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Maker DAO Multi-Chain Strategy: How to Choose Layer 2's Technical Path?

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Among the numerous Layer 2 expansion options, which one is likely to win the final battle? The choice of Maker Dao may give us some insight.

Read the MakerDAO's Multi-Chain Strategy and Roadmap. Which Layer2 Route will the MakerDAO take?

Original source: MakerDao

Translated by Kyle Babbitt

On May 28, Derek, the MakerDAO core unit promoter, posted a post titledMaker's multi-chain strategy and roadmap". This paper introduces the opportunities and potential risks of MakerDAO 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 multi-chain patterns, we hope to (1) guide and communicate with the wider community on this particular topic; (2) Gather feedback on various development opportunities, and (3) adjust technical and development resources to reach a consensus on the strategy for how the MakerDAO should adapt to this new complex environment.

This approach will help us focus on existing Layer 2 priorities -- specifically, which Layer 2 can strike the right balance between growth, exposure, and security to protect the integrity of DAI as a stablecoin across multiple chains. We welcome feedback from the community and plan to host a series of AMA/discussions over the next few weeks to solidify the strategy and roadmap for the coming months.

The current multi-chain environment

We are now at the intersection of two issues:

"How will DEFI develop?"

"Where is the liquidity going to go?

The rapid development of DEFI makes it difficult to answer these questions. Is it going to be one chain? Will it be a Layer 2 implementation? Will liquidity be concentrated in one or more places? It seems that in this nascent phase, because of the innovations and developments taking place in various ecosystems, it is impossible to concentrate in any one particular place.

Ethereum is likely to become the global settlement layer (think of it as the Manhattan center of cryptocurrency), in which case it is not reasonable to assume that everyone will adapt to a single "city" with skyrocketing real estate prices. Instead, people with a growing DeFi need will build new, thriving communities by creating their own islands. Haseeb Qureshi has also proposed this idea in ETH2 cities, suburbs, and farms, where "blockchain urban planning" and sharding will be used to meet demand.

Applications may cluster in rollups, chains, or side chains based on their need to maintain close communication links, in the same way that populations tend to cluster in regions and cities.

By extension, there is no reason to think that people won't go where the cost of living is lower or jobs are better -- similarly, in DEFI's case, people will gravitated to where the benefits are highest. Therefore, we need to capture the value that exists in these different blockchain environments and allow DAI-denominated value to flow safely 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 the value where it is. A multi-chain environment is an increasingly diverse ecosystem:

解读 MakerDAO 的多链战略：如何选择 Layer 2 路线？

This is a constantly evolving environment, where not only are ecosystems changing, but cross-chain Bridges and the way technology is implemented determine the rules within which they operate.

This movement of tokens introduces technical risks that must be evaluated against different Layer2 solutions.

Dig deeper: Extensibility and extensibility/security tradeoffs

Without getting into a semantic discussion of what constitutes a "real" Layer2 scalability solution, the scalability puzzle 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 top of the most decentralized smart contract platform today (namely Ethereum), and in the long run it will strive for scale (and the security that comes with it) without compromising decentralization. Since DAI is not scalable, it inherits many of the security and attributes (for example, censorship resistance) from the base layer Ethereum. It can be said that each extension solution (including Rollup) adds additional security risks that MKR, DAI, and VAPT users should be aware of.

Again, look at each new type of collateral from the perspective of financial and technical risk. To extend the MakerDAO protocol to new chains, a thorough analysis of the security assumptions and risks introduced by these new chains or Rollup is required. On Ethereum, we tend to ignore the very real technical risks associated with Ethereum itself (e.g., if Ethereum collapses, the entire DEFI ecosystem including MakerDAO will collapse -- so we can think of this as a systemic risk that we can only accept). When we consider transferring DAI or casting DAI on other chains, these risks become a reality that MKR holders cannot ignore.

Examples of these risks include:

1. New, possibly untested and difficult to audit cryptographic primitives used in ZK Rollups

2. The complexity of the new AVM virtual machine on Arbitrum and the strategic complexity of dealing with the Optimistic Hard Bifurcation on the Optimistic Rollup platform

3. Massexit problem based on Plasma

4. Cartel problem in DPOS system

5. Scalability and dependence on MptiSigs on most platforms

6. Risks associated with data availability

7. Safety of cross-chain bridge operators and related risks of freezing/seizing funds

8. Risks associated with L2 Rollup schemes that use side chains instead of inheriting Ethereum security

According to the risk assessment framework, Maker holders can choose one of the following options:

Support the above chains by allowing the use of these collateral to directly cast DAI, or support (underwrite) different Bridges to smooth the transfer of DAI from Ethereum to these chains, thus making it cheaper and safer for end users to use DAI on these chains, or

Avoid directly supporting these chains at the protocol level altogether and let the community decide how to use DAI on these chains (this is the case with most of the latest side chains such as BSC, Polygon, Klaytn, etc.).

Cross-chain bridge type

Most end users tend to move DAI from one chain to another, just as USD is moved from one bank account to another bank. Perhaps a better analogy is to store DAI in a centralized cryptographic exchange, where DAI disappears from the user's wallet and credit appears in the user's trading account. A similar user experience can be provided on platforms such as Loopring and DyDx (both ZkRollups), where there is only one way to store and withdraw tokens.

However, on a permission-free blockchain where everyone can deploy their own cross-chain bridge, users are more likely to have multiple Bridges to choose from, as shown in the figure below:

解读 MakerDAO 的多链战略：如何选择 Layer 2 路线？

In this example, each cross-chain bridge (Bridges A and B) will create its own "version" of DAI on the subchain, and the different versions of these DAI will not be replaceable (similar to WBTC and RENBTC). Furthermore, if the MakerDao community is unable to control the narrative of the DAI brand, end users may have many different irreplaceable versions of DAI in their wallets, creating potential chaos.

You can see this example on mptichain.xyz (two versions of DAI on the etherium-fantom bridge) or Polygon (two different versions of irreplaceable DAI depending on the use of POS or Plasma).

解读 MakerDAO 的多链战略：如何选择 Layer 2 路线？

In addition, more importantly, with the aims to lure users into a false sense of security of the scheme, compared each bridge across the chain will have different functions and security model, become completely without permission not to upgrade the bridge (formally define its behavior and verification), and aims to put the user tokens to entice users to create a false sense of security fraud, The scam is only designed to steal users at a later date through an upgrade mechanism.

On a permission-free chain that allows anyone to deploy any token and cross-chain bridge, the community will eventually reach a consensus on what the "real" DAI on the subchain is. The MakerDAO community can create and support their own Bridges (more on that below) or simply endorse an existing bridge. Similarly, at the UI level, we might see centralized UIs favoring a "version" of DAI over DAI, or UI developers working through standardization efforts and a list of tokens with social consensus around which tokens are "real" tokens that -- for all intents and purposes -- can be replaced from the "original" product, And should be considered a encapsulated/composite asset.

Opportunities and Challenges for Maker

The growing multi-chain ecosystem presents opportunities and challenges for the Maker agreement, which need to be recognized and discussed.

MakerDAO is uniquely positioned to take advantage of the evolving ecosystem in the following ways:

• 为当前因高 gas 费用而导致无法购买的用户提供廉价的 Rollup 和侧链 DAI 访问。这样，零售用户对 DAI 的需求将增加。

• 允许使用这些链上可用的任何抵押品直接在 L2 和其他链上铸造 DAI。这将促进 DAI 总体供应量的增长。

• 铸造 DAI 可为快速提现跨链桥，链到链通信通道（请参阅 Connext，Hop ）和其他可能遭受流动性紧缩的协议提供几乎无限的流动性

• 使用其他链所固有的抵押品，包括 FTM，SOL，AVAX 等基础代币，而无需桥接并将它们封装在以太坊上

The complexity of the multi-chain world brings new challenges and risks, including:

• DAI 的许多版本在社区中造成混乱，尤其是在零售用户中

• 如果铸币商受到损害，则在 L1 以太坊之外的 DAI 的铸币权会产生严重的攻击向量（可以挖出数量不限的 L2 DAI 并撤回至 L1）

• DAI 可能被盗 / 卡在桥的 L1 部分（通过将 DAI 发送到跨链桥的用户错误或跨链桥本身中的错误）

• L1 上目前用于铸造 DAI 的抵押品可能会越来越多地转移到各种 L2 或其他链中，以寻求从当前金库中流出的更好的收益机会，从而减少了 L1 以太坊上可用于铸造 DAI 的抵押品总量

• 抵押清算和全球结算的复杂性将大大增加

The Maker agreement requires collateral to cast the DAI. If more and more collateral moves to other chains, Ethereum could end up being the global clearing layer for these chains /Rollup, and most of the actual DEFI transactions will take place on L2.

The Maker protocol will need to chase value out of Ethereum while properly managing risk and maintaining the underlying ledger for all DAI across the multi-chain domain. Eventually, when the multi-chain ecosystem matures, in a post-ETH 2.0 world, it may be worth considering moving Maker's ledger (VAT) to the Rollup with the highest mobility (composability) or your own Rollup (speed of execution and low-cost predictive machine updates).

Maker Strategy for Multi-Chain Ecosystems

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

Build side chains /Rollup:

• Compound Cash

• 路印交易所

• dYdX （StarkDEX 上的 zkRollup）

• ImmutableX （StarkDEX 上的 Vapdium）

Select a specific extensibility solution /rollup. This strategy places a bet on a particular scalability solution and ultimately connects its users to it. Examples include:

• 基于 Optimism 的 Synthetix

• 基于 Optimism 的 Uniswap （现在 Uniswap 也可能会运行在 Arbitrum 上）

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

Aave, Curve, 1Inch, Sushiswap, MSTable, Pooltogether, Franx Finance, BZX, Augur on Polygon

There is no single strategy that fits all situations. What makes sense for one project (for example, you might want to deploy a DEX on a different chain) will not fit the needs of other projects (for example, you might want to select a particular Rollup's NFT publishing platform or game).

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

1. Bridging DAI from L1 to other Rollup/ chains to make DAI cheap for end users.

2. Evaluate the feasibility of casting DAI directly on other chains using collateral available on other chains. To this end, appropriate risk assessments and frameworks must be developed.

The ideal solution is to make the bridged DAI and the cast DAI fully interchangeable, so to the end user, it is the same DAI. This is ultimately only possible if the MakerDAO controls the bridge used to move the DAI to another chain /Rollup. A DAI that is bridged to a third party should always be considered a "encapsulated" DAI (see for example KDAI on Klaytn or Bridged DAI on XDAI). This figure shows the concept of "encapsulated DAI" created by third party "Uni Bridge" and DAI created by "Maker Bridge", which can be interchangeable with DAI cast directly on L2:

解读 MakerDAO 的多链战略：如何选择 Layer 2 路线？

Proposed roadmap for community discussion

Note: The Optimistic Dai Bridge has been approved by the community

1. Create a risk framework to evaluate different scalability solutions.

2. Design a blueprint for casting DAI on L2 while still keeping track of all DAI cast in the "VAT" L1 base contract. This may include implementing a special similar type that allows a certain amount of DAI to be cast (depending on the safety risk of a given L2). The DAI will be immediately locked in the bridge so that users who cast DAI directly on L2 and wish to move it to L1 can use it.

3.Optimism

4. Deploy upgradable Maker Bridge to make DAI available as soon as possible

5. Implement a quick withdrawal plan

6. Allows for directly casting DAI on top of what you want

7. Create a PSM-like contract that allows users to exchange encapsulated DAI that will be created by a third party bridge with DAI that will be cast through Maker Bridge (if it is safe to do so)

8.Arbitrum - According to the latest announcement, Arbitrum plans to launch their mainnet on May 28th. Since their architecture is very similar to that of Optimism, we propose the same steps as Optimism

9. Continue to work with StarkWare and ZKSync to create specific roadmaps designed to make DAI available on these chains, which will allow direct casting of DAI there in the future

10. Explore non-rollup scalability solutions (Polygon, Klaytn, Avalanche, BSC, etc.) -- Given that their security is much weaker (they do not succeed to Ethereum's base-layer security, such as L2 Rollups), work primarily with the integration and growth teams to provide assistance in bridging DAI and tracking DAI liquidity appropriately and securely

Also thanks to the protocol engineering team, especially @bartek, @hexonaut and @krzkaczor for documenting our thoughts. As a team, we welcome questions and feedback from the community and will follow up on upcoming AMA/ discussions to gain insight into the next steps and share our progress on L2. Thank you very much!