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.
Blockchain has revolutionized various industries by offering decentralized, secure, and transparent systems. However, challenges such as privacy and scalability have emerged as significant concerns. This article explores how Zero-Knowledge Proofs (ZKPs) can address these challenges and shape the future of Web3 technology.
What are zk-Proofs?
Zero-Knowledge Proofs are cryptographic protocols that allow a party to prove knowledge of a certain fact without revealing any information about it. In other words, they enable verification of the truthfulness of a statement without disclosing the underlying data. ZKPs were introduced by Shafi Goldwasser, Silvio Micali, and Charles Rackoff in the 1980s. However, it wasn’t until the development of the ZK-SNARK protocol in 2014 by a team of researchers led by Eli Ben-Sasson, that ZKPs gained significant attention for their potential applications in various fields, including the crypto space.
There are different types of Zero-Knowledge Proofs, each serving specific purposes:
Enhancing Privacy and Scalability
Zk- proofs have a profound impact on privacy. By using ZKPs, users can prove the validity of their transactions or data without revealing the sender, recipient, or the transaction amount. This feature enhances anonymity and confidentiality, making blockchain systems more appealing for applications where privacy is crucial, such as financial transactions, healthcare records, identity management, and secure voting systems..
ZKPs also enable scalability improvements by reducing the amount of data that needs to be processed and stored by blockchain nodes. This is achieved through a process called ‘batching’, where multiple transactions are combined into a single proof, reducing the computational load on the network. For example, ZKSync Era, a trustless Layer-2 protocol, is a zk rollup that scales Ethereum by using cryptographic validity proofs to provide scalable and low-cost transactions. In zkSync, computation is performed off-chain and most data is stored off-chain as well. However, all the transactions are still verified and validated on the Ethereum mainchain, ensuring that users have the same level of security as they would with regular Ethereum transactions.
The Challenges
Despite their potential, zk-Proofs face several challenges:
The Future Outlook of ZKPs
Looking ahead, we can expect advancements in zk technology that address the current challenges Some potential developments include:
ZKP’s offer a promising solution to the privacy and scalability challenges faced by current Web3 technologies. By enabling secure, private transactions, they pave the way for a future where decentralized applications can thrive while protecting user data. While challenges exist, ongoing research continues to enhance the efficiency, scalability, and usability of ZK technology, shaping the future of blockchain and its potential impact on other industries.
Our 2023 Q1 Quarterly Insights dives deeper into the different applications of zk-Proofs, presenting an introduction to the problems being tackled in the frontier. It also focuses on specific use cases, shedding light on notable teams building innovative projects that take advantage of zero-knowledge. Check it out 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.
We’re proud to announce our partnership with Fordefi, a leading MPC wallet platform and web3 gateway that enables institutions to seamlessly connect to dApps across networks, while securing their digital assets. This partnership facilitates Chorus One’s OPUS customers to stake and unstake multiple tokens using the Fordefi wallet inside OPUS.
The Fordefi wallet
Fordefi’s wallet is a secure solution designed to provide enhanced security and privacy for users' digital assets through MPC (Multi-Party Computation) technology. The MPC wallet employs a distributed key generation process, where each key share is created separately and is held by different parties. This ensures that no single entity has access to the complete private key, mitigating the risk of single points of failure or attacks.
Additionally, Fordefi's wallet provides users with enhanced security against various attack vectors, including private key theft, collusion attacks, and web attacks.
Going forward, Chorus One’s OPUS users will be able to stake and unstake across numerous chains using Fordefi’s wallet, thus leveraging its security features.
OPUS
OPUS is Chorus One’s universal staking solution that allows institutions to stake quickly across multiple chains and earn high rewards while having complete control over their assets. It is aimed at expediting institutions' staking activities, streamlining the staking process, and enabling them to enjoy the benefits of higher rewards, increased efficiency, reduced costs, and unparalleled flexibility.
Key Benefits of using OPUS
“Fordefi's cutting-edge DeFi-focused wallet empowers institutions to stake with unparalleled confidence, fortified by advanced layers of security. Together, we’re committed to making staking accessible for a broader audience.” - Felix Lutsch, Chief Commercial Officer, Chorus One
“Chorus One’s expertise in the industry offers a new level of staking excellence for our institutional customers. We’re thrilled to empower our users with seamless access to staking and unrivaled opportunities in DeFi. ” - Josh Schwartz, CEO and Cofounder, Fordefi
About Fordefi
Fordefi’s MPC wallet platform and web3 gateway enables institutions to seamlessly connect to dApps across networks, while keeping digital assets secure. Fordefi is the first institutional wallet and security platform purpose-built for DeFi. Fordefi was founded in 2021 by crypto custody and cybersecurity experts, and designed in close collaboration with crypto industry-leading trading firms, funds and custodians. Fordefi’s mission is to enable institutions to securely hold digital assets and safely transact in decentralized finance.
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.
Lido has been at the forefront of Ethereum staking, offering a secure and efficient platform for users to stake their ETH and earn rewards. With the Lido V2 mainnet upgrade, the protocol takes a major step forward, addressing key challenges and paving the way for a more robust and decentralized ecosystem.
We’ve distilled everything you need to know about the upgrade - and why it’s so significant in the ETH staking ecosystem.
Lido V2 brings two vital components to the Lido protocol: withdrawals and the staking router.
Benefits
Impact on Ethereum Staking
The Lido V2 upgrade positively impacts the Ethereum staking landscape:
Following the successful on-chain vote and the launch of Lido V2 on the Ethereum mainnet, the market responded with enthusiasm. Following the announcement, the Lido DAO token (LDO) experienced a 10% price rally , reflecting the market's recognition of the significance of the upgrade and its potential impact on Ethereum staking.
Lido’s V2 mainnet marks a significant milestone for the Lido protocol and Ethereum staking as a whole. With the introduction of in-protocol ETH withdrawals and the innovative staking router, it empowers users, promotes decentralization, and strengthens the overall Ethereum ecosystem. As institutional interest in staking continues to grow, Lido's advancements align perfectly with this trend.
For more insights on the exponential growth of institutional interest in staking and Ethereum, check out our recent blog: https://chorus.one/articles/beyond-shapella-a-look-at-the-growing-appeal-of-eth-staking
You can now stake ETH with a few simple clicks using OPUS, Chorus One’s bespoke staking solution. Choose the amount you’d like to stake, earn rewards, and retain full control over your nodes throughout the entire process. Read more about all the features OPUS offers here, and to get a free demo visit: https://chorus.one/institutional-staking
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 are a team of over 50 passionate individuals spread throughout the globe who believe in the transformative power of blockchain technology.
The second chapter of our Q1 2023 Quarterly Insights comprehensively examines the evolution of shared security in PoS networks. It delves into the various strategies employed by different networks to implement shared security, shedding light on the incentives and risks involved. This article distills the key takeaways from our research, offering a succinct summary of the various approaches to shared security.
What is shared security?
Shared security is a form of improving the safety of a blockchain by using resources from other blockchains. It works similarly to merge mining in PoW networks, where miners use one blockchain to mine another.
To make this concept work, there needs to be at least one blockchain providing security and another one using it. The system must allow for penalties if either blockchain misbehaves, usually by reducing their stake.
Use Cases
There are two key motivations behind the concept:
Different approaches to shared security
Rollups
Rollups, or ‘Layer 2s’ are shared security solutions that take execution off the main chain to scale computation and memory while keeping settlement on the Layer 1 chain.
Essentially, Rollups democratize execution by offering a fully compatible environment for easy application deployment and value transfer, but lower transaction cost. They guarantee security through smart contracts deployed on the Layer 1 to store transaction data, monitor state updates, and track user deposits.
There are two types of rollups: Optimistic and Zero-knowledge (ZK)
*A State Transitions is a change in the overall state of the network, which can occur when a user sends a transaction that updates the state of their account or interacts with a smart contract that changes the state of the network.
Eigenlayer
EigenLayer is a protocol built on Ethereum that allows users who hold ETH or ETH liquid staking tokens to restake their tokens and earn additional rewards. Restaking involves users giving their tokens to a service, which uses the tokens to secure its own network and other networks.
However, by doing so, users take on the risk of being slashed if they act maliciously according to the rules set out in the service's slashing contract.
EigenLayer uses the slashing contract to determine whether a user has acted maliciously and to slash their tokens accordingly. The protocol is currently on testnet and has recently raised $50 million in a Series A funding round led by Blockchain Capital, with participation from Coinbase Ventures and Polychain Capital.
ICS: replicated and mesh security
Replicated security, a system that first went live on the Cosmos Hub in March 2023 as the initial version of the Interchain Security protocol (“ICS”), allows other Cosmos chains to apply to get the entire security of the Cosmos Hub validator set.
In other words, by participating in ICS, a consumer chain can leverage the security of the Cosmos Hub validator set to ensure that its own blockchain is secure. This is done by having the validators of the Cosmos Hub also run the code of the consumer chain, and being subject to slashing for any downtime or fraudulent behavior.
However, there are some challenges with this approach, such as scaling issues and the potential for poor performance if the validator set of a consumer chain secured by multiple providers grows too large.
To address these challenges, a new approach called Mesh Security was proposed by Sunny Aggarwal, the CEO of Osmosis. Mesh Security allows for delegators on the provider chains to re-delegate their tokens to validators on the consumer chain's own validator set, without any additional overhead. This means that operators who already run nodes for both the provider and consumer chain can be delegated more voting power on the consumer chain, resulting in an approach that is similar to what EigenLayer is proposing for Ethereum.
Babylon
Babylon is a project that aims to improve the security of Cosmos zones and other PoS chains by using the security of Bitcoin. It is made up of three components:
Babylon operates by receiving streams of transaction data checkpoints from multiple PoS chains and then combines these checkpoints into a single stream which is posted to Bitcoin. To achieve this, it uses the IBC (Inter-Blockchain Communication) protocol to trigger a transaction sent to the miners. This transaction is added to the Bitcoin ledger, effectively timestamping the events occurring in other blockchains through a process known as ‘checkpointing’.
Currently, Babylon is on testnet, and 13 Cosmos zones are experimenting with it.
Overall, shared security aims to improve decentralization of applications and increase the cost of corruption of lower value networks. However, despite its advantages, shared security also carries inherent risks. It can compromise decentralization, opening doors to higher levels of contagiousness during stress scenarios. Additionally, it may introduce risks to smart contract implementations, as users may lose their tokens due to factors outside of the base protocol layer.
Read the full, in-depth analysis of shared security at https://chorus.one/reports-research/quarterly-network-insights-q1-2023 .
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 are a team of over 50 passionate individuals spread throughout the globe who believe in the transformative power of blockchain technology.
The Shapella Upgrade was completed in April, marking a significant event for both Ethereum and the entire crypto industry. This upgrade combined changes to both the Execution Layer (Shanghai upgrade) and Consensus Layer (Capella upgrade), allowing for the withdrawal of staked ETH and any accumulated staking rewards.
Shapella was a major stride towards greater flexibility and accessibility in staking on the Ethereum network. With the ability to withdraw staked ETH and rewards, the pivotal event galvanized institutional interest in the second-largest cryptocurrency by market value.
In this article, we’ll explore how the Shapella upgrade has sparked increasing interest in ETH staking among institutional investors, and why this trend is expected to continue.
A look back…
Let’s start by examining how we arrived at the current situation and why withdrawals were not enabled during the Ethereum transition from Proof-of-Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism.
The Ethereum network transitioned from Proof-of-Work (PoW) to Proof-of-Stake (PoS) consensus mechanism in two stages, starting with the launch of the Beacon Chain, followed by the Merge. During this time, staking withdrawals were not enabled to ensure network security and reduce the risk of failure. Validators were able to exit, but customers could not unstake their staked ETH.
Despite knowing they would be unable to withdraw their ETH for some time, the initial network participants contributed millions of ETH to secure the Ethereum PoS network.
To ensure the upgrade went smoothly, it was implemented without any downtime. And the focus was solely on making this transition as seamlessly as possible. As a result, no other features or changes were added at that time. The goal was to minimize the chances of anything going wrong and to keep the Ethereum network running smoothly for all its users. ETH withdrawals were not enabled, until Shapella.
Why Institutions hesitated to stake ETH before Shapella
Prior to Shapella, staking ETH involved significant risks due to uncertainty surrounding withdrawals. This made institutions hesitant to stake their assets, as they needed quick access to them if necessary.
In fact, despite ranking second in market cap, only 15% of the total ETH supply was staked, a remarkably lower percentage than other tokens such as Solana, which has over 70% of its total supply staked.
Another reason for the lack of institutional participation in ETH staking was the general unclear regulatory stance regarding digital assets globally.
For instance, in late 2021, the SEC sent Kraken, one of the largest US exchanges, a Wells notice regarding its staking services. According to the SEC, Kraken's staking service constituted a security offering and required registration with the Commission. Kraken disagreed with the SEC's position and argued that staking fell outside its jurisdiction and was not a security offering. Despite its stance, Kraken suspended its staking services for US customers due to concerns over the regulatory environment and uncertainty surrounding the SEC's position on staking.
As a result, institutions feared that what happened to Kraken would apply to all staking providers, although Kraken's situation was a one-off and would not affect someone who staked their assets through a trusted non-custodial staking provider like Chorus One.
Here's why a situation like this is unlikely to happen to a non- custodial staking provider or validator like Chorus One:
The Silver Lining: Why ETH staking is more appealing to Institutions post-Upgrade
Since Shapella, the level of staking is on an upwards trajectory, despite shaky grounds.
The amount of ETH being staked has been steadily increasing, with large amounts of capital being locked up to earn 4 to 5% yields in ETH.
Source: Dune Analytics
Approximately 655k ETH ($1.2M) has been deposited since the upgrade, with the ‘largest weekly token inflow in ether staking’s nearly two-and-a-half-year history’ seen just two weeks following Shapella. The surge was largely driven by enterprise-grade staking providers and institutional investors seeking to reinvest their rewards following withdrawal.
At the time of writing, there are approximately 19M staked ETH, and deposits continue to surpass withdrawals.
The growing amount of staked ETH is a promising indicator for the adoption and security of Ethereum. Now that yields are available, institutional investors are likely to be even more interested in staking ETH. In fact, there has already been a strong influx of institutional interest in ETH futures following the upgrade, indicating positive staking momentum among larger investors who are looking to increase their revenue.
Additionally, the first week of May 2023 saw a surge in staked ETH deposits as investors raced to stake their tokens with validators. According to Nansen, over 200,000 ETH was deposited into the network, marking the first time since Shapella that deposits outpaced withdrawals. This recent surge has resulted in over 19 million ETH being locked for staking, which accounts for about 15% of the total circulating supply of ether.
Shapella benefits institutions by providing them with the opportunity to get liquidity on their staked ETH and earn a yield of 4% or more while participating in securing the network. It essentially derisks staking, which increases the intrinsic value of the asset and makes Ethereum even more attractive to institutions. This reduction in perceived risks associated with staking makes it more likely for risk-averse holders to consider staking, which could bring more institutional investors to Ethereum staking.
In conclusion, the Shapella upgrade sparked significant positive changes to the Ethereum network - particularly in terms of staking - and paved a secure way for institutions to get involved in supporting the growth of the network.
As a leading staking provider, Chorus One is dedicated to making the staking process easier, secure, and compliant for our customers. Our multi-chain staking solution, OPUS, is safe, secure, and compliant, making it easy for institutions to start staking with a few simple clicks. Learn more about OPUS here and contact us at staking@chorus.one to learn more about how we can help you get started.
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 are a team of over 50 passionate individuals spread throughout the globe who believe in the transformative power of blockchain technology.
At Chorus One, we have a strong conviction in the potential of a multichain future. We believe that specialized blockchains play a crucial role in discovering and nurturing new use cases, and ultimately driving mainstream adoption. Since joining Chorus One about two years ago, I've been pushing for us to do the same in the Avalanche ecosystem as these two ecosystems have similar visions of what the multichain future can, should, and will look like.
Last year, we entered the Avalanche ecosystem. Our work will only intensify in the coming years with Chorus Ventures, our ventures arm, investing in native Avalanche projects. We also use our expertise in tokenomics and infrastructure to help projects launch their permissionless subnets. We will be presenting this topic both at the online Subnet Summit mid April and the Avalanche Summit II beginning of May.
In my view gaming is key to onboarding the next wave of users and a fundamental step in the road to mass adoption. This article aims to present the exciting future of blockchain gaming and demonstrate how the Avalanche architecture, particularly the multichain subnet architecture, is the ideal substrate for this vision. Through a two-part series, I will illustrate how one can develop an unstoppable game. By unstoppable, I mean a game that not even its creators can censor or stop if one day they move on to other projects. A game in control of its users.
So let's get to it.
To make this exercise as clear as possible I will look at a game I have plenty of experience with having played around 2000h. The game in question is Path of Exile, in my personal opinion the Diablo killer. This game needs no introductions but:
A short video:
Take a look here for some more gameplay videos.
I cannot emphasize enough how deep the economics goes in this game. The reason being that its economics are fundamentally tied to the crafting system for equipment and to the simple fact that you need to craft gear yourself or buy it from someone if you want to reach the endgame. Purely random drops cannot take you there.
Every season a "league patch" is released with new contents and the economy is reset. Characters and loot from previous seasons are still available to play in the "standard" league and the standard league economics are interesting in their own right but as a driver for innovation and to give new players the ability to compete in a more level playing field, these resets are very important.
The goal is thus to envision a version of PoE that is unstoppable and in the hands of gamers. You might ask: why would developers make such a game? To which I answer: the first one to do this becomes a first mover in a technology that soon will be expected from all games. And why will this be expected? Why do gamers want this? Well, this is a game you can continue playing and you can really own it. Like how it was in the dawn of console gaming. Be it real or game money, you can trade assets and no one can censor you. If you recall the anecdote, this was the reason Vitalik started his work in crypto.
In the centralized world, an ARPG like Path of Exile consists of a client/server platform where the server infrastructure is run by the game developer, and where the client freely available or purchased in a marketplace. Next, we will look at the features and responsibilities of the server side as this will be where our decentralization efforts will mostly focus.
The ability of client-side tampering with binary can cause all types of attacks/cheating. This is an arms race but currently, it is tackled via lock-step state validation. More on this later.
Most games need randomness. For anti-cheat reasons, this is taken care of at the server level. In the case of PoE (and ARPG more broadly) this is even more important as loot, damage, map layout, and even AI are parameterized by random inputs.
Of fundamental importance for a healthy in-game economy is that the more powerful items are, the rarer they should be. That is, their drop rate should be lower. This is accomplished by drop-rate lookup tables that are set and maintained by the server. Again due to anti-cheat measures, it is the server that, when appropriate, generates a random drop.
Even in PoE which tends to be dominated by PvE (player versus environment), there are situations where players interact: regions where PvP (player versus player) are allowed and sanctuary environments also called player hubs. These interactions need to be facilitated by the game server.
Special trading windows and functionalities are implemented so that players can exchange goods in a safe way.
Looking at the above set of functionalities that the server must provide, we can identify three different types of backends that the server infrastructure needs to maintain. These are the components we will need to "permissionlessly" decentralize. The following figure gives an idea of how the server-side interacts with these backends and the client (overlap indicates communication).
There is a need for queryable databases, with loot tables clearly being one such need. But many more are present: leaderboards, player info, skill table, effect mechanics, and many more.
A key-value store that can deliver monolithic "chunks of bytes" is also a necessary backend. The game needs to ship itself and its updates with a big proportion being graphical assets. For this dedicated content-delivery networks are employed.
As mentioned before the server infrastructure needs to be able to keep clients in sync across PvE and PvP both for anti-cheat purposes and for facilitation of user interactions.
So why is Avalanche especially suited for this exercise? How will the architecture of such a game change and what technologies do we need to leverage to accomplish our goal of a decentralized, unstoppable ARPG game?
Avalanche has two genius breakthroughs in its design: its consensus being the first and the subnet architecture being the second. The latter is highly dependent on the former. Let's see why.
Avalanche consensus is without a doubt the most advanced consensus out there and is correctly categorized as a third type of byzantine fault tolerant consensus following the discovery of signature accrual and Nakamoto consensus. It is the first meta-stable type of consensus algorithm. This consensus enjoys enviable properties: it scales easily with the number of validators, it is leaderless, and single-slot final. I won't go into much detail but suffices to say it accomplishes all of these by being a consensus algorithm based on a statement about an emergent property of the system. Let me explain what I mean. You can think of the network as having the property of being consistent (all validators agree on the current state). In Avalanche this property is emergent. Like the temperature of a gas, it exists as a property derived by the local interactions of its constituents “particles”. In the case of the gas, particles bouncing of each other exchanging kinetic energy in their small neighborhood gives rise to the macroscopic property of temperature. In Avalanche, validators are the particles and contrary to other consensus mechanisms they interact only “locally”, that is, with a small number of validators that are randomly selected in each round. Somehow - and here there is a strong mathematical theorem behind it - this is enough for the network to have a well-defined sense of state history. Even in the presence of attackers.
It is the property of essentially limitless scaling in the number of validators that allows for the second genius move. You see, Cosmos is the originator of the concept of an app-chain. In this design, it is absolutely necessary that chains can "talk" to each other to really cover all the use cases one is interested in. For this reason, they developed the IBC framework. This is an elegant framework for trustless communication but it incurs a significant requirement to a prospective chain: as a destination chain you need to keep consensus information of any given source chain you want to communicate with in the form of a light client. Wouldn't it be ideal if this information would be globally available to all chains from all chains? This is impossible with a limited set of validators.
So to have an unlimited set of app chains that can trustlessly communicate without having to keep light clients of every other chain they communicate with you need an unbounded set of validators in a global chain that keeps all this information. I hope you see where this is going: this is exactly the subnet design.
In Avalanche the main network that every validator must secure contains three chains. The P-chain (Platform chain), the X-chain (eXchange-chain) and the C-chain (Contract chain). The X-chain - which us currently a DAG but will become a linear chain in the near future - is a chain made for throughput exchanges of assets much like a blazing fast Bitcoin network. The C-chain is what most users are more familiar with and is an EVM based chain. It works just like Ethereum but faster and with instant finality. Great. But the real genius comes from the P-chain. This chain tracks all validation related transactions of the mainnet and all subnets. This is what will enable the unbounded, composable network of app chains. Since all validators have the P-chain at hand, any two subnets can communicate directly provided they want to. In IBC, on the other hand, with its hub-and-spoke design you have the unaddressed issue of path dependence.[^1]
So, we will leverage an Avalanche subnet for our game. Main reasons are the excellent scaling properties of its consensus and the application-specific, isolated nature of the subnet approach. On top of that it supports cross-subnet transactions allowing for valuable assets to move around freely in the ecosystem. Finally but not least, there is also VM2VM message passing that allows the validators in a subnet to easily check the state in other connected VMs be that within the same subnet, in the mainnet, or another subnet running in the same validator (the latter has not even been explored yet).
An Avalanche subnet is essentially the following:
The set of validators is dynamic but can be either permissionless or permissioned. The specification of a blockchain is comprised of a specification of a subnet this blockchain pertains to and the specification of a VM (i.e. virtual machine) that characterizes the valid state transitions in that blockchain.
Ava Labs recently announced HyperSDK a toolkit not much unlinke the CosmosSDK to help developers easily build VMs to power their subnet. From now on, they can focus on the logic of the application and worry much less about synchronization, consensus, state storage and availability and other blockchain-heavy topics. On the other hand, if you want to, you can customize these aspects as the SDK was build with modularity in mind.
See Avalanche platform and Subnets sections in the Avalanche documentation for more information on subnets and visit the HyperSDK repository which is open for contributions.
As mentioned before, our intent is to decentralize the game. For this, we will need to decentralize the server infrastructure, mainly the three points named above: databases, content delivery, and anti-cheat logic. This will be done by defining specialized VMs and the corresponding blockchains for each of those game infrastructures. All of this is packaged in the game server binaries which will be run by the validators in the subnet.
A game client will essentially be submitting transactions to the server network. Clearly, the game client is responsible for client-side rendering which is something we do not need to bother with on the server side. In terms of execution hardware, the game server is much lighter than the client and we will exploit this.
Keep in mind that being a player does not mean you can’t be a validator as well or a delegator to a Chorus One validator ;). This is obvious but worth mentioning as this means that for the first time ever a game can actually be in the hands of the players. With governance, even the game features and roadmap can be decided, paid for, and rolled out completely in a decentralized fashion.
So the big question: what are the blockchains, VMs and technologies used for this purpose? We dive in.
The BlobVM already exists in an advanced prototype stage. It was developed by Ava Labs and is available in open-source. What it does is provide a dedicated, seamlessly integrated (at the subnet level) content addressable storage with customizable parameters regarding permissions for read/write and persistence.
We use BlobVM for storing all art, texture, and models, i.e., all game assets. Even the game client binary can be updated via this method. In a fresh install, an externally downloaded game client connects, and sends a transaction to download all necessary assets. Note that this transaction could be a way to monetize the game but this is optional of course. In other words, this transaction would give you a game license NFT.
Now as mentioned before we want to give power and value to the gamers. Path of Exile is famous for its rich economy and is a formidable laboratory for NFT tokenomics. By giving the gamers the option to mint any found loot item we give this economy real value. There is plenty of opportunity and pitfalls here to fill in another article but it is important to mention that PoE works by having multiple “leagues” which give an opportunity to always “reset” the economy and give chance for new players to “make it”. We think this is an important aspect to keep in the decentralized version of this game. As an example of how we could explore this, we can configure it so that minted NFT only work on the current and previous leagues.
For tracking a gamer’s collection we use AVM, the Avalanche VM, which is a DAG (directed acyclic graph) based on the UTXO model capable of massive throughput. In fact, this is the underlying VM of the mainet’s X-chain. Note that since the announcement of Cortina (the next dot release of the Avalanche validator client) the X-chain will move from being a DAG into a linear chain. Here we have the option of launching out own AVM chain for assets transfer or, use the X-chain directly which would make all of the game’s NFT directly available to the wider Avalanche community (NFT reuse in games is an under-explored area). The AVM supports ANTs or Avalanche Native Tokens that can easily be imported/exported across the majority of supported VMs as it defines a unified API for cross-chain atomic swaps.
PoE is a free-to-play game that monetizes itself via cosmetic-only user-purchasable content. This can be easily supported via the AVM chain as well. Simply: an NFT in the user wallet ”unlocks” these assets to be delivered via the content delivery mechanism. This is essentially a VM2VM communication as is desirable and quite probable that the X-chain will support account lookups via this mechanism.
As mentioned before, as with any modern application, the game needs to store global relational data. For example, loot tables, league-specific information, game metrics, user metrics, NFT market data, etc. The list goes on and on. For this specific use case currently, many web3 projects use The Graph: a sophisticated but complex decentralized solution. A few issues arise with this approach:
Because of these, we propose a new type of VM we dub SQLVM and this will be the topic of our next article. But in a nutshell, you should think of it as a hybrid between a app-specific indexer and a persistent relational data store.
It allows for specific types of transactions that query/write to a globally replicated ACID relational database. Here we automatically benefit from the fact that blockchain transactions are atomic at the consensus level which makes designing the underlying database much simpler. For example, a suitable design can be done for a VM where the runtime state is an instance of any query engine: row-oriented like Postgres, column-oriented like BigTable, or document-based like MongoDB. Keep in mind that even this is overkill as we don't need their replication features. What we need is their query engine and storage solution. Most of these databases have sophisticated query planners than can take the place of fee estimators. The beauty here is that Avalanche will take care of maintaining this database eventually consistent which suffices for our use case. More sophisticated designs are certainly possible. The job of the VM here is to essentially declare the types of transactions (write/reads), the fees and verify the blocks by applying the transactions in the database and updating certain database hashes (will be needed for anti-cheat below). For our game - or any other app chain using this backend - other VMs in the subnet should be able to read the database at will which can easily be done with VM2VM.
Similar to how a non-validating Avalanche node have access to the mainnet state, a game client could be a node of this chain running in non-validation mode so as to keep this database state at all times for easy synchronicity.
Now to the technologically most innovative piece of the puzzle: to run anti-cheat as a ZK verifier. This is such a breakthrough technology that it would be an improvement over existing anti-cheat technology on centralized games.
Anti-cheat works, as mentioned before, as lock-step game simulation. What this means is that the game client is essentially an input system and a rendering engine of a game that is actually run remotely on servers. This Introduces latency which is the reason why game server farms have to be deployed across internet “regions”. ZK changes the game as it allows one to codify all game state transitions in a prover which we can run on the game client (remember the gamers tend to play with machines that are quite powerful) while the server is just a verifier! This has the added benefit that it even liberates the server from having to run in lock-step, to begin with! Essentially we can use eventual consistencyto catch the cheaters. Put differently, we don’t care to verify every little state transition that happened but batches (or recursions) encoding all transitions that happened in a configurable time window: 1 second, 10 seconds, a minute, an hour…
It is obvious what a powerful idea this is: no need to simulate full-blown games on the server. For example, we now can use more sophisticated AIs in the client. The fact that you have to run the game on the server is one of the reasons no modern AI is in use in games. Why not use GPT-4 for creating procedural quests??
We will have more to say about a ZKVM in a future article but I would like to state a few things. Firstly, note that we are not even using the zero-knowledge aspect of this VM and this gives more freedom in the exact construction of the protocol. In precise terms we are interested in SNARKS not necessarily ZK-SNARKS. Nonetheless, we expect that applications that use this zero-knowledge aspect will also exist.
Secondly, we might not be at the stage yet where fast enough provers exist to prove the state transition for a game like PoE. I'm not an expert, but I expect that schemes leveraging the GPUs in the gamer's clients will be just a matter of time.
And finally, we are talking about a very specific VM - that of the game - and not a generic programmable one like the EVM. We need a prover for those exact transitions that happen in game. This is potentially another route for optimization.
We hope to have convinced you that the future of decentralized gaming and player-owned gaming is bright. When Vitalik joined the crypto movement I don't think he thought his dream would come true on another chain, but I think he will be satisfied nonetheless.
But more importantly, we hope the reader is also convinced that this is only possible in a clean, elegant, and reusable way via the subnet architecture. Sophisticated applications like this will only flourish when good reusable VMs are available much like reusable contracts are right now. Multiple VMs demands multiple chains in a subnet architecture. Although technically possible to cram all of these backends into a single block to be serialized/deserialized and verified using a single chain, this would not only hurt code reuse but is also impractical since it is clear that these backends might need different blocktimes.
Of course, there are a lot of unknowns to this as I am not a game developer. I just want this to jump-start the imagination of developers in general (not only game developers) to the reality that the future is app-specific multi-chain subnets. And so that someone develops an unstoppable ARPG like Path of Exile!!
Tune in for some follow-up articles on where we attempt to detail somewhat the SQLVM and ZKVM and come talk to us in the summit. See you there!
Chorus One is one of the biggest institutional staking providers globally, running infrastructure and validating over 40 blockchain networks. Since 2018, we have been at the forefront of the PoS industry and now offer enterprise-grade staking solutions, industry-leading research, and also invest in some of the most cutting-edge projects through Chorus Ventures. We also invest in subnets on Avalanche so if you’re building something interesting, reach out to us at ventures@chorus.one.
