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Interpretation of MakerDAO multi-chain strategy and roadmap, overview of Layer 2 ecosystem and opportunities

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Which Layer2 route will MakerDAO choose?

Original title: "A Multichain Strategy and Roadmap for Maker"

Original source: Derek, MakerDAO

Original compilation: Kyle, Babbitt

May 28, MakerDAO core unit promoter Derek Published "Maker's Multi-chain Strategy and Roadmap". Introduced MakerDAO's opportunities and potential risks in the rapidly developing multi-chain ecosystem.

The purpose of this forum post is to provide an overview of the Layer 2 ecosystem and the various opportunities that exist. By presenting our insights into the multi-chain landscape, we hope to be able to

(1) guide and engage with the wider community on this particular topic;

(2) gather insights on various Feedback on development opportunities, and

(3) Align technology and development resources to reach consensus on a strategy for how MakerDAO should adapt to this new complex environment.

This approach will help us focus on our existing Layer 2 priorities – specifically, which Layer 2s can deliver growth, exposure and The right balance of security is achieved to protect the integrity of DAI as a stablecoin across multiple chains. We welcome community feedback and plan to host a series of AMAs/discussions over the next few weeks to solidify our strategy and roadmap for the months ahead.

The current multi-chain environment

We are currently at the intersection of two issues:< /p>

“How will DeFi develop?”

“Where will the liquidity go?”

The rapid development of DeFi makes it difficult for us to answer these questions. Will it be a single chain? Will it be a Layer 2 to achieve dominance? Will liquidity be concentrated in one or more places? It seems that at this nascent stage, due to the innovation and development happening in the various ecosystems, it is impossible to focus on any one particular place.

Ethereum is likely to become the global settlement layer (think of it as the Manhattan hub of cryptocurrencies), in which case it is assumed that everyone will adapt A single "city" where real estate prices skyrocket is unreasonable. Instead, people with growing DeFi demand will build new, thriving communities by creating their own islands. Haseeb Qureshi also proposed this idea in ETH2 cities, suburbs, farms, where "blockchain city planning" and sharding will be used to meet demand.

Applications may cluster into Rollups, chains or sidechains based on their need to maintain close communication links, which is similar to how populations tend to cluster in regions and cities in the same way.

By extension, there's no reason why people wouldn't go to places where the cost of living is lower or the jobs are better - similarly, in the case of DeFi , people will be attracted to places with the highest returns. Therefore, we need to capture the value that exists in these different blockchain environments and allow DAI-denominated value to flow securely between them. In some cases, the value is less likely to flow out of the city (Solana, BSC, etc.), so we have a competitive advantage to capture where the value is. The multi-chain environment is an evolving and diverse ecosystem:

This is an ever-evolving environment where not only the ecosystem is changing but also across Bridges and technical implementations also determine the rules by which they operate.

This movement of tokens introduces technical risks that must be evaluated against different Layer 2 solutions.

A deeper dive: scaling and scalability/security tradeoffs

No need Digging into the semantics of what constitutes a "true" Layer 2 scalability solution, the scalability conundrum still applies to every chain that claims to offer "better scalability and cheaper transactions". What makes DAI unique and powerful is that it is built on today's most decentralized smart contract platform (i.e. Ethereum), and in the long run it will strive to achieve scale without compromising decentralization (and subsequent the security that comes with it). . Given that DAI is not upgradeable, it inherits many of its security and properties (e.g., censorship resistance) from base layer Ethereum. Arguably, every scaling solution (Rollup included) adds additional security risks that MKR holders, DAI holders, and Vault users should be aware of.

Again, each new collateral type should be viewed from a financial and technical risk perspective. Extending the MakerDAO protocol to new chains requires a thorough analysis of the security assumptions and risks introduced by these new chains or Rollups. On Ethereum, we tend to ignore the very real technical risks associated with Ethereum itself (e.g., if Ethereum crashes, the entire DeFi ecosystem, including MakerDAO, will collapse - so we can think of it as something we only acceptable systemic risk). When we consider transferring DAI or minting DAI on other chains, these risks become a reality and cannot be ignored by MKR holders.

Examples of these risks include:

1. The new ones used in zk Rollups, Cryptographic primitives that may be untested and hard to audit Strategy complexity of hard fork

3. MassExit problem based on Plasma

4. Cartel issues in DPoS systems

5. Upgradability and reliance on MultiSigs on most platforms

6. Risks related to data availability

7. Security of cross-chain bridge operators and risks associated with freezing/seizure of funds

8. Risks associated with L2 Rollup schemes using sidechains instead of inheriting Ethereum security

Depending on the risk assessment framework, Maker holders can choose to either:

Support the above chain by allowing direct minting of DAI using these collaterals , or

Support (underwrite) different bridges to smooth the transfer of DAI from Ethereum to these chains, making it cheaper for end users on these chains, Use DAI more securely, or

Avoid supporting these chains directly at the protocol level entirely, leaving it up to the community to decide how to use DAI on these chains (most This is the case with the latest sidechains like BSC, Polygon, Klaytn, etc.).

Cross-chain bridge types

Most end users tend to transfer DAI from one chain to another chain, just like transferring USD from one bank account to another. Perhaps a better analogy is depositing DAI on a centralized crypto exchange, where the DAI disappears from the user's wallet and the credit appears in the user's trading account. A similar user experience could be offered on platforms like Loopring and dYdX (both ZkRollups), where there is only one way to store and withdraw tokens.

However, on a permissionless blockchain where everyone can deploy their own cross-chain bridge, users are more likely to have multiple bridges to choose from, As shown below:

< br>

In this example, each cross-chain bridge (Bridge A and Bridge B) will create its own Own "versions" of DAI, different versions of these DAI will be non-fungible (similar to wBTC and renBTC). Additionally, if the MakerDAO community loses control over the DAI-branded narrative, end users could have many different non-fungible versions of DAI in their wallets, creating potential confusion.

Can be found on multichain.xyz (two versions of DAI on the Ethereum-Fantom bridge) or Polygon (depending on the two different versions using PoS or Plasma See this example on non-fungible DAI for .

Furthermore, and more importantly, each cross-chain Bridges may have different functionality and security models, becoming completely permissionless non-upgradable bridges (whose behavior is formally defined and verified), compared to scams designed to lure users into a false sense of security by staking user tokens , the scam is only to steal users later through the upgrade mechanism.

On a permissionless chain that allows anyone to deploy any token and cross-chain bridge, the community will eventually reach a consensus to determine the "true" DAI on the child chain is What. The MakerDAO community can create and support its own bridge (more on that below), or it can simply endorse an existing one. Likewise, at the UI level, we might see centralized UIs favoring one "version" of DAI over DAI, or UI developers working through standardization and a list of tokens with social consensus around which token is " Real" tokens are - for all intents and purposes - fungible from the "raw" product and should be considered a encapsulated/synthetic asset.

Opportunities and challenges for Maker

The ever-growing multi-chain ecosystem brings the Maker protocol There are opportunities and challenges that need to be recognized and discussed.

MakerDAO is uniquely positioned to take advantage of a growing ecosystem by:

Provide cheap Rollup and sidechain DAI access for users who are currently unable to purchase due to high gas fees. In this way, retail users' demand for DAI will increase.
Allows DAI to be minted directly on L2 and other chains using any collateral available on those chains. This will boost the overall supply of DAI.
Minted DAI provides virtually unlimited liquidity for fast withdrawals cross-chain bridges, chain-to-chain communication channels (see Connext, Hop) and other protocols that may suffer from a liquidity crunch
Use collateral inherent to other chains, including base tokens like FTM, SOL, AVAX, etc. without bridging and encapsulating them on Ethereum

The complexity of a multi-chain world brings With it comes new challenges and risks, including:

Many versions of DAI have created confusion in the community, especially among retail users
If the minter is compromised, the minting power of DAI outside of L1 Ethereum creates a serious attack vector (unlimited amount of L2 DAI can be mined and withdrawn to L1)
DAI Could be stolen/stuck on the L1 portion of the bridge (either through user error sending DAI to the cross-chain bridge or a bug in the cross-chain bridge itself)
Collateral currently used to mint DAI on L1 may be Increasingly moving to various L2 or other chains in search of better yield opportunities out of current vaults, reducing the total amount of collateral available for minting DAI on L1 Ethereum

The Maker protocol requires collateral to mint DAI. If more and more collateral is transferred to other chains, Ethereum may end up being the global settlement layer for these chains/Rollup, while most of the actual DeFi transactions will happen on L2.

The Maker Protocol will need to chase value out of Ethereum while properly managing risk and maintaining an underlying ledger of all DAI across the multi-chain universe. Ultimately, when the multi-chain ecosystem matures, in a post-ETH 2.0 world, it might be worth considering moving Maker's ledger (VAT) to the most liquid (composable) Rollup or to its own Rollup (execution speed and low cost oracle updates).

Maker strategy for multi-chain ecosystem

Various protocols adopt multi-chain ecosystem different strategies. These are different from:

Building Sidechains/Rollups:

Compound Cash< /li>
Loopring Exchange
dYdX (zkRollup on StarkDEX)
ImmutableX (Validium on StarkDEX)

Select Specific scalability solutions/rollup. This strategy bets on a specific scalability solution to which it ultimately connects its users. Examples include:

Synthetix based on Optimism
Uniswap based on Optimism (now Uniswap may also run on Arbitrum)< /li>

Deployed on multiple chains (Polygon, BSC, Fantom, Avalanche, etc...):

Aave, Curve, 1inch, SushiSwap, mStable, PoolTogether, Franx Finance, bzX, Augur on Polygon

No single strategy fits all. What makes sense for one project (e.g. a DEX that may want to deploy on a different chain) will not fit the needs of another project (e.g. an NFT distribution platform or game that may want to choose a specific Rollup).

We recommend that the MakerDAO community focus on two main use cases:

L1's DAI is bridged to other Rollups/chains to make it cheaper for end users to use DAI.
Evaluate the feasibility of minting DAI directly on other chains using collateral available on other chains. To do this, appropriate risk assessments and frameworks must be developed.

The ideal solution would be to make bridged DAI and minted DAI fully interchangeable, so to the end user it is the same DAI. This is ultimately only possible if MakerDAO controls the bridge used to transfer DAI to other chains/Rollups. DAI that is bridged with a third party should always be considered "wrapped" DAI (see e.g. KDAI on Klaytn or Bridge DAI on xDAI). This diagram shows the concept of "wrapped DAI" created by a third party "Uni Bridge" versus DAI created by "Maker Bridge", which is interchangeable with DAI minted directly on L2:

< br>

Proposed roadmap for community discussion

Note: The Optimism DAI bridge has been approved by the community

< p>

Create a risk framework to evaluate different scalability solutions.
Design a blueprint for minting DAI on L2 while still tracking all minted DAI in the "Vat" L1 base contract. This could include implementing a special type of analog that allows a certain amount of DAI to be minted (depending on the security risk for a given L2). This DAI will be immediately locked in the bridge so that users who minted DAI directly on L2 and wish to move it to L1 can spend it.
Optimism
Deploy an upgradeable Maker bridge to make DAI available as soon as possible
Implement a fast withdrawal plan
Allow direct withdrawals on Optimism Minted DAI
Builds a PSM-like contract that allows users to swap wrapped DAI that will be created by a third-party bridge with DAI minted via the Maker bridge (if it is safe to do so)
Arbitrum - According to a recent announcement, Arbitrum plans to launch their mainnet on May 28th. Since their architecture is very similar to Optimism, we proposed the same steps as Optimism
Continuing to work with Starkware and zkSync to create specific roadmaps aimed at making DAI available on these chains, which will be allowed there in the future Minting DAI directly
Explore Non-Rollup scalability solutions (Polygon, Klaytn, Avalanche, BSC, etc...) - given their much weaker security (they don't inherit from Ethereum's foundation layer security, such as L2 Rollups), primarily working with the integration and growth teams to properly and securely help bridge DAI and track DAI liquidity

Additional thanks to the protocol engineering team, especially @bartek, @hexonaut, and @krzkaczor document our thoughts. As a team, we welcome community questions and feedback, and will follow up with an upcoming AMA/discussion to gain insight into next steps and share our L2 progress. Thanks!