9 Days TVL Breaks 600 million – Rational Thinking behind Blast’s Madness

9-Day TVL Soars to 600 Million - The Logical Explanation Behind Blast's Frenzy

Author: @YBBCapital Researcher Ac-Core

Preface:

With the recent launch of Layer2 network Blast by the founder of Blur, the market’s expectations of airdrop returns have brought about mixed emotions. According to the official announcement, Blast mainnet will go live in February next year, and similar to the previous Blur model, airdrops will be based on points. Within just a few days, the growth rate of Blast’s TVL is truly impressive, but Blur’s surprise attack on Layer2 undoubtedly leads to three possible outcomes: sparking a new hot topic; planting a huge thundercloud and “copying homework” of related projects in the same field. From a marketing perspective, this event is undoubtedly a battle between strong technical Layer2 and strong consensus Layer2 in the market.

Reviewing the basic structure of Ethereum Layer2

Image source: Top Ethereum Layer 2 Networks

After Blur proposed its own “Stake Layer2” narrative, let’s first understand the current basic structure types of Ethereum Layer2 before making a judgment. It is an scalability solution that aims to increase transaction throughput and reduce transaction costs on the Ethereum blockchain by introducing second layer protocols or protocol stacks. It can be roughly summarized into the following types:

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State Channels

Definition: State channels are a solution that allows participants to directly exchange signatures without the need to write every transaction to the blockchain. The basic principle is to create an off-chain environment between the participants, enabling transactions to be conducted off-chain. Only when the final state needs to be submitted to the blockchain will it be broadcasted to the network. This method greatly improves transaction efficiency and throughput.

Operation: In state channels, participants can open a channel, execute multiple transactions, and finally submit the final state of the channel to the blockchain. In this way, only the opening and closing of the channel require on-chain transactions, while transactions within the channel can be conducted off-chain, avoiding the cost and time delays of conducting every step of the transaction on the blockchain.

Example: The Lightning Network, which is a state channel solution for Bitcoin. Users can conduct fast and low-cost microtransactions off-chain, and only write the final state to the blockchain when closing the channel. On Ethereum, Raiden Network is a similar state channel solution that achieves highly scalable transactions by creating a network of multiple channels.

Sidechains

Definition: Sidechain is a chain that is detached from the main blockchain but compatible with it. It can have its own consensus mechanism and block generation rules. Users can lock their assets on the main chain and then conduct transactions on the sidechain, with the transaction results eventually being submitted to the main chain. This approach improves overall network performance by achieving higher throughput on the sidechain. Here are several common methods for bridging sidechain contracts:

Pegged Bridge: This mechanism achieves cross-chain interaction by anchoring or mapping assets between two chains. In this bridging method, users lock assets on one chain, and the corresponding amount of assets is generated on another chain. This usually involves trusted intermediaries responsible for monitoring the locking and releasing of assets.

Lock-and-Mint Bridge: This bridging method locks assets on one chain and creates a corresponding amount of assets on another chain. Users lock assets on the original chain, and the bridging protocol issues tokens or assets on the target chain. This method often requires a trusted intermediary or multi-signature contract to ensure the security of the locking and releasing process.

Cross-Chain Atomic Swap: This decentralized method allows users to conduct atomic-level exchanges on two chains, either completing all parts of the exchange or none at all. This approach typically uses smart contracts and hash locking to ensure the reliability of transactions. Atomic swap methods do not involve trusted intermediaries but require more complex smart contract designs.

Proxy Bridge: This method involves cross-chain interaction through an intermediary proxy. Users send assets to a bridging proxy, which performs corresponding operations on another chain and then sends the corresponding assets to the target address. One example of this method is executing transactions between two chains using a multi-signature contract.

Light Client Bridge: Light client bridge uses lightweight clients to track the state on the source chain and generate the corresponding state on the target chain. This approach does not require locking and unlocking assets but ensures the reliability of interaction by verifying the states on both chains. This is more common in Layer2 solutions on Ethereum.

Plasma

Definition: Plasma is a Layer2 framework, originally proposed by one of the co-founders of Ethereum, Vitalik Buterin. It is inspired by a tree structure, which consists of multiple independently running subchains. Each subchain can process transactions and only submits the final state to the main chain in case of disputes. This structure allows each subchain to be seen as an independent sidechain, enabling low-cost and high-throughput operations.

Working Principle: The key idea behind Plasma is to distribute transaction processing across multiple subchains, thus reducing the burden on the main chain. This layered structure helps improve the scalability of the entire system while maintaining the security requirements on the main chain. However, Plasma also faces challenges, such as the design of exit and dispute resolution mechanisms on the subchains.

Hybrid Solutions

Definition: These are hybrid approaches adopted by some Layer2 solutions, combining the advantages of state channels and sidechains, aiming to provide more flexible solutions for different use cases.

How it works: In the system, state channels can be used to handle certain high-frequency transactions, while sidechains are used for larger-scale or less frequent transactions. This hybrid approach allows the selection of the optimal solution based on actual needs, thereby enhancing the flexibility of the entire network system.

Rollups

Rollups are currently the mainstream and well-known scaling solutions. The main approach is to move computation and storage off-chain. According to a report by Chainstack, a blockchain infrastructure provider, if there were no Layer2 Rollup networks like Optimism and Arbitrum, Ethereum transaction fees would be four times the current prices. Currently, Rollups are mainly divided into two categories: Optimistic Rollup and ZK Rollup.

• Optimistic Rollup: It takes an “optimistic execution” approach, assuming transactions are valid and only rolling back in case of disputes. This reduces the burden on the main chain and improves overall throughput. However, an effective dispute resolution mechanism is required to ensure system security.

• ZK Rollup: It uses zero-knowledge proofs to verify transactions on the sidechain, ensuring transaction validity and security. This approach executes transactions on the sidechain, then submits the verification data to the main chain, fully utilizing the power of zero-knowledge proofs to provide high privacy and security.

Validium Chains

Validium Chains combine the characteristics of sidechains and state channels. Transactions are executed off-chain, while zero-knowledge proofs are used to ensure transaction validity. This method avoids the cost of executing every transaction on the main chain, while ensuring transaction security and verifiability. It provides a novel combination for high performance and privacy protection.

State Rent

Firstly, it should be clarified that State Rent is not a Layer2 solution, but an improvement mechanism on the main chain. It introduces rent to encourage users to release unused states, thereby reducing storage pressure on the chain. Although it does not directly increase transaction throughput, State Rent helps optimize the use of on-chain resources and improve overall network efficiency.

Back to Blast Itself

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The aforementioned different types of Layer2 solutions are all dedicated to addressing blockchain scalability issues, and each solution has its unique advantages and applicable scenarios. Choosing the right method often depends on specific application requirements, security considerations, and user experience. As for Blast itself, it has been confirmed that it relies on a 3/5 multisig to control the deposit address, similar to most Layer2 solutions that also rely on multisig for management (see additional reading [2]). Despite the unsolved problem of centralized sequencers in Rollups, Blast has achieved significant success in the short term from the perspective of community consensus.

Risks and Hazards that Lido Might Face

Image source: ASIA CRYPTO

Lido is a decentralized Staking service built on the Ethereum network, allowing users to stake their ETH tokens in the Ethereum 2.0 network to support Ethereum’s Proof of Stake (PoS) mechanism. Blast’s Stake model essentially takes users’ ETH assets for staking in Ethereum Lido and RWA, and distributes the profits to users and developers, with native tokens as additional rewards. Therefore, pledging a large amount of funds in Lido’s network also increases the financial security risk for the stakers, facing a potential risk of continuously “centralized” staking, which may have the following impact on the risks of the Lido project:

Liquidity risk: Liquidity is a key factor for the success of the Lido project. If liquidity is insufficient, users may face difficulties when trying to withdraw their stake or funds. This situation may be influenced by factors such as market conditions and network congestion. Potential solutions to address this issue may include devising more flexible withdrawal policies, increasing the number of market participants, or collaborating with other DeFi projects to enhance overall liquidity.

Technology upgrade and evolution risk: The Ethereum network and blockchain technology are in a rapid development phase and may undergo upgrades and evolutions. Lido must keep up with these changes in a timely manner to ensure that its technical infrastructure can adapt to the latest standards and upgrades, to maintain the system’s security and usability.

Over-centralization risk:

• Node centralization: Although Lido aims to be decentralized, the actual validator nodes are still operated by specific institutions or individuals. If these nodes are subject to some form of control or collusion, it may lead to centralized control of the entire system;

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

• Technical centralization: The core functionalities and key infrastructure of the Lido protocol may be controlled by a few technology entities, leading to technical centralization risks. For example, if the upgrade of the core protocol is too centralized, it may result in excessive concentration of control over the protocol;

• Funding centralization: The token issuance and staking of Lido may be controlled by a few large holders, who may have disproportionate influence on the protocol. As shown in the data from Dune below, on November 29th: Ethereum Beacon Chain’s total staking amount exceeded 28.64 million ETH, with Lido’s market share reaching 32.20%;

• Governance centralization: If the governance mechanism of the protocol is too centralized, decision-making power may be concentrated in the hands of a few entities or individuals, disregarding the voices of the wider community;

Data source: Dune

Contractual Economic Risks: The economic incentive mechanism of a project needs to be carefully designed to ensure the long-term interests of users and the ecosystem are protected. Improper incentive mechanisms can result in fund loss, system instability, or other negative consequences. Project teams should continuously evaluate and optimize these incentive mechanisms 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 there are vulnerabilities in the smart contract, it may lead to the loss of user funds. Therefore, conducting thorough and regular security audits of the contracts is crucial. At the same time, project teams need to actively adopt feedback from the security community and promptly fix any discovered vulnerabilities;

Community Governance Risks: The design and implementation of a community governance model can impact the direction of project development and decision-making processes. Insufficiently effective community governance may lead to challenging decision-making, hindering project progress. Therefore, project teams should maintain close cooperation with the community, establish transparent governance mechanisms, and encourage broad community participation;

Black Swan Events: Unpredictable events can have significant impacts on Lido. Project teams need to establish flexible risk management strategies to cope with unforeseen events and ensure the system possesses sufficient resilience against risks.

Thoughts and Impact on Blast:

Image source: Blast Official

LianGuaicman announced that it has raised $40 million funding for the Blur ecosystem, with participation from angel investors LianGuairadigm, Standard Crypto Investment, and advisors from Lido such as Hasu and The Block CEO Larry. Blast’s birth comes with the aura of Blur and the support of LianGuairadigm’s financing, which has caught a lot of attention from the beginning. Especially recently, with the support of the new narrative, it has brought us a lot of thinking.

1. Where does Layer2 Blast’s native interest rate come from?

When users deposit tokens into the Blast (L2) network, they are essentially locking equivalent tokens. Blast then puts these assets into Lido and RWA for staking, distributing the profits to users while also giving them original points. However, this brings about two direct problems:

• By depositing a large amount of user assets into Lido, it further increases the centralization of the staking track. For users, they not only need to consider the security of Blast’s operation but also the security of Lido. Assuming both are secure, if the TVL continues to rise and uncertainty factors arise due to the secondary market prices, these multiple factors will bring more uncertainty risks to the entire Ethereum ecosystem.

• If we view Blast as a unique “Stake Layer2”, where users lock a large amount of ETH assets to earn profits and also lock a large amount of liquidity, it is worth considering how Dapp applications within the Blast ecosystem can obtain liquidity and convey new token issuance expectations.

2. Technology and Consensus, which direction of Layer2 is more marketable?

The main goal of blockchain is to address trust and security issues in transactions. Once information is confirmed and added to the blockchain, it is permanently stored. Unless a single node has the ability to control more than 51% of the network, it cannot modify the data. The development of the industry relies on technological advancements. From a technical perspective, Blast does not bring innovation, but it takes a different approach. Strictly speaking, Blast does not even belong to Layer2.

However, the strongest essence of blockchain is finance, with technology relying more on mathematics and code, while finance involves more psychological expectations. Blast’s success lies in leveraging its own strength and the strong traffic of LianGuairadigm, directly targeting users’ expectations for airdrops. This, to some extent, is different from other strong technical Rollups, as Blast distributes its profits to users by taking advantage of Gas differentials earned through stake. Liquidity is the soul of all public chain systems, and Blast has achieved a strong consensus through its expected airdrop in the short term. In the short term, strong consensus will still be marketable, but maintaining it in the long term requires more opportunities.

3. Hints from Dan Robinson, the Research Director of investment institution LianGuairadigm?

Image source: X (Twitter) @danrobinson

Disagreements on Blast Project Decisions:

• Order of Bridging and L2: LianGuairadigm mentioned that they disagree with the decision to bridge before L2. This could mean that they believe launching bridging before the readiness of Layer 2 solutions may pose risks and potentially impact the stability and security of the project;

• Three-month withdrawal restriction: Similarly, regarding the decision to not allow withdrawals for three months, LianGuairadigm may see this as setting an unfavorable precedent for users, potentially causing concerns and dissatisfaction.

Concerns regarding marketing tactics:

The article mentions dissatisfaction with the marketing tactics of the Blast project, pointing out that these tactics may diminish the image of a serious team. Specifically, it could refer to issues with the way the project or technology is being promoted, possibly presenting it in an exaggerated or inaccurate manner.

Support for LianGuairadigm and the team’s past work:

LianGuairadigm reviews their support for LianGuairadigm and its partners’ past work, from Namebase to Blur and now Blend. This indicates that LianGuairadigm has a certain level of trust in the team, based on their demonstrated technical skills and the track record of building excellent products over the past years.

Support for the L2 vision:

LianGuairadigm states that they invested in the Blast team because of LianGuairadigm’s vision for L2 chains and their desire to use it to expand the success of the Blur project. This indicates that LianGuairadigm believes the Blast team has the ability to provide a valuable L2 solution and make a positive contribution to the entire ecosystem.

Discussions with the team:

LianGuairadigm emphasizes that they have already had discussions with the Blast team, expressing their concerns, and the team has shown a willingness to communicate with them. This suggests that both parties are willing to resolve issues through dialogue when difficulties or differences arise.

Responsibility and leading by example:

LianGuairadigm emphasizes their sense of responsibility in the crypto field, acknowledging that people may value their practices in the industry. They explicitly state their non-support for certain strategies, emphasizing that they take their responsibilities in the ecosystem seriously.

Overall, this passage reflects some specific objections by LianGuairadigm to the Blast project’s decisions, but it also expresses support for the Blast team’s past work and emphasizes their sense of responsibility in the crypto ecosystem. According to the latest blockchain news, LianGuairadigm also made a few necessary clarifications in a tweet:

• The high returns offered by Blast are not a Ponzi scheme; rather, the returns come from Lido and MakerDAO, based on Ethereum’s staking rewards and on-chain T-Bills, which are integral parts of the on-chain and off-chain economies and are sustainable;

• The Go-to-Market (GTM) strategy is unrelated to LianGuairadigm; although LianGuairadigm provides consultation on the technical L2 design, the GTM is fully decided internally by Blast;

• The invitation system of Blast is not a new mechanism; the invitation system has been in place for a long time and aims to reward users contributing to the L2 ecosystem, serving as a feedback to community support, hence the reason for the existence of invitation rewards.

Note: This paragraph analysis represents the author’s personal opinions and does not involve guidance. It can be ignored if there are any objections.

4. Rapidly Surging TVL Market of Over 600 Million Dollars

Data Source: DeBank

Since November 21st, when Blur founder LianGuaicman announced the new startup project Blast, the total locked value (TVL) of Blast has reached 614 million dollars as of November 29th in just one week. This has sparked a hot topic of discussion in the industry, and this “Layer2 with Stack as the core” undoubtedly has achieved great success in terms of market consensus.

5. The “New Task” from ApeCoin

Image Source: ApeCoin Official

The original article mentioned a proposal called “ApeChain,” which aims to promote research, deployment, and management of ApeChain in the ApeCoin DAO ecosystem. The article described the team’s meetings with multiple technical solution partners and discussed the strengths and weaknesses of each technical solution to seek support from each partner. After careful consideration, the project team chose to support Layer2 Rollups to attract developers to build on ApeChain.

This makes us wonder if ApeCoin intends to catch up with the frenzy of Blast at the first opportunity?

Its future development will be compatible with the Optimism Superchain ecosystem and promises to provide foundational token grants to participate in Superchain governance. Does this make us think that ApeCoin, with the TVL syphoning effect from Blast, is rapidly catching up to the trend? The specific content of DAO fees includes infrastructure, business operations, developer relations, and ecosystem development.

Infrastructure includes:

• Block explorers such as Blockscout, Etherscan, or open-source alternatives like Otterscan;

• Oracles: Chainlink, Pyth, or Redstone;

• Cost of Layer 1 data publication in ETH;

• Operations related to sequencer.

Two ways to handle costs during the discussion phase:

• Directly launch ApeChain (AC) tokens without any cost to the DAO;

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

In conclusion, the launch of Blast by Blur itself is undoubtedly a huge success from a marketing perspective. By leveraging its inherent industry influence to directly explain the airdrop rules for points, it attracted a massive amount of funds to participate in staking in the short term and ignited a new round of Stake enthusiasm in the market. Its TVL of over 600 million dollars in a short period of time has also drawn attention from other Layer2 and Ape community, but it is necessary to note that it carries certain associated risks and therefore requires caution.

Expand 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

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