Vitalik Interests These 5 Essential Things Of The ETH Application Ecosystem
Vitalik shared a new article on what excites him the most in the ETH ecosystem, his excitement about Ethereum is now no longer based on the potential for undiscovered unknowns, but rather on a few specific categories of applications that are proving themselves already.
Crypto offers several advantages in wealthy countries: Safety against de-platforming, More convenience to make donations, and Represent private money in a cashless society.
Stablecoins issued on-chain have many convenient properties:
- Open for use by anyone
- Resistant to censorship
- Interact well with on-chain infrastructure (accounts, DEXes, etc).
Vitalik saw the stablecoin design space as basically being split into three different categories: centralized stablecoins (such as USDC, USDT and BUSD), DAO-governed real-world-asset backed stablecoins (DAI) and governance-minimized crypto-backed stablecoins (RAI, LUSD). USDC works but stability depend on the macroeconomic and political stability of the US, while RAI can survive all of these risks, but it has a negative interest rate.
Decentralized stablecoins are the most important Defi product, but there are a few others that have an important niche:
- Prediction markets
- Major stock indices and real estate
- Layers for efficiently trading between other assets
Identity examples include names, attestations, proof of personhood, and basic authentication. Besides, the attempt to create a centralized platform to achieve all of these tasks from scratch won’t work.
Additionally, Vitalik stated that the big future challenges for this ecosystem are privacy and scaling. There are ways to solve the privacy problem by combining on-chain and off-chain information and making heavy use of ZK-SNARKs, while scaling can be solved generically with rollups and perhaps validiums.
There are two questions to answer: Firstly, what kinds of governance structures make sense, and for what use cases? Secondly, does it make sense to implement those structures as a DAO, or through regular incorporation and legal contracts?
Decentralization for robustness
A decentralized governance structure protects against attackers on the inside. Decentralized implementation protects against powerful attackers on the outside (“censorship resistance”).
Decentralization for efficiency
Governance decentralized for efficiency preserves the ability to act rapidly but tries to move decisions away from the top. Not good for large-scale projects in the same wealthy country. Good for very small-scale projects, highly internationalized projects, and projects located in countries with inefficient institutions and weak rule of law.
Decentralization for interoperability
It’s easier and more secure for on-chain things to interact with other on-chain things than with off-chain systems that would inevitably require an (attackable) bridge layer.
There are hybrid applications that take advantage of both blockchains and other systems to improve their trust models.
- Government registries
- Corporate accounting
- Supply chain applications
- Tracking access authorization
Applications are seeing only limited usage because of the limitations of present-day technology. Blockchains are not scalable, transactions until recently took a fairly long time to reliably get included on the chain, and present-day wallets give users an uncomfortable choice between low convenience and low security.
Solutions for the aforementioned limits:
The FTX collapse has shown many people the importance of truly decentralized solutions to holding funds, and the rise of ERC-4337 and account abstraction wallets gives an opportunity to create such alternatives. Rollup technology is rapidly progressing to solve scalability, and transactions already get included much more quickly on-chain than they did three years ago. Read the full article here.
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