How to measure #decentralization?

Building blockchains, protocols, and applications toward decentralization is what's selling right now. But can we actually measure it? Which metrics could help compare networks and protocols decentralization?

Let's uncover a few of them 🔍 

1/ We can measure decentralization using different metrics, starting with technicalities and ending with tokenomics. I present these indicators comparing two blockchains: @ethereum and @solana. In the end, we would conclude which network is more decentralized.

2/ @ethereum nodes

One of the most relevant measures is the number of nodes and node distribution. Ethereum has around 8000 total nodes distributed around the world in 82 countries.

https://etherscan.io/nodetracker

4/ @solana nodes

Solana has substantially fewer nodes than Ethereum, running 1735 validator nodes located in over 30 countries.

https://solanabeach.io/

5/ I found an interesting metric addressing network decentralization called the Nakamoto Coefficient. It serves as a measure indicating the minimum count of autonomous entities required to halt blockchain operations.

6/ On a PoS network, the Nakamoto Coefficient is defined by the number of node operators that together control more than 1/3 of all stake on the network (the higher the number the better).

7/ There are some difficulties determining what entity controls which node. However, NC is a helpful estimation of network decentralization. Ethereum scores 1 😱 and Solana 21 😏

https://nakaflow.io/

8/ Ethereum has a very poor score, which is probably related to @LidoFinance staking dominance - 30.5% of all $ETH is staked through Lido.

https://dune.com/hildobby/eth2-staking

9/ Hardware

Node hardware requirements also play a part in decentralizing a network. As presented in a piece about scaling solution trade-offs, Ethereum has lower requirements in terms of CPU and memory than Solana. That impacts costs, facilitating and incentivizing node running

10/ Infrastructure

Another important factor influencing decentralization is a reliance on centralized infrastructure and cloud providers. 48% of Ethereum nodes use hosting services, and AWS accounts for 30% of that, which is around 1000 nodes.

https://www.ethernodes.org/

11/ Cloud provider outages are not uncommon. Both @ethereum and @solana suffered downtimes and even blocking. Ethereum suffered an AWS outage last year, and Solana activity was blocked by Hetzner, taking over 1000 validators offline in 2022.

12/ Those issues transfer us to network health metrics. Solana is infamously known for network halts and breakdowns. The most recent one occurred in February 2024 when block production stopped, and the network was unusable for five hours.

https://blockworks.co/news/solana-downtime-post-mortem

13/ Governance

Governance and token distribution are associated with network decentralization as well. Token holders in PoS systems vote on proposals and play a role in governance. Usually, entities allowed include developers, validators, node operators, and token holders.

14/ This navigates us back to stake concentration. Ethereum has some pretty concerning statistics. As mentioned, 31% of staked ETH is deposited through Lido, and the remaining staking providers, Coinbase, Binance, and Kiln, manage millions of ETH.

15/ Another issue arises regarding decentralization when tokens are staked with centralized providers like crypto exchanges. Solana doesn't have such a developed staking market, although a much higher percentage of SOL tokens is staked (68% SOL and 26% ETH).

16/ Governance on Solana currently exists minimally and is used rarely. Protocol changes go through levels of social consensus with ultimate authority resting with the core engineers at Solana.

17/ Token holders and network participants can affect the future of the blockchain by introducing and voting on proposals. Therefore, the number of staked tokens and their concentration is a viable measure to determine decentralization.

18/ Regulations

Regulations can impact various aspects of a crypto project and its blockchain operations, such as node operations, governance structures, and user participation.

19/ One example of regulatory impact on decentralization can be observed in the context of compliance requirements set forth by government agencies like the Office of Foreign Assets Control (OFAC) in the United States. A great share of Ethereum nodes are set up in the US - 37%.

20/ Although such obligations do not impact other blockchains, a greater regulatory overhaul and oversight is possible. As of today, around 43% of Ethereum nodes are OFAC compliant.

https://www.mevwatch.info/

21/ OFAC mandates transaction restrictions influencing Ethereum nodes, which are essential for the functioning and decentralization of the network. Node operators may be required to monitor passing transactions for any activity involving sanctioned entities or jurisdictions.

22/ They may need to deploy sanctions screening mechanisms to flag transactions involving sanctioned addresses or entities. Everything is associated with reporting, which ultimately hinders decentralization. Compliance obligations bring centralization pressure.

23/ @ethereum vs @solana clash

Who won?

In summary, there are several measures to asses network decentralization from node operations, their number, and geographical location; through hardware requirements and used infrastructure; to stake concentration and regulations.

24/ Before research I thought Ethereum was a clear winner. The number of nodes, low hardware requirements, and time spoke in favor of Ethereum. However, stake concentration and metrics like the Nakamoto Coefficient suggest that Ethereum's decentralization is overrated and invalid

25/ Although Solana has fewer nodes and higher costs regarding running them, it doesn't have such a concentration where single entities manage a big portion of nodes and keep so many tokens. Solana has a higher throughput. I would score Ethereum and Solana performance as follows:

26/ @ethereum vs @solana

Node Distribution
1-0

Nakamoto Coefficient
0-1

Stake Concentration
0-1

Hardware
1-0

Infrastructure
0-0
*too big reliance on centralized service providers

Governance
0-0
*Ethereum has too big stake concentration, Solana unused governance system

27/ @ethereum vs @solana

Regulations
0-1

Final Score
@ethereum 2 - @solana 3

I wasn't expecting such a result in the beginning. Congratulations to Solana. Nevertheless, it should not be content with the achievements because both blockchains failed in a few metrics.

Thanks for reading 👋 

If you are interested in more content, e.g., describing #Ethereum scaling trade-offs, follow the link below ⤵️



https://twitter.com/KamilBlizzard/status/1770193697143169121?s=20

Measuring Decentralization

#Ethereum scaling solutions are a hot topic. So many L2s emerged, running different technologies. Various options flood the crypto space, including optimistic and zero-knowledge rollups, sharding, modular blockchains, and more.

This time, let's take a look at scaling trade-offs

1/ Parallelization

It is an alternative blockchain processing model to sequential execution known from older blockchains where transactions are processed one by one, while parallelization can simultaneously execute multiple transactions and distribute them across numerous nodes.

2/ Parallelization brings several advantages to blockchain networks. Benefits involve increased scalability (more efficient network resources utilization, lower transaction costs with the unlikely possibility of gas wars, and higher TPS, spreading tasks across multiple nodes.

3/ The advantages aside, the trade-offs associated with parallelization include potential issues with transaction sorting and data synchronization, which could influence ledger consistency and network integrity, and ultimately endanger security.

4/ Executing transactions must be unrelated. They can't interact with the same smart contract or account. There are two execution types: optimistic and state access parallelization. The former assumes transactions are initially unrelated, while the latter sorts transactions.

5/ The drawback of the optimistic approach is re-executing transactions until there are no more conflicts and dependencies. The disadvantages of the state access model are sorting and execution time to quickly update blockchain states and synchronize with the rest of the network.

6/ There is this notion that parallel processing implementation necessitates significant computational resources. I compared the hardware requirements of running a node on Ethereum and selected blockchains using parallelization.

@solana @SeiNetwork @SuiNetwork @Aptos @monad_xyz 

7/ However, we cannot forget the bigger picture. Although minimum node requirements are higher for Ethereum competitors, they boost higher transaction throughputs. Considering overall performance, others are more efficient.

@solana @SeiNetwork @SuiNetwork @Aptos @monad_xyz

8/ Sharding

It is another on-chain solution to scale blockchain networks. This method draws from a database fragmentation, dividing blockchain into smaller subsets called shards. Sharing processing across multiple shards enables parallel execution.

@shardeum 

9/ Shards consist of nodes allocated to processing a portion of transactions and storing a piece of the entire blockchain. As with other scaling solutions, sharding introduces additional complexities and risks of smart contract security vulnerabilities.

10/ The next drawback I've noticed researching the topic is potential attacks on particular shard chains. The entire blockchain is fragmented, including nodes and validators. Single shards might be more vulnerable to 51% attacks.

11/ A shard, if compromised, could submit malicious data to the main chain. All scaling solutions must navigate the blockchain trilemma. Higher tps is unfortunately often achieved by sacrificing security. However, node shuffling can solve single-shard takeover attacks.

12/ Node shuffling operation follows specific validators are withdrawn from each shard, while those seeking re-entry are queued for synchronization during the subsequent epoch. Once queued validators have spent an epoch in line, they are reintegrated into the system.

13/ These validators are then randomly distributed across shards and dedicate an epoch to synchronizing and upholding network security. This cycle repeats, ensuring the dynamic and decentralized nature of the network's validator composition.

14/ Lastly, coordination is crucial once again. Sharded blockchain requires smooth cross-shard communication to maintain integrity and must ensure data availability to every node in each shard.

15/ Layer 2

Moving on to off-chain scaling solutions and Layer 2. It encompasses a range of solutions that leverage the security of the Ethereum Mainnet while processing transactions away from it to enhance scalability.

@arbitrum @Optimism @Blast_L2 @base
#layer2 #l2

16/ Layer 2 offloads transactions to nodes or validators, which receive and process transactions before batching them together and sending them back to Ethereum for final validation and security – rollups. The two types are optimistic and zero-knowledge rollups.

17/ Optimistic rollups assume transactions are valid off-chain, hence "optimistic", and rely on fraud-proving mechanisms to detect and correct any invalid transactions posted on-chain. They utilize smart contracts deployed on the mainnet to manage the rollup state.

18/ However, there are several issues with optimistic rollups. The most noticeable one is the time delay when withdrawing from the rollup. Fraud proofs have a one-week challenge period where anyone can appeal the results of a rollup transaction.

19/ Another drawback is this "optimistic" approach, which affects the security. If the network lacks honest nodes, that could influence privacy. This model relies on at least one honest validator, which is not enough. It introduces the possibility of malicious operations.

20/ Zero-knowledge rollups use validity proofs to ensure the correctness of state changes, allowing them to finalize transactions on Ethereum without posting all transaction data.

@Starknet @zksync @LineaBuild

21/ On-chain contracts manage the protocol and verify validity proofs, while off-chain computation handles transaction execution and storage. Their design has advantages and disadvantages.

22/ It offers better privacy and security than optimistic rollups but is more complex and harder to integrate. Additionally, ZK-rollups are not directly compatible with the EVM, which is an issue and requires more resources to tackle.

23/ Modularity

Modular blockchains entered the scaling conversation fairly recently with the introduction of @CelestiaOrg. They propose a layered structure, dividing consensus, data availability, settlement, and execution layers. Celestia is a Layer 1 ensuring data availability.

24/ Other applications or networks query this data and then execute valid transactions. Rollups can also be classified as modular blockchains, specializing in execution and settlement and offloading consensus and data availability.

25/ Modularity looks like a solid and comprehensive approach to scaling blockchain networks. The layered structure offers flexibility and optimized solutions catered to specific problems. However, the technology is not battle-tested yet and could expose some issues down the road.

26/ The communication between different layers can be challenging, and overall utilization could result in higher than expected latency. In addition, complex architecture encompassing various protocols can hinder upgrade implementation.

27/ Updates on respective layers could impact others, e.g., DA layers could face hurdles when considering upgrades impacting execution layers and decentralized applications built on top of those execution layers.

And that's it. A little piece about Ethereum scaling solution trade-offs for context and broader perspective. Hope you've enjoyed it. Take care 💪 

You can read the unrolled version of this thread here: https://typefully.com/KamilBlizzard/KBgUvWc

Ethereum Scaling Trade-Offs

This time, let's dive into the DePIN sector, introducing @DIMO_Network, a Digital Infrastructure for Moving Objects

#DIMO #DePIN $DIMO

1/ @DIMO_Network empowers vehicle owners to collect, use, and monetize vehicle data. It's decentralized, transparent, and aims to disrupt the dominance of tech giants in the mobility sector. It represents the DePIN sector, offering decentralized infrastructure for data collection

2/ Launched in 2022, @DIMO_Network grew with device shipments, car connections, and the $DIMO token launch. 2023 brought user-friendly updates and expanded features. Its roadmap aims for protocol maturation, decentralization, new partnerships, and more.

3/ @DIMO_Network operates on #Ethereum and #Polygon networks, ensuring secure digital identities and verified data linking. Contracts: Registry, Nodes, NFTs, and Auxiliary maintain structural integrity and manage transactions. Good it's on Polygon #L2 looking at $ETH gas prices.

4/ @DIMO_Network employs Proof of Movement, where devices sign data for validation. Validators cross-check cellular, GPS, and trip data for authenticity. #Ethereum and #Polygon store vital records, promoting trustless data sharing.

5/ DIMO Vehicle ID, using blockchain technology, ensures car compatibility and security. Vehicle ID contains public and private data, securing sensitive info for authorized access. The tech makes it tamper-resistant.

#VehicleID

6/ Minting devices as NFTs on-chain guards against some sybil attacks, while DIMO apps verify data before minting, ensuring ID integrity. Vehicle ID contains vehicle make, model, ownership roles, and private data, including telemetry data and VIN.

7/ @DIMO_Network conducted two funding rounds, raising $9M in February 2022 and $11.5M in the latest Series A round finished in January 2024 led by CoinFund and other investors. DIMO allocated 7.6% of the token supply to capital raising activities, which is 76M tokens.

8/ DIMO's data is a valuable asset, forging partnerships with the car industry. Users benefit from services like insurance, maintenance, and financing. Partnerships with @gocaribou and YourMechanic @getwrench are just the start.

9/ Partnerships are crucial for @DIMO_Network sustainability and adoption. Collected car data isn't just for drivers—it's for app developers, manufacturers, dealers, and researchers too, enhancing their products and innovations.

10/ @DIMO_Network pushes the #DePIN sector with hardware devices like DIMO AutoPi and Macaron enabling new users to earn rewards. Over 55k cars connected since the mainnet launch in Dec 2022, spanning 75 different manufacturers.

https://explorer.dimo.zone/

11/ Impressive growth with thousands of new cars joining weekly. Early users were rewarded with an airdrop, distributing 6.75% of the token supply. Testnet participants exchanged points for tokens, earning around 4700 $DIMO tokens, valued at around $2k.

https://docs.dimo.zone/mainnet/airdrop/airdrop-total

12/ $DIMO, the native protocol token, rewards users for car data streaming. It's pivotal for data purchases and device ID backing. Token holders enjoy governance rights and stake tokens for engagement. 1B tokens split 70% to rewards and treasury, and 30% to the team and investors

13/ $DIMO employs a reward mix of baseline and market demand. Initially, baseline issuance dominates, incentivizing long-term data streaming with 450M tokens over 40 years. Market issuance rewards users and apps based on network value creation.

14/ @DIMO_Network and the #DePIN sector surged post-November. $DIMO price soared 4x in 3 months. Over 50k vehicles joined the network, boosting protocol popularity.

15/ #DePIN projects gained traction after Messari's Crypto Theses 2024 (Coincidence? I don't think so 😎), notably impacting token prices. Ryan Selkis @twobitidiot coined "DePIN" nomenclature, grouping projects like @helium, @ArweaveEco, @Filecoin, and @DIMO_Network.

That's a wrap, hope you enjoyed it 🤙

For a comprehensive overview check out the file ⤵️
https://drive.google.com/file/d/1oRndMymRu5rLkLOAOtXLf3_p7a4ar4d2/view?usp=sharing

Introducing DIMO: Decentralized Vehicle Data Monetization

Hey CT, or is it CX now? Today we are breaking down @shardeum

1/ @shardeum is a Layer 1 blockchain compatible with the #Ethereum Virtual Machine #EVM. It uses sharding to scale the network, aiming to solve the blockchain trilemma by achieving scalability, decentralization, and security. Usually, two out of three elements are met.

2/ To achieve all, @shardeum introduces sharding, dividing the network into smaller units for parallel processing. It features an auto-scaling mechanism adjusting shard size based on workload, optimizing performance, and sustaining scalability. #sharding

3/ @shardeum is in the final testnet phase - Betanet Sphinx, an ultimate simulation for mainnet testing. The roadmap, tracking mainnet progress, is publicly available. Launch planned for Q1 2024, with a focus on technology, security, marketing, and partnerships.

4/ Betanet boasts 299 active validators and numerous protocols integrate Shardeum. The network, set for a successful mainnet launch, already has over 140 ecosystem projects. Exciting times ahead! 🚀 #Shardeum #Blockchain #MainnetLaunch

5/ @shardeum enhances decentralization by optimizing validator nodes to store a limited subset of network data, reducing resource demands. With a goal of at least one thousand nodes, Shardeum aims for a decentralized network with automated and intervention-free selection process

6/ The network uses Proof of Quorum (PoQ) and Proof of Stake (PoS) as a hybrid consensus mechanism. #PoQ generates a receipt, proving consensus when over 50% of nodes endorse a transaction. @shardeum employs PoQ and #PoS for simultaneous transaction processing across shards.

7/ PoS is used as a Sybil deterrence mechanism, with two options for participation: running a validator or archive nodes, each with minimum $SHM staking requirements.

8/ @shardeum has active and standby validator nodes to validate transactions and earn rewards. It is recommended to stake 10 $SHM to become a validator. Archive nodes, preserving transaction history, may or may not stake $SHM but receive a network reward share for storing data.

9/ @shardeum prioritizes compatibility, adopting an EVM for smart contracts, avoiding reinvention. This decision ensures accessibility to existing Ethereum contracts, saving time and facilitating a smooth transition. EVM compatibility is a great advantage for developers and users

10/ Shardeum's security considers challenges in its sharded architecture, protecting against Layer 1 threats and those specific to sharded setups. The team has mitigation processes, addressing various attacks like Sybil, DoS, DDoS, and takeovers.

11/ While no system is perfect, especially with novel concepts, @shardeum exercises caution in its security approach. Always stay vigilant.

12/ @shardeum had two seed funding rounds, raising $18.7M and $6M at $0.80 and $1.00 per $SHM. Around 5.8% of the total $SHM supply was allocated to these rounds. Investors include crypto VCs and companies like @TheSpartanGroup, @MH_Ventures, @coingecko, @ambergroup_io, and more.

13/ The total $SHM coins allocated to funding and sale activities is 18%, leaving resources for additional funding rounds. Shardeum continues to explore opportunities for growth and development.

https://docs.shardeum.org/whitepaper/#33-sale

14/ @shardeum has an ecosystem of projects and applications already. At the moment, the ecosystem counts 143 projects, and 67 of them are live. Once Shardeum hits the mainnet, the integrations will accelerate.

15/ @shardeum is a promising Layer 1 blockchain, drawing attention from investors, developers, and users seeking scalable alternatives to #Ethereum. Sharding enables parallel processing, enhancing network efficiency. The platform's significance is evident in social media metrics.

16/ No blockchain launch is complete without an airdrop, and Shardeum has one planned. 25.4M $SHM coins (5% of the max supply) are allocated. The airdrop unfolds in three phases, starting with recognition for early network contributors. Subsequent stages will follow.

17/ Airdrop details, eligibility criteria, etc.

https://shardeum.org/blog/shardeum-shm-airdrop-phase-1/

18/ Shardeum's native coin $SHM has versatile utilities: staking, governance, rewards, and gas fees. With a max supply of 508M, a burning mechanism ensures the cap is never reached. Distribution includes Community, Sale, Team, Foundation, and Ecosystem, with 81M initially liquid.

19/ Vesting schedules apply to Team and Sale shares, unlocking three months after the mainnet launch. Daily linear inflation occurs, impacting supply. Shardeum offers a dashboard simulating node and network income, aiding users and developers in evaluating node profitability.

20/ @ShardusLedger token ($ULT) holders can claim 1% of the max $SHM supply, details undisclosed. Concerns arise that this might be covered by the burning mechanism. Team and Sale shares undergo vesting, unlocking after three months post-mainnet.

https://docs.shardeum.org/whitepaper/#3-tokenomics

21/ $SHM is not trading yet. Around 81M tokens will enter circulation at TGE, according to the $SHM vesting schedule. It is worth remembering that funding rounds included SHM sales at $0.80 and $1.00. Team and investors’ tokens will start unlocking three months after the TGE.

That's all, I hope you had a pleasant read. 💪

Check out the PDF file for the summary ⤵️
https://drive.google.com/file/d/17FStSATuGjRmQos3r2Qp2-zZDx2VC3Q7/view?usp=sharing

Shardeum: Scaling Ethereum with Sharding

Long time no see guys. Let's jump straight into the business. We are starting with @dymension

1/ @dymension is a platform for deploying customizable applications using #RollApps, a standardized framework. RollApps act as the front-end, Dymension Hub as the back-end, and Data Availability Networks as the database. Dymension Hub is layer 1, and RollApps are layer 2s.

2/ Dymension's design is connected to @cosmos, providing the Dymension RDK (RollApp Development Kit), akin to Cosmos SDK for RollApps. Leveraging the Inter-Blockchain Communication Protocol #IBC ensures security in Dymension's architecture.

3/ RollApps, functioning as a framework for DeFi, NFT projects, games, etc., can choose execution and data layers. Dymension Hub handles liquidity, overall communication, and transaction requests. Developers can select the best product solutions and combine different pairings.

4/ Dymension is in the testnet phase currently. It has around 1000 RollApps listed and over 12k deployed. The mainnet launch does not have an established date yet. However, it is launching soon.

5/ Dymension aligns with the architecture of other Cosmos-based chains, running approximately 150-200 validators. The current testnet has 150 validators.

6/ Validator spots in Dymension will require $DYM tokens, typical for proof-of-stake blockchains. The spot in the set depends on the number of locked $DYM tokens. Users can deposit tokens to selected validators and earn rewards, offering an opportunity for active participation.

7/ Dymension is set to enable key features from the start. Check their portal for the swapping app and liquidity provisioning capabilities in the testnet. An IBC bridge is in the works, connecting Dymension and RollApps with one of the largest ecosystems.

8/ From an architecture standpoint, Dymension operates Ethereum Virtual Machine #EVM as an execution layer, and @CelestiaOrg and
@AvailProject as DA providers. This setup ensures versatility and robust functionality.

9/ In February 2023, Dymension raised $6.7M in a private token round from Big Brain Holdings, Stratos, Matchbox DAO, Shalom Meckenzie, and Cogitent Ventures.

https://www.theblock.co/post/210093/modular-blockchain-dymension-raises-6-7-million-in-private-token-round

10/ @dymension has a strong technical backup from @cosmos and @CelestiaOrg, leveraging their technology. They boast impressive social media numbers, creating noticeable hype due to their use of modular blockchains and connection to Celestia, now in the Top 50 crypto market cap.

11/ Dymension introduces incentive programs with 1% of the $DYM supply (10M tokens) allocated for Froopyland testnet participants, including users, validators, top 10 RollApps, and deployers.

12/ Additionally, a 7% airdrop with 70M $DYM tokens is scheduled for distribution. Deadline: January 21, 2024, 12:00 UTC. Snapshot: December 19, 2023. Tokens distributed at mainnet launch. Over 300k participants to date.

https://genesis.dymension.xyz/

13/ Dymension utilizes the battle-tested Inter-Blockchain Communication for secure communication between different chains. RollApps connect seamlessly to the IBC economy via the Dymension Hub, similar to a server connecting to the internet through an internet service provider

14/ $DYM supply: 1B tokens. 1% allocated to testnet participants. Another 7% is reserved for the airdrop. The remaining 92% distribution is undisclosed. Likely sold to investors. Token distribution schedule unknown.

15/ A portion of the supply will be bonded by validators, ensuring a secure and robust network. Details about this distribution and schedule are yet to be revealed. Stay tuned for updates on Dymension's token dynamics.

16/ $DYM has not launched yet — initial distribution with the mainnet launch.

17/ Check out the Summary here ⤵️

https://drive.google.com/file/d/19xQEodxZd_pIifivORvfB8uve45WjPR7/view?usp=drive_link

You can read the unrolled version of this thread here: https://typefully.com/KamilBlizzard/Z01gl3O

Introducing @dymension: A Customizable Application Platform

Why is $ARB the Top100 most useless token?

Sorry for the rant. I have nothing against @arbitrum but despise tokens without utility and use cases.

PS
Governance is not a real utility. Raise a hand if anyone of you voted on any proposal. See 👀

1/ We can divide blockchains and cryptocurrencies into a few main categories. The first would be base layer blockchains on top of which others build (L0 & L1) e.g., Bitcoin, Ethereum, Polkadot, and Cosmos.

2/ They are the core of payments, DeFi protocols, and applications. The second category includes projects aiming to resolve L0 and L1 problems: scalability and fees. They are layer-2 and 3 blockchains utilizing various technologies such as optimistic and zero-knowledge proofs.

3/ Projects like Arbitrum, Optimism, and Loopring fall into this category. The next, most noticeable groups are stablecoins (fiat-backed, CDP, algorithmic) and exchange tokens. Last but not least, memecoins play a significant role in crypto whether we like it or not.

4/ Nowadays, it is all brought down to blockchain = cryptocurrency. Out of thousands of already created coins, 99.99% are worthless, imo. Teams try to outdo each other by programming different incentive mechanisms (staking, burning) and use cases (voting rights, benefits).

5/ Fundraising via token issuance is an advantage and a curse at once. It was never easier to collect capital from institutions and individual investors. Unfortunately, some projects take advantage of it, only focusing on making a coin asap instead of considering its necessity.

6/ So, you might ask why I condemn ARB. Arbitrum is the most prominent and most used Ethereum L2 solution. First and foremost, I have a problem with the ARB token but not with Arbitrum. The network itself works fine and encompasses a great ecosystem of protocols and applications.

7/ And that is one of the main reasons I think ARB is useless - Arbitrum worked completely fine without a token. Therefore, if something works well there is no justification for creating a cryptocurrency. Or maybe there is, but it is not a noble approach.

8/ Developers built a massive project and wanted to capitalize on it finally. Sorry, but as it currently stands it is the only explanation for the ARB token to arrive. Let’s dive into ARB token’s possible use cases to try to justify its existence.

9/ L0 and L1 blockchains’ tokens primarily serve as transaction fee means of payment. ETH, ATOM, or AVAX participate in every transaction. Because Arbitrum scales the Ethereum network, the fees are still paid in ETH, not ARB.

10/ Blockchains are based on distributed node networks, and each node participates in ensuring security. Node runners dedicate their resources (hardware, electricity) to make blockchains secure and online.

11/ They receive remuneration in the form of networks’ native coins or tokens in exchange. This is the fundamental cause of cryptocurrency existence, and ARB token is not utilized this way because Arbitrum is an Ethereum L2 where ETH covers this role.

12/ Because ARB is not used in basic tasks, developers were forced to come up with other useless utilities. They went for voting rights and governance. Cool, but let’s be honest, which DeFi participant voted on anything? It is a pointless use case for an individual user.

13/ Voting rights are only used by whales and institutions wanting to push their proposals in the network e.g., Binance voting on launching Uniswap on BNB Chain. Sure, it is nice to have the possibility and conviction about decentralization, but no single person uses that.

14/ ARB token has other standard utilities such as staking or liquidity provisioning, but it is nothing special and almost every cryptocurrency has those.

15/ Don’t get me wrong, Arbitrum is a valuable project. I use it and benefit from lower fees and faster transactions. I even received an ARB airdrop. However, it does not change the fact that ARB has no utility or use case.

16/ Hence, ARB earns the name of the most useless token in the Top100 market cap or maybe even the entire crypto space. You might disagree and mention shit and memecoins as rightful worthless project candidates and you would be right unless...

17/ ...their whole existence was dictated by speculation, gambling, and providing fun. They take over the betting market, and instead of putting money into sports, people bet on shitcoins. ARB was not designed for it (I assume, at least), and its creators should know better.

You can read the unrolled version of this thread here: https://typefully.com/KamilBlizzard/i6BdqSf

The Uselessness of $ARB Token

Hi everyone!

Today I would like to touch upon index investing and why we are not seeing much of it in crypto. Indexes track the performance of multiple companies and are perceived as market gauges. So why haven't they caught on in crypto yet?

1/🧵

The most popular indexes are S&P 500, Dow Jones Industrial Average (DJIA), and Nasdaq Composite Index, as they describe the US market. Although you can't directly invest in them, you can invest in one of the many funds that use it as a benchmark.

2/

They offer diversification and liquidity and attract most individual investors. Crypto space would benefit from analogical solutions, bringing new people into the ecosystem. The biggest problem on the horizon is what to put in such an index.

3/

The crypto market doesn't have many established candidates to choose from. $BTC and $ETH can definitely be there but what else? This might be the reason for the popular index not existing. Blockchain is still a young technology and valuable projects can take time to emerge.

4/

Nevertheless, the first steps are being taken to create the index in which you can directly invest by buying a token. @SetProtocol pioneered this and introduced a few DeFi Pulse Index $DPI, Metaverse Index $MVI, and more. The underlying tokens include sectors' top projects.

5/

All their products are powered by @SetProtocol and are also available on @tokensets. TokenSets offer many indexes on different blockchains Ethereum, Optimism, Polygon, and Avalanche. Indexes can be bought & sold or issued & redeemed.

6/

Buy & sell - acquire/sell a Set (index) using a single token,
e.g. $ETH → $DPI or $DPI → $USDC

Underneath, smart contracts deal with the exchange. It can be performed in two ways: TokenSet Issuances and Direct Swaps.

7/

TokenSet Issuances - your payment token is exchanged for all the required index tokens, and you get a Set.

Direct Swap - your single asset is swapped for pre-issued Sets that already exist on DEXs, not applicable to all indexes.

Selling works respectively in reverse.

8/

Issue & redeem - provide your own collateral to create a Set or return Sets for underlying tokens.

To issue a Set, you must hold all required tokens in an index. Later, your balance is calculated to determine the number of Set tokens. Be aware that indexes are rebalanced.

9/

Each index has documentation about inclusion criteria, token weights, maintenance & rebalancing. You can learn more about fees and contract addresses on the specific Sets' websites.

10/
https://www.tokensets.com/explore

Let's look at another approach to the crypto market index from @alongsidefi and their index token - $AMKT.

Token started trading this year. It is fully backed - Alongside words, not mine. The reserve dashboard can be viewed in real-time.

11/

In Feb 2023, Alongside raised $11M from a16z crypto and other investors, including Coinbase Ventures.

All funds for the $AMKT collateral are stored in Coinbase Custody (TokenSets use smart contracts).

The funny thing is that $AMKT is not available to US residents.

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Once again, we get all the good stuff, and projects must protect themselves from US regulators. Fine by me.

$AMKT is definitely one of the biggest shots at creating the crypto market index, taking into account investors' backing.

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$AMKT is an ERC-20 token, and it includes 25 assets.

Looking at the index composed assets, however, I have a feeling it was created by my dad, who opened coingecko and chose the most popular coins. I know sh*t, but cryptocurrencies like $ETC or $BCH don't sit with me well.

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I see that weights are small, and only $BTC and $ETH really matter here (at the time of writing). It just feels quite conservative. Maybe that is how a standard crypto index should look, but what's the point of having $BTC and $ETH lesser copies (no offense)?

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AMKT DAO manages assets in the basket. $AMKT token holders and governance stewards work together to determine the set of crypto assets based on specific criteria. Alongside proposed a list of ineligible inclusions

1️⃣ RWA tokens
2️⃣ Synthetics
3️⃣ Stablecoins
4️⃣ Wrapped tokens

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The documentation doesn't offer a simple explanation (like TokenSets have) on how $AMKT tokens are issued or redeemed. Merchants manage the minting/burning process. They are corporate entities permitted by the DAO to mint, burn, or sell $AMKT tokens.

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Interested investors can only buy pre-minted tokens as issuing index tokens is reserved for Merchants. They are responsible for depositing underlying tokens into the smart contract. Existing $AMKT tokens can be traded without additional checks on CEXs and DEXs.

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The project is still in the public beta phase, but I've noticed a reserve discrepancy already. It's great that Alongside provides a reserve dashboard, but the $BTC and $ETH numbers don't add up. Unless, they don't share all hot and cold addresses, which is pointless.

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No doubt, as the crypto market matures and the adoption increases, we will see a rise in indexes' popularity. They offer exposure to several coins in one token and provide diversification. Will @tokensets or @alongsidefi be sector leaders? Time will tell.

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Both projects have advantages and disadvantages.

@tokensets indexes seem more transparent, running on smart contracts and managing issuing and redemption instantly on-chain. Associated transaction fees are probably higher than for $AMKT...

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...but you don't have to wait for some Merchants to back it with collateral. I also like the thematic indexes where investors can focus on distinct sectors such as DeFi or metaverse. One bigger drawback of @tokensets products is that specific indexes are limited to networks.

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@alongsidefi market index can become the S&P of crypto. @tokensets has a similar product called Bankless BED Index. $AMKT relies mainly on $BTC and $ETH, which is understandable because these are only two proven coins currently. Both indexes can be entry-level investments...

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...for new and more traditional investors who wish to add cryptocurrencies to their portfolios.

That's all from me regarding the crypto indexes. Check them out. ✌️

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You can read the unrolled version of this thread here: https://typefully.com/KamilBlizzard/FLfuOUi

Index Investing in Crypto: Why Hasn't it Caught On Yet?

Hello everyone!

Today I would like to share with you my thoughts about recent crypto price actions and touch on things like #FOMO and #GEMS

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Anyone following the crypto space for the last two months probably noticed or participated in gains made by various coins and tokens.

Selection of cryptocurrencies e.g. $GNS $MINA $RNDR $GRT made +100% in the last 30 days.

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It's hard to watch, especially if it's not your coin flying. Here is where #FOMO (fear of missing out) kicks in.

CT becomes a dick-measuring contest (female counterpart applicable), bragging about who made the biggest gains or got into 100x gem.

So, how to deal with it all?

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For #FOMO, I see only one solution: having the STRATEGY.

We experience FOMO because of what we did or did not do in the past, whether it is buying/selling or holding. The market moved not as anticipated. We wish we have acted differently.

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These are the results of bad or missing STRATEGY.

There is no other way to fix it than spending some time researching, learning, reading, and educating yourself. Each person is different, and strategies should match their needs and personalities.

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Basic questions to ask yourself are:

1️⃣ How much risk am I willing to take?
2️⃣ How much can I afford to lose?
3️⃣ How much time can I dedicate to managing my investments?
4️⃣ Do I understand what I am investing in?
5️⃣ How will I monitor my portfolio

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6️⃣ Do I know how to protect and secure my cryptocurrencies?
7️⃣ Do I know how to execute transactions on blockchains?
8️⃣ Do I recognize potential technological, third-party risks?

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The most common causes of FOMO are people sharing their gains from so-called gems 🔷. I'm a victim of them myself. It's difficult to comprehend how specific shitcoin out of millions makes 10x, 100x, and people envy such returns.

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I don't deny people's efforts to earn by trading low-cap coins. If someone fancies it and has a strategy, it can also be profitable. However, we should be aware of risks, especially people who shill random coins for their own profit.

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Continuing the thought, 99.999% of people (most of the times anonymous) who post about the next great coin which will go to the moon are already in and looking for exit liquidity. They belong to insider groups pumping various coins.

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Essential things to realize before jumping into another dog coin variation:

1️⃣ Do not invest more than 5% of your capital or a few hundred $. Shitcoin prices won't handle more at the beginning. Transaction price impact can be pretty high for both buying and selling.

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2️⃣ You probably will have to monitor the coin non-stop to be ready to sell and make a profit or reduce losses in case of a price decline.
3️⃣ You need to be accustomed to trading on DEX and using non-custodial wallets like MetaMask. Be prepared to pay network transaction fees

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4️⃣ One of the best possible outcomes is to secure profits after a gem makes 100%. Sell the half and be secure even if a gem crashes.
5️⃣ It may consume a lot of time to monitor the position. You can't just put TP or SL orders. DEXs don't support that, not yet, at least.

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6️⃣ It doesn't matter really if the coin is legit or if a project has a roadmap and plans for development. Of course, they might influence the price. A proper website, an engaging community, and a good Twitter account can help reach a higher audience and market cap.

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7️⃣ Before investing, verify if the smart contract is safe, not a honeypot or something. Tools such as TokenSniffer might be helpful.
8️⃣ Be ready for fast in and out. Don't get attached to a project. The odds it will become the next $DOGE or $SHIB are negligible.

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I think I mentioned everything I wanted. Be safe out there and keep your head cool with a suitable strategy. Don't let emotions influence your decisions. Remember, everyone talks about degens making 1000%, but no one mentions hundreds of people losing everything.

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Damn, it was supposed to be a 4-5 tweet thread XD

FOMO and GEMS

Hi everyone!

My first research will be about the project from the Polkadot ecosystem.

I realize it is not a sexy destination for CT these days. Nevertheless, in the background, it is not as bad as you might expect.

So, let's dive into @hydra_dx

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A bit about the current Polkadot ecosystem state.

Despite the overall lack of trends and narratives, Polkadot is doing well.

Daily active developers rank 2nd, just behind Ethereum, according to @tokenterminal. Code commits rank Polkadot in 6th place.

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The daily active users metric reveals slight disappointment about Polkadot. It oscillates around 7k now (@TheBlock__), putting it far behind leaders (Ethereum, BNB Chain).

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Of course, this is solely Polkadot data and does not include development or traffic on parachains. As we all know, parachains are separate blockchains which inherit security from the Relay Chain. However, Polkadot's metrics can serve as an overall ecosystem index.

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Each parachain works effectively but independently. DeFi and the entire ecosystem's usability are limited and not as coherent compared to EVM-based networks. Cross-Consensus Message XCM is make-or-break imo for Polkadot to increase adoption and have a flourishing DeFi space.

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XCM implementation enables communication between distinct blockchains. One of the use cases includes moving assets between chains which is essential to create valuable decentralized solutions. And what determines ecosystem success? LIQUIDITY

Here is where @hydra_dx comes in.

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@hydra_dx aims to become the cross-chain liquidity platform among parachains. To achieve that, they've introduced AMM called HydraDX Omnipool - all available assets are in a single trading pool. Its dApp offers a bridge, but it supports 3 chains only.

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https://app.hydradx.io/#/trade

Omnipool is in its early stages. Available assets include:

$HDX
$DOT
$DAI
$WETH
$WBTC

Liquidity pools for each asset have capacity limits (due to be removed/increased).

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HydraDX utilizes single-sided liquidity provisioning, which is handy. It achieves that through the hub token Lerna (LRNA). Omipool mints LRNA whenever liquidity is added and burns it when it is removed. HydraDX describes LRNA as the second half in 50/50 LP.

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LRNA function is to balance the Omnipool. What comes to mind here is Lerna's code needs to be bulletproof, otherwise, this is the first place for hackers to strike. Hopefully, vulnerabilities have been audited, and e.g., LRNA minting won't result in pooled assets inflation.

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I didn't mention XCM for no reason. For HydraDX to become successful, establishing messaging between most parachains is crucial. It has 4 channels (Polkadot, Acala, Interlay, Phala), but it needs more open.

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The TVL of the Omnipool is $2.8M, which is not a lot. However, it started on 6th Jan, so it has been running for 1 month only. Starting from the $125k initial pool, the growth is substantial.

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HydraDX will introduce Hydrated Farms with additional rewards on top of trading fees to incentivize more people. Rewards will be paid out in $HDX or any other supported asset.

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HydraDX's native token is $HDX. The initial supply was distributed to parachain crowdloan participants. Use cases:

1️⃣ Collator rewards
2️⃣ Liquidity mining rewards
3️⃣ Governance

Probably only collator use is worth something here, but hey, it's common crypto practice.

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$HDX tokenomics was updated recently, reducing the total supply from $10b to $6.5b tokens. $HDX allocation was removed from the Growth amount (LM rewards, bonds etc.). HydraDX's reasoning was to decrease FDV (Fully Diluted Valuation) to ensure a sustainable future.

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