Those things about Ethereum mergers and upgrades (||）

Sharding is the process of splitting a database horizontally to spread the load - a common concept in computer science. In the Ethereum environment, sharding will reduce network congestion and increase transactions per second by creating new chains called "shards."

The original plan was to study the shard chain prior to the merger, with the aim of addressing Ethereum's scalability issues, but the technical difficulty and long development cycle, as well as the recent progress made in the research and development of the Layer2 scaling solution, prompted the merger upgrade to take precedence over the shard chain.

The beacon chain contains all the logic to keep the shards safe and synchronized. The beacon chain will coordinate pledgers in the network, assigning them to the shards they need to process, and will also facilitate communication between shards by receiving and storing other accessible shard transaction data. This will give the shard a snapshot of the state of Ethereum to keep everything up to date.

Rollups is the "Layer 2" technology that exists today. They allow Dapps to bundle or "aggregate" transactions into individual transactions off-chain, generate cryptographic proofs, and then submit them on-chain, which reduces the amount of data required for transactions. Combine this with all the additional data provided by sharding and users get 100,000 transactions per second. Rollups is not a temporary measure and will coexist with sharding for a long time.

According to the current progress, EIP-4844 (Proto-danksharding) can be said to be a major breakthrough in the field of sharding. It is designed to increase scalability through sharding and Layer2-Rollups processing of a large number of transactions. In the past, 64 shards would have 64 proposers, whereas in practice this would lead to a lot of double validation, which in turn leads to market centralization, but in Danksharding, only one proposer chooses to enter the slot to process all transactions and all data. Arbitrum, Optimism, StarkNet, Polygon, Rollups are all projects that could benefit greatly from IP-4844. The disadvantage is that it can't handle 16M of data, but it can handle 1M of data, which is a great progress.

More information about Danksharding and the EIP-4844 protocol can be found here: https://www.eip4844.com/

8.The combined ETH pledge revenue model

1) Fee will become an important factor

After the merger, the revenue structure for Ethereum miners consists of two parts:

Rewards

Fees

a) Let's look at the Reward first:

According to the schedule given by Ethereum's official github, at the current staked 12.8M, it is reasonable to estimate that the amount pledged at the time of merger should be about 15M ETH, at this time it can be calculated that the annualized Reward is about 0.7M, APY = 4.7%

Source: https://docs.ethhub.io/ethereum-roadmap/ethereum-2.0/eth-2.0-economics/

b) The Fee that executes EIP1559 will burn about 70% and the rest will go to the validator:

Source:https://twitter.com/808_Investor/status/1532874044181200896/photo/1

9.The Reward rate will decrease along with TVL after the merger

Compared with the horizontal network, the Ethereum network will most likely balance at a yield of about 5%, and the pledge ratio of the whole network will rise to 27% under the condition of average fees over the past 12 months, that is, about 32M of ETH pledge can be held.

Source: https://stakingrewards.com

We assume that 5% is the expected rate of return we need. The capacity that ETH can pledge is mainly affected by network Fee and Reward. Since Reward is predictable, reasonable expectation of Fee is the main tracking factor. From the chart below, we can see that in 2021, when the network is most active, fee income will be able to accommodate 50M ETH pledges, or 42% of the current amount.

Source: https://twitter.com/808_Investor/status/1532874067539263488/photo/1

10.Deflation will become a high probability event after the merger

According to the calculations of Ethereum github, a pledge of 30M will issue nearly 1M rewards a year, and according to the data available over the past 12 months, even in the lowest months of network activity, a net burn of nearly 0.5M is achieved, that is, deflation of about 0.4%. At the same time, if we return to the volume of online activity in mid-2021, we will achieve a deflation rate of > 1%.

Source:https://twitter.com/808_Investor/status/1532874071746220032/photo/1

11.Demand points in the Ethereum 2.0 upgrade process

If Ethereum makes a smooth transition to proof of Stake (PoS) by the end of this year, next year will bring fundamental changes to the Ethereum network. So what are some potentially game-changing app types to look out for?

Pledge pool

After the Ethereum merger, pledgers on the network will begin to receive pledge proceeds. Validators are required to stake 32 ETH in order to qualify. Allowing them to stake the proceeds while depositing the loan agreement or DEX as an LP for other benefits would greatly reduce the opportunity cost of Staking. The "pledge pool" model lets many small users come together to become validators and distribute rewards. Possible projects: Lido Finance, Rocket Pool.

Lido Finance (https://lido.fi/) - Currently the number one pledge pool

Although it is currently suffering from the panic caused by short-term market declines and the spread of ETH-stETH, it is undeniable that liquidity pledge is still an effective incentive for PoS pledge.

There are some differences between Rocket Pool's solution and Lido's, and its products are aimed at node operators, beacon chains, and general pledgers.

The differences between Rocket pool and Lido Finance are: 1) Rocket is more decentralized; 2) Rocket currently only supports ETH ecosystem, Lido is not completely limited to ETH ecosystem, but POS multi-chain ecosystem, including ETH2.0, LUNA, SOL, KSM, and soon MATIC.

More details can be found in our previous article:

https://medium.com/@ViaBTC_Capital/viabtc-capital-insight-liquid-staking-is-unleashing-the-assets-value-and-efficiency-3 de47f5a894d

12.Cross-rollup architecture

There are many cross-chain projects on the market, but what about cross-rollup tools? This is an area that has received less attention at the moment, and Dapps that bridge the gap between Optimistic Rollup and ZK-Rollup have a great future.

Across a Rollup DEX - Hop Protocol (https://app.hop.exchange/#/send? token=ETH)

Hop Protocol is a Rollup token bridge, and Hop Exchange is a front-end application created on this bridge system. How it works: Hop relies on market makers known as Bonders, who earn fees by providing liquidity to others; This automatic market maker (AMM) style allows Hop users to quickly send cross-chain transactions. This means that the people who provide liquidity to jump have the opportunity to earn income!

Decentralized cross-rollup Bridge - Orbiter Finance

Orbiter Finance is a solution for L1 to L2, and currently supports low-cost, real-time interswitching between ETH and ERC-20 on zkSync, ETH mainnet, Arbitrum, Polygon. DApp provids link: https://app.orbiter.finance/. The innovation is to cross chains to cross environments, not only between Rollup, but also from Rollup to Optimism.

Other: Immutable X will launch liquidity solutions that can span multiple L2/L3 Zk-rollups

The NFT Layer2 protocol Immutable X will partner with StarkNet to launch Cross-rollup, a mobility solution that can span multiple L2/L3 Zk-rollups, which is designed to bring the scalability and composability of NFT to Web3 gamers.

13.Relay service

Rollups uses Calldata. Calldata is expensive, and one of the most expensive operations on the Ethereum network is write storage. For rollups like Arbitrum and Optimism, supporting a network of robots bundled with txs will be very helpful in reducing costs. Examples include Argent and Zecrey.

Argent (https://www.argent.xyz/)

Argent is a Layer2 wallet, the advantage is that you can easily transfer Layer2 assets to Layer1, low cost, fast. Argent Wallet recently launched a new version, compared to the regular wallet, its main features are:

1) Support ENS similar domain address, unified is xxxxx.argent.xyz. Prefix customization;

2) The latest version already supports zkSync, which no longer requires expensive activation fees;

3) Support swap under zkSync, L2 layer swap processing fee is very cheap.

Zecrey (https://faucet.zecrey.com/)

Zecrey is a set of cross-chain, privacy, layer2 a wallet, across ETH, BSC, Polygon, AVAX, Aurora several public chains, with the following functions: 1) management of multi-chain assets in L1 wallet; 2) Privacy-protected transactions in L2; 3) Locking and unlocking multi-chain assets to gain profits; 4) Exchange and add and delete liquidity in L2 AMM DEX; 5) Transfer assets by drawing coins between L1 and L2.

Streaming payment

The expansion of Layer 2 will set the stage for real growth of Layer 2 native DApps. Solutions like streaming payments will shine, and once they are adopted at scale, users will flock to these solutions with convenient, efficient, and low-cost UX. The streaming payment protocol is not just a tool, but an infrastructure through which developers can build a wide variety of Dapps that can be applied in DeFi, IDO, NFT, AirDrop, DCA, Automatic Investment Plan, DAO, Web3, and more. For example, Sablier.Finance.

Sablier.Finance (https://sablier.finance/) Sablier.finance (https://sablier.finance/)

Sablier is a payment streaming application that allows funds to be withdrawn between multiple parties in real time or at very small intervals (measured in seconds). There are many application scenarios, and once it is adopted on a large scale, it will bring qualitative changes to the entire Web3 world. It can be used for: real-time payment of wages, real-time distribution of airdrops, real-time ownership of tokens, new modes of token issuance, fixed investment/average cost method DCA (buy or sell), real-time dividends for NFT holders, etc.

Multi-chain governance

With the continuous development of multi-chain and PoS public chain, the collaborative development of multi-chain will give birth to very good cross-chain DAO tools and collaborative tools, imagine whether there can be PoS network interoperability projects, linking Ethereum PoS network and other public chain networks, multi-chain development and realization of multi-chain on Ethereum as one of the shards, coordination of the Ethereum main network.

Things like Layerzero/Axelar may have more room to grow. Details can be found here

https://medium.com/@ViaBTC_Capital/viabtc-capital-insight-can-interoperability-protocols-change-the-cross-chain-market-7 f79888abc30

We believe that convincing people to accept such a workflow is very difficult, but also requires a combination of zero-knowledge proof and blockchain, design coordination of the recognition and validation of work results, coupled with efficient DAO organization management tools and other encryption tools, may be easy to develop. For example Dework (https://dework.xyz/) as a Web3 form of Trello+Resume, contributor economy productivity management. Create a bounty for contributors, let contributors build their Web3 profile and pay with your own DAO token.

14.privacy

Ethereum co-founder Vitalik Buterin has often said he would like to see private transactions on Ethereum, but the closest thing so far has been a hybrid service used to anonymize funds, such as Tornadocash. But these are not strictly private transactions. Since Ethereum is primarily focused on extensions - they are unlikely to appear in the base layer (the basis of the protocol) anytime soon, but perhaps real privacy can be achieved through smart contracts that prioritize private transactions in Layer2, such as Aztec.network, built on top of PLONK, a new standard in the general SNARK technology. Can achieve identity privacy, cryptocurrency balance privacy, code privacy.

Counterfactual wallet

Counterfactual wallets will enable users to use ETH directly to L2 while avoiding the high Gas costs of initial L1 deposits This technology will be used by top CEX and DeFi protocols to bring in a large number of new users.

Cross-chain account

Many proof-of-stake blockchains have been quietly working on a cross-chain future. Cross-chain accounts will allow different blockchains to easily interact with all the smart contracts on Ethereum, which will be a multi-billion dollar market, such as Cosmos.

In April this year, the Theta was quietly upgraded online. The upgrade marks the official launch of cross-chain accounts, a module that could help significantly enhance the interoperability, capacity, and composability of blockchain networks. Cross-chain accounts grant blockchains the ability to open up their native functionality as "apis" that can be customized by another chain, and then perform state writing to these endpoints through cross-chain account channels, simply put: the ability of one chain to write state on another blockchain.

Multilingual client

1) Lodestar: TypeScript Ethereum consensus client

https://lodestar.chainsafe.io/

The open source Ethereum Consensus (Eth2) client and Typescript ecosystem, maintained by ChainSafe Systems, currently has three main features for use by nodes and clients (beta phase) :

BLS Registry: Generates or recovers the BLS master key and derives the verifier key. Support EIP-2333, EIP-2334 and EIP-2335 specification protocols; Used to derive a sub-BLS key from the main BLS key, which is then encrypted and bundled together in a downloadable format for use in the Eth2 test network.

Simple serialization

Serialization and deserialization Common ssz types: Serialization and Merkelization standards created specifically for the Ethereum consensus.

ENR application (Ethereum Node Record)

Ip-778, which defines the Ethereum Node Record, an open format for p2p connection information. Node logging improves encryption agility and the handling of protocol upgrades.

2) Prysm from Prysmatic Labs

https://prysmaticlabs.com/

Prysm is a full-featured client for the Ethereum Proof-of-stake protocol written in the Go language and is currently the most used client. It contains a full beacon node as well as a verifier client for participating in blockchain consensus. Prysm uses top-of-the-line tools for production server and inter-process communication.

3) Lighthouse

https://github.com/sigp/lighthouse

An open source Ethereum Consensus client, written in Rust and available under the Apache 2.0 license. It was built by information security and software engineering firm Sigma Prime in conjunction with the Ethereum Foundation, Consensys, and individuals.

4) Nimbus

Nimbus is a client that strives to be as lightweight as possible in terms of the resources it uses. This enables it to perform well on embedded systems, resource-constrained devices (including Raspberry Pi and mobile devices), and multi-purpose servers. Resource-constrained hardware is not Nimbus's only advantage. Its low resource consumption makes it easy to run Nimbus on your server with other workloads, which is especially valuable for pledgers looking to reduce the cost of their server instances.

Nim is an efficient general-purpose systems programming language with a Python-like syntax that compiles to C.