Featured | Ten disasters in the history of Ethereum; how DeFi cannibalize PoS security

Today's content includes:

1. The top ten disasters in the history of Ethereum.

2. Network effects in a decentralized financial world.

3. Economic applications of Ethereum and Bitcoin.

4. Atomex-A decentralized exchange based on atomic swap technology.

5. How DeFi cannibalize PoS security.

Top 10 disasters in the history of Ethereum

One of the most famous battles of Hercules is the battle with the great Hydra. According to Greek mythology, Hydra is unique because when it is attacked and its head is severed, two more grow. The more pain and problems the Hydra encounters, the more resilient it becomes. This regeneration feature is a feature called "anti-fragility".

The Ethereum public chain is a modern Hydra. Ethereum has only existed for about 5 years, but has experienced many battles and had its heads severed in the short period of its existence. From a technical point of view, it is designed to be fragile. Ethereum will technically and socially become its own self-sustaining and head-regenerating organism. The following ten Ethereum were "beheaded" reborn:

Ethereum Foundation's "co-founder" leaves, but network development continues to grow

In June 2014, before the launch of Ethereum, Charles Hoskinson and Vitalik Buterin were divided on the development direction of the Ethereum Foundation. Charles Hoskinson hopes to accept venture capital funding and establish a formal governance structure. Vitalik wants to stay away from venture capital and instead run the Ethereum Foundation as a non-profit entity. One of the first civil strife facing Ethereum caused Charles to leave the Ethereum Foundation. An entrenched community has gradually replaced Charles Hoskinson, and since then, the Ethereum Foundation has become an incredible supporter of the Ethereum ecosystem.

Ethereum Foundation risks centralization but Consensys sprouts growth

The Ethereum Foundation was crucial to Ethereum's success and even helped lead the project, but it was a centralized force in the early days. Centralization is essentially the opposite of Ethereum. This centralization has led to numerous attacks by the Bitcoin community, claiming that Ethereum is a “centralization scam”. In October 2014, Joseph Lubin, the co-founder of Ethereum, gave birth to Consensys. The organization currently operates in more than 30 countries around the world, helping everyone from developers to NGOs to Global 2000 companies launch real-world blockchain solutions based on Ethereum technology.

Ethereum (ETH) is unstable but MakerDAO appears

Bitcoin's original vision was as a person-to-person e-cash, and Ethereum's vision goes far beyond that, it still hopes to fulfill this responsibility. The problem with Bitcoin (BTC) and Ethereum (ETH) is that they are highly volatile assets. Because people need a stable currency when buying or selling goods and services, this volatility makes it difficult to use payments. In 2015, MakerDAO promised "Build a Better Currency." They created the stablecoin Dai. Maker is one of the earliest decentralized autonomous organizations (DAOs) established on Ethereum, and is currently the backbone of the new open financial system.

DAO is destroyed, but evolving DAO appears

In May 2016, some members of the Ethereum community announced the establishment of DAO. After the end of the fundraising period, the value of DAO was more than $ 250 million. This is a novel idea and is essentially the world's first decentralized venture capital company. In June 2016, DAO (without proper review) was hacked and all funds were exhausted. This is a critical wound for Ethereum, but the community has united and spent a painful period. The fragile Ethereum now runs many successful DAOs, each of which has learned from the mistakes of The DAO Hack . These include, but are not limited to, MakerDAO, DigixDAO, MolochDAO, MetaCartel, KyberDAO, and the upcoming resurrection DAO (called LAO)

Parity is killed, but Gnosis is established

Parity was one of the first organizations to build infrastructure on Ethereum. They created Parity Wallet and Parity Ethereum Client. In July 2017, a vulnerability was discovered on the Parity Multisig Wallet. An attacker could steal more than 150,000 ETH (approximately $ 30 million). In November 2017, the entire wallet was killed, resulting in more than 500,000 ETH ($ 150 million). Losses, including 300,000 ETH from the Web3 Foundation (Parity) team. Fortunately, there are many other good options for ensuring value based on Ethereum. The most notable is the Gnosis team, who not only has one of the best Ethereum multi-signature wallets, but they are also leading the wave of smart wallets in the future.

EtherDelta goes bankrupt, but DEX agreement flourishes

The first meaningful use is represented by EtherDelta. In the frenzy of 2017, EtherDelta served many investors. In 2018, the U.S. Securities and Exchange Commission (SEC) forced founder Zachary Coburn to close the exchange and accused him of violating U.S. securities laws. But Hydra did not flinch, giving birth to Uniswap, a fully decentralized exchange, and not affected by the problems faced by EtherDelta. In addition to Uniswap, there are more than 20 DEXs built on Ethereum, including Kyber With complete protocols such as Network and 0x Protocol, the DEX ecosystem will continue to grow and mature.

Crypto cat (mysterious cat) is blocked but scalable

The first decentralized application (DAPP) to receive widespread public attention was CryptoKitties. These cats are provably rare digital collections that can breed and have unique characteristics. At a short peak, someone spent more than $ 170,000 on a cat. By December 4, 2017, the cryptocat fever reached its peak and blocked Ethereum due to transaction volume. The Ethereum community is already working on scalability solutions, but this has pushed many teams to superdrives. Now, with implementations such as Rollups, SKALE architecture, Connext network, Counterfactual, Raiden network, Funfair, Offchain Labs, and multiple Plasms, Ethereum has many second-layer solutions. This does not include a layer of Gas restrictions, sharding, etc.

ICO boom and depression but open finance takes shape

ICOs are a revolutionary way to raise funds and, like many revolutionary advances, have caused huge speculative bubbles. The ICO boom of 2017 brought many people into the cryptocurrency space and then crashed away. This is the first time Ethereum has proven itself to be a decentralized and anti-censorship platform, but more revolutionary events will occur in the future. Open finance has been brewing in the context of Ethereum, but this is undoubtedly the next wave in the Ethereum ecosystem.

Synthetix under attack, but oracles mature

Synthetix is ​​a decentralized synthetic asset system. It allows users to mortgage the value and, in return, generate synthetic assets that track the prices of real-world assets, such as Bitcoin, gold, crypto assets, indices, etc. In June 2019, the Synthetix oracle was attacked, causing 37 million Synthetix Ether losses. After evaluating most oracles on the market, Synthetix decided to partner with Chainlink. Chainlink is also famous for various partnerships, and most importantly, their cooperation with Google to connect BigQuery to Ethereum.

Parity gradually retreats, but Ethereum 2.0 will spread

Ethereum is fortunate to have two major software client implementations and Bitcoin has only one, Go Ethereum (GETH) and Parity Ethereum Client. The benefit of having two or more client implementations is that they can defend against certain attacks. Parity's dedication and loyalty to Ethereum has been questioned for some time. Not only are their codes the biggest cause of Ethereum's economic loss to date (wallet incident), but also conflicts with Boca Many members of the Ethereum community still question their loyalty. Ethereum 2.0 is the next development of Ethereum, and now multiple development teams Trinity, Sigma Prime, Prysmatic Labs, Status, Chain Safe Systems, Ether Camp, PegaSys, Parity and Yeeth, they are all actively developing Ethereum 2.0

In the next few years, Ethereum, the anti-fragile Hydra will undoubtedly face more battles, but it will continue to regenerate wounds and become stronger every time.

Full text link: https://medium.com/@abertolino/ethereum-history-an-anti-fragile-hydra-8aa56874f394

Network effects in a decentralized financial world

A very good Defi ecological map, not necessarily a very convincing introduction to Defi's network effects, but the ecological explanation is very good.

Ethereum is currently conducting large-scale innovations around open financial applications, far exceeding the excessive publicity and flawed promises of ICOs. In this article, we will explore and map this exciting ecosystem and how to add each built application to the rest of the ecosystem.

Where does it start-DAI

Ethereum value itself is highly volatile, and DAI provides stability to the ecosystem.

Financial operations through DAI

  • Expenditure / Profit-(Send Transaction)
  • Borrow / Loan-(Compound, MakerDao)
  • Exchange-(Uniswap, Kyber)
  • Interest-(Compound, PoolTogether)
  • Collateral-(MakerDao)
  • Savings-(Compound, Dharma)
  • Trading-(Kyber, OasisDex, IDEX)
  • Leveraged Trading-(dy / dx, Synthetix)

Let's study how each dapp on ETH cooperates openly with each other, generating unprecedented network effects. This is called combinability or "Lego Money".

As the user experience of cryptocurrencies improves, we are starting to see applications called "smart contract wallets" that offer incredible power to your funds compared to standard wallets while maintaining the same or even better Security. For example, InstaDapp lets you manage MakerDao loans, Compound loans / borrowing, and Uniswap pools all in the same layout, and is usually compressed into 1 step instead of multiple.

Full text link https://medium.com/@0xKiwi/network-effects-in-an-open-financial-world-251152b9467d

Economic applications of Ethereum and Bitcoin

This is an article that devalued Bitcoin and favored Ethereum. You can take a look at the points where Bitcoin has been flawed. Although it may be a bit subjective, you must accept some opinions.

It has also become more blind worship than a revolutionary movement, and Bitcoin people expect the world to change their business processes and switch to new cryptocurrencies, while blatantly ignoring some important facts.

  • Bitcoin can only be used as a medium of exchange. Unit currency between people for services and goods transactions.
  • Due to the limitations of Bitcoin's structural design and its second-tier expansion solution, it will actually fail as a currency.
  • It cannot run any automated program that can perform some kind of business / financial logic.
  • Thought leaders are constantly changing the story told. Bitcoin's grand concept is value storage or "digital gold 2.0", but the end of this story will be a catastrophic failure.
  • Value storage is a dead end, because of the above restrictions, it can't actually bring economic help to the world, nor will it bring about any major changes.
  • One thing is for sure. It keeps Bitcoin relevant because of political influence in a decentralized, unchanged cryptocurrency. This is a huge help for political refugees, fugitives and anyone who wants to freely trade and manage their wealth without anyone's intervention.
  • This is a good cypherpunk tool, but is it worth the 240 billion market cap? of course not.

Full text link: https://medium.com/@sanneh.si/economic-applications-of-ethereum-78d20ca1de9a

Atomex-decentralized exchange based on atomic swap technology

Atomex co-founder Igor Matsak explains how atomic swaps help solve interoperability between blockchains. They are from the Baking Bad team in the Tezos community and are launching a DEX based on atomic swap technology.

Atomex is a hybrid DEX based on atomic swap technology and a multi-currency wallet. It allows funds to be stored locally while maintaining liquidity. Therefore, users can exchange their funds to another cryptocurrency just like ordinary blockchain transactions. It is done in a detrusted, decentralized manner, without sending the cryptocurrency to any third party.

Atomex background:

In the Tezos community, we are also called Baking Bad. Last year we released the "bake-bad.org" browser for bakers and representatives in Tezos, a better call.dev smart contract browser, and Python (Pytezos) and C # (Netezos) packages for Tezos nodes .

We start from scratch. Atomic swaps seem simple and powerful, but they are still rarely implemented. why? Making easy-to-use applications based on atomic swaps is tricky. Assuming market turbulence, specific conditions of various blockchains, exchange fees, etc., establishing a 24-hour operating exchange is quite challenging. This construction process requires all our experience, from the basics of cryptography to trading principles, covering everything from head to toe.

For us, we decided to build a completely trustless service. Perhaps there must be a place to satisfy liquidity. Our solution is to make a hybrid model with two basic points:

All on-chain exchange work is done independently on the client; liquidity is collected and matched on the Atomex server.

When two parties to a transaction meet on a server, their application runs with the blockchain to execute the transaction. This model can not only bring sufficient liquidity to the market, but also provide a trustless and independent on-chain exchange process. As mentioned earlier, the exchange is done through an atomic swap scheme.

Detrust also requires open source Atomex applications. It helps get more people involved in testing the application, ensuring that the code is reliable and free of security issues. On our way, we tried to use as much existing open source code as possible, but also redesigned some RPC libraries and node wrappers, and eliminated some errors in existing crypto libraries. The exciting thing is that in the first month after the mainnet launch, we have already contacted several projects, including DeFi projects, such as DEX.ag and bZx Protocol. We therefore feel that the potential in this area is increasing.

Today's competitor AtomicDEX from Komodo is one of the most well-known projects. Atomex is considered to be a high-quality implementation of useful atomic swapping technology, and its distinguishing feature is usability. We don't care about similar competitors. In fact, we are likely to cooperate with other DeFi. I think this is the best strategy to compete with centralized entities in the industry.

Full text link: https://defiprime.com/atomex

How DeFi cannibalizes PoS security

Dragonfly Capital's new book describes the attacker's use of interest rates higher than Defi's borrowing to attract funds, thereby achieving the effect of acquiring a large number of network chips at a lower cost.

Now imagine that you are an attacker trying to disrupt a PoS system. What would you do? At a higher level, there are two ways to attack: you can buy all of the unpledged chips to have 1/3 of the network chips, but this is difficult and expensive. The second method is that you can persuade current pledgers to stop pledges and take over the network at a lower cost. The second method sounds attractive in principle, but how can you stop current network participants from pledged? An easy way is to provide them with more attractive benefits elsewhere.

In PoS networks, PoS works only when incentives are generated, and they are only motivated if the rewards are large enough. However, if they can get better returns elsewhere, they will go where they get higher returns. Literally, the on-chain loan market will directly compete with PoS mortgages, which means that they compete directly with security protocols!

Tarun has simulated in his article https://docsend.com/view/697feid and concluded that PoS chains cannot safely use deflationary monetary policies. If the PoS block reward decreases over time, then its long-term balance will be that almost all assets are used as loans, not staking.

If an attacker subsidizes the lending market on the chain and pays better long-term interest rates, that will shift stakeholders from pledges to lending. Then, with this, use low cost to acquire more equity shares.

As long as the PoS network is in an open ecosystem, any on-chain lending market can undermine its security by providing higher returns.

How does the PoS system defend?

There are two options to counter this: either force the on-chain lending market to limit its interest rates, or compete with the lending market by offering better returns to stakeholders.

The first strategy will be similar to capital controls. This is obviously impossible on the blockchain. Even so, borrowers and lenders can establish transactions off the chain.

The only realistic way to defend is to use a flexible monetary policy to provide a competitive exchange rate when necessary. Any fixed inflation system is vulnerable to this attack, because attackers always know exactly how much money they need to subsidize the lending market to swallow up the stakes of stakeholders.

This defense is similar to a central bank adjusting its interest rates to achieve its economic goals. Going forward, all PoS networks must be aware of this trade-off. On-chain governance and off-chain governance methods can be used here, but if the PoS protocol wants to remain secure permanently, it must have an adaptive monetary policy.

Full text link: https://medium.com/dragonfly-research/how-defi-cannibalizes-pos-security-84b146f00697