Weekly Rollup #14

Neutron is First to Adopt ICS | How bad are rollup multi-sigs? | How decentralized should sequencers be? | Chart of the Week | Week ending May 12th

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May 16, 2023

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This week’s issue covers:

📣 News & Announcements

Neutron is First to Adopt ICS

This past week, Neutron became the first chain to adopt interchain security, becoming the first Cosmos Hub consumer chain.

What is Replicated Security

As many of you may already know, Cosmos is an ecosystem of appchains (sovereign L1 chains). The first appchain to launch in this ecosystem was the Cosmos Hub.

Although lately the Cosmos Hub has been met with tons of skepticism due to its lack of growth and development, the recently published ATOM v2 paper, which focused on the growth of the Hub specifically, now introduced a new roadmap for the hub, listing different ways in which the Hub will grow the interchain ecosystem. One new mechanism outlined in this paper was “replicated security”, whereby the hub would essentially loan its security (The Hub’s ATOM stake & validator set) to other appchains.

As you may already know, the Cosmos Hub is secured by ATOM tokens that are staked onto the Hub by validators and delegators. Validators are those who are actually running the software nodes on their computer in order to help keep the chain running. Validators are chosen based on the amount of stake, meaning that in order to become a validator, your stake must be among the top 175 highest (today, there are 175 Hub validators). Those who may not have enough ATOM, or those of us who just don’t want to keep a node running 24/7 can simply delegate our tokens to a chosen validator. This way, we are still able to benefit from ATOM block rewards, without having to run a node ourselves.

Ultimately, the more ATOM that is staked on the network, the higher the security. This is because the Hub operates under a Tendermint consensus model, whereby a malicious actor would need to control 2/3 of the Hub’s stake in order to take control of the network. The higher the stake, the more money you would need.

Replicated security distributes involves two parties:

the provider chain (Cosmos Hub): the hub provides its 175 Cosmos Hub validators, along with the 190M $ATOM staked on the hub, to other appchains
the consumer chain (Neutron in this case): the appchain adopting replicated security from the provider chain

Before ICS

Typically, an appchain would need to bootstrap its own security by spinning up its validator set, which is very hard to do.

One reason why it’s so hard to do is because it requires a lot of incentivizing. Running a validator can become quite costly, which is why chains typically pay their validators with block rewards, fees, and other mechanisms. Essentially, you need to make sure you’re making more from rewards than you’re paying to keep your validator running 24/7. At the same time, you want to make sure the network is decentralized enough to be considered secure. In other words, you want to spread the validator set across as many people as possible, from as many different geolocations as possible. So, you can see how bootstrapping your own security is quite difficult, not only to reach, but to maintain as well.

With ICS, appchain deployment can be done far more quickly, as you wouldn’t have to worry about security at all. Rather, you’ll borrow the validators set and all that staked ATOM from the Hub for your own network.

Why would a validator want to opt into ICS?

So why would a Cosmos Hub validator want to contribute to the security of Neutron’s chain (or any other future consumer chain that adopts ICS)?

Because of the basket of rewards.

Originally, validators were only earning ATOM block rewards, but now, validators can be rewarded by not only ATOM, but with Neutron and any other future consumer chain token.

Also, here in Neutron’s case, the bottom 5% of Hub validators would not be required to run extra infrastructure, however, they’ll still be able to earn NTRN rewards. As mentioned earlier, running an extra node for a new consumer chain can become expensive, so this is a way to help those bottom 5% of validators who may not be earning enough through block rewards.

How do you join ICS

In order to adopt replicated security from the hub, your chain must go through Cosmos Hub governance.

Essentially, the consumer chain has to come up with a proposal that outlines what the project is, how it would benefit the Hub (don’t want to waste the Hub’s resources on just any chain), and how you would pay for the Hub security (how will you incentivize the validators?).

In Neutron’s case, they decided that 25% of their network’s transaction fees, along with 25% of MEV captured revenue, will flow back to the Hub. Aside from this, 7% (70M NTRN) of their total token supply will be airdropped to ATOM stakers (this of course includes validators).

What is Neutron

Neutron is a permissionless CosmWasm-based, smart contract platform that was developed by the same team (P2P Validator team) that developed Lido, the biggest liquid staking protocol in the space. Just as Lido branched out into its own independent company, so too will Neutron. This means that the growth of Neutron will depend on the NTRN token holders.

I think this is a great first addition to the Hub, as it will provide an environment for teams to permissionlessly deploy their smart contracts on top of, ultimately. This means that we may finally see the Hub ecosystem start to grow, which is something many have been waiting a long time for.

Although Neutron will mainly focus on expanding the defi landscape for the Hub, there will be several types of projects that will launch on the network, including defi, NFTs, DAO tooling, and other infrastructure solutions. Some of the projects that have already been confirmed to launch on neutron include:

DEXs: Astroport (will be the flagship DEX for Neutron), and Cosmoswap Osmosis outpost - (Osmosis with a different front-end): users can tap into Osmosis liquidity without leaving Neutron
Lending: Umee, Mars
Skip protocol: MEV
Nolus: defi money market
Kado Money: onramp
Stargaze outpost: NFT marketplace
Gitcoin is also rumored to deploy on Neutron
& of course, I would expect Lido to deploy here as well

So if Neutron won’t be using its own token for security, then what use case will the token have?

All 1B NTRN tokens have already been minted and distributed. That said, over 50% went to the Neutron DAO, where they will decide on how to use the tokens (grants, partnerships, incentives, etc.).

According to the team, the main use case for NTRN is governance. Users must bond tokens within a 1 of 2 vaults in order to obtain voting power.

NTRN only vault: 1 NTRN = 1 vote
LP Token Vault: NTRN-ATOM and NTRN-USDC pairs

NTRN will also have a deflationary aspect, as NTRN tokens used for gas will get burned (after the 25% is paid out to validators). We should note that users will be able to use either NTRN, ATOM, or USDC for gas.

Recent Neutron developments

Just yesterday, Neutron announced that Catalyst will be integrated into the smart contract platform. This means that protocols that deploy on top of Neutron, will have immediate access to other Catalyst-connected networks. We spoke about Catalyst in greater detail last week in case you’re interested.

What’s Next

Now that Neutron is live and producing blocks, we should be expecting the Hub’s defi (and just general) app ecosystem to start growing, which means added utility to the ATOM token.

In terms of other consumer chains, we should be expecting Stride to be the second chain to adopt ICS. The difference here is that while Neutron was a new chain entirely, Stride will be the first time we see an already live project switch to adopt ICS.

It’s exciting times now for the Cosmos Hub, and we look forward to watching the ecosystem grow over time.

More News & Announcements

Worldcoin will be launching on Optimism’s superchain (a mesh network of L2s, including Base, Optimism, and others).
Altlayer implements fraud proofs on testnet, allowing its rollup ecosystem to start implementing them through the RaaS provider.
B-Harvest deployed the first rollup explorer for the Celestia ecosystem. Visit the site to check out metrics like total app chains, rollup transactions, latest blocks, and more.
Delphi Digital posted a chart showing that the TVL of Arbitrum and Optimism L2 networks surpassed 11% of Ethereum’s TVL value.
Looks like Stride will be the second chain to adopt interchain security, as Cosmos Hub governance just approved their application, along with having support from both the STRD & ATOM stakers (social consensus). It’s now up for the two chains to actually start voting. If the proposal reaches enough votes, we should expect the process to “be completed sometime in June”.
Duality, a “user-centric decentralized exchange”, is expected to become the third chain to adopt ICS, following Neutron and Stride.
For any meetup organizers out there, Celestia just announced the Modular Meetup Program, “aimed at creating grassroots communities around the world to gather and discuss all things modular blockchains” - you already know Modular Media signed up ;)
Omni Network presented its solution to the StarkNet community during a recent twitter space. You can catch a summary of that episode here, and learn “how StarkNet will leverage Omni to pull in more liquidity while retaining the performance advantages of Cairo”.
The Eclipse team just posted a new Gitbook release. “Access demos, case studies, FAQs, VM documentation, tooling, and more”.
Taiko (zkEVM) just launched a community forum, allowing the Taiko community to start helping shape the future of the network. There are several posts already live on the forum, including the first post, which pertains to prover rewards.
Taiko released ZK-Roller-Coaster #4 (a recap of the latest zk news/updates), this week including an article on PBS, and more.
Aztec Network “has officially sponsored the Huff language (assembly language for the EVM founded by Zac Williamson, one of the Aztec founders) ecosystem with a RPGF grant”.
BitDAO (development team behind Mantle) and Mantle (Ethereum L2) have introduced a new proposal, highlighting “several pivotal changes” in branding, token, and tokenomics.
UnitBox, a collateral-free NFT rental protocol, announced that it will integrate its rent-2-earn services into the Mantle ecosystem.
Fuelet Wallet (Fuel’s ecosystem wallet), just dropped its wallet app for download on iOS & Chrome (public beta). You can earn a “special testnet NFT” by being among the first to test the app.
Unifra Network, an L2 infrastructure platform, launched the first community block explorer for the Scroll L2 network (zkEVM).
Vendor Finance v2 has just been deployed on Arbitrum. Some of the new features include new UI, a new contract structure, and new branding.
Arbitrum One & Nova have been integrated into the Particle Network wallet, allowing the Arbitrum networks to start leveraging Particle’s wallet-as-a-service infra.
Prime Protocol, a cross-chain prime brokerage that allows users to borrow against the value of their entire portfolio of assets, officially launches on mainnet, beginning with support for Arbitrum, Avalanche, Moonbeam and Ethereum.
Manta Network to Enable On-chain Private Identity in Arbitrum Ecosystem”: ********
Here is a list of the different web3 wallets that have already integrated zkSync Era (zkEVM).
Artemis has now integrated zkSync Era into its analytics dashboard, allowing the community to start tracking different metrics across the L2 network.
Starknet Summit is happening on August 31st in San Francisco.
Alchemy launches on StarkNet, allowing devs to start building their dapps using Alchemy’s developer platform and web3 APIs.
Madara, a Rust-based sequencer for the StarkNet ecosystem, just published its docs - wen StarkNet appchains?
Kakarot, a team bringing zkEVM to StarkNet, just published an article going over “how Kakarot zkEVM started, where we're at right now, and our vision y'all“
Starklane NFT Bridge: ****Screenshot Labs just posted this proposal on the StarkNet forum for an NFT bridge between the Ethereum L1 and StarkNet (L2).
“Presenting the Polygon Solution Provider Network (SPN) - a discovery and engagement tool that aims to help bring developers and solution providers (SPs) together. Discover SPs on Polygon zkEVM that fit your dApp’s use cases, read about tooling offerings, find dev documentation & connect directly: all from one place.”
“Here's your weekly round-up of the latest happening in the ecosystem of collaborators that are building, using Polygon ID’s Identity Infrastructure tools:”
Introducing World App, the first WorldCoin Wallet: “use it to prove personhood w/ World ID, claim Worldcoin where available & send digital money anywhere for free”. You can learn more about it through this recent Twitter Space event.
zkSync will be contributing to the LongHash Accelerator Program, by offering its mentorship and more for the zk-builders.
zkSync Era (zkEVM) and Polygon zkEVM both deployed during Q1, and so far, Era is by far leading in terms of TVL. That said, zkSync still doesn’t have a token, so could this just be a result of airdrop farming?

📚 Discourse & Education

How bad are rollup multi-sigs?

Anatoly from Solana claims it is likely “impossible and irresponsible” to get rid of of rollup multi-sigs. Is this true and what are the implications?

“Rollup multi-sigs” refer to multi-signature wallets that are able to upgrade rollups. Here’s a made up (but unfortunately realistic) example to make this clear:

Rollup A has smart contracts on Ethereum L1 (clearly we are referring to smart contract rollups, not sovereign rollups)
Three members of the rollup team can upgrade the smart contracts via multi-sig wallet, thus upgrading the rollup
There is $1bn of TVL in the rollup
Even if it’s a mature ZK rollup with a decentralized sequencer set, the three rollup team members can steal your funds

It is probably clear why this is bad. It’s like buying a fancy home security system and then leaving the backdoor wide open.

The question is - can we solve this problem?

Yes and no. It’s better to think about a design space, where different rollups will pick different tradeoffs based on their needs. It is quite possible that simple rollup protocols do become immutable given enough time to mature (similar to mature smart contracts like Uniswap, but let’s assume multi-sigs are here to stay. There are still many aspects of the design space to consider:

Decentralize signers. Multi-sigs are improving (e.g. account abstraction. MPC) and it’s possible to find creative ways to diversify the signer base. You can imagine different types of upgrades requiring different signing criteria - some changes require smaller groups of signers (e.g. team) and other changes require larger groups of signers (e.g. DAO).
Time delays. Rollup smart contracts can be upgraded with some latency to give users a chance to exit and withdraw funds to the L1. You can imagine typical (e.g. time delay is three weeks after rollup team signs upgrade) and atypical flavors of this.
L2 native assets are safe. If you are using smart contracts and assets native to the rollup, and are not relying on the L1 for bridging to other chains, your assets are not at risk when the L1 smart contracts are corrupted. L2 rollup nodes are the maintain the ledger where those assets live, so they can’t be fooled.

Time will tell which designs catch on.

How decentralized should sequencers be?

DinoEggs here 👋 I pose a question around sequencer decentralization to see how people are thinking about it. My question was about the number of sequencer nodes needed for different use cases, but to be clear, the number of nodes is not a sufficient measure by itself. You don’t have a decentralized sequencer set if your rollup team is running 1000 nodes - but whatever - wanted a proxy and easy conversation starter.

Here are some of the responses:

The responses clearly varied, but not as much as I expected. Sentiment hovered around dozens to hundreds of independent nodes / entities. Less for permissioned cases and more for cases that need greater censorship resistance. What’s interesting is that this node range maps to basically all Cosmos L1 chains, so we could very well see Tendermint being used as the leader selection / consensus mechanism for rollups.

More Discourse & Education

@seunlanlege explores a SNARK based scheme for verifying the Ethereum's Casper FFG consensus proofs ✍️🧠
@musalbas explores how DA layers like Celestia can support ZK rollup L2s (become settlement layers) without enshrining a smart contract environment ✍️🤯
Bankless discusses MEV burn with Justin and Dom from the Ethereum Foundation 🎙️🔥
@cooper_kunz explains the sequencer’s role in Aztec, describing the requirements for sequencer decentralization and requesting proposals from builders everywhere ✍️👀
Radius explains the value of shared sequencers and the Radius “Trustless Shared Sequencer”, covering “Practical Verifiable Delay Encryption” and their roadmap ✍️💬
Bell Curve discusses “MEV in the Cosmos” with Barry from Skip Protocol and Henry from Penumbra 🎙️🧠
0xResearch discusses Solana as a rollup, parallel execution, DA layer optionality and more with Neel from Eclipse 🎙️🔥
@ShivanshuMadan unpacks shared sequencers and the lifecycle of rollup transactions, including very helpful graphics 💬💎
Logan Jastremski discusses end user verification, cross-rollup transactions and reducing platform risk with Cem from Sovereign Labs 🎙️💎
@Louissongyz breaks down WASM and the benefits of zkWASM 💬
@edatweets_ explores restaking and how EigenLayer expands the Ethereum ecosystem ✍️
@bastian_wetzel breaks down ZKML use cases (e.g. model validity, privacy) and projects exploring the space ✍️
RISC Zero explains the difference between zkEVMs and zkVMs ✍️
Polygon discusses “Ethereum and DeFi beyond the EVM” with Bobbin from Polygon Miden 🎙️
Polygon discusses “How Saga makes it easier for developers in web3” with Rebecca from Saga 🎙️
@nickwh8te explains the difference between data availability and data storage via useful food analogies 💬
Connext breaks down slashing mechanisms, how EigenLayer improves them and how they can be used for optimistic bridging ✍️
Zero Knowledge Podcast discusses building in public with Sandy and Ye from Scroll 🎙️
Omni explains how restaking enables them to provide secure, cross-rollup communication across the Ethereum ecosystem ✍️
Avail breaks down the types of blockchain participants and evolution of light clients ✍️
@apolynya explains that it’d be extremely hard for someone to attack optimistic rollups by spamming Ethereum L1 💬
@nickwh8te highlights how light nodes will eventually be built into browser wallets and phone apps, making it effortless for users to interact with blockchains in trust-minimized ways 💬⭐️
Mantle discusses the optimization of brand, token and tokenomics 🎙️

Chart of the Week

We want to introduce a new weekly addition to the newsletter - the chart(s) of the week!

What better way to start this new series than with these great charts provided by James Ho, which look into the annualized revenue of Arbitrum and Optimism (Ethereum L2 networks), while also comparing margins before and after EIP-4844:

Before looking at the charts, it may be important to (very) quickly recap what EIP-4844 is. For anyone unaware, EIP-4844 involves the reduction in data costs (proto-danksharding).

How does this impact rollups?

Smart contract rollups like Arbitrum and Optimism are off-chain scaling solutions that provide faster computation and lower fees for users, while still preserving Ethereum’s security.

In order to help ensure this security, these rollups have to publish transaction data back to the L1 (Ethereum). Posting this data is the major contributor to gas costs.

EIP-4844 reduces this data cost.

So the argument is that before EIP-4844, Arbitrum, and Optimism are only taking in about 30-40% in margins (after paying Ethereum).

After EIP-4844, margins are expected to go to about 90-95% - that’s how big of an impact EIP-4844 will have on rollups.

Initially, one of the criticisms people had about rollups was about whether or not they would be able to accrue revenue. Why? Because many thought that because smart contract rollups like Arbitrum and Optimism would have to ultimately settle on Ethereum, Ethereum would be the network generating all the revenue.

However, James points out that now, the question becomes when that value would be directed toward the L2 token (ARB & OP):