Artisan – #5 Weekly: Oct 3 – 9

Application-specific blockchains, mapping the Ethereum staking ecosystem, Solana outages, Ethereum’s MEV-Boost, BNB Smart Chain resumes to operations, MakerDAO to deploy $500mn to RWAs, Samsung to launch metaverse in Decentraland…

🤔 Analysis & Thoughts

Application-Specific Blockchains: The Past, Present, and Future (Read more)

• The number of aggregate users across different applications has been increasing superlinearly, straining the underlying infrastructure and degrading end-user UX. Furthermore, those applications are increasingly requiring more customizability and more robust business models as they scale to meet demand.
• An AppChain is a blockchain that dedicates its blockspace to a specific application. Applications that build AppChains can customize multiple layers of their stack, such as their security model, fee token, and write permissions, among others.
• AppChain designs do not only encompass monolithic blockchains (e.g. Osmosis) but also modular execution layers (e.g. rollups, sidechains, plasma) that process state transitions for applications but rely on a separate settlement or consensus layer for finality.

Mapping the Ethereum Staking Ecosystem (Read more)

• Transactions on Ethereum are signed by Full Nodes (e.g. from your Ledger via a Metamask Node, or from Binance via their Full Node). They broadcast the signed transactions to the network of Validator Nodes.
• The Execution Layer maintains the overall state of the Ethereum Blockchain while also completing the transactions using the Ethereum Virtual Machine. The Execution Layer is managed by Execution Clients running on thousands of computers around the world.
• The Consensus Layer achieves consensus, between those thousands of computers, on the latest state of the Ethereum Blockchain while also validating its accuracy. The Consensus Layer is managed by the Consensus Clients running on the same computers. 

Diligence on Crypto VCs (Read more)

• Key question to ask: can the fund still survive if there’s no performance fee? This is especially important if we’re about to enter a multi-year bear market.
• Private markets are also often opaque. Due to lesser regulations, it’s harder to find information on best practices and the standards around VC firms’ accounting. This problem is even more apparent in crypto because of two things: (1) tokens and (2) global nature.
• Additionally, job titles on venture funds can also be quite vague.
• Investment DAO can lead the way in improving a fund’s transparency by storing everything on-chain.

Fun games won’t solve blockchain gaming (Read more)

• A fun game with a broken economy will crash, and people will lose money (not fun). A boring game with a working economy can be tweaked over time to be fun. We don’t have many great examples of working economies yet. This needs to be handled first!
• Token debasement + Asset inflation: The parameters of the solution are simple, but the devil is in the execution. Buy/hold/stake/spend/burn pressure must exceed sell/inflation/issuance/mint pressure. The actual problem is the. distribution.
• Value extraction: The core problem is the optimal earning paths exploited due to bad economic design. The solution is to put sinks where value is realized, incentivizing correctly to grow the network.
• The solution is not simply making fun games alone. It’s making fun games with a sustainable economy that can grow over time to become a place for enjoyment for many and the prospect of monetary gain for a few – those who contribute to the network effects of the game.

Why are Solana outages frequent? (Read more)

• The emergence of a large number of transactions is the main reason for historical network interruption, which may be related to Solana’s mechanism.
• Since Solana also transmits consensus messages between validator nodes as a special transaction message, a large number of messages are blocked, resulting in the failure of consensus messages to be delivered normally, and consensus cannot be carried out normally.  At the same time, some features of Solana were exploited to cause network downtime. 
• Solana co-founder Anatoly Yakovenko acknowledged the problem in the face of common spam transactions leading to network performance degradation and even downtime, it said it would introduce “actual flow control” in version 1.9 of the Solana mainnet beta to address this issue.

State of Ethereum Report – Q3 2022 (Read more)

• Network Revenue fell 86.0% $1.96B to $274.12M.
• The ETH Inflation Rate rose 7.7% from 0.79% to 0.85%.
• The Average Number of Daily Active Addresses (DAA) increased 3.08% from 491,271 to 506,384.
• The number of ETH staked increased 80.2% from 7.81M to 14.08M. 
• DeFi: DeFi TVL shrank 58.6% from $76.27B to $31.55B // Spot DEX volumes declined 31.6% from $281.68B to $192.73B.
• NFT: NFT Marketplace Volumes fell 75.0% from $8.32B to $2.08B. 
• Layer2: L2 TVL increased 97.1% from $2.40B to $4.73B.

🌍 Layer-1 / Layer-2

What’s going on with Ethereum’s MEV-Boost? (Read more)

• Soon after the U.S. Treasury’s Office of Foreign Asset Control (OFAC) blacklisted the Tornado Cash mixer program in August, Ethereum research and development firm Flashbots announced that it would, in accordance with U.S. Treasury Department sanctions, begin censoring transactions by means of a key piece of infrastructure used by many of the validators that run Ethereum’s proof-of-stake blockchain.
• In response to the backlash, Flashbots raced to make open source its MEV-Boost code before the Merge so that others could develop their own, non-censoring versions of MEV-Boost relays.
• Flashbots is a research and development team that has been working on ways to reduce the negative effects of MEV through MEV-boost, a middleware component that allows validators to request blocks from a network of builders. 

BNB Smart Chain resumes operations after $100mn exploit (Read more)

• The BNB Smart Chain (BSC) resumed operations at around 06:40 Coordinated Universal Time (UTC) on Oct 7 as chain validators adopted a software update that would close the exploit used by hackers to drain funds off-chain.
• The BNB Chain was halted earlier after an exploit was discovered that drained $100 million in crypto from the platform; $7 million of the total crypto has already been frozen.
• BNB Chain announced it will hold a series of on-chain governance notes that will decide whether the hacked funds should be frozen. There will also be a vote on a bug bounty reward system to prevent future hacks from happening.

Vitalik: How much can we constrain builders without bringing back heavy burdens to proposers? (Read more)

• One natural response to the risks of builder centralization (mainly censorship, but also various forms of economic exploitation) is to try to constrain the power that builders have.
• Partial block auctions: instead of auctioning off the right to decide everything in a block, auction off the right to decide some things.
• Possible ways: Inclusion lists, Proposer suffixes, Fix to proposer suffixes – pre-commitment.

Ethereum account Proposal EIP-4337 adds signature aggregation, which reduces data cost for Rollups (Read more)

• On October 3, Vitalik Buterin tweeted that the Ethereum account abstraction proposal IPP-4337, which he co-sponsored in September 2021, has recently been updated with signature aggregation, incorporating the BLS signature algorithm.
• Account Abstraction is used to reduce complexity and improve efficacy by removing extraneous elements from the account system.
• The signature aggregation feature allows builders and batch submitters to also aggregate signatures (eg. BLS, later with SNARKs), greatly reducing the data that goes on chain. This is a critical cost-saving feature for rollups, where data costs dominate.

💰 DeFi / CeFi

Hacker returns 70% of $21 million taken from Transit Swap DEX (Read more)

• $21 million was stolen from multi-chain DEX Transit Swap overnight.
• The hacker later returned 70% of the funds. 

MakerDAO to invest $500mn in US treasurys, corporate bonds (Read more)

• The funds will be coming from its overcollateralized stablecoin, with 80% going toward U.S. short-term Treasurys and 20% to investment-grade corporate bonds. MakerDAO’s community voted in favor of the allocation proposal, which was presented in late June.
• The move by Maker is aimed at diversifying its balance sheet into “scalable legacy finance investments, limiting exposure to any one asset and expanding revenue streams” and will be initiated by DeFi asset adviser Monetalis.
• Maker said that it has complete a $1 million transaction with the remaining investments to follow. Signum said it is working with BlackRock Switzerland to allocate $250 million in the first phase of the plan.

NEXO is marked to have transferred 7758.8 WBTC from MakerDAO (Read more)

• The PeckShieldA monitor showed that the address labeled NEXO 0x8fd had withdrawn 7,758.8 WBTC (approximately $151 million) from MakerDAO, representing approximately 50% of the WBTC held in MakerDao prior to the withdrawal.
• The community has voiced great questioning with NEXO’s activities, with some members worrying if NEXO will be the next Celsius. The main reason is that club members have calculated that the chance of NEXO going bankrupt is considerable.

🖼️ NFT / 🎮 Gaming / 🎭 Metaverse

NFT trademark filings this year so far outstrip 2021’s total 3-to-1 (Read more)

• The number of NFT-related trademark applications in the U.S. have already clocked triple what 2021 had in its entirety. 
• Last year saw a total of 2,142 NFT-related trademarks filed. By the end of September of 2022, there were 6,366 of such trademarks submitted.
• The fact that companies are filing trademarks related to web3 goods does not necessarily mean they intend to launch such products. Many firms preemptively file trademarks to protect their intellectual property from being misused in virtual spaces.

1inch partners with Unstoppable Domains to compete with ENS (Read more)

• On Oct. 4, the 1inch network announced a partnership with nonfungible token (NFT) domain name provider and digital identity platform Unstoppable Domains. The new collaboration signals a move into the decentralized domain space, which is currently dominated by the Ethereum Name Service (ENS).
• The partnership will allow 1inch Wallet users to perform transactions in a more user-friendly way by replacing complex addresses with domain names. This is precisely what ENS offers – replacing Ethereum addresses with web-friendly domain names.
• Unstoppable Domains generates user-friendly names by minting them as an NFT so that the holder can keep them forever. By comparison, ENS domains need to be renewed periodically, just like real-world domain names.

Yuga Labs started Bored Ape and Mutant Ape community committees (Read more)

• Yuga Labs has announced that the community council will be representative of Bored Ape (BAYC) and Mutant Ape (MAYC) NFT series.
• Yuga Labs selected 7 community members with a “proven track record” to represent the entire NFT club. The community board will be able to nominate three community projects each month, and then the BAYC and MAYC communities will vote on which project will receive funding from Yuga Labs.

The Otherside community’s first mini game “Flappy Koda” (Read more)

• Otherdeed holder KG_OG teamed up with Twitter User OtherskinsXYZ and created an Otherisde inspired mini game dubbed Flappy Koda.
• Flappy Koda was inspired by the wildly popular mobile game Flappy Bird but instead of an animated bird Flappy Koda features Snorky the Koda. The mini game follows Snorky as the mystical creature farts its way past obstacles to obtain the mystery potion.

NFT aggregator, Gem, launches support for OpenSea’s rarity degree (Read more)

• Gem’s users can now refresh metadata, price and ranks for any collection or any specific item on Gem on their own using the “refresh” button.
• Gem’s newly launched, open-source rarity protocol, OpenRarity, also supports the transparent rarity calculation of OpenSea NFTs.

OpenSea’s bulk listing and buying went live (Read more)

• Users can now list and buy up to 30 items in a single flow on OpenSea.
• Bulk buying: You’ll also now be able to add up to 30 items from the same chain to your cart before purchasing, all in a single transaction.

🏢 Institutional Adoption / DAO

Samsung Latam Launches ‘House of Sam’ Metaverse Experience in Decentraland (Read more)

• Samsung Latam, the Latin American regional division of the electronics company, has decided to dedicate an online space to increasing the visibility of its brand in the digital world. The company will maintain a space called “House of Sam” in Decentraland, one of the biggest Ethereum-based metaverse platforms.
• The space is already open for users, being launched on September 1 with a virtual show from the Brazilian trio, Melim.

GameStop NFT Declares to partner with Kiraverse NFT Collection (Read more)

• GameStop NFT prepares to collaborate with Kiraverse NFT to launch a Web3-based gaming venue to permit the game players to make earnings while playing their interesting games.
• The NFT and Metaverse sector is advancing simultaneously to the Web3-based gaming world at a remarkable speed.

Bessemer wants to put venture scouting on the blockchain (Read more)

• Bessemer launched its first DAO project: a decentralized scouting network that turns DAO members into potential scouts for the firm.
• The BessemerDAO is now the Steel DAO (a nod to Bessemer’s Carnegie family-office origins) and will be using Syndicate’s investment club technology to help power the DAO. Its first initiatives are going to be Bridge, a talent collective, and Links, what it’s calling its on-chain scouting network.
• Bessemer has allocated $500,000 for deals brought by the Steel DAO scout network in Web3 areas like consumer, DeFi, and infrastructure, a mere sliver of the $250 million it has set aside for crypto investing in general.
• Bessemer will then be sharing the profits with both the scout and the DAO’s governance committee per the Steel DAO’s charter, a proposed 5% for the GC and 10% for the scout who sourced the deal.

🧑🏻‍⚖️ Regulations

Ethereum’s New ‘Staking’ Model Does Not Make ETH A Security (Read more)

• In the wake of Ethereum’s transition to a proof-of-stake consensus mechanism (“the Merge”), various commentators have suggested that Ethereum’s new staking model could result in its native token Ether (ETH) being deemed a security under U.S. securities laws.
• Paradigm believes these arguments stretch the interpretation of the Howey test beyond recognition and fail to recognize that the fundamental purpose of securities laws is to address information asymmetries that are not present in this context.
• Arguments: 1) Proof-of-stake does not entail a “common enterprise” and 2) Staking ETH does not satisfy the “efforts of others” prong of Howey test.

Legal Challenges & Considerations in Web3 Gaming (Read more）

• The largest pain point for blockchain gaming is regulatory uncertainty. Not only do existing issues such as IP, consumer protection, and gaming applicable to traditional games remain in effect, but web3 games have additional challenges around convertible virtual currencies: NFTs, money transmission, and securities laws.
• Money Transmitters and Convertible Virtual Currencies: Money transmission concerns the (1) acceptance of money or something very similar with generally recognizable value (including convertible virtual currencies), and (2) transmission of the same to another person or location or the same location but at a different time for the same person.
• Convertible Virtual Currencies (CVC) are virtual currencies that have an equivalent value in real currency or can serve as a substitute for real currency.

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The Artisan Narrative is an educational resource intended for informational purposes only. It covers all things Web3 and may discuss assets that the Artisan Collective, ArtisanDAO or writers have financial exposure to. Views are on ours own. None of Artisan Collective, ArtisanDAO, its registered entity or any of its affiliated personnel are licensed to provide any type of financial advice, and nothing on newsletter, website and social media should be construed as financial advice. Artisan Collective, ArtisanDAO, writers might also receives compensation from its sponsor; sponsorship messages do not constitute financial advice or endorsement.