Celer Network Review: 2nd Layer Scaling, the cEconomy, and Staking

Celer Network is an off-chain layer 2 scaling platform, that is blockchain agnostic. It can be thought of as a programmable, smart contract, lightning network. Celer can theoretically achieve an infinite level of scalability on the second layer. The Celer team describes the project as, the most advanced state channel, with a full stack solution.

Celer has an innovative token model and crypto-economic system, called the cEconomy. The cEconomy solves the liquidity and availability problems that occur, when bringing transactions to the second layer. The team focused on building out layer 2, because they felt on-chain scaling had limitations, and not every transaction needed to be broadcast to the main chain. The team believes they can enable blockchain to match the speed of the internet, bringing mass adoption, and enabling vast new use cases.

Celer will allow low latency applications to run, with a high level of value transfer. This has implications for: micro-payments, decentralized exchanges, prediction markets, and gaming. Recently, Celer Network launched the first e-sports gaming platform. Their mainnet 1.0 will be launched towards the end of 2020, and will allow staking of the CELR token.

Celer is based in San Fransisco, and has top financial backers including: Pantera Capital, Arrington XRP Capital, FBG Capital.

Why Scale on Layer 2?

The Celer Network works to empower layer one, NOT to compete with it! Co-founder Mo Dong, states that layer one will always have scaling problems, due to the consensus required between multiple machines. Layer one performance, will always be restricted by the slowest performing node. For this reason, the team decided to move to the second layer to circumvent the cost, speed, and overhead of consensus on layer one. The cost for a Celer layer 2 transaction is about 100x smaller, than a layer one transaction!

BUT, there are always trade-offs. Layer 2 solutions like Celer Network improve speed, at the consequence of liquidity and availability. Moving off-chain causes liquidity problems, as state channels “require deposits to be locked on-chain as network liquidity.” To deal with the liquidity issues, the Celer team developed an innovative economic system called the cEconomy. With the cEconomy, CELR stakers can earn rewards by providing the needed liquidity to open state channels.

Off-chain scaling also sacrifices availability. This is why the State Guardian Network was developed. The SGN stores the state, so it can be accessed when a user is off-line, or unavailable. The state guardian network (SGN) is a specialized side-chain that backs-up data states, resolves disputes, receives off-chain transactions, and records player moves.

Other risks with off-chain transactions include: data loss, malicious disputes between peers on side-chain, peers must always be online. The team mitigates these problems with the state guardian network.

Three Components of the cEconomy

cEconomy – The cEconomy was developed to help dapp providers open state channels, without providing the necessary capital themselves. In order for a provider to open a state channel, they must lock up deposits. In the cEconomy, token holders can contribute some of this liquidity, in exchange for CELR rewards. Celer Network has created an innovative token model and the cEconomy, to lower the liquidity barrier to entry for dapps, and incentivize good behavior. There are three aspects to the cEconomy: Proof of Liquidity Mining, Liquidity Backing Auctions, and the State Guardian Network.

Proof of Liquidity Commitment Mining – This allows service providers to borrow funds from stakers, so they can open a state channel. In exchange for providing liquidity, stakers are rewarded with CELR tokens.

Liquidity Backing Auctions – Service providers can borrow liquidity from stakers, via an auction. A liquidity backer can submit a bid, which is ranked by a reliability score, and amount of CELR tokens staked. A higher reliability score, gives the staker a better chance to win the lending opportunity. These auctions help dapp creators provide services, without having to provide the upfront capital on their own. This solution was created, so whales don’t have to provide liquidity, which would be centralized.

State Guardian Network – The SGN is a special kind of side-chain, which helps guard a state for a user, in case one of them goes off-line. It brings the most recent state on-chain, when needed. The user pays a fee to the guardian for the service. Guardians are randomly accepted due to state hash, and responsibility score. The more a potential guardian stakes, the more likely they will be chosen. The guardian ensures that the data will be available when needed, as on-chain state storage is expensive. The SGN serves as cheap, off-chain state storage. It is a “connectivity oracle that is a compact side-chain, with plasma semantics”.

Reasons for the cEconomy – The cEconomy ensures an abundant liquidity pool, it lowers the barrier to becoming an off-chain service provider, it reduces centralization, improves network adoption, and takes transactions off-chain in a scalable incentivized manner.

The Celer Network Full-Stack

The Celer Network includes a full stack solution, which is called the cStack. It is composed of the cChannel, cRoute, cOS, and cEconomy. They created separate layers, so they can independently evolve. These layers serve as the raw material to build scalable applications. The cChannel is the combination of a generalized state channel and a side-chain suite. It enables payments, as well as smart contract transactions. It is the most basic component to build scalable apps. cRoute routes payments through the network. cOS is run-time system. The cEconomy provides the needed liquidity to open state channels. This layered architecture, allows Celer to tap into different blockchains and pursue different use cases, with scalability.

Celer Network Partnerships

Celer has partnerships with multiple blockchains, like NEO and Bytom. They are also working to speed-up blockchain gaming dapps with partners like: Cocos Blockchain Expedition and Mix Marvel.

They have a partnership with another 2nd layer scaling project called Matic, which is a developer focused on sharding. Sharding and state channel scaling solutions are complimentary to each other. Also, if Ethereum implements sharding, Celer will add additional improvements, not be replaced.

Celer has also created a partnership in the defi space with TROY. TROY trade is a decentralized exchange and asset manager.

CELR Supply, Token Allocation, and Token Release Schedule

CELR has a total supply of 10 billion, with 3.7 billion tokens currently released. The entire supply will be released by Aug. 2022 in the ratios below.

My Conclusions on Celer Network and Layer 2 Scaling

The CELER project is well thought-out, and developed by a smart, capable team. The cEconomy was planned so that the CELR token will have utility in the eco-system. Its demand and value will grow, as the network grows. CELR is needed to provide liquidity, and scale the network. Users can stake the CELR token to earn rewards for providing liquidity to off-chain service providers.

The total supply of 10 billion tokens, will be released over the next two years. If the project is successful, the CELR tokens should gain value and demand as the network is utilized. I do have some concerns about about the CELR token value in the short term, as billions of tokens will be released in the next two years. BUT, if the technology gains adoption, many tokens will be locked up for staking, as they will be needed to provide liquidity for the state channels. Also, this project is blockchain agnostic, so it can scale many blockchain projects, even beyond the ETH network.

Second layer scaling technologies will be essential to the crypto economy in the near future, as ETH 2.0 won’t be fully implemented for another 2 years. These projects will bring improved speed and lower transaction costs to the eco-system. Layer 2 scaling projects are a category to watch, as blockchain becomes utilized. As mainstream adoption begins, projects like Loopring, Celer Network, Matic, OMG, and xDai will become essential to scale blockchain for world-wide usage.

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Defi Money Market Review: Bringing Physical Assets into Defi

Defi Money Market allows physical goods to be turned into interest generating assets. Users of the DMM platform can tap into the equity of cars, real estate, or planes, to earn a stable interest rate of 6.25%.

DMM is a two token economy. mTokens provide a stable 6.25% rate on ETH, DAI, or USDC deposits. DMG is a governance token, which entitles holders to about 5.5% of the earnings from ALL the assets on the ENTIRE platform! DMG holders can vote to receive the 5.5% income on mAssets, use it to grow the platform, or to purchase more income producing assets.

The DMG governance token is available for purchase here. (DMG was recently backed by investor Tim Draper.)

So, How does the DMM platform work?

DMM users start by depositing ETH, DAI, or USDC into the platform here. They receive interest generating mTokens (mETH, mDAI, mUSDC) in return. mTokens pay a stable interest rate of 6.25% APY. The mTokens represent a stake in $8.5 million dollars worth of income producing car liens (or other liens on real estate, airplanes, etc.). When the mTokens are returned, a user’s funds are paid back, along with any interest that is accrued. Cars are just the tip of the iceberg. Tokenizing assets like real estate, homes, and boats will suck trillions into defi. This is why I think a defi project will be the next 100x coin.

Tokenizing Trilllions in Real World Assets

The more i learn about the DMM protocol, the more I am excited about defi as a whole. Physical value is now being pulled directly into the digital world! 100s of asset types, in addition to cars, can and will be tokenized.

Transitioning to the DAO, the DMG Governance Token

The first stages of DMM, will launch under authority of the DMM Foundation. Later, it will transition to the DAO. The foundation includes members like Mathew Finestone, whom I respect highly, due to his work on Loopring. Once control is transitioned to the DAO, voting rights will be given to holders of the DMG governance token. Excess revenue of around 5.5% is generated by the system. This extra revenue will be paid to DMG token holders, used to buy more assets, or used to grow the protocol.

The DMM DAO is unique in that it is one of the few DAOs that is already producing revenue and has a straightforward revenue model that grows as mAssets grow.

How the DMG Token Generates 5.5% interest on ALL mAssets

DMM is a two token eco-system. mTokens pay a stable 6.25% interest rate, while DMG gives governance rights and a claim to excess revenue. So, how does DMM produce extra revenue?

The income producing liens generate 8% – 12% APR on assets, while mTokens pay 6.25% interest, SO there are excess funds. 5.5% APY is being earned from the mAssets right now, and is the right of DMG token holders.

DMG holders can even earn a 5% origination fee by introducing new assets into the DMME. This will grow revenues for all DMG holders.

  • Here is a more detailed outline of DMG token governance.
  • You can purchase DMG here.

Do I Consider Defi Money Market to be Decentralized?

Decentralization exists on a wide spectrum. Uniswap is at one extreme end. DMM is more on the centralized end, because it is dealing with the legacy financial system. It will work its way to the middle, when it implements its DAO. Some trust is needed, but will be lessened with on-chain transparency, regular audits, and DAO governance.

DMM’s car ownership data is currently on-chain. It can be viewed on the explorer here. We can see the ownership records now, but, I had concerns about the car appraisals. I think the cars values need to be verified by an independent auditor, in a scheduled manner. Users should to be able to verify that the car is worth as much as we are told it is.

Zachary addresses my concerns about the verification system below:

DMM’s goal is to create an automated system, which demonstrates ownership, accurate value appraisal, and verifies it all on-chain. I think adding automatic quarterly audit, would help as well.

Another issue I see, is the treasury management. It isn’t yet transparent. It is currently under the control of the DMM foundation, but isn’t yet on-chain. I assume it will be on-chain, when the DAO is implemented.

How to View Collateralization Levels on DMM

The DMM project is over-collateralized. This means the value in equity, is greater than the amount of mTokens paid out by the platform.

Currently, it is collateralized at 2037%. View collateralization levels on the explorer here.

Conclusion on DefiMoneyMarket

I believe that the tokenization of physical assets will provide huge growth for defi and the entire crypto eco-system. This influx of capital will power the success of many defi protocols.

Since the project is dealing with the legacy financial system, it is very difficult to make it fully decentralized. Trust can be brought to the project by providing transparency and data on-chain. One way that i feel the system could be abused, is by falsely valuating the cars. But, this can be addressed with independent audits to reassure users that the cars are actually as valuable as they are purported to be.

Overall, i really like this project. The governance and revenue provided by the DMG token, encourages holders to bring in new assets and further grow the system. I feel like DMM could reach a very high valuation, as there is alot of equity in physical assets that can be incorporated into the protocol. Tokenizing physical assets will lead to explosive growth in the entire defi and crypto markets.

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Other Useful links:

DMM telegram group

DMG Governance Token Whitepaper

DefiMoneyMarket Whitepaper

Tim Draper Invests in DMG

xDai Chain Review: MultiChain Staking, a Dual Token Model, and 15% APR

xDai Chain is the world’s first USD stable-blockchain. It is meant for fast, private, fixed fee payments. It uses a dual token model, with the stable-coin xDai for payments, and the STAKE token supporting POSDAO consensus. Constructed by POAnetwork, the POSDAO consensus mechanism is proof-of-stake consensus, implemented by a DAO. This project has 5 second block times. It can transact and execute smart contracts quickly, cheaply, for a price which can be pre-determined because the asset is stable. It can do 70 transactions per second, for just a fraction of a cent, per transaction. This makes it a very suitable mechanism for payments.

Dual Token Model with Multi-Chain Staking

XDai chain uses a dual token model. xDai is the stablecoin, and STAKE‘s value is set by the market. xDai‘s stability allows for cheap, pre-determined transaction fees. A stable-chain creates benefits like: stable balances and stable gas fees (making it more scalable). It also brings the massive liquidity provided by Dai’s $120 million dollar marketcap.

The STAKE token is volatile. It is used to secure the network, and to provide rewards to validators. xDai Chain offers 4 types of staking rewards.

The 4 different types of staking rewards include: transaction fees in xDai, STAKE rewards for validating blocks, bridge fees, and Chai interest fees from locked Dai.

Rewards are paid based on staking ratios. Rewards are given to validators, in STAKE tokens, and in xDai based off of transaction fees. STAKE tokens which are locked in the protocol, can currently earn a 15% (or more) Annual Percentage Rate making it very attractive to investors.

Currently, there is a 34% APR pre-staking period until August taking place on Bitmax.

  • Multi-chain staking means the STAKE token can be used to secure and earn rewards for ANY side-chain under POSDAO. It can also be staked on other blockchains. STAKE’s value could grow, if many stable-chains were built under the DAO. Validators of these side-chains would need to secure them with STAKE.

The POSDAO Consensus Mechanism

xDai Chain has just transitioned from Proof-of-Authority to the POSDAO consensus mechanism, which stands for Proof of Stake Decentralized Autonomous Organization. POSDAO can be used to generate and govern an unlimited amount of side-chains, for horizontal scaling. The DAO can be used to configure variables like: the number of validators, transaction fees, block rewards, bridge fees and even a dual token. This gives it on-chain upgradability. The consensus mechanism makes it cheap, scaleable, fast, and efficient.

Each side-chain running under POSDAO could potentially run a coin fixed to a different currency, like the EURO. It can run side-chains fixed to other fiat currencies, or cryptocurrencies. Different side-chains can be designed for different use cases.

How the Token Bridge Earns the Dai Savings Rate (DSR)

Dai tokens are swapped into xDai, via the token bridge. This creates interoperability between the Ethereum Network, and xDai Chain. When Dai is locked in the bridge, it is converted into Chai. Chai receives the Dai Savings Rate (DSR). The fees earned from the DSR are distributed to stakers. This is one of the ways this project provides healthy incentives to validators of the bridge, as well as block producers.

Stable Side-Chains Offer Scalability/Predictable Fees

2nd layer stable-chains have advantages. They include speed, predictable transaction costs, and network scalability, as the gas prices can be pre-determined. This is perfect for payments, as well as dApp usage. POSDAO consensus can manage unlimited stable-chains. Anyone running their own side-chain on the same protocol, will have their own group of DPOS validators. The validator set is managed by its own DAO, even allowing it to upgrade independently.

Who is POANetwork?

POANetwork is an autonomous network built on the Ethereum protocol, using Proof of Authority consensus. This means that validators have a public identity, with a vetting process to ensure good behavior. The POA network uses a limited number of independent, pre-selected validators. In addition to running a network, POA has created projects like: TokenBridge, Nifty Wallet, and a blockchain explorer called Blockscout.

The Burner Wallet and xDAI

Burner wallet is a simple wallet to use with xDai. It can be directly accessed within the browser, NO downloading of an application is needed. Its private keys are stored in local storage. It is a quick, easy method to spend and receive xDai.

Here’s a medium article showing you how to host a burner wallet.

My Conclusion on xDai Chain

xDai Chain‘s POSDAO side-chains are a needed solution for scaling, privacy, and payments. It is usable now! Stable-chains can offer benefits like: predetermined gas prices, speed, and massive liquidity from Dai’s 180 million dollar marketcap. I like the idea of many stable side-chains fixed to individual fiat currencies like the Euro, Yuan, etc.

I also like the dual token eco-system, which rewards stakers with 4 separate reward mechanisms. Interest rewards from Chai, are icing on the cake 😉

But, it will be interesting see how Ethereum 2.0 will affect the project, as it will implement higher TPS and low gas fees on layer 1. In spite of this, I think stablechains serve a needed purpose. Many users might not be comfortable using volatile cryptos like ETH, and want a better payment solution than DAI. I often wonder how a massive ETH price spike would affect its fees and usability. Stable-chains will allow better scalability, providing options which users will appreciate.

xDai chain’s main value propositions include: privacy, lower gas fees, higher TPS, 15% APR staking, horizontal scaling to other stablecoins fixed to fiat currencies. It brings multiple benefits, with TPS being only one.

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Aztec Protocol Review: Plonks, and Privacy on Ethereum

The Aztec Protocol is a privacy technology for Ethereum. It uses zero-knowledge proofs, to enable private transactions, private smart contracts, and the minting of private assets. With Aztec, users can make ANY ERC-20 token, as well as other digital assets, private! On-chain privacy is needed protect proprietary business data, income levels, political affiliations, and to block third party data mining. While blockchain privacy does exist, it is currently only native to a specific cryptocurrency, like Monero or Z-Cash. Aztec works now, try it at zk.money. You can shield, transfer, and un-shield zkDAI and zkWETH, yourself!

BUT, Aztec offers MORE than privacy. It is a scaling solution that improves speed, reduces gas costs, and enables publicly verifiable private computation. Additional use cases include: confidential voting/governance, private decentralized exchanges, and anonymous group identities. This is all enabled using zero-knowledge proofs.

What is a Zero-Knowledge Proof?

Zero-knowledge proofs can prove a secret, without revealing the secret. They enable deep interactivity with private data, without exposing the data. For example, they can prove that (A+B) = (C+D) to a verifier, without the verifier even knowing what A,B,C, or D is! This could be used to show a user is over 21, without disclosing their birth year. Aztec’s proof construction is very fast. Execution time is in the range of 10 ms, which is very useable compared to other privacy solutions.

ZK proofs can also help ETH scale. The team has a goal of “Visa level” transaction capacity of around 2k TPS, using this technique.

Aztec’s Pre-built Toolset of ZK Proofs

Aztec’s ZK proofs are modular. They can be stacked like legos, to build privacy for complex functions. The functions include: minting, joining, swaping, dividends, and ranges. For example, multiple ZK proofs can create a private loan, with streamable interest. The Aztec team will first focus on privatizing trades, then work on more complicated transactions like CDPs, which are significantly harder.

What is PLONK? Other Types of ZK proofs.

PLONK is a new type of fast, universal SNARK construction allowing executed computation with complex business logic, and multi-party computation. It was created by Aztec’s founders Zac Williamson and Ariel Gabizon. Plonks add programability to the Aztec protocol. Soon Aztec will implement the new Plonk architecture, which will bring more complicated functionality to its privacy toolset. Other benefits of Plonk include prover and verifier efficiency, and very small proof sizes. Plonks will be a key element for Aztec’s scaling and privacy, moving forward.

Other projects like Dusk Network and Matter labs have recently switched to the cutting edge PLONK mathematics.

What are ZK rollups and ZK ZK rollups?

ZK rollups are a “zero-knowledge” scaling technology. They aggregate MANY transactions into one small proof. This proof, is then stored privately on-chain. This benefits privacy, scaling, and reduces gas costs. Utilizing ZK rollups will allow up to 2000 transaction per second (TPS), which is on-par with the transaction speed of Visa.

ZK² Rollups are different. They require verifiers to prove SNARKs inside of SNARKs. This is called recursion. This is difficult because “special mathematic conditions” must exist, or it will require a significant amount of computation. Aztec has made some R and D breakthroughs, which make recursion an option. ZK² Rollups further improve scaling and reduce gas costs on the Aztec protocol.

Why is Aztec Better than OTHER Privacy technologies, like Monero?

Monero can hide financial transactions, and balances, but ONLY for Monero. Aztec, on the other hand, can privatize ANY ERC-20 asset! Aztec makes the use-case for Monero invalid. Also, Monero doesn’t offer private smart contracts, reducing its functionality. Aztec takes a highly active blockchain (Ethereum), then privatizes it. In addition to privacy, Aztec also offers benefits to scaling, speed, and gas costs.

If a privacy layer is implemented, it opens up a variety of additional functionality. Exposed transactions could disclose political donations, income levels, and allow 3rd party data harvesting, which prevents mainstream use.

What is the Revenue Model of Aztec?

The revenue models being discussed for Aztec include: charging for the use of the SDK, or payment for rolling up transactions to reduce gas costs. Aztec could save money for blockchain businesses like exchanges, as it consolidates the gas costs of 100s of transactions, into just 1 transaction.

My Conclusion on Aztec

I think Aztec is very important tech for Ethereum. Its ability to privatize ALL ERC-20 tokens, is mindblowing! It allows advanced smart contract functionality, while shielding prying eyes from the data. Ethereum is already very active, so, privatizing existing assets makes more sense than creating a specific blockchain just for privacy, like Z-Cash or Monero.

Marketplaces could spring up around privacy, allowing users to buy/sell items, where secrecy is important. Spying and data collection will be stilted. A privacy layer will drive growth for Ethereum.

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Numerai Review, Erasure Bay, and the Trustless Data Market.

Data is the oil of the 21st century. It flows through the veins of the internet like black crude. But, anonymous internet data, is impossible to trust. Information, without a reputation to judge it on, cannot be believed. Also, information can only be judged on its quality, after it has been provided. The Erasure protocol can trustlessly, tap into the messy crowdsourced data flowing through the web.

Richard Craib and team have built two projects using the Erasure protocol, Numerai and Erasure Bay. Numer.ai is a crowdsourced AI, designed to control a hedgefund. It’s predictions are based on machine learning models, compiled by data scientists across the world. Erasure Bay is a data marketplace. Its users can buy/sell ANY type of data! …NOT just market data.

The Erasure protocol consists of financial incentives, penalties, and staking. It can refine quality data, from untrusted anonymous sources. Good data is rewarded. Bad data is penalized. Data is obfuscated, so users don’t even know what they are predicting. Users must stake funds, for the chance to sell data. The financial risk of staking, improves the data quality massively. This system of rewards, punishments, and staking, creates a trustless marketplace for users to buy and sell high quality anonymous information.

In the article below, i’ll discuss Numerai, Erasure Bay, and how they can enable trustless, data brokering on the blockchain.

What is Numer.ai? How Does it Work?

Numerai is a crowdsourced AI, designed to control financial capital. The AI is constructed from crowdsourced machine learning models, uploaded by data scientists from across the world. The AI predicts financial markets, then allocates capitol based on these predictions. Numerai provides its users with obfuscated stock market data, which is used to build machine learning models. The best models are then aggregated, into a superior meta-model. The “meta-model” has a higher statistical rate of accuracy, with a sharpe ratio is as high as 2.09. (image below)

How Does Numerai Turn Anonymous Internet Data, into Trusted Data?

Numerai is able to build a statistically superior stock market meta-model, with crowdsourced data. This meta-model is comprised of 100’s of user uploaded data models. Users compete with their models in Numerai’s weekly data science tournament. The top models are awarded in accuracy and originality. In the tournament, contestants are given blind stock market data, to build their own machine learning models. The data is obfuscated, so users don’t know what they are predicting. They just predict what will happen next. The best models are aggregated into a superior,”meta-model”, which is used to control the hedgefund.

How Does Numerai Reward its Users for Creating Data Models?

Users with the lowest logarithmic loss error on their predictions, get the most money, paid out in Bitcoin. Users provide predictions on live market data, as well as test data. The test data is used to validate the accuracy of their models. Users are paid for accurate predictions on live data. Models are rewarded on consistency, originality, and concordance. As the money being managed by the platform increases, the users will earn larger percentage of the profits.

How Does the Numerai Platform use Staking?

The team found that staking produces higher quality data! When money is at risk, better data is generated. On the Numerai platform, staking can even be automated, with payouts compounding over time. As more tokens are staked, the potential reward increases. Positive and negative economic incentives, weed out low-quality data providers. Auto-staking lets users just focus on just the data science. Profit is generated as a result.

NMR tokenomics

The supply of Numeriere (NMR) tokens is capped at 11,000,000. NMR tokens have value and utility due to the fact that it is needed for staking on the Numerai and Erasure Bay platforms. Higher levels of staked NMR tokens, will generate a higher return for the data scientists. This creates demand for the token. As the platform grows, this should cause the NMR tokens to gain value.

Erasure Bay – the non-financial data marketplace

Erasure Bay is a trustless data marketplace, built on the Erasure protocol, similarly to Numerai. This marketplace grew out of the knowledge that staking increases the quality of crowdsourced data. Erasure Bay users can buy and sell ANY type of data, NOT just market data! This includes: current news, sports, and science. Data sellers must stake NMR tokens. The receiver of the information can destroy the seller’s NMR stake, if the quality is poor. This gives sellers the incentive to provide good data. The data must be accurate, because data providers have their own money at risk! Erasure Bay, if successful, can provide the world with a source of verifiable, true information.

Conclusion

In a world where lies and propaganda rule our tv screens, true information is more valuable than gold. The implication of a trustless data marketplace, extends far beyond just predicting stocks. Richard Craib and team have found a way to extract value, from the raw brainpower of untrusted internet users. The protocol of incentives, penalties, and staking creates a system, that FORCES a user to play by the rules. If they provide bad data, they lose money!

Numerai has an edge in the stock market. Its crowdsourced predictions have a superior rate of accuracy, compared to machine learning models. As the platform grows, and more data models are generated, this edge will increase. Numerai is mum on the exact profitability of its system, but it makes logical sense that more accurate predictions will produce profits.

Blockchain enables many types of anonymous trusted marketplaces. Stock market data is just the start! I’m most interested in the data it can obtain concerning politics, and current events. Maybe we could use this platform to find the truth about the world around us. Numerai and Erasure Bay are interesting projects, with great potential. Tapping the brainpower of the internet, trustlessly, allows us to access true information, and insights we’ve never been able to previously. I think this is a project to watch.

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Keep Network Review: KEEP, tBTC, and the Private Data Layer.

Keep Network is building a scalable, open-sourced privacy layer for blockchain, with interoperability between chains. This layer is infrastructure that provides secure data storage, data encryption, and private smart contracts. It is composed of off-chain private data containers called Keeps. “Keeps” are smart contracts that let other smart contracts interact deeply with private data. Keeps can store and process data, that is hidden even from itself!

A private data layer will unlock new applications for blockchain. It has implications in: credit scoring, health records, loan risk assessment, marketplaces for digital goods, and even allows the creation of dead man’s switches. A privacy layer will allow businesses and individuals to exploit blockchain tech, without the fear of exposing their valuable secret data.

“Keeps” are also blockchain agnostic. They allow for interoperability between many of the top chains. Keeps can digitally sign transactions between blockchains using ECDSA. T-ECDSA allows BTC to be controlled from the ETH chain. Keeps can even be used as custodial wallets, allowing for cross-chain trading.

Keep Network and Summa have partnered to create their first application called tBTC. tBTC will serve as an equity bridge between Bitcoin and the protocols built on other blockchains like ETH, and EOS. tBTC holders can hold Bitcoin, and still participate in Etherum defi.

…In the article below, i’ll discuss: the Keep Network, the Privacy Layer, as well as Keep and Summa’s first application tBTC.

Who is Developing Keep network and TBTC?

The Keep Network privacy layer is being built by Thesis, whose co-founders are are Matt Luongo and Corbin Pon. Financial backers of Keep Network include: Andreesen Horowitz, Polychain Capital, and Tim Draper. Contributors to Keep’s tBTC project include Summa, whose founder is James Prestwich. Together, Thesis and Summa have formed an “interoperability working group” called the Cross-Chain Group.

What are the goals of keep network?

Keep.network has goals to solve blockchain privacy using off-chain data containers, private smart contracts, and a native token for rewards and collateral. They are releasing a new type of smart contract which stores private data in an off-chain container, called a “Keep”. A keep allows applications to interact with private data, without fully exposing its contents. These smart contracts can provide secret data, encrypted files, or verify identity, when a certain criteria is met. This is done securely, using multiple privacy technologies, with the ability to operate at scale.

Multiple Privacy Technologies are used to create a Keep

Keeps use a combination of privacy technologies like Zero-Knowledge Proofs, secure Multi-Party Computation (sMPC), homomorphic encryption, and secure hardware. Keeps can publish private data to the blockchain, which is encrypted by a users public key. The private data is segmented and multiple private keys are generated to later access the private data. The contract owner can even delegate access to the private contract to other users or destroy the contract. In their whitepaper, they explain how these technologies in combination can create more decentralized, censorship resistant system to safely handle this private data.

Keeps support Interoperability via t-ECDSA

Keeps allow decentralized digital signatures via t-ECDSA. This lets contracts communicate cross-chain. “T-ECDSA keeps facilitate decentralized group signing with multi-party threshold signatures, even if group signatures are not available on the host chain.” Keeps are like a bridge between two chains, allowing for cross-chain communication. Many of the top chains use t-ECDSA including: BTC, LTC, XRP, BCH, BNB, and DASH.

Keep Network’s Native Token KEEP

Keep Network has its own native token called KEEP. It is used to power apps on the network, for node staking, and for users to earn rewards for performing jobs on the network. Node operators must stake KEEP tokens as collateral. They are also rewarded in KEEP tokens, when they store private contract data on a node. If the node operator cheats, their funds can be slashed. Staking also helps to prevent sybil attacks.

tBTC – bringing BTC to the eth chain

tBTC (whitepaper) is a fully BTC-backed ERC-20 token, which is redeemable for Bitcoin on-demand. tBTC is a trust-minimized sidechain, pegged to the Bitcoin price. It bridges BTC and the protocols built on the Ethereum chain, with a high level of security. tBTC allows users to access their BTC equity, while still maintaining their Bitcoin position. Here’s a Bloomberg article discussing the BTC to ETH bridge.

tBTC is a Bonded Multi-Federated Supply Peg. What does that mean?

Each time a depositor mints a tBTC token, a randomly generated micro-federation is created. A federation is a group of users, who sign for the depositors Bitcoin. They use a multi-sig wallet with distributed private key generation, held across multiple nodes on the Keep Network to hold the depositors Bitcoin. SPV proofs provide the evidence that a user has moved BTC on the ETH chain. Once this proof is given, the federated members take control of the BTC, then mint tBTC onto the ETH chain. The federation is bonded, meaning that federation members must put up collateral, before they take control of the BTC. This ensures that the BTC is safe from theft.

The federated group receives KEEP tokens as a reward, in exchange for controlling the Bitcoin, and minting the tBTC. The cost for depositors to mint tBTC is 50 basis points (0.5%).

Can the Federation Members steal your BTC?

In order for federation members to control BTC, and mint tBTC, they must first stake the native collateral of the host chain (i.e. EOS, ETH, etc). Nodes must be collateralized at 150%. This ensures that members don’t steal the Bitcoin. If a member cheats, their funds will be slashed to provide restitution to the harmed user. This prevents federated members from gaming the system. The collateral also removes the need for a reputation component.

tBTC Lot Sizes

Deposit lot sizes are currently 1 BTC, exactly! If a user wants more than 1 tBTC created, they must create another deposit, which will be assigned to another federation. If a user sends more or less than 1 BTC to the contract, they can LOSE FUNDS! Excess funds are split among the federation signers.

Older Methods of bringing BTC to other chains

Older methods of bringing BTC to other chains, have problems. The idea of sidechains, arose even before Ethereum’s creation. Side-chains like Liquid, use a trusted 15 member multi-sig wallet to hold the Bitcoin. Members are chosen based off of their reputation. The members of the multi-sig wallet run their own chain. This is called a federated peg.

Federated pegs “require trust” to ensure no one will steal funds. There are no repercussions other than the legal system, if one of the federated members steals the funds. This can be particularly difficult if members reside in a different countries.

Problems with Federated Pegs include:

  1. funds can be seized
  2. custodians can steal the funds. It relies on trust.
  3. they are reputation based

How tBTC fixes the problems with Sidechains:

  1. tBTC requires federated members to stake their crypto, which can be seized in case of theft or cheating.
  2. censor, seizure, and hack resistant
  3. micro-federations = less risk to depositor
  4. tBTC is “hard money”, while synthetics artificially inflate the supply.
  5. Its redeemable for Bitcoin

Integrations for tBTC

The Keep Network team focused on integrations from the beginning, with 75% of defi platforms already signaling their support. tBTC is currently integrated with Compound, which is now being tested on the Ropsten testnet. Users can lend their tBTC, to earn interest as ctBTC. 40+ projects such as MakerDAO, Aave, and Uniswap will be rolled out in the weeks after launch.

Conclusion on keep network and tbtc

A privacy layer is a missing piece of the blockchain puzzle, which could birth a host of new applications. Data secrecy is necessary for many businesses to operate. Keep Network provides a solution to some major issues in blockchain, and has the ability to implement them at scale. In addition to privacy, Keeps also offer a degree of interoperability. Cross-chain trading can even be facilitated with Keep’s technology.

Keep and Summa’s first application tBTC, is a bridge between the top two chains. Other solutions like WBTC aren’t sufficient, as they are more centralized and require KYC. Bringing in massive amounts of BTC capital, could propel defi into mainstream use. The space could explode, due to this capital infusion! I like how devs are creating tBTC with decentralization and censorship resistance in mind. Hardcore enthusiasts in this space appreciate it.

There were a couple issues that i have with tBTC. I hope they can be addressed. I felt like the 1 full BTC lot size would be an issue restricting adoption. Since this is an untested technology, requiring a high amount of capital to test it, can be a little scary for new users. Reducing lot sizes would improve usability. This is especially apparent, with recent issues surrounding imBTC.

I also felt like there could be a better solution, when a depositor doesn’t send the correct amount of BTC. If they send more than 1 BTC, the excess funds are split amongst the signers. I feel like a better solution, would be to give the depositor a chance to refund the excess amount with a penalty, which would then be given to the signers.

There are positives and negatives with each BTC backed token. tBTC offers a good solution, and is being built with the core principles of decentralization and censorship resistance in mind. This is one of the main reasons i would choose tBTC, over other types of BTCtoETH solutions.

On a related note, if you are looking for a tokenized BTC solution, you might also check out a project called PieDAO. It is a DAO that holds a basket of BTC-to-ETH tokens. It mints a BTC++ token which represents this basket, to be used in Eth defi. I hope that tBTC will consider integrating with them. I like how it allows users to remain diversified, so if one tokenized BTC solution has problems, it wont affect funds as significantly.

If you enjoyed this article, please follow me @defipicks

Loopring 3.0 Review: ZKsnarks, Staking, On-Chain Data Availability, and COO Jay Zhou Interview

Loopring 3.0, is a massive update to the non-custodial, decentralized, order-based exchange protocol. The 3.0 version provides enhancements like higher throughput, lower gas costs, as well as reduced costs for exchange owners. It also introduces 3 types of LRC staking including: protocol pool staking, exchange owner staking, and exchange protocol fee reduction staking.

Speed and cost improvements, have been employed using a second layer scaling solution called ZKsnarks. The use of ZKSnarks allows many operations to be done off-chain, while maintaining the same level of security as the Ethereum blockchain. With On-Chain Data Availability, the Loopring 3.0 protocol can now settle up to 2000+ trades per second, with costs as low a $.0001 per trade!

Below, I ask Loopring COO, Jay Zhou a few questions. After that i’ll breakdown the new Loopring 3.0 tech in-depth.

Interview with Jay Zhou, Loopring COO

ME: Do you see DEXs taking over the volume from CEXs? OR, will they operate concurrently, serving different needs for different types of users?

JAY: Yes, it’s happening now. DEX volume has increased ALOT since 2020. Dydx, Uniswap, Kyber, and IDEX have been contributing alot of volume. In Feb. 2020, we launched the first zkRollup dex on the Ethereum blockchain Loopring.io. We believe zkRollup can bring the DEX to a new level. Yes, I agree that CEXs and DEXs will concurrently operate and serve different needs for different types of users for a very long term. But, younger generations prefer DEXs and decentralization more.

ME: What points do you think DEXs excel? Where do you think DEXs need improvement?

JAY: (Where DEXs excel) Safety and ownership of assets are the keys to make DEXs excel. We’ve seen too many bad things happening on CEXs, whether it’s an accident or theft. With DEXs, the people have 100% control of their assets. Users don’t need to worry about hacking, manipulation, or account suspension.

(Where DEXs need improvement) All the DEXs are facing liquidity problems. Particularly, if you compare them to top tier CEXs… But, it’s improving. We now see more people are starting to trade on DEXs, and more market makers are moving to DEXs.

ME: What Defi Projects (other than Looping) are you excited about?

JAY: Keep Protocol is on my radar. I really like the tBTC idea and design. The Ethereum community has been looking for a BTC alternative on Ethereum for a very long time. I think tBTC will have a good chance of success. I’ve even started talking about tBTC in the loopring community.

ME: Plans to add Derivatives Trading? or a Fiat Gateway?

JAY: We talk alot about derivatives/options at our monthly meetings. But, we think our focus should be on the upcoming Wallet+DEX APP. We will launch a smart wallet + DEX APP in May. A combination of layer 1 plus layer 2 UX. Yes, we want to provide a fiat on-ramp solution to users. But due to different regulations in different countries, we will add this function carefully.

ME: What is your Vision for the Future of Looping?

Loopring will focus on two things; zkRollup and Smart Wallet. Loopring.io is the first DEX using zero-knowledge proofs to scale the thoughtput, and do low-cost trades on Ethereum. The Loopring protocol can settle more than 2,000 trades per second ($0.0001 / per trade) with Ethereum. I think Loopring zkRollup will be an example for future layer two projects on Ethereum. Another big goal for our team is the Smart Wallet. I come from a sorta traditional finance background. I understand people’s mindset there. In order to have mass crypto adoption, we have to make our product more user friendly. Smart wallet can ease the layer 1 and layer 2 on blockchain. Think about smoothly trading between wallet and Dex WITHOUT Metamask or other wallet login. Your wallet is your dex account!

  • Thanks for the Interview Jay! Follow him on Twitter —> here.

MY Loopring 3.0 Protocol Breakdown

  • In the rest of the article below, i’ll discuss: ZKSnarks, On-Chain Data Availability, Loopring 3.0’s performance improvements, Staking, Fees, and it’s oracle solution Chainlink.

What is ZKSnarks? How does it increase speed and lower gas costs in Loopring 3.0?

ZKsnarks is a type of zero-knowledge proof which can provide proof-on-chain (POC), that an operation has occurred off-chain. It gives proof that an operation has been executed, using a much smaller amount of on-chain data. This reduces gas costs, lowers latency, and dramatically improves the speed. Exchange operators can maintain high security levels, and provide better performance, by taking many operations off-chain.

On-Chain Data Availability

The Loopring 3.0 update has increased its potential throughput up to 2025 transactions per second with On-Chain Data Availability (OCDA), offering the same level of security as the ETH blockchain. If On-Chain Data Availability (OCDA) is turned off, the throughput can be as high as 16,400 trades per second! But, this does come at some cost to the level of security.

  • On-Chain Data Availability (OCDA) means that Merkle proofs can be generated to claim a users funds, from data that is stored on the Ethereum chain, even if servers go down. This keeps funds safe and accessible at all times, even if the exchange is offline.

Loopring 3.0 performance improvements include:

taken from github here

Lower Cost Per Trade: With Loopring 3.0, the cost per trade has been reduced to $0.000124/trade with OCDA. Without OCDA it is 60% cheaper, at just $0.0000048 per trade!

More Trades Per Block: The trades per block has increased up to 26,300 with On Chain Data Availability (OCDA), and 216,000 without OCDA.

staking on Loopring 3.0

Loopring 3.0 has also introduced LRC staking. LRC Staking is used for the economic security of the protocol, rewards, and to reduce trading fees. There are 3 types of staking which include: protocol pool staking, exchange owner staking, and exchange protocol fee reduction staking. Here is a link which further discusses the utility of the LRC token.

Why is Staking Needed?

Staking helps to ensure that a block is valid. With staking, block producers can be penalized financially if they try to cheat. If an operator commits a block that is invalid, they lose a percentage of their staked funds. LRC is also staked by DEX operators “as a bond for service-level guarantees”.

  • Go here to learn how to stake your LRC, under “how to stake”.

What are the LRC Staking Rewards?

Users can stake their LRC tokens to earn 70% of the Loopring protocol fees. An additional 20% will go to fund the Loopring DAO, and 10% will be burned making it a deflationary currency. Protocol fees of .06% are taken from each trade, which go to pay LRC stakers.

The amount of staking rewards a user receives, is proportional to the amount staked, and how long the LRC is staked. In order to receive staking rewards, users must stake for 90 days.

Reducing Trading Fees with LRC Staking:

Stakers of LRC, as well as high volume traders, will have their trading fees reduced. The taker fees are reduced in 4 tiers seen below:

the Fees on Loopring

In addition to trading fees, fees on Loopring 3.0 are also taken for: account registrations, password-resets, deposits, and withdrawals. These fees are necessary to prevent Sybil attacks. In this instance, attackers could create many accounts, or small deposit/withdrawl requests to use resources. These fees are essential for the security of the protocol.

The Trading Fee Structure on Loopring 3.0

  • The trading fees for maker orders across all trading pairs is 0%
  • The trading fee for takers is between 0.3%-0.5% for normal trading pairs, and 0.06%-0.10% for stablecoin trading pairs
  • The protocol fee is .06%, which is paid to LRC holders who have staked for at least 90 days.

Anonymity and Data collection

Privacy, anonymity, and data collection are a major concern for defi users. I like how i can trade on a Loopring DEX without giving any personal info, just an ETH address. NO KYC is needed, and NO personal data is collected.

I believe providing permissionless access with no data collection is an integral part of building a decentralized eco-system. The Loopring team seems to understand this as well!

Loopring’s Price Oracle

Loopring 3.0 uses Chainlink as its oracle. An accurate oracle ensures that price feeds cannot be manipulated by bad actors. At the moment, Chainlink is seen as the gold standard of oracle middleware. Chainlink has a bright team (see video below) and a multitude of high profile partnerships, including: Google, Swift, Microsoft, and Intel.

Below is a talk between Chainlink and Loopring devs:

Conclusion

It’s exciting to see how quickly DEX technology has progressed in such a short period. I encourage users to migrate towards DEXs. DEXs can reduce risk to funds, improve privacy, and reduce the power of centralized entities that have too much control in the market. (Read my previous DEX guide here.)

Loopring 3.0 is an impressive technology, which will bring DEXs closer to the standards of centralized exchanges. Off-chain processing tech that makes use of zero-knowledge proofs, allow for transaction speeds to hit numbers NOT seen in ANY other DEX protocol. The On-Chain Data Availability feature provides security matching the Ethereum blockchain, giving users peace of mind that their funds are safe and accessible. The team is very intelligent, as you can see from the videos above. I am impressed with this project, and I personally just made a small investment in LRC, after writing this article. As DEX tech continues to advance, users will be struggling to find a reason to justify using a centralized exchange.

If you liked this article, please follow me @defipicks

Dforce Full-Stack Defi Ecosystem Review

Dforce is building a full-stack of permissionless, composable, DEFI protocols focused on the Chinese market. The Dforce ecosystem currently includes: a stablecoin called USDx, a decentralized lending protocol, a liquidity protocol for stablecoins (x-swap), a yield token wrapper, and a yield enhancement protocol (called DIP001). It will soon add a derivatives platform (called Infinity X), a prediction market, and more.

Dforce got my attention when i noticed it had climbed to #7 on defipulse. It has over 21.8 million of locked in funds on its lending protocol, Lendf.me! Lendf.me operates similarly to Compound.finance, where funds can be lent or borrowed from a reserve pool at a variable interest rate.

dforce aims to be the Defi Solution for the Chinese market

According to Dforce co-founder Mindao Yang, DEFI really hasn’t gotten as much attention in China, as it has in the States. Dforce aims to change that by creating a fully-fleshed out eco-system of DEFI protocols for the Chinese market, based around its USDx stablecoin. The USDx token is minted from a weighted basket of stablecoins which includes: USDC, TUSD, PAX, and DAI.

USDx aims to be an alternative to USDT, which has the largest stablecoin volume in China. Since USDT is known to be only 74% backed with fiat reserves, some users are understandably wary of it.

Most Chinese blockchain projects like NEO, Vechain, and Tron, are focused on building public smart contract platforms. There is currently a lack of defi services marketed to the China. Dforce aims to fill this gap.

Dforce’s WEIGHTED BASKET Stablecoin: USDx

USDx is composed of a weighted basket of stablecoins which includes: USDC (30%), TUSD (30%), PAX (30%), DAI (10%). USDx comes pre-weighted in the ratios above. This weighting can be adjusted on-chain. The goal with USDx was to create stability, fungibility, and scalability. They believe this can be achieved using USDx’s combination of fiat-backed and over-collateralized tokens.

The USDx stablecoin also entitles users to a say in governance. It provides diversification as well as reduction of risk with its mixed basket of coins. New types of stablecoins like USDx are needed in the crypto market, especially after recent issues with DAI and USDT.

dforce’s yield enhancing Protocol

Current lending protocols require a borrower’s position to be over-collateralized. Some by up to 300%. Dforce’s yield enhancing protocol (DIP001) can optimize this collateralization ratio (CR) and improve the yield of a CDP. It unlocks a user’s collateral pool, then re-supplies it to a designated lending protocol to maximize yield generation. If the reserve becomes too low, a user can rebalance it by paying a gas fee.

Dforce’s Lendf.me Lending Protocol

Lendf.me allows users to borrow or lend their crypto assets to a reserve pool. Interest rates are variable, depending on the supply and demand on the protocol. The protocol has a collateralization ratio of 125%, allowing you to borrow up to 80% on the collateral which you contribute. The USDx token can generate interest at a current rate of 3.6% for lenders.

Lendf.me supports the following tokens: USDx, USDT, DAI, USDC, PAX, TUSD, WETH, imBTC, HBTC, and WBTC.

Xswap Liquidity Protocol

The Dforce project is working on a liquidity protocol called xSwap. xSwap will be similar to Uniswap, but soley focused on stablecoins. Here is the github for xSwap. It will allow the swapping of USDx, USDt, USDC,PAX, and TUSD tokens.

The DF TOKEN

Dforce has its own native token called the DF token. The DF token will be used for transactions, payments, community governance, incentives, and an insurance pool.

DF tokens give holders a say in governance which includes: voting on proposals like reserve adjustments on the USDx token, as well as protocol improvements. The total supply of DF token is 1,000,000,000. Small amounts of DF token are burned with some transactions, reducing the supply, making it a deflationary currency.

The DF token is not trading on an exchange at the moment, but can be purchase by putting the contract address (0x431ad2ff6a9c365805ebad47ee021148d6f7dbe0) into Uniswap.

Conclusion on Dforce

Dforce’s full-suite of DEFI products looks promising, but needs more development to build-out the ecosystem envisioned by Mindao Yang and Xin Xu. Stablecoin alternatives like USDx are needed in China due to its dependance on USDT. USDT, which has the highest volume in China, is known to hold only 74% of its reserves, making it very risky. Adoption of USDx, could be a way to reduce this risk.

I think Dforce’s focus on the Chinese DEFI market is a good angle for the project to take. I also like how Dforce incorporates its own native DF token, making it a project that investors can also participate in.

If you want to learn more about Dforce, here are some links to their social networks: medium blog, twitter account, and their sub-reddit.

If you liked this article, follow me @defipicks

Smart Contracts, Decentralized Oracles, and 5 Oracle Reviews

Smart contracts are digitally facilitated agreements between parties, written directly into computer code. If smart contracts can be connected to events in the real-world, they can automatically enforce the terms of the agreement. This is why oracles are needed. Oracles are middleware which allow smart contracts to be triggered by event data, in a safe, reliable way. Data providers, decentralized oracles, and blockchains can build a new trustless system for digital agreements, offering end to end reliability and a superior form of contract.

Oracles have broad implications for businesses in categories like: shipping, insurance, and finance. If a developer’s goal is to create a decentralized service, almost all defi projects will require a decentralized oracle.

5 Oracle Projects I’ll discuss

The oracle space has grown rapidly in just a couple years, it includes projects like: Chainlink, Band Protocol, Tellor, Witnet, and Zap, which are all live on mainnet.

Below, I’ll discuss: what oracles are, the problem with centralized oracles, how trusted execution environments use oracles, and which services can integrate oracles with smart contracts.

What are Oracles?

Oracles are middleware which allow blockchains to communicate with external data sources, then deliver this data to a contract safely. Oracles allow market data, iot data, shipping data, and real-world event data to be delivered without manipulation or corruption. They bring end-to-end reliability to smart contracts. If a smart contract can be manipulated or easily broken by tweaking inputs or outputs of data, it destroys the entire system’s integrity. Oracles bring system reliability, allowing smart contracts to become a superior way to do digital agreements.

Below, Vitalik speaks on how we need multiple decentralized oracles and oracle designs.

Why are decentralized oracles more reliable, than centralized oracles?

Centralized sources of data can easily be manipulated. If data sources are connected in a decentralized manner across nodes, they are less vulnerable to attacks. Consensus between multiple, independent node operators ensures that data inputs and outputs cannot be gamed. Nodes are incentivized financially to provide accurate data, they are penalized if they provide inaccurate data. A reputation system and financial staking ensures that oracles provide good data.

Decentralized oracles provide better security, but can still be attacked. One type of attack that can be performed on a decentralized oracle is called an inconsistent source attack. Attackers can use this type of attack to undermine the credibility of rival nodes. It can get them penalized or removed from the network.

When all aspects of the system including: blockchain, data sources, and oracles are decentralized, a smart contract is more resilient, and safe from attackers.

How are Oracles Used in Trusted Execution Environments?

Another important use case for oracles, is the delivery of data to and from a trusted execution environment (TEE). TEE’s allow for a trusted hardware environment to bring data in and out for off-chain computation. TEE’s reduce a computer’s attack surface area and allow for safer, decentralized computation.

An oracle allows smart contracts to potentially control private keys, manage credentials for payments, and provide confidential off chain data delivery and computation.

5 Decentralized oracle reviews

Zap – Zap is a permissionless protocol to buy/sell data, create liquid tokens, attach bonding price curves to these tokens, and bond/un-bond capital to them. Zap allows users to mint ERC-20 tokens, then link them to price oracles, which allows the tokenization of real-world assets. Zap devs state that they are the very first decentralized oracle, even beating Chainlink to mainnet.

Here is an unofficial source for info on Zap.

ERC-20 Token Issuance on Zap

The Zap protocol has ERC20 token issuance capabilities, similar to Ethereum. It gives users the ability to tokenize assets including real estate and commodities, then choose an oracle to track the asset’s price. Tokens can be created instantly, then traded on an exchange.

The Zap project uses bonding curves to create an incentivization model. It gives projects access to trusted price data and other services via algorithmically generated tokens.

What is a Bonding Curve?

A bonding curve is a smart contract that issues ERC-20 tokens that a user can “bond” value to according to a chart below (the curves can vary depending on the dev preferences). When a new user joins, tokens are minted and the price moves higher up the curve. Bonding curves auto-adjust supply, and control the minting/burning process. ERC20 tokens are minted or burned automatically as people bond and un-bond to their bonding curves.

The Zap Protocol doesn’t enforce a particular consensus mechanism. Users can select whichever oracles they trust. Reputation is decided by the community. Oracles with the longest runtime and most value staked to them are most likely to be reliable

Data providers for Zap are curated by the community. Users bond value to data providers that they deem trustworthy. Data providers have incentives to remain honest, they can be penalized or removed from the network if they provide inaccurate data.

Tellor – Tellor is a proof-of-work oracle incubated by BinanceLabs. Miners stake coins in order to provide price-feed data to defi projects.

The team decided on proof-of-work, because POW makes it harder for data sources to submit a bad value. Miners must stake coins to submit values, and the median value is accepted. Values can also be disputed. If a node submits a bad value, they will be disputed and miners will be penalized for submitting inaccurate data.

Miners recieve rewards for each block, and devs also recieve rewards for the dev-share. Tellor didnt do an IEO, but they built in a dev-share model of 10% of mining rewards going to developers. Developers used this model, because they thought IEOs were a bad model. They believe a dev share model was better to fund development of the project.

The Tellor token supply is low, but it has inflation built in to support developers of the project. Tellor mints 27.5 tokens every 10 minutes.

Recently audited by Certik, the goals of Tellor are to increase the number of queries by a factor of 10 and reduce their block times. They are also building for other chains like Cosmos, and Harmony.

ChainLink – ChainLink, an oracle project which was founded in 2017, is inarguably the most successful in the space. It has major partnerships ranging from Microsoft, Google, Binance, Swift, and Intel.

Sergey Nazarov‘s stated goal with Chainlink is to “provide reliable tamper-proof inputs and outputs for complex smart contracts on any blockchain.” Sergey states “the same trust dynamics and benefits that can be applied to ownership via tokenization, can be applied to digital agreements.” This type of contract will guarantee extreme reliability for the parties involved.

Chainlink has built open source code which allows its users to become node operators. Node operators can earn revenue by providing accurate data. They provide market data to Chainlink’s decentralized oracle network, which can then be fed into smart contracts.

The Chainlink project’s goal is to expand the scope of what a smart contract can do, while maintaining the security offered by a decentralized system. They aim to produce extreme reliability for technically enforced smart contracts. Sergei believes a technologically enforced legal system built on smart contracts will reduce overall global economic financial risk.

Witnet – Witnet is a decentralized oracle network that connects data sources to smart contracts. It allows the information to be verified, without having to trust a 3rd party. Witnet also allows a degree of blockchain interoperability, allowing contracts to be triggered based on transactions on other blockchains.

It operates based on a distributed network of mining nodes called “witnesses“. Node operators earn WIT tokens for sending accurate data to smart contracts. The consensus between nodes ensures the accuracy of this data.

Nodes in the Witnet oracle network are chosen based on a reputation score that it has earned by fulfilling requests for data. Nodes do not need to stake large amounts of tokens or buy expensive mining hardware to participate as a node.

Band Protocol – The BAND protocol is a community-curated oracle network. It uses bonding curves, which users can attach value to. It functions as a system for reputation, data curation, incentivization, and revenue for stakers, who collect fees.

Band chooses the data provider with the largest amount of BAND tokens staked, to provide data for a specific dataset. Data providers are curated by the community. Users can bond value to whichever data provider they deem valuable. The BAND protocol automatically chooses the wealthiest data providers, by the value of tokens staked.

BAND Devs state that it only takes “3 lines of code to integrate data from BAND into a smart contract”. They say that the difference between Band and Chainlink is their token model, as well as how users integrate data into the contract.

Band has partnerships with a few lending protocols, stablecoins, betting, and gaming projects, but the exact names are underwraps for now. Recently they partnered with Fantom to provide oracles for financial applications.

Conclusion

Decentralized oracles can provide dramatic improvements to our legal system, financial system, cloud computing, and many decentralized services. Oracles will allow smart contracts to have uses extending beyond ownership and tokenization.

Vitalik states that multiple types and designs of oracles are needed, so i feel that competition is likely to expand, as developers realize the implications of how smart contracts can extend beyond blockchain. I think the potential of smart contracts is just beginning to be tapped in a way that could drastically change our world economy.

If you liked this article, please follow me @defipicks

9 Low-Market Cap Defi Picks in 3 Emerging Sectors

I think defi may be one of the first areas in crypto to gain significant user adoption. Below are 9 projects which i feel could be important to the defi eco-system.

*Note – this is just my personal opinion. I’m not a financial advisor. This is just a starting point for you to work from. Follow me —> @defipicks

(*These are my April 2020 Picks – I’m going to do an update soon. Many of the projects have already taken off, so sign up to my email list on the right side bar, i will send you an email with my new defi picks soon.)

3 Emerging Defi Sectors: Oracles, Lending Protocols, Exchanges

Oracles

Oracles act as a bridge between blockchains and external data-inputs used to trigger smart contracts. They ensure that data feeds are accurate and safe from manipulation. Oracles are essential to the blockchain economy. Chainlink is by far the market leader. It has implications that affect the finance, insurance, and shipping industries. The oracle niche could grow to be enormous, even extending to projects outside the blockchain space.

Here are 3 links explaining what decentralized oracles are and why they are important. 1, 2, 3. Here is Vitalik talking about how we need multiple types of oracles and oracle designs.

I’m going to discuss 3 oracle projects below: Chainlink, Tellor, and Band Protocol.

ChainLink (LINK) 

Chainlink is the market leader in the oracle space, with a first movers advantage. Link already has a significantly high market-cap, but is first in a potentially enormous niche. It is also blockchain agnostic. It can potentially be the oracle solution for projects on ANY blockchain, as well as non-crypto projects. It has over 100 partnerships.

LINKs partnerships are major, vast, and include: Microsoft, Google, and Intel.

Video here explains what Chainlink does.

Token Economics of Chainlink: LINK already has a significantly high marketcap of over 1 billion, but oracles are needed by almost all projects, For this reason, i think its marketcap could continue to grow. Its price consistently rises, even as the market dumps. This token has great utility, because large amounts of link tokens need to be staked to secure large contracts. This creates demand for the token, and will likely cause its price to continue to rise.

Tellor (TRB)

This project is a decentralized Proof-of-work oracle incubated by BinanceLabs. It is a new project, which is the oracle solution for a stablecoin on Binancechain called Bidao. It is only available for purchase on a few small exchanges and Uniswap by entering the contract address. Once TRB hits larger exchanges, its price could rise dramatically.

Token Economics: The aspect that got me interested in the project is the extremely low marketcap and low-supply. It only has a 1.04 million supply, but it does have an inflation rate built-in. Read about the inflation rate here. Its inflation was recently reduced to 17%.

Here is a great article discussing Tellor Token Economics and staking.

Band Protocol – BAND is a small marketcap decentralized oracle at just 7.6 million. Here is a link to its whitepaper, and website. It incentivizes token holders to curate high quality, accurate data. BzX has considered integrating multiple oracles, including BAND, after its recent flash loan attack.

Token Economics: BAND has a low market-cap, with a fairly low supply of 100 million. BAND Tokens are required to mint any dataset token, create in demand in the marketplace.  As the demand of dataset tokens increase, BAND’s demand will increase as well.

Lending Protocols

Aave (LEND) – Aave is a decentralized pool-based lender. Users can contribute funds to their reserve pool in order to receive interest bearing tokens called A-tokens. It is also an innovator in “flash loans”. Aave has quickly grown to #6 in assets locked on defipulse.

Token Economics: The LEND token has a circulating supply of 1.3 billion tokens. The token is used to reduce borrow rates, and provides a 50% fee reduction if LEND is the collateral. It is also used for governance. I have some concerns that the token itself doesn’t have good utility, but developers are working to improve the use case for this token. 

Kava (KAVA) – this is a cross chain CDP platform, offering similar features to Maker. Kava will allow users to access the equity within their BTC, BNB, LINK, ATOM, and XRP tokens, letting users gain long exposure to an assets price.The project is built on Cosmos and powered by Tendermint. It is partnered with Binance, Ripple, and Arrington Captial.

Here is a link to its Whitepaper, and website.

Token Economics: Kava has 13 million supply, with inflation going to stakers. The total supply will be 100 million. So, as long as you are staking, you have no inflation. The fees on loans are paid in KAVA, and fees are burned. The KAVA token also entitles holders to governance.

Exchanges

Loopring (LRC) – This is an audited decentralized exchange protocol which uses the zkRollup and is designed for high throughput, allowing over 2k transactions per second. 

Here is Vitalik’s talk on zkRollup Tech.

The protocol handles order matching and trade settlement off-chain, to reduce gas consumption. Allows for the easy launch of a DEX.

Token Economics: I like the economics of this token, it can be staked in order to earn 70% of the exchange fees which are built using the looping tech. The remaining 20% will sent to the dao and 10% will be burned. Also exchange owners need to stake LRC for security and reputation, creating demand for the token. Staking can also lower protocol fees when it is staked by the owner or market makers.

LRC has a 1.3 billion total supply, with a marketcap of 48 million.

KyberNetwork (KNC) – Kyber is a liquidity protocol that aggregates from a wide range of reserves.

Token Economics: KNC token is required to purchase and sell liquidity. Providers earn a spread on every transaction that occurs with their liquidity pool. Kyber charges a transaction fee in KNC. A portion of all the transaction fees are burned.

Synthetix Network (SNX) – this is a protocol and exchange for the trading of synthetic assets. Tokens which represent any asset can be minted. Mintable assets can include: commodities, currencies, indicies, and cryptos. Synthetix will also soon allow for leveraged trading of these assets.

Token Economics: SNX tokens can be staked in order to earn staking fees. To earn fees a user must maintain a particular collateralization ratio, or they will lose the fees earned. The staking fees are also locked for a year. SNX has a fairly low supply at 173 million. It has a significant marketcap, but has many improvements planned including leveraged trading on assets. 

*Please do you own research, before purchasing any cryptocurrencies. I’m not a financial advisor. This is just a starting point for you to work from.