YBB Capital: TVL broke 600 million in 9 days, and the rational thinking about Blast behind the madness

Original author: @YBBCapital Researcher Ac-Core

Foreword:

With the recent launch of Layer 2 network Blast by the founder of Blur, there has been a mixed sentiment in the market in the face of strong expectations of airdrop returns. According to the official trailer, the Blast mainnet will go live in February next year, when it will continue to be airdropped based on points in a similar mode to Blur's previous model. In just a few days after the news came out, the growth rate of Blast's TVL can be described as convincing, but Blur's raid on the Layer 2 narrative has undoubtedly triggered three endings: triggering a new round of hot spots, burying a huge mine and the "plagiarism operation" of related track projects, this event is undoubtedly a market battle between strong technology Layer 2 and strong consensus Layer 2 from a marketing point of view.

Review the basic structure of Ethereum's Layer 2

Source: Top Ethereum Layer 2 Networks

After Blur proposes its new narrative of "Stake Layer 2", we might as well understand the basic structure types of Ethereum Layer 2 before making a judgment. That is, it is a scalable solution that aims to increase transaction throughput and reduce transaction costs by introducing a layer 2 protocol or stack on the Ethereum blockchain, which can be roughly summarized as the following types:

State Channels

Definition: A state channel is a solution based on the direct exchange of signatures between partners without having to write every transaction to the blockchain. The rationale is to create an off-chain environment between participants so that transactions can take place off-chain, only to be broadcast to the network when the final state needs to be submitted to the blockchain. This approach greatly improves the efficiency and throughput of transactions.

How it works: In a state channel, participants can open a channel, perform multiple transactions, and then finally submit the final state of the channel to the blockchain. In this way, only the opening and closing of the channel requires on-chain transactions, while transactions inside the channel can be carried out off-chain, avoiding the cost and time delay of each step of the transaction on the blockchain.

Example: Lightning Network, which is Bitcoin's state channel solution. Users can make fast, low-cost micropayments off-chain, with the final state written to the blockchain only when the channel needs to be closed. On Ethereum, Raiden Network is a similar state channel solution that enables highly scalable transactions by creating a many-to-many channel network.

Sidechains

Definition: A sidechain is a chain that is separate from the main blockchain but compatible with it, and it can have its own consensus mechanism and block generation rules. Users can lock assets from the main chain, then trade them on the sidechain, and finally submit the transaction results to the main chain. This approach improves overall network performance by achieving higher throughput on the sidechain. Here are a few common ways to bridge sidechain contracts:

Pegged Bridge: A mechanism that enables cross-chain interaction by anchoring or mapping assets between two chains. In this bridging method, users lock assets on one chain, and the corresponding number of assets will be generated on another chain. This usually involves a number of trusted intermediaries who are responsible for overseeing the lock-up and release of assets;

Lock-and-Mint Bridge: A lock-and-mint bridge is a way of bridging assets by locking them from one chain and then creating a corresponding number of assets on the other chain. The user locks the asset on the original chain, and the bridging protocol issues the corresponding number of tokens or assets on the target chain. This approach usually requires a trusted intermediary or multisig contract to ensure the security of the lock-and-release process;

Cross-Chain Atomic Swap: A decentralized way that allows users to swap at the atomic level on two chains, i.e., either complete or neither. This method usually uses smart contracts and hash locking to ensure the reliability of transactions. The atomic swap method does not involve an intermediary of trust, but it does involve a more complex smart contract design;

Proxy Bridge: A way to interact across chains through intermediary proxies. The user sends the asset to the bridging agent, who performs the corresponding action on another chain, and then sends the corresponding asset to the destination address. An example of this approach is the execution of transactions between two chains through a multi-signature contract;

Light Client Bridge: A light client bridge uses a lightweight client to track state on the source chain and then generate the corresponding state on the destination chain. This approach does not require the locking and unlocking of assets, but rather ensures the reliability of the interaction by verifying the state of the two chains. This is more common in some Layer 2 solutions on Ethereum.

Plasma

Definition: Plasma is a Layer 2 framework that was first proposed by Vitalik Buterin, one of the founders of Ethereum. Its design is inspired by a tree-like structure, which contains multiple child chains that run independently. Each child chain can process transactions and only submit the final state to the main chain if there is a dispute. Such a structure allows each child chain to be seen as an independent sidechain that can operate at a lower cost and with higher throughput.

How it works: The key idea of Plasma is to reduce the burden on the main chain by spreading transaction processing across multiple child chains. This hierarchical structure helps improve the scalability of the entire system while maintaining the need for security for the main chain. However, plasma also faces some challenges, such as handling the exit on the sub-chain and the design of dispute resolution mechanisms.

Hybrid Solutions

Definition: This is a hybrid approach taken by some Layer 2 solutions that combines the benefits of state channels and sidechains to provide a more flexible solution for different use cases.

How it works: State channels can be used in the system to handle certain high-frequency transactions, while sidechains can be used to handle larger or less frequent transactions. This hybrid approach increases the flexibility of the entire network system by selecting the optimal solution based on the actual needs.

Rollups

This is currently the mainstream and well-known scaling solution, which mainly adopts the method of migrating compute and storage off-chain, as a recent report by blockchain infrastructure unit Chainstack[1] shows that without Layer 2 rollup networks such as Optimism and Arbitrum, Ethereum transaction fees will be 4 times the current price, and it is currently divided into two main categories: Optimistic Rollup and ZK Rollup.

• Optimistic Rollup: It uses an "optimistic execution" approach, i.e. assuming that the transaction is valid, it will only be rolled back if it is disputed. This reduces the burden on the main chain and increases overall throughput. However, an effective dispute resolution mechanism is needed to ensure the security of the system;
• ZK Rollup: Uses zero-knowledge proofs to verify transactions on the sidechain, thus guaranteeing the validity and security of transactions. This approach unleashes the power of zero-knowledge proofs by executing transactions on the sidechain and then submitting the validation data to the main chain, providing a high level of privacy and security.

Validium Chain.

Validium Chains combine the characteristics of sidechains and state channels by executing transactions off-chain while using zero-knowledge proofs to guarantee the validity of transactions. This approach processes transactions off-chain, avoiding the cost of executing each step of the transaction on the main chain, but at the same time ensuring the security and verifiability of the transaction. This provides a novel combination of high performance and privacy protection.

State Rent

First of all, State Rent is not a Layer 2 solution, but an improved mechanism on the main chain. It reduces the pressure on on-chain storage by introducing rents to encourage users to release states that are no longer in use. While not directly increasing transaction throughput, State Rent helps optimize the use of on-chain resources and improve overall network efficiency.

Back to Blast itself

Source: Season 3 Rewards & Loyalty

Each of these different types of Layer 2 solutions work together to solve the scalability problem of blockchain, and each solution has its own unique advantages and use cases, and choosing the right approach often depends on the needs of the specific application, security requirements, and user experience considerations. Blast itself has been proven to be controlling deposit addresses by relying on 3/5 multisig, and most Layer 2 also relies on multisig to manage (see [2]). Even though the issue of the Rollup centralized sequencer is still unresolved, Blast has been a huge success in the short term from the perspective of community consensus.

Lido's possible risks

Source: ASIA ARYPTO

Lido is an Ethereum-based decentralized staking service that powers Ethereum's PoS (Proof-of-Stake) mechanism by allowing users to stake their ETH tokens into the Ethereum 2.0 network. Last's Stake model essentially uses users' ETH assets as staking for Ethereum Lido and RWA, and distributes the returns to users and developers, with the native token as an additional reward. Therefore, staking a large amount of funds in Lido's network also increases the risk of stakers' fund security, and faces a certain degree of continuous "centralization" of staking methods, which may be accompanied by the following risk factors affecting the Lido project:

Liquidity risk: Lido's liquidity is one of the key factors in the successful operation of the project. If there is insufficient liquidity, users may face difficulties when they want to unstake or withdraw their funds. This situation may be affected by market factors, network congestion, and other factors. Ways to address this issue may include developing a more flexible exit policy, increasing the number of market participants, or partnering with other DeFi projects to improve overall liquidity.

Technology upgrade and evolution risk: The Ethereum network and blockchain technology are in a stage of rapid development and may undergo upgrades and evolution. Lido must keep up with these changes and ensure that its technology infrastructure can adapt to the latest standards and upgrades to maintain the security and availability of the system.

Risk of over-centralization:

• Node centralization: Although Lido's goal is to be decentralized, the actual validator nodes are still operated by a specific authority or individual. If these nodes are subject to some form of control or collusion, it can lead to centralized control of the entire system;
• Social engineering and malicious behavior: Validator node operators may be subject to social engineering attacks or other forms of malicious behavior, which may include nodes being attacked, taken offline, or maliciously manipulated;
• Technology centralization: The core functions and critical infrastructure of the Lido Protocol may be controlled by a small number of technical entities, which can lead to the risk of technological centralization. For example, if the upgrade of the core protocol is too centralized, it may lead to too much concentration of control over the protocol;
• Centralization of funds: Lido's token issuance and staking may be controlled by some large holders, who may have a disproportionate impact on the protocol, as shown in the figure below Dune's data, November 29: The total amount of ETH pledged on the Ethereum Beacon Chain exceeded 28.64 million ETH, and Lido's market share reached 32.20%;
• Centralization of governance: If the governance mechanism of the protocol is too centralized, decision-making power may be concentrated in the hands of a few entities or individuals, ignoring the voice of the broader community;

Source: Dune

Contract Economics Risk: The economic incentives of the project need to be carefully designed to ensure that the long-term interests of users and the ecosystem are protected. Improper incentives can lead to the loss of funds, system instability, or other negative consequences. The project team should continuously evaluate and optimize these incentives to adapt to changing market conditions and user behavior;

Security Audit Risk: The security of smart contracts is the cornerstone of the success of the Lido project. If there is a vulnerability in the smart contract, it can lead to the loss of user funds. Therefore, it is essential to conduct thorough, regular security audits of the contract. At the same time, the project team needs to actively incorporate feedback from the security community and fix the vulnerabilities found in a timely manner.

Community governance risk: The design and implementation of a community governance model may affect the direction of the project and the decision-making process. If community governance is not effective enough, it can lead to difficult decision-making and hinder the development of the project. Therefore, the project team should work closely with the community, establish a transparent governance mechanism, and encourage broad community participation;

Black Swan Events: Unpredictable events can have a significant impact on Lido. The project team needed to establish a flexible risk management strategy to respond to emergencies and ensure that the system was resilient enough to resist risks.

Thoughts and Impacts on Last

Source: Blast Official

Pacman announced that it has raised $40 million in funding for the Blur ecosystem, with participation from Paradigm, Standard Crypto Investment, and Nogan angel investors such as Lido advisor Hasu and The Block CEO Larry 's financing blessing has attracted enough attention from the first appearance, especially recently with the blessing of the new narrative, it can't help but bring us a lot of thoughts.

1.Where does the native interest rate offered by Layer 2 Blast come from?

When a user deposits tokens into the Blast (L2) network, they are actually locking the equivalent tokens, and Blast puts these assets into Lido and RWA for staking, and Blast distributes the income to users and the original points to users, which also brings two direct problems:

• Depositing a large number of user assets into Lido has increased the centralization of the staking track to a certain extent, and for users, users need to consider not only the operational security of Last, but also the operational security of Lido. Assuming that both of them are safe, if TVL continues to maintain its current upward momentum, and due to the uncertainty caused by the price in the secondary market, multiple factors will bring more uncertain risks to the entire Ethereum to a certain extent;
• If Blast is regarded as a "Stake Layer 2" with a new idea, where users lock up a large amount of ETH assets to obtain income while also locking a large amount of liquidity, it is also worth thinking about how Dapp applications in the Blast ecosystem can obtain liquidity and how to tell the new coin issuance expectations.

2.Technology vs. consensus, which direction of Layer 2 is more likely to be bought by the market?

First of all, the main goal of the blockchain is to solve the trust and security problems in transactions, once the information has been confirmed and added to the blockchain, it will be stored permanently, and no single node can modify the data unless it has the ability to control more than 51% of the nodes in the system at the same time. The development of the industry is inseparable from the advancement of technology, and from a technical point of view, Blast is not innovative, but just a new way, and even Blast is not strictly a Layer 2 company.

However, the strongest essence of blockchain is still finance, technology is more based on mathematics and code, and finance is mixed with more psychological expectations, and Last's most successful place is that with the help of its own and Paradigm's strong traffic, it directly hits the user's airdrop expectations for the project in a straightforward way, which to a certain extent compared with other strong technology Rollups, is undoubtedly a way to earn profits through gas to Stake The results were distributed to users, and liquidity is like the soul of all public chain systems, and Blast reached a strong consensus boom in the short term through the expectation of airdrops. In the short term, the strong consensus will still be bought by the market, but more opportunities are needed to maintain it in the long term.

3.A hint from Dan Robinson, director of research at investment firm Paradigm?

Source: X (Twitter) @danrobinson

Disagreement with Blast's project decision:

• Bridging with L2 Order: Paradigm mentioned that they disagree with the decision to initiate bridging before L2. This may indicate that they believe that there may be risks associated with rolling out bridging before the L2 (Layer 2) solution is ready, which may affect the stability and security of the project;
• No withdrawals allowed for three months: Similarly, for the decision not to allow withdrawals for three months, Paradigm may believe that this sets a precedent that is unfavorable to users and may trigger concerns and dissatisfaction among users.

Concerns about marketing methods:

The article mentions dissatisfaction with the way the Blast project is marketed, and points out that these methods can degrade the image of a serious team. Specifically, it may mean that there is a problem with the way the project or technology is advertised, and it may be presented in an exaggerated or inaccurate way.

Past support for Pacman and team:

Paradigm reviewed their support for past work with Pacman and its partners, from Namebase to Blur to Blend. This shows that Paradigm has a certain amount of trust in this team, based on the technical talent they have demonstrated over the years and their track record of building exceptional products.

Support for L2 Vision:

Paradigm stated that they invested in the Blast team because Pacman came up with a vision for the L2 chain and wanted to use it to scale the success of the Blur project. This shows that Paradigm believes that the Blast team has the ability to provide a valuable L2 solution that can positively contribute to the entire ecosystem.

Discussion with the team:

Paradigm highlighted that they have had discussions with the Blast team, voiced their concerns, and the team has shown a willingness to communicate with them. This shows that when difficulties or differences arise, both sides are willing to resolve issues through dialogue.

Responsibility and exemplary role:

Emphasizing their responsibility in the crypto space, Paradigm said they realize that people may value their practices in the space. They made it clear that they do not support certain strategies, emphasizing that they take their responsibilities in the ecosystem seriously.

Overall, this quote reflects some of Paradigm's specific objections to the Blast project's decision-making, but also expresses their support for the Blast team's past work and emphasizes their sense of responsibility in the crypto ecosystem.

• The high yield offered by Blast is not a Ponzi scheme, and its yield is derived from Lido and MakerDAO, based on Ethereum's staking yield and on-chain T-Bills, respectively, which are core components of the on-chain and off-chain economy and are sustainable;
• The Go-to-Market Strategy (GTM) is not related to Paradigm, and while Paradigm advises on the technical L2 design, GTM is entirely internal to Last;
• Blast's invitation system is not new, it has been around for a long time, and it is designed to reward users for their contributions to the L2 ecosystem as a reward for community support, which is why referral rewards exist.

Note: The analysis of this paragraph only represents the author's personal views and does not involve guidance, and can be ignored if there is any objection.

4. The rapidly surging TVL market of over $600 million

Source: DeBank

Since Blur founder Pacman announced the new launch project Blast on November 21, as of November 29, Blast's total crypto locked value (TVL) has reached $614 million in just one week, which has triggered an overall discussion in the industry in the short term, and this "Stack-centered Layer 2" has undoubtedly achieved great success in terms of market consensus.

5. "New Assignment" from ApeCoin

Source: ApeCoin Official

The original article mentions a proposal called "ApeChain", whose goal is to promote research, deployment, and management of ApeChain in the ApeCoin DAO ecosystem (see extension link [3] for the original article). The article describes how the team met with multiple technology solution partners and discussed the strengths and weaknesses of each technology solution to seek buy-in from each partner. After careful consideration by the project team, the project team chose to support Layer 2 Rollups to better attract developers to build on ApeChain.

This makes us wonder if ApeCoin is interested in catching up with the Blast craze in the first place.

Its future development will be compatible with the Optimism Superchain ecosystem, and the commitment to provide it with a base token grant to help the ApeCoin DAO participate in the governance of the Superchain, does this remind us of Ape using Blast's TVL siphon effect to quickly catch up with a wave of hot spots?

Infrastructure includes:

• Block explorers such as Blockscout, Etherscan, or the open-source alternative Otterscan;
• Oracles: Chainlink, Pyth, or Redstone;
• Layer 1 data publishing fees in ETH;
• Sequencer-related runs.

There are two ways to deal with fees during the discussion phase:

• Directly launch ApeChain (AC) tokens, DAO does not bear fees;
• The team will raise funds for the operation and development of ApeChain, and in the future, the governance token will be distributed to ApeCoin supporters.

Finally, Blur's launch of Blast itself is undoubtedly a huge success from a marketing point of view, with the help of its own industry influence to straightforwardly explain the airdrop rules of the points method, which attracted a large amount of funds to pledge in the short term, stimulated a new round of market Stake enthusiasm, and its TVL that raised more than $600 million in a short period of time has also attracted the attention of other Layer 2 and Ape communities, but it should be noted that it has associated uncertain risks and is still worth our caution.

Extended Links:

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【2】 997 L/status/1729128004239216863

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