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Why is middleware an important infrastructure for LEGO?

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The DEFI application has gotten ahead of the infrastructure, and now the infrastructure needs to catch up.

Finding the Next Hot Thing: Why Middleware Is the Infrastructure Lego of All Time

Original source: Babbitt

The DeFi trend has turned into a craze, followed by user-centric trends (e.g., NFT), while we speculate in cryptopunks and chase crazy returns, Ethereum is hitting its capacity limits, and the alternative chains are playing catch-up. We are being consumed by short-term speculation fuelled by MEV (miner extractable value) and the successful DEFI programme and its cheap knockoffs.

The last cycle in 2017 was dominated by fat protocol theory and Bitcoin as a hard currency alternative. We believe the current cycle is more micro-oriented because we have become too focused on the micro-details of financial applications.

In 2016, the smart contract layer frenzy began with Joel Monegro's 'Fat Protocol' paper.

In 2021, all eyes are on Tarun Chitra and her mathematical paper on CFMM.

Both macro and micro focus are important, but the swing from macro to micro seems to be an overcompensation. That's why we propose to connect the macro with the micro, and look for the middle ground.

For about a year, Zee Prime has been asking:Defi & can be improved and extended; What are the underlying technologies of Web3? What is the most influential Crypto vertical investment now? We concluded that now is the time when we need to improve our infrastructure.

As USV says, we are not calling for an "infrastructure phase," which is just a myth, but we believe that the DEFI application has gotten ahead of the infrastructure and now the infrastructure needs to catch up.

End applications jumped too far, and now the infrastructure needs to catch up with end user needs (addressing scalability issues, poor UX, etc.), source: USV

The need for better infrastructure is evident as high gas costs and failed transactions exclude non-whale users from "crypto Manhattan." But the real threat is much more subtle. Even if we accept these fees as a premium to resist censorship, what are we really paying for when most dApps run on a centralized infrastructure? Is the emperor naked?

DEFI is unstoppable and will lead the drive for the super-gold melt movement over the next decade, and we believe that if we are to aim to move forward without compromising some of the core values of the crypto movement, we need to improve the underlying technology. Money Legos should be powered by infrastructure Legos.

What is middleware?

Red Hat, a provider of open source software products, offers the following general definition:

"Middleware is to provide public services for the application of the operating system and the function of the software. The data management and application services, message passing, authentication and API management are usually handled by middleware. Middleware to help developers build applications more efficiently. It's like applications, data between the user and connective tissue."

This is what crypto currently lacks -- a superglue that works on the same principle as other cryptos, enabling the blockchain's existing operating system to be upgraded to the next level.

The problem is not the base layer or the application layer, most of the problem is the friction between the two. When you press the application button and expect to do the actual on-chain operation, think of those dreaded "gas insufficient" messages, or TX doesn't immediately show up on EtherScan because a node is out of sync somewhere, or TX doesn't show instant success because it's in a pending confirmation state.

Crypto middleware projects have a great opportunity to integrate by tweaking economic incentives, for example by inserting tokens to integrate. Assuming that the service provided has value, the value generated will be channelled into the token based incentives. The future Web3 infrastructure is likely to be a complex 3D system that spans different token drive networks.

Currently, we are constrained to define the underlying infrastructure or "stack" in layers, and we talk about L1 and L2. The stack of the future will not be limited to two layers, but will be a flexible stack made up of many different Lego bricks.

We refer to these modules as middleware, and each module provides a microservice for an actual end user use case. Welcome to LEGO with composable infrastructure.

The importance of middleware

We've talked about middleware in the context of software development in general, but what exactly is cryptography middleware?

The term middleware encompasses all the services required by a dapp, which most users know nothing about. This is a bit like a dApp for a dApp. An example might be Oracle, which is a plug-in solution that provides the application data required by the dapp. More exotic examples includeBlockswap.networkToken validators and their cash flows across different POS networks.

In order for BlockSwap to build reliable products, it needs on-chain data. To do this, it can, in turn, rely on Pocket Network as a decentralized data source. Most importantly, BlockSwap's products can be integrated into different dApps that provide revenue.

Thus, middleware means that none of these solutions need to be consumer facing when integrated into a DAPP.

This is just a simplified example of a technology stack containing "middleware." The Chainlink prophecy boom is just the first wave. Once the market recognizes the importance of critical infrastructure components, other middleware will follow.

To better understand the future of middleware, we should consider that Web3 is unlikely to become a monolithic technology. The "Internet of Blockchains" will not be monopolized by Ethereum, Wave or Cosmos.

Web3 can be a spontaneous product, not a top-down design. We imagine various pieces of software loosely bundled together to create Web3 from the bottom up. The future is flexible, pluggable, and composable, with middleware enabling the LEGO infrastructure that underpins Web3 to exist.

A decentralized Internet will not be top-down or bottom-up, but will be connected from the middle. At Zee Prime, we believe the future of Web3 is tied to middleware.

To better illustrate the case for crypto middleware, we will discuss Pocket Network in more detail below.

Disclaimer: Zee Prime holds POKT tokens and this is not investment advice.

Case study: Pocket Network

One of the common middleware services required by dApps is Pocket Network.

Pocket (or POKT (1)) is a decentralized blockchain network that matches developers and applications on the demand side with full-node blockchain operators on the supply side.

The goal of POKT is to create a blockchain-independent market for data by incentivize running full nodes to become blockchain data providers. One positive outcome of this small incentive cycle is access to on-chain data while ensuring the security of decentralized infrastructure.

All the different dApps, analytics tools, wallets, investors, exchanges, etc., all need data from blockchain. This data includes historical or current balances of addresses, smart contract event logs, forfeiture information, and so on.

Customers get their data by sending API requests or relaying them (as Pokt puts it) to the POKT Network, which routes the requests to random operators on the full node (the specific blockchain requesting the data). Pokt penalizes node operators that do not provide the correct data and do not retain any data.

In order to obtain the required data, customers need to pledge a certain number of POKT tokens, and POKT is defining a new way to use tokens to pay for plug-and-play Web3 solutions.

Pokt is a key piece of middleware that will span different blockchains. As we move further into the financial transition from decentralization to decentralization, the actual infrastructure must remain decentralized, and we believe that POKT can deliver this.

Financial institutions of the future will resemble technology providers in that they will, for example, run nodes that support the underlying infrastructure. So the future financial system is renewed, bottom-up, not imposed by central authorities. Pokt is selling Decentralized as a Service (DAAS) to key players in the future financial infrastructure.

The Ethereum underlying layer is the only part of the stack that is truly decentralized. The network, DNS, storage, and client layers have not been decentralized yet. Pokt makes the application network layer that we use every day truly censored.

Pokt takes a unique approach to address the issues of on-chain data availability and censorship resistance of blockchain, and challenges competitors with a decentralized architecture.

At Pokt, work is spread across clusters of five nodes, enabling collective economies of scale without the need for powerful machines. The main problem with other decentralized alternatives is that work cannot be shared between nodes and each data provider needs to have a large number of backups.

To really decentralize Defi and make Web3 theory technically possible, we need a fully functional decentralized stack (such as ETH> SIA> HNS / ENS> POKT), and tools (such as Web3API) that make these things easier to build.

Decentralization vs. Decentralization

Redundancy is one of the most important and underrated benefits of blockchain. In today's over-optimized economy, redundancy is not considered a quality. However, if we are building a new financial system, we should avoid over-optimization, and the layer of redundancy is a protection and safety feature.

Bitcoin is built on incentive redundancy. Bitcoin's redundancy is a quality that makes the network secure. Pokt also encourages redundancy by making nodes profitable to run.

Not only that, but this proliferation of node operators will also be designed to make data cheaper. Pokt solves the problem of ensuring redundancy at the macro level while eliminating the need for redundancy at the single-node running program level.

The POKT is built on the full nodes of various blockchains hosted by its users and paid for by POKT tokens. Each relay of data generates a POKT token to be paid to the node operator that performs the relay (2).

We need a service that provides a scalable infrastructure as people rush into a project and refresh their balances. Each refresh is multiple data requests, and the actual use will generate a lot of data and value. Pokt is positioned to capture the value created at the application layer by relayed all this data through a trustless protocol.

By eliminating the need for decentralized entities to coordinate full nodes, POKT reduces the cost of the infrastructure compared to the dApps it runs on its own. This is a unique solution achieved through native crypto economy design and collective economies of scale.

Pokt is important because the current Web3 infrastructure is expensive, violates users' privacy rights, and will eventually become centralized. It is costly because a conventional full node is not optimized for the efficiency of querying data, but for the elasticity in a P2P network. We needed a native Web3 solution to optimize the cost.

The current infrastructure does not guarantee privacy, because the centralized infrastructure providers retain every piece of metadata for requests that pass through them, meaning that the entire system is ultimately unable to resist censorship. Pokt completely eliminates this, which is why it is an important middleware component.

Every application requires a scalable infrastructure, and POKT offers a cheaper, more proprietary alternative that is not subject to censorship.

During the Infura outage in early November 2020, POKT has proven its reliability as well as the importance of its functionality.

POKT is an interface to many blockchains. You can think of it as the Uniswap of the blockchain infrastructure. In the next year or two, there will be abstraction layers built on top of POKT, making it much easier for developers to build on multiple chains at once.

The economics of Pokt

Here, we've identified middleware that can create a lot of value for the application, the node operator, and the protocol itself. But as investors, we also have to ask the question: Can middleware create a moat, and if so, how? Can we invest in a middleware solution like Pokt and monetize it?

The use or purchase of POKT tokens at this stage is a de facto bet on growing demand for blockchain data. Pokt wants to provide the best service at the best price in a decentralized way, and making a moat in a commodity market is difficult.

In addition to cheap data, POKT's defences depend on network effects and brands (such as Uniswap or Ethereum). We could also argue that Ethereum's state transition services could eventually become commoditized, but we are not mature enough to see that scenario materialized. Decentralized blockchain data providers could one day be a hot market.

The Web3 token model seems to inherently include a currency premium and clan loyalty. To some extent, they all rely on the active crypto economy flywheel, and so does Pokt. As more node operators join, and more developers build killer applications using decentralized blockchain data, the demand for POKT is expected to grow.

When Pokt becomes more liquid, the crypto economy flywheel will become more liquid and some speculators will be converted to users. The opposite could also be true -- that Pokt users would be so satisfied with its service that it would turn them into speculators in its success. If you believe that DEFI will continue to grow, then you should assume that the TAM of blockchain data will grow as well.

Every protocol requires a POKT, whether it's Poca or Solana, and these ecosystems want to build and integrate POKT or POKT-like solutions. Pokt itself could be the first instance of mobile middleware that spans multiple chains.

Although the network is still in its infancy, the growth of nodes has been significant. If we take into account the rising price of POKT tokens on the OTC market, we can see the flywheel of the crypto economy start to spin.

Because the POKT is still relatively illiquid, its flywheel is not that obvious. That's because the network only makes about 5 million relays a day, but the increase in relays will put its flywheels on a steeper curve. Here's a quick math for the last 30 days:

Total Rewarded Per Relay =0.01 POKT The current OTC price of POKT tokens = 25 Cents Relay on average about $5 million per day. 30 days of online revenue = $375,000.

This is a good start for a network in the "pre-production phase", as a reference, some DEFI figures show that during the same period Terra generated $798,000, 0x $809,000, Pooltogether $255,200, and Loopring $97,200.

As the Pokt user experience improves, there will be more relays. We have high expectations for the new dashboard version. If all goes well, the dashboard will become a practical and easy to use product, with just three clicks to get an endpoint.

How can Pokt become a cheaper solution? Pledge the POKT instead of paying the AWS bill, and with more relays and more nodes, the data gets cheaper. The price per relay is expected to eventually stabilize at an order of magnitude over the next few years.

Today, Pokt is a cheaper solution. With Pokt, developers turn their infrastructure into a revenue-generating asset. Instead of buying a centralized solution at a price of $50 / month, developers will buy $500 worth of POKT tokens and pledge them. Within a few months of using the agreement, their cost base would be close to $0.

This higher upfront cost will be mitigated by traditional models or Web3 models (such as loans).

This new form of payment via pledge could be a source of potential friction in the adoption process, but if Pokt is successful, we may have found an efficient way to connect various Web3 middleware infrastructures with tokens.

conclusion

To sum up, we believe infrastructure LEGO will become very valuable because they:

Provide a solution to technical challenges that is 10 times better (cost, availability, censorship resistance, etc.); Promoting positive sum game and value creation; Improve the efficiency of existing applications; Support for building new types of applications; Creating value (and capturing it) even before UX; Incentivize critical infrastructure providers to act on the long-term goals and values of the ecosystem (become decentralized);

Middleware interpretation (image from @thegostep, slightly modified)

Pocket Network is one of the hot candidates to become an indispensable infrastructure for Lego, as it is a plug and play solution that encourages decentralization and provides valuable services for dApps and protocols.

While the long term goal of POKT is to provide the cheapest on-chain data, in the medium term it may have to balance the POKT's flywheel by adjusting the price per relay to ensure the predictable cost of the application.

We are encouraged by the adoption of POKT by technical teams such as BlockSwap Network, API3, Web3API, FUSE, and Skale.

By the end of 2021, we'll see the infrastructure Lego theory come into play in a more subtle way as DEFI becomes more cross-chained.

(1) POKT refers to Pocket Network, and POKT is the name of the token;

(2) Reward allocation: 89% is the reward for node operators, 1% is the reward for nodes generating blocks, and 10% is allocated to DAOs.