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Speed Matters!

Speed is a critical factor in user experience, particularly for internet applications, as it directly influences users' perceptions and their subsequent adoption of these technologies.

Users generally perceive response times under 100 milliseconds as instantaneous, while delays exceeding 1 second can disrupt their flow. 

This perception significantly influences their overall experience and satisfaction. For instance, Google found that a delay of just 0.5 seconds in page load time can result in a 20% drop in traffic.

Similarly, in blockchain-based applications, transaction speed and confirmation times are crucial factors in user experience.

Blockchain applications often face challenges in achieving the rapid response times users have come to expect from traditional centralized systems.

That's why being fast is often a big buzzword in the blockchain space. 

But what does 'speed' actually mean?

What does ‘Speed’ in Blockchain Transactions mean?

Basically when we talk about speed, we're really talking about how quickly a transaction can be confirmed and its results known with certainty.

And Speed is one of the most misunderstood concepts in the blockchain space, often used as a marketing buzzword without clear context.

So when we are discussing how fast a blockchain is in confirming transactions, it's important to understand what specific metric is being referenced. Different interpretations of speed exist within the industry, leading to confusion when comparing systems.

When someone mentions a blockchain's speed, they might be referring to block time, transaction finality, or settlement finality, each of which has different implications.

Basically when we talk about speed, we're really talking about how quickly a transaction can be confirmed and its results known with certainty.

Block Time vs. Transaction Finality

Block time is a common metric used to indicate how quickly a blockchain can add new blocks to its chain.

For example, Ethereum has a block time of around 12-14 seconds, while Solana boasts a block time of approximately 400 milliseconds. However, block time alone does not guarantee that a transaction is final and irreversible. It merely indicates how often new blocks are created.

Transaction finality refers to the moment when a user submits a transaction and receives a promise that the transaction will eventually be executed. At this stage, the transaction has not yet been executed; you simply have a guarantee that it will be.

Therefore, neither block time nor transaction finality accurately represents the true speed at which blockchains process transactions.

Settlement Finality: The Gold Standard

Settlement finality is the gold standard for measuring transaction speed. It means that the transaction is confirmed, executed, and its results are known and irreversible.

This is particularly important for applications requiring immediate and irreversible results. Unlike block time or transaction finality, settlement finality provides a clear and definitive measure of transaction completion, making it the cleanest and most reasonable way to think about speed in blockchain systems.

Now the question is: How can you improve the speed of a system? What components can you adjust to achieve the maximum speed possible?

Ok, let’s go down this rabbit hole:)

How to Improve Blockchain Speed: Key Components to Adjust for Maximum Performance

To improve the speed of a blockchain system, developers can focus on two main areas: 

1. Consensus protocols and 

2. Lower-level implementation optimizations.

Here Consensus protocol refers to the high-level rules governing how validators agree on the blockchain's state, while lower-level implementations encompass the underlying technical optimizations that facilitate the protocol's operation.

Now the “lower-level optimizations” might include more efficient data structures, improved networking protocols, or optimized cryptographic operations. These lower-level optimizations can make a noticeable difference in throughput and overall system efficiency. 

However these optimizations often have less impact on transaction speed, as the system is not operating at its capacity limits.

Meaning, these optimizations might shave off milliseconds in processing time, but their impact is often negligible compared to other factors.

This is why consensus protocol is the most critical factor in determining transaction speed. It defines how validators in the network communicate and agree on the state of the blockchain.

The efficiency of the consensus protocol directly impacts transaction speed. In wide-area networks, each round of communication between validators can take approximately 150-200 milliseconds. This means that the number of communication rounds required by the consensus protocol has a significant impact on overall transaction speed.

Source: Kloshy Part I (edited)

Once you have implemented a consensus protocol that requires the least rounds of communication, then you can go on and implement the lower-level optimizations to squeeze out maximum efficiency out of the system.

In a bid to outpace the competition, core development teams of top layer 1 blockchains are frantically working to break through speed barriers and enhance efficiency.

Meanwhile one team appears to have cracked the code, launching their speed-optimized consensus protocol, just last week on 'Sui'

Yes, Sui has now swapped out its old 'Narwhal & Bullshark consensus protocol’ with the 'Mysticety consensus protocol'. A step that has dramatically decreased its settlement finality time, cementing Sui's position as a leader in the high-performance blockchain space.

To understand why Mysticeti has decreased its settlement finality time and what improvements it brings in terms of speed, you must first understand how transactions get processed on Sui.

For that, we need to:

1. Dig into the types of transactions on Sui and how they are processed differently.

2. Understand how the previous consensus protocol of Sui, the ‘Narwhal & Bullshark consensus protocol,’ works.

3. What improvements Mysticeti has introduced to decrease the latency to settlement finality to an impressive 390 ms.

So, let's take a look at each of these aspects one by one.

1. Types of Transactions on Sui

Transactions on the Sui blockchain are categorized into two main types: owned object transactions and shared object transactions.

1. Owned Object Transactions: These transactions involve objects owned by a single address. Examples of owned object transactions include coin balance transfers, certain NFT minting operations, and some in-game logic asset management creations. Since only one entity has control, these transactions can be processed independently without requiring consensus.

2. Shared Object Transactions: These transactions involve objects that multiple addresses can access and modify, such as a liquidity pool in a decentralized exchange. These transactions need to be sequenced before execution, requiring consensus to ensure the correct order and integrity of changes.

Here’s a Step-by-Step Journey of a Transaction from Submission to Execution

The processing of both transaction types follows a two-phase protocol.

In the first phase of owned object transactions, the user constructs and signs the transaction, then broadcasts it to the validators.

Source: https://docs.sui.io/concepts/sui-architecture/transaction-lifecycle (edited)

The validators perform validation without execution, promising to execute the transaction in the future when instructed. Once the user receives responses from a majority of validators (a quorum), they create a transaction certificate.

For owned object transactions, the second phase involves sending this certificate back to the validators. After execution and receipt of a quorum of responses, the user obtains an effects certificate, signifying that the transaction has been executed and its results are irreversibly on the chain.

Meaning, the transaction can be executed immediately without waiting for consensus.

This process typically requires two Round Trip Times (RTTs).

Source: https://www.stormit.cloud/blog/what-is-round-trip-time-rtt-meaning-calculation/

TLDR: RTT is the duration it takes for a signal to travel from a source to a destination and back.

In blockchain networks, RTT refers to the time required for a message to travel between nodes and receive a response, typically measured in milliseconds (ms). In wide-area networks, a single RTT usually ranges from 150 to 200 ms, though it can vary based on network conditions and distance.

Shared object transactions follow a similar first phase, but the second phase differs.

The validators must send the transaction certificate through the consensus process before execution. After sequencing, validators can execute the transaction. The user receives the effects certificate once a quorum of responses is obtained, confirming the transaction's on-chain status.

The consensus process is where the opportunity for latency improvement lies. 

Currently, the best-case scenario for the consensus process is approximately 4.5 RTTs. With the previous Narwhal and Bullshark consensus protocol, the entire path for shared object transactions took about 6.5 RTTs.

So, let's take a deeper look at the Narwhal & Bullshark consensus protocol and how Mysticeti is reducing the number of RTTs to make the consensus process faster.

2. Understanding Sui’s Narwhal & Bullshark Consensus Protocol

When discussing the Narwhal & Bullshark consensus protocol, it's important to understand the broader landscape of consensus mechanisms in the blockchain space.

There are consensus protocols with probabilistic finality (e.g. Bitcoin’s Nakamoto consensus protocol) and deterministic finality, aka fast finality (e.g. PBFT) 

Here, we are talking about fast finality and those consensus protocols with fast finality, which are further divided into linear and DAG-based protocols.

So let’s take a look at the linear and DAG-based protocols.

Linear Consensus Protocols

Linear protocols, such as PBFT (Practical Byzantine Fault Tolerance), Tendermint, and HotStuff, rely on a leader to coordinate the consensus process.

In these protocols, a designated leader node is responsible for gathering transactions, creating blocks, collecting votes or validations for those blocks, and then including them in the blockchain. This process is repeated continuously, forming a linear sequence of blocks, hence the term "linear-based."

The key advantage of linear protocols is their low latency in ideal conditions. The standard PBFT is achieving the latencies of two, three RTTs. This makes them suitable for certain applications.

However, linear-based protocols have several inherent limitations. For example, the leader node often becomes a bottleneck due to the disproportionate amount of work it must perform compared to other nodes in the network. This can limit the overall throughput of the system.

Also, these protocols require strong connectivity with the leader node. If the leader crashes or becomes unavailable, the network must elect and agree on a new leader, a process that can be complex and time-consuming, during which the network may be unable to process new transactions.

DAG-Based Consensus Protocols

DAG-based (Directed Acyclic Graph) protocols, such as the one used in Sui, take a different approach.

Source: https://blog.sui.io/encode-club-sui-series-1/

Instead of relying on a single leader, these protocols allow all nodes in the network to propose blocks concurrently. 

This leaderless design leads to full utilization of network bandwidth and resources, as the workload is distributed evenly across all nodes.

Source: Kloshy

DAG-based protocols separate the process of transaction dissemination (building the DAG) from the commit logic (reading the DAG and finalizing transactions). This separation allows for continued block proposals even if there are issues with the commit process, maintaining high throughput.

However, this approach typically results in higher latency compared to linear protocols like PBFT.

So, let's take a look at how the Narwhal & Bullshark protocol works and what improvements Mysticeti has introduced to decrease the latency to settlement finality.

Here’s How Narwhal & Bullshark Consensus Protocol Works

Narwhal: This protocol handles the mempool, managing the collection and dissemination of transaction data.

It uses a DAG structure to organize transactions, allowing validators to independently process and store transaction batches.

This process involves three steps within each round:

Source: Kloshy

1. Proposing a Block: Validators propose new blocks containing transactions.

2. Voting on the Block: The network votes on the proposed block. This involves sending network messages to gather votes.

3. Creating a Certified Block: Once enough votes are collected, a certificate or certified block is created and broadcasted to the network.

These steps require three network messages per round, resulting in approximately 1.5 RTTs per round.

Bullshark: Built on top of Narwhal's DAG, Bullshark handles the ordering of transactions. It ensures that transactions are ordered correctly without additional message exchanges between validators.

This protocol addresses common issues in DAG-based consensus systems, such as memory management and fairness, by implementing garbage collection and ensuring fair participation of all validators.

This process operates in two phases:

Source: https://youtu.be/NGOXVSFzYdI?feature=shared&t=1071

1. Leader Election: Every even round, a leader is elected to coordinate the commit process.

2. Voting for the Leader: In the odd rounds, the network votes for the leader. If there are enough links to the block from the previous round, the block can be committed.

In an optimal scenario, at least two rounds are needed to commit a block, which translates to about 3 RTTs.

So with Narwhal and Bullshark consensus protocol, which Sui initially used, typically results in a latency of 2 seconds for shared object transactions. (The latency for owned object transactions is approximately 250 milliseconds.)

It has been live and running on the Sui network for more than a year now without any glitches. 

Imagine being the fastest L1 already and pushing out an update to make your last record look small.

They have now come up with the Mysticeti consensus protocol, or Consensus 2.0, for Sui, which achieves a transaction latency of 390 milliseconds for shared object transactions, making Sui the fastest blockchain in the world.

So, let’s take a look at how they have achieved this feat.

Mysticeti: Reaching the Latency Limits with Uncertified DAGs

The fundamental question that spurred the creation of Mysticeti is: in what ways can the efficiency of the consensus process be optimized?

What if blocks could be optimistically sent to the network without the need for certification?

Basically this concept forms the foundation of Mysticeti. 

Mysticeti introduces the idea of optimistically propagating uncertified blocks within the network. 

Understanding Uncertified DAG

Unlike Narwhal, which constructs a certified DAG through a three-step process (propose, vote, certify) per round, Mysticeti builds an uncertified DAG.

Meaning, there is no notion of certification or counter-signatures from other nodes. Instead, each node simply creates a block and adds it to the DAG, referencing the previous block in the process.

This approach eliminates the need for explicit certification steps, reducing message delays per round from three to one, thereby significantly improving the overall speed of the consensus process. 

Source: Kloshy

So, let's take a look at how all of this works in a step-by-step manner.

Step 1: Block Creation

In Mysticeti, each validator node in the system gathers transactions from users.  

Once enough transactions are collected or a timeout is reached, the node creates a block containing the transactions, the block author's name, and a round number that increments each time that node creates a block.

Step 2: DAG Structure Rules

Mysticeti’'s DAG structure is built using three simple rules:

2f+1 refers to a quorum size necessary to achieve consensus. Here, "f" represents the number of faulty or Byzantine nodes in the system, and "2f+1" represents the minimum number of nodes required to agree on a decision to ensure that the system remains fault-tolerant.

Rule 1: Adding Hash Links to a Quorum of Parents

When a node creates a block, it adds a quorum of hash links to blocks from the previous round. These blocks must be authored by a quorum of different committee members. This ensures that the node has a quorum size necessary to achieve consensus.

Rule 2: Every Node Waits and Links to Leaders

If a node is creating a block in a round with a leader in the previous round, it will wait to try to include that leader block as a parent. This helps to ensure that leader blocks are properly linked and included in the DAG structure.

Rule 3: All Nodes Run in Parallel

All nodes operate in parallel, creating blocks, including a quorum of parents if possible, linking to leader blocks, and propagating their blocks to other nodes.

Now that we've explored the construction of the uncertified DAG, how do validators in the system ensure that their proposed blocks are agreed upon and added to the DAG?

So let’s take a look at how that works!

Step 3: Interpreting the DAG

Validator nodes interpret the DAG structure locally to drive consensus, without relying on secondary messages like signatures or certificates.

There are two key patterns that nodes observe in the DAG:

1. Certificate Pattern: This pattern resembles a consensus certificate. Nodes validate blocks by linking them to previous blocks with enough confirmations from other nodes, ensuring that each new block has a certain level of trust before being accepted.

2. Blame Pattern: This pattern is used to handle faults. If a block is not sufficiently validated or there are missing links to it, it is marked with a blame pattern. This helps the protocol identify and skip faulty or malicious blocks, ensuring that the system can proceed even if some nodes or blocks are not behaving correctly.

Why These Patterns Matter

The key insight here is that nodes interpret the DAG structure locally, and determine whether a leader block should be committed or skipped without relying on external information. 

This approach enables a more efficient and scalable consensus mechanism, as nodes can make decisions based on their local view of the DAG.

Now let’s take a look at the core consensus process👇

Step 4: Consensus Process

The ultimate goal of the consensus process is for all honest nodes to output the same sequence of leader blocks. This sequence enables the sequencing of all blocks, ensuring a consistent and reliable ordering of transactions.

To achieve this goal, nodes follow a series of steps to interpret the DAG structure.

First, the DAG is organized into waves of 3 rounds each, labeled ‘Propose, Vote, and Certify’.

Each wave has a leader in the proposed round, which helps to facilitate the consensus process.

Source: Kloshy

Round 1: Propose

• In this initial round, a leader is predetermined based on public parameters.

• This leader proposes a new block by collecting user transactions and signing the block.

• The proposed block includes links to a sufficient number of blocks from the previous rounds (2f + 1 links) to ensure consistency and reference to prior state.

Round 2: Voting

• In this round, validators (nodes) vote on the block proposed in the proposal round.

• Each validator checks the validity and integrity of the proposed block, ensuring it adheres to the protocol rules and includes the necessary links to previous blocks.

• Validators then cast their votes by creating their own blocks that include references to the leader’s proposed block.

• These vote messages are broadcasted to other validators in the network.

​​Round 3: Certify

• Vote Collection: Validators collect the vote messages for the block proposed in Round 1.

• Block Certification: If a block receives enough votes (typically 2f + 1 votes, where f is the number of tolerated Byzantine faults), it forms a certificate. This certification marks the block as valid and ready for potential commitment.

• Decision Making: Validators now decide whether the block should be committed or skipped.

To decide where to committed or skip a block, Mysticeti employs two main commit decision rules:

1. Direct Decision Rule: This rule is used to determine whether a leader should be committed or skipped. 

2. Indirect Decision Rule (for undecided blocks): This rule looks for a future committed leader.

Source: Kloshy

The direct decision rule is applied first in the certification round.

• Certificate Pattern Check: Validators check if there are 2f + 1 certificate patterns for the proposed block. If this condition is met, the block is labeled as "to commit."

• Blame Pattern Check: If the certificate pattern condition is not met, validators check if there are 2f + 1 blame patterns (indicating that the block cannot be certified due to issues). If this condition is met, the block is labeled as "to skip."

This rule is used to quickly identify leaders that do not have the necessary support and skip them, allowing the system to move forward with the next leader.

When neither condition is met, If neither the certificate pattern nor the blame pattern conditions are met, the indirect decision rule is applied.

Indirect Decision Rule: This rule checks if there's a path from a future committed leader to the undecided block that passes through a certificate. If such a path exists, the block is committed. If not, it's skipped.

• Anchor Identification: Validators identify the anchor, which is the first leader block after the wave that is either labeled "to commit" or still undecided. An anchor in this context is like a reference point that helps validators make decisions about whether to commit or skip a block when the usual direct checks don't provide a clear answer.

• Certificate Pattern from Anchor: Validators check if there is a certificate pattern linking the anchor to the current block. If this condition is met, the block can be labeled as "to commit." If not, it is labeled as "to skip." 

Step 5: Determining Final Order of Blocks

Once the commit rule is run for these leader blocks, the final order of the blocks can be determined.

Source: Kloshy

This is determined in a way that ensures not only low latency but also:

• Consistency: All nodes in the network agree on the same sequence of blocks.

• Reliability: The ordering of transactions is reliable and consistent.
  

  But this is not the end of the story.

Till now, you have seen how the  whole consensus process involves three rounds of waiting for a commit decision. But what if there was a way to cut down on this waiting time?

Here Mysticeti brings to the table some clever optimizations that can significantly cut down on this waiting time to enhance efficiency.

Introducing ‘Universal Commit Rule’ for Faster Consensus

The Universal Commit Rule is a mechanism that allows any block in the DAG to be committed as the leader, reducing the overall latency for reaching consensus.

Here’s a breakdown of its key components and how they contribute to faster consensus:

1. Pipelining

In traditional consensus processes, nodes wait for 3 rounds to make a commit decision.

Pipelining involves starting multiple waves of interpretation, each offset by one round. 

Source: Kloshy

With pipelining Instead of waiting for one wave of ‘propose-vote-certify’ to complete before starting the next, pipelining initiates subsequent waves while the previous ones are still in progress. 

This reduces the waiting time for each round's leader to be committed, effectively tripling the rate at which blocks can be committed and creates a steady stream of chances to commit blocks. 

In fact, there's a chance to commit a leader block every single round. 

Then the multi-leader proposal feature further accelerates the process.

2. Multi-Leader Proposals

Mysticeti also introduces multi-leader proposals, which allow for multiple leaders to propose blocks within the same round.

Source: Kloshy

This means that rather than having a single leader propose a block per round, the protocol allows multiple leaders (e.g., L1a, L1b, L1c) to make proposals simultaneously. These proposals are ranked and processed concurrently.

This increases the likelihood of at least one leader’s block being committed quickly, thus speeding up the overall process, especially in scenarios where network conditions are optimal,

It also enhances fault tolerance, as the failure of one leader does not stall the entire round.

Along with that the protocol increases the anchor points to provide more opportunities to apply the commit rule.

Increasing Anchor Points

Anchor points serve as reference points from which the protocol can evaluate and determine the status of blocks to be committed.

In traditional DAG-based protocols, there is typically a single leader or anchor point that is responsible for running the commit rule.

By increasing the number of anchor points, the protocol can evaluate and commit blocks from multiple starting points in the DAG. This ensures that even if some blocks are undecided, there are other blocks from which the commit process can continue.

This improves the resilience and efficiency of the consensus process, as it reduces the dependency on any single leader or anchor point. It also helps in maintaining high throughput under varying network conditions.

This is because the commit rule ensures that all nodes in the network agree on the same sequence of blocks, allowing for a consistent and reliable ordering of transactions.

I know, this has been an exhausting write-up. But if you reached this far, then now you get to see the tangible efficiency gains Mysticeti has brought to Sui.

Performance Showdown: Mysticeti vs. Narwhal & Bullshark

In terms of latency, Narwahl & Bullshark (Consensus 1.0) required approximately 6 message delays to commit under optimal networking conditions, with an estimated average latency of 4.5 Round Trip Times (RTTs). 

In contrast, Mysticeti (Consensus 2.0) achieves commits with just 3 message delays, theoretically reducing average latency to about 2 RTTs.

Source: Kloshy

Benchmarking results show an approximately 80% reduction in average latencies compared to the Mainnet running Narwhal & Bullshark.

Source: https://x.com/EvanWeb3/status/1816533907380273606

Meaning Mysticeti has now reduced the network latency to consensus to 0.39 seconds in comparison to 2 seconds with Narwahl & Bullshark.

Source:https://x.com/Torero_Romero/status/1805606537357848584

https://x.com/KriyaDEX/status/1816774168261591348a

From my personal point of view, such a groundbreaking protocol, which is very UX oriented, was expected to be delivered by @mystenlabs.

Until now, the blockchain space was never known for user-oriented features, but the brains at Mysten Labs are one of the most laser-focused teams when it comes to implementing features that give the best user experience, and with Mysticeti, users can now enjoy lightning-fast speeds on Sui.

And these user-experience-oriented features do not stop with Mysticeti.

If you want to know how they made accessing crypto as simple as sending an email with zkLogin, here’s an article that will tell you more about zkLogin 👇

💌 Send & Receive Crypto as Easily as an Email

The zkLogin Thesis

justthemetrics.beehiiv.com/p/send-receive-crypto-easily-email

OK, that was a long one 😇 

I hope you found it valuable,

until next week with another thesis driven deep dive,

Sooraj

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Before we dive in:

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If you want to check out the full conversation with Kostas on zkLogin go here:

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The zkSharding concept introduced by the @nil_foundation is by far the most coherent plan we've seen to address the challenges of state fragmentation in the Ethereum L2 ecosystem.

Envisioning a unified execution environment for Ethereum, targeting one of the most pressing issues in the Ethereum ecosystem today.

So, here’s my take on “The zkSharding Thesis”

The Achilles Heel of Ethereum's Rollup-Centric Future

Source: https://cryptobriefing.com/what-ethereum-fragmentation/

As someone who has been in this space for a while, I've seen the excitement of the Ethereum community around the rollup-centric roadmap over the past few years. Rollups, considered the holy grail of Ethereum scaling, promised to ease the network's congestion, significantly reduce the high gas fees and scale the Ethereum network to accommodate the global demand.

However, as rollup adoption has surged, a new challenge has reared its ugly head: state fragmentation.

It's basically the inability for different pieces of state in the different Layer 2s (L2), such as user addresses or smart contracts, to seamlessly interact across different rollups and L2 networks.

The implications of this fragmentation are far-reaching and threaten to undermine the very network effects that have made Ethereum the dominant smart contract platform.

Liquidity Spread Thin

One of the primary consequences of state fragmentation is the dispersion of liquidity and users across various networks with differing infrastructures. Each rollup or L2 solution operates in a siloed environment, which means that liquidity pools are fragmented. This dispersion leads to several inefficiencies:

• Reduced Market Depth: With liquidity spread thin across multiple platforms, the depth of each market is reduced, leading to higher slippage and less favorable trading conditions for users.

• Increased Costs: Users often need to bridge assets between different rollups, incurring additional transaction fees and delays.

• Fragmented User Base: Users are divided among different platforms, reducing the network effects that are crucial for the growth and robustness of decentralized finance (DeFi) ecosystems.

Cross-Network Security Challenge

Securing cross-network operations presents another significant challenge that comes with state fragementation. The complexity of maintaining security across multiple rollups and L2 solutions increases the risk of vulnerabilities and hacks:

• Inconsistent Security Protocols: Different rollups may implement varying security measures, leading to inconsistencies that can be exploited by attackers.

• Bridge Vulnerabilities: Cross-chain bridges, which facilitate the transfer of assets between different rollups, are often targeted by hackers. High-profile incidents, such as the Wormhole and Poly Network exploits, have resulted in substantial financial losses.

• Increased Attack Surface: The more interconnected the networks, the larger the attack surface, making it more challenging to secure the entire ecosystem comprehensively.

A UI/UX Nightmare

Source: https://alphawallet.com/blog/how-to-improve-the-ux-of-layer-2/

Finally, we come to perhaps the most underappreciated impact of state fragmentation: the toll it takes on developers and end-users.

For developers, building applications that work seamlessly across multiple rollups is a herculean task. Instead of focusing on innovating and pushing the boundaries of what's possible, they're forced to grapple with the idiosyncrasies of each rollup and the challenges of cross-network communication.

Users are often required to manage multiple wallets, bridge assets between chains, and pay varying gas fees, which can be confusing and off-putting. This fragmented experience can deter new users from engaging with the Ethereum ecosystem.

That’s one of the reasons why Liquidity and users are flowing from the Ethereum ecosystem to other L1s like Solana and Sui. It’s a direct consequence of the complexities created by the state fragmentation in the Ethereum ecosystem.

Is there a way to solve this problem? Can we achieve a more unified execution environment for the Ethereum ecosystem?

The technology being developed by @nil_foundation could be a potential solution to this issue.

Horizontal Scaling with zkSharding

Instead of just improving interoperability between fragmented L2 solutions, zkSharding aims to maximize scalability through horizontal scaling of the Ethereum execution layer itself.

By combining the concepts of sharding and zk-rollups (validity rollups), zkSharding enables parallel transaction processing across multiple shards while still maintaining a unified liquidity pool and shared state.

In the zkSharding model, the network is split into a main consensus shard and multiple execution shards. The execution shards act as "workers" that process transactions in parallel, each one maintaining a subset of the overall state. This allows the network to scale out horizontally by adding more execution shards as needed to handle increasing transaction loads.

zkSharding is designed to enable developers to build scalable applications based on EVM without significant rewrites or fundamental design changes. By using a shared state and supporting cross-shard communication, zkSharding provides a seamless experience compared to the fragmented L2 landscape today.

So now let’s get into the technical details of this solution.

The Network Architecture

Source: https://nil.foundation/

At its core, zkSharding leverages a multi-layered architecture comprising execution shards that process transactions in parallel, the main shard that coordinates the global state across shards, and all underpinned by zero-knowledge proofs (ZKPs).

Let’s break it down to each layer.

Execution Shards

Source: https://nil.foundation/blog/post/nil_zkSharding

Execution shards are the workhorses of the zkSharding system, each responsible for handling a subset of accounts and processing transactions involving those accounts. This parallel processing enables the system to scale throughput as more shards are added.

Each shard operates independently, using the Sync HotStuff protocol to reach local consensus. Sync HotStuff is a partially synchronous Byzantine Fault Tolerant (BFT) consensus algorithm that ensures consensus with minimal latency, making it highly responsive. It simplifies the view change process and reduces communication complexity compared to other BFT protocols.

After processing a batch of transactions, the execution shard generates a ZKP, attesting to the validity of the resulting state changes.

The Main Shard

The main shard serves as the backbone of zkSharding architecture, responsible for managing the global state across the network.

It runs the HotStuff-2 consensus protocol to reach agreement on the validity of state transition (verifying block digests and quorum certificates). The main shard ensures that all state changes are valid according to the protocol rules, without needing to trust the execution shards. Once verified, the aggregated proofs are sent to the Ethereum mainnet for final validation.

The main shard generates a 'master' ZKP attesting to the validity of all state transitions in the cluster, ensuring the integrity of these transitions in a trustless manner without needing to replay transactions or maintain the full state. This hierarchical approach ensures the entire network remains secure and any state changes are accurately reflected on the Ethereum L1.

Additionally, the root hash of the global state tree is periodically published, allowing execution shards to ensure they are working with the latest state.

To enhance security, zkSharding employs a validator rotation scheme. Validators are randomly assigned to different execution shards after each epoch.

This frequent rotation mitigates the risk of adaptive adversaries that may attempt to corrupt specific shards. By constantly shuffling validators, an adversary cannot predict which shard they would need to compromise to successfully attack the system.

Transactions that require cross-shard communication must include all necessary messages to ensure completeness and validity. This design guarantees that all parts of a transaction are processed correctly, maintaining the integrity and consistency of the network. But this (cross shard communication) also introduces some additional complexities.

Contract Co-location

In some cases, applications need multiple smart contracts to interact immediately. However, the system doesn't support atomic or synchronous composability between different shards. This means that communicating across shards can cause delays, which might not work well for these applications.

To avoid these delays, the proposed solution called "Contract Co-location" enables developers to have multiple contracts on the same shard. This co-location helps reduce the time it takes for the contracts to interact.

This solution is similar to the Cross-shard contract yanking proposal. However, it can introduce additional complexities because moving state is always a complex process, and we will have to wait and see what the downstream effects of such a design choice will be.

Sequencing

The sequencing mechanism of the zkSharding architecture is based on a Proposer-Builder Separation (PBS) model, where distinct builders and searchers compete to construct the most lucrative blocks by outbidding others in a relayer auction. In a relayer auction, different relayers (messengers) bid to quickly and efficiently handle the communication between shards, reducing delays.

Source: https://docs.nil.foundation/nil/specification/sequencing

Each shard manages its own mempool of transactions, accessible to all network members, allowing PBS participants to choose which shard to collaborate with.

Data Availability (DA)

DA is maintained through a synchronization committee on the main shard. This committee ensures, that all necessary data is available and synchronized with Ethereum L1.

The committee's tasks include

• Agreeing on commitments to Ethereum L1

• Requesting proofs from proof producers

• Paying for and verifying these proofsand

• Composing DA transactions.

These compressed transactions are sent to Ethereum for inclusion in blocks.

Source: https://docs.nil.foundation/nil/specification/data-availability

Validators can join the synchronization committee but must pause their validator role to avoid conflicts. The committee rotates with each epoch, generates state differences, proposes hashes, and votes on them.

If a hash gets enough votes, it and the state difference are sent to Ethereum as a DA transaction. If there are too few transactions, they can be bundled and sent directly to L1 builders and searchers. Execution shards handle their DA by storing snapshots off-chain and sending compressed state differences to Ethereum or a dedicated DA layer.

Transaction Finality

Probabilistic finality is achieved when a data availability transaction from the main shard is included in an Ethereum block. Absolute finality occurs once all ZKPs and state differences are verified, ensuring the transaction is permanently recorded and irreversible.

Ok, so far so good. Now that we understand the architecture, the big question is: What are the trade-offs that most of the solutions involve

Trade offs

In my view, one of the main drawbacks of this architecture is its lack of atomic / synchronous composability between different shards. This means that transactions involving multiple shards can't be completed in a single, indivisible operation, which can create complexities and potential inconsistencies.

For example, if a transaction needs to update data on more than one shard, ensuring that all these updates happen together or not at all becomes difficult.

Moreover, methods like contract co-location, which attempt to place related contracts on the same shard to minimize cross-shard communication, can have unwanted downstream effects. Moving state between shards introduces additional complexities and managing these states becomes challenging and unpredictable.

Additionally, the need for a coordination layer, such as the mainshard, is necessary to handle interactions between shards. However, this coordination layer can become a bottleneck, limiting the overall throughput of the system.

Conclusion

The zkSharding concept introduced by the @nil_foundation is by far the most coherent plan we've seen to address the challenges of state fragmentation in the Ethereum L2 ecosystem.

This solution creates a unified execution environment for Ethereum, targeting one of the most pressing issues in the Ethereum ecosystem today.

This architecture also highlights the possibilities opened up with ZKPs and the potential for even greater improvements in performance and scalability.

The Devnet for =nil; is going live soon.

If you're interested in participating, you can learn more here:

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Also, if you want to dive into more details listen to my conversation with Avi Zurlo, the CPO of the @nil_foundation, here's the link:

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Bitcoin was a technological breakthrough that has fundamentally changed the nature of financial transactions.

Bitcoin enabled transactions to be verified and recorded in a way that does not rely on trust between individuals or centralized authorities like banks. By rendering the need for trusted intermediaries obsolete, Bitcoin embodies a world where absolute certainty is attainable through objective, mathematical verification rather than subjective human trust.

This was a paradigm shift from traditional financial systems underpinned by centralized authorities to a peer-to-peer system without a central governing body.

Ethereum's major technological leap was creating a trustless, decentralized platform for building applications and coordinating human activity. The Ethereum Virtual Machine (EVM) established a "world computer," which provides a single, shared environment where all smart contracts and applications coexist and can freely communicate with each other.

Any application built on the EVM has access to all the data and functionality of other applications on the network. Smart contracts on Ethereum enabled trustless interactions, placing trust in code and cryptography rather than intermediaries. This fundamentally changed how we thought about society's structures, agreements, and relationships.

And what seems to be the biggest challenge in this space right now is how to scale that "world computer" without breaking the composability between the applications in that system.

Let me explain.

The Quest for a Scalable World Computer

Source: Ethereum's CTO Dr. Gavin Wood presents "Ethereum for Dummies" / https://archive.devcon.org/archive/watch/1/ethereum-for-dummies/?playlist=Popular&tab=YouTube

When Ethereum pioneered the "world computer" vision, allowing anyone to build applications without permission while maintaining atomic composability, it was a fantastic success. We saw different apps popping up and enabling new use cases.

Such flexibility, often called "composable money legos," allows developers to treat various protocols as building blocks that can be assembled in creative ways to unlock new use cases. For example, a DeFi lending protocol can easily integrate with a decentralized exchange to allow users to seamlessly trade their borrowed assets.

But the problem always was how many transactions this "world computer" could process at a given time.

From platforms like Solana to Sui, the goal is to create a distributed ledger system that supports the world computer and can process more transactions.

But the problem always was that there was always a hard cap on the throughput of this world computer.

Now the question is if we can have a world computer that allows atomic composability between those applications, allows developers to code secure applications, and scales according to demand. This means the system should process billions of transactions a second if needed, and be a linearly scalable system that scales with demand.

Basically, this is the Radix thesis for scalability.

The overarching philosophy of Radix's approach to scalability is that for Web3 applications to achieve mainstream adoption and replace traditional finance, the underlying distributed ledger platform needs to handle increasing transaction volumes and user demand without hitting bottlenecks or performance degradation, and also without compromising on decentralization, security, or atomic composability between applications.

In this write-up, we are going into the technical fundamentals of the approach Radix is taking to enable linear scalability.

So let’s go.

What is Linear Scalability?

Linear scalability is a fundamental requirement  for realizing the vision of a truly decentralized and globally accessible "world computer" that can support complex applications and agreements at a global scale.

The core idea behind linear scalability is the ability to increase a system's throughput proportionally as more resources (nodes, computing power, etc.) are added to the network.

Source: https://www.researchgate.net/figure/Linear-Scalability_fig1_221446472

This allows the system to scale seamlessly without running into bottlenecks or centralized points of control and also retaining the atomic composability between the applications in the network.

Rollup-Centric Scalability Roadmap: An Antithesis to the World Computer Vision

The problem with Ethereum's rollup-based scalability approach is that it essentially creates multiple separate execution environments or "rollup chains" rather than scaling the base layer itself.

This fragments the Ethereum network into multiple siloed "rollup chains" rather than scaling the base layer itself. Users and developers must navigate a complex landscape of different rollups, each with its own liquidity, security models, and tooling.

This goes against Ethereum's original vision of a unified, globally composable "world computer."

While blockchains like Solana and Sui aim to scale Ethereum's initial world computer concept, their approaches ultimately face inherent limitations that cap their throughput capacity.

Solana, for example, uses a unique Proof of History consensus mechanism and parallel transaction processing with its Sealevel runtime to achieve high throughput. However, its performance is still limited by the hardware of individual validator nodes that the system can accommodate and it's network is not designed to linearly scale the number validator nodes

As the network grows and transaction volumes increase, Solana may eventually reach a scalability limit, as seen during the meme season, which resulted in congestion on Solana.

Source: https://dune.com/scarn_eth/solana-tx-fail-rate

Similarly, Sui introduces innovative features like its object-centric data model and parallel execution engine. These optimizations enable impressive scalability gains compared to Ethereum. However, like Solana, Sui's throughput is ultimately bounded by the vertical scaling limits of its validator hardware.

In contrast, Radix's approach aims to achieve true linear scalability at the base layer itself, without any theoretical limits. The key innovation powering this is Radix's Cerberus consensus protocol, which leverages a unique pre-sharded ledger architecture and its tight integration with the Radix Engine application layer.

So let’s explore the 3 core components of the Radix distributed ledger platform, and how these three components together bring the vision of a linearly scalable world computer!

The Radix Engine Execution Layer

Radix redefines the concept of an execution layer by integrating concepts that are tried, tested, and highly successful in the web2 space, differing significantly from systems like Ethereum or Solana.

Much like game engines such as Unreal Engine revolutionized game development, the core philosophy of the Radix Engine centers around streamlining development processes.

Source: https://www.gamesradar.com/what-is-a-game-engine-and-what-does-it-do/

Game engines provide a unified framework that handles graphics, physics, and other low-level functions, allowing developers to focus on game design and storytelling.

Similarly, the Radix Engine aims to simplify the development of web3 applications by offering a comprehensive toolkit that manages the intricate details of asset management and transactions. This abstraction allows developers to concentrate on creating innovative financial applications without getting bogged down by the underlying complexities of blockchain technology.

Asset-Oriented Design: A Core Principle

One of the key aspects of this streamlined approach is the asset-oriented design philosophy that guides the development of the Radix Engine.

This philosophy aims to provide a more intuitive, secure, and efficient approach to building web3 applications and managing digital assets. The Radix Engine treats digital assets, such as tokens and NFTs, as first-class citizens within the platform. Assets are not just balances in smart contracts but are perceived and treated as tangible objects that can be held, transferred, and controlled directly by users. This native asset handling simplifies asset management and reduces the risk of smart contract vulnerabilities.

This design philosophy represents a fundamental shift from the account-based, message-passing model used by platforms like Ethereum. It recognizes that assets are the core of most apps and provides a purpose-built environment that prioritizes their secure and efficient management.

Finite State Machine (FSM)

The Radix Engine utilizes the concept of a finite state machine (FSM) to manage assets. An FSM ensures that an asset can only change states in predefined ways, offering several benefits.

Source: https://x.com/SoorajKSaju/status/1704596534082302299

FSM guarantees that assets only transition between valid states, preventing errors such as transferring assets without proper ownership or duplicating assets without following specific rules. The FSM model mimics how physical assets behave; for instance, cash cannot multiply on its own, and a ticket can only be used by its holder.

This alignment with real-world logic makes digital asset management more intuitive for developers.

Developer-Friendly Tools

The Radix Engine offers Scrypto, a smart contract language based on Rust, which is known for its safety and performance.

Scrypto extends Rust with native asset management features, providing built-in functions for common asset operations such as minting (creating new assets), burning (destroying assets), and transferring assets. These built-in functions reduce the amount of code developers need to write and test.

Source: https://learn.radixdlt.com/article/what-is-scrypto

By abstracting complex asset management tasks, Scrypto allows developers to focus on building unique features of their applications instead of reinventing the wheel.

Security and Reliability

In 2022 alone, over $2.598 billion worth of crypto was stolen via DeFi breaches. In 2023, funds stolen from DeFi protocols were around $1 billion. In Q1 2024, DeFi platforms lost more than $336 million in digital funds.

Source: https://www.chainalysis.com/blog/crypto-hacking-stolen-funds-2024/

In a world where we lose billions of dollars in DeFi hacks, ensuring security is of paramount importance if web3 applications are to gain real-world adoption.

The asset-oriented approach and use of FSMs inherently prevent many common smart contract vulnerabilities. By enforcing strict rules and state transitions for assets at the protocol level, the Radix Engine eliminates entire classes of bugs and exploits that plague other smart contract platforms.

Developers and users can trust that assets will behave as expected, which is crucial for financial applications where security and reliability are paramount.

By prioritizing security and reliability from the ground up, the Radix Engine aims to provide a robust and secure foundation for applications, particularly in the web3 space, where security vulnerabilities can have severe financial consequences.

But having a world-class execution engine like the Radix Engine is only one part of the puzzle.

It alone is not enough to enable truly global-scale web3 applications. The execution environment must be able to handle the demands of millions and eventually billions of users without compromising on performance, security, or decentralization. 

The integration of the Radix Engine with Cerberus, Radix's pre-sharded consensus environment, addresses this requirement.

Pre-Sharding: The Foundation of A Linearly Scalable Network

Radix's approach to sharding differs significantly from most other platforms. While many projects opt for dynamic sharding, where new shards are added incrementally as network demand increases, Radix has chosen the path of pre-sharding.

This design decision is rooted in the belief that for a linearly scalable network, it's more efficient to manage the movement of validators than to constantly redistribute state across new shards.

So let's dive deeper into this concept of a massive Pre-Sharded Ledger with deterministic shard derivation:

With Cerberus, Radix starts with a fixed shard space of 2^256 shards from day one. This means the network is divided into an incredibly large number of shards before any transactions even take place. 

Each shard contains a sub-state, which is a discrete unit of data. Substates can represent anything from a single token to an entire dApp and its users' tokens.

In contrast, most other sharded blockchains start with a single shard and add more shards incrementally as the network grows.

Source:  https://www.radixdlt.com/blog/cerberus-infographic-series-chapter-ii

Each shard in Radix's ledger is deterministically derived based on a key reference field, such as a public key. This means that given an input (e.g., a public key), the corresponding shard can always be located efficiently.

As transactions occur, data is added to the appropriate shards based on the deterministic mapping. With a known location ID for each shard, it's simple to route transactions for processing. Nodes then only need to handle data for the shards they manage, not the entire ledger.

This setup makes it easy and efficient to locate the shard responsible for any transaction. Related data stays grouped, avoiding costly data reorganization as the network grows. This method also speeds up lookups and reduces cross-shard communication. In contrast, dynamic sharding requires constant network monitoring and decisions about when to add new shards, which is more complex.

This pre-sharded ledger with its 18.4 quintillion shards has the theoretical capacity to process millions of transactions per second and store vast amounts of data. As the network grows and more nodes join, additional shards can be allocated to these nodes, allowing the network's throughput to increase linearly.

While having a world-class execution environment and a pre-sharded ledger capable of accommodating global-scale demands is crucial, the real challenge lies in coordinating transactions and maintaining consistency within and across the shards.

This is where Radix's unique consensus algorithm, Cerberus, becomes essential.

Cerberus: Enabling Efficient Cross-Shard  Consensus

The Cerberus protocol is a cross-shard consensus protocol designed to enable fast and secure cross-shard communication in Radix's massively sharded environment.

The operation of Cerberus hinges on two fundamental components:

• Local consensus within each shard and

• Cross-shard communication

Source: https://www.radixdlt.com/blog/cerberus-infographic-series-chapter-vi

Within a shard, validators must reach an agreement on which transactions to process and in what order. This local consensus is crucial for ensuring that all validators within a shard are synchronized and agree on transaction details.

Once this agreement is reached, the cross-shard communication component of Cerberus comes into play. This component allows shards to communicate with each other, coordinate transactions, and maintain consistency across the entire network.

Serverless Mechanism for Cross-Shard Communication

To facilitate these processes, Cerberus uses a serverless mechanism that enables seamless communication between shards. This serverless design means that there is no need for a central server to manage the communication, which enhances the protocol's scalability and robustness.

The consensus within each shard and across shards happens simultaneously in a single 3-phase process. During this process, the validators across all involved shards collectively agree on the correctness and order of a transaction, consistent with the state of their shards. If there is a problem in any shard, the entire transaction fails across all included shards. This approach maintains the integrity and consistency of the shard's state and ensures that transactions involving multiple shards are processed correctly.

This mechanism involves exchanging states, producing quorum certificates, and validating these certificates to ensure that transactions are completed successfully across all involved shards.

Braiding Mechanism for Cross-Shard Consensus

One of the key innovations of Cerberus is its "braiding" mechanism, which conducts consensus across only the necessary shards for each transaction. When a transaction involves multiple shards, Cerberus dynamically establishes a "braid" that connects the relevant shard sets.

Source: https://www.radixdlt.com/blog/cerberus-infographic-series-chapter-vi

This braid allows the transaction to be processed atomically across the involved shards, ensuring consistency and preventing double-spends.

Cerberus employs a three-phase commit (3PC) process within each shard to establish agreement among the shard's validators.

Source: https://www.geeksforgeeks.org/three-phase-commit-protocol/

The braiding mechanism intertwines these 3PC processes across the relevant shards, creating a unified, atomic commit. This ensures that the transaction is either committed or aborted in its entirety across all involved shards.

The braiding of 3PC processes across shards results in an "emergent" multi-shard consensus. This emergent consensus is just as secure and atomic as a single-shard consensus but spans multiple shards. It allows complex, cross-shard transactions to be executed and committed atomically without compromising composability.

By focusing only on the necessary shards, the braiding mechanism enhances the efficiency and scalability of the protocol. This approach contrasts with traditional blockchains that rely on global transaction ordering, which can be inefficient and slow.

Partial Ordering of Transactions

Cerberus also introduces a novel approach to ordering transactions. Instead of relying on a global transaction order, Cerberus allows each transaction to specify its relevant shards so that ordering only needs to occur between transactions when they interact with the same shard – this is called partial ordering.

This enables parallel processing of unrelated transactions across different shards, significantly boosting throughput. The braiding mechanism ensures that related transactions are processed atomically and consistently, maintaining the integrity of the network. But importantly it means that because most transactions aren’t related to each other, more nodes can be added to process more transactions in parallel more quickly. This parallelization is key to Cerberus’ linear scalability

Shard-Level Byzantine Fault Tolerance (BFT)

Within each shard, Cerberus employs a Byzantine Fault Tolerance (BFT) style consensus to establish agreement among the shard's validators. BFT ensures that the shard remains secure and consistent, even in the presence of malicious actors.

By combining shard-level BFT with cross-shard braiding, Cerberus can scale securely & linearly while maintaining high performance. This combination of local and global consensus processes ensures that the network can handle a large number of transactions efficiently and securely.

Linear Scalability & Progressive Decentralization

With fully sharded Cerberus, the network will scale linearly according to demand by progressively increasing the number of validators and assigning them to shards as needed. 

Initially, the Babylon network operates with a small set of validators, fixed at 100, and handles around 50 TPS. This phase uses a "single shard" form of Cerberus. As the network approaches its capacity, it will transition to the Xi'an phase, a major protocol update that will implement the fully sharded form of Cerberus. At this point, the validator set will no longer be fixed, and the network's scalability will greatly increase with massive parallelism.

In this phase, the number of validators can increase beyond the initial set, enhancing the network’s capacity and decentralization. As network load increases, the validator set can expand across multiple shards to manage the demand. For example, when the load becomes too high for a single group, it can split into two groups of 250 validators each. Further splits occur as more validators join, such as into three groups of 300 validators each.

Validators also rotate between different shard sets at the end of each epoch in a random fashion. This prevents collusion and control over specific shards.

This process of adding validators and assigning them to shards continues progressively, ensuring a gradual and scalable increase in both capacity and decentralization. Thus, the network scales linearly by adding more validators and distributing them across shards as needed.

Peer Review and Formal Verification 

The Cerberus consensus protocol has undergone rigorous peer review and formal verification to ensure its security, correctness, and performance.

Source:  https://escholarship.org/uc/item/6h427354

The academic paper titled "Cerberus: Minimalistic Multi-shard Byzantine-resilient Transaction Processing" was accepted for publication in the Journal of Systems Research (JSys) in June 2023. This peer review process involved independent experts verifying the proof, theory, and soundness of the protocol, comparing it to other state-of-the-art multi-shard consensus protocols like Chainspace, AHL, Sharper, and RingBFT.

Additionally, Cerberus has undergone formal verification to mathematically prove its correctness and security properties, ensuring it is free from logical errors and vulnerabilities, providing a high level of assurance in the design and implementation of Cerberus.

Integration with the Radix Engine

When deployed Cerberus will be tightly integrated with the Radix Engine, which translates application-level actions into discrete "substates" or transactions.

The Radix Engine specifies the relevant shards for each transaction based on the resources and components involved. This integration allows Cerberus to efficiently route transactions to the appropriate shards and establish braids as needed.

Developers do not need to manually manage shard interactions, as the Radix Engine and Cerberus handle these complexities automatically. This tight integration simplifies the development process and ensures that the network operates efficiently and securely.

The implementation of the Cerberus consensus protocol on the Radix mainnet will happen with the upcoming Xi'an upgrade. As of now, this is being tested in the Cassandra Test Network.

The core focus of the Cassandra Test Network is to research, test, and demonstrate various implementations of the Cerberus consensus protocol before it is fully implemented in the Radix Xi'an mainnet upgrade.

Building The Rocket Around a Rocket Engine

The primary purpose of the Cassandra Network is to develop and test concepts for the components needed to build a linearly scalable and decentralized network.

While Cerberus provides an excellent consensus mechanism for cross-shard communication, ensuring linear scalability, there are other essential pieces required to build a complete, functional network.

Cassandra is essentially about "building the rocket around Cerberus," ensuring all necessary components work seamlessly together. It serves as a testbed to identify and solve challenges related to using Cerberus in a live, decentralized test network that will provide valuable data for the final product implementation of Cerberus for the Xi’an update to the Radix Network.

Components and Testing

While Cerberus is important, it is just one part of the system. The Cassandra network focuses on testing concepts and techniques for the necessary infrastructure and other technologies around Cerberus to create a fully functional, scalable blockchain network.

One key area being explored in Cassandra is the development of a new local consensus mechanism that ensures liveness and complements Cerberus' cross-shard safety. This is crucial for permissionless networks and helps maintain the network's resilience.

Cassandra is used to research and optimize various aspects of the network, such as reducing authentication complexity, minimizing cross-shard data transfer, lowering bandwidth and CPU requirements, and improving decentralization. The goal is to enable the network to run efficiently on regular hardware and low-bandwidth connections.

The Cassandra network recently achieved a significant milestone, performing a record-breaking 100,000 swaps per second and 80,000 transfers per second, totaling around 180,000 transactions per second. This performance was sustained over 100,000,000 transactions in total, demonstrating the network's impressive efficiency and scalability.

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There is an ongoing effort to gather more compute resources for testing the Cassandra network. Participation can help achieve further performance improvements. Interested parties are encouraged to fill in the registration form and join the Cassie Telegram group.

Twitter tweet

Cassandra's research and findings will provide valuable input to the development of the Xi'an network update, ensuring that the Radix Network will be able to scale linearly while maintaining liveness, safety, and decentralization. The network's experiments provide solutions to potential problems, making the transition smoother for the production version.

The Biggest Challenge

Radix's approach to building its distributed ledger system demonstrates a clear understanding of the key challenges hindering widespread adoption in the blockchain industry. The Radix team has taken a fresh and straightforward approach to solving these issues, focusing on creating a solid foundation with the Radix Engine before tackling scalability.

Looking back at Ethereum, the main reason it had to pursue a scalability roadmap was the overwhelming success of its core offering—a decentralized execution environment that enabled full composability between applications. EVM unlocked a world of possibilities for developers, leading to the creation of numerous decentralized applications (dApps) and the explosive growth of the DeFi ecosystem.

However, this success also exposed Ethereum's limitations. As demand surged, the network became congested, leading to high gas fees and slow transaction times. Users found themselves paying hundreds of dollars for simple transactions, highlighting the urgent need for scalability solutions.

By focusing on creating a seamless and intuitive developer experience, Radix is laying the groundwork for attracting developers and fostering innovation.

The key question now is whether the Radix Engine will be able to capture the attention and traction of users and developers. If it succeeds in offering a compelling and valuable proposition, the demand for its capabilities will naturally grow, just as it did with Ethereum's smart contract platform.

Should the Radix Engine prove successful and gain significant adoption, the need for scalability will become apparent. This is where Radix's linear scalability system, designed to handle increasing demand by dynamically scaling the network's capacity without compromising security or composability, will come into play.

However, if the Radix Engine fails to gain traction and attract users, the need for such a scalability solution may not arise. The success of Radix's core offering will determine whether its scalability infrastructure will be put to the test.

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One of the standout ideas in the blockchain space that has received substantial market validation is the concept of a general-purpose execution environment that allows full composability between all applications.

Ethereum L1 first introduced this concept, quickly gaining a huge market approval.

Building on this success, Solana integrated parallelization into its execution engine, achieving up to 100 times the throughput of Ethereum L1 with fast finality.

This was also a huge success!

Now, Monad is merging EVM, the most widely adopted VM in this space, with the concepts pioneered by Solana, aiming to achieve 1000x Ethereum L1's throughput.

Could this make Monad a "runaway success" and one of the biggest launches of this cycle?

So, let's go.

EVM and The Power of Global State

The Ethereum Virtual Machine (EVM) is a global computing engine. In this system, numerous nodes operate in unison, each maintaining a complete and consistent copy of the entire network, including all applications and their current states. This setup ensures that all nodes are synchronized and process transactions uniformly.

Source: https://komodoplatform.com/en/blog/what-is-ethereum-virtual-machine-evm/

To interact with applications on Ethereum, users send transactions to the network. These transactions, which are essentially function calls to smart contracts, are grouped into blocks. Every node processes these blocks in the same sequence, which helps the network remain synchronized.

The Power Of The Shared Global State

The EVM provides a single, shared environment where all smart contracts and applications coexist and can freely communicate with each other. Any application built on the EVM has access to all the data and functionality of other applications on the network.

For example, a DeFi lending protocol can easily integrate with a decentralized exchange to allow users to seamlessly trade their borrowed assets.

This is possible because the EVM standardizes how apps run and keeps track of all accounts, balances, and codes. Developers can build apps that work with this existing system without needing special setups; they simply interact with other smart contracts already in place.

Such flexibility, often called "composable money legos," allows developers to treat various protocols as building blocks that can be assembled in creative ways to unlock new use cases.

Specifically, the EVM gave Ethereum the first-mover advantage by being the first blockchain platform to enable full composability between all applications in the system.

To give you some perspective, this is how successful the EVM has been so far:

Total Value Locked (TVL): 

EVM-based chains dominate the TVL metrics. According to data from DefiLlama, as of May 2024, EVM-based chains hold 89.48% of the total TVL in the blockchain ecosystem.

Source: https://defillama.com/chains/EVM

Developer Adoption:

From a developer adoption perspective, EVM platforms are the most popular. If you look at the top 10 ecosystems with the most number of active developers, 6 of them are EVM-based.

Source: https://www.developerreport.com/

Key findings from Electric Capital's report on the state of development within the Ethereum network and other EVM chains during the fourth quarter of 2023 show that a significant majority of multichain developers, approximately 9 out of 10, choose to work on EVM-compatible chains.

Source: https://www.developerreport.com/developer-report?s=developer-overview

Both these metrics highlight EVM’s continued dominance in attracting developer talents.

In essence, EVM has established significant network effects in the blockchain space, but it is not the most performant or the most secure VM out there, and this is slowing the pace of innovation that could have been achieved otherwise.

Single-threaded Nature: EVM’s Achilles heel

In modern computing, performance gains are often achieved through parallel processing, where multiple computational tasks are carried out simultaneously. Since the EVM processes transactions sequentially, it cannot leverage multi-threading or multi-core processing effectively. This single-threaded design inherently limits the throughput of the system as the transaction load increases.

Source:  https://squads.so/blog/solana-svm-sealevel-virtual-machine

The EVM design sets a gas limit on blocks, capping the computational work per block. Each transaction uses gas based on its complexity, limiting the number of transactions per block.

Sequential processing exacerbates this limitation because only so much work can be queued and processed within one block's gas limit.

Source: https://www.paradigm.xyz/2024/04/reth-perf#where-are-we-today

The inability to parallelize transaction processing means the EVM does not fully utilize available computational resources, thereby limiting overall performance.

To put it simply, most blockchains that support the EVM bytecode standard can process up to ~200 transactions per second (TPS) or ~20 million transactions per day, which is not enough for high-demand applications.

That's where Solana introduced its VM, which pioneered parallel execution and proved a point!

Solana Proved A Point

Solana pioneered parallel execution through Solana Virtual Machine (SVM), which includes the Sealevel parallelization engine.

Source:  https://squads.so/blog/solana-svm-sealevel-virtual-machine

Transactions on Solana are required to explicitly declare all the states they will read or write during execution. This includes specifying all the accounts and data that the transaction will interact with.

By making these requirements explicit, Solana's runtime can easily identify dependencies between transactions and determine which ones can be executed in parallel.

This setup is a part of Solana's Sealevel system, which is the world's first parallel smart contracts runtime. Sealevel allows thousands of smart contracts to run in parallel, maximizing throughput and efficiency across the network.

Source: https://squads.so/blog/solana-svm-sealevel-virtual-machine

With the explicit state declaration and Sealevel’s capabilities, Solana's runtime can identify transactions that are independent of each other, meaning they do not read or write to the same state. These independent transactions can then be executed in parallel, significantly increasing the throughput of the network.

In addition, Solana improves its parallel processing by allowing concurrent transactions that read from the state as they do not modify the state and cause conflicts.

Since these transactions do not modify the state, they can be executed simultaneously without causing conflicts, further enhancing the network's capacity for parallel processing.

Source: https://solanacompass.com/

These innovations collectively enabled Solana to achieve a throughput of 500–1,000 TPS, excluding votes.

SVM + EVM = Monad

The primary approach behind Monad is quite straightforward. Monad adopts the parallel execution model pioneered by Solana, allowing multiple transactions to be processed concurrently to significantly enhance the performance and security of an EVM-compatible blockchain.

So what are the core concepts of Monad's architecture?

Pipelining

Monad implements pipelining, which involves dividing transaction processing into stages and executing the stages of each transaction in parallel with other transactions. Monad is integrating here a modular approach in designing an L1 blockchain.

Source: https://x.com/monad_xyz/status/1745517178646904864

Here's how it works:

Monad breaks down the processing of each transaction into distinct stages, such as fetching the transaction data, verifying signatures, executing the transaction, updating the state, and committing the results.

For example, while one transaction is in the execution stage, another transaction can be in the signature verification stage, and yet another can be in the data fetching stage.

By executing stages of different transactions simultaneously, Monad makes efficient use of available resources (such as CPU cores and I/O bandwidth). This is analogous to the laundry example, where the washing machine and dryer are used concurrently to process multiple loads of laundry more efficiently.

Source: https://medium.com/@pipeline.xyz/what-the-heck-is-parallel-execution-really-b1807a81d325 / https://docs.monad.xyz/technical-discussion/concepts/pipelining

Although the stages of transactions are processed in parallel, Monad ensures that the results are committed in the original intended order. This preserves the correctness and consistency of the blockchain state.

By overlapping the execution of transaction stages and utilizing resources efficiently, superscalar pipelining dramatically improves the overall throughput of the Monad.

Optimised Consensus

MonadBFT

MonadBFT is a high-performance consensus mechanism designed to achieve agreement on transaction ordering under partially synchronous conditions.

It is a derivative of the HotStuff consensus protocol, incorporating improvements proposed in Jolteon/DiemBFT/Fast-HotStuff.

It is a two-phase pipelined BFT algorithm that leverages optimistic responsiveness and has linear communication overhead in normal conditions, falling back to quadratic communication complexity in the event of a leader timeout.

In each phase, the leader sends a signed message to voters who then sign responses to the next leader.

This pipelining allows the quorum certificate (QC) or timeout certificate (TC) for a block to be included with the proposal for that block.

A quorum certificate indicates that two-thirds of the network's validators agreed to append the block, while a timeout certificate indicates that the consensus round timed out and had to be restarted.

This pipelined structure enables simultaneous processing of multiple blocks,

reducing delays and allowing Monad L1 to process transactions quickly and securely, even with a large number of validators in the network.

Yes, Monad can theoretically scale its validator number to hundreds and eventually to thousands of validator nodes.

Shared Mempool

Monad optimizes the consensus payload by referring to transactions by their hash and ensuring they are propagated through the Mempool ahead of time. This reduces the amount of data that needs to be included in the consensus process.

Deferred Execution

Monad separates the consensus process from transaction execution. Nodes first come to an agreement on the transaction order without actually executing those transactions.

This is different from Ethereum, where execution is a prerequisite to consensus and the leader and validating nodes must execute transactions before agreeing on a block. This pipelining allows consensus to proceed without waiting for execution to complete.

By decoupling execution from consensus, Monad significantly expands the time available for transaction execution. Execution merely needs to keep up with consensus on average, rather than fitting into a limited time window.

This allows for higher gas limits as computation doesn't need to be completed on all nodes within a strict budget.

Carriage Cost and Reserve Balance

Since consensus operates on a delayed view of execution, Monad introduces a carriage cost for transactions to prevent spam. Each account maintains a reserve balance to pay for the carriage cost of in-flight transactions.

The carriage cost is charged to the reserve balance at consensus time, deducted from the execution balance during execution, and refunded to the reserve balance after a delay period. This ensures that only paid transactions are included in blocks.

Efficient Execution Environment

Optimistic Execution

At the core of Monad's Parallel Execution model is the principle of optimistic execution. This means that Monad begins executing transactions before the completion of previous transactions in the block.

This approach can sometimes lead to incorrect execution if, for example, two transactions modify the same account balance in ways that would conflict if executed sequentially.

To address this, Monad employs a mechanism to "merge" the updated state from each transaction sequentially, ensuring that the final state is consistent with a sequential execution order.

Monad also employs techniques to avoid unnecessary re-executions when possible, such as dependency analysis to identify transactions that can safely run in parallel, and caching of loaded state data to speed up re-execution.

MonadDb State Backend

Enabling optimistic parallel execution requires a high-performance database to store the blockchain state. Monad uses a custom database called MonadDb that is optimized for this purpose.

MonadDb leverages asynchronous I/O to allow for concurrent execution while data access is in progress. It fully utilizes the latest kernel support to achieve high-performance asynchronous operations.

This parallel execution model, combined with MonadDb's optimized data access, allows Monad to achieve significantly higher transaction throughput compared to sequential execution, while still guaranteeing correct results that match the expected sequential behavior.

EVM Compatibility

​​Monad is fully compatible with EVM bytecode, allowing smart contracts written in Solidity or any other language that compiles to EVM bytecode to run on Monad without alterations.

Developers can transfer their existing Ethereum contracts to Monad smoothly, benefiting from its high performance without the need to rewrite their code.

Furthermore, Monad fully supports the Ethereum RPC API. This compatibility enables existing tools, wallets, and applications designed for Ethereum, such as MetaMask, Etherscan, and Hardhat, to operate on Monad without any adaptations.

By maintaining this level of compatibility, Monad ensures that the extensive Ethereum infrastructure is available to its users, simplifying the transition for developers and users alike.

What about all the hacks? Isn't EVM broken from a security perspective?

Yes, from a security perspective, the EVM is currently compromised. The overwhelming scale of on-chain exploits and asset losses has significantly hindered the mainstream adoption of blockchain-based solutions, particularly in DeFi, over the past few years.

Here's what the numbers show:

Total DeFi Losses:

• From 2016-2022, the top 50 DeFi hacks resulted in total losses of $5.5 billion.

• In 2022 alone, over $2.598 billion worth of crypto was stolen via DeFi breaches.

• In 2023, funds stolen from DeFi protocols were around $2 billion.

• In Q1 2024, DeFi platforms lost more than $336 million in digital funds.

EVM vs Non-EVM Losses:

• Ethereum, the biggest EVM chain by active users and value locked, experienced the highest DeFi losses in 2023, with about $1.35 billion erased across an estimated 170 incidents.

• BNB Chain, another EVM-compatible chain, lost $110.12 million across 213 incidents in 2023.

• Emerging EVM-compatible network zkSync Era lost $5.2 million in two incidents in 2023.

• In comparison, the non-EVM Solana chain had a loss of only $1 million in a single attack in 2023.

It's hard to see how EVM-based DeFi could become mainstream given the current situation. However, all hope is not lost for EVM. Monad is also enabling developers to make EVM more secure than it is now.

Let's go into the details here:

Security Is Costly on Ethereum

On Ethereum, implementing robust security measures in smart contracts can be very costly due to the high gas prices associated with additional safety checks and computations.

To reduce gas costs, developers often forego additional safety checks, compromising security for efficiency.

Here Are Some Examples of Gas Optimizations Compromising Security:

Limiting Defensive Assertions:

• Defensive assertions are checks that programmers include in their code to ensure that certain conditions always hold during the execution of smart contracts.

• They are essential for preventing exploits, especially re-entrance attacks, where a contract may be manipulated into a vulnerable state without triggering any alerts.

• Developers may omit additional defensive assertions, especially with evolving code, to reduce gas costs.

Tricks for Gas Savings: 

• Saving gas by using advanced Solidity features or unconventional coding practices often results in less legible and more complex code. 

• This complexity can obscure the code's function, making it harder for other developers and auditors to review, thus increasing the likelihood of oversight and errors.

Twitter tweet

Minimizing On-Chain Interactions: 

• Practices like requesting infinite ERC-20 token approvals from users to reduce gas costs compromise security by potentially allowing attackers to drain user funds if the app is compromised.

• With approximately $250 billion secured in ERC-20 tokens and NFTs on Ethereum, the implications of compromised security are immense.

Twitter tweet

Cost-Effective Security

By drastically lowering the cost of gas, Monad makes it financially feasible for developers to include comprehensive security measures in smart contracts.

This reduction means that developers no longer need to make trade-offs between security and cost-efficiency, and can focus on employing the best practices.

Additionally, by reducing the cost barrier, Monad allows for the implementation of more complex and inherently secure protocols that would be too gas-expensive on Ethereum or other EVM-based L1s or L2s. This includes more advanced state management techniques, and integrated error-checking mechanisms.

Monad’s economic model also makes it feasible to implement continuous integrity checks and monitoring systems within smart contracts, which can alert developers and users to anomalous behaviors indicative of breaches or bugs.

You also need to keep this in mind: While you can directly port over your EVM contracts, you won't gain any security benefits.

To fully benefit from the low-cost execution environment and create more secure applications, you cannot simply copy and paste the existing code.

Instead, you must make changes to enhance security, which essentially results in altered code that then requires re-auditing.

But would these optimizations make the Monad version of the EVM the most secure VM out there?

It's highly unlikely because new-generation VMs like Move are far ahead in terms of enabling secure coding, but the Monad EVM could very well be the version that enables the most secure EVM-based application, and that's a big upgrade from the status quo!

But why not be an Ethereum rollup?

The core focus of Monad is to maximize performance and scalability without compromising decentralization and censorship resistance. Taking the rollup path would be a serious roadblock to achieving that goal.

Let me explain:

Decentralization and Censorship Resistance

Current roll-up designs do not have a fully decentralized block production mechanism. They depend on a centralized sequencer to order transactions, creating a central point of control and potential censorship risks.

Although there is ongoing research aimed at decentralizing sequencers, achieving this is unlikely in the near to medium term.

By developing Monad as a layer-1 blockchain that employs a proof-of-stake Sybil resistance mechanism with a decentralized network of validators, the system is designed from the start to maintain decentralization without inheriting the limitations of an existing layer.

Performance and Scalability

Monad's custom architecture is built from the ground up for ultra high-performance transaction execution with the pipelined execution model to efficiently process transactions in parallel across multiple cores.

As a layer-1, Monad can make radical optimizations to its consensus mechanism, peer-to-peer networking layer, and storage layer to minimize overhead and maximize throughput.

Implementing these major architectural changes to push the boundaries of performance would be much more challenging, if not impossible, within the constraints of a rollup design built on an existing layer-1.

Avoiding Data Availability Layer Limitations

Another key factor is the limitations and dependencies that rollups inherit from their data availability (DA) layers.

Rollups rely heavily on their DA layer for state verification and data availability. This introduces constraints around transaction costs, capacity, and time to finality.

As an independent layer-1, Monad has more control over its transaction costs and capacity. It is not beholden to the limitations of an external DA layer.

What Is With the Monad Memes?

Source: https://x.com/monad_xyz/status/1743386237874954420

The crypto market is very noisy mainly because DLT is a future-oriented technology. Currently, no blockchain-based applications have user numbers comparable to popular web2 applications. Therefore, every team building an L1 or a rollup is creating their solution for the future.

This results in a high volume of competing narratives, each seeking attention and influence. These narratives shape public perception and influence investment decisions because a leaderboard exists in the blockchain space, with CoinMarketCap acting as a leaderboard of blockchain tokens.

Websites like CoinMarketCap rank cryptocurrencies and tokens based on market capitalization, price changes, and trading volume, creating a leaderboard format.

It's undeniable that there is a sentiment that if a L1 blockchain or an application is lower down this leaderboard, these projects or L1s are considered less significant, even if it has nothing to do with the technological fundamentals of this project.

Look at bitcoin, the "digital gold" narrative has captured the imagination of a significant number of people and made it today a 1.2 trillion dollar asset. If you look at the meme coin action right now, you will also see that memes are powerful tools that can capture value

In effect, narratives and memes are powerful tools that could help projects climb the leaderboard ladder and gain maximum exposure. As they say in the crypto space, "numbers going up is the best marketing you can get.", and Monad is leveraging all those tools to create hype for the project.

Twitter tweet

Monad's current engagement figures are comparable to some of the top 10 L1’s (based on CoinMarketCap). This is already a great success from a community-building and marketing perspective. And if you look a bit deeper, this comes as no surprise.

Looking at Monad's backers, you'll find some of the biggest names in the blockchain space who understand how the crypto markets work.

This explains why Monad has almost perfected the crypto marketing game. In a market where meme coins outperform L1 tokens with strong fundamentals, community building and spreading the message through memes is a perfect strategy.

Winding Up!

Looking at the Ethereum L1, it is clear as a day that the focus is no longer on scaling the core idea that gave Ethereum the first mover advantage in the firstplace.

i.e, "A general-purpose execution environment that allows full composability between all applications"

It's focused on becoming the global settlement layer, an idea which has not yet received any serious market validation.

The other EVM-based L1s are mostly seen as copy-pastes of Ethereum L1 and lack the grand vision and narrative to aim at what Monad is trying to achieve.

If you look at the Ethereum L2 ecosystem, the protocols have to deal with the current limitations of Ethereum DA to providing a cheap execution environment or have to depend on centralized sequencers, compromising censorship resistance which is the core philosophy of DLT.

At the same time, Solana, with the current real throughput limitation around 800-1000 tps, limits the capabilities of Solana to keep up with the increasing demand, and it can take a while until Solana brings the next upgrades to improve throughput.

In this situation, Monad is on its path to fill the gap in the market by bringing 10x more than the current throughput of Solana and also using a VM that has the most developer adoption in the whole blockchain space. Along with that, Monad has already built a huge active community.

The biggest bet Monad is making is on the staying power of EVM.

Right now, this would seem like the right thing to do but at the same time we are watching the rise of more secure and efficient VMs like Move, and in a scenario where blockchain-based systems have achieved little to no real-world adoption, betting on the staying power of EVM is a big risk that the Monad team is taking.

Could that happen and could Monad be irrelevant in the next 3-4 years of years' time?

We don't know that yet, but one thing for sure, Monad is on its way to be one of the biggest L1 launches of this cycle, and with the recent success of Monad devnet, things are working in favor of Monad.

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The 2008 financial crisis will be viewed by history as a pivotal moment that not only demonstrated the fragility of the global financial infrastructure but also underscored the disproportionate impact of such systemic failures on ordinary individuals.

From that point onwards, there was a consolidation of efforts from the fringes to create an alternative financial infrastructure that is inclusive and egalitarian by democratizing access to opportunities.

A financial system, where all participants have equal opportunities to participate and benefit, irrespective of their economic status—a beacon of hope for those disenfranchised by the existing financial order.

That's why the philosophical underpinnings of blockchain-based systems are deeply rooted in principles of inclusivity, democratization, and egalitarianism. From Bitcoin to systems like Ethereum, Cosmos, Solana and Cardano these are all attempts to realize one or the other version of that dream.

As much as this attempt has a philosophical base, this journey is also technologically challenging. It's an incredibly arduous task, dependent entirely on yet-to-be-seen technological developments to fulfill that vision.

That's why I think there are a few projects that have been designed from the ground up where the technological roadmap is viable enough to achieve that end state—a financial system that is inclusive, democratic, and egalitarian.

Mina Protocol is one such system that has chosen a path far different from the rest of the blockchain-based systems but has immense potential to realize that ultimate vision or what Vitalik calls "The End Game."

Why does Mina Protocol offer one of the most viable paths in achieving that vision?

In this edition of “Just The Metrics” we break down the philosophical and technological foundations of Mina Protocol and why Mina, being arguably the only blockchain that's taking a zk-native approach, is one of the strongest candidates in the entire blockchain space to achieve that ultimate vision.

What you’ll learn today

Converging Visions: How do Ethereum and Mina target the same end state?

Mina's zk-Nativeness: How does Mina integrate ZKPs at its core to enable accessibility, scalability, and privacy?

Inclusive Consensus: How does the Ouroboros Samasika protocol ensure maximum network participation and enhance security and decentralization?

zk-Programmability: How do zkApps expand the possibilities for developers?

Future Enhancements: What significant improvements are promised with the upcoming Berkeley hardfork in Mina?

The End Game

Ethereum is by far the most ambitious project from a technical and philosophical perspective, having created a core idea to become a foundational layer for a new era of the internet—Web3.

Its goal is to achieve a revolutionary digital society, one where the core principles of openness, innovation, and inclusivity are paramount.

The "End Game" of Ethereum, as envisioned by Vitalik and the broader Ethereum community, is to evolve the network into a fully scaled, maximally resilient platform that can serve as a powerful tool for global coordination and innovation.

In other words, it's a platform capable of realizing the end-game vision, including unparalleled scalability, robust decentralization, and impenetrable censorship resistance, ensuring efficient, widespread accessibility while safeguarding user autonomy and data integrity.

That's the end state, and to get there, an elaborate roadmap exists that would bring Ethereum to that end state, probably a decade away from now. At the same time, there are projects progressing towards the same end state faster than Ethereum, by leveraging the scalable, verifiable computational capabilities provided by "ZKPs."

Mina is the most prominent, or perhaps the only, project in the entire blockchain landscape that has been building toward this vision, relying on the concept of zk-nativeness.

Scalable Verifiable Computing

Scalable verifiable computation in the context of  systems demanding both efficiency and integrity at scale refers to the capacity to handle an extensive volume of transactions with the ability to prove the correctness of these transactions in a manner that is both swift and lightweight.

This concept is paramount in decentralized technologies, where the goal is to support high transaction volumes with security, transparency, and without central points of failure. Traditional blockchain systems often struggle to balance scalability, security, and decentralization.

As these systems aim to rival the throughput of centralized Web2 systems, they encounter bottlenecks that stem from the need to maintain a distributed ledger across numerous nodes, each of which must process and verify the entirety of the data. 

Zero-Knowledge Proofs (ZKPs) offer a compelling solution for scalable verifiable computation, addressing the need for secure, decentralized systems capable of handling vast amounts of transactions efficiently. Verifiable computation aims to allow a verifier to confirm the correctness of computations without executing them in full.

ZKPs enable this by allowing a prover to demonstrate the validity of a statement without revealing any additional information beyond what is necessary to make the verification. This property is incredibly beneficial for scalable systems because it means that even complex computations can be verified quickly and with minimal resource consumption.

The core value of ZKPs in systems that need to scale is their capacity to compress the verification process for complex computations into brief, efficient proofs. These proofs are small in size, making them quick to transmit over the network, and they can be verified efficiently, regardless of the complexity of the original computation.

This efficiency is a breakthrough for scalability, as it allows networks to process and verify transactions at speeds comparable to centralized systems like Visa, but within a decentralized and trustless framework.

By design, blockchain systems benefit from decentralization, enhancing security and resilience against attacks or failures. ZKPs complement this by ensuring that the verification process itself does not become a bottleneck or a central point of failure.

With ZKPs, the computational burden is significantly reduced, and the verification can be performed by any participant in the network efficiently. This feature is critical for maintaining the decentralized ethos of blockchain systems while enabling them to scale to meet the demands of global financial systems and beyond.

The architects of the Mina protocol identified ZKPs as the most viable path towards a decentralized scalable system when it was established in 2017 by O(1) Labs. That’s why Mina had integrated ZKPs into its foundation architecture, or in other words, in every aspect of a blockchain where ZKPs can be leveraged for accessibility, scalability, programmability, and privacy, making Mina a zk-native blockchain by design.

Recursive SNARKs : The Super Power of Mina

At the core of Mina's design is the use of recursive zk-SNARKs (Zero-Knowledge Succinct Non-Interactive Arguments of Knowledge), which are a form of cryptographic proof that enables the protocol to maintain a constant-sized blockchain, regardless of the number of transactions processed.

zk-SNARKs: The Foundation

zk-SNARKs are a form of ZKPs which enable one party to prove to another that a statement is true, without revealing any information beyond the validity of the statement itself. zk-SNARKs are characterized by their succinctness and non-interactive nature, meaning the proofs are very short and can be verified quickly.

Here’s a thread where is describe the concept of zk-SNARKs in detail: Link

The Concept of Recursion

Recursion in computer science refers to the process of a function calling itself directly or indirectly, which allows for the efficient solving of problems that can be broken down into smaller, similar problems.

When applied to zk-SNARKs, recursion enables the construction of proofs that verify other proofs, leading to a hierarchical structuring of information that can significantly compress the data needed to verify a series of computations.

Source

Recursive zk-SNARKs work by taking the output of one zk-SNARK proof and using it as an input for another zk-SNARK proof. This process can be repeated multiple times, creating a chain or tree of proofs where each subsequent proof verifies the correctness of the previous one.

The key to making this recursion feasible is the use of a cryptographic technique known as "proof composition," which allows for the efficient combination of multiple proofs into a single, succinct proof.

Source

Another fundamental element is the bootstrapping process, which involves a zk-SNARK proof validating itself. This is accomplished by designing a SNARK capable of verifying the correctness of its computations, including its own verification procedure. The bootstrapped proof acts as the foundational element for recursion, facilitating the development of proofs that can recursively verify an indefinite number of computations.

By capitalizing on the inherent conciseness of zk-SNARKs, the recursive approach ensures that the ultimate proof remains compact and can be verified in a constant timeframe, regardless of the quantity of computations it encompasses.

This efficiency is vital for enhancing scalability, as it permits the authentication of intricate computation sequences without necessitating a corresponding increase in computational power.

Leveraging recursive SNARKs, Mina aspires to establish a scalable and decentralized settlement layer underpinned by inclusive consensus and zk-programmability.

A Scalable and Decentralised Settlement Layer with Inclusive Consensus & ZK- Programmability

1. Trust Minimisation a.k.a Decentralization

At the heart of Mina’s design is the principle of ensuring that the blockchain remains accessible and verifiable by anyone, regardless of their hardware capabilities. 

Unlike other blockchains like Bitcoin or Ethereum, where participants must download and verify a vast amount of data to fully engage with the network, Mina's entire blockchain state can be verified quickly and efficiently, regardless of how many transactions have taken place, all within a proof that's about the size of a couple of tweets.

This is achieved through the use of recursive zk-SNARKs, which compress the entire history of the blockchain into a fixed-size cryptographic proof. This cryptographic technique allows Mina to compress the entire history of its blockchain into a succinct, fixed-size proof, approximately 22kb in size, irrespective of the number of transactions processed.

Here’s how Mina achieves this remarkable feat:

• Recursive zk-SNARKs: They bundle transactions and blocks together into one small proof, making it possible to verify the whole blockchain without needing to store all its data. This not only saves space but also allows for faster and more efficient verification.

• Protocol State: This is essentially a snapshot of the blockchain's current state, including essential information like account balances. It's a part of what gets verified by anyone looking to check the blockchain's integrity, ensuring that users are always interacting with a true and accurate version of the network.

• Non-consensus Nodes: Mina allows for what are called non-consensus nodes, meaning participants who don't create new blocks but can still check the network's state. These nodes don't need the entire blockchain history to verify the current state; they just need the latest proof, a specific account's information, and a way to verify that information (a verification key). And these have full-node security!

• Efficient Data Verification: Each new block in Mina doesn't just carry the latest transactions; it also contains a proof of the transactions and the summarized history up to that point. This allows anyone to verify the entire blockchain from just this new block, drastically simplifying the process.

• Merkle Paths: To confirm account balances without the entire ledger, nodes use what's known as Merkle paths. This technique allows a node to check if an account is legitimate and its balance is correct, based on the summary provided in the blockchain proof, without needing to trust other nodes blindly.

By keeping the blockchain's size so small, Mina makes it possible for anyone, even those with basic smartphones, to participate in the network's security by verifying its state.

2. Ouroborus Samasika: Maximizing inclusivity and decentralization

Ouroboros Samasika is a pivotal part of how the Mina Protocol operates, drawing its roots from the Ouroboros consensus algorithms initially created for Cardano.

This consensus protocol is specially designed to maximize inclusivity and decentralization within Mina's settlement layer.

Inclusivity ensures that anyone can participate in the network, regardless of their location or resources, enhancing its resilience, security, and health through diversified contributions, while uncapped participation ensures that there are no restrictions on participating in Mina's block production at any point in time.

Here’s how Ouroboros Samasika Facilitates Maximum Inclusivity and Decentralization:

Self-Bootstrap: This feature allows new or returning nodes to independently determine the active blockchain chain without relying on external, potentially centralized, checkpointing services. This is crucial in scenarios where two chains of equal length exist due to forks.

Samasika uses a genesis block copy for bootstrapping and employs two chain selection rules based on the age of the fork.

For recent forks, the longest chain rule applies.For older forks, a special rule evaluates a succinct summary of each chain's post-fork state, enabling decision-making with limited information.

This mechanism ensures that all nodes, regardless of their offline duration, can autonomously rejoin and contribute to the network.

Dynamic Availability: Recognizing the variable online availability of nodes, Samasika is designed to accommodate fluctuating participation without compromising security.

It achieves this through epoch-based time division and the use of verifiable random functions (VRFs) to maintain independent randomness across epochs.

This allows for fair block producer sampling relative to stake size, even as stake distributions change, thereby ensuring all nodes have an equal opportunity to contribute, regardless of their intermittent connectivity or power availability. And in Mina the VRFs  are even implemented in a SNARK!

Uncapped Participation: Unlike protocols that limit the number of validators or rely on centralized nodes for efficiency, Samasika imposes no such constraints.

This opens the door for unlimited node participation, sidestepping potential centralization and communication complexity issues inherent in BFT (Byzantine Fault Tolerance) and BA (Byzantine Agreement) protocols.

By not limiting the number of participants, Samasika ensures a truly decentralized network where more nodes can engage in consensus processes, thereby enhancing security and network robustness.

Succinctness: The protocol's design to use only limited local information aligns with Mina Protocol's goal of creating a succinct blockchain.

This approach supports the overarching objective of decentralization by allowing nodes to operate without the need for extensive data from the blockchain's history, facilitating easier participation and verification processes.

Universal Composability: Samasika's security is validated under the universal composability (UC) framework, ensuring that it remains secure even when interacting with other protocols.

This is critical for maintaining liquidity and interoperability between different blockchain systems. By ensuring UC security, Samasika guarantees that its consensus mechanism does not introduce vulnerabilities when Mina Protocol is part of a larger, interconnected blockchain ecosystem.

Basically, Ouroboros Samasika's design principles—self-bootstrap, dynamic availability, uncapped participation, succinctness, and universal composability—collectively ensure Mina Protocol achieves its vision of enabling a lightweight, accessible, and truly decentralized blockchain.

3. The Next Frontier: zk-Programmability

Mina Protocol has also integrated ZKPs into its core programming layer. This integration is manifested through two primary components: the ZK smart contract layer, known as zkApps, and the proof system, Kimchi.

Each of these components plays a crucial role in offering both high-level accessibility for developers and powerful low-level customization options.

zkApps: The zk-Smart Contract Layer

Source

zkApps are Mina's implementation of smart contracts that utilize zk-technology to preserve user privacy while enabling complex computations.

These smart contracts allow developers to create applications where users can prove specific facts about their data without revealing the data itself. For instance, a user can prove they are eligible for a financial service based on their credit score without disclosing the actual score.

This capability is crucial for privacy-preserving applications and is facilitated by o1js, a TypeScript library designed for building zkApps.

o1js provides developers with familiar programming semantics enriched with zk-functionalities, including privacy, scalable verification, recursion, and composability.

Kimchi: Proof System

At a lower level, Mina employs Kimchi, an extensible proof system that supports the generation of recursive proofs, keeping the blockchain's size constant and manageable.

Kimchi is based on PLONK, a universal SNARK with enhancements for better performance and flexibility with recursion at its core. It allows for the creation of proofs of proofs, a feature that significantly contributes to scalability and efficiency.

Developers can extend and augment Kimchi without necessitating a hard fork, thanks to its design that encourages the addition of new, high-performance components as needed.

This flexibility makes Kimchi akin to a "zkCPU," where developers can live-add enhancements to improve the system's capabilities over time.

Low-Level Access and Extensibility

Mina's architecture is designed to be both accessible and powerful. For everyday development, zkApps provide a high-level interface for leveraging ZKPs in smart contracts, making it easier for developers to create privacy-preserving applications.

On the other hand, Kimchi offers a robust foundation for those looking to dive deeper into the cryptographic underpinnings of Mina or to extend its capabilities.

This dual approach ensures that Mina can serve a wide range of use cases, from simple applications requiring basic privacy features to complex systems demanding extensive customization and optimization.

4.A Fast & Scalable Settlement Layer With a Composable Network of Zk-Rollups and Zk-App Chains

Mina aims to optimize the performance of its Settlement Layer by improving latency, finality, and throughput.

The goal is to achieve low-second or millisecond latency, instant finality, and hundreds or thousands of proofs settled per second.

To achieve these ambitious goals, Mina is taking a multifaceted approach, which also includes an L2 scalability roadmap similar to Ethereum's:

Recursive ZKPs: Mina has already accomplished the primary step towards optimizing settlement layer performance: Recursive ZKPs.

In Mina, transactions are proof verifications, and each transaction is a recursive proof that can be a zk-Rollup of thousands or millions of recursively bundled transactions.

This allows Mina to scale the number of ZK proofs per second that can be settled on the chain and minimize the time to finality for those proofs.

Hardware Acceleration and Parallel Processing:In parallel, strides in hardware acceleration for ZKPs using cutting-edge technologies like Field Programmable Gate Arrays (FPGAs) and Application Specific Integrated Circuits (ASICs) are being made.

This effort is bolstered by parallel processing for SNARK operations, potentially leveraging FPGAs or GPUs.

This approach aims to enhance the execution of complex ZKPs operations, such as Multiple Scalar Multiplications (MSMs) and Fast Fourier Transforms (FFTs), speeding up the verification process and reducing latency to improve system performance.

Improving Composability: For better UX, L2 scalability requires seamless composability between those layers, and Mina is working on improving composability between platforms and enabling applications and platforms to connect and build off of each other.

With recursive ZKPs, Mina can realize trustless bridging between chains and provide trustless bridges between Mina and its L2 zk-rollups and zk-App chains and the rest of the space.

This opens possibilities where Mina can also provide private verification of existing real-world data, and with Mina’s efficient verifiability, enable new use cases.

zk-Rollup SDK: The efforts are on track for the development of an SDK designed for creating composable platforms.

This facilitates the straightforward construction of zk-Rollups and zk-AppChains, which are capable of mutually recursive verification, all the while leveraging the security infrastructure of Mina as a foundational settlement layer.

Random Committee BFT: Plans are underway to redesign the consensus mechanism to use randomly selected committees.

This allows the protocol to still enable anyone in the network to participate while achieving instant finality for transactions and increased performance.

Implementing a Random Committee BFT mechanism, where a committee of nodes witnesses a block for consensus, achieves instant finality. Once a transaction is included in a block and the block is agreed upon by the committee, the transaction is considered final.

Optimized Block Production: Reducing block times and increasing the number of transactions per block contribute to achieving more throughput. This requires engineering improvements to enhance SNARKs proving/verification and networking efficiencies.

Efficient Networking Layer: Implementing an efficient networking layer, such as adapting bitswap, reduces the time it takes for transactions to propagate through the network. This is crucial for minimizing latency as it ensures transactions reach validators quickly for processing.

The Next Big step for Mina

In 2024, the Mina ecosystem will undergo a significant upgrade with the Berkeley hardfork, introducing fully ZK enabled smart contracts, or zkApps, to the mainnet.

This will unlock a plethora of possibilities for both infrastructure and application enhancements within the network, including complex, privacy-preserving computations.

Key improvements with this upgrade will also include performance boosts through reduced slot times and optimizations for validators, enhancing network efficiency and scalability without sacrificing decentralization.

As we look towards a future where there will be seamless integration of blockchain technology into daily life, Mina's approach, with a lightweight, scalable, and user-centric platform, sets a new standard for what is possible.

By enabling privacy-preserving tools and ensuring equitable access to the blockchain, Mina is paving the way for a future where technology serves as a force for good, democratizing access to opportunities and empowering individuals and businesses across the globe.

If you want to listen to a deeper conversation that will take you to the fundamentals of Mina protocol and ZKPs, here's my interview with the CEO of o(1) Labs, Brandon Kase.

Hey everyone!

This week's edition of "Just the Metrics" zeroes in on a programming language and virtual machine poised to shift public perception, particularly regarding the security of blockchain-based systems, and potentially drive greater developer adoption within the blockchain space.

We are talking about the “Move”. 

It's widely acknowledged that EVM's architectural flaws have spawned numerous security vulnerabilities, prompting the need for a transition to a more secure programming framework.

Existing smart contract languages, primarily designed for EVM and analogous platforms, like Solana Virtual Machine (SVM) fall short in effectively managing assets and ownership, underscoring the demand for an alternative.

Move, a platform-agnostic language, rises to this challenge by meticulously catering to the specific needs of smart contract development.

Move offers a solution through its architecture, engineered for simplicity, safety, and versatility across platforms, with a focus on enhancing the security and integrity of digital asset management.

Armed with this context, we now proceed to dissect the technical merits and benefits of Move, particularly in comparison to EVM and the Solana smart contract programming framework.

Let’s go!

What you’ll learn today

EVM's Flaws: Highlighting the Ethereum Virtual Machine's vulnerabilities that have led to substantial financial losses.

Solana's Pitfalls: Analyzing Solana's complex programming model and its inherent security risks.

Redefining Smart Contract Development: Exploring the Unique Characteristics and Requirements of Smart Contract Programming Languages.

Introducing Move: Presenting Move as a secure, platform-agnostic language poised to solve current smart contract development issues.

Before exploring the specifics of Move, it's important to address the significant flaws within the Ethereum Virtual Machine (EVM) and Solana's programming model (SVM), which have profound impacts on their ecosystems.

EVM's Flaws:

The EVM has been instrumental in driving the first wave of Web3 innovations. Nonetheless, it's hampered by critical vulnerabilities.

These shortcomings have contributed significantly to Web3's infamous reputation for security lapses, resulting in the loss of billions of dollars on an annual basis.

Source: HACK3D Annual Report

If the mainstream is to take Web3 seriously, this reputation must go.

But this doesn't mean that Ethereum will be dethroned as the top DeFi ecosystem, because we are already seeing early signs of disentanglement between the evolution of Ethereum and that of the EVM.

Above all, Move is a platform-agnostic programming language.

That being said, let's get into the core topic👇

Why is Smart Contract programming distinct from mainstream programming?

Smart contracts represent a fundamental shift from traditional software development, catering to specialized blockchain functions such as defining new asset types, managing asset interactions, and enforcing access control conditions.

In contrast to conventional programming languages designed for a wide array of applications and supported by extensive libraries, smart contracts necessitate a more focused approach.

Their critical role in facilitating trustless transactions and the transfer of digital assets under well-defined rules highlights the inadequacies of existing programming languages in fulfilling the distinct needs of smart contracts.

Indeed, specialized smart contract programming languages have been developed.

Yet, these languages exhibit significant shortcomings in meeting the requirements essential for smart contract development.

Specifically, languages used within EVM-based platforms and Solana struggle with aspects of asset management and ownership, revealing fundamental gaps in their ability to address the complex demands of smart contract programming.

 The shortcomings of the EVM are well-known👇

Yet, the difficulties tied to Solana's approach to smart contract programming haven't gotten as much spotlight, even as Solana becomes more important in the world of DeFi.

A detailed article by @kklas_ dives into these challenges, providing a closer look at what makes Solana's system complex for developers:

Source: Smart Contract Development — Move vs. Rust

Based on this, let me summarise the core drawbacks of Solana's programming model👇

1. Complexity in State Management Solana's model requires developers to manage state explicitly through accounts, which can increase complexity in contract development.

Programs must interact with accounts to read and write state, necessitating a deep understanding of account management.

2. Account Management Overhead Developers must implement checks for account ownership, types, and signatures, which can be error-prone and lead to security vulnerabilities.

This manual verification process adds a significant amount of boilerplate code and complexity.

Account Bloat: Smart contracts must explicitly list all accounts they interact with in transaction instructions.

This requirement can lead to a large number of account parameters for complex operations, complicating contract interfaces and interactions.

3. Learning Curve and Developer Ergonomics: The combination of Rust's inherent complexity and the unique Solana concepts, such as - Program Derived Addresses (PDAs), - Cross-Program Invocation (CPI), - and account ownership models, contributes to a steep learning curve for new developers.

4. Security Challenges: The necessity for manual account and signature verification increases the risk of security vulnerabilities.

Historical exploits on Solana, such as

• Wormhole ($336M) — https://rekt.news/wormhole-rekt/

• Cashio ($48M) — https://rekt.news/cashio-rekt/, and

• Crema Finance ($8.8M) — https://rekt.news/crema-finance-rekt/

have often been due to mistakes in these areas, exposing the model's susceptibility to human error in contract development

5. Limited Composability While Solana supports composability through CPI calls, the need for explicit account management and manual verification can make composing smart contracts more cumbersome and less intuitive compared to models that offer native composability features like Move.

6. Developer Productivity and Speed The complexity involved in managing accounts, performing manual checks, and dealing with the low-level details of Solana’s programming model can slow down development speed and increase the time to market for decentralized applications.

The Need for a Secure Platform-Agnostic Smart Contract Programming Model

The limitations of current smart contract platforms highlight a critical issue: - The absence of a platform agnostic direct language to manage and describe assets and ownership effectively.

This deficiency complicates the development process, increasing the risk of vulnerabilities due to reliance on roundabout methods for fundamental concepts.

It underscores the urgent need for a new smart contract language designed with built-in support for handling assets, ownership, and sophisticated data management, streamlining development and enhancing security.

That's exactly what Move is created for.

Above all, the smart contract development space now requires a "platform-agnostic programming language" above all.

What is a platform-agnostic programming language?

A platform-agnostic smart contract programming language is crafted for broad compatibility across various blockchain systems, with an emphasis on simplicity and adaptability.

It prioritizes universal programming concepts, deliberately avoiding the incorporation of blockchain-specific constructs into its syntax. This strategy permits blockchain platforms to enrich the language with their unique features via additional code, rather than necessitating alterations to its core structure.

The architecture of the language guarantees that its essential components—such as the virtual machine, bytecode verifier, and command-line interface—maintain consistency and are interoperable across diverse environments.

Consequently, this flexibility allows for the language's customization to align with the distinctive needs of each blockchain platform, thereby enabling a vast spectrum of applications and innovations.

First, let's understand why Move is a platform-agnostic programming language.

Cross-Platform Design: Move is designed to be embedded across different blockchain platforms without requiring modifications to its core structure. This universality allows it to serve as a foundational layer for smart contracts on varied systems.

Simplicity of Core Language: The core of Move is intentionally kept simple, focusing on generic programming concepts like structs, integers, and addresses. This simplicity ensures that the language can easily adapt to the diverse requirements of different blockchain environments.

Lack of Blockchain-Specific Constructs: Unlike other smart contract languages that integrate blockchain-specific concepts directly into their syntax, Move does not natively include elements like accounts, transactions, or cryptography. This absence makes Move inherently adaptable, capable of serving as a neutral basis for various blockchain platforms.

Extension Through Integration: Blockchain platforms can integrate Move by building upon its core components to add their specific features through modules. This means that instead of altering the fundamental language or creating a unique fork, platforms extend Move with additional functionalities tailored to their ecosystem.

Shared Core Components Across Platforms: All platforms utilizing Move leverage the same set of core components, including the Move VM, bytecode verifier, compiler, prover, package manager, and command-line interface (CLI). This uniformity ensures consistency in how Move operates across different blockchains.

Blockchain-Specific Features via Add-On Code: Platforms that integrate Move can add blockchain-specific features through code that builds on Move's core components. This approach allows for the customization and extension of Move's capabilities without compromising its platform-agnostic nature.

Let's see how Move places a paramount emphasis on safety and security in its architecture.

Move is designed with a strong emphasis on safety and security, especially concerning digital assets, which it treats as first-class citizens through its resource model. The security features of Move are deeply integrated into its language design, compiler, and runtime environment, providing a comprehensive framework for developing secure smart contracts.

Here are the key aspects of Move's security features:

1. Resource Safety Move introduces the concept of resources, which are special data types that represent digital assets. These resources are treated with first-class support in the language, ensuring they cannot be duplicated, inadvertently lost, or destroyed. This prevents common asset-related vulnerabilities such as double-spending or unintentional burning of tokens.

2. Type Safety Move's type system is statically typed, meaning that type checking occurs at compile time. This eliminates a whole class of runtime errors and vulnerabilities related to type mismatches. The type system also supports generics, enabling safe and reusable code without sacrificing security.

3. Linear Type System with Borrow Checker Similar to Rust, Move employs a borrow checker within its linear type system, which ensures that references to resources and other data are used safely. This mechanism prevents dangling references and ensures data integrity, particularly when resources are passed between functions or modules.

4. Module and Function Visibility Move allows developers to define modules with clear interfaces, encapsulating implementation details and exposing only what's necessary. This encapsulation is enforced through public and private access modifiers for both functions and structs, reducing the attack surface by limiting the ways in which contracts can be interacted with.

5. Bytecode Verification Before being deployed, Move modules must pass through a bytecode verifier, which performs static analysis to ensure that the module complies with Move's safety rules. This includes checks for resource safety, type safety, and the absence of certain unsafe patterns. The verifier acts as a gatekeeper, preventing potentially malicious or unsafe code from being deployed on the blockchain.

6. Formal Verification Support The Move language comes with a formal verification tool known as the Move Prover. This tool allows developers to write specifications for their smart contracts and verify that the contract's implementations adhere to these specifications.

The Move Prover can prove properties such as absence of overflow/underflow, compliance with invariants, and adherence to access control rules, significantly enhancing contract reliability and security.

7. Immutable and Mutable References Move distinguishes between immutable and mutable references, enforcing strict rules about how data can be accessed and modified. This distinction ensures that data cannot be modified unexpectedly, reducing the risk of bugs and vulnerabilities associated with state changes.

8. No Reentrancy by Default The Move execution model, by design, does not easily allow for reentrancy, a common source of vulnerabilities in smart contracts (notably in Ethereum's EVM). This reduces the risk of attacks where unintended interactions between contracts can lead to unexpected behavior or loss of funds.

Move Virtual Machine: Putting It All Together

As we already discussed, Move programming language, is designed to facilitate the creation of secure and programmable transactions. The Move VM interprets these transactions, encoded in Move bytecode, enabling the execution of sophisticated contract logic on the blockchain.

The role of the Move virtual machine (VM) is to execute a block of transactions, process these transactions against the global state, and produce a transaction effect that signifies modifications to the global state.

This execution framework is integral to the operation of blockchain systems utilizing the Move programming language, ensuring seamless interaction between code written in Move and the underlying blockchain architecture.

The Move ecosystem is already gaining traction.

Within a short period of its release, Move has garnered serious traction among blockchain developers.

We are already seeing multiple ecosystems adopting Move.

Some notable examples include:

• Sui Network: Leveraging Move, Sui is designed for scalable DeFi and gaming applications, employing a resource-oriented model that supports composable transactions and parallel processing to achieve higher throughput.

• Movement Labs Projects (M1 & M2):

  • M1: A permissionless Move-based blockchain operating as an Avalanche subnet.

  • M2: Another permissionless Move-based blockchain, currently functioning as a Celestia rollup. M2's goal is to broaden functionality for developers on Ethereum, allowing Solidity projects to deploy on M2 without the necessity for Move code.

• Additional platforms adopting Move include:

  • Aptos Network

  • Starcoin

  • Linera

  • 0L Network

These examples underscore Move's growing influence and its potential to revolutionize various aspects of blockchain development across different platforms.

The Surprising Shift of Liquidity to Sui

The most significant transfer of liquidity from Ethereum L1 is not directed towards its L2 solutions, Solana, Polygon, or the Avalanche C-chain; rather, it's flowing towards Sui.

This flow to Sui is almost tenfold compared to that from Ethereum L1 to ecosystems based on the EVM.

Sui, crafted by developers from Facebook's Diem project, is witnessing the most substantial influx of liquidity, although it still represents a minor portion of the liquidity seen on EVM-based platforms.

This trend might be indicative of an emerging shift, suggesting that Move-based ecosystems could be the forthcoming prominent platforms in the DeFi space.

Should this prediction materialize, we might observe a surge of DeFi applications not primarily on Ethereum L2s or networks like Solana but on platforms that exploit the capabilities offered by the Move programming language.

Is Move the Future of DeFi?

As of now Move VM is the fastest and most secure VM design to date, capable of handling millions of users on-chain at any given time.

Move's approach to smart contract development, which is fundamentally based on platform agnosticism and emphasizes resource safety, atomic transactions, and verifiable contracts, positions it as a strong contender against the programming models of EVM and Solana.

Its unique features address many of the security and efficiency concerns prevalent in today's DeFi applications, providing a robust foundation for securely building complex financial instruments.

Considering all this, Move has the potential to fast-track innovation and adoption of DeFi services across platforms, making it a compelling choice for the new wave of blockchain developers.

Hey everyone!

Blockchain tech gets a lot of buzz for its future possibilities, but it's still finding its feet in the real world. That's where platforms with a practical focus really shine. They use super decentralized blockchains like Cardano and Ergo to help communities that often get overlooked, giving them a leg up in the financial world.

In this special edition of “Just the Metrics”, we're diving into Palmyra. It's one of the pioneers in tokenizing real-world stuff like commodities, aiming to open up opportunities and bring financial tools and global market access to those who usually miss out.

We're also going to take a peek at the ongoing ISPO, what's up with PALM tokens, and other cool stuff.

So, let’s dive in!

What you’ll learn today

Insight 1:See how Palmyra uses blockchain for real-world benefits in commodity trading.

Insight 2: Understand Palmyra's role in helping small-scale producers navigate global market challenges.

Insight 3: Learn about the ISPO, how to participate, and the benefits like PALM tokens and NFTs.

Problem at Hand: The Plight of Small-Scale Producers in Global Commodity Trading

The challenge that Palmyra aims to tackle is profound and layered, deeply rooted in the existing structures of global commodity markets and predominantly affecting underserved farmers and small-scale traders in developing countries.

Firstly, these communities, often rich in high-quality commodities, face significant hurdles in gaining fair market value for their products. The global commodity market, as it currently operates, is skewed in favor of larger, more established entities.

This imbalance arises from various systemic barriers such as lack of market knowledge, limited access to international buyers, and an inability to compete on pricing due to smaller scale operations. Consequently, producers in these communities are often forced to sell their commodities at lower prices, significantly impacting their potential income and livelihoods.

Moreover, the complexities inherent in traditional trading systems further exacerbate this issue. The intricate nature of these systems, with their extensive paperwork, opaque procedures, and bureaucratic hurdles, creates a nearly insurmountable barrier for small-scale producers. This complexity not only makes market access difficult but also introduces inefficiencies and opacity in transactions, leading to diminished trust and increased risks for these producers.

Additionally, the lack of direct access to global markets means that these producers often have to rely on intermediaries. These middlemen, while providing a crucial link to larger markets, also take a substantial cut from the profits, further reducing the producers' earnings. This reliance on intermediaries often leads to a cycle of dependency and diminishes the producers' ability to negotiate better terms or explore alternative market opportunities.

Palmyra aims to solve this by implementing a blockchain-based platform that democratizes access to global commodity markets.

How exactly is Palmyra doing that?

Let’s get into those details 👇

Why Is Palmyra A Blockchain Based Solution?

Twitter tweet

So, why go blockchain with Palmyra? Well, it's all about making blockchain tech more about what it can do rather than how it works. This kind of utility-first angle really clicks with most people. It's like using the internet without needing to know all the techy stuff about TCP/IP protocols.

By keeping the focus on what the blockchain system can do, Palmyra's making this tech way more user-friendly and less intimidating. This approach is key in getting more folks on board who might otherwise be put off by all the complex blockchain jargon.

Take, for example, how blockchain is great at keeping track of things. This is perfect for Palmyra, as it means they can trace and verify all sorts of commodities. This boosts transparency and trust in the whole trading process.

Then there's tokenization, which is a big deal for Palmyra. It lets them create unique financial products, kind of like how fine wines are traded. This is super useful for stuff that's usually hard to put a standard value on because of its unique nature.

And let's not forget about Palmyra's Rebate System – that's another area where blockchain really shows its worth. It plays a crucial role in making the whole rebate thing work smoothly and securely.

So, when you look at it, Palmyra's choice to go with blockchain, it's about using this tech to do some really practical and cool stuff.

Palmyra's Rebate System: Bridging Crypto and Traditional Economies

Palmyra's got this unique twist with its rebate system, which is part of its tokenomics. It's different from your usual crypto stuff because it brings in fresh cash from real-world business right into the token world.

This is primarily achieved through the conversion of fiat transaction fees into token rebates.

Here's how it works:

Revenue Generation through Transaction Fees:When users carry out transactions on the Palmyra platform, a portion of the transaction fees, which are paid in fiat currency, is converted into token rebates, hypothetically set at a specific percentage, for example, 10%.

This conversion infuses new money into the token economy, setting Palmyra's model apart from traditional models that rely on internal capital flow.

Rebate Allocation: If you're into staking on Palmyra, you can get your hands on these rebates. It's a smart way to get people involved and offer them a little extra for being part of the platform.

The cool part? These rebates are tied directly to how well Palmyra's doing in the real world. That means the token's value is closely linked to actual business performance, making it more down-to-earth and stable.

By mixing real-world transaction fees with the crypto side of things, Palmyra creates a neat connection between its digital ecosystem and the bigger economic picture. This not only boosts the usefulness of the token but also builds a more lasting economic setup, giving a more solid ground for valuing the token.

To make all this work, Palmyra's gotta smoothly blend traditional finance and blockchain tech. This ensures that everything from transactions to handing out those rebate tokens is done right and tight.

That's the gist of why the PALM Token is more than just another crypto coin and why the ISPO is something to keep an eye on.

But before we dive into the ISPO stuff, let's circle back to why Cardano and Ergo are the go-to choices for Palmyra's tech backbone.

Choice of Cardano and Ergo Platforms for Palmyra

Selecting Ergo and Cardano as foundational platforms for Palmyra was a calculated decision, primarily due to their E-UTxO model. This model is key to the core design of the Winter Protocol, used by Palmyra for tokenization and traceability.

The Winter Protocol, a comprehensive open-source suite, is engineered for scalability across a spectrum of project sizes, with a clear objective of facilitating mass adoption. It provides a range of modular, user-friendly tools for developers working on Cardano and Ergo.

Ergo's also a bit of a standout when it comes to creating NFTs on the cheap. This is super handy for managing a whole bunch of different commodities without breaking the bank. It's especially great when you're dealing with lots of different items, keeping things scalable and sustainable.

Then there's Cardano for providing real-world oracle solutions. These are key for getting up-to-date data feeds, which are super important in the world of commodity trading.

Cardano also brings to the table a really strong, decentralized setup, perfect for building specialized oracles and keeping all that trading data safe and sound. This kind of security is super important when you're dealing with financial transactions and sensitive info about commodities.

But it's not just about the tech. The communities behind Cardano and Ergo are a big part of the picture too. They're all about inclusion, creating opportunities, and thinking ahead. It's not just support; these folks are really involved, giving feedback, spreading the word, and sharing Palmyra's vision of making a real difference.

This community vibe is a big deal for Palmyra, as it's trying to shake up the usual way of doing things and bring in some fresh ideas.

Bridging Blockchain Tech with On-the-Ground Services

Moving beyond just its blockchain roots, Palmyra is now shaking things up in the real world, particularly with logistics and freight forwarding. It's a smart move that shows how they're meshing high-tech with hands-on solutions, like in the specialty tea market.

At the core of Palmyra's logistics strategy is a keen focus on services that really make a difference for specialty tea producers. These guys often find it tough to ship small amounts without spending a fortune. The usual logistics options aren't great for smaller shipments, like between 100 and 2000 kilos, leading to hefty costs or the need to send more than they can handle.

Palmyra's answer? A cool crowdsourced freight service. It lets producers buy just the container space they need. This idea is a game-changer, slashing shipping costs for the smaller players who usually get stuck with higher expenses.

This whole setup isn't just about making freight forwarding easier. It's also about giving the little guys a fair shot at the global market.

Onboarding Process for Farmers and Traders

Getting farmers and traders onto the Palmyra platform isn't just a sign-up-and-go kind of deal. It's more about building real relationships, teaching them the ropes, and showing how smoothly they can blend it into what they're already doing.

It's been super important to build trust, especially with the folks in Sri Lanka and Turkey. They're learning how blockchain can up the value of their products and open doors to bigger markets.

The platform is designed to be user-friendly, so it's easy to get the hang of and see the benefits like better prices and reaching customers all over the globe.

Recent Developments and Expansion

Recently, Palmyra has been busy getting tea producers in Sri Lanka on board. It was a bit of a tough start, but now they're really seeing how cool the platform is. Turkey's been on a similar journey too. And guess what? Palmyra is not just about tea anymore. They're stepping up their game with stuff like spices, cinnamon, rubber, and maybe even sapphires.

Oh, and here's some exciting news – they're about to bring in some amazing Greek olive oil soon. This is really spicing things up and shows how Palmyra keeps growing and mixing things up!

Palmyra has set a pretty straightforward goal for itself: to reach a monthly trading volume of $2 million within the next six months. It's a neat target that reflects their plan to make a meaningful impact in the commodity trading scene, especially in developing countries.

A Guide to  PALM ISPO on Cardano: Process and Participation

An Initial Stake Pool Offering (ISPO) is a novel fundraising method on the Cardano network. Unlike traditional fundraising methods like Initial Coin Offerings (ICOs), an ISPO allows participants to contribute to a project without directly spending their cryptocurrency but their staking rewards. 

Core Concept of the PALM ISPO:

• In an ISPO, holders Cardano’s native currency ADA can delegate their ADA to a specific stake pool.

• Instead of receiving ADA rewards, participants are rewarded with tokens from the project conducting the ISPO—in this case, PALM tokens.

• This model benefits the project as it helps in bootstrapping network security and decentralization. At the same time, participants get an opportunity to earn new tokens, fostering a sense of community involvement.

Key Details of the PALM ISPO:

Palmyra has partnered with Maestro to provide robust infrastructure for two designated stake pools, PALM1 and PALM2. These pools have different margins (99% and 50%, respectively) to cater to diverse community preferences.

Duration: The PALM ISPO is set to run for approximately 4-6 months. The ISPO will conclude once the allocated tokens for this round are fully distributed.

Exclusive NFT for Participants: As a special appreciation, participants who stake in any of the PALM pools for more than 10 epochs will receive a unique NFT. This NFT offers early access to the Cardano IDO, adding an extra layer of exclusivity and benefit.

How to Participate:

• Choose a Pool: Select either the PALM1 or PALM2 pool based on your preference.

• Delegate Your ADA: Use a Cardano wallet to delegate your ADA to the chosen pool.

• Earn PALM Tokens: Participants will receive PALM tokens instead of traditional ADA staking rewards. Details on how to claim these tokens will be provided closer to the TGE (Token Generation Event) date.

Keep an eye on official PALM communications for the latest updates and announcements about the ISPO.

Hey everyone!

In this week's edition of "Just the Metrics," we're focusing on Solana, a blockchain that's recently gained traction due to the notable increase in its native token, SOL.

The rise in SOL Token's value has attracted attention from both investors and the broader blockchain community, raising questions about the technology behind Solana.

Adding to the discussion, a recent paper by researchers from ETH Zurich offers a critical analysis of Solana's Proof of History (PoH) consensus protocol and its security aspects.

We'll go into the details of this research paper and examine the response from the Solana team, including CEO Anatoly Yakovenko, to gain a clearer understanding of what these developments mean for the platform.

Let’s go!

What you’ll learn today

Insight 1:Our take on the current narrative around Solana compared to Ethereum's narrative.

Insight 2: Details of the technical complexities and potential vulnerabilities highlighted in recent research on Solana's consensus protocol.

Insight 3: Why Solana's approach to blockchain development facilitates rapid progress but also presents the risks of prioritizing speed over thoroughness.

The Rising Popularity of Solana: What's Behind the Trend?

There is no doubt that Solana, its token price, and the claims about its tech are trending topics at the moment. One of the biggest reasons for this is the narrative around Solana, which is the current state of Ethereum and blockchain in general, especially due to the lack of cohesion between the narrative of Ethereum and the current state of technology and user experience, which is a complete disappointment for regular users.

Let us elaborate.

Blockchain is a future-oriented technology with meager real-world adoption at this point in time. This is why the crypto market always favors strong narratives that are easily understandable by retail over weak narratives that are convoluted and complicated, rather than actual business cases and usability because it's non-existent in a broader perspective to start with.

For Bitcoin, it changed from digital cash to scarce digital gold, which is simple, easily digestible, and aligns well with the current scalability limitations of the platform. Its narrative has no competing narratives ("ultra sound money" is not a competition but a bad joke now).

This tendency towards simplicity and clarity in blockchain narratives is why Solana's narrative currently triumphs over Ethereum and its Layer 2 ecosystem.

Looking back at the inception of Ethereum, its true value proposition and core narrative was a scalable L1 with a composable ecosystem of applications. Then it changed to the settlement layer with thousands of L2 and L3s, a narrative that is complicated and convoluted.

Even when someone buys into this narrative, the result is a bad user experience due to fragmentation and fracturing of liquidity in the ecosystem, and none of those platforms can offer consistent low and stable fees when demand is high.

So, this narrative is not coherent and falls apart the moment someone believes in it and starts using that platform.

However, Solana has adopted and enhanced the original narrative of Ethereum. Even when someone buys into this narrative and uses the platform, they are not disappointed because the platform manages to offer stable low fees and fast transaction execution.

The centralization and "VC chain" argument against Solana by the Ethereum community does not hold up because ultimately, all of the rollups are 100 times more centralized than Solana.

Ultimately, the concept of Layer 2/Layer 3 and sidechain/partnerchain is weak, complicated, and convoluted compared to the concept of a scalable L1 blockchain that enables a composable ecosystem of applications, which also aligns with the core value proposition of Ethereum at the time of its inception.

So considering that, Solana is embracing the narrative of “go-to L1” with scalability, composability, and sub-second transaction finality, along with the core team of Solana with a very charismatic CEO, Anatoly Yakovenko, who has been able to build a buzz around Solana.

But now a paper has come out dissecting the Proof of History (PoH) consensus protocol from the researcher of ETH Zurich. The paper has made some critical observations about the tech backing Solana.

The question is if these findings would cause any damage to the narrative that Solana has built.

So let's go into the details of the paper👇

Is the Solana Consensus Protocol Broken?

Before we go into the question of if Solana’s consensus protocol is broken, let’s understand what proof of History Consensus protocol is.

Concept and Mechanics of Proof-of-History (PoH)

At its core, PoH operates through a continuous process where the output of one hash iteration becomes the input for the next cryptographic hash function. This creates a sequential chain of hashes, pivotal for maintaining the integrity and chronological order of transactions within the Solana network.

Every node in the network, known as a validator, utilizes this hash chain as an approximate global clock. This approximation is essential for validators to effectively schedule their block production in accordance with the network's timeline.

Timekeeping in the Solana Network

Within Solana, time is meticulously segmented into hashes, ticks/slots, and epochs. Network parameters assume a hash rate of about 2,000,000 hashes per second for each participant.

A single tick, consisting of 12,500 hashes, serves as a timestamp and occurs every 400 milliseconds, forming the backbone of the block production schedule. An epoch, equating to 432,000 slots, typically spans approximately two days, adding another layer to Solana’s complex timekeeping system.

The Role of Validators and Leaders

They are responsible for forwarding user transactions to the current leader and voting on valid blocks. A validator's voting power is proportional to its staked funds.Validators can abstain from voting based on certain conditions, such as not receiving a block or disagreeing with the current block on another fork.

To encourage honest behavior, each vote on a fork is linked with a commitment represented by a lockout timer. This timer prevents the validator from voting on another fork for a specified duration.

Leaders, selected from validators, are tasked with producing blocks for specific slots. The selection process for leaders is based on a weighted index according to their stake. Only validators who have voted within a specific time frame are included in the active set for leader selection.

Consensus Rules in PoH

A block is considered finalized if it receives votes on at least 32 slots later on the same fork or if any following slot on the same fork gets a supermajority (over two-thirds) of votes. The protocol also defines thresholds for considering competing forks and duplicate blocks, addressing potential security concerns like Byzantine faults.

However, these rules also introduce complexity, particularly in scenarios involving multiple duplicate blocks, raising concerns about the network's ability to maintain consistent consensus and prevent malicious activities.

So lets’s take a look at the results of the experiments done by the researchers👇

Testing Scenarios and Observations

Solana's consensus protocol was rigorously tested using the LocalCluster module from the Solana Rust SDK. This framework allowed for setting up a local test network of validators to simulate various network conditions. Key configurations included validator configurations, validator keys, node stakes, ticks per slot, and an option to skip warm-up slots. The aim was to understand how validators interact and reach consensus under different scenarios.

Experiment 1: Duplicate Slot Scenario

One of the primary experiments focused on the behavior of a cluster facing three different versions of a block for the same slot, essentially creating a scenario with three duplicates.

This test involved a 'dummy' validator for initial block production, followed by other validators to observe the resulting voting patterns. The experiments revealed various outcomes based on the stake distribution among validators.

In scenarios where stake distribution was equal or near-equal among validators, the network often faced forks or non-deterministic outcomes. In contrast, when one validator held a significant majority of the stake, the network usually resolved towards consensus, favoring the block version of the highest-staked validator.

Experiment 2: Shifted Blocks Scenario

Another critical experiment, the Shifted Blocks scenario, differed from the Duplicate Slot by creating distinct forks with individual blocks in different slots.

This scenario, which could stem from synchronization issues rather than adversarial behavior, involved validators initially agreeing on a single block and then diverging based on subsequent block production.

Here too, the stake distribution played a crucial role in determining which fork the validators eventually agreed upon.

Solana Mainnet Outage (September 2022)

A real-world incident on Solana's mainnet mirrored the Duplicate Slot scenario, where validators voted on different versions of a duplicate block, leading to a network outage.

The post-mortem revealed an implementation error in the Heaviest Subtree Fork Choice module, which hindered validators from switching to the correct fork.

Key Findings

The experiments highlighted several crucial aspects of the Solana consensus mechanism:

• Stake Distribution Impact: The distribution of stakes among validators significantly influences the network's decision-making process, especially in scenarios involving conflicting blocks or forks.

• Fork Resolution: In cases of forks or duplicate blocks, validators tend to align with the version proposed by the highest-staked validator, indicating a tendency towards centralization.

• Potential for Indecision: Certain stake distributions led to situations where consensus was not achieved, resulting in forks or validators abstaining from voting, thereby highlighting potential vulnerabilities in network stability.

• Efficiency Concerns: The experiments also raised concerns about the efficiency and reliability of the consensus mechanism, particularly in complex scenarios with multiple conflicting blocks

Overall, while Solana's consensus mechanism can handle standard scenarios effectively, complex situations pose significant challenges, requiring further investigation and potential improvements to ensure robustness and fairness in all network conditions.

Response of the Solana Community to Research Findings

Anatoly Yakovenko commended the researchers for their thorough examination of Solana's code, noting that they identified what seems to be an outdated bug.

He also referred to a separate team working on Firedancer, an independent validator client for Solana. The team, @jump_firedancer,is essentially rewriting Solana from scratch, aiming to establish a formalized common specification and indicating proactive steps towards improvement.

So, What Is the Key Takeaway from These Developments?

From the paper and Anatoly Yakovenko's response, it's clear that Solana really embraces the Silicon Valley mindset of moving quickly and sometimes breaking things along the way. This approach sets Solana apart from Ethereum and Cardano, which seem to have a different way of doing things.

Twitter tweet

Solana's got its eyes on the prize— it wants to be the leading L1 blockchain, trying to outdo Ethereum despite Ethereum's head start. At the same time, Solana is also keeping an eye on newer L1 blockchains like Sei and Sui, and it aims to assert its dominance in this space, regardless of the technical superiority these rivals may possess.

This means we might see more research papers in the future pointing out bugs or issues in Solana's protocol. But by the time these papers come out, the Solana team might have already fixed these problems.

Right now, blockchain apps aren't as mainstream as traditional Web2 apps, so even if Solana runs into some big bugs, the fallout might not be too dramatic. The overall impact could be pretty limited since blockchain apps haven't fully hit the mainstream yet.

So we see Solana only as a testing bed for new ideas, and it will take a while until we can view Solana as a blockchain capable of hosting mission-critical dApps.

Greetings, Metrics Explorers!

Laura and Sooraj here, ready for another expedition into the crypto wilderness!

A massive shoutout for sending your inquiries and votes to us!

Today, we don our explorer caps to dive into the Mina Protocol (MINA).

Continue to send your brilliant questions; they could guide our upcoming adventures!

Onward we go!

What you’ll learn today

Insight 1:

What is a "succinct" blockchain, and how does MINA differ from traditional blockchains like Bitcoin and Ethereum?

Insight 2: 

Does Mina's Ouroboros Samasika merely replicate Cardano's Ouroboros Praos, or does it present foundational distinctions?

Insight 3: 

What level of daily selling pressure will result from the impending unlocks on the MINA token?

1. Primer on Mina Protocol

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

Current value in USD: $585.7 million

90-Day Trend: +43%

Current value in BTC: 23,865 BTC

90-Day Trend: +22%

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $28 million

What does this daily volume and size of the market cap mean?

With a market cap of $597 million, Mina is positioned as the 73rd largest cryptocurrency.

For context, Ethereum (ETH) has a market cap of $221 billion and a trading volume of $12 billion. Solana (SOL) has a market cap of $17.6 billion with a trading volume of $1.75 billion, while Cardano (ADA) has a market cap of $11.3 billion with a trading volume of $271 million.

Compared to these larger ecosystems, Mina's market presence is modest.

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: 11% Token Supply Growth

To provide context, the Mina token’s inflation rate is higher than Ethereum's (ETH) 0.37%, Solana's (SOL) 7.4%, and Cardano's (ADA) 2.9%. This points towards a rapid increase in Mina's token supply compared to the more conservative inflation policies of the other blockchains currently.

Here's a sneak peek into Mina's inflation targets👇

Annualized Fee Revenue

Annualized Fee Revenue serves as a gauge of the financial health of a protocol. Elevated revenue figures point to vibrant transactional activity within the network, whereas diminished numbers could hint at waning user engagement

Current value: $27,250

Supply/Demand (S/D) Ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal.

A ratio below 1 suggests that more rewards are being paid out than fees are being earned.

Current value:

▪️ Annual Fee Revenue: $27,250

▪️ Rewards Per Year: $68.66 million

▪️ Ratio: 0.00040

Meaning, Inflation is outpacing Annual Fee Revenue demand by a factor of 2,495.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

L1 token valuations hinge on anticipated network adoption levels. Market capitalization reflects the speculative premium for potential future use, while the past year's transaction fees denote current network demand.

Let's examine the ratio of current valuations to the last year's transaction fees to gauge market expectations.

Annualized Fee Revenue: $27,250

Current Market Cap: $585.7 million

That means, the market capitalization currently exceeds last year's total transaction fees by a factor of 22,018.

3. Security & Participation: Key Staking Metrics

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: 99.12%

90-Day Trend: +1.2%

Mina has one of the highest Staking ratios in the whole blockchain Industry.

Mina also offers a "supercharged" rewards program for accounts that qualify, both for block producers and delegators. This program doubles the rewards for accounts that have non-time locked tokens. If an account stakes unlocked MINA tokens, it will receive doubled coinbase rewards.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $654.12 million

Note: Staking market cap surpasses circulating market cap as unlocked tokens are actively staked.

90 Day Trend:  +44%

Staking Wallets

The number of Staking Wallets indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 66,640

90-Day Trend: +4.62%

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: 10.5%

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

Current value: 100%

Remember: this metric may not be that accurate as it is currently in beta by stakingrewards.com, and continuously being worked and improved upon to better the scoring framework.

5. Risk

Decentralization

A. Governance

Mina does have decentralized governance and on-chain voting. The Mina Improvement Proposal (MIP) process is the primary mechanism for proposing changes to the Mina Protocol.

Once a MIP has been finalized, it is put forward for a community vote.

Any Mina account can vote in two ways: using its tokens or delegating its tokens to another account that can vote on its behalf. An account that is not delegating can vote with their token balance, while an account that is delegating can choose to allow their delegatee to vote on their behalf.

B. Initial Token Distribution

While Cardano and Tezos earmarked 80% of tokens for public sale, Mina reserved a smaller share for public allocation, yet it remains more substantial than the allotments of protocols like Solana or Avalanche.

C. Network

At present, Mina has 402 active validators.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $646 million

The difference between the fully diluted and circulating market cap is approximately 7% of the circulating market cap.

Slashing

Mina has no slashing.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

Here’s a concise overview of the ongoing and upcoming unlocks for Mina tokens👇

Based on the available information, there is theoretically a selling pressure of $170,000 for Mina tokens due to the ongoing unlocks.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• minascan.io: Primary block explorer for Mina, essential for transaction and block activity insights.

• Token Unlocks: This is a token analytics dashboard that provides comprehensive tokenomics data and monitors vested tokens.

• Stakingrewards.com - Continues to be a valuable resource for staking metrics, including staking ratio and reward rates.

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• Remember: Cross-verify information, understand each metric, and stay updated with reliable sources. Especially researching outside the network’s databases to verify the numbers.

Greetings, Metrics Explorers!

Laura & Sooraj here, back for another chapter.

We appreciate your questions and votes, which contribute to the direction of our investigations.

This week, we shift our attention to ATOM.

Your queries and interest drive our content, so please continue to submit your questions.

Ready to dissect the critical metrics of ATOM?

Let's proceed.

What you’ll learn today

Insight 1: Security and Participation: What Staking Metrics Reveal

A thorough examination of Cosmos' key staking metrics, including staking ratios, market cap, and staking wallet numbers to assess network vitality and user participation.

Insight 2: Upcoming Proposals and Their Impact on ATOM's Economics

Investigating the proposed changes in tokenomics, from liquid staking to burn proposals, and how these could fundamentally alter the economic landscape of ATOM.

Insight 3: Is Cosmos's Inflation Rate a Boon or a Bane?

Navigating through Cosmos's Token Supply Growth to understand its implications on supply, demand.

Primer on Cosmos and Atom

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

Current value in USD: $1.87 Billion

90-Day Trend: -33.2%

Current value in BTC: 23,865 BTC

90-Day Trend: -28.5%

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $109 million

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: 16.5% Token Supply Growth

Annualized Fee Revenue

Annualized Fee Revenue serves as a gauge of the financial health of a protocol. Elevated revenue figures point to vibrant transactional activity within the network, whereas diminished numbers could hint at waning user engagement

Current value: $587,073

Supply/Demand (S/D) Ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal.

A ratio below 1 suggests that more rewards are being paid out than fees are being earned, which could potentially call into question the long-term value of the token if this trend continues.

Current value:

▪️ Annual Fee Revenue: $0.58 million

▪️ Rewards Per Year: $321.34million

▪️ Ratio: 0.0018

With an S/D ratio of around 0.0018, Cosmos’s reward payouts are approximately 554 times greater than its annual fee revenue.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

All L1 token prices (Cosmos is not exactly an L1 but we will talk more about that in another section) are based on optimism about the level of adoption achievable by the network in the future.

The market cap of L1 tokens in dollar terms suggests the speculative price people are willing to pay for future adoption.

However, the transaction fees paid in the last 365 days in dollar terms suggest the actual demand for the L1 network.

So let's take a look at how many times these networks are valued today compared to the transaction fees paid in the last 365 days.

Annualized Fee Revenue: $0.58 million

Current Market Cap: $1.87 billion

The cumulative market cap of ATOM token is valued at 3224 times the total fees paid in ATOM

To give you some context

Ethereum is valued at 95.74 times the total fees paid in the last 365 days.

Solana is valued at 554 times the total fees paid in the last 365 days.

MultiversX is valued at 1433 times the total fees paid in the last 365 days.

Cardano is valued at 3082 times the total fees paid in the last 365 days.

🗳️ What's Next? Your Vote Counts!

3. Security & Participation: Key Staking Metrics

Source: www.stakingrewards.com

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: 66.86%

90-Day Trend: -2.45%

When compared to Ethereum's 20.51%, Cardano's 62.41%, and Solana's 71.19%, the staking ratio of Cosmos/ATOM looks strong.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $1.58 Billion

90 Day Trend: -31.4%

In terms of staking market cap of leading platforms, Ethereum leads with $44.45 billion, followed by Solana at $10.78 billion, Cardano at $5.76 billion.

Staking Wallets

The number of Staking Wallets indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 992.7 k (almost a million wallets)

90-Day Trend: +10.09%

This is comparable to Ethereum, which has 781,320 staking wallets, and Cardano, which has around 1.3 million staking wallets.

4. Reward Metrics

Reward Rate

It is the current annualised average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: 20.73%

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

Current value: 100%

According to stakingrewards.com Tezos’s reward stability is relatively high, with minor fluctuations observed over the past 30-90 days.

Remember: this metric may not be that accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

5. Risk

Decentralization

A. Governance

The Cosmos ecosystem focuses on governance mechanisms to realize its aim of creating a network of interoperable blockchains. These are facilitated through the Cosmos Hub's Governance module, which coordinates blockchain modifications via parameters, upgrades, and proposals.

ATOM holders can participate in governance of the Cosmos Hub by voting on proposals with their staked ATOM.

The ecosystem also has additional on- and off-chain processes that exist to set technical direction and inculcate social norms.

B. Initial Token Distribution

ATOM token has a relatively fair initial distribution, when compared to Tokens like ETH or ADA.

C. Network

In total Cosmos Hub has 561 allocated validators, of them 180 are active validators.

For clarification:

Active validators are validators that are currently participating in the consensus process and earning rewards.

And allocated validators are validators that have been selected by delegators to receive their staked ATOM, but are not currently participating in the consensus process.

The current Minimum Attack Vector (MAV) for Cosmos Hub stands at 8.

In the context of networks using pBFT consensus protocol, like , an MAV of 8 indicates that an attacker would need to control a minimum of 33% of the network's nodes to successfully launch an attack on the network.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Similar to Ethereum, which does not have a maximum supply and is technically infinite, ATOM also lacks a hard cap on the maximum supply of tokens.

Due to the absence of a hard cap, the fully diluted valuation of ATOM tokens cannot be determined solely based on the current circulating supply.

Slashing

Validators in the Cosmos ecosystem can be slashed if they misbehave, and this can result in a partial loss of staked ATOM.

Validators can also be jailed, during which time they will not earn any rewards. Validators can be slashed up to 5% for double signing events, and the slashing penalty is just 0.01% for downtime.

Delegators who have staked ATOM with a validator that is slashed will also be penalized in proportion to their bonded stake

Unbounding Period

The unbonding period for ATOM is 21 days.

When a user decides to unstake their ATOM, the amount they choose to unstake becomes unbonding, and they will need to wait for 21 days, making staked tokens illiquid during this time.

During this period, the unstaked ATOM does not earn rewards.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

For ATOM, there are no upcoming unlocks according to our research!

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• mintscan.io and mapofzones.com block explorer for Cosmos ecosystem.

• Stakingrewards.com - Continues to be a valuable resource for staking metrics, including EGLD's staking ratio and reward rates.

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• Remember: Cross-verify information, understand each metric, and stay updated with reliable sources. Especially researching outside the network’s databases to verify the numbers.

Hey, Metrics Explorers!

It’s Laura & Sooraj, back with another adventure in the crypto jungle!

HUGE thanks for throwing your questions and votes our way!

This week, we’re putting on our explorer hats and digging into Tezos (XTZ).

Remember Leo’s question from last week?

He was super curious about how new staking and adaptive issuance might shake things up for price.

Well, Leo, we’ve got some nuggets of wisdom coming your way in this issue!

Keep those awesome questions coming - they might light up the path for our next exploration!

Ready to jump into the Tezos jungle with us?

Let’s go!

PS: Quick heads up, folks! Last week's survey results are in, and it looks like we’re setting our sails towards Atom next week!

What you’ll learn today

Insight 1: Tezos's New Adaptive Issuance: A Game Changer?

• How might the new issuance model shake up XTZ's market and staking dynamics?

Insight 2: Tezos’s Valuation vs. Demand: A Balanced Scale or Tipping Point?

• Navigating through Tezos’s V/D ratio and what it reveals about its valuation and actual utility in the market.

Insight 3: Scalability vs Adoption: Does improving scalability mean that adoption is meant to happen?

• Looking at Tezos’s current level of adoption compared to the scalability it offers.

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

Current value in USD: $658 million

90-Day Trend: -15%

Current value in BTC: 23,865 BTC

90-Day Trend: -5.9%

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $15.5 million

What does this daily volume and size of the market cap mean?

The market cap of Tezos puts it in the league of chains like MultiversX and Algorand. But if you look at the daily volume, Tezos has 300 more daily trading volume than MultiversX and 50% more trading volume than Algorand.

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: 4.6% Token Supply Growth

Tezos has a fixed number of new XTZ that are being created every block which amounts to approximately ~44.6 million XTZ per year or 4.6% inflation with the current Tezos supply.

But this is going to change with adaptive issuance!

The recently announced 15th protocol upgrade for Tezos, "Oxford," features "adaptive issuance," which could be the most significant change to its economic model since the mainnet launch.

What is Adaptive Issuance?

Adaptive Issuance is a modification to the existing issuance model in Tezos, aimed at dynamically adjusting the creation of new tokens (XTZ) based on the amount of XTZ that is staked to secure the network.

Unlike the current model, where the rate of new tokens is constant, adaptive issuance adjusts this rate to encourage or discourage staking.

Implications For Stakers:

Stakers in this context are individuals who lock their XTZ as bonds.

Staking will offer several advantages:

• Staking will carry twice the weight of delegations in terms of baking rights, resulting in higher rewards.

• Reward distribution for stakers is automatic, reducing the need for trust.

• By staking, individuals contribute to making the network more secure.

The target ratio for staked funds is 50% of the total supply, and reaching this target faster would mean fewer total emissions because the dynamic rate of issuance would be lower.

Implications For Bakers:

Bakers can set specific parameters including:

The proportion of their balance to be used as bonds.

Whether they will accept external stakes and how much they will accept.

The cap for staking is five times the baker's own funds, whereas the limit for delegations remains at nine times the baker's own funds. More staking is encouraged for bakers as it offers them an edge over their competition through the opportunity to bake more blocks, thereby earning more rewards.

Annualized Fee Revenue

Annualized fee revenue and token burn serve as a gauge of financial health for a protocol. Elevated revenue figures indicate a robust transactional activity within the network, while diminished numbers may suggest a decline in user engagement.

Current value: $554380

Annualized fee revenue = $293,800

Token burn =$260,580

Source:tzkt.io

In the context of Annualized Fee Revenue, Ethereum takes the lead with a notable $2 billion, far outpacing its competitors.

Tezos lags significantly behind Ethereum but finds itself in a diverse competitive environment that includes Solana and Cardano, which reported $14.22 million and $2.8 million, respectively.

Supply/Demand (S/D) Ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal.

A ratio below 1 suggests that more rewards are being paid out than fees are being earned, which could potentially call into question the long-term value of the token if this trend continues.

Current value:

▪️ Annual Fee Revenue: $293,793

▪️ Rewards Per Year: $23.98 million

▪️ Ratio: 0.012

With an S/D ratio of around 0.012, Tezos's reward payouts are approximately 81 times greater than its annual fee revenue.

For some perspective, the supply of ETH is approximately 1.170 times the demand.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

All L1 token prices are based on optimism about the level of adoption achievable by the network in the future.

The market cap of L1 tokens in dollar terms suggests the speculative price people are willing to pay for future adoption.

However, the transaction fees paid in the last 365 days in dollar terms suggest the actual demand for the L1 network.

So let's take a look at how many times these networks are valued today compared to the transaction fees paid in the last 365 days.

Annualized Fee Revenue: $293,793

Current Market Cap: 624 million USD

The total market cap of Tezos (XTZ) is being valued at approximately 2123 times the total fees paid in the last 365 days.

To give you some context

Ethereum is valued at 95.74 times the total fees paid in the last 365 days.

Solana is valued at 554 times the total fees paid in the last 365 days.

MultiversX is valued at 1433 times the total fees paid in the last 365 days.

Cardano is valued at 3082 times the total fees paid in the last 365 days.

In this context, the higher V/D ratio could be interpreted in two ways:

Overvaluation: XTZ could be overvalued compared to its actual utility.

Higher Speculation: It may also imply that there's relatively more speculative activity around XTZ, compared to tokens like EGLD.

🗳️ What's Next? Your Vote Counts!

3. Security & Participation: Key Staking Metrics

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: 70.87%

90-Day Trend: +0.62%

When compared to Ethereum's 20.51%, Cardano's 62.41%, and Solana's 71.19%, the staking ratio of Tezos looks strong.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $ 461 million

90 Day Trend: -24%

The decline of -24% over the past 3 months in Tezos’s Staking Market Cap is mainly due to the price depreciation of XTZ.

Staking Wallets

The number of Staking Wallets is more than a count; it indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 185,250 Staking Wallets 

In comparison, Ethereum has a significantly higher number of staking wallets at 781,320 and Cardano around 1.3 million.

90-Day Trend: +2%

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: Tezo’s current reward rate is approximately 4.6%.

However, Tezos is a  liquid proof of stake protocol: holders can delegate their XTZ to a baker while keeping them liquid. Bakers then pay them an annual reward of about 5.2%, more than cancelling the token supply growth.

Source: https://forum.tezosagora.org/t/adaptive-inflation/4552

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

Current value: 96.47%

According to stakingrewards.com Tezos’s reward stability is relatively high, with minor fluctuations observed over the past 30-90 days.

Remember: this metric may not be that accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

5. Risk

Decentralization

A. Governance

Tezos was the first blockchain to implement on-chain governance that allows for seamless upgrades to the economic protocol.

The process is decentralized and involves validators voting on proposals, with the most popular proposal going through a multi-step voting and adoption process.

The Tezos Agora Forum is a place for off-chain discussions to happen. Tezos has already gone through 14 major protocol upgrades successfully, with the 15th being voted on at the moment.

Here’s a link to dig deeper into the Tezos’s governance.

B. Initial Token Distribution

Tezos has a balanced token distribution. Around 80% of the tokens went to ICO (Initial Coin Offering) participants while the remaining 20% went to the Tezos Foundation, early backers, and the dynamic ledger solutions business entity representing Tezos.

C. Network

At present, Tezos has 491 active validators, of which 166 are public validators. Both categories of validators, known as bakers in the Tezos network, contribute to block production and transaction validation, earning rewards for their efforts.

Public bakers accept delegations from other users, while private bakers do not.

The current Minimum Attack Vector (MAV) for Tezos stands at 3. (Tezos Foundation: 14.84%, Coinbase Custody 14.03%, Everstake: 6.52% control more than 33% of the staked XTZ)

In the context of chains using pBFT consensus protocol, like Tezos, an MAV of 3 indicates that an attacker would need to control a minimum of 33% of the network's nodes to successfully launch an attack or manipulate the network.

Adaptive Issuance: Enhancing Competitive Edge for Bakers

Adaptive issuance has introduced changes to the Tezos network. Bakers now have the flexibility to set specific parameters, such as the proportion of their balance to be used as bonds and the limits on accepting external stakes.

The staking cap is set at five times a baker's own funds, and the limit for delegations is nine times a baker's own funds. This encourages more staking among bakers, offering them a competitive edge by allowing them to produce more blocks and earn additional rewards.

So, how could adaptive issuance affect the MAV of Tezos?

Adaptive issuance facilitates a dynamic staking environment by enabling bakers to adjust their parameters. This can make smaller bakers more competitive, potentially leading to a more decentralized distribution of staking power. This could inherently raise the MAV, making it more challenging for an attacker to control a significant portion of the network's nodes.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $ 658 million

Similar to Ethereum, which does not have a maximum supply and is technically infinite, Tezos also lacks a hard cap on the maximum supply of XTZ tokens. Consequently, the fully diluted valuation of XTZ tokens is the same as the current circulating supply.

Slashing

Tezos has a slashing mechanism in place to penalize validators who behave badly. If a validator misses too many blocks or double signs a block, the network will penalize them by slashing the staked amount on that validator.

How the Oxford upgrade will change slashing?

In the upcoming Oxford update, slashing penalties are largely unchanged but are now percentage-based. Double baking incurs a 10% penalty of the staked amount, replacing the fixed 640 XTZ penalty. Double attesting retains its 50% penalty.

For clarity, slashing events are extremely rare on tezos.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

There are no upcoming unlocks for tezos!

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• https://tzkt.io/stats: Primary block explorer for Tezos, essential for transaction and block activity insights.

• Stakingrewards.com - Continues to be a valuable resource for staking metrics, including EGLD's staking ratio and reward rates.

• Messari.io - Known for its quality research, Messari offers in-depth analysis and metrics on EGLD among other assets.#

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• Remember: Cross-verify information, understand each metric, and stay updated with reliable sources. Especially researching outside the network’s databases to verify the numbers.

We’re sending you this newsletter straight from a chill evening in Berlin.

As the sun dipped below the horizon, we wrapped up our deep dive into Tezos.

It's been a week of numbers, graphs, and a bit of wanderlust.

Keep those analytical hats on and see you in the next edition with fresh metrics and new tales from our travels.

Laura & Sooraj

#FollowTheMetricsNotTheHype

Hello Metrics Enthusiasts!

Laura & Sooraj here again!

Thanks for your votes last week.

Remember we mentioned Cardano is up next?

Well, the time has come!

This week, we’re shining the spotlight on Cardano (ADA), the second star from our poll results.

But before we dive in:

A HUGE THANK YOU for all your votes!

Your voices have been heard, and the results are in.

Next week, we're setting our sights on Tezos (XTZ). Exciting, right?

Next week’s issue voting

A shoutout to Leo Treasure, a valued member of our elite group of metrics enthusiasts!

Leo is curious about the impact of new staking and adaptive issuance on Tezos' price.

Great question, Leo!

We’ll definitely explore that.

So, if you have questions like Leo, don’t be shy!

Take part in the poll or shoot us an email. We love diving deep into your queries!

Until then, enjoy the Cardano exploration!

What you’ll learn today

• Insight 1: With a robust Market Cap of $9.24 Billion, what's driving Cardano’s growth?

• Insight 2: IOG has announced the launch of “Midnight Sidechain”. What does it mean for the normal ADA hodlers and Stake pool operators?

• Insight 3: With a 63.32% Staking Ratio and a whopping 1.23 million Staking Wallets, how secure and participative is the Cardano network truly?

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

For the past two years, the market cap of Cardano/ADA has seen a consistent decline.

Current value: $9.24 Billion

90-Day Trend: -8.10%

To provide additional context, Cardano's circulating market cap is down by >90% from its all-time high.

This performance contrasts with industry heavyweights like Bitcoin and Ethereum, which are down by 50-60% from their peak values.

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $104 million

It falls short of Ethereum's high levels of $4 billion, and trailing behind Solana's $174 million.

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: +2.59% Token Supply Growth

In a landscape where ETH shows a modest inflation rate of 0.36%, ADA has a notably higher rate of 2.59%.

However, this seems moderate compared to SOL's 7.3%.

Annualized Fee Revenue

Annualized Fee Revenue serves as a gauge of the financial health of a protocol. Elevated revenue figures point to vibrant transactional activity within the network, whereas diminished numbers could hint at waning user engagement.

Current value: $2.8 Million

In terms of annualized fee revenue, Ethereum leads with a substantial $2 billion, while Cardano's $2.8 million pales in comparison.

On the Cardano network, fees generated from transactions are pooled and then distributed. Currently, 20% of these fees go to the treasury, and the remaining 80% is allocated to reward staking operators and delegators.

Solana registers at $14.22 million.

Supply/Demand (S/D) ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal. A ratio below 1 implies more rewards are paid out than fees earned, potentially questioning the token's long-term value if sustained.

Current value:

▪️Annual Fee Revenue: $2.8 million

▪️Rewards Per Year: $181.8 million

▪️Ratio: 0.014

An S/D ratio of 0.014 indicates that Cardano's rewards per year are approximately 65 times greater than its annual fee revenue.

Meaning, from a fundamental supply-demand perspective, there is 65 times more supply than demand.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

All L1 token prices are based on optimism about the level of adoption achievable by the network in the future.

The market cap of L1 tokens in dollar terms suggests the speculative price people are willing to pay for future adoption.

However, the transaction fees paid in the last 365 days in dollar terms suggest the actual demand for the L1 network.

So let's take a look at how many times these networks are valued today compared to the transaction fees paid in the last 365 days.

Annualized Fee Revenue: $2.8 million

Current Market Cap: $9.24 Billion

The total market cap of Cardano/ADA is being valued at approximately 3300 times the total fees paid in the last 365 days.

To give you some context

Ethereum is valued at 95.74 times the total fees paid in the last 365 days.

Solana is valued at 554 times the total fees paid in the last 365 days.

Thus, among the given examples, Cardano has the highest valuation in relation to its annualised fee revenue.

This can be interpreted in two ways:

Higher Speculation: This might suggest greater speculative activity around ADA, with increased optimism about Cardano's future, leading to less perceived risk.

or

Overvaluation: ADA could be overvalued compared to its actual utility.

🗳️ What's Next? Your Vote Counts!

3. Security & Participation: Key Staking Metrics

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: Cardano Staking Ratio: 63.32%

90-Day Trend: +1.15%

When compared to Ethereum's 20.51% and Solana's 71.19%, the staking ratio of Cardano looks healthy.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $ 6.08 Billion

With a staking market capitalization of $6.08 billion, Cardano ranks among the top three assets by staking market cap. When considering only the tokens in circulation that are being staked, Cardano is second in staking market cap.

90 Day Trend: -5.11%

The -5.11% decrease in Cardano's Staking Market Cap over the past three months is primarily attributable to the price depreciation of ADA.

Staking Wallets

The number of Staking Wallets is more than a count; it indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 1.23 million Staking Wallets 

This figure positions Cardano as the blockchain with the highest number of staking wallets. (Though it doesn't necessarily mean that all 1.23 million are individual stakers)

Contrastingly, Ethereum has 781,320 staking wallets, a number significantly lower than Cardano's approximate 1.3 million.

90-Day Trend: +8.46%

What do these Key Staking Metrics mean for a ADA Hodler?

A high staking market cap and staking ratio suggest robust network security and robust community participation. In contrast, Solana lags behind both Ethereum and Cardano in the number of staking wallets, indicating potential for growth.

4. Reward Metrics

Reward Rate

It is the current annualised average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: Cardano’s current reward rate is approximately 2.99%.

What This Means for ADA Stakers: A 3% reward rate is moderate, providing a consistent, though not extraordinary, incentive for stakers and validators to engage with the network.

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

This metric tries to give you an indication of how reliable the expected reward rate for this asset is.

Current value: 90.58%

According to stakingrewards.com Cardano’s reward stability is relatively high, with minor fluctuations observed over the past 30-90 days.

Remember: this metric may not be that accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

What This Means for ADA Stakers: High reward stability means that the stakers can have confidence in the consistency of their staking returns over time.

5. Risk

Decentralization

A. Network

Cardano has one of the most decentralised network with more than 3,000 validator nodes and the highest MAV of 37. This shows a robust and decentralised networking layer compared to other L1s.

B. Initial Token Distribution

Cardano has fair initial token distribution. Something comparable to protocols like Ethereum or Tezos.

C. Governance

Even though Cardano aims for a decentralized governance model, its current governance structure is centralized. Cardano's governance is organized around seven keys, each with distinct ownership:

1. Three keys are held by IOG (Input Output Global), formerly known as IOHK (Input Output Hong Kong).

2. Two keys are held by the Cardano Foundation.

3. Two keys are held by Emurgo.

A decision requires the agreement of at least five of these seven keys, giving IOG an effective veto power. These governance keys wield significant influence over the network's future.

This centralization is expected to diminish once the Voltaire upgrade is implemented next year. A non-incentivized governance testnet, known as SanchoNet, is already operational.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $11.7 billion

The gap between Cardano/ADA's current market cap and its FDV is around 2.6 billion or almost 28% of its total market cap.

Slashing

Cardano does not have slashing conditions, providing a risk-free environment for stakers.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

Based on our research, there is no clear information on upcoming token unlocks in the Cardano network.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• CardanoScan.io: The premier block explorer for Cardano, providing detailed information on Cardano blocks, transactions, and addresses. It’s an invaluable tool for anyone looking to track transactions and monitor the network’s activity.

• StakingRewards.com: This platform remains a crucial resource for all things staking, offering detailed metrics on Cardano’s staking ratio, reward rates, and other pertinent data that can guide your staking decisions.

• AdaPools.org: A detailed and user-friendly Cardano staking pool statistics site. It provides real-time data on each staking pool’s performance, helping you make informed decisions on where to delegate your ADA.

This October sunset in the Netherlands is a gentle reminder to pause and appreciate the beauty amidst the chaos.

We're soaking in the inspiration for another week of deep dives into token metrics.

Until next week, enjoy your moments of tranquility and clarity!

Cheers,

Laura & Sooraj

#FollowTheMetricsNotTheHype

Hello, Fellow Metrics Enthusiast!

Laura & Sooraj here, your crypto guides!

Firstly, a BIG thank you for sending in your votes!

And now, drumroll, please... Spotlight’s on Tron this week!

It might not be the tech marvel of the decade, but its numbers are making some noise.

Why Tron, you wonder? Because you voted, and we listened!

So, is Tron just a stage for Justin Sun's theatrics, or is there a real, bustling user base behind those impressive transaction numbers?

We’re here to sift through the noise and find out!

Expect an exploration that's way more enlightening than a casual tweet from Mr. Sun.

And hey, don’t go too far!

Next week we’re bringing you the lowdown on Cardano, the second star in our poll results.

Stay tuned, exciting discoveries await!

But now: Let’s explore Tron

What you’ll learn today

• Insight 1: Tron’s -3.5% Token Supply Growth Rate indicates a deflationary trend, potentially impacting token value positively.

• Insight 2: Tron isn't far behind Ethereum  In terms of Annualized Fee Revenue, the second-largest with a commendable $760 million.

• Insight 3: The centralization risks, especially those associated with Justin Sun, the single largest stakeholder in Tron and its infrastructure, introduce a significant layer of regulatory and legal risks

1. Market Overview

Circulating Market Cap

This metric serves as an indicator for evaluating the asset's relative size in the broader cryptocurrency market.

The market cap of Tron has been exhibiting a consistent rise over the past two years, whether you're looking at the 90-day, 180-day, 1-year, or 2-year timeframes.

Current value: $7.8 Billion

90-Day Trend: +13%

To put this in perspective, Tron's circulating market cap is only down by 19% from its all-time high.

This stands in marked contrast to industry heavyweights like Bitcoin and Ethereum, which are down by 50-60% from their peak, or other Layer 1 tokens that have plummeted a staggering 90-95%.

180-Day Trend: +26%

1-Year trend: +38%

2-Year Trend: +22%

Daily Volume

The daily trading volume of a crypto asset indicates both market interest and market liquidity. Higher volume corresponds to lower volatility, and vice versa.

Current value: $184 million

With a daily trading volume of $184 million, Tron is certainly making some noise in the market. It might not be hitting Ethereum's 'rockstar' levels of $4 billion, but hey, it's outpacing Solana's $174 million and Cardano's $100 million.

What Does This Daily Volume and Size of the Market Cap Mean?

So, Tron's market cap has been on a bit of a joyride for the past two years and is currently sitting pretty at $7.8 billion.

It has a decent volume compared to Layer 1 tokens like SOL and ADA.

Not too shabby for a blockchain that's often in the limelight for reasons other than tech.

2. Supply and Demand

Token Inflation Rate

Inflation Rate's Significance

A high rate could dilute the token's worth, turning it into something less exciting. A low rate, however, could drive up both demand and price.

Current value: -3.5% Token Supply Growth

Source: tronscan.org

In a landscape where Ethereum shows a modest inflation rate of 0.28%, Tron is indeed an anomaly with its deflationary rate.

This contrasts sharply with SOL's 7.3% and ADA's 2.63% inflation rates.

ETH’s Inflation rate Source: www.stakingrewards.com

What does this -3.5% rate mean for a Tron Hodler?

Simply put, the decreasing supply could induce scarcity, theoretically increasing demand and possibly the value of individual tokens, provided other market conditions remain favorable.

Annualized Fee Revenue

Annualized Fee Revenue serves as a gauge of the financial health of a protocol. Elevated revenue figures point to vibrant transactional activity within the network, whereas diminished numbers could hint at waning user engagement

Current value: $760 Million

Source: tokenterminal.com

In terms of Annualized Fee Revenue, Ethereum leads the pack with a monumental $2 billion. Tron isn't far behind, the second-largest with a commendable $760 million.

Since TRON burns 100% of its transaction fees from the network's circulating supply, it increases scarcity. This creates value for all tokenholders rather than compounding the balances of validators and delegators. Since the burned transaction fees represent revenue, growth or declines in revenue generation influence TRX's market value either upwards or downwards.

Solana and Cardano are more distant competitors, registering at $14.22 million and $2.8 million, respectively.

Supply/Demand (S/D) ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal. A ratio below 1 implies more rewards are paid out than fees earned, potentially questioning the token's long-term value if sustained.

Current value:

▪️Annual Fee Revenue: $760 million

▪️Rewards Per Year: $126 million

▪️Ratio: 6.03

With an S/D ratio of around 6.03, Tron is showing that it's more than capable of covering its bills. An S/D ratio of 6.03 indicates that Tron's annual fee revenue is approximately 6 times greater than its reward payouts.

Valuation to Demand (V/D) Ratio

Here we are looking at the valuation-to-demand ratio. So what does it mean?

All L1 token prices are based on optimism about the level of adoption achievable by the network in the future.

The market cap of L1 tokens in dollar terms suggests the speculative price people are willing to pay for future adoption.

However, the transaction fees paid in the last 365 days in dollar terms suggest the actual demand for the L1 network.

So let's take a look at how many times these networks are valued today compared to the transaction fees paid in the last 365 days.

Annualized Fee Revenue: 760 million USD

Current Market Cap: 7.58 billion USD

The total market cap of Tron Token (TRX) is being valued at approximately 9.97 times the total fees paid in the last 365 days.

To give you some context

Ethereum is valued at 95.74 times the total fees paid in the last 365 days.

Solana is valued at 554 times the total fees paid in the last 365 days.

MultiversX is valued at 1433 times the total fees paid in the last 365 days.

Cardano is valued at 3082 times the total fees paid in the last 365 days.

Thus, among the given examples, Tron has the lowest valuation when compared to its annualized fee revenue.

In this context, the lower M/D ratio could be interpreted in two ways:

Undervaluation: TRX could be undervalued compared to its actual utility, presenting a potential investment opportunity.

Lower Speculation: It may also imply that there's less speculative activity around TRX, which could be seen as a negative.

Why?

When it comes to valuation, Crypto is a space where speculation triumphs over actual utilization. So lower speculation in this context means, a high risk perceived in investing in TRX token—more on that in the risk section.

🗳️ What's Next? Your Vote Counts!

3. Security & Participation: Key Staking Metrics

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: Tron Staking Ratio: 48.23%

90-Day Trend: +7.05%

When compared to Ethereum's 20.51%, Cardano's 62.41%, and Solana's 71.19%, the staking ratio of Tron looks modest, but not too bad.

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $ 3.67 Billion

With a Staking Market Cap of $3.67 billion, Tron is in the top 10 staked assets by staking market cap

90 Day Trend: +29.7%

The growth of +29% over the past 3 months in Tron's Staking Market Cap is mainly due to the price appreciation of TRX as well as the increase in staking Ratio.

Staking Wallets

The number of Staking Wallets is more than a count; it indicates network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 368,840 Staking Wallets 

This number puts Tron in the range of projects like Solana.

In comparison, Ethereum has a significantly higher number of staking wallets at 781,320 and Cardano around 1.3 million.

90-Day Trend: +5.97%

What do these Key Staking Metrics mean for a Tron Hodler?

A high staking market cap and staking ratio indicate robust network security and strong community participation. However, compared to Ethereum and Cardano, Solana has fewer staking wallets, suggesting room for growth.

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: Tron’s current reward rate is approximately 3,5%.

What This Means for TRX Stakers: A 3% reward rate is moderate, offering a steady, albeit not spectacular, the incentive for stakers to participate in the network.

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

This metric tries to give you an indication of how reliable the expected reward rate for this asset is.

Current value: 100%

According to stakingrewards.com Tron’s reward stability is relatively high, with minor fluctuations observed over the past 30-90 days.

Remember: this metric may not be that accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

What This Means for TRX Stakers: High reward stability means that TRX stakers can have confidence in the consistency of their staking returns over time.

Real Reward Rate

It is the nominal reward rate of the network adjusted for inflation. This metric can provide insights into the actual, inflation-adjusted return that stakers or delegators can expect to receive for participating in the network, and can help the stakers understand the potential long-term value of their token holdings.

Why does it matter?

The real reward rate adjusts the nominal rate for inflation, providing insights into the actual value stakers receive.

Current value: 8.73% with an absolute change of -0.49% over the last 30 days and 6.83% over the last 90 days.

What does it mean for a TRX staker: Positive real returns mean that the value of stakers’ holdings is increasing, not just nominally but also in real terms, enhancing the long-term value of their assets.

5. Risk

Hypercentralization

Due to hypercentralization, Tron has exponentially more risks compared to other L1s.

A. Founder

Justin Sun is a controversial figure, and his influence and money play a significant role in propping up Tron, but they also serve as a significant liability for Tron as a platform.

• Justin Sun's Control: His substantial TRX ownership and sway over Tron's infrastructure amplify ethical, legal, and governance risks, undermining the platform's credibility.

• Acquisitions: Tron's purchases, like Steemit, spark intellectual property issues and fuel debates on centralization, fracturing the community.

• Regulatory Action: The SEC's legal action against Justin Sun for unauthorized issuance of TRX and BTT escalates legal risks and governance concerns.

• Market Manipulation: SEC accusations of artificially inflating TRX trading volume via wash trading introduce market integrity concerns.

• Covert Endorsements: Undisclosed celebrity compensations for promoting TRX and BTT indicate transparency issues in promotional activities.

B. Initial Token Distribution

Tron has a highly centralized token distribution, and governance is heavily centralized around Justin Sun and the Tron Foundation.

C. Block production and Governance

Tron's PoS algorithm employs a select group of Super Representatives for transaction validation. The influence of a small number of actors with significant holdings, especially considering its very centralized token distribution, leads to centralization of the blockchain.

D. On-Chain Activity

The majority of Tron's on-chain activity is centered around a few applications such as JustLend, JustStables, SUN, and JustMoney. Upon further investigation, there is no information available about the teams behind these protocols. This absence of information raises questions about whether these are protocols supported by the Tron Foundation or entities related to Justin Sun. There is not much information available to the public to verify these connections.

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If any tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $7.8bn

Tron’s Fully Diluted Market Cap is relatively close to its current market cap, indicating limited dilution risk.

Slashing

Current Status: Tron does not have slashing conditions, providing a risk-free environment for stakers.

Upcoming Unlocks

Upcoming unlocks can influence the token’s price as large amounts of tokens might enter the market.

Based on our research, there is no clear information on upcoming token unlocks in the Tron network.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• Tronscan.org: Primary block explorer for Tron, essential for transaction and block activity insights.

• Stakingrewards.com - Continues to be a valuable resource for staking metrics, including EGLD's staking ratio and reward rates.

• Messari.io - Known for its quality research, Messari offers in-depth analysis and metrics on EGLD among other assets.#

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• Remember: Cross-verify information, understand each metric, and stay updated with reliable sources. Especially researching outside the network’s databases to verify the numbers.

After all this research we went out for some fun.

Under a late September sky with friends (shh, they don't know they're online!), we shared laughs and insights.

much like we do with you each week on token metrics.

Ready for another round of clarity next week? We are!

See you next week,

Laura & Sooraj

#FollowTheMetricsNotTheHype

What you’ll learn today

• Insight 1: EGLD's $651 Million Market Cap places it in the same league as tokens like ALGO and XTZ.

• Insight 2: A 67.06% staking ratio indicates a highly engaged community and strong network participation for EGLD.

• Insight 3: When comparing the supply-demand dynamics of ALGO with EGLD, ALGO has 215 times more supply (Rewards Per Year) than demand (Annualized Fee revenue), compared to EGLD's 64 times.

1. Market Overview

Market Cap

Market Cap’s Significance

This metric serves as an important indicator for evaluating the asset's relative size and significance in the broader cryptocurrency market.

Current value: $651 million

With a market capitalization of $196.42 billion, ETH's size is substantially bigger than that of EGLD. The Market Cap of EGLD comes in the range of Tokens like ALGO (Algorand), and XTZ(Tezos).

Trend: -28% in the last 90 days

Daily Volume

Daily Volume's Significance

The daily trading volume of a crypto asset indicates investor interest and market liquidity. High volume facilitates easy buying and selling, while low volume may present challenges in executing trades without affecting the asset's price.

Current value: $10 million

A daily trading volume of $10 million for EGLD suggests limited market activity.

For comparison, Ethereum reports a daily volume of $4 billion, while Algorand and Tezos have daily volumes of $20 million and $10 million, respectively.

Understanding Daily Volume and Market Cap: Implications for Your Portfolio

The market capitalization of EGLD is similar to that of tokens like Algorand (ALGO) and Tezos (XTZ).

Currently, the altcoin market is trending downward, and historically, December tends to be a challenging month for crypto tokens in a bear market. This trend is expected to continue at least until then.

2. Supply and Demand

Inflation Rate

Inflation Rate's Significance

Inflation Rate is a window into MultiversX's token supply dynamics. A high inflation rate can dilute the value of existing tokens, while a low rate might suggest scarcity, potentially driving up demand and price.

Current value: Witnessing a 5.71% Token Supply Growth

Source: www.stakingrewards.com

Compared to Ethereum's modest inflation rate of 0.24%, EGLD has a notably higher rate of 5.71%.

Source:www.stakingrewards.com

Given that EGLD is a relatively new L1 Token, the higher inflation rate is designed to decrease by 18% annually.

What This Inflation Rate Means for You

Inflation impacts the real value of EGLD holdings. Moderate inflation aids network security but can dilute token value. Without staking rewards, your share in EGLD's total supply could decrease by nearly 5.7% annually.

Annualized Fee Revenue

Annualized Fee Revenue is a measure of financial activity. A higher revenue indicates a robust protocol with plenty of transactional activity, while a lower figure might suggest reduced network usage.

Why is it important?

Current value: 0.45 Million

Source: http://tokenterminal.com

When comparing MultiversX's annualized fee revenue of $0.48 million with Ethereum's robust $2 billion, the gap is significant.

However, if one considers L1 platforms in the same market cap range, such as Algorand, the picture changes. MultiversX boasts nearly six times the annualized fee revenue of Algorand.

Supply/Demand (S/D) ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal. A ratio below 1 implies more rewards are paid out than fees earned, potentially questioning the token's long-term value if sustained.

Current value:

▪️Annual Fee Revenue: $ 0.45 million

▪️Rewards Per Year: $29.6 million

▪️Ratio: 0.015

With a calculated R/R ratio of approximately 0.015, in other words, EGLD has 64x more supply than demand.

Comparative Analysis: Financial Equilibrium Insights

In contrast, Ethereum's S/D ratio is approximately 1.17 ($2 billion USD / $1.64 billion USD), indicating a more balanced system where the fee revenue nearly matches the reward payouts.

If you compare Algo with EGLD, ALGO has 215x more supply (Rewards Per Year) than demand compared to 64x EGLD.

Ethereum, being a more mature chain, possesses a more sustainable economic model compared to MultiversX.

Yet, when MultiversX is compared with Algorand, it appears that MultiversX has, at least for the present moment, a relatively more balanced economic equilibrium.

3. Security & Participation: Key Staking Metrics

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $435.76 million

With a Staking Market Cap of $435.76 million, MultiversX exhibits a decent level of financial support.

For context, Ethereum has an impressive Staking Market Cap of $41.51 billion, while Algorand's is at $239 million.

90 Day Trend: -23.45%

The decline of 23.45% over the past 90 days in MultiversX's Staking Market Cap is primarily attributed to a drop in the price of EGLD.

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: 67.06%

Compared to Ethereum's 20.51% and ALGO's 26.69%, EGLD's 67.06% staking ratio is notably high.

90-Day Trend: +2%

The 90-day trend indicates a stable to slightly increasing level of network participation, with a change of +2%.

Staking Wallets

The number of Staking Wallets is more than a count; it's an indicator of network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 141,000 Staking Wallets 

In contrast, Ethereum boasts a much higher count of 781,320 staking wallets, and Cardano has approximately 1.3 million.

Implications for EGLD Hodlers👇

While MultiversX may not rank among the top 10 L1s by market cap, its metrics are not insignificant, especially when compared to Ethereum.

When placed alongside a similarly-sized L1 like Algorand, EGLD demonstrates superior security metrics.

🗳️ What's Next? Your Vote Counts!

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: 6.79%

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

This metric tries to give you an indication of how reliable the expected reward rate for this asset is.

Current value: 88.21%

According to stakingrewards.com the reward stability for staking EGLD is 88.21%, but this metric may not be that very accurate as it is currently in beta.

Real Reward Rate

It is the nominal reward rate of the network adjusted for inflation. This metric can provide insights into the actual, inflation-adjusted return that stakers or delegators can expect to receive for participating in the network, and can help the stakers understand the potential long-term value of their token holdings.

Why does it matter?

Higher real reward rates generally indicate greater potential returns for stakers or delegators, while lower real reward rates may indicate lower expected returns or potentially negative real yields in some cases.

Current value: +1%

What does it mean for an EGLD staker?

A real yield can be negative when the nominal yield, or the reward rate generated from staking or delegating, is lower than the rate of inflation within the network.

In such a scenario, even though you may be earning more of the cryptocurrency through staking rewards, the purchasing power of your holdings could be declining.

This means that the real value of your assets, when adjusted for inflation, is diminishing, resulting in a negative real yield.

5. Risk Metrics

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) indicates potential value dilution. If a lot of tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $785 million

The gap between MultiversX's current market cap and its FDV is around 136 million or almost 15% of its total market cap.

What does FDV mean for an EGLD Hodler?

For an EGLD holder, the FDV offers insight into potential token dilution. A gap between the current market cap and FDV suggests future tokens entering circulation, which could exert downward price pressure.

In contrast, Ethereum's FDV is essentially the same as its market cap, indicating limited risk of token dilution, thereby causing lesser selling pressure for the Token.

Slashing

Current Status: No Slashing Conditions

Compared to some networks that impose severe slashing conditions, MultiversX offers a more lenient environment. This can be attractive for new stakers.

What No Slashing Means for Your Portfolio 

For an EGLD token holder, the absence of slashing conditions means less risk when staking.

Upcoming Unlocks

EGLD has no upcoming unlocks. This is a positive factor from a risk perspective.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

1. Elrond Network Explorer - The official block explorer for EGLD, providing real-time data on transactions, staking, and more.

2. Stakingrewards.com - Continues to be a valuable resource for staking metrics, including EGLD's staking ratio and reward rates.

3. Messari.io - Known for its quality research, Messari offers in-depth analysis and metrics on EGLD among other assets.

4. DeFi Llama - For those interested in EGLD's DeFi ecosystem, this site provides metrics on total value locked (TVL) and more.

As we wrap up this week's "Just The Metrics," guess where I'm finalizing the newsletter?

Yep, from the passenger seat of a car (Laura is driving 😄 )

The beauty of working for yourself is that your office can be anywhere—even a four-wheeled one.

Sometimes, the best insights come from the most unexpected places.

Keep crunching those numbers and stay flexible, wherever you are! 🌍📊

Greetings from the “mobile metrics headquarters"

Laura & Sooraj

#FollowTheMetricsNotTheHype

PS: If you like our newsletter you will love our book ‘A 3-Step Assessment Framework for Layer 1 Blockchains’

It's packed with an easy-to-understand assessment framework & examples of 6 major L1s to help you make metrics-based decisions 💡🤓

A 3-Step Metric-Based Assessment Framework for Layer 1 Blockchains

A full eBook in an NFT to get insights into blockchain's decentralization, scalability & security for better decision-making

book.io/3-step-metric

Subscribe to Just The Metrics 👇

What you’ll learn today

• Insight 1: Solana's $7.8 Billion Market Cap marks it as a crypto heavyweight.

• Insight 2: A 71.19% staking ratio showcases Solana's engaged community and financial strength.

• Insight 3: News, like VISA's involvement, needs cross-referencing with metrics for a full investment picture.

1. Market Overview

Market Cap

Market Cap’s Significance

This metric serves as an important indicator for evaluating the asset's relative size and significance in the broader cryptocurrency market.

Current value: $7.8 Billion

With a market capitalization of $196.42 billion, Ethereum's size substantially exceeds that of Solana. Despite this, Solana's market capitalization has increased by over 29% in the past 90 days, suggesting it is a network gaining momentum.

Daily Volume

Daily Volume's Significance

The daily trading volume of a crypto asset indicates investor interest and market liquidity. High volume facilitates easy buying and selling, while low volume may present challenges in executing trades without affecting the asset's price.

Current value:

With a Daily Volume of $138 million demonstrates robust market activity.

While it may not reach the towering heights of Ethereum's $4 billion in daily volume, Solana's figures are nonetheless impressive for a blockchain of its stature.

What This Daily Volume and size of the Market cap means

A relatively high Market Cap, when backed by substantial Daily Volume, could signify a stable and liquid investment environment. However, it's essential to compare these metrics with larger assets like Bitcoin and Ethereum. As the size of the asset decreases, its volatility generally increases.

2. Supply and Demand

Inflation Rate

Inflation Rate's Significance

Inflation Rate is a window into Solana's token supply dynamics. A high inflation rate can dilute the value of existing tokens, while a low rate might suggest scarcity, potentially driving up demand and price.

Current value: Witnessing a 7.31% Token Supply Growth

Source: stakingrewards.com

Compared to Ethereum's modest inflation rate of 0.11%, Solana has a notably higher rate at 7.35%.

Source: http://stakingrewards.com

Given that Solana is a relatively new blockchain, its higher inflation rate is designed to decrease by 15% annually.

What This Inflation Rate Means for You

Inflation impacts the real value of SOL holdings. Moderate inflation aids network security but can dilute token value. Without staking rewards, your share in SOL's total supply could decrease by nearly 7% annually.

Annualized Fee Revenue

Annualized Fee Revenue is a measure of Solana's financial activity. A higher revenue indicates a robust protocol with plenty of transactional activity, while a lower figure might suggest reduced network usage.

Current value: 14.70 Million

Source: tokenterminal.com

When you compare Solana's Annualized Fee Revenue of 14.22 million to Ethereum's staggering $2 billion, it's clear that Ethereum is a financial giant.

However, it's essential to understand that Solana, though smaller, is showing promising financial activity, especially when considering its relative age and market position.

Supply/Demand (S/D) ratio

The S/D ratio measures the network's financial balance. A ratio close to 1 indicates fee revenue and reward payouts are nearly equal. A ratio below 1 implies more rewards are paid out than fees earned, potentially questioning the token's long-term value if sustained.

Current value:

▪️Annual Fee Revenue: $14.7 million

▪️Rewards Per Year: $541.69 million

▪️Ratio: 0.0271

With a calculated R/R ratio of approximately 0.027, Solana is leaning towards higher payouts.

Comparative Analysis: Financial Equilibrium Insights

In contrast, Ethereum's R/R ratio is approximately 1.17 ($2 billion USD / $1.64 billion USD), indicating a more balanced system where the fee revenue nearly matches the reward payouts. This could suggest a more sustainable model for Ethereum in comparison to Solana, at least from a financial equilibrium standpoint.

What This R/R Ratio Means for the SOL Hodler?

For a SOL token holder, understanding the R/R ratio is crucial. It provides insights into the token’s supply / demand dynamics.

An L1 truly succeeds when it enables very low transaction fees for individual transactions while the total number of transactions creates enough demand for the L1 token to make the L1 ecosystem self-sustainable over time.

None of the blockchains are here yet.

3. Security & Participation : Key Staking Metrics

Staking Market Cap

The staking market cap reflects the total value of staked tokens and indicates network security and participant commitment. A high staking market cap suggests a more secure and stable network.

Current value: $7.72 Billion

With a Staking Market Cap of $7.72 billion, Solana certainly commands a substantial level of financial backing.

Yet, when viewed alongside Ethereum's staggering Staking Market Cap of $41.51 billion, Solana's figure appears more modest.

90 Day Trend: +26.98%

The growth of +26.98% over the past 3 months in Solana's Staking Market Cap is mainly due to the price appreciation of SOL.

Staking Ratio

Staking ratio can provide insights into the level of network participation among token holders, as well as the overall health and security of the network.

Current value: SOL Staking Ratio: 71.19%

When compared to Ethereum's 20.51% and ADA's 62.41%, SOL's 71.19% staking ratio suggests a relatively high staking ratio.

90-Day Trend: +0.49%

The 90-day trend of a +0.49% change further indicates a stable or slightly increasing level of network participation.

Staking Wallets

The number of Staking Wallets is more than a count; it's an indicator of network participation and decentralization. A higher number suggests an active, engaged community, while a lower number might indicate centralized control or lesser community involvement.

Current value: 332,373 Active Wallets 

With 332,373 Staking Wallets, Solana has a thriving community.

In comparison, Ethereum has a significantly higher number of staking wallets at 781,320 and Cardano around 1.3 million.

90-Day Trend: +13.54%

What does these Key Staking Metrics mean for a SOL Hodler?

A high staking market cap and staking ratio indicate robust network security and strong community participation. However, compared to Ethereum and Cardano, Solana has fewer staking wallets, suggesting room for growth.

4. Reward Metrics

Reward Rate

It is the current annualized average reward rate across the network. This is the rate at which stakers can earn rewards for participating in network consensus and/or governance.

Current value: 7%

Reward Stability

This is computed by comparing the realized reward rate over the last 365 days to the expected reward rate 365 days ago.

This metric tries to give you an indication into how reliable the expected reward rate for this asset is.

Current value: 100%

According to stakingrewards.com the reward stability for staking SOL is a 100%, but this metric may not be that very accurate as it is currently in beta, and continuously being worked and improved upon to better the scoring framework.

Real Reward Rate

It is the the nominal reward rate of the network adjusted for inflation. This metric can provide insights into the actual, inflation-adjusted return that stakers or delegators can expect to receive for participating in the network, and can help the stakers understand the potential long-term value of their token holdings.

Why does it matter?

Higher real reward rates generally indicate greater potential returns for stakers or delegators, while lower real reward rates may indicate lower expected returns or potentially negative real yields in some cases.

Current value: -0.29%

What does it mean for a SOL staker?

A real yield can be negative when the nominal yield, or the reward rate generated from staking or delegating, is lower than the rate of inflation within the network.

In such a scenario, even though you may be earning more of the cryptocurrency through staking rewards, the purchasing power of your holdings could be declining.

This means that the real value of your assets, when adjusted for inflation, is diminishing, resulting in a negative real yield.

5. Risk Metrics

Fully Diluted Market Cap

The Fully Diluted Market Cap (FDV) is indicates potential value dilution. If many tokens are set to enter circulation, this could exert downward pressure on the asset's price.

Current value: $10.824

The gap between Solana's current market cap of $7.961 Billion and its FDV of $10.824 Billion is noteworthy.

What does FDV means for a SOL Hodler?

For a SOL holder, the FDV offers insight into potential token dilution. A gap between the current market cap and FDV suggests future tokens entering circulation, which could exert downward price pressure.

In contrast, Ethereum's FDV is essentially the same as its market cap, indicating limited risk of token dilution, thereby causing lesser selling pressure for the Token.

Slashing

Current Status: No Slashing Conditions

Compared to some networks that impose severe slashing conditions, Solana offers a more lenient environment. This can be attractive for new stakers.

Monitoring Network Decisions

While Solana currently has no slashing, it's essential to stay updated. Network decisions can change, and introducing slashing in the future might alter the staking landscape.

What No Slashing Means for Your Portfolio 

For a SOL token holder, the absence of slashing conditions means less risk when staking.

Upcoming Unlocks

Upcoming Unlocks aren't just dates on a calendar; they're potential market movers. When large amounts of tokens become available, it can lead to increased selling pressure, potentially affecting the token's price.

Current value of locked SOL: 56.6 million SOL (11.8% of total staked)

Source: https://solanacompass.com/tokenomics

Current value of locked SOL owned by Alameda : 42.2 million SOL

Source: https://solanacompass.com/tokenomics

What does this mean for a SOL Hodler?

For a SOL token holder or staker, the information about locked SOL stake poses several risks:

Concentration Risk: With Alameda owning 74.5% of all locked stake, this concentration could pose a risk to decentralization and network security.

Liquidity Risk: If Alameda's stake is large enough, its future liquidation could flood the market with SOL tokens, potentially driving down prices. In this case you have to also consider the trading volume of SOL.

Legal Uncertainty: Liquidation process, if similar to past cases, could take up to ten years, introducing long-term uncertainty.

Trust Factor: The involvement in a bankruptcy case, especially with actors like Sam Bankman-Fried could also affect investor and market sentiment negatively, impacting the token's reputation.

Network Governance: With a significant portion locked, the influence on network governance by other token holders could be limited, potentially skewing voting and other decentralized decision-making processes.

6. Conclusion: Narrative vs. Metrics

🧰 Your Toolbox - to boost your token metrics research

• Stakingrewards.com - Your one stop shop to know everything from staking metrics to verified validator list.

• Tokenmetrics.com - One of the best sources of reliable on-chain metrics.

• solanacompass.com - Great source for deep dives into the Solana metrics.

• Coingecko.com - Go to source for everything related to crypto markets.

As we put the finishing touches on this "Just The Metrics" edition, Laura tried to convince me that her home-brewed latte has the perfect "golden ratio" of foam to espresso.

Sitting in a Cafè in Hamburg, we realized that even our coffee breaks aren't safe from our metric madness.

Keep sipping on that knowledge brew and crunching those numbers until next week! ☕📊 

Laura & Sooraj

#FollowTheMetricsNotTheHype

PS: If you like our newsletter you will love our book ‘A 3-Step Assessment Framework for Layer 1 Blockchains’

It's packed with an easy-to-understand assessment framework & examples of 6 major L1s to help you make metrics-based decisions 💡🤓

A 3-Step Metric-Based Assessment Framework for Layer 1 Blockchains

A full eBook in an NFT to get insights into blockchain's decentralization, scalability & security for better decision-making

book.io/3-step-metric

Subscribe to Just The Metrics 👇

 🔢 Metric of the Week 💡

According to stats from Electric Capital