For any organization dealing majorly in crypto, the last few weeks were something akin to a bad dream. Over $1T of market cap was washed out in the last 3 months with many believing that we’re already in a bear market. Queries about the bear market, recession, and other related terms have gone up on Google by more than 100% compared to the previous few months. The global equity markets shadowed this behavior too with the macro headwinds of high inflation & slower growth finally starting to haunt the central banks.
It’s safe to say that the traders were the worst hit by this sudden price movement with more than $1B worth of liquidations taking place between June 13 and 14 alone. The cascading effects of over-leveraged trades were visible in full display. But as they say — when in doubt, zoom out. Anyone worth their salt would agree that blockchain is a revolutionary technology and cryptocurrencies will change the way people transact and trade in the next decade. And we, at Chorus One, are not the only ones to believe so.
Goldman Sachs recently released the eleventh edition of its annual insurance survey where cryptocurrency was included for the first time. This survey considers inputs from 328 Chief Investment Officers and Chief Financial Officers, representing companies that have nearly $13 trillion in balance sheet assets. Nearly 6% of respondents said they were invested in crypto or are considering doing so. Even Bank of America released a report recently where more than 90% of the people surveyed said that they plan to invest in cryptocurrencies in the next 6 months. It’s no secret that more and more institutions are increasing their exposure to digital assets and with the recent twists and turns in the Celsius saga and rumours of them “managing their money like degens” or “having complete naked exposure to the market”, institutions deserve a safer and less-riskier option to invest where they, and only they, can control their funds. And that’s where staking comes in.
Staking refers to the “locking up” of your digital assets and earning the right to validate the next block of transactions. This is possible for most of the tokens that are based on the Proof-of-Stake consensus mechanism like Solana, Avalanche, Cosmos, Tezos or Ethereum (expected to be PoS driven by 2022). And Proof-of-Stake consumes only a fraction of energy compared to the energy-guzzling Proof-of-Work. And of course, you get rewarded too. According to Staking Rewards, the average interest rate currently is greater than 9% but it can swing between single-digit and triple-digit APYs depending on your asset. In fact, if you currently own Proof-of-Stake-based tokens and don’t stake them, you’re not only losing rewards but your portion of assets would also be continuously shrinking in relation to total supply as the rewards for most of the tokens are mainly generated through inflationary returns.
Enterprise staking is one the safest options for institutions that take a long-term view of the crypto ecosystem as it is not market-dependent. Investing in a liquidity pool comes with its own set of risks not limited to impermanent losses, volatility, no fixed returns, hacks etc. But when you have your tokens staked, even though the market value of your assets might drop, they continue to accrue predictable rewards in that same asset.
Staking is also custody-friendly as you continue to hold control of your institutional assets. No other party can seize control or deny you your accrued rewards, not even a staking company like Chorus One. Compliance is usually one of the top concerns for institutions and hence we also have partnerships with global custodians like Finoa. We also work with custodians of your choice when you partner with us.
Of course, you can run your own validator nodes too but it’s an extremely complicated process requiring expertise and hands-on knowledge and that’s where companies like Chorus One come into play. We’re one of the biggest staking companies globally and work with some of the biggest cryptocurrency exchanges, VC funds, family trusts and other organizations. We monitor our nodes 24/7 and have stringent SLAs with all our institutional clients that act as guarantees against any risk of slashing. In fact, we have never been slashed. Since 2018. We work with the best minds in crypto so you can spend your time deploying funds and not worry about validator technicalities.
If you’re looking for an institutional staking partner, look no further. Drop an email to sales@chorus.one and we shall get back to you.
The bull cycle of 2021/2022 was largely defined by decentralized application platforms that provide an alternative to Ethereum experiencing adoption and growth within their ecosystems. All these platforms have one thing in common: they need operators commonly called validators actually running the underlying infrastructure to enable the applications built on them to be usable.
Most importantly, there should be enough independent operators for such a network to be considered sufficiently (politically) decentralized, to avoid a subset of parties being able to shut down applications, censor transactions, or in other ways impede the credible neutrality of the platform.
A core belief within Chorus One is that the increasing adoption of decentralized applications will lead to further networks springing up; a directional trend that can be observed looking at the growth of application-specific chains, e.g. in Cosmos, the pioneering and leading ecosystem of this approach (via the Cosmos SDK and IBC), which is also being pursued by similar initiatives in other ecosystems (e.g. Avalanche subnets, Polygon supernets, Substrate chains on Polkadot). Notably, in recent months, some of the most used applications including decentralized derivatives trading platform dYdX confirmed and NFT juggernaut Yuga Labs hinted at plans to launch their own application-specific blockchain.
Given these forces on the network supply side, the demand and competition for professional operators are growing and protocol designers need to think about how to incentivize validators to join their ecosystems — as opposed to a “build it and they will come” mentality.
The following post aims to provide an insight into existing strategies and criteria for network foundations to foster decentralization and create a healthy validator set via stake delegation programs.
As mentioned, a key tool in the toolbox of network foundations, who generally are endowed with a decent portion of the underlying protocol’s staking token and the mandate to grow the ecosystem, is the ability to distribute the stake to independent validators. Crucially, here we are not talking about giving tokens directly to validators through e.g. validator-specific investment rounds or incentivized testnets, which are other viable strategies to create alignment. Rather, we talk about delegating foundation tokens to validators based on some sort of evaluation. This mechanism can be used to continuously reward operators that add value enabling them to build a stake in the network via commission rewards. This cannot be underestimated as both a bootstrapping mechanism for validators to join your network and as a mechanism to reward valuable contributions, as well as continued participation and performance.
In the following table, we aim to highlight some of the different criteria choices providing examples of existing foundation delegation strategies that can be taken into consideration. We also look at two exemplary liquid staking protocols, another interesting party with similar goals to a protocol foundation that has been innovating on establishing methods of how stake is distributed among their validator sets.
Furthermore, most programs also institute a maximum fee that validators are allowed to charge. Notably, it can be observed that some liquid staking protocols actively try to minimize validator fees as their main product is the APY of their liquid staking token.
Finally, it is also interesting to note which programs are carried out in an automated fashion on-chain, which is spearheaded e.g. by Solana stake pools and Polkadot’s 1,000 validator program (see links below).
Once aligned on the desired criteria, you’ll need to decide on the frequency and how to communicate the criteria, how people can take part, and how decisions will be communicated. We recommend using a mailing list for upgrade communication and Discord or Telegram for active discussion. We have collected some critical resources from other delegation programs at the end of this post for inspiration.
An alternative to delegation programs that some networks opt for is to run foundation nodes themselves, a practice that we would largely discourage or at least try to limit for early phases of the network in which some additional control of the foundation might be necessary or in some minor fashion to ensure the network’s validator software and surrounding process are useable. At scale, this practice takes away the chance for validators to truly become a part of the network and will ultimately result in a centralized, and thus pointless, network.
Well-designed stake delegation strategies are a powerful bootstrapping mechanism to get independent operators interested in your decentralized network. In addition, they can serve as a mechanism to continuously reward valuable contributions such as community engagement and open-source tooling.
In this post, we touched upon why delegation programs are needed, the underlying goals, and what criteria can be used to conduct them. There is a lot of work to be done evaluating the effectiveness and improving and innovating on delegation strategies we have introduced here.
Chorus One is an experienced staking provider active on over 30 networks actively investing in the ecosystem and helping networks from conception to launch and beyond. We have also written about other tools, including incentivized testnets. We encourage builders launching their application-specific blockchains and researchers interested in this space to get in touch with us through ventures(at)chorus.one
Solana Foundation
Interchain Foundation
Web3 Foundation
Tendermint Team
Lido
Marinade
Terraform Labs
Celo Foundation
Socean
e-Money
The Cosmos vision is one of many application-specific blockchains interoperating with each other. It is the belief that creating domain-specific, sovereign ecosystems will often prove more suitable than building on a shared, general purpose blockchain substrate like Ethereum. But how does value accrual work in such a system? What domains could provide enough value to justify the cost of needing to operate their own blockchain?
Regen Network is building a network focused on ecological regeneration. The goal is to provide tools to actors in the climate finance industry and turn them into stakeholders of the Regen ecosystem.
Regen is a Proof-of-Stake blockchain built on the Cosmos SDK with a staking token $REGEN that recently (on April 15, 2021) launched its mainnet supported by 50 independent validators. This token could accrue value from levying fees on ecological assets originated and secured on-chain, and from transaction fees paid by users paying for services on the network. Data from the recent explosion of decentralized finance protocols and associated governance tokens allow us to get insight into how the market is valuing such tokens.
But first, one might wonder what kind of assets would be secured on the Regen Network and what kind of transactions may take place. This post will take a look at the initial use case of a registry for carbon credits and then discuss two hypothetical valuation methods: one based on discounted cash flows from transaction fees and one based on comparable DeFi protocols, and their respective market capitalization in relation to the assets locked in their smart contracts (TVL).
The Regen Ledger ultimately is designed to become a platform focused on use cases around the topic of ecological finance, but for this analysis we will focus on the first application built by the Regen team, which is a registry for carbon credits.
Carbon credit markets are opaque and private; there are lots of problems that a shared, public market could solve. If you are interested in learning about the how and why, the Regen whitepaper goes into these problems in-depth in section 4.2.1.
Even though there is a lack of transparency and many scattered markets, it is clear that carbon markets, in their totality, are huge. Corporations, governments, NGOs, and public blockchains are all adapting to a new standard of carbon sensitivity. Analysts looking into the topic provide wide ranges of estimates, which can be used as a basis for valuation attempts. In particular, one can assume global trading of carbon credits to amount to $278bn in 2021, an amount that is based on data and growth rates observed in recent Refinitiv studies that also aligns with earlier research conducted by the Regen team. The carbon market has experienced high growth in recent years due to a heightened awareness of climate change and the increasing importance of needing to find a solution.
To understand how capturing this market might translate to value appreciation in REGEN tokens, one needs to first understand the dynamics in a Proof-of-Stake network. While initially, most Proof-of-Stake networks bootstrap their security through token issuance (mostly referred to as inflation), the long-term assumption is often that transaction fees levied within the network should compensate stakers for putting their capital to work. Following this, the price of a staking token could be derived using discounted cash flow valuation. Many analysts in the crypto space have attempted these kinds of valuations, an example from 2018 by John Torado on the REN token can be found here. Using this approach, the Regen Network could accrue significant value depending on the market share of the $278bn carbon credit market that it can capture and its ability to levy a fee on originations and trading of those credits.
As mentioned in the introduction, a plethora of DeFi protocols and associated tokens allow us to get a sense of how the market values governance tokens based on the total value locked within the associated protocol. CoinGecko e.g. is tracking the Market Cap to TVL Ratio for different protocol tokens. Using this comparable approach, one might also consider valuing the REGEN token based on the total value locked in tokenized carbon credits and other natural capital assets that are originated and locked in smart contracts on the Regen Network.
So far, we’ve only talked about the single use case of a public registry for carbon credits. We assumed that the Regen Network will become a place in which ecosystem players originate, buy, and sell such credits. Once such agreements are digitized and exist on Regen Network as NFTs, which is how this will technically work, there are many ways in which these tokenized agreements could become used in the digital economy. As an example, tokenized agreements could serve as collateral in decentralized financial applications giving them additional utility, and increasing the potential market and value capture for Regen as the originating chain. An example would be using natural capital assets as lower volatility collateral to borrow stablecoins against. The DeFi ecosystem will benefit in using real-world collateral since they may bring stability to a space that is currently dominated by highly correlated crypto-assets — a topic that another one of our supported networks, Centrifuge, is also working on by bridging trade and decentralized finance.
The Regen Network and its ecosystem is equipped to have a huge impact on climate finance and defi — bridging worlds. We believe a public carbon credit registry that can ensure credits are actually serving their desired cause is a great start to foster permissionless innovation and will lay the foundation for many more use cases in the future. Regen Network mainnet is there and an liquidity and price discovery for REGEN tokens is coming soon! Make sure to follow the channels linked below to stay in the loop.
The time to coordinate to solve climate change, come join us and the Regen community in this endeavor!
About Regen Network
Regen Network aligns economics with ecology to drive regenerative land management.
Website: https://www.regen.network/
Twitter: https://twitter.com/regen_network
Telegram: https://t.me/regennetworkpublic
About Chorus One
Chorus One is offering staking services and building tools and protocols to advance the Proof-of-Stake ecosystem.
Website: https://chorus.one
Twitter: https://twitter.com/chorusone
Telegram: https://t.me/chorusone
Over the past few months, Chorus One has led the Liquid Staking Working Group to investigate approaches and implications of tokenized stake in Proof-of-Stake networks. Today, we are proud to share the final report that we put together as part of this Interchain Foundation research project.
The Liquid Staking Research Report seeks to lay the foundation for a broader discussion around the trajectory of Proof-of-Stake and the role of staking assets in the emerging decentralized financial economy. The 88-page report covers five main topics:
Staking requires users to lock their assets to earn rewards for securing the underlying network. The way most current protocols are designed, this means the burgeoning decentralized finance ecosystem is not accessible to staking users. In addition, protocols enforce waiting periods for users wanting to withdraw their stake. The report goes into why these restrictions exist and what kind of costs they imply to users.
By pooling staking assets of their customers, cryptocurrency exchanges can alleviate some of the costs for staking end users. Through clever liquidity management and by allowing users to simultaneously stake and access services such as (margin) trading on their centralized platforms, exchanges are able to offer superior products to token holders seeking to participate in staking. The report illustrates this trend and its potentially detrimental second order effects to Proof-of-Stake.
The core goal of the report is to examine alternative staking models that could allow non-custodial staking to rival the centralized custodial experience. To do this, we define liquid staking as protocols that tokenize stake in some form. Tokenized stake, sometimes also referred to as staking derivatives, could allow staking users to access decentralized finance helping them to manage their positions in a flexible and non-custodial manner. The report differentiates between native, non-native, custodial, and synthetic approaches to liquid staking.
The report takes a look at the high-level risks and benefits of liquid staking taking into account the user, network, and legal perspective. We discuss everything from potentially interesting staking-related financial products, over the effects on network centralization and governance, to the regulatory implications of different approaches.
The final part of the report describes proposed designs within the space going into potential benefits and weaknesses of models brought forth by project teams like Rocket Pool, StakerDAO, Stake DAO, Acala and others.
Download the full research report here:
https://mirror.chorus.one/liquid-staking-report.pdf
We’d like to thank everyone that provided us with feedback or contributed to this research in any other way. We are looking forward to continuing to push forward the decentralized Proof-of-Stake ecosystem. Visit our website at https://chorus.one to learn more about our services.
Chorus One is providing staking services and developing cross-chain communication technologies for Proof-of-Stake blockchain networks.
Website: https://chorus.one
Twitter: https://twitter.com/chorusone
Telegram: https://t.me/chorusone
The Interchain Foundation (ICF) is a Swiss foundation, founded in 2017, with the mission of promoting and advancing research and development in open and decentralized networks, with a particular focus on the Cosmos Network.
Website: https://interchain.io
Twitter: https://twitter.com/interchain_io
The Liquid Staking Working Group is committed to advancing the state of the art in staking economics and understanding the broader impact of advanced staking protocols. Join the official Telegram to participate in the discussion.The Liquid Staking Working Group has been hosting meetings in which implementing teams and other relevant projects presented their work. Recordings of these meetings during which representatives of companies like Terra, Matic, UMA, and Unslashed presented can be found on the Chorus One YouTube channel.
Originally published at https://blog.chorus.one on June 16, 2020.
Background
Incentivised testnets have been one of the significant innovations in the crypto space. Cosmos led the way with Game of Stakes, and since then, it’s become a core activity for bootstrapping new networks.
Incentivized testnets are powerful in many ways. They enable validators to build up the skills they need to deploy, upgrade, and maintain the new network. But more than that, testnets help the validators learn how to operate as a community, where they work together to solve problems and make the network more robust. Often the incentives include rewards for maintaining high uptime or for passing a security audit. They may even include activities besides running validators e.g., rewards for content production. Incentivized testnets also give token holders a chance to evaluate the skills of each validator, to help them decide with whom to stake once the mainnet is launched.
A key part of running testnets is to break things. The premise is that the more successful attacks there are on a testnet, the more prepared a network is for mainnet. The best sign that a network has been put through its paces is to find the Holy Grail of bugs: a priority one, severe bug that is a showstopper for the network launch.
This week Chorus One engineer, Reisen, did just that. He demonstrated a critical flaw with the Solana network that allowed him to steal 500M Sol tokens on the testnet. What follows is the story of how he did it.
A Step Back
To start the story, we must go back to when Reisen joined the Chorus One team in June of 2019. Over the summer, Chorus was contracted by Solana to build out StrongGate, a solution that enables high-availability validators on the Solana network. This involved Reisen getting deep into some of the core Solana code. The Solana codebase would challenge any developer, even for a very experienced Rust and functional programming expert like Reisen. That is because the Solana project has innovated on so many fronts in parallel. Solana is built around eight vital technological innovations in one project (as described in this blog post). All these innovations were delivered in Version 1 of the Solana codebase, so when Reisen dove into the codebase, there was still a lot of development activity going on. And none of the eight technologies are easy to grasp. Proof of History is a new model for distributed timekeeping, Tower BFT is a new consensus algorithm, Turbine is a block propagation protocol influenced by BitTorrent, Archivers are a decentralized file system, and that’s only half of them. Anyone of these on its own would challenge any developer. So it was no easy task to dive into the codebase.
When Solana’s incentivized testnet (Tour de SOL) came around, Reisen was determined to come up with the best exploit. It was always in the back of his mind as we looked through the codebase in late 2019. But it wasn’t until Tour de SOL kicked off in February that he focused his attention on the problem.
The First Attacks
Designing distributed computing protocols in Byzantine environments is especially hard. The typical attacks we see on these networks involve crafting malformed packets or launching denial of service attacks. So this is where Reisen started.
His first attack was a joint effort with Certus One. Reisen had identified an issue at network launch time. Each node announces the height of the last block they have seen. The node with the most recent block is then responsible for sharing the latest block(s) to bootstrap the nodes that are joining the network. Reisen realized that this could be used to sabotage the network. By advertising a very high block height, he could control the launch. But the question was how best to exploit this? This is where the amazing Certus One team come in. They built a superb mechanism to slow down the snapshot delivery so that nodes would be effectively stalled trying to get access to the latest chain data before the network could start. They also prepared a compression (or zip) bomb that we deployed but unfortunately was never activated. And they designed the pièce de résistance, a beautiful piece of ASCII art to add to the mischief:
The attack worked! We had successfully attacked the network. Independently, Certus also launched other denial of service attacks on the network. It was such a pleasure for us the partner with Certus on this, as they have long been the rock stars of testnet attacks.
The fun had begun!
The Search For The Big Attack
So far, so good. But Reisen wanted more. He sensed there was a more significant attack possible. And then, last week, he spotted an issue in the code. At this point, it was just a suspicion that an attack might be possible. But he wasn’t sure.
So over a couple of sleepless nights, he set about setting up a test environment to build and test the exploit. Over the weekend, the Chorus team got early indications that the attack was viable. But could Reisen make it happen in the Tour de SOL testnet? We had to be patient as Reisen waited for the right opportunity.
This was the big one. It was the most critical exploit you can imagine in a crypto network: stealing unlimited funds. Reisen had found a bug that allowed a block producer to inject a transaction that could steal funds from any account without knowing the private key. And the network was utterly oblivious to anything being wrong.
But could we launch such a severe attack on Tour De SOL? Reisen felt that we should run it by one of the Solana team first. So we showed the exploit to Michael Vines, Head of Engineering at Solana. And it didn’t work at first. Reisen thought he’d messed up. Maybe there was something wrong with his test environment. He couldn’t reproduce it with Michael. But then, after seven attempts — it worked! We had reproduced it on the Solana Soft Launch testnet.
Now the big question. Could we make it work on Tour De SOL? Again the answer at first was no. It failed. Then it failed again. But at least Michael had seen the exploit working, so we still marked it down as a big success.
But as you may have guessed by now, this wasn’t good enough for Reisen. He needed to see this through. So he left the exploit on a loop. And an hour after we demonstrated the issue to Michael… The transaction went through. WE DID IT! We stole 500 Million SOL tokens from the genesis account on the Tour de SOL testnet.
Deep Dive Into the Issue
Let’s start with some terminology. Solana has slots, periods where a particular validator adds transactions. It’s helpful to think of a slot as a block in a more traditional blockchain context. Leaders are elected for a slot. They get to decide which transactions to include in that slot, during which time they broadcast these transactions to the other validators. Validators run in one of two modes: Broadcast and Replay. The leader broadcasts, while the other validators are in replay mode.
As is typical in blockchains, each transaction contains a set of public keys for the relevant accounts involved in the transaction. In the case of a simple token transfer, this is the sender and receiver public keys. For the token transfer transaction to be valid, it must be signed by the sender’s private key.
Simplified Transaction Format: [Signature, Sender Key, Receiver Key, Payload].
Check: Does Signature belong to Sender Key.
If you sign a transaction with a key that isn’t the correct one, then validators will fail the signature verification step. But this is not what happens when the leader injects a transaction.
The leader broadcasts the transactions they have included in the slot. Each validator receives those transactions, in what’s called replay mode. When transactions are replayed to a validator from the leader, the signature of each transaction should be verified. Instead the validator does a “light” check on the fields of the transaction. It looks to confirm that the correct keys are in place. There is a field in the transaction to indicate if the signatures have been previously checked (presumably by the node that accepted the transaction). But — and this is the critical flaw — the receiving validator does not actually re-run this validation of the signature i.e. there is no explicit check by the validator to verify that the owner of the account from which funds are being withdrawn has signed the transaction. In effect, the receiving validator trusts the transaction coming from the leader. This was the critical issue Reisen identified.
The steps he took were as follows:
But how come we had trouble reproducing the attack on the two testnets? The issue was that sometimes the malicious transaction the leader submitted never made it into the chain. The Solana network is so fast that it’s hard for a leader to inject transactions fast enough. But by retrying in a loop, the transaction was finally accepted into the chain. Reisen had succeeded through sheer grit and determination and found a way to steal 500M SOL on the Tour De SOL testnet.
The Solana Team Response
The Solana team’s response has been great.
The Solana codebase is excellent. The Rust compiler ensures type safety, which rules out whole classes of bugs. And the code is written defensively so that all inputs are checked. We just happened to find the one case where the robust checks we see everywhere else in the code were missed.
And now the hard work for Solana starts. Of course, questions must be asked on how this issue was missed in the recent security audit. But Anatoly (the Solana CEO) has given clear instructions to the team to review all the code, especially the crypto signing pieces.
We think this is the shock that every network needs as it prepares for the mainnet launch. We do not doubt that the Solana team will rise to the challenge to ensure that an issue like this never occurs again.
But at Chorus One we’re thrilled with our work! Reisen got his attack. And he got the much-deserved kudos from Anatoly (which is always lovely!):
And he got a new nickname: Reisen Hood, Prince of Crypto Thieves.
It’s been an amazing week for us. By a strange coincidence, Monday also saw some other big news for Chorus One. We launched Anthem, our multi-network staking platform, which allows token holders to track and manage Proof of Stake portfolios and earnings. Users can create a personalized staking dashboard for any Cosmos address, with detailed data and charts to cover your ATOM staking portfolio. Support for other networks is underway and will be coming soon. So please check it out at https://anthem.chorus.one.
When Kyle Samani first arrived on the crypto scene many were sceptical of this entrepreneur-turned-hedge-fund-manager. Kyle’s unique Crypto Twitter style made him hard to ignore. He would often throw out difficult to answer questions or make provocative statements of “fact”, which seemed designed to trigger the crypto idealists. In the process the community would fight out the ideas, and everyone gained more insight into the issues. Twitter became his crowd-sourced research tool. Later Multicoin built out a great research team to augment the crowd-sourced research, which lead to great insights we can see in their published research.
Since then, Kyle and Tushar have proved to be two of the hardest working fund managers in crypto. Their research has been excellent. Their focus on real business value and on identifying genuine customer needs has been a welcome relief in a sea of idealistic visions. Their deep strategic analysis of how this plays out has been second to none. So it was with great pleasure that we sat down with Kyle to explore the Multicoin mega theses on our podcast. Below are my five key takeaways.
While it’s early days in crypto, it will be hard for new players to get traction in DeFi. Binance is moving quickly in many different areas. They are leveraging their customer base to launch new products. So only new players who can build highly effective customer acquisition funnels will have a chance of competing. The best strategy for new entrants is a novel go-to-market focused on a narrowly defined customer segment, e.g. Bakkt super high-end institutional, FTX in derivatives.
A different approach is to leverage an existing distribution advantage. There are many products that already have millions of users that could leverage this to launch new crypto services. Social networks like Reddit or fintech upstarts can pivot into crypto in this way. Facebook / Libra is the obvious example here. What’s interesting here is that this option is open to any major corporation who is brave enough to take on the regulatory risk and who can overcome the innovator’s dilemma.
It’s hard to see how DeFi aggregators can create network effects. As a thin layer on top of other protocols (Compound, Maker etc.) it seems clear that the protocols have network effects but the UI layer does not. It will be interesting to see if any aggregation service can find a way to build in their own network effects. But maybe this feeds in (2) above: potentially the best strategy is to build a network effect elsewhere and then leverage that to resell DeFi services to a captive audience.
Samani argues (pretty convincingly) that the Cosmos vision of thousands of self-sovereign blockchains may be too complex to achieve. Do developers really want to build their own blockchains or would they prefer to focus on building services? Can the complexities of cross-chain messaging ever we abstracted away? Can all of these chains be secured? It seems like a concerted effort to build out shared security on Cosmos would be a meaningful first step to address this, followed by great libraries for building cross-chain dapps.
So maybe the future isn’t thousands of inter-operating chains. And if we haven’t solved the interchain complexity, then we probably haven’t solved the complexity of sharded chains either (as it’s pretty much the same problem).
One outcome is that Ethereum 2.0 wins out and retains its dominance. A second potential answer: Solana takes over from Ethereum as the platform of choice.
If it delivers on it’s promise, then we will get tens of thousands of transactions per second, with sub-second block times and very cheap fees. It could feasibly meet the needs of almost all use cases. And it can get faster — GPU cores are doubling every 18 months and so is bandwidth, so Solana validators could add more capacity at any time.
With the Ethereum 2.0 release looking so far away, will Solana have an opportunity to take over? Instead of an interchain world, could we see a return to a single chain dominating the space?
While we may not agree with all of what Kyle has to say, there is no doubt that he has thought deeply about all of these issues and his arguments are well reasoned.
We hope you enjoy the podcast: https://chorusone.libsyn.com/episode-25
Humanity’s strive for economic growth fueled by carbon-based energy sources has led to the warmest 5-year period on record according to a recent report by the World Meteorological Organization (WMO). Our planet’s atmosphere is reaching record high greenhouse gas concentrations and there are no signs of these trends slowing down. It’s becoming clear that major actions are required to avoid an impending crisis.
There are many theories regarding the best way to deliver peaceful social and political change. Most can be grouped into one of the following categories:
Change can and does come from each of these strategies (to different degrees, of course!). They are all useful in their own way. But in this time of climate catastrophe, where urgent action is required, the real challenge is to ensure that the efforts of all these strategies can be channelled so that they can mutually reinforce each other. In this post, we argue that the Regen Network can act as the coordination mechanism to align all of these efforts.
It’s worth noting that the Regen Network didn’t spontaneously arise. It builds on an existing global movement whose origins can be traced back to crypto-anarchism of the late-eighties and early nineties. More recently the thinking behind crypto-anarchism was reborn in communities that formed around the Bitcoin project, particularly with the ideas that led to Ethereum in late 2013. Regen Network is built using technologies from the Cosmos and Tendermint ecosystem, which are grounded in the vision brought forth by Ethereum. There are now tens of thousands (maybe even hundreds of thousands) of developers across the globe working to build out a new internet that is sometimes called Web3 or the decentralized web.
The Web3 philosophy is based on the sovereignty of the individual as a route to political and economic freedom. Projects like Ethereum and Cosmos are also built around ideas of community, where sovereign individuals can achieve their goals by working together with others. This results in new forms of economic interactions mediated by smart contracts, new financial mechanisms (“DeFi”), new social structures (Decentralized Autonomous Organizations or DAOs), new models of democracy and governance, new forms of property rights, etc.
The Regen Network vision starts with the question: what if we could reliably measure the health of every inch of the planet? If we could, then we would notice when things got better or worse in any locality. We could know when soil health improves, when wildlife is reintroduced, when land use is diversified, when water quality improves, when forests are expanded etc. Once we know these things, we can use this information to create incentives rewarding anyone who can make a positive change. This is where capital comes in. Governments, corporations, citizens and communities all have a vested interest in helping to solve this problem. So Regen looks to attract investment capital from those who desperately need to see the problem solved (all of us!) and channel it to the projects that can have the most impact. Various sensors, satellite imagery, drones, data analytics and AI, etc. are used to verify the ecological data. Blockchains provide an open, transparent record of this data and how funds are being spent. The Regen Network is a shared commons: it is owned and operated by the Regen community.
The Regen Network gives us the one thing we are missing right now: trust. We can trust that change is happening as the data is verified at source and recorded on the blockchain. We can trust that the people that are making it happen are getting rewarded appropriately, as smart contracts set the rules regarding how and when people get paid. We can trust that the network cannot be taken over by vested interests, as the governance rules of the system are clear and transparent.
Let’s look at the how Regen fits into the categories of change introduced at the start of this post:
Petitioners are fearless warriors but they face two big challenges: complexity and an aversion to markets. Petitioners typically rely on governments to effect change. But this time governments don’t know how to fix the problem without the wheels coming off the global economy. The solutions required are too complex for any one government to solve and the global systems to manage this (G20, IMF, World Bank, UN) are not equipped to take on the challenge. A failed top-down attempt to reconfigure the global economy could easily slide into global conflict.
So what tools do we have to manage complexity? It turns out we already have a coordination mechanism that has been proven to work on a global scale. It takes inputs from every actor in the system and aggregates that raw data into usable information that is used to make informed decision making. It has enabled sustained growth in human well-being over centuries. This mechanism is called a market.
Unfortunately, petitioners don’t trust markets as they tend to get co-opted by vested interests. Luckily, we now have a solution to this: blockchain technology. The Regen Network uses blockchain technology to build market-mechanisms that are resistant to co-option. These networks are owned and governed by the community. They are carefully designed to avoid attacks by powerful players.
The Regen Network also provides a way for governments to play their part to enable a robust solution to the problem. Governments can’t solve the problem alone, but they can certainly provide funding, supporting infrastructure, regulatory assistance, and rally their citizens behind these efforts.
Localists are the doers. They work hard to get things done. They find solutions that work on a local level. They share these ideas across the Internet with others. Their model has also proved to be effective.
But it’s too slow for what we need right now. And because they haven’t been able to get access to capital, they haven’t been able to scale their ideas.
The decentralized nature of the Regen Network aligns well with the localist approach. With Regen you don’t need to get permission to act. You just need to prove that what you are doing is effective. This aligns well with localists, who are naturally results-focused.
Regen can add value by routing capital to the most effective localists and by providing a mechanism to quickly spread proven models across the globe.
Self-helpers need purpose. They need a mission. They want to build a better life for themselves and those around them. Yes, that includes a safe planet to live in. But they also want a comfortable life for them and their families. A purpose with no income is a life sentence of poverty. So they need purpose that also gives them opportunities to create wealth.
To date all we’ve heard about climate change is that it will cost us. We have to travel less, eat less meat, buy less goods, spend time recycling… It’s all cost and no rewards.
Regen is looking to change that. People should get paid for the value they create. And saving the planet is valuable for all of us. The people who are provably contributing to ecological well-being should be generously rewarded.
The paradigm shift model was proposed by Thomas Kuhn to explain changes in scientific interpretations in the world. The basic idea is that science resists new ideas, until at some point the old interpretation becomes untenable and a sudden and fundamental change occurs. The classic example is the shift from the geo-centric model of the solar system to the heliocentric model of Copernicus.
It is possible that a similar phenomenon is happening with public blockchains, where a new alternative economic and political model is evolving in parallel to our existing social structures. For some people, the old system cannot be reformed. It is destined to lead us to dire ecological consequences. They argue that the only way forward is to build a parallel economic model that can step in to take over from the existing system before it’s too late. In this view, the world will shift over to Web3 once the technology is ready.
Regen Network is one of the most promising projects that delivers on this Web3 vision. For those who believe the current system is doomed, Regen gives them hope and a viable way to contribute to solving climate change.
But you don’t have to be a paradigm-shifter to believe in the Regen vision. For those who think the solution is a pragmatic mix of the existing system with some ideas from Web3, then Regen can also fulfil their needs.
A solution that can align these groups needs to have the following:
The Regen Network has all of the above. They have a viable, credible and pragmatic vision. Regen Network (once it’s fully operational) will show us all a very clear path to contribute in whatever way we can (time, effort, money, education, etc.) Saving the planet gives us all a sense of purpose. Regen channels this purpose into ecological improvement.
You can think of Regen Network as an ecological commitments network. Just like the electricity grid moves electrical power to where it’s needed, their ecological commitments network acts like a grid to route money and effort to where it can have the maximum ecological impact. People plug into the grid. They commit to doing some work that contributes to our ecological well-being. The grid matches them with people who are willing to pay for that task. A binding contract is agreed. Other entities commit to act as auditors. They confirm that commitments were delivered upon by providing proof (e.g. satellite imagery, sensor data). When commitments are verified, the people performing the work are paid.
The solution is powered by blockchain technology, which provides three key enablers that we didn’t have before:
The biggest challenge for the Regen Network to overcome is prejudice within the activist community against market-based approaches to solving the climate crisis.
For a long time, capital has been a dirty word in social activism. For some, money is the fuel of the corruption that protestors have spent decades fighting against. Some contend that the desire to financialize everything has destroyed communities, cultures and the planet. But it’s time to let go of that notion. Capital is not the enemy. Markets are not the enemy. Capital and markets are the solution.
The problem with markets to date is that they were often co-opted to serve the needs of corporations. The rules were crafted to ensure favourable outcomes to those who controlled them. Blockchain networks have changed that. Now anyone can design a market. Anyone can invent their own incentives mechanism and build it in a few lines of code. People can opt into the market mechanism that they believe are the most effective at enabling the change they want to see in the world. This is a profound transformation in the global power structure that the activist community should embrace.
Regen’s vision is to use these new capabilities to build markets based on provable ecological outputs. Avoiding climate catastrophe is a multi-trillion dollar problem. We need a big ambitious vision that can scale. We need a model that can align all stakeholders.
It must channel the energies of the petitioners who can build awareness and spread the word. They can march, lobby, strike to get governments to provide financing for Regen-based projects. Self-helpers will find their life’s purpose and a meaningful way to build wealth for them and their families. These will be the entrepreneurs and individual contributors, the farmers, the data scientists, the IoT experts, the people building AI for analyzing satellite imagery. Localists can plug into the grid and get paid for the work they are doing. They can share this knowledge with other communities across the globe. For sure, some people will only focus on their ability to make money. That could be a global corporation or a poor farmer in sub-Saharan Africa. The Regen Network doesn’t filter people out based on their motivations. The incentives structure and blockchain-enforced rules will ensure that only legitimate activities improving ecological health will be rewarded. People, tools and technology will work together to prevent fraud, scams and collusion.
This is a crisis. It needs urgency. It needs everyone to work together. Regen Network is building the grid that aligns all these efforts at effecting change, and channels them into effective ecological action.
Check out https://regen.network for more information on how you can help.
Regen are currently raising additional funding. If you are a VC, crypto investor or accredited investor, then please visit this page or contact gregory@regen.network for more information.
Chorus One is currently running a validator on Regen’s testnet and will offer staking services on the upcoming Regen Network mainnet. We have partnered with the team building the Regen Network to help fulfill their vision and will own and stake XRN tokens.
Images taken from Wikipedia, a Regen Network slide deck, and Daniel Clay, Markus Spiske, Biegun Wschodni from Unsplash.
Originally published at https://blog.chorus.one on November 5, 2019.
Blockchain fees are an underexplored topic that plague the UX of decentralized applications. Currently, Ethereum users need to hold a balance of ETH to pay for gas fees. There are many workarounds like meta transactions to make onboarding users easier. An often discussed concept is “economic abstraction” — letting users pay fees in other tokens aside from ETH. The Cosmos multi-token fee model aims to embrace this concept. In this model, validators are able to accept different token denominations as fees by whitelisting tokens and configuring minimum fees they are willing to accept per denomination. But using this model also comes with UX implications for the network, especially for stakers that will receive paid transaction fees as compensation.
In the Cosmos ecosystem, transactions will be routed through the Cosmos Hub via the inter-blockchain communication protocol (IBC). Since transaction fees are paid out as rewards to stakers, a world where users pay in multiple tokens also means that those staking will, by design, receive a fraction of these tokens as rewards.
In this world, the UX problem lies on the side of those providing their capital and services to secure the network. Small delegators might end up with tiny balances of fee tokens worthless to them. So how do we get rid off this dust? 🧹
As part of the Cosmos Seoul hackathon, we conceptualized a solution to this problem and won third prize with it. Babelfish is a protocol designed to accumulate fee tokens across a period of time (number of blocks) and to automatically auction them off in a batch. Our design uses Atoms as the auction pair. It distinguishes between individual auctions for popular payment tokens and basket auction for niche tokens.
The hackathon implementation uses a first price open bid auction. The following will walk through a hypothetical cBTC (BTC on a Cosmos peg zone) auction:
For a more detailed description and discussion of potential issues check out our in-depth writeup on Babelfish here.
Babelfish could provide a business model to the Cosmos Hub to offer fee auctions as a service to other blockchains. Additionally, the protocol also enables delegation vouchers to work in a multi-token environment. There are quite possibly some alterations and alternatives to this design. Making use of second price, dutch, or closed auctions is possible. An interesting alternative to our solution could also lie in an automatic conversion of fees using a Uniswap-style DEX. We are excited to contribute our research to making a user-friendly internet of blockchains a reality.
About Chorus One
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Originally published at https://blog.chorus.one on August 5, 2019.
