Will Ethereum Ecosystem Applications Explode Again In 2023?

Will Ethereum’s second staking and modular upgrade be committed to creating a real Web3 value network? Let’s explore this with Coincu.

Looking back on 2022, is Web3 better or worse for the development of the times?

As we all know, 2022 is destined to be a year of ups and downs for the Web3 industry. Kevin Owocki, the founder of the well-known social media Supermodular, made an inventory and score of the annual Web3 event. He presented the annual Web3 event and its impact in a relatively objective and neutral way in the form of a scorecard.

According to the above figure, the collapse of 3AC, FTX and LUNA constitutes a bad event that has a considerable negative impact on Web3 every year, and worthless hype projects and blockchain carbon emissions also endanger the long-term development of Web3 ecology. In contrast, Web3 has also contributed to the development of the times this year:

• Using the transparency of the Web3 network, the flow of funds can be traced to combat illegal activities, track assets and risks to avoid financial collapse;
• Technological innovations in the Web3 field force well-known technology companies to reform, such as Amazon is building a decentralized search engine and social network;
• The new governance mechanism DAO has shown a lot of development potential in the process of development;

Although judging from the impact data in the above figure, these events that make the world better have “little” impact at the moment. However, it cannot be ignored that, compared to the four adverse impact events, Web3 has demonstrated its innovation potential in many fields.

Today, the encryption industry is still in the exploratory period. In order to solve the problems of profit distribution, platform monopoly, and personal privacy leakage in the traditional Internet, developers use technological innovations such as blockchain and cryptography to explore the development paradigm of the new generation of Internet.

Looking forward to 2023, what new changes will the encryption world face and what new opportunities will it bring?

Only by grasping the general trend of the times can we take advantage of the trend. TinTinLand will launch a series of articles on “2023 Encryption Industry Development Trend Forecast” based on the development of the encryption field.

The first article will focus on the king of the public chain “Ethereum” on the basis of grasping the encryption market in 2023 as a whole. As the leader of the public chain, after the upgrade of The Merge, in what direction will Ethereum make breakthroughs?

About Ethereum innovation

Since the development of Ethereum in 2013, ecological applications have continued to prosper. The total value locked (TVL) of positions on the chain accounts for more than half of the TVL of all public chains, and there are many DeFi projects with a market value of 100 million on Ethereum, becoming a well-deserved The king of public chains. The development trend of Ethereum affects thousands of Web3 builders. The following will introduce several potential development trends of the Ethereum ecosystem this year.

The second staking may become the most important innovation of Ethereum

In the blockchain development process, there is a problem that infrastructure upgrades and changes lag behind the application layer. This is because applications are deployed without permission, while core network upgrades require democratic permission under specific governance.

Once the Web3 network system is established, the protocol will become very rigid, and it is not easy to innovate and upgrade. To resolve the core divide in innovation from the infrastructure to the application layer, EigenLayer is introducing a simple but extremely effective solution: quadratic staking.

EigenLayer is a smart contract layer on Ethereum that allows users to leverage the existing trust network to secure their core infrastructure and middleware layers through secondary stakings.

At its core, quadratic staking secures other networks by validating the same staked ETH as the Ethereum network, which allows ETH stakers greater flexibility in staking capital while extending the trust layer to peripheral infrastructure such as sidechains, middleware, and even other non-Ethereum networks.

Not only that, but re-staking reduces the marginal cost of validator services, as stakers can re-stake their initial capital on many different protocols outside of the Ethereum chain and earn additional income in the process.

In the protracted bear market cycle, it is expected that there will be a large number of projects seeking high security in the Ethereum ecosystem to further consolidate network security.

Security will become the competition of a new round of Layer1 public chains and will push up the capital cost of the original verification network to a prohibitive level. The security of ETH re-staked by EigenLayer will greatly reduce the expansion cost of middleware, side chains and the general decentralized technology stack, and also improve the profitability of staking.

According to the core developers of Ethereum, the Shanghai upgrade is expected to be completed before March this year, and the goal of staked ETH withdrawals will be realized on the network.

Stake unlocking is an important milestone for Ethereum to turn into proof of equity. Combined with the second staked, it may bring more benefits to ecological participants. But what is worth warning is that since the user hands over the staked ETH control to EigenLayer, then EigenLayer communicates with other middleware. If there is any misconduct in the process, the user’s staked may be at risk of loss.

The Modular road of Ethereum upgrade

At present, Ethereum, as a Monolithic Blockchain, realizes four functions of execution, settlement, consensus and data availability at the same time in a basic consensus layer. The disadvantage of high cost. The Modular Blockchain is divided into multiple modules to realize these functions. TinTinLand in “Modular Blockchain will bring the future of Web3 users?” “Introduced the advantages and status quo of the modular zone, so how will Ethereum respond to the impact of the modularization trend of the public chain, which is disturbed by scalability?

In fact, as early as 2020, Vitalik mentioned in the speech “The Rise of the Ethereum Second Layer Protocol Ecology” at the Blockchain Global Summit that the Ethereum ecosystem is not simply Layer1 expansion or Layer2 expansion. The way of hybrid expansion. And this coincides with the idea of modular blockchain, which is essentially a hybrid expansion solution.

Celestia, the first modular public chain to implement this, is based on the Cosmos ecosystem and built using the scalability of Rollups. Celestia designs the data layer separately, and different chains hand over their data layers to the network for processing, while the network itself is only responsible for verifying data integrity and does not involve a complete consensus mechanism.

Developers can build various functional chains on top of Celestia, which improves the chain throughput and other performance. This design is in essence very similar to the relationship between Ethereum and its scaling scheme.

On-chain and off-chain combination scheme in Ethereum upgrade

After Ethereum completes The Merge upgrade of the consensus mechanism transformation in 2022, it will also advance the upgrade plans of The Surge, The Verge, The Purge, The Splurge, and The Splurge.

• The Surge: Introduce a new type of Ethereum transaction, “Blob,” which will be introduced in the form of “Proto-Danksharding” in EIP-4844, which will focus on improving transaction speed and reducing transaction fees on Layer1 and Layer2;
• Scourge: Implement Proposer-Builder Separation at the protocol level to separate block proposers from builders, avoiding network centralization and MEV-related risks;
• The Verge: Introducing a powerful upgrade of the Verkle tree to the Merkle proof, making Ethereum block verification efficient and trustless;
• The Purge: Clear existing historical data and bad debts, simplify storage, thereby reducing network congestion, increasing transaction processing speed and improving performance;
• The Splurge: Optimization fixes such as account abstraction, EVM optimizations, random number scheme VDF, etc.

Judging from the design of the above upgrade plan, the development path of Ethereum is changing from single-chain to modularization. If the “Blob” transaction is introduced in the second phase of upgrading The Surge, the Blob will be mainly used to store the transaction data generated by the Layer 2 layer.

Previously, the storage of Layer 2 data was realized through Calldata, and the storage of the Blob only needs 128 kb. It is cheaper and more space-saving than Calldata of similar size, which enables the expansion of blockchain capacity and reduces the Gas fee required to submit to the chain.

In addition, The Verge will further enhance the verification capabilities of Ethereum, which will not only improve the performance of the main network, but also make Layer 2 more efficient in verifying transaction security through Layer 1. In this way, the on-chain and off-chain expansion solutions are combined to alleviate the current scalability problem.

Layer 2 public chain modular exploration

Not only is Ethereum exploring the direction of modularization, but the Ethereum Layer 2 public chain is also exploring the road of modular blockchain. To some extent, Layer 2 is also a modular blockchain. Take the Layer 2 projects Optimism, Arbitrum and Starknet as examples. Although they are different in the execution layer, they “outsource” the consensus and data layers to Ethereum. Square, sharing the same settlement, consensus, and data availability layers.

Layer 2’s exploration of modularity doesn’t stop there. For example, the Optimism team is developing OP Stack, which is committed to raising the modularity level of Ethereum to a new level. First of all, it needs to be clear that Rollup itself is a single chain, each chain has its own independent language and design structure, and there are differences in the design of execution, settlement and data availability layers.

At present, in order to break the isolated chain dilemma between Rollups, protocols such as Hop are needed for bridging, but cross-chain security issues are involved during this period. OP Stack will provide modular solutions to cross-chain problems.

The OP Stack is a standardized set of open-source modules that can be assembled to build custom chains that will serve any specific blockchain use case. Based on this, developers can insert or remove modules at different execution layers, consensus layers, settlement layers, and data availability layers of the chain, and modify them by inserting different modules without being bound by a specific proof system or technology.

In addition, OP Stack proposes the “open garden” concept, that is, all OP chains can enjoy cross-chain composition as long as they voluntarily choose to enter the same shared sequencer set (the only entity that generates blocks on each OP chain). The official said that “this is an ultra-modular solution to the status quo of monolithic blockchains.” The technical standard merges the “super chain” ecology.

In short, Ethereum and its Layer2 expansion plan will continue to build its own modular strategy in 2023. Judging from this modular trend, Web3 is not only decentralized but also modular. Decentralization ensures that the network rights and interests belong to the original intention of users.

On the basis of de-trust, modularization provides users with better services and products by improving Web3 network performance. The trend of blockchain modularization will become more and more obvious.

Different from the traditional mode in which the value of the Internet is captured by the application layer, the current value of the Web3 network is concentrated in the sharing protocol layer, and a small part of the value is in the application layer.

With the Ethereum The Merge and subsequent upgrades, the use of secondary staking can greatly solve the problem of infrastructure upgrades, and the advent of the modular blockchain era has made it no longer difficult to “send chains with one click”, and the performance of the Web3 network has been greatly improved. Therefore, the technical innovation of the Ethereum infrastructure will promote the blowout of ecological killer applications.

Conclusion

The evolution of Web3 is an unwritten and open story, and it is up to us where it all goes. The cold winter of the crypto bear market will continue this year, and our focus may not be whether Web3 is beneficial to the current society, but we should pay more attention to how to use Web3 to make our world a better place.

The innovation of Ethereum in terms of secondary staking and modularization is essentially to promote the explosion of applications with the improvement of infrastructure so that the value of the Web3 network can be recognized by more developers and users. This is a year of technology precipitation and accumulation, and it is also a year of accumulation and waiting for opportunities.

DISCLAIMER: The Information on this website is provided as general market commentary and does not constitute investment advice. We encourage you to do your own research before investing.

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Harold

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