Author: YBBCapital Researcher Ac-Core

Foreword

With the recent launch of Blast, a Layer2 network by the founders of Blur, the market has seen mixed emotions in the face of strong expectations for airdrop revenues. According to the official announcement, the main network will go live in February of next year, and at that time it will continue to be similar to Blur’s previous model of airdrops based on points. The growth of TVL in just a few days after the news came out can be said to be convincing, but this Blur raid on the Layer2 narrative will undoubtedly lead to three endings: triggering a new round of hotspots; burying a huge new mine and “copying homework” of related track projects, and the incident is undoubtedly a strong technical and technical challenge from a marketing point of view. From a marketing point of view, this incident is undoubtedly a market battle between strong technical Layer2 and strong consensus Layer2.

Reviewing the basic structure of Ethernet Layer2

After Blur puts forward its own “Stake Layer2” new narrative, it is worthwhile for us to understand the basic structure type of the current Ether Layer2 before making a judgment. That is, it is an extensible solution designed to increase transaction throughput and reduce transaction costs by introducing a second layer of protocols or stacks on the Ethernet blockchain, which can be roughly summarized into the following types:

State Channels

Definition: State Channels are a solution based on the direct exchange of signatures between collaborating parties without the need to write each transaction to the blockchain. The basic principle is to create an off-chain environment between participants, allowing transactions to take place off-chain and broadcasting them to the network only when the final state needs to be submitted to the blockchain. This approach greatly improves the efficiency and throughput of transactions.

How it works: In a state channel, a participant can open a channel, perform multiple transactions, and then eventually commit the final state of the channel to the blockchain. In this way, only the opening and closing of the channel requires on-chain transactions, while all transactions within the channel can be performed off-chain, avoiding the cost and time delay of performing each step of the transaction on the blockchain.

Example: Lightning Network It is a stateful channel solution for Bitcoin. Users can make fast, low-cost micropayments off-chain and only write the final state to the blockchain when they need to close the channel. On Ether, Raiden Network is a similar state channel solution that enables highly scalable transactions by creating a many-to-many channel network.

Sidechains

DEFINITION: Sidechains are chains that are separate from but compatible with the main blockchain and can have their own consensus mechanism and block generation rules. Users can lock assets from the main chain, then make transactions on the sidechain and finally submit the results to the main chain. This approach improves overall network performance by enabling higher throughput on the sidechain. Here are a few common ways to bridge sidechain contracts:

• Pegged Bridge:It is a mechanism for cross-chain interaction by way of asset anchoring or mapping between two chains. In this type of bridging, the user anchors assets to one chain and a corresponding amount of assets will be generated on the other chain. This usually involves some trusted intermediary that oversees the locking and releasing of assets;

• Lock-and-Mint Bridge:A Lock-and-Mint Bridge is a way of bridging assets by locking them from one chain and then creating a corresponding number of assets on another chain. The user locks the assets on the original chain, and the bridging protocol issues a corresponding number of tokens or assets on the target chain. This approach usually requires a trusted intermediary or multi-signature contract to secure the lock and release process.

• Cross-Chain Atomic Swap: A decentralized approach that allows users to exchange at the atomic level on two chains, i.e. either all or none. This approach typically uses smart contracts and hash locks to ensure the reliability of transactions. The atomic exchange approach does not involve a trusted intermediary, but involves more complex smart contract design.

• Proxy Bridge:is a way of interacting across the chain through an intermediary proxy. A user sends an asset to a bridge agent, which performs a corresponding operation on another chain and then sends the corresponding asset to the target address. An example of this approach is the execution of transactions between two chains through multi-signature contracts;

• Light Client Bridge: Light Client Bridge uses a lightweight client to track the state on the source chain and then generate the corresponding state on the target chain. This approach does not require the locking and unlocking of assets, but rather ensures the reliability of the interaction by verifying the state on both chains. This is more common in some Layer2 solutions on Ether.

Plasma

DEFINITION: Plasma is a Layer2 framework first proposed by Vitalik Buterin, one of the founders of ethereum. It is inspired by a tree-like structure that contains multiple sub-chains that operate independently. Each subchain can process transactions and submit the final state to the main chain only in case of disputes. This structure allows each subchain to be viewed as an independent sidechain that can operate at lower cost and higher throughput.

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

Hybrid Solutions

Definition: This is a hybrid approach used by some Layer2 solutions that combines the advantages of stateful channels and sidechains, aiming to provide a more flexible solution in different usage scenarios.

How it works: The state channel can be used to handle certain high-frequency transactions, while sidechains can be utilized to handle larger or more infrequent transactions. This hybrid approach allows the optimal solution to be chosen based on actual needs, thus increasing the flexibility of the entire network.

Rollups

A mainstream and widely known scaling solution, it is mainly used to migrate compute and storage off-chain, with a recent report from Chainstack, the blockchain infrastructure sector [1], stating that without Layer2 Rollup networks such as Optimism and Arbitrum, Ether transactions would be four times more expensive, which is also currently categorized as There are two main categories: Optimistic Rollup and zk-rollup:

• Optimistic Rollup: It uses “optimistic execution”, i.e., it assumes that the transaction is valid and only rolls back if it is disputed. This reduces the burden on the main chain and improves overall throughput. However, an effective dispute resolution mechanism is required to ensure the security of the system.

• zk-rollup: Uses zero-knowledge proofs to validate transactions on the sidechain, thus ensuring the validity and security of transactions. This approach provides a high degree of privacy and security by executing transactions on the sidechain and then submitting the validation data to the mainchain, fully utilizing the powerful features of zero-knowledge proofs.

Validium Chains

Validium Chains combines the features of sidechains and stateful channels to guarantee the validity of transactions by executing them off-chain while using zero-knowledge proofs. This approach processes transactions off-chain, avoiding the cost of executing each step of the transaction on the main chain, but at the same time ensuring that transactions are secure and verifiable. This provides a novel combination of high performance and privacy protection.

State Rent

Let’s start by stating that State Rent is not a Layer2 solution, but an improved mechanism on the main chain. It reduces storage pressure on the chain by introducing rents to encourage users to release state that is no longer in use. Although it does not directly improve transaction throughput, State Rent helps optimize the use of resources on the chain and improves overall network efficiency.

Back to Blast itself

These different types of Layer2 solutions share a common goal of solving the blockchain scalability problem, and each solution has its own unique advantages and scenarios, and the choice of the right approach usually depends on the needs of the particular application, security requirements, and user experience considerations. Blast itself has been confirmed that it relies on 3/5 multi-signature to control the recharge address, even most of the Layer2, also rely on multi-signature to manage (see extended reading [2]), even if the problem of the Rollup centralized sequencer is still unresolved, but standing in the community consensus point of view Blast is still a great success in the short term.

Lido’s possible risk potential

Lido is a decentralized Ether-based Staking service that allows users to pledge their ETH tokens into the Ether 2.0 network, thus providing support for Ether’s PoS (Proof of Stake) mechanism. Blast’s Sake model essentially takes a user’s ETH assets and pledges them for Ether Lido as well as RWA, and distributes the proceeds back to the user and the developer, with a native Token as an additional reward. So pledging a large amount of money in Lido’s network also increases the risk of financial security for the pledgers, facing a certain degree of constant “centralization” of the pledge method may be accompanied by the following risk factors affecting the Lido project:

Liquidity Risk: Lido’s liquidity is one of the key factors in the successful operation of the program. If liquidity is insufficient, users may face difficulties when they want to withdraw their pledges or withdraw their funds. This situation may be affected by market factors, network congestion and other factors. Ways to address this may include developing more flexible exit policies, increasing the number of market participants, or partnering with other DeFi programs to improve overall liquidity.

Technology Upgrade and Evolution Risk: The Ethernet network and blockchain technology are in a rapid stage of development and may undergo upgrades and evolution.Lido must keep abreast of these changes and ensure that its technological infrastructure is able to adapt to the latest standards and upgrades in order to maintain the security and availability of the system.

Over-centralization risk:

· Node Centralization: Despite Lido’s goal of decentralization, the actual validator nodes are still operated by specific institutions or individuals. If these nodes are subject to some form of control or collusion, this could lead to centralized control of the entire system;

· Social Engineering and Malicious Behavior: Validator node operators may be subject to social engineering attacks or other forms of malicious behavior, which may include nodes being attacked, taken offline, or maliciously manipulated;

· Technical centralization: the core functionality and critical infrastructure of the Lido protocol may be controlled by a small number of technical entities, which may lead to a risk of technical centralization. For example, if upgrades to the core protocol are too centralized may result in too much centralized control over the protocol;

· Funding centralization: Lido’s token issuance and pledging may be controlled by a number of large holders, who have the potential to have disproportionate influence on the protocol, as shown in the data below, according to the data on November 29: the total number of pledges on the Ether Beacon Chain exceeded 28.64 million ETHs, and Lido’s market share reached 32.20%;

· Governance Centrality: If the protocol’s governance mechanisms are too centralized, decision-making power may be concentrated in the hands of a few entities or individuals, ignoring the voices of the broader community;

Contract economics risk: The economic incentives of a project need to be carefully designed to ensure that the long-term interests of users and the ecosystem are protected. Improper incentives may lead to lost funding, system instability, or other negative consequences. The project team should continually evaluate and optimize these incentives to adapt to changing market conditions and user behavior;

Security Audit Risks: The security of smart contracts is the cornerstone of the Lido project’s success. If a smart contract has vulnerabilities, it may lead to the loss of user funds. Therefore, it is crucial to conduct thorough and regular security audits of the contracts. At the same time, the project team needs to actively adopt feedback from the security community and fix any vulnerabilities found in a timely manner;

Community Governance Risks: The design and implementation of a community governance model may influence the direction and decision-making process of the project. If the community governance is not effective enough, it may lead to difficult decision making and hinder the development of the project. Therefore, the project team should maintain close cooperation with the community, establish transparent governance mechanisms, and encourage broad community participation;

Black Swan Events: Unpredictable events may have a significant impact on Lido. The project team needs to establish a flexible risk management strategy to cope with unexpected events and ensure that the system is sufficiently resilient against risks.

Final thoughts on Blast and the implications

Pacman has announced that it has raised $40 million for the Blur ecosystem, with participation from Paradigm, Standard Crypto Investment, Lido consultant Hasu, The Block’s Larry, and other Norwegian angels, Blast was born with a Blur aura and the support of Paradigm’s funding. Paradigm’s financing support, from the outset will attract enough eyeballs, especially recently in the new narrative support also can not help but bring us a lot of thinking.

1. Where does the native interest rate offered by Layer2 Blast come from?

When users deposit tokens into the Blast (L2) network, they are actually locking the equivalent value of the tokens in the native assets corresponding to the L2 into Lido and RWA for pledging, and distributing the proceeds to the users while sharing the original Blast points, which at the same time brings two direct problems:

• Depositing a large amount of user assets into Lido accelerates the centralization of the pledge track to a certain extent, which requires users to consider not only the operational security of Blast, but also the operational security of Lido. Under the assumption that both of them are safe, TVL, if it continues to maintain the current upward momentum, as well as the uncertainty brought by the secondary market price, multiple factors to a certain extent, will bring more uncertainty to the whole of the ethereum risk;

• If you look at Blast as a new “Stake Layer2” with another split, in which users lock a large number of ETH assets to gain revenue at the same time as locking a large amount of liquidity, how the Dapp application in the ecosystem can newly gain liquidity and how to tell a new expectation of coin issuance is also a problem worth thinking about?

2. Technology and consensus, which direction of Layer2 is easier to be bought by the market?

First of all, the main goal of blockchain is to solve the problem of trust and security in transactions, once the information has been confirmed and added to the blockchain, it will be stored permanently, and a single node can’t modify the data unless it has the ability to control more than 51% of the nodes in the system at the same time. The development of the industry is inseparable from the progress of technology, Blast is not innovative from the technical point of view, just another new path, even from the strict sense does not belong to Layer2.

But the strongest nature of the blockchain is still financial, technology is more mathematical and code, and financial mixed with more psychological expectations, Blast is the most successful place is to rely on their own and Paradigm’s strong flow, in a straightforward way to hit the user for the project’s airdrop expectations, which is to a certain extent compared with the other strong technology of Rollup, undoubtedly will be the way to make a profit from the difference in the price of the gas. The way of earning profit from the difference in price is distributed to users with the result of Stake. Liquidity is like the soul of all public chain systems, and Blast has reached a wave of strong consensus in a short period of time through the anticipation of airdrops. In the short term, strong consensus will still be bought by the market, but long-term maintenance requires more opportunities.

3. Hints from Dan Robinson, Director of Research at investment organization Paradigm?

Disagreement on Blast project decisions:

• Sequencing of Bridging and L2: Paradigm mentioned that they disagree with the decision to launch bridging before L2. This may indicate that they believe that launching bridging before the L2 (Layer 2) solution is ready may be risky and may affect the stability and security of the program.

• No Withdrawals Allowed for Three Months: Similarly, for the decision to not allow withdrawals for a period of three months, Paradigm may have felt that this set an unfavorable precedent that could have triggered concerns and dissatisfaction among users.

Marketing approach concerns:

The text mentions dissatisfaction with the marketing methods of the Blast program, noting that these methods may diminish the image of a serious team. Specifically, it may refer to questionable ways of publicizing the project or technology, which may be presented in an exaggerated or inaccurate manner.

Past support for Pacman and the team:

Paradigm recalls their support for the past work of Pacman and its partners, from Namebase to Blur to Blend.This suggests that Paradigm has a certain amount of trust in the team, based on their demonstrated technical prowess and track record of building superior products over the years.

Support for the L2 vision:

Paradigm states that they invested in the Blast team because Pacman presented a vision for the L2 chain and wanted to use it to extend the success of the Blur project. This indicates that Paradigm believes that the Blast team is capable of delivering a valuable L2 solution that contributes positively to the ecosystem as a whole.

Discussions with the team:

Paradigm emphasizes that they have had discussions with the Blast team to express their concerns, and the team has demonstrated a willingness to communicate with them. This demonstrates a willingness to resolve issues through dialog when difficulties or disagreements arise.

Responsibility and modeling:

Paradigm emphasized their sense of responsibility in the crypto space, stating that they are aware of what people may look for in their approach to the space. They made it clear that they do not support certain strategies, emphasizing that they take their responsibility in the ecosystem seriously.

Overall, the quote reflects some of Paradigm’s specific objections to the Blast project’s decision-making, but also expresses their support for the Blast team’s past work and emphasizes their sense of responsibility in the crypto ecosystem, and was followed by a tweet from Pacman making a few necessary clarifications, according to WuSpeakBlockchain:

• The high returns offered by Blast are not a Ponzi scheme, and are derived from Lido and MakerDAO, based on Ether pledge returns and on-chain T-Bills, respectively, which are a core component of the on- and off-chain economy and are sustainable;

• The Go-To-Market (GTM) strategy is independent of Paradigm, and while Paradigm advises on the technical L2 design, the GTM is decided entirely internally by Blast;

• Blast’s invitation system is not new; it has been around for a long time and is designed to reward users for their contributions to the L2 ecosystem and to give back to the community for their support, which is why invitation rewards exist.

Note: The analysis in this paragraph only represents the author’s personal opinion, and does not involve guidance, so if you have any objections, please ignore them.

4. Rapidly Surging Over $600 Million TVL Market

Since Blur founder Pacman announced the new start-up project Blast on November 21, as of November 29 data in just one week the total value of cryptocurrency lock (TVL) came to $614 million, a short period of time has triggered the industry’s overall discussion of the hotspot, this “Stack as the core of the Layer2 “Undoubtedly in terms of market consensus is undoubtedly the second great success.

5. “New Job” from ApeCoin

The original article mentions a proposal called “ApeChain” whose goal is to facilitate the research, deployment and management of ApeChain in the ApeCoin DAO ecosystem (see expanded link [3] for the original article). The paper describes how the team met with multiple technical solution partners and discussed the strengths and weaknesses of each technical solution in order to seek support from each partner. After much deliberation, the project team chose to support Layer2 Rollups as a way to better attract developers to build on ApeChain.

This makes us wonder if ApeCoin intends to catch up with the Blast craze in the first place?

Its future development will be compatible with the Optimism Superchain ecosystem and promises to provide it with a base token grant to help the ApeCoin DAO participate in Superchain governance, which leads us to wonder if Ape is capitalizing on Blast’s TVL siphon effect to catch up with the wave of hotness quickly? Specifically, the DAO’s fees include: infrastructure, business operations, developer relations, and ecosystem development.

Infrastructure includes:

• Block browsers such as Blockscout, Etherscan or the open source alternative Otterscan;

• Prophecy machines: Chainlink, Pyth or Redstone;

• Layer 1 data release fees in ETH;

• Sequencer (Sequencer) related runs.

Two ways of handling fees in the Discussion phase:

• Launch ApeChain (AC) tokens directly, with no fees for the DAO;

• The team will raise funds for the operation and development of ApeChain and in the future the governance tokens will be distributed to ApeCoin backers.

Finally, about Blur launched Blast itself from the marketing point of view is undoubtedly a huge success of an attempt, with the help of its own industry influence to bluntly state the points way the airdrop rule in the short term attracted a huge amount of money pledged to enter, inspired a new round of the market Stake enthusiasm, and its short-term attraction of more than 600 million U.S. dollars of TVL has also aroused the attention of other Layer2 and Ape Its TVL, which raised more than $600 million in a short period of time, has also attracted the attention of other Layer2 and Ape communities. However, it should be noted that it is still worth our caution because of the associated uncertain risks.

About YBB

YBB is a web3 fund dedicating itself to identify Web3-defining projects with a vision to create a better online habitat for all internet residents. Founded by a group of blockchain believers who have been actively participated in this industry since 2013, YBB is always willing to help early-stage projects to evolve from 0 to 1.We value innovation, self-driven passion, and user-oriented products while recognizing the potential of cryptos and blockchain applications.

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Extended Links.

【1】https://blockworks.co/news/ethereum-rollups-save-gas-fees

【2】https://twitter.com/eternal1997L/status/1729128004239216863

【3】https://forum.apecoin.com/t/apechain-a-team-research-deploy-manage-apechain/20163