Original Author: Ans, Krypital Group
Original editor: Krypital Group
On June 22, dydx announced that it would break away from Starkware and would choose to develop a dydx chain based on the Cosmos SDK . In addition, it is recommended to use $DYDX as the native token of dYdX v4 (it will ultimately depend on the community).
As the largest Dapp application of TVL on L2, dydx’s approach undoubtedly poured cold water on the most popular Ethereum L2, and also caused heated discussions in dydx, Ethereum, including Cosmos and other communities, mainly focusing on
1. Why did dydx "betray" Ethereum?
2. Can App Chain, or application chain, become the mainstream narrative of Dapp in the future?
(The above is L2Beat data)
This is also the main topic of this article. Since the application chain on Cosmos has begun to take shape, there have been many excellent successful cases. And this article will mainly focus on the case of Cosmos ecology.
1. Why did dydx abandon Ethereum?
1. Centralization of L2 sequencer
L2 is a solution to the scalability problem of Ethereum, and it is generally accepted that Rollup is currently the best solution for L2. We all know that the blocks of L2 are stored on Ethereum, and the entity responsible for sorting, batch processing and submitting transactions to L1 is the sequencer (sequencer).
On the Ethereum mainnet we pay gas to the miners, while on L2 we pay gas to the sequencer. Since the sequencer completes the role of determining the order of transactions, it can earn money by extracting MEV. So it is very important that the sequencer is decentralized to resist censorship.
But currently, the sorters on rollup only operate on a single entity. For example: Offchain Labs and Optimism PBC are the only operators of Arbitrum and Optimism's sequencers respectively. And StarkNet is currently the same. This will be a big hurdle for dydx, which is currently on its way to fully decentralized derivatives.
Although these L2s have plans to decentralize the sorter in the future, with the ecological growth, they will still face the problem that multiple applications will seize the same network resources after reaching an order of magnitude. In 2021, when gamefi and airdrops are popular in the market, Polygon often soars dozens of times in gas to package transactions, and Solana crashes have become a daily operation. At that time, BSC had several popular gamefi and defi, which often blocked the network, and it was not a rare case, which was the case last year. It has become a daily routine for bsc mining and harvesting players.
More than that, the market may have overestimated the scalability of L2 rollup.
(The source of the above information: dydx founder Antonio twitter)
Antonio, the founder of dydx, said on Twitter that he is pessimistic about the future expansion of rollup. dYdX is currently the largest dapp on rollup, and he knows rollup too well. The goal of dYdX is to become a DEX that is ten times larger than the current scale and can compete with centralized trading platforms in terms of experience.
Antonio has expressed similar remarks many times before, saying that the slow technical iteration of Ethereum has limited the development of its dapp.
I personally agree with this, except that the decentralization of the L2 sequencer mentioned above will take a long time. After several years of delay, Ethereum finally set Merge at the end of the year, and Danksharding and ZK-Rollup are expected to be next year, while ZKEVM and DAMM (cross-L2 AMM solution) are still in the exploratory stage. .
2. The current Ethereum infrastructure cannot meet the needs of business customization
On Twitter, 0xTomoyo, a Solidity developer, made an in-depth analysis of the reasons for the migration from a technical perspective.
The current dYdX order book is run on a single server off-chain, and L2 is only used to settle matching transactions. In theory they could build an in-memory order book on L2, but currently no such tool exists. Therefore, dYdX chooses to build a new chain on Cosmos, with each validator running an in-memory order book. This further realizes the decentralization of the protocol.
3. Consideration of chain sovereignty
Antonio responded that the migration does have chain sovereignty considerations, and dYdX monopolizing a chain will make it easier for the protocol to recover from protocol loopholes or hacker attacks (fork). In terms of security, the initial stage of the new chain will control the number of nodes to ensure security.
When there are serious problems with some projects on the chain, the side chain or Layer2 team usually initiates a rollback of the proposal, or freezes it.
For example, eco announced that the node freezes the wallet where the stolen funds of ddex are located. Once a transaction infection occurs in a similar situation, the rights and interests of users of their own dapp will often be implicated.
Another case is that the upgrade and maintenance of the polygon last year will not be postponed because of what activities your dapp is holding.
(The above information comes from: Cointelegraph Chinese)
For dapps like dydx whose business needs to be liquidated in a timely manner, untimely upgrade operations will undoubtedly bring a lot of trouble to users.
This is actually the reason why many people dare not use Solana to leverage or borrow products. When Solana crashes, if you have a position, you can’t operate it at all, and you can only watch it explode. For projects with higher tvl, they are less willing to put their products and users in such a passive situation. And once dydx has its own chain, it will have greater controllability in ensuring protocol upgrades, security and normal operation of products.
After owning its own chain, it can also empower dydx tokens more, whether it is used as the main network Gas, or better integrated into products, or in terms of governance, it can bring dydx token holders greater equity. At present, the dydx mainnet is on SterEx, the tokens are still on the ETH mainnet, and the protocol is separated from the tokens. After experiencing the initial rise, the market value of tokens has been falling all the way, which is also a huge challenge for the dydx team and the community.
(The above data comes from: Coingecko)
4. Supervision
SC's supervision of dex and DeFi is increasing day by day. As we mentioned earlier, the current dYdX order book is actually running on a single server off-chain. The regulatory issues that this "semi-decentralized" exchange will face in the future are still unclear.
Previously, the currency mixing protocol Tornado stated under pressure that it would block wallet addresses sanctioned by (OFAC). Last year, Uniswap also received a regulatory request from the SEC to block certain securities token trading permissions from Americans. But it is impossible for DeFi to block US IP at the smart contract level. So at present, Uniswap.org only shields many token permissions from the US IP at the front-end UI layer, but Uniswap also has many community version UIs. Uniswap official itself also has a decentralized version of ui. Uniswap.eth.link also has no restrictions on Americans. Therefore, after dydx is further decentralized, we will definitely see more free and unlimited UI front-ends appear to meet the anti-censorship needs of the blockchain community.
After a large number of bsc chain projects ran away last year, some people in the community asked Binance to freeze assets. Binance also relied on 21 nodes to "decentralize" the statement to exempt itself from liability. Binance stated that Binance Smart Chain is a decentralized open source public chain. Chain, Binance cannot intercept or restrict cross-chain transfers, and cannot freeze any assets on the chain. So in the face of potential regulatory pressure. It is undoubtedly the safest and more in line with the blockchain concept to completely decentralize the running nodes and isolate them from the development company.
2. The application chain or the new narrative and development direction of Dapp
The migration of dydx has also sparked discussions about Lisk. We analyze it from two perspectives: technical level and user scale.
The first is the technical architecture level. Antonio has said many times that StarkWare developer support is insufficient, while Cosmos developer support is good. Indeed, Cosmos has made great progress in infrastructure in recent years, and several important modules have been launched to improve cross-chain interoperability.
Inter-Blockchain Communication (cross-chain communication)
There are many articles on the market that deeply analyze the technical principles of the Cosmos IBC module. The conclusion is directly quoted here. Using the IBC protocol, chains can be freely connected, and the security of cross-chain tokens is close to that of native assets on native chains. The user experience has been greatly improved. When we use it, we can hardly feel that we are crossing chains.
(Keplr plug-in wallet, the largest wallet in the Cosmos ecosystem)
Let's take Osmosis as an example to experience the user experience of IBC cross-chain
Osmosis is the largest dex chain in the Cosmos ecosystem. Because I chose to develop the underlying architecture myself. Compared with Uniswap, Osmosis can have more customization space. In addition to privacy transactions, anti-mev and gas-free functions, a Superfluid pledge mechanism has also been customized and developed, so that OSMO tokens in the trading pair fund pool can also pledge to protect the network at the same time when making a market, and enjoy PoS Staking income. At the same time, get triple incentives (transaction fees, liquidity mining rewards, PoS pledge rewards). The protocol also provides staking as a service to help other application chains (which need to be in the whitelist) gain security. Capture the value in Cosmos by turning yourself into the form of saas.
(Osmosis has connected 38 chains with ibc, covering most of the active chains in the Cosmos ecosystem)
In Osmosis, cross-chaining assets from other appchain chains to Osmosis is called Deposit, and crossing back is called Withdraw, which is essentially the process of using ibc cross-chain transfers.
Interchain Accounts
The Interchain Accounts module allows chains to call each other's applications on the other chain and perform operations on the other chain. This means that the blockchain that has opened the inter-chain account module can do more than simply cross-chain tokens. Bringing cross-chain interoperability to a new level.
For example, the current smart contract of aave on Ethereum cannot operate the swap contract on the solana chain. In the chain ecology where the inter-chain account module is enabled, a chain dedicated to "loaning" can call the liquidity of another "transaction chain" (Osmosis) for selling and liquidation operations. When different chains can be linked more deeply through IBC, the potential of DeFi composability can be further released.
Interchain Security (shared security service)
This module will be launched this year, which I think is a particularly important part. We all know that in order to prevent 51% attacks, pos chains have relatively high requirements for market value (the cost of running servers for nodes) and token distribution.
Interchain Security is a shared security service that allows chains to effectively share their security, allowing new chains to start more securely, and verifiers on larger chains can provide verification node protection for new chains Earn rewards. The essence is that the new chain can take out a part of the tokens to the verification nodes on the mature chain, and rent security from them, just like Polkadot's card slot lease can share the security of another chain.
The chain developed by the Cosmos team itself is called the Cosmos hub, and the token is atom. It should be noted that the process of using ibc communication between chains developed by other project parties using the Cosmos sdk does not need to pass through the Cosmos hub, nor does it need to consume atoms. At present, atom is mainly used by developers to vote to determine the development direction, and ordinary investors holding coins have no practical effect except for occasional spontaneous airdrops in the ecosystem.
And after Interchain Security goes online. Cosmos hub will undoubtedly become the first choice for many new chains to rent and secure. After the cross-chain security service is launched, the demand for atoms will be greatly increased, and for retail investors, pledging atoms can earn token rewards from multiple chains at the same time.
At the user level, we have also observed that Appchain is feeding back the Cosmos ecosystem.
For many new projects, there are not so many users in the cold start stage. Choosing a platform depends on whether the platform already has large-scale user support. According to the current data on the Cosmos official website. Its ecology already has 266 apps and services, which is recognized as the second largest blockchain ecology. Second only to Ethereum.
(cosmos ecological map)
In the DeFi summer of 2021, in addition to luna, there are many evm compatible chains in the Cosmos ecosystem, such as kava, crypto.org, etc. Through liquidity mining and other methods, these chains have attracted a large number of players into the Cosmos ecosystem, which will benefit all chains that integrate IBC and connect to the Cosmos ecosystem. For the new chain, this is the biggest attraction of choosing the Cosmos ecology.
In addition to Cosmos, there are also many successful application chains, cases, and application scenarios under development.
THORChain
THORChain is different from ordinary cross-chain bridges in that it can exchange heterogeneous native assets in a decentralized manner, such as converting BTC into Doge... instead of various Wrap tokens. All this is due to THORChain's custom-developed THORNodes on its own bottom layer, so that public chains without smart contracts can also complete the exchange of native assets.
Terrachain
Although luna's stablecoin narrative failed, it is undoubtedly an excellent template in terms of its development strategy. It chooses its own underlying chain and allows all applications on the chain to serve the core function ust. Let the ust ecology once develop to a very high scale.
Secret Network
Secret Network was previously a second-layer privacy solution built on Ethereum, formerly known as "Enigma" built in 2017. In order to solve the scalability, its technology stack was also migrated to the Cosmos SDK.
The Secret application layer currently has dozens of applications, and the top few applications, such as SiennaSwap and SecretSwap, have also received tens of millions of dollars in financing. At the beginning of the year, with the support of 25 institutions including DeFiance Capital, Alameda Research, huobi, and HashKey, announced an ecosystem fund of US$400 million, aiming to incubate 100 projects this year.
Shockwave: The Next Phase Of Secret Network’s Explosive Growth
In addition, the privacy layer1 protocol developed based on the Cosmos sdk and connected to ibc includes not only Secret, but also oasis, as well as Nym, which is led by a16z and Binance.
Uniswap chain 和 Compound chain
In fact, as one of the first-generation DeFi leaders, Compound is the first dapp to try to transform into a dedicated chain. Compound originally chose Polkadot’s Substrate. After dydx announced its own development chain, the CEO of Compund also commented on it.
(Compund CEO twitter reply)
They claimed that choosing Substrate took a detour, which caused their own chain to be delayed again and again. They did not clearly state what problems exist in Substrate, but they are indeed trying to apply the chain.
It is worth discussing that one of the hotly discussed topics in the DeFi leader Uniswap community is whether Uniswap will launch the Uniswap chain. Although Uniswap has not officially announced the plan for the time being, it is worth noting that Uniswap founder Hayden has participated in discussions on this topic quite a lot, and he seems to have a more open attitude towards this issue.
If dydx can successfully migrate and achieve greater success on dydx than on Ethereum, it will have a great incentive for Uniswap and Comound or other applications that want to build their own application chains, and promote them to build their own application chains faster. direction forward.
In fact, the logic behind it is not difficult to understand. In the past, Ethereum was the bottom layer with decentralization and the best security in the encryption field. It was also the bottom layer with the most complete infrastructure and the most developers and users. In the last bull market, a large number of applications such as DeFi, NFT and Gamefi were bred . But with the surge in transactions, the weakness of Ethereum's lack of scalability has been exposed. Although L2 is committed to solving this problem, due to technical and other reasons, the progress is slow. As the application continues to mature, other basic protocol security and other aspects are improved, and cross-chain interoperability is gradually solved , it is a better choice to build your own application chain.
Once dydx's approach is verified, the application chain may become the main narrative of the next cycle. After all, compared with simple applications, AppChain can give people more room for imagination in terms of dependence on the underlying protocol, flexibility of narrative, and product development direction.
It is not enough and it needs to be clear that the application chain does not mean "abandoning" Ethereum . As the technology matures, we may be able to see the birth of more "Ethereum application chains".
3. Summary
On July 30, dydx officially tweeted that 44% of the progress of the dydx chain has been completed. According to this progress, it is estimated that the dydx chain will be completed in October, and the dydx migration will begin. It is expected that there will be more heated discussions at that time. Can dydx migrate successfully? Can it bring a better trading experience after going online? How will the dydx token behave? We will wait and see.
(Data source: dydx official twitter)
It is also certain that dydx is not the first, and certainly will not be the last dapp that chooses to develop its own public chain.