better. However, for the problem of long withdrawal time, the project side will generally provide an indirect solution: to help users bear the 7-day waiting time in the form of LP capital pool, and users can timely withdraw money when they find LP.

Of course, different Rollup schemes have their advantages and disadvantages. For example, in Optimistic, it takes a long time to withdraw money from Layer 2 and return to Layer 1. Zk-rollup requires a large amount of calculation and so on. Metis adopts Optimistic approach and tries to solve the problem of long withdrawal time by adding Ranger. At the same time, a separate method of computing Layer and storage is used to provide data services for Layer 2, but in fact, there are no details to solve the problem of data availability at Layer 1.

3.2 Metis Optimistic Rollup

System architecture for Metis, source: Metis White Paper

Sequencer is responsible for the connection between Layer 2 and Layer 1 (through the Rollup contract of Layer 1). The storage layer provides data services for Metis VMS (MVMs). MVMs executes specific Layer 2 logic; The Rangers are responsible for randomly verifying the correctness of the data, checking it at Layer2 (trying to resolve Layer1's acceptance of the correctness of the data to Layer2, and quickly extracting assets from Layer2).

3.3 Ranger

Optimistic Rollup's mechanism determines that Layer 1 defaults/assumes that the transaction uploaded to the Rollup contract by Layer 2 is trustworthy. Unless challenged by anyone and evidence of a wrong transaction is found, Layer 1 will process and verify the previously trusted transactions so that they reach consensus at Layer 1.

If the transaction uploaded to the Rollup contract (i.e., Layer 1) is not adjusted within a certain period of time, the progressive transaction will be determined, gradually reaching the probabilistic Finality of the transaction. In current Optimistic Rollup, the time to accept this challenge is usually 1-2 weeks, which leads to a 1-2 week waiting period for a coin withdrawal (or remittance of money from Layer 2) at Layer 2. In addition to the LP solution mentioned above, Metis devised a more direct approach.

3.4 More credible "optimistic" Rollup

Metis addressed this problem by adding the Ranger role to Layer 2. Ranger's job itself is to validate transactions locally at Layer 2. Essentially what Metis is trying to solve is to speed up the confirmation of the finality of the transaction and shorten the waiting time for assets to be extracted from Layer 2.

The "optimistic" Rollup assumes that the transaction uploaded to Layer1 is reliable, but it takes a long time to "make sure" that the transaction is ok. The implication of Metis' design is that it is not enough to assume only "optimism" and that there are no problems with the trade. Thus increasing the role of Ranger, in addition to hypothesis, but also increasing the verification component in. In theory, therefore, transactions uploaded to Layer 1 in Metis are more reliable, thus reducing the wait time required to extract assets from Layer 2 to some extent.

Mechanistically Metis can achieve its objectives, but the specific Ranger configuration, and the actual reduction in asset extraction time, is unknown. In practical application, a large number of tests may be required, involving many parameters. For example, the number of Ranger, the degree of decentralization, the frequency of random review transactions, the type of Layer 2 transactions and the amount of money involved all have an impact on the final transaction reaching the probability of finality.

It is worth noting that both the original Optimistic Rollup and Metis' improved Rollup are probabilistically final for transaction confirmation at Layer 2. The probability has the greatest relationship with the transaction experience time (essentially Block time), so if you want to ensure that the transaction is ok, the longer the waiting time, the higher the probability.

TokenInsight made a simple comparison of Rollup of the three different schemes. Since Metis is improved in Optimistic Rollup, it has similar technical features. The biggest difference is the introduction of Ranger and IPFS.

Comparison of three rollups, source: Metis, TokenInsight

4. DAO infrastructure

"In contrast to the more mature DAO infrastructure protocols, Aragon and MolochDAO, MetisDAO was in its early stages of development and focused on the concept of 'personal-centric'

As a decentralized autonomous Organization (DAO) protocol, MetisDAO is positioned as an infrastructure to support decentralized enterprise operations and collaboration, providing tools for decentralized management. Current mature projects that also serve as DAO infrastructure include Aragon and MolochDAO.

Aragon is positioned as an agreement empowering the global community in a broad sense. Its practical application mainly includes the use of funds and on-chain governance of decentralized communities. MolochDAO was initially positioned to fund projects on Ethereum, but has since evolved to empower a broader decentralized community by providing usable DAO governance components and frameworks, with version V2 operating under the DAOHaus protocol.

In contrast, MetisDAO is positioned to target individual businesses in the Web3.0 economy, providing credit to each individual user who participates

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