To provide more perspective on crypto and DeFi markets, we’re pleased to present the first of quarterly notes from Goliath. In this first edition, we will highlight our leadership’s thoughts on four game-changing developments that have us excited and sourcing new investments. To find out more information about available LP opportunities, please contact us at [email protected].
1. Cross-Chain Interoperability Protocol (CCIP)
CCIP is due to come out early April, and will be a significant shift in cross chain applications, messaging, and asset transfer between rollup environments. The tooling it will provide will also enable a number of different DeFi protocols to start realizing their potential. Chainlink’s CCIP, or Cross-Chain Interoperability Protocol, is a proposed protocol designed to enhance communication and interaction between different blockchain networks. The main goal of this protocol is to enable seamless and secure data transfer and sharing of information between various decentralized applications (dApps) and smart contracts operating on different blockchains. In the context of Chainlink, a decentralized oracle network, the CCIP plays a crucial role in broadening the scope of oracle services. Chainlink’s oracles are responsible for providing off-chain data to on-chain smart contracts, and the CCIP aims to extend this functionality across multiple blockchain networks. The key benefits of Chainlink’s CCIP include:
Interoperability: It enables different blockchain networks to work together, share data, and execute cross-chain smart contracts, which in turn can lead to the development of more versatile and powerful dApps.
Security: The CCIP helps maintain the security and trustlessness of the blockchain ecosystem by leveraging Chainlink’s decentralized oracle network to deliver accurate and tamper-proof data across different blockchains.
Scalability: By enabling cross-chain communication, the CCIP can help scale blockchain technology and its applications, as it allows developers to build dApps that can interact with multiple blockchains simultaneously.
Efficiency: The CCIP can improve the efficiency of blockchain networks by allowing them to share resources, which can lead to cost savings and better performance.
Enhanced functionality: Cross-chain interoperability allows for more complex and feature-rich applications that leverage the unique features and capabilities of different blockchains.
Overall, Chainlink’s CCIP contributes to the growth and development of the broader blockchain ecosystem by facilitating seamless interaction between different networks, fostering collaboration, and enabling the creation of more sophisticated decentralized applications.
As each blockchain network has its strengths and limitations, being able to combine their features through cross-chain communication can lead to the creation of more powerful and feature-rich applications. Here are some examples to illustrate this point:
Composable dApps: By utilizing the capabilities of multiple blockchains, developers can create dApps that are composable, meaning they can interact and work together with other dApps across different networks. This can lead to the emergence of an interconnected ecosystem of decentralized applications that can share data and services, creating new possibilities for developers and users.
Optimized performance: Some blockchains may have better performance or lower transaction fees, while others might have unique features like privacy or smart contract capabilities. With CCIP, developers can create dApps that optimize their performance by leveraging the strengths of different blockchains. For example, a dApp might use one blockchain for its high throughput and another for its privacy features.
Specialized services: Different blockchains can offer specific services or token economies that can be combined to create innovative solutions. For example, a decentralized finance (DeFi) dApp might use one blockchain for its lending and borrowing functionality and another for its decentralized exchange, creating a more comprehensive and competitive financial service.
Greater resilience: By relying on multiple blockchains, dApps can become more resilient to network failures, congestion, or potential security vulnerabilities. If one network faces issues, the dApp can continue to operate using the other blockchain networks it is connected to, ensuring uninterrupted service.
Access to a broader user base: Cross-chain dApps can tap into the user base of multiple blockchain networks, expanding their reach and potential market. This can lead to increased adoption and growth for these applications and the underlying blockchain platforms.
2. ZK Rollups
Zero Knowledge has been hyped for quite sometime. The tech and cryptography enthusiasm behind it has been around since pre 2017, and the cryptocurrency community really embraced it to push forward the vision of a decentralized world. Much investment has gone into the space, and with questionable promises and deliveries. That being said, we are starting to see the launch of many ZK Rollups starting this quarter. While it is unclear how these will monetize, gain marketshare, and truly deliver a pure ZK experience (there are issues with certain parts of these projects not being completely ZK or truly EVM compatible) we are starting to see these experiments come online. So while I remain cautious, undoubtedly we will see something huge come from this space.
Zero-Knowledge Rollups (ZK-Rollups) are a layer-2 scaling solution for blockchains, designed to improve transaction throughput, lower fees, and enhance privacy without compromising security. They use a technique called zero-knowledge proofs to validate and process a large number of transactions off-chain while maintaining the security guarantees of the underlying blockchain.
ZK-Rollups bundle multiple transactions into a single proof, called a “rollup,” which is then submitted to the main blockchain. The zero-knowledge proof ensures the validity of the rollup without revealing any information about the individual transactions, hence the name “zero-knowledge.” Some of the prominent projects that have been in development include:
zkSync: Developed by Matter Labs, zkSync aims to provide a highly secure and scalable solution for Ethereum. It focuses on enhancing the Ethereum ecosystem by offering low transaction fees, fast confirmations, and high throughput.
Aztec Protocol: Aztec Protocol focuses on providing privacy-preserving transactions on Ethereum using ZK-Rollups. It enables confidential transactions and private smart contracts, allowing users to maintain their privacy while interacting with dApps.
Loopring: Loopring is a decentralized exchange (DEX) protocol that leverages ZK-Rollups to facilitate fast and low-cost trading on Ethereum. It aims to address the scalability limitations of Ethereum while preserving its security and decentralization.
StarkWare: StarkWare develops a scalability and privacy
engine based on STARKs, a type of zero-knowledge proof. They offer StarkEx, a scalability solution that can be used for various applications, including decentralized exchanges, gaming platforms, and more.
Hermez Network: Hermez is a decentralized ZK-Rollup focused on scaling payments and token transfers on the Ethereum network. It aims to offer secure, low-cost, and fast transactions for users.
Please note that the projects mentioned above are just a few examples and not an exhaustive list. The ZK-Rollup landscape is constantly evolving, with new projects and advancements regularly emerging. To get the most up-to-date information on the ZK-Rollup space, we recommend researching recent developments and monitoring the progress of ongoing projects in the field.
3. Ethereum’s Shanghai Upgrade
The Ethereum Shanghai Upgrade will allow for all the locked POS staked ETH to become withdrawable. This will shake up the Validator, Liquid Staked ETH, and DeFi yield ecosystems. Staking Pools are beginning to think about gaining, or loosing market share, when stakers are able to withdraw. Providing rebates, bribes, and partnering with asset locking protocols. Prominent figures like Danny Ryan (lead Core Dev for PoS) cheering the redistribution of stake for decentralization purposes. There is also concern about the security of Ethereum, as people are worried the amount of stake will reduce for the PoS mechanism. I personally believe the amount of ETH staked will increase. The Ethereum Shanghai upgrade aims to address different aspects of Ethereum’s performance and functionality, potentially including:
EIPs : (Ethereum Improvement Proposals) that didn’t make it into previous upgrades, such as Berlin and London, but were still considered valuable for the Ethereum ecosystem.
Ethereum 2.0 upgrade: Continued work on Ethereum’s transition from Proof of Work (PoW) to Proof of Stake (PoS) as part of the Ethereum 2.0 upgrade, also known as “The Merge.” The Shanghai upgrade could incorporate additional optimizations and improvements related to Ethereum’s transition to PoS.
Layer 2 scaling solutions: the integration of rollups or other technologies aimed at improving Ethereum’s transaction throughput and reducing congestion on the network.
Improvements to Ethereum’s developer experience, making it easier for developers to create, deploy, and interact with smart contracts and decentralized applications on the Ethereum network.
4. EIP-4844 (OUR DARK HORSE PICK)
The Ethereum Improvement Proposal EIP-4844 will scale Ethereum Rollups by 100x. EIP-4844, also known as proto-danksharding, is an Ethereum Improvement Proposal aimed at increasing transaction throughput and reducing fees. It introduces a new transaction type called blob-carrying transactions, which accept “blobs” of data, increasing the amount of data that can be handled. EIP-4844 is a transitional upgrade that prepares Ethereum for full danksharding in the future, which is expected to increase Ethereum’s TPS to around 100,000. The introduction of blobspace in EIP-4844 will enable Ethereum to manage the capacity for a global transaction network without compromising decentralization or security.
EIP stands for Ethereum Improvement Proposal, a protocol that allows developers to propose new features and solutions to the Ethereum protocol. Proto-danksharding is named after two Ethereum researchers, Proto Lambda and Dankrad Feist.
Sharding is a way of partitioning databases into smaller ones that manage specific data segments, thereby improving the efficiency and performance of these databases. When applied to blockchain, sharding takes on some unique features. Ethereum plans to implement a type of sharding, called danksharding, that will help lower transaction costs and increase throughput.
Danksharding is expected to increase Ethereum’s TPS to around 100,000, compared to the Ethereum base layer that processes around 15 TPS and its layer 2 rollups that process around 100 TPS as of Q1 2023.
EIP-4844 (proto-danksharding) is the step that will come before full danksharding and will increase TPS to approximately 1,000.
EIP-4844 introduces a new transaction type called blob-carrying transactions, which are like regular transactions but with added pieces of information known as binary large objects or “blobs”.
Blobs are large in size and are attached to blocks, which increases the amount of data blob-carrying blocks can handle.
Unlike blocks that are stored forever and visible to the Ethereum Virtual Machine (EVM), blobs are only available for a short period of time and are not visible to the EVM. Additionally, blobs reside on the Ethereum consensus layer instead of on the computation-heavy execution layer, and blobspace is much cheaper than blockspace.
EIP-4844 will also implement execution-layer logic, verification rules, multi-dimensional fee markets, and other system changes required for full danksharding in the future.
Even though EIP-4844 will implement most of the logic of full danksharding, it won’t implement any cross-shard communication or stateless clients, which are required for full danksharding. However, EIP-4844 will prepare Ethereum for the implementation of these features in the future.