Ensuring the security of our customers' assets and information has always been our foremost priority at Chorus One. Today, we are excited to announce a significant milestone in our ongoing commitment to establishing world-class security measures for our customers: the attainment of the ISO 27001:2022 certification.
The ISO 27001 certification is a globally recognized standard designed to safeguard critical information assets, including employee and customer data. More precisely, ISO 27001 outlines specific requirements for the creation, maintenance, and continual improvement of an Information Security Management System (ISMS).
As a customer, when you entrust a third party like Chorus One with your data, it's imperative that they are not only certified but also compliant with the ISO 27001 standard. This certification ensures that the provider's processes and data controls undergo regular and independent audits, providing you with the highest level of assurance that your information will remain safeguarded.
Given the escalating prevalence of cybercrime and the constant emergence of new threats in the industry, managing cyber-risks can appear daunting. By prioritizing information security and business continuity, we aim to offer our users the peace of mind that their investments are secure, even in the face of adversity. With this certification, we're better prepared than ever to offer our customers the safest way to earn returns on digital assets through simplified staking.
"Attaining the ISO 27001 Certification represents a significant milestone in Chorus One's commitment to building trust with our partners. It offers the highest assurance that our staking infrastructure, operations, and systems adhere to world-class security standards. While not a mandatory requirement, we have chosen to obtain this certification as a testament to how seriously we take the security of our customers." - Brian Fabian Crain, CEO, Chorus One
To gain a more comprehensive understanding of Chorus One's security framework and practices, visit our dedicated security page.
If you'd like to learn more about how we provide the safest and easiest means to maximize yields on your assets, don't hesitate to reach out to us at staking@chorus.one.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 45+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
Web3 founders face a crucial decision when deciding to launch their product. If they want to avoid the layer 2 option due to concerns surrounding centralized sequencers and multisig bridges, they must choose between two main paths: developing their product as a smart contract and deploying it on an existing Layer 1 blockchain, or taking the ambitious route of creating their own blockchain from scratch. The former option comes with different advantages, notably removing the complexities of infrastructure management, ensuring a decentralized foundation, and leveraging the network effect inherent in the underlying blockchain.
Yet, opting for a smart contract deployment is not without tradeoffs. It leads to a competition for block space, resulting in a worse user experience characterized by inflated gas costs and transaction fees, coupled with an impact on transaction executions. The immutability of smart contracts can also be restrictive, offering little flexibility for the protocol in the case of critical bugs or hacks. The smart contract approach also lacks sovereignty, as the protocol will be subject to the rules of the hosting blockchain.
One solution that has gained popularity in the last two years to address the challenges of the smart contract approach is the appchain thesis, which was pioneered by Cosmos and followed by Polkadot. The idea behind this model is to build a dedicated blockchain for one application. Compared to the smart-contract solution, this model offers sovereignty and full customizability from the blockchain to the application. It also enhances performance and scalability since the application has its own blockspace. This leads to increased opportunities for the token to capture value, such as MEV, as Osmosis does, in addition to capturing other network fees.
Certainly, this solution involves several important factors to consider. It requires the management of the chain's infrastructure, ensuring its own security, attracting validators, and designing a tokenomics model that aligns the interests of validators, stakers, and app users.
What if we could easily launch an application, similar to deploying a smart contract, and gain the benefits of an appchain, all without any initial investment or extensive effort? This is exactly what Saga's value proposition is about.
The Saga protocol functions like application-specific blockchains as a service. In other words, Saga is a blockchain used to easily launch other blockchains, called “Chainlets” in the Saga ecosystem. Chainlets are secured by the Saga blockchain and its validators through a mechanism called Interchain Security, a well-known shared-security system in Cosmos.
Interchain security means that one blockchain, in this case Saga, acts as a provider of security for other blockchains, in this case the Chainlets. As a result, the Chainlets inherit the benefits of running a Cosmos SDK appchain but outsource their block validation and validator set to Saga.
Therefore, a Chainlet is a sovereign blockchain that has the same level of security and decentralization as Saga.
Saga introduces an easy, decentralized, and secure approach to deploying application-specific blockchains. This solution also grants developers the autonomy to choose their preferred Virtual Machine (VM), with initial support for the Ethereum Virtual Machine (EVM).
In the long run, Chainlets aims to be VM agnostic, which means that developers would have the flexibility to choose from a variety of virtual machines, including the EVM, CosmWasm, or the Javascript VM for example.
The way Chainlets are created differs slightly from what we can observe on the Cosmos Hub when launching consumer chains with Replicated Security. In contrast to the Cosmos Hub, the launch of a Chainlet with Saga is entirely permissionless.
Developers only need to have SAGA tokens to pay for setting up and maintaining their Chainlet. This is similar to services offered by Amazon Web Services and other SaaS platforms, except that here the subscription fee is paid in SAGA tokens to create and maintain a Chainlet.
This means that once the fee is paid, the role of Saga validators is to set up and run the infrastructure for a Chainlet, similar to how Cosmos Hub validators also operate the infrastructure of the consumer chains.
To launch a Chainlet, a developer is required to allocate funds to an escrow account using SAGA tokens. This escrow account can be pre-funded to any desired amount and works like a prepaid service to cover the costs associated with the Chainlet. If the deposited fee is depleted, the Chainlet goes offline until the developer deposits more SAGA in the account. The fee is determined per epoch, where one epoch lasts approximately one day.
Diverse methods could be used for funding the escrow account with SAGA tokens:
This subscription fee is determined by the Saga validator set. Before the start of a new epoch, each Saga validator submits the fee they would like to receive for running a Chainlet. These bids are then locked before the start of the next epoch, and a Musical Chair Auction begins.
The Musical Chair Auction is a process that aims to establish a universal price for running a Chainlet. In this context, each validator presents their bid, and only the w validators with the lowest prices are included in the 'Winning Set'. The remaining validators with higher bids constitute the 'Losing Set'.
The final cost of running a Chainlet is determined by the highest bid within the Winning Set. This implies that the validator with the highest bid in the Winning Set gets its desired price, while other validators within the Winning Set not only secure their desired price but also receive an additional margin on their bid.
The price that developers will have to pay for Saga validators to run a Chainlet is:
Pricerun chainlet = max(BidWinning Set )Number ValidatorsSaga
To prevent collusion or Sybil attacks related to the Winning and Losing Set, the count of validators within this set must be large enough to make controlling the Winning Set challenging. According to the Saga team, this number should range between 75% and 85% of the participants in the Musical Chair Auction.
However, the Musical Chair Auction is not riskless for a validator. In fact, the mechanism is designed to incentivize validators to submit bids as low as possible, rewarding validators within the Winning Set, while penalizing those in the Losing Set.
A possible way for the team to handle punishment is to treat it like validator downtime: validators who are down for a certain period get a minor slash and are jailed (removed from the active set). Validators who lose the auction too often in a given period could also be minorly slashed and jailed.
Hence, the SAGA token has multiple use cases: it is used as a subscription fee to keep the Chainlet alive and to reward the validators for running the infrastructure. In this case, there is a 1:1 relationship between costs and revenues with the auction system. We can also think about having pools of validators that share the cost, with validators only running some Chainlets and not others, to improve scalability.
Saga and its Chainlets introduce an interesting token structure, as gas fees are not explicitly collected from end users. Within a Chainlet, gas fees can be paid using Saga, the developer’s own Chainlet token, no tokens at all (gasless transactions), or even other tokens such as ETH or USDC.
It's worth noting that gas fees generated within a specific Chainlet are directed to a wallet managed by the developer. This confers a high degree of flexibility to the Chainlet and its team in determining their preferred monetization approach.
Consequently, with Chainlets, developers benefit from predictable and low costs, an easy process for deploying their blockchains, and the capacity to horizontally scale applications. While Chainlets inherit security from Saga, there exists a method for a Chainlet to also leverage and inherit Ethereum's security using the Saga stack. Let’s delve into this aspect in the following section.
Saga Ethlet is a new Ethereum scaling solution that combines the best attributes from appchains, rollups, and validiums into a single product. Launching an Ethlet will be as easy as launching a Chainlet: with one click, an Ethlet can be created and inherit Ethereum's security.
How does this mechanism work? Ethlets work with three essential components: Data Availability, State Hash Commitment, and Fraud Proof.
At the end of each epoch (~ 1 day), blocks produced during that time frame are batched, forming the 'batched epoch'. A new epoch referred to as the 'challenge period' then begins. During this challenge period, Saga’s validators can use a fraud-proof mechanism (optimistic ZK or interactive) that enables the identification of any fraudulent transactions or state transitions that might occur within the blocks from the batched epoch. If, by the end of the challenge period, no fraud-proof has been presented, the state hash of the previous batched epoch is committed to Ethereum, and therefore, this committed state inherits the security of Ethereum.
This implies that there is a one-epoch delay for a state hash to be committed to Ethereum and inherit its security. However, it's important to note that blocks inherit Saga’s security even before being committed to Ethereum.
Finally, Saga will be used as a Data Availability layer, similar to a validium, to avoid the high Data Availability costs of Ethereum. An Ethlet thus achieves fast finality through Tendermint, facilitates rapid bridging, and leverages the advantages of IBC. This approach ensures cost-effectiveness while also inheriting Ethereum's security.
Saga offers any developer the ability to easily launch their application as a Chainlet and inherit Saga’s mainnet level of security and decentralization from the start. By choosing this option, the application will benefit from its dedicated blockspace, and the team will gain more control over the blockchain and the application layers compared to launching as a smart contract. If the developer choses, they can upgrade a Chainlet into an Ethlet and gain the benefits of Ethereum Security.
Saga is initially focused on gaming and entertainment chains, as we can notice from their partnerships. Gaming applications are one of the fastest-growing sectors in web3, and a gaming project, such as a video game, needs its own dedicated scalable blockchain capable of supporting high transaction volumes – exactly what Saga is offering and what Chainlets based on the Cosmos SDK can provide. As web3 gaming and entertainment continue to grow and the demand for scalable architecture for users increases, Saga presents itself as the solution to provide the necessary architecture and is confident in onboarding the next 1000 chains in the Multiverse.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
Chorus One is proud to introduce our new research effort, fueled by a grant from dYdX, that examines the implications of Maximum Extractable Value (MEV) within the context of dYdX v4 from a validator's perspective. This comprehensive analysis presents the first-ever exploration of mitigating negative MEV externalities in a fully decentralized, validator-driven order book. Additionally, it delves into the uncharted territory of cross-domain arbitrage involving a fully decentralized in-validator order book and other venues.
This paper, marking a significant milestone in exploring MEV dynamics, identifies factors that influence undesirable MEV extraction, and proposes concrete strategies to level the playing field in derivative trading by counteracting such behavior.
dYdX v4 signifies a transformative phase in the evolution of the dYdX protocol. It embraces a fully decentralized derivatives exchange built on a central limit order book (CLOB). Unlike previous iterations, which combined smart contracts with centralized services, v4 employs a decentralized off-chain order book and a high-performance matching engine. This architecture, powered by the CometBFT consensus and Cosmos SDK, strives to achieve scalability alongside decentralization while allowing community-driven protocol development.
This transition signifies a substantial shift, as v4 introduces the industry's first truly decentralized perpetual futures exchange. Validators will manage the order books, with meticulous steps taken to ensure fair and trustless trading through effective negative MEV mitigation.
Set against the backdrop of this pivotal upgrade, our paper serves a crucial purpose by shedding light on the complexities of mitigating bad MEV on dYdX v4, thus equipping the community with the resources needed to navigate the upcoming transition. By providing comprehensive insights, our analysis aids in anticipating the impact of MEV on the new chain and trading experience, as well as the wider Cosmos ecosystem, ultimately fostering informed decision-making.
Our analysis uncovers pivotal insights that reverberate across the ecosystem:
Finally, our research extends beyond insights to practical solutions for mitigating validator-driven MEV risks. We propose that such MEV might manifest through partnerships between trading firms and market makers, favoring those with established advantages. We underscore the risks associated with harmful MEV, including asymmetric risk for delegators. Even in optimistic scenarios, potential revenue from partnerships may not fully offset these risks. To address this, we suggest a combination of measures including potential penalties and flexible unbonding periods for re-delegation to ethical actors, aiming to effectively manage validator-driven MEV risks.
At Chorus One, we leverage a sophisticated and ethical set of MEV strategies to optimize our validators' performance and continuously monitor progress. Backed by in-house experts and extensive research, we deploy various infrastructural solutions such as relay optimization, latency games, and investing in robust machines to improve our MEV performance. Learn more about Chorus One's winning MEV strategies by reading our recent blog.
For a comprehensive exploration of our research on MEV implications within dYdX v4, we invite you to read the full research paper here.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
Recent upgrades to Ethereum, such as The Merge and Shapella, were as transformative to the underlying technical algorithms of Ethereum, as they were for the underpinning economy. Previously, hardware enthusiasts and enterprises worked to provide security for the network and were generously rewarded in the process, while today the main driving force that makes Ethereum work securely is their validator community. While there are some similarities between miners and validators -- they both secure the chain via some technological process -- there are many striking differences between the two, particularly in the technology involved.
This article will focus on the technical aspects of being part of a validator community, risks associated with this role, and Chorus One’s measures to mitigate staking risks in our products.
Before 2022, Ethereum's main network used a Proof-of-Work (PoW) system called ETHash to create new blocks and handle transactions. Miners using this system had to solve complex puzzles using powerful computers to create blocks of transactions. These blocks were verified with a code unique to the miner, commonly referred to as a (ECDSA) cryptographic key. The EVM then transferred the transaction fees and additional inflation rewards into an account identified by a public key of that miner key pair. This cryptographic key pair that the miner received was known as a coinbase address, and was configured directly in software the miner used.
Now, things are different. Ethereum no longer requires complex puzzle to create blocks anymore. Instead of miners, a specific type of software called Validator Client creates new blocks. Running validators involves locking some funds on-chain, and then producing blocks when that validator is chosen as the next block producer by the randomness of the consensus algorithm. Since there is no hardware-intensive puzzle solving involved, and the randomness consensus algorithm is very lightweight and has allowed the network to reduce the hardware involved and energy spent within Ethereum blockchain. On the economic side, however, this also had profound changes.
First, they changed how rewards are distributed. Instead of the reward going to one address, it is now split into two parts: consensus and execution, which can be specified in separate accounts/addresses. It is split in this manner:
Execution rewards: fees collected for transactions in a block. These are sent to a special address set in the Ethereum software as the "fee recipient address."
Consensus Rewards: These are based on inflation and given to validators who make blocks and also to those who vote on blocks made by other validators. This consensus reward goes to an address set when a new validator is added. It can't be changed later and is called the "withdrawal address."
Second, the very algorithm used to sign the blocks was changed to involve a BLS algorithm instead of the previous ECDSA (however, the individual transaction signatures still utilize ECDSA for convenience and compatibility reasons). Next we will explain why this matters.
Now, there are two addresses involved in the reward process instead of just one cryptographic key pair. This means each validator has two key pairs. One of these key pairs is called BLS, and it's always used by the Ethereum client software to sign block information. This helps verify the address where fees should go, which is included in the block's data.
The block production process itself does not require the holder to also keep the ECDSA keys to the fee recipient address, so potentially every Ethereum address can be specified in the Validator Client to receive execution rewards. The withdrawal (ECDSA) key pair, however, is never loaded into a client, and is immutably bound to every Ethereum validator during the validator creating process.
For validators, this means that there exists a non-custodial process which allows them to lock their Ethereum coins in the blockchain while still having control over those funds and any future consensus rewards, while the actual Validator Clients can be run by a separate entity. Such an entity would only hold validator BLS signing keys and not the withdrawal ECDSA keys.
The Validator BLS key pair, which is important for confirming and creating new blocks, is traditionally generated from random information using a secure method that keeps the private keys unpredictable. Chorus One has its own in-house tool that makes generating keys fast and secure, which you can read more about here.
After creating the keys, the on-chain verification and loading of the deposit transaction data both kick off in parallel, in a process known as ‘Voting period’, and usually takes around 16 hours. During this time, Ethereum nodes from across the globe will read the deposit transaction log, and vote on whether the signature included in the transaction is correct. When enough votes for correctness are collected, the voting period elapses. However, the validator does not immediately start to fulfill its duty of securing the chain, but due to a limitation in the amount of validators that can become active per block, some additional time is spent in an activation queue. More information on this process can be found here.
Once the activation queue period has passed, the validator clients where the keys have been loaded will start fulfilling Ethereum blockchain duties. Only after this point is that specific duties can be assigned and the keys will start being used to produce signatures and blocks.
This process is visualized on the following image:
The biggest danger for validator key holders is if those keys are stolen, because attacker in possession of the victim validator keys can produce messages infringing to security of a blockchain, which will lead to slashing the validator that incurs a large penalty (more than 1Eth per validator).Currently, it is not possible for a perpetrator in this scenario to profit from such operation, however the possibility to vandalize the ledger still exists and is the most significant risk when operating the validator keys. Thus, participation in staking usually involves consistent and well-thought security practices that prevent unauthorized access to the validator key seed. It is also important to understand that a single seed can be used to generate multiple validators; the more validators were created from a single seed, the bigger the potential impact from leaking the keys.
Besides this, other risks arise from the operation of running validators.
Client software risks
The Ethereum community often discusses the risks associated with client software diversity, which refers to having different types of software implementations. Ethereum offers various open-source validator options, and users can even create their own software. However, most users prefer established open-source options. Validator software is complex and can have bugs that lead to penalties. To minimize risk, stakers should use different validator software types to avoid simultaneous problems that could result in increased penalties for everyone, known as an "inactivity leak."
It's better for stakers to run multiple types of validators to reduce risk. Currently, Ethereum has good diversity at the consensus layer, but there's an issue with one software type dominating the execution layer. Bugs often appear in specific software versions, but Ethereum runs multiple versions simultaneously to reduce risks. Those using a service to stake Ethereum should make sure the service uses diverse software types for both main agreement and action parts of Ethereum.
Withdrawal risks
Withdrawal risks arise from possible issues with the withdrawal keys, like if they are accidentally revealed or if access to the wallet's private key (ECDSA) is lost. As of now, Ethereum lacks mechanisms to regain access to validator withdrawal once the wallet is lost. This underscores the significance of using a trustworthy wallet, maintaining backups, or relying on a reputable custody provider to safeguard the withdrawal seed. It's essential to ensure the correct wallet public key is used when setting up the validator.
At Chorus One, we operate over 8000 validators on the Ethereum Mainnet for various customers, drawing from years of experience without encountering any slashable offense. In the following sections, we'll delve into the techniques we've developed to oversee validator operations, along with the software and infrastructure controls we've implemented. These measures are aimed at minimizing risks for our customers.
Validator key security is at heart of our operation. We ensure that validator keys are never stored on disk without encryption. We utilize cloud-based Vault software, implementing zero-trust access controls, to securely store and provide validator keys to validator clients throughout their lifecycle and operation.
We employ Vault access control policies to ensure that only software clients have access to validator key content. We also segment access for different processes, ensuring that each validator client process can access only a specific set of keys. These keys are guaranteed to be unique across all processes. While generating each validator's private BLS key, we use a strong source of randomness to minimize the possibility of collisions. Furthermore, an SQL database with a unique constraint on the validator's public key field is used to ensure that generated validator keys are never reused for new validators, even if a validator is exited later.
To maintain transparency, we maintain an append-only log of all operations on the Vault storage, and we routinely review it for any anomalies. When it comes to data transfers involving validator keys, they exclusively occur through TLS encrypted channels. Additionally, backups of validator key storage are encrypted with multiple keys, requiring the authorization of multiple individuals to restore from the backup. Each mnemonic used for a validator's BLS private key is unique and exclusively assigned to that specific validator. This approach further minimizes the risk of key leakage.
For each validator client, we maintain a local slashing protection database. Additionally, we utilize the Web3Signer signing service, which employs a centralized slashing protection database. This dual-layer approach offers enhanced security. In the event of potential glitches or bugs in our cloud platform that might result in two instances of the same process running with the same local slashing protection database, the centralized Web3Signer database acts as a safeguard against double signing by our validators.
The Web3Signer centralized database is replicated across multiple data centers, ensuring redundancy and availability. An automated fail-over mechanism is also in place to address any downtime in a data center. The protective measures employed by Web3Signer to prevent double signing are depicted in the illustration below.
At the core of our infrastructure lies a network of public Ethereum nodes that actively engage in the Ethereum consensus and execution process. These nodes establish dependable infrastructure pathways that support the seamless functioning of the Ethereum network. These public nodes are strategically positioned across various geographical data centers, ensuring redundancy and reliability.
Within our validator clients, we've implemented load-balancing mechanisms. This ensures that if one of the data centers experiences an outage, our validator clients seamlessly transition to utilizing Ethereum nodes from other operational data centers.
Alongside the usual health checks for Ethereum APIs, our load-balancing strategy incorporates personalized health assessments for Ethereum nodes. For instance, if an Ethereum node's connected peers experience a sudden drop, our load balancer redirects validator traffic away from that node. This action prevents any potential issues with attestation or block propagation.
At Chorus One, we adopt a safeguard by running various implementations for both the consensus and execution layers in parallel. This approach ensures that any bugs in a single client implementation won't impact all of our nodes. The visual depiction of the infrastructure alignment between public nodes and validators is illustrated in the diagram below.
Our validator client software connects to the public Ethereum nodes, which are hosted on lightweight cloud appliances situated in proximity to the public node hosts. We maintain distinct validator client processes for different customers, ensuring that validators from separate customers don't share the same process memory.
We employ cloud automation software to facilitate automated upgrades for the client process. This includes an instant rollback feature triggered by automated health checks if any misconfiguration is detected that could potentially result in penalties.
Our infrastructure platform, Kubernetes, operates on top of public cloud providers, ensuring that only a single instance of each validator client process is active at any given time. This is achieved through the utilization of StatefulSet resources, which terminate old processes before launching new ones during restarts.
Our automated validator client updates undergo thorough testing before implementation. Updates are applied exclusively to Ethereum mainnet validators that have been rigorously evaluated and proven effective in privatenet and public testnet environments prior to deployment. The process of automated upgrades and rollbacks is visually depicted in the diagram below.
The controls and mechanisms mentioned above are sophisticated and prioritize security and safety over maintaining uptime. For instance, our validator client software integrates slashing protection to prevent signing attestation in scenarios where true double signing could occur, or if there's an issue with the centralized slashing protection database service.
Another example pertains to the potential downtime of the Vault service, which could lead to validator clients being unable to load signing keys and thus unable to sign on time. To address this, we implement continuous monitoring for all validators and the underlying infrastructure, generating automated alerts if any issues arise. To ensure comprehensive oversight, even in cases where our internal monitoring might falter, we employ a separate process of on-chain monitoring. This process involves scraping Ethereum blockchain APIs from an isolated set of public Ethereum nodes. It raises alerts if any penalties are detected with Ethereum validators.
Our team of rotating on-call engineers is available round the clock to respond to these alerts promptly and troubleshoot any potential problems with validator clients.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
We had an enriching and productive time at EthCC 6, a week-long event in Paris that brought together industry professionals and experts from across the globe. Here's a recap of Chorus One's highlights from the event:
Our Research Analyst and Ethereum expert, Gabriella Sofia, delivered an insightful presentation on the staking ecosystem. She covered everything from the history of staking to the latest developments in liquid staking and MEV.
Our CEO and Founder, Brian Crain, took the EthCC main stage to explore the Urbit ecosystem. His talk delved into Urbit's history, use cases, and future outlook. If you're new to the ecosystem, we highly recommend watching his presentation to get up to speed.
On the final day, Jennifer, our Engineering Team Lead, presented Chorus One's key generation tool, ETH-staking-smith. Her technical yet concise explanation shed light on the optimized, open-source Ethereum validator key generation tool we developed to streamline key and deposit data generation.
Brian returned on stage for his second talk on the staking economy, where he explored the depths of the staking ecosystem, from its history to where it stands today (1:05:52 - 1:26:23)
Throughout the event, we absorbed a wealth of knowledge and returned with a renewed sense of hope and motivation. The community's energy was infectious, inspiring us to continue building better technologies, products, and solutions in the second half of the year.
See you next time!
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
For decades, Switzerland has been revered as a global hub for finance.
Driven by a commitment to maintain its prominence in the financial sector, this alpine nation has actively fostered an environment that nurtures innovation in digital assets. We delve into Switzerland's notable strides in attracting leading blockchain companies that are shaping the landscape of digital asset innovation.
Switzerland, renowned for its precision and innovation, stands as a beacon of stability, security, and support in the realm of digital assets. At present, Switzerland's Crypto Valley, encompassing Zug, Zurich, Lugano, and Geneva, has cultivated a thriving ecosystem for digital assets, hosting over 1,000 companies, including 9 unicorns, and boasting a combined valuation of around $185 billion. The impressive figures speak for themselves.
Source: https://www.cvvc.com/insights#top50
Now, what is it about Switzerland that entices an ever-growing number of blockchain firms?
At the core of Switzerland's ecosystem lies the esteemed Swiss Financial Market Supervisory Authority (FINMA), which plays a pivotal role in shaping the digital asset landscape by providing clear guidelines and frameworks. In 2018, FINMA issued ICO guidelines, establishing a solid foundation of regulatory clarity and setting the stage for Switzerland's digital asset endeavors. The introduction of the Swiss DLT legal framework in 2021 further solidified Switzerland's pioneering position by enabling collective and segregated custody of digital assets. Switzerland's regulatory environment fosters innovation and attracts businesses seeking stability and support. This regulatory oversight also presents significant advantages for non-custodial companies like Chorus One.
Switzerland's regulatory prowess, lauded by Ilya Volkov, Board Member at Crypto Valley Association and CEO of Youhodler, lies in its rational and sensible approach. A key merit, Volkov notes, lies in Switzerland's well-defined and precise classification of securities, which helps prevent the confusion experienced in the US with certain cryptocurrencies. The country's early implementation of the EU Transfer of Funds Regulation (TFR) as the Travel Rule further exemplifies its proactive and forward-thinking regulatory stance.
A structural advantage of Switzerland's regulatory structure is that FINMA is the sole regulatory body covering nearly all crypto services (banking, ICO, staking, trading and money transmission). This unification prevents turf wars between regulators. Contrast this to the US system where different regulators - the SEC, CFTC, FinCEN and the state financial regulators - control different aspects of crypto services. When rule-making is fractured across different bodies, turf wars emerge - which regulator has jurisdiction over what element of the new industry. Turf wars in the US have trapped the crypto-industry into spending way more effort into lobbying and lawyers, than is merited by the small size of the industry.
Switzerland is also unique in having issued banking licenses to new “crypto-banks”. These banking licenses enable crypto-organizations to offer crypto custody, staking, crypto structured products and other services, while also benefiting from the brand stability provided by such a license. This move is unique in the world, where contrasting examples (like the US) are actively curtailing crypto-friendly banks. Infact, our private conversations with Swiss banking partners indicate that 2023 has been an excellent year for Swiss crypto-banks, as they are the only institutions that could capitalize on the failures of SVB, Silvergate and Signature Bank in the US.
According to Volkov, Switzerland's regulatory edge also extends to asset tokenization, enabling businesses to issue shares easily in token form and embracing NFTs for Intellectual Properties. This clarity propels Switzerland to the forefront of such initiatives globally. As a result, the country experiences a continuous surge in crypto adoption. Major players like AXA and Atupri accept crypto payments, while Crypto-ATM expansion and the availability of crypto purchases in post offices and Kiosks contribute to Switzerland's crypto-friendly ecosystem.
Tomas Matta, Chorus One’s Chief Financial Officer, highlights Switzerland's business-friendly approach when working with regulators and tax authorities. This means that authorities are open to engaging in dialogue, particularly in uncertain or unregulated areas.
A notable example is Switzerland's approach to Value Added Tax (VAT) for staking providers. Tax authorities in general might struggle with new aspects and complexity that blockchain transactions such as staking rewards introduce, which can often lead to a fiscally suffocating environment for companies (planning to be) active in these spaces. The Swiss tax authorities have a progressive approach by investing time and effort to adequately understand the technologies and transactions, being open to dialogues with different parties and finding solutions. This transparency and room for dialogue, coupled with low corporate taxes, have fostered a diverse ecosystem of digital asset-only banks, traditional financial institutions, and service providers offering a range of services such as custody, trading, and staking.
Another hidden advantage for Switzerland, in matters of tax policy, is that the nation doesn't not levy capital gains taxes on assets for private investors, unless those gains are derived from short term professional trading. Hence, private investors are able to take full benefits of huge booms in crypto asset prices during bull markets.
Another driving factor in the prominence of Crypto Valley is the existence of a very unique collaborative mindset. This is heralded by ecosystem builders who drive and build interconnection each day such as CV Labs of which Fabiola Luna Huerta is ecosystem manager. She outlines that “Companies, academics, federal institutions and a supportive business environment collaborate - offering expertise, networks and shared access which is particularly vital when new stakeholders enter’. Fabiola also highlights that “Crypto Valley ranked No1 in CoinDesks recent ranking of Global crypto Hubs, it had the highest ranking in the two heaviest weighted criteria overall, regulatory structure and quality of life”. Currently we have over 1135 blockchain related companies in the Valley and the number keeps growing as Switzerland is one of the best places in the world to set up, make connections, live freely and work smart with global talents in a decentralized way.
"Switzerland placed No1 in the Crypto Hubs 2023 rating by CoinDesk. This result is not an overnight miracle but the sustained work of multiple stakeholders building the Swiss ecosystem over the past 10 years”. - Fabiola Luna Huerta
The Swiss Digital Asset Custody Report 2023 serves as a testament to Switzerland's prowess, showcasing the extensive depth and breadth of this ecosystem. Among the 34 identified providers, established players like Bitcoin Suisse and Crypto Finance stand alongside emerging forces such as Berner Kantonalbank (BEKB). Traditional Swiss financial institutions like Luzerner Kantonal Bank have also embraced the digital wave, expanding their custody services for digital investment products and propelling a remarkable surge in offerings.
(Illustration: Increase in digital asset institutions in Switzerland 2022 vs 2023)
Switzerland's home to numerous network foundations and collaborative peers like Interchain Foundation (Cosmos), Ethereum, Near, Aragon, Bancor, Solana, 21Shares, Aave, Curve, and others further facilitates the collaboration among like-minded innovators in the region.
While Switzerland’s dedication to embracing blockchain-based technology has propelled it to the forefront of crypto regulation, European rivals are eagerly vying for a position in the market.
Liechtenstein has had its DLT legal framework in place for several years, and countries like Malta, Germany, France, and Luxembourg are also taking steps to embrace digital assets. In the summer of 2021, Deutsche Börse's majority stake acquisition in Crypto Finance from Switzerland demonstrated the German stock market's commitment to establishing an institutional and regulated crypto exchange. France, as one of the first countries to regulate the use of blockchain/DLTs, issued the PSAN (Prestataires de Services sur Actifs Numériques), a comprehensive framework for digital assets. Earlier this year, the European Parliament approved the MiCA Law, representing the EU's first regulatory framework to monitor and regulate crypto-asset transfers. MiCA’s positive impact is already apparent, with significant developments such as Deutsche Bank's application for a Digital Asset Custody License from Bafin.
Nevertheless, Switzerland's independence from the regulatory confines of the European Union grants it the agility and freedom to swiftly adapt and embrace a progressive approach to governing the sector. Additionally, the close ties that many Crypto Valley companies have with the EU equip them with the necessary expertise to navigate regulatory changes efficiently, building upon their prior experience with regulatory clarity. Consequently, the Swiss nation is poised to maintain its leading position in Europe by spearheading regulatory advancements in the digital asset realm.
As the global regulatory landscape for cryptoassets undergoes transformations in both major and emerging economies, the concerted efforts of esteemed financial centers, including Switzerland, in establishing frameworks that attract and promote the thriving crypto economy serve as compelling evidence that digital assets have solidified their status as an institutional asset class.
Moreover, Switzerland's allure extends beyond its regulatory advantages. With a neutral, stable social climate, a consistent political system, robust infrastructure, reputable universities, and an exceptional quality of life, it stands as a sophisticated destination of choice for global stakeholders.
A heartfelt thank you to Ilya Volkov, Board Member at Crypto Valley Association and CEO of Youhodler, and Fabiola Luna Huerta, Ecosystem Manager at CV Labs, for sharing their valuable insights on Switzerland's alluring digital asset ecosystem.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 40+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
The staking economy is a thriving industry, offering over $12 billion in rewards, with $600 million attributed to Maximal Extractable Value (MEV). At Chorus One, we deeply recognize the significance of MEV for both validators and investors, which has fueled our commitment to continuously optimize our infrastructure to ideally integrate with the Ethereum MEV pipeline.
MEV serves as a gateway for validators to maximize the value extracted from transactions within a block. As early as 2019, the research paper "Flash Boys 2.0," authored by Ari Juels and Lorenz Breidenbach, shed light on its real-world impact, particularly in decentralized exchanges and user experiences. The cumulative value of MEV extracted on Ethereum alone surpassed $78 million in early 2021 and has skyrocketed to an astonishing $600 million in 2023.
MEV has become a cornerstone of Chorus One's research efforts. As one of the earliest and most influential contributors to MEV research, we conduct in-house studies and experiments to optimize MEV yield. Notably, we were commissioned by dYdX to produce an in-depth report on MEV within dYdX v4, and released the first public tracker of (pre-protorev) MEV on Osmosis (@chorusonemev). Furthermore, we have developed a customized version of the Solana client to capture MEV opportunities on the Solana network.
To achieve the highest possible MEV yield, employing effective infrastructure strategies is paramount. At Chorus One, we conduct a series of experiments to identify the most efficient combination of strategies, aiming to optimize our MEV performance. Below, we delve into the fundamentals of MEV extraction, exploring the solutions we implement to improve our performance.
In general, MEV empowers block producers to rearrange, include, or exclude transactions, providing advantages that can impact users. However, there is a subtle distinction in how MEV operates on Ethereum compared to other blockchain networks.
On Ethereum, the process involves a 'block builder' constructing the block, which is then passed on to a 'relay' before being proposed by a validator. This Proposer-Builder Separation (PBS) introduces a separation between the block producer and the proposer. As an Ethereum validator, Chorus One focuses on optimizing MEV rewards by fine-tuning our interaction with relays.
Conversely, on most other chains, validators themselves build the block and have the freedom to prioritize transaction sorting to maximize MEV rewards.
We continuously optimize our infrastructure to capture the highest possible MEV rewards.
The following graph illustrates our performance over a 60-day period. Over this time period, Chorus One nodes have captured close to 14% more MEV rewards per validator (ETH) when compared to the weighted industry average, observed on Lido.
*Please note that this is a snapshot, and that MEV rewards fluctuate as a function of variance and market conditions. Please visit Rated Network to view the latest figures.
This process of continuous infrastructure optimization highlights the significance of employing a combination of well-established best practices to achieve higher MEV rewards. By utilizing specific methods in tandem, validators can effectively maximize their MEV yield. More on this below.
Before diving into Chorus One's approach, we briefly explore the process of extracting MEV. It involves key players with distinct roles:
Block Producers: They create blocks of transactions on the blockchain, deciding which transactions to include and their order.
Relays: A relayer is an entity responsible for checking blocks before passing them to the block producers. The relay confirms the builder blocks for validity and estimate the MEV-related value of each block. By tweaking how block producers/validators interface with relays, they can add value by optimizing MEV rewards.
Searchers: These individuals or automated bots constantly monitor the blockchain, searching for profitable opportunities to manipulate transaction order and earn additional profits through MEV.
DApps and Protocol Developers: Decentralized applications (DApps) and the developers who create rules for block producers support MEV extraction. DApps create opportunities for MEV extraction through their design, while protocol developers establish rules that enable block producers to capture MEV.
In simpler terms, block producers create blocks,relays check the blocks, searchers seek ways to profit by manipulating transaction order, and DApps and protocol developers provide the framework and incentives for MEV extraction.
Validators often employ similar solutions to increase rewards and actively seek optimization opportunities. For instance, MEV-Boost, an implementation of proposer-builder separation (PBS) developed by Flashbots for Ethereum, enables validators to maximize staking rewards by selling block space to builders in an open market.
MEV-Boost is free, open-source, and neutral software designed to democratize MEV while minimizing associated negative implications, such as consensus-layer security risks, centralization, or the risk of searchers going rogue. For more information on MEV-Boost software, visit https://boost.flashbots.net.
MEV plays a significant role in yield generation on networks like Ethereum, and as a result, our nodes are MEV-boost enabled by default.
With a team of in-house experts, we continuously adjust our infrastructure to optimally integrate with the Ethereum MEV pipeline.
1. Relay Selection
Relays are crucial intermediaries in the MEV extraction process, acting as trusted connectors between block builders and validators. Their primary role is to facilitate seamless data exchange and ensure the selection of the most lucrative bids for validators. We continuously conduct experiments to identify the optimal combination of relays (as shown in the relay market dashboard below) , aiming to establish efficient communication and achieve the highest valid bid submission to validators.
Our approach: By carefully selecting the best relays, we enable our validators to receive winning bids from all connected relays.
2. Latency Games
Exploring the dynamics between builders, relays, and validators is even more interesting with a new dimension: time.
Latency, the delay in data transmission, has gained significant importance for relays and the entire MEV supply chain, leading to notable consequences. It acts as a centralizing force within the MEV supply chain, with relays having shorter latency likely to be more successful in auctions. This preference encourages builders to prioritize sending their blocks to those relays.
Our approach: We optimize our connection to relays when requesting blocks by prioritizing payoff and minimizing the probability of a missed slot.
3. Infrastructure Optimization
On the infrastructure and hardware front, we prioritize optimizing the performance of our validators. Through the strategic selection of hardware, geographical distribution, and client implementation, we ensure that our infrastructure operates at its peak efficiency. This optimization enhances the rewards generated for our customers.
Our approach: We are actively investing in and expanding our infrastructure to further elevate performance and rewards.
TL;DR: More rewards, more revenue.
Through our unique solutions and ongoing research, we continuously push the boundaries to enhance the rewards obtained through MEV. Today, our MEV-boost enabled nodes capture significantly higher APR on staked ETH, surpassing the yield of the average validator.
To learn more about our approach to MEV, visit: https://chorus.one/mev-maximum-extractable-value
To stake with Chorus One, reach out to staking@chorus.one and we'll get back to you.
About Chorus One
Chorus One is one of the biggest institutional staking providers globally operating infrastructure for 45+ Proof-of-Stake networks including Ethereum, Cosmos, Solana, Avalanche, and Near amongst others. Since 2018, we have been at the forefront of the PoS industry and now offer easy enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge protocols through Chorus Ventures.
We take a look at expected times to participate in Ethereum staking.
Ethereum protocol times are measured in epochs, with 1 epoch being 384 seconds or around 6 and a half minutes. For ease of understanding, times based on these measurements have been translated roughly into minutes, hours and days.
88,885 / 25
Source: https://beaconcha.in/
Conclusion: Staking takes at least 8 hours, but it is very likely to take a lot longer as the demand to stake grows and more validators are added to the queue (the queue at the time of writing is 88,885 validators waiting). The waiting time right now is about a month and a half.
88,885 / 25
Source: https://beaconcha.in/
Conclusion: Unstaking takes at least 25 minutes, but can vary depending on the withdrawal queue with a similar model as staking (the queue right now is 25 validators waiting and is expected to clear quite quickly). You also have a 1 day delay to access funds. So, all in all the waiting time right now is about 1 day.
* This number corresponds to the churn rate applied to the staking and withdrawal queues. For every 65,536 additional validators that are active on the Ethereum network, the number of new validators that can be activated per epoch increases by one, and the number of validator exits that can be processed per epoch also increases by one. Right now, the churn rate is 9.
