Oasis TVL, Balancing Balancer, ZK Landscape Update

Chart of The Day: Oasis TVL Plunges due to a Potential EVODefi Exploit

• TVL on Oasis Network, a privacy-enabled layer-1 blockchain built using the Cosmos SDK plunged -46% in the last 24 hours due to stablecoin depegs on the blockchain.
• According to Wu Blockchain, USDC and USDT have depegged on the Oasis Network, with USDT falling as low as $0.12.
• The depegging seems to stem from the undercollateralization of EVODefi bridge assets. A report shows that the bridge protocol has minted more USDC and USDT on the Oasis blockchain than there is backing it on the origin chain.
• EVODefi is the only bridge that users can use to bridge USDT onto the Oasis Network. At the time of writing, EVODefi has not shown proof of the funds causing the discrepancy.
• According to the EVODefi’s Twitter, the team isn’t claiming any wrongdoing, although both Oasis Foundation and BNB Chain have warned their community of the high risks involved with interacting with the bridge.

Balancer’s Balancing Act and Governance House Tries for Aave

[Excerpt from a Delphi Insights Report]

• Synopsis: This proposal outlines funding and accountability processes for groups contributing to Balancer as subDAOs or individuals. It also proposes requirements for receiving Balancer funding as a service provider/subDAO. The requirements include domain expertise, critical objectives of the service provider, budget forecasts, accountability community meetings, and record transfers. This proposal mandates veBAL holders to ensure the accountability of subDAOs and service providers through being active in governance. The proposal also asks that delegates recuse themselves from voting on votes about affiliated subDAOs.
• Pro Arguments: The community generally supports this proposal, at least in the forum. One user explicitly argues that the framework’s flexible/lightweight nature allows the DAO to attract a more diverse set of contributors, which is essential in a landscape where DAO contributors are hard to come by. He also points out that subDAOs need to balance offering stable jobs to contributors and receiving quarterly payments from the DAO.
• Con Arguments: There are some concerns and amendments that people are suggesting, mainly around the accountability of subDAOs and concerns over the framework’s lack of details. One user thinks there is insufficient accountability from subDAOs as most accountability comes from a monthly community meeting. They cite cases where DAOs have awarded funds and have received little in return. However, the proposer has responded that the community should take the lead in drafting KPIs to assess if subDAOs are performing and reminds him that subDAOs need to request funds each quarter. Another user proposes the idea that Balancer could set a maximum percentage of their treasury to fund subDAOs to add additional control. Meanwhile, others are concerned that this model is too open-ended and potentially risky.
• Our Position: As usual, we love to see DAO operational frameworks or organizational plans presented in a digestible manner. Often these are considered an afterthought with protocols and DAOs — who then struggle to create something off the cuff. We agree with a lot of the commentary in the forum. Balancer’s proposed framework is a solid framework to work with moving forward, but it does come across as light in details. Immutbl makes some excellent points that this is a challenge that every DAO and business needs to address — how much rigidity and structure do they adopt at the cost of flexibility? Immutbl prefers a generalizable flexible framework, and in the case of DAOs, we do too. DAOs are a novel coordination approach, and the technology they are governing is so new that rigid organizational plans would probably hinder more than help. There are a lot of future unknowns in the ecosystem, and being rigid hurts a DAOs capability to respond to challenges. We do, however, admit to a bias here. One of the things that attracted us to the space is the freedom from organizational bureaucracy, so our knee-jerk reaction is to oppose rigid structures, although they may have their place. But, regardless of that, using a generalizable flexible framework is probably preferable for most DAOs. And as Solarcurve is quick to remind token holders, they can always engage with subDAOs to ensure they work for the DAO’s best interest.
• For more information, Delphi members can see the full Market Insights here.

ZK (Validity) Rollups: Entering the General Purpose Era

[Excerpt from a Delphi Pro Report]

• ZKRs have been around for a few years, but these have been dominated by app specific use cases like dYdX (derivatives trading), Loopring (trading & payments), Immutable X (gaming), Aztec (private transactions), Mina (zkApps) and a few others. dYdX stands out, and 4 of the top 7 projects by TVL are developed by StarkEx (StarkWare’s SaaS solution).

• dYdX has by far been the most used L2 app to date, regularly doing >$1B in trading volume per day and nearly $600B cumulative over the past year. For comparison Uniswap has done $740B over the same period, although some important considerations here are that Uniswap is a spot exchange (vs dYdX derivatives) and Uniswap has not issued any UNI tokens to incentivize liquidity.
• While dYdX has an impressive $450M of protocol revenue over the past year it’s come at the expense of heavy token inflation as they incentivize traders on the platform (25% of total supply, 3.8M tokens per 28 day epoch).
• Taking out the initial airdrop of 55M tokens there’s been ~45M tokens issued since September, ~$360M using daily prices. Note that this is significantly higher than the current $174M circulating market cap as the token is down 94% since September high.
• With that being said it is still the most popular ZKR today and a good example of a product use-case (order book derivatives exchange) that is not feasible on Ethereum L1.

• As mentioned, dYdX is a product of StarkEx, StarkWare’s app-specific SaaS. While dYdX is a rollup (data on-chain) the other three under the StarkEx brand (Sorare, DeverseFI and Immutable X) are Validiums. Loopring is another that’s been around since 2020 and one of the earliest ZKRs, recently hitting 100k total accounts, >$5B cumulative trading volume, and >6M transactions processed.
• Mina’s zkApps enable unique use cases including permissionless web oracles where anyone can, privately and without permission, prove to Mina chain that a certain piece of data was on a particular website’s server at a specific point in time.
• Aztec is another early implementation and is unique vs the others as it’s a zk-ZKR, meaning a fully private network using zero knowledge not just for proofs but transfers/payments within the L2 as well. On June 6th they will be launching their privacy focused bridge, allowing users to bridge assets to Ethereum L1 for a DeFi interaction and back to Aztec, all in a single transaction. For example, you can swap zkETH for zkDAI, using the bridge to send ETH to L1, swap for DAI using Uniswap on L1, and then bridge back to L2, all privately. Aztec is one of the more interesting and underrated projects from a privacy tech standpoint and are currently working on fully private smart contracts.
• All of this highlights an important aspect of ZKRs to date, and that is that they have been specialized/app specific chains. We haven’t had general purpose smart contract ZKRs, and as we’ve seen throughout the past couple years, people want to use general purpose smart contract platforms. Think of the numerous EVM chains like BSC, Fantom, Avalanche C-Chain, Aurora, etc. All of these have gotten more traction than the ZKRs even though they come with weaker security assumptions than Ethereum and do not always expand on novel use-cases that we have not already seen; people like a cheap EVM experience.
• To be clear, ZKRs are very good for application specific chains, arguably the best implementation to use for them. They just aren’t as commonly adopted yet as general purpose chains, likely due to user friction wrt onboarding and that they lose out on the composability a single layer provides (although fractal scaling is promising).

• This is about to change. While the products to date have offered unique scaling & privacy benefits, we have not scratched the surface of ZKRs being fully composable general-purpose smart contract platforms. While Polygon, Scroll, Aztec and Loopring are all working on general purpose platforms, the clear leaders in this space right now are StarkWare with StarkNet (not to be confused with their SaaS StarkEx) and Matter Labs with their zkEVM/zkSync 2.0 (not to be confused with the currently live zkSync 1.0).

Notable Tweets

Quick Thoughts on Lummis Bill

okay, so here are my quick thoughts on the Lummis bill:

— _gabrielShapir0 (@lex_node) June 7, 2022

CZ Responds to BNB Probe

BUILD debunks FUD. This is 50+ pages of email records between our cyber security team (ex-law enforcement background) and the cherry picking, misleading, and time wasting journalists. If you have time to waste, see the details and truth for yourself.

—CZ 🔶 Binance(@Tree_of_Alpha) June 7, 2022