Original Title: "GSR Digital Asset Reference Pack"

Original Source: GSR Digital

Original Compilation: Deep Tide TechFlow

With the recent approval of the Bitcoin spot ETF in the United States, the rise of Solana, new experiments around blockchain architecture, and innovation in the Bitcoin ecosystem, cryptocurrencies are heating up. Therefore, GSR Digital provides an overview of various digital asset themes and sub-industries as a reference for experienced professionals and a beginner's guide for newcomers to the industry.

Blockchain-related Concepts

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Different blockchains have different rules, consensus mechanisms, and token standards, so tokens cannot be simply sent from one blockchain to another. Bridges can transfer tokens and data from the source chain to the destination chain, and must perform three main tasks in the process: data transmission, verification, and interpretation. Bridges can be constructed in multiple ways, with different trade-offs between trustlessness (whether the bridge inherits the security of the connected chains), scalability (whether connecting multiple chains is easy or each path requires custom implementation), and generality (whether the bridge can send arbitrary data/messages or only perform cross-chain exchanges). Bridges also represent a significant attack vector, typically evaluated by the number of supported chains, daily active users, and total locked value.

The three main ways for bridges to execute cross-chain transactions are:

Locking and Casting: These bridges lock the native tokens in the original chain's smart contract and then issue an equivalent amount of wrapped tokens to users on the target chain. The wrapped tokens act as IOUs and can be burned later to retrieve the original tokens on the original chain. These bridges have an advantage in terms of staking efficiency because they do not require additional staking or liquidity, but they do disperse liquidity on the target chain, creating wrapped versions of multiple assets, and if attacked, pose systemic risks to the target chain.

Cross-chain liquidity: These bridges facilitate low-slippage exchanges by allowing liquidity providers (LPs) to provide liquidity, acting as cross-chain automated market makers. They are inefficient in terms of liquidity, but only handle native tokens, so the risk is limited to LPs.

销毁与铸造：These bridges destroy the native tokens on the original chain and mint an equivalent amount of tokens on the destination chain. As they do not wrap tokens or use AMM, they do not disperse liquidity or introduce slippage. However, the bridge must be authorized to mint native tokens on multiple chains, which typically applies only to real-world assets (Circle's CCTP is an example).

Before forging on the target chain, the bridge must reach consensus that the assets on the original chain have been locked or destroyed. This is achieved in three ways:

Local Verification: The bridge runs the original chain's light client as a smart contract on the destination chain for verification. This inherits the security of the connected chain, but the light client must be custom-built for each one-way bridge.

External Validation: The bridge uses its own set of validators to reach consensus, which may be a centralized entity, a multi-signature system, or a decentralized group of stakers (usually using PoA or PoS mechanisms). These bridges have lower security and are essentially their own blockchain, but lack social consensus.

Local Verification: The local verification bridge acts as a P2P matching platform based on a centralized limit order book, involving interactions between both parties to verify each other in an encrypted manner. They are secure and easy to set up across multiple chains, but can only perform asset exchanges.

Optimistic verification: A hybrid of the above methods, similar to optimistic rollup, which assumes that the block header submitted on the target chain is valid unless proven otherwise during the challenge period.

Cryptography

Cryptography is the technology that studies how to protect communication and data security in the presence of adversaries. Together with cryptanalysis, it is part of the larger discipline of cryptography.

Cryptography uses various encryption algorithms (called ciphers) to protect communication, where ciphers and keys transform input data (called plaintext) into encrypted output (called ciphertext). Cryptography can be divided into symmetric cryptography, asymmetric cryptography, and cryptographic hash functions.

Symmetric cryptography uses the same key for encrypting plaintext and decrypting ciphertext. It is typically simpler and computationally less intensive than asymmetric cryptography, but requires a secure way to share the key and each pair of users on a network needs a unique key. Examples include various ciphers (such as Caesar cipher) and data encryption standards (DES).

Asymmetric cryptography (also known as public key cryptography) eliminates the need for shared keys by using mathematically related public and private keys, making it more suitable for large, scalable, and active networks. Public keys can be freely shared and created by private keys, serving as a single-factor authentication mechanism that should be kept strictly confidential. Although public and private keys are mathematically related and it is easy to calculate a public key from a private key, the reverse is almost impossible. This provides a way to prove knowledge of the private key without revealing it, and allows messages to be encrypted with the recipient's public key and decrypted only by the recipient's private key (providing encryption), while the sender's public key can be used to verify that the sender is the holder of the private key without revealing the private key (providing authentication). Examples include DH, RSA, and elliptic curve cryptography, the latter of which is used by Bitcoin, Ethereum, and others.

Password hash functions divide data into fragments and perform multiple rounds of local operations, lose information, and finally convert data into fixed-length digital strings, creating digital fingerprints for any amount of data. Hash functions are one-way (cannot deduce input from output) and deterministic (return the same output for a given input). Bitcoin uses the SHA-256 hash function in its protocol.

Hosting

A digital asset custody institution stores and protects the owner's encrypted private key, allowing the holder to sign digital asset transactions. The key is stored in an encrypted wallet, which can be a hot wallet (connected to the internet; sacrificing security for speed, liquidity, and automation) or a cold wallet (not connected to the internet; more secure but slower and requires manual handling).

The custodian represents the user to keep the key, while the custodian technology provider offers technical solutions to enable end users to self-custody securely and efficiently. The custodian bears more risks, is subject to more regulations, and provides higher customer service, but offers fewer assets/features, introduces counterparty risks, and has slower response times.

The core custody technology solution includes:

Hardware Security Module (HSM): A tamper-resistant, government-certified physical device that protects the encryption process and is not connected to the internet. HSMs are difficult to crack, but can cause a single point of failure.

Multi-signature: requires multiple key authorizations for digital asset transactions, typically requiring a majority of signatures from keys associated with the asset (e.g. 3 out of 5). Multi-signature mitigates the single point of failure issue with HSMs, but may not be supported by all blockchains, potentially leading to higher transaction fees or reduced privacy, and introducing smart contract risks.

Multi-Party Computation (MPC): It is a process of dividing a private key into key shares and distributing them to multiple devices. MPC is very flexible and can enable complex signature rules, with the ability to later change or revoke signature shares. It allows for a mix of hot and cold wallets and generates standard signatures, but this is a newer and less tested technology that cannot be used with HSM.

Hosting solutions are managed by various providers (such as specialized native encryption providers, traditional financial institutions, cryptocurrency exchanges, major brokers), which may focus on retail investors or institutional investors, and often provide additional services such as trading, lending, pledging, governance participation, and/or secure customer networks.

Decentralized Autonomous Organization

Decentralized Autonomous Organizations (DAOs) are blockchain-based organizations governed by a set of self-executing rules that allow for bottom-up decision-making and community organization around common goals. DAOs are collectively managed and owned by their members, with no hierarchical structure, and their governance is encoded into smart contracts. DAOs are essentially coordination mechanisms that provide trustless management and organizational transparency, participatory decision-making and borderless collaboration, as well as novel financing and ownership mechanisms. They are used to manage protocols, fund grants, distribute creative works, guide investments, unite community members, and serve other DAOs.

The membership of DAO is usually determined by the ownership of DAO tokens, which are often obtained for free and allow any holder to propose and vote on governance proposals (such as how to use treasury funds). In addition, many DAO frameworks have emerged to automate DAO creation, including Aragon, DAOstack, Moloch, and Colony.

Market makers are those who provide bid and ask quotes as well as quote sizes for a certain asset on an exchange. This increases the liquidity for both buyers and sellers, otherwise they may see worse pricing and lower market depth.

Market makers use proprietary software, known as engines or robots, to display bid and ask prices in the market. These engines continuously adjust their buy and sell quotes dynamically based on price changes and constantly changing trading volumes.

The differences between market makers include the liquidity provided, technology and software, history and experience, transparency and reporting, reputation, exchange integration, the ability to provide liquidity on centralized and decentralized exchanges, and value-added services.

Specific key performance indicators for market makers include the bid-ask spread, percentage of trading volume, percentage of best bid and ask prices (i.e. the percentage of trades with the best buy/sell prices), and normal operating time.

Market Structure

Compared to traditional finance, the cryptocurrency market offers many key advantages, including fewer intermediaries, instant settlement, lower costs, higher efficiency, and more access opportunities.

Trading can be conducted on centralized or decentralized exchanges, as well as through over-the-counter markets. Although some spot trading occurs on decentralized exchanges (accounting for approximately 15% of total trading volume), derivative trading rarely occurs on-chain (approximately 2-3%). Perpetual contracts are the most popular trading instrument, followed by spot trading, with options or futures trading being relatively less common.

Although the correlation between cryptocurrency assets and traditional assets is low, due to their novelty and structural reasons, the price of cryptocurrencies exhibits high volatility. Bitcoin is highly correlated with global liquidity, and in the short term, it often fluctuates with macro and cryptocurrency-specific catalysts and risks. In the long term, we expect the price of Bitcoin to change with the fundamentals (including adoption, usage, development, talent, and capital).

Maximum Withdrawable Value

The Maximum Extractable Value (MEV) is a measure of profit that miners or validators can extract from block production, beyond block rewards and transaction fees, by including, excluding, and changing the order of transactions in a block.

Transaction information, including the basic cost and priority cost (Gas) of the transaction, is usually broadcasted to the blockchain network and placed in a pending transaction queue called txpool or mempool. Miners/validators can choose which transactions to include in their proposed blocks and the order of transactions, and historically, they have selected the transactions with the highest Gas price from the mempool and sorted them by Gas expenditure. However, pending transaction information can be maliciously used as bots attempt to front-run transactions before they are processed. It is quickly realized that sorting transactions based on priority fees is not a profit-maximizing strategy relative to more complex sorting strategies. For example, miners or independent third parties known as searchers may use complex, bot-based transaction strategies to arbitrage price differences between DEXs, package their own buy/sell orders around pending DEX transactions (known as sandwich attacks), or execute liquidations for decentralized lending protocols.

Although validators are in the best position to take advantage of such transactions because they control the transactions included in the block and the order of the transactions, the vast majority of MEV is extracted by highly complex independent parties (although most of it flows to validators). The design of the Ethereum validator role is as simple as possible and does not require specialization, but compared to the early years when miners simply ordered transactions based on the fees paid, maximizing transaction fees in this MEV paradigm is extremely complex and computationally challenging. Therefore, validators now usually do not build their own blocks (although they can still do so), but typically receive blocks from trusted relays that relay between block generators and block proposers (validators). Flashbot's MEV-Boost software facilitates this handover. In this setup, block production is outsourced to a professional block generator market that aims to maximize MEV, and these generators bid to propose their blocks to the network to block proposers (validators). The role of validators becomes very simple, just choose the block with the highest bid. Due to the competitive nature of this bidding process, most of the MEV income is paid by builders/searchers, and this income is returned to validators, who actually have the ability to propose blocks that capture it.

Although certain types of MEV, such as CEX/DEX arbitrage to ensure users pay the same global market price and exchange clearing to ensure loan repayment, are beneficial, MEV has generated many negative externalities. These include worse execution and higher prices for sandwiched traders, as well as broader concerns about network centralization due to the specialization required for competition.

Two very important vectors for MEV competition are private order flow and latency. All other things being equal, more trades are always better from the perspective of the searcher, so any searcher/generator that receives private order flow instead of transacting through the mempool will be at an advantage. In addition, CEX/DEX arbitrage is currently the largest form of MEV, and having the lowest latency to submit the most competitive bid before the auction ends is advantageous because most DEX prices only adjust between blocks (12 seconds), while CEX prices fluctuate constantly. This is particularly noteworthy when the true market price of an asset changes rapidly within a 12-second time frame, allowing the lowest latency participants to submit the most competitive bid before the auction ends.

There are various companies and strategies to reduce the negative externalities of MEV, among which the most famous is Flashbots, a research institution aimed at revealing and democratizing MEV access. After successfully launching products such as Flashbots Auction and MEV-Boost, Flashbots is now developing its SUAVE solution to decentralize block generation itself.

Mining

Bitcoin blockchain is a network composed of unrelated computer nodes, which use cryptography and consensus mechanisms to reach agreement and record valid transactions. Special nodes called miners organize the pending transactions into blocks and compete to be the first to solve the mining puzzle, add their block to the blockchain, and receive block rewards (as well as related transaction fees). By requiring miners to spend something valuable (here, computing and energy resources) to solve the mining puzzle, Bitcoin encourages miners to participate honestly, despite the potential risks of bad actors.

Miners organize the transactions to be processed into a proposed block and include a random number called a nonce. They then hash the proposed block to make the hash output lower than the target value (the hash function is a deterministic one-way algorithm that converts any amount of input data into a fixed-length digital output). If the hash value is lower than the target value, the miner broadcasts the winning block to the network, which is then verified and added to the blockchain by other miners. The winning miner receives the block reward and transaction fees. If the miner fails to solve the mining problem, it will change the nonce (and/or transaction) and hash again, repeating the process until it or another miner solves the problem, and then the process starts over. Miners typically use mining equipment with specialized circuits, and each mining equipment model has its own hash rate (the number of times the device can perform a hash operation per second. For example, the Bitmain S19J Pro can perform about 100 TH/s, or 10^14 hashes per second) and efficiency (the power consumption required for each hash).

The maximum supply of Bitcoin is 21 million, which is achieved by halving the block reward every four years (the current block reward is 6.25 BTC and will be halved in April 2024). In addition, the network adjusts the mining difficulty target approximately every two weeks to ensure that the network (and its current hash rate) takes about ten minutes to solve the mining problem. Therefore, the Bitcoin network produces a new block approximately every ten minutes, which combined with the 6.25 BTC block reward means that the network distributes 900 new BTC per day (6.25 BTC block reward * 6 blocks per hour * 24 hours per day).

The chance for any miner to solve a mining problem is proportional to their hash rate market share (the miner's hash rate relative to the network's hash rate). For example, if a miner produces 4 EH/s (4 * 10^18 hashes/second), and the total network hash rate is 400 EH/s, then the miner will have a 1% hash rate market share and is expected to receive 1% of all Bitcoin block rewards, which is 9 BTC per day. This setup encourages hash rate competition among miners. Additionally, note that in order to smooth income and reduce the impact of luck, miners join mining pools, bundle hash rates together, and distribute block rewards according to the proportion of contributed hash rates in exchange for a small fee.

Mining occurs worldwide, but miners flock to geographies with strong rule of law and low electricity costs. China was once a leading geography due to its cheap hydroelectric power, until it was banned in May 2021. Now, the United States is the primary geography for mining. It is worth noting that Bitcoin mining is often criticized for its high electricity consumption, although opponents often conflate usage with emissions (mining typically relies heavily on renewable energy, as it is often the cheapest source of power), and mining can actually drive the development of renewable energy by providing flexible base loads for otherwise uneconomic renewable energy projects.

The largest miners include Marathon (26 EH/s), Core Scientific (16 EH/s), CleanSpark (10 EH/s), RIOT (9 EH/s), Bitdeer (8 EH/s), and Cipher (7 EH/s).

Modularization

Blockchain has four basic functions: execution, consensus, settlement, and data availability. Traditionally, all four functions are performed by the first layer of the blockchain, which is called a monolithic structure. However, this leads to the trade-off of the blockchain trilemma, which points out that it is impossible for the blockchain to achieve a balance between decentralization, security, and scalability at the same time (for example, the blockchain can increase block size to improve speed, but this will make the blockchain larger, causing some nodes to be unable to retain complete copies, ultimately reducing decentralization). However, a new protocol is separating and optimizing each function, allowing each component of the modular stack to be optimized to achieve a more decentralized, secure, and faster blockchain. This concept is called modular blockchain or modular architecture.

More specifically, the four functions of blockchain are:

Execution: performing calculations. This involves starting from the initial state, running transactions, and transitioning to the final state.

Consensus: The process of reaching a unanimous agreement on the transaction and its ordering.

Settlement: verifying transactions and providing finality guarantees. For modular chains, this includes validating/arbitrating proofs and coordinating cross-chain message passing.

Data availability: Ensure that transaction data is published so that anyone can recreate the state.

Examples include: Ethereum chooses to improve scalability by outsourcing execution to a second-layer network. While Ethereum can still run as a monolith, it is moving towards executing consensus, settlement, and data availability, while using second-layer scaling solutions for off-chain execution. Celestia is another example, which uses data availability sampling and erasure coding to provide transaction ordering and data availability, to prove that enough data is available to replicate the state of the blockchain, and allow other modular components to connect to Celestia's network, quickly creating interoperable, customizable, high-performance blockchains. Other examples include Fuel (modular execution layer), Tezos (first layer with rollup functionality), Avail and EigenDA (data availability layer).

Different construction methods can be used to design modular chains, and different solutions can be used for different functions. For example, Solana performs all four blockchain functions and is a monolithic blockchain. In contrast, smart contract rollups use Ethereum for consensus, settlement, and data availability, and smart contract rollups are used for execution. Validium (a scaling solution) can use Ethereum for consensus and settlement, achieve off-chain data availability through a Data Availability Committee (DAC), and execute on Validium. Sovereign rollups can use Ethereum for data availability and consensus, with execution and settlement occurring on the Sovereign rollup.

There are many challenges in modular chain, such as ongoing development, centralized sorter of rollup (i.e. each rollup currently decides its transactions/transaction sorting and may conduct reviews), and liquidity dispersed between different execution layers.

Non-Fungible Tokens

Homogeneity refers to two items being identical and interchangeable, such as the US dollar or airline miles, while heterogeneity refers to items that are unique and therefore not freely interchangeable, such as original paintings or land. NFTs are non-fungible (completely unique) digital assets stored on the blockchain, which can be seen as a digital representation of ownership based on the blockchain. Please note that for cost reasons, the ID number is stored on the chain, which points to the URL of the JSON metadata file (Autoglyphs is one of the few exceptions). Also note that the blockchain has defined standards for both fungible tokens, such as Ethereum's ERC-20, and non-fungible tokens, such as Ethereum's ERC-721.

NFT has typical advantages of cryptocurrency, such as immutability, provable scarcity and origin, standardization and interoperability, as well as programmability. These make digital assets as real and permanent as physical items in the real world. NFTs can represent ownership of unique valuable items such as digital art, domain names, intellectual property, and event tickets, and can be used for various use cases such as collectibles, gaming, media, music, and finance.

Famous NFT examples include:  colored coins on Bitcoin in 2012; CryptoPunks in 2017 (the first NFT on Ethereum); CryptoKitties in 2017 (a digital cat NFT collection and breeding game); Beeple's Everydays NFT auction (sold for a record-breaking $69 million); and NBA Top Shot in 2021 (digital NBA trading cards).

NFT has been traded in various NFT markets throughout its history. Some markets focus on specific fields. Until the booming market period at the end of 2021, OpenSea occupied 95% of the market share. However, recently, Blur has replaced OpenSea as the main market by using token incentives and enhancing transaction functions. Overall, the trading volume of NFT, many of which are "PFP" (avatar NFT) transactions, has decreased by about 95%, and prices have dropped more than 80% from their peak.

Despite the significant decrease in trading volume and price, many believe that the importance of NFTs cannot be underestimated. With the emergence of new functionalities such as programmability and composability, new use cases such as tokenization and continued development in gaming, as well as the emergence of new ownership and business model paradigms, and a world that is becoming increasingly digital, NFTs are expected to become ubiquitous.

Pledge

A blockchain is composed of transaction blocks created and verified according to predetermined and encoded rules. However, because participants may be malicious, the blockchain requires block producers to invest a certain value to prevent bad behavior. Blockchains based on proof of stake (PoS), such as Ethereum, require block producers (called validators in the PoS system) to lock cryptocurrency in smart contracts, a process known as staking.

除了额外的平衡机制外，验证者会根据他们的质押比例随机被选择来产生一个区块，并从交易费用和协议发行中获得质押奖励，以补偿他们执行的工作，例如提出和验证区块。然而，如果验证者故意或无意地执行不好他们的职责，他们的一部分质押可能会被削减。因此，质押对于权益证明过程至关重要，它是保护网络的手段。

To participate in staking, individuals can run validator nodes or delegate their tokens to validators in exchange for a small portion of staking rewards. Staking rewards vary based on protocol design, staking participation rate, network activity, lock-up period, and choice of validator (for token delegators). Risks include the possibility of unlocking staked tokens before the end of the lock-up period, as staked tokens are typically not immediately withdrawable and may be slashed in case of underperformance, as well as opportunity costs, as staked tokens cannot be used for other activities.

In order to avoid high opportunity costs, many staking service providers distribute derivative assets called liquidity staking tokens (LST), which not only represent the staked tokens but also generate interest and can be used in DeFi protocols, such as as collateral for loans or providing liquidity on decentralized exchanges. The staked Ether (stETH) by Lido is the largest example.

Many decentralized applications and centralized digital asset service providers offer staking services, where users deposit tokens into smart contracts or centralized modules to earn rewards/increase rewards, gain governance rights, etc. Although this is also called staking, it is very different from staking in the consensus protocol of blockchain, and is more commonly used to reduce token supply, increase token demand, and reward users.

Overview: Tokenization is the process of bringing off-chain assets (usually referred to as real-world assets or RWA) onto the blockchain to enable on-chain tracking, trading, programming, and management. Many different types of assets can be tokenized, such as commodities, collectibles, financial instruments, intellectual property, and real estate, among others. Due to its benefits and improvements, enterprises, crypto OGs, and regulatory agencies have shown strong interest in it. According to The Block, the global tokenization market is expected to reach $160 trillion by 2030.

Benefits: The benefits of tokenization include:

Asset management and administration: Simplify operations, reduce administrative burden, automate and maintain transparent records.

Inclusive finance: Lowering the minimum investment threshold to access more sources of capital.

Hosting/Management: Asset management and custody ensure the safekeeping of physical assets and the management represented by their on-chain data. This typically involves traditional asset custody institutions and blockchain-based custody solutions.

Tokenomics

Tokenomics is the economics of protocol tokens, covering various supply and demand characteristics.

Definition of Supply: Token supply has various definitions, including circulating supply which is the number of tokens currently in circulation and immediately available for sale; total supply which is the number of tokens created minus the number of tokens destroyed (including tokens locked in smart contracts); and maximum supply which is the hard-coded limit of total tokens that will exist in the future, indicating the remaining inflation.

Requirement: Token demand is driven by both fundamental and speculative characteristics, and benefits provided by the token supply.

Requirement creation mechanism: Token demand may come from various sources, such as internal use within the protocol (such as value exchange, governance, access discounts, etc.), sharing protocol revenue or potential revenue with token holders, currency properties, and speculative demand.

The driving factors of demand are not all equal. Governance rights are usually of lower value because voter participation is low. Speculative demand has a dual nature, which can help increase token prices, but may also harm token prices. Sharing income with token holders is a strong potential benefit and driving factor, but it is difficult to achieve in the current regulatory environment. In short, the protocol should focus on providing and growing real use cases/utility for its tokens to drive demand for them, and then meet this demand with matching supply.

Zero-Knowledge Proof

Zero-knowledge proof (ZKP) is a method that allows one party (called the prover) to prove to another party (the verifier) that a statement is true without revealing any other information. To illustrate, suppose your friend is blindfolded and holding a green ball and a red ball. You want to prove to your friend that the two balls have different colors without revealing any information about the balls or anything else. You ask your friend to put the balls behind their back and either switch them or not, and then show them to you again. Based on one round and a correct answer, your friend may start to believe you, but not completely, because you have a 50% chance of guessing correctly. However, with each round and correct answer, you are just moving the probability of guessing towards zero, and your friend will eventually believe that the two balls have different colors without you revealing any information about the balls or anything else.

Zero-knowledge proofs are mainly used for privacy and scalability purposes in blockchain. Examples of the former include hiding transaction information and minimizing information sharing, while examples of the latter include zero-knowledge rollups, which process transactions off the Ethereum main chain and then batch, compress, and publish the state data to a layer one while providing zero-knowledge proofs (called validity proofs) that prove the computation was executed correctly. Future use cases include cloud-scale verifiable outsourcing of computation, open third-party analysis of anonymous data, and enhanced trust, privacy, and incentives for decentralized identity.

Zero-knowledge proof uses arithmetic circuits to prove the validity of a statement. It is probabilistic (cannot be determined with certainty, only with high confidence) and can be interactive (as in the example above) or non-interactive (which is the method used in blockchain). In the field of cryptography, it typically exists in the form of zk-SNARK. Zero-knowledge proof has recently transitioned from theory to practice, and is rapidly improving in key areas such as proof time, proof size, verification time, and trusted setup.

The disadvantage of zero-knowledge proofs is that they are in the early stages of development, probabilistic rather than deterministic, require multiple interactions or significant computation, and typically have some minimal trust assumptions in a trusted setup, which is the process of generating the standard parameters for the proof system (although some ZKP implementations do not require a trusted setup).

Zero-knowledge proof is similar to other technologies such as multi-party computation (allowing multiple parties to share data for computing tasks without revealing each other's data) and fully homomorphic encryption (making computations on encrypted data possible without first decrypting it).

Popular protocols using zero-knowledge proofs include Aleo, Anoma, Mina, Tornado Cash, Iron Fish, Manta Network, Aztec, Argent, Starknet, zkSync, and Penumbra, among others.

Blockchain Subfields

Blockchain Games

More and more games are utilizing blockchain technology to incorporate cryptocurrency-based payments, rewards, and ownership into the game. This includes everything from facilitating in-game transactions to creating in-game digital assets such as NFTs, to verifying and recording all blockchain transactions that occur within the game.

Blockchain-based games have many benefits, including:

Decentralized / Trustless: Games are more secure, transparent, trustless, and traceable.

Greater Influence: Blockchain-based games can adopt user-generated content or community governance based on DAOs. Users can create in-game assets, develop storylines, or improve the game's economic model.

New source of income: Developers can now oversee the dynamic virtual economy and extract a portion of the revenue from all business transactions.

Game players usually hold a skeptical attitude towards blockchain-based games, believing that they are money traps for developers. GameFi has also been criticized for relying on a constantly growing player base and potentially collapsing as quickly as it grows. In addition, blockchain-based games face many other challenges, such as regulation, security, scalability, user interface/user experience, and general gameplay/graphics issues. However, developers are now primarily focused on the game itself and the unique benefits that blockchain technology brings, while avoiding volatile incentives. Furthermore, given the long development cycle, we are finally approaching the first true AAA-level blockchain-based games, such as Illuvium, Shrapnel, and Otherside.

除了游戏本身，区块链游戏生态系统还有其他参与者，包括开发工作室（如 Sky Mavis、Blockade、Mythical、Dapper、Wax）、市场（Immutable、Rarible、OpenSea）、区块链 / 扩展解决方案（Immutable、Ronin、Polygon、Flow、Wax、Hive、Safa、Oasys）、基础设施 / 工具（Enjin、Ronin、Forte）和游戏公会（Yield Guild Games、Avocado DAO、Merit Circle）。

Loan Agreement

The lending market, such as Aave and Compound, is the cornerstone of DeFi, allowing users to borrow or lend cryptocurrencies without permission through smart contracts, in order to obtain leverage, short the market, or earn additional income. Smart contracts enable these services to be traded in a non-custodial manner without intermediaries.

Usually referred to as peer-to-pool lending, borrowers lend their cryptocurrency assets to a liquidity pool from which they can borrow. The interest rate is typically variable and determined by an algorithm based on supply and demand (i.e. pool utilization). An increase in borrowing demand will push up interest rates, providing higher returns for lenders, and vice versa.

Lenders typically receive receipt tokens corresponding to their loan collateral, similar to the design of liquid staking tokens. Lending returns are either credited to the balance of receipt tokens (aTokens) or reflected in the price of receipt tokens (cTokens). Given the peer-to-peer lending model, borrowers can only retrieve their loans when they have idle capacity, and when the lending pool is fully utilized (i.e., all deposits have been borrowed), borrowers may not be able to redeem their loans. However, since interest rates are usually floating and rise with usage, it is expected that some borrowers will repay their loans in this situation, allowing lenders to recover their collateral from the pool of funds. In addition, since receipt tokens are provided in correspondence with loans, if liquidity is urgently needed, borrowers can sell their loan positions on the secondary market of decentralized exchanges.

Loans usually require over-collateralization to help reduce the risk of accumulating bad debt in the agreement. Borrowers face liquidation risk, and most agreements charge additional fees when liquidating positions if the value of the borrowed assets sharply rises or the value of the collateralized assets falls. Therefore, the borrower's loan health factor should be closely monitored. Borrowed/lent assets are usually supported only on a permitted basis, as risks are usually shared, so supporting smaller/higher-risk assets increases the risk of accumulating bad debt in the agreement. Therefore, only large tokens are usually supported, but protocols like Euler have taken an approach to isolate the lending market and allow the lending market to form without permission.

The lending/loan market has also introduced a brand new financial ecosystem that does not exist in traditional markets, with the most prominent example being flash loans. Flash loans allow borrowers to borrow any available amount of assets without providing any collateral, as long as they return the liquidity to the protocol in the same block (i.e. imagine if ETH is more expensive on Uniswap than on Sushiswap, you can borrow USDT to buy ETH on Sushi, then sell it to Uni in the same block to reduce the interest rate before repayment). If the loan is not repaid in the same block, the entire flash loan transaction will fail (i.e. capital will not leave the lending pool).

Central Bank Digital Currency

The Central Bank Digital Currency (CBDC) is a widely available digital form of a national legal currency issued by the central bank. As CBDC is a liability of the central bank itself, there is no credit or liquidity risk. The central bank's goal is to ensure that CBDC does not harm monetary and financial stability, coexists and complements other payment mechanisms and forms of currency, and supports efficiency and innovation.

There are many design choices for CBDC, involving aspects such as interest rates, household restrictions, structure, payment verification, functionality, access, and governance. For example, the architecture can be centralized or decentralized, transfers can be made through a central intermediary or peer-to-peer, system and payment access/verification can be based on identity/account or token-based, the ledger can contain simple liability data or more complex payment information, and ledger access can be relatively open or more restricted. In addition, the central bank must also determine what responsibilities will be provided in addition to issuance, such as distribution, system management, and device management. Currently, there are 11 CBDCs launched, 21 being tested, 33 being developed, and 46 in the research phase.

Centralized Exchange

CEX uses the Central Limit Order Book (CLOB) on the exchange, where different currency pairs have bids (the amount willing to pay for an asset) and asks (the amount willing to sell an asset at a certain price). The exchange matches bids and asks based on price-time priority, and market participants can see the depth of the order book, meaning they can see bids and asks beyond the best bid and ask prices.

The largest exchanges include Binance, Upbit, OKX, and Coinbase (for spot trading), Binance, OKX, and Bybit (for perpetual futures), and Deribit (for options). CEX accounts for 85% of total spot trading volume (compared to DEX) and 97% of derivative trading volume.

Distributed Cloud (Computing and Storage)

Decentralized cloud protocol utilizes blockchain technology to provide storage and computing services:

Decentralized cloud companies provide these services through a P2P network of service providers, who either utilize idle infrastructure (such as renting unused computer hard drive space through Filecoin) or purchase custom hardware and run the network from scratch in exchange for token rewards (such as Flux miners buying and running Flux nodes for Flux rewards). Decentralized cloud providers compete with tech giants such as Amazon AWS, Google Cloud Platform, and Microsoft Azure, offering lower prices, greater flexibility, better privacy, and resistance to censorship.

Decentralized Storage: Decentralized storage solutions distribute data storage across multiple nodes or computers, eliminating the need for a central server and achieving data permanence and censorship resistance. They act as a marketplace, allowing anyone from individuals to large cloud companies to rent out unused hard drive space in exchange for fees, and attempt to coordinate and ensure the process (including encryption, storage, retrieval, contract management, storage auditing, etc.). Typically, users encrypt their data and then divide it into smaller pieces called shards, which are often replicated for redundancy purposes and stored by nodes on the network. Nodes communicate with each other via P2P protocols, receiving token incentives to ensure storage availability and reliability, and retrieve and share data upon user request, all done in a transparent and tamper-proof manner.

Decentralized Computing: Decentralized computing protocols use geographically distributed computing resources to provide computing, data processing, and data exchange services, which are typically provided together with data storage. Most protocols offer CPU, RAM, and GPU (newer options) and allow computation on anything that can be placed in a Docker container. In addition, many computing protocols offer enterprise-level service level agreements and may be compatible with existing centralized providers such as Amazon S 3 for easy integration.

More and more companies are turning to a hybrid cloud model with multiple providers, as traditional cloud costs have roughly doubled in the past two years and it cannot handle new technologies such as artificial intelligence well. In addition, companies are also adding local servers to place computing tasks near data sources (known as edge computing) to reduce latency and save bandwidth costs. This hybrid infrastructure reduces dependence and lock-in on large technology providers, making it easier for companies to adopt decentralized solutions.

Decentralized Exchange

Decentralized exchanges (DEX) are decentralized applications that serve as peer-to-peer markets, allowing cryptocurrency transactions to take place directly between users. DEX inherits the positive characteristics of cryptocurrencies (decentralization, permissionless, trustless, censorship-resistant, immutable, etc.), with two notable features being the elimination of rent-seeking intermediaries and the achievement of self-custody.

Considering the speed and cost limitations of the underlying blockchain, DEX typically uses a deterministic pricing algorithm called Automated Market Maker (AMM), rather than a central limit order book. AMM utilizes token pools locked in smart contracts, allowing anyone (called liquidity providers or LPs) to deposit tokens into the liquidity pool. The token price in the pool follows a formula, such as the Constant Product Market Maker algorithm (x*y=k, where x and y are the quantities of two tokens in the pool, and k is a constant), which determines the price based on the ratio of tokens in the pool, and the slippage is determined by the ratio of the transaction size to the pool size. Liquidity is always available, regardless of the transaction size. Then, arbitrageurs peg the price to the global market price, buying and selling tokens in the liquidity pool, pushing it back to its original position when it deviates from the global market price.

Liquidity providers receive transaction fees in the liquidity pool according to the liquidity they provide. In addition, protocols typically incentivize liquidity provision by providing protocol tokens to liquidity providers, known as liquidity mining. Liquidity providers face the risk of impermanent loss, where there is a significant difference in the movement of one asset provided to the funding pool compared to the other asset, resulting in better returns for liquidity providers by directly holding these two assets instead of providing liquidity.

Decentralized exchanges account for approximately 15% of total spot trading volume and approximately 2-3% of total derivatives trading volume.

Uniswap is the most well-known and widely used DEX, and its v2 implementation allows for permissionless pool creation (anyone can create a pool), while v3 allows for concentrated liquidity (liquidity providers can provide liquidity within a specific range to improve capital efficiency). The upcoming v4 will provide hooks for pool customization. In addition to Uniswap, various protocols have iterated on the basic AMM model or introduced new models to provide performance improvements for highly correlated tokens (Curve), multi-asset liquidity pools (Balancer), and even extended to virtual AMMs such as DeFi perpetual contract protocols.

Decentralized Identity

Due to over 1 billion people unable to prove their identity, with an average of 100 passwords per internet user, identity fraud leads to billions of dollars in losses each year, and there are many issues with current identity verification systems. Digital identity was initially adopted in the form of users creating personal accounts on each website (centralized model), then users logging in through Google or Facebook (federated model sacrificing privacy for convenience and security), and recently a new decentralized paradigm called Self-Sovereign Identity (SSI) or Decentralized Identity has emerged, where users own and control their personally identifiable information (PII) and data without relying on centralized entities.

Unlike storing PII in and being controlled by centralized institutions that may abuse their power, decentralized identity allows individuals to store their own data. To do so, users create decentralized identifiers (DIDs) and are then granted verifiable credentials (VCs) by issuers. Users can use encryption technology to prove ownership of their DID and make claims that can be verified by verifiers.

Decentralized identity brings improved experiences (log in with your wallet and bring your data to the website), allows users to profit from their own data (earn payment for sharing data or viewing ads), enhances digital reputation (provides low-collateral loans), increases privacy protection (selectively disclose information), and reduces risk (self-custody of data). Use cases range from identity verification to compliance, access control, Sybil resistance, governance, employee management, medical records, supply chain, and more.

Decentralized identity systems face some challenges. First, the solution set is highly fragmented between use cases and blockchains, with almost no interoperability (there are over 90 DID method specifications across more than 80 blockchains), and entities like the World Wide Web Consortium (W3C) face a huge task in standardization. Additionally, most users still struggle with managing keys and obtaining a good user experience. Furthermore, changes in user behavior and the powerful network effects of decentralized identity cracking current digital identity constructions will take a long time. Issuers will have to adapt to new management and issuance frameworks, and enterprises and verifiers will need to adopt verification technologies to facilitate acceptance of these credentials.

There are many decentralized identity and certificate issuance protocols, some of which are built on general-purpose blockchains like Ethereum (such as POAP and ENS, which respectively issue attendance proof NFTs and name-to-address resolution), while others are built specifically for decentralized ID management optimization (such as Sovrin, Veres One, and Ontology). There are also protocols that offer certificates as a service, making it easy for other Dapps to issue certificates, such as Galaxe and Gateway.

Decentralized Physical Infrastructure Network

Due to the need for billions of dollars in investment to establish and maintain large-scale physical infrastructure and hardware networks, many technology fields are dominated by oligopolies that are not influenced by new competitors. However, blockchain technology challenges this pattern by allowing projects to guide and coordinate these networks through user-contributed infrastructure and token incentives. This decentralized physical infrastructure network, or DePIN (also known as Token Incentivized Physical Infrastructure Network or Proof of Physical Work PoPW), incentivizes users to contribute to and operate devices on the network, which may be comparable in scale to existing networks.

DePIN has several key differences. First, it guides the network through crowdsourced hardware. Second, it makes the network owned and operated by users, rather than large companies that extract rent. Third, they democratize access to the network, as anyone can run a node or use its services. Finally, they are decentralized and resistant to censorship.

In theory, DePIN can achieve a flywheel effect by incentivizing supply-side participants to deploy infrastructure through token rewards. As the infrastructure network grows, developers create products and end users increase demand. With the increase in demand, more hardware providers are attracted by the fees generated from end users, and the cycle continues. In reality, DePIN performs well in guiding the hardware network, but they may not always meet the corresponding needs of users.

DePIN Network is created by user-contributed hardware, which can be new or existing but idle. The former involves users purchasing and operating nodes/hotspots in exchange for protocol tokens, while the latter involves users contributing existing but idle resources, also in exchange for tokens. For example, Helium is the first project to create a large-scale user-contributed new hardware network. It/third-party manufacturers sell plug-and-play Helium hotspots to users to power IoT devices (hotspots both build/protect the network by mining HNT and provide connectivity to nearby devices in exchange for HNT rewards). Although Helium has built the world's largest LoRaWAN network, demand has not materialized as expected, and now Helium is more focused on launching a 5G cellular network. Other protocols such as Filecoin and Arweave allow users to rent or purchase unused hard drive space on other people's machines in exchange for FIL or AR tokens, utilizing excess storage space, and increasing data persistence and resistance to censorship as files are stored on multiple machines.

DePIN is being applied in various infrastructure sub-fields, including:

Storage networks: Filecoin, Arweave, Sia, Storj.

Database: Ceramic, Tableland.

5G Network: Helium, Pollen, XNET

WiFi：WiCrypt、Wifi Dabba

流动性质押代币

Liquidity Staking Tokens

The variables that need to be considered include:

How much collateral assets are controlled by the provider?

How much liquidity does LST have? Besides buying and selling liquidity, are there other multiple uses? Is it widely integrated into DeFi?

Are there any governance issues? Does the underlying PoS blockchain adopt strict stake-based governance or a more Ethereum-like soft governance? Does the LST provider have its own governance token, such as Lido's LDO?

The most famous liquid staking token is Lido's Staked ETH (stETH), which represents Ether staked at a 1:1 ratio through the Lido platform. There are also many smaller competitive liquid staking providers on Ethereum. Outside of Ethereum, the liquid staking ecosystem is smaller in scale, but most other blockchains have at least one liquid staking provider. For example, Solana has Jito and Marinade, Cosmos has Stride, which supports liquid staking for all IBC-compatible chains, Avalanche has Benqi, and Polkadot has Acala.

Although liquid staking provides more utility and flexibility for equity holders, it also introduces new risks and considerations. The value of liquid staking tokens can to some extent detach from the underlying assets, as the underlying assets cannot be immediately redeemed (for example, there may be significant differences in unlocking times, ranging from a few days to several months or even years). In addition, smart contracts involving liquid staking increase technical risks, including potential vulnerabilities or errors. Liquid staking may also introduce risks that were not considered in the original protocol design (for example, if all equity is delegated to unbound node operators, new attack vectors may emerge).

Meme

Meme coins are cryptographic assets that originated from internet memes or have humorous or quirky characteristics. These tokens gain popularity and value primarily through community and social media hype, influencer endorsements, and viral internet trends, rather than intrinsic value or technological innovation. Specifically, meme coins may derive value by evoking certain emotions and psychological backgrounds, such as being part of a community or believing that others will pay more value for the token in the future. This pleasurable value is difficult to quantify, especially considering its behavioral nature.

The success of community tokens is mainly driven by their community and cultural appeal. These communities often coordinate efforts to promote the tokens, creating a sense of belonging and fun. In addition, community tokens are often created in real-time based on real-world events. Finally, community tokens also tend to have unit bias, using very low prices in decimal fractions and very large supplies, giving some people a psychological advantage.

Dogecoin (DOGE) is one of the earliest, most valuable, and well-known meme coins. Doge was created in 2013 based on the "Doge" meme, featuring a Shiba Inu dog. Dogecoin is a simple derivative of Bitcoin (a fork of Bitcoin), which is just a joke, not an innovation. Other examples include: Shiba Inu, Pepe, Bonk, SafeMoon, Dogelon Mars, and so on.

Community tokens are known for their extreme volatility and speculative nature. Their value can quickly skyrocket or plummet based on social media trends, celebrity tweets, or community hype, making them a high-risk investment choice. In fact, Dogecoin often experiences sharp increases in price due to comments from Elon Musk. For example, when Elon temporarily replaced Twitter's blue bird logo with Dogecoin, it caused the price of Dogecoin to soar. However, these short-term spikes are often hype-driven and unsustainable, with prices frequently returning rapidly.

Investing in meme coins is essentially a game of competition between players without any fundamental growth or development reasons. This is usually an early investment and zero-sum game, rather than a game of making a big cake.

Payment Methods

除了货币支付，区块链技术还能实现许多其他形式的价值交换，并引入现有金融体系无法实现的新能力。例如，代币化最终将带来除货币以外的几乎所有其他资产的交换和账户记录，例如基于区块链的传统证券的数字形式，称为代币化证券。这些速度和成本的优势引入了新的能力和构建，例如使以前不切实际的小额支付成为可能，以每首歌的流媒体收费为每首歌的一部分，以更好地奖励创作者，或者以每个查看的网页为基础，以减少 DDoS 攻击。可编程性将启用新的功能，例如只能在特定类别上花费的补贴支付，可组合性将使接受的代币格式在数字领域普遍且可用，碎片化将提高可访问性和流动性。这些例子在速度、成本、包容性和透明度方面都有显著改进。

Translation: In addition to currency payments, blockchain technology can also facilitate many other forms of value exchange and introduce new capabilities that existing financial systems cannot achieve. For example, tokenization will eventually bring about the exchange and account records of almost all other assets besides currency, such as traditional securities based on blockchain in digital form, called tokenized securities. The advantages of speed and cost introduce new capabilities and constructions, such as making previously impractical small payments possible, charging for streaming music on a per-song basis to better reward creators, or basing payments on each viewed webpage to reduce DDoS attacks. Programmability will enable new features, such as subsidy payments that can only be spent on specific categories, and composability will make accepted token formats widely available and usable in the digital realm. Fragmentation will improve accessibility and liquidity. These examples all show significant improvements in speed, cost, inclusivity, and transparency.

Despite the enormous benefits, cryptocurrency payments still face some challenges. Firstly, there is a strong network effect within traditional systems (merchants accept credit cards because buyers hold credit cards, and buyers hold credit cards because merchants accept credit cards). Similarly, consumer behavior takes decades to change, such as the shift from cash to credit cards being a decades-long phenomenon. In addition, regulation is unclear, acceptance/integration is currently limited, user interface/user experience needs improvement, and there are challenges around fraud, security, refunds, and disputes that need to be addressed.

Examples of digital asset payment systems include: Bitcoin was originally intended to be a peer-to-peer electronic cash system, but due to technical limitations and fixed supply, it has become a store of value tool. Ethereum not only supports its own cryptocurrency ETH, but also enables the creation of tokens and the development of various payment solutions through its smart contract capabilities. XRP provides a payment protocol aimed at facilitating fast and low-cost international remittances, serving banks and financial institutions to promote cross-border payments of XRP. Stellar is similar to XRP, but focuses on providing financial services to individuals who cannot access traditional banks. Dash, on the other hand, focuses on privacy, speed, and user interface/user experience, with its PrivateSend and InstantSend payment features. Stablecoins are currently the main payment mechanism, such as USDT payments on the Tron blockchain.

Expansion / Layer 2

Ethereum is the most popular Layer 1 blockchain for smart contracts, but due to its focus on optimizing decentralization and security, it is slower in speed compared to competing L1s. It often encounters network congestion, low throughput, and high transaction costs during periods of high activity. To address this issue, many scaling solutions aim to process transactions off-chain while relying on the security of the Ethereum mainnet to varying degrees.

The main types of expansion solutions are:

Sidechain: An independent blockchain that is connected to the main chain through a two-way bridge. Sidechains support EVM-compatible smart contracts for the purpose of expansion and testing. They may not be as decentralized as Ethereum, and because they have their own consensus mechanism, they do not inherit Ethereum's security guarantees, so they are not technically part of the second layer.

State Channels: Users can directly trade with each other outside of Ethereum an unlimited number of times, and then package the transactions and submit them to the main chain. State channels can achieve high throughput and low cost, but require locking payment channel funds into a multi-signature contract and do not support general smart contracts.

Plasma: Plasma uses smart contracts and Merkle trees to create independent blockchains called sub-chains, which are replicas of the main network and maintain their security through fraud proofs that are used to arbitrate disputes on the main chain. However, Plasma is unable to scale general smart contracts.

Rollup: Rollup executes transactions on a separate chain before batch processing, compressing, and publishing data to the main network. Transaction execution occurs outside the main chain, but publishing the data back to the main chain allows anyone to recreate the state and verify the validity of the transaction, achieving high throughput and low cost while inheriting many security properties of the main chain.

Rollup is the most popular scaling solution type in the encryption industry, divided into two types:

Optimistic Rollup (OR): OR assumes that transactions processed on L2 and published back to the mainnet are valid unless challenged, in which case a fraud proof is generated. If the proof is invalid, the correct state is restored and the submitter's collateral is slashed. OR is more advanced than ZKR and has a first-mover advantage, but withdrawal times are longer due to the challenge period and require good monitoring. Examples include Arbitrum and Optimism.

Zero Knowledge Rollup (ZKR): ZKR bundles transactions and executes them off-chain, generating cryptographic proofs called validity proofs, which are published to the mainnet along with batch state changes. ZKR supports fast withdrawals and has fewer trust assumptions, but has only recently been launched on the mainnet. Examples include: zkSync, Scroll, Polygon zkEVM, and Starknet.

Rollup aggregates many transactions, executes them off-chain, bundles compressed transaction data or state differences into a transaction, and sends the data back to Ethereum. Rollup uses sorters to collect, sort, and send batch transactions back to the main network. Currently, Ethereum Rollup sorters are centralized and only use FIFO transaction sorting, but efforts are underway to utilize shared sorters (multiple Rollups use the same sorter to achieve atomic cross-chain composability) and decentralized sorters (to increase trustlessness, although there are challenges). Centralized sorters can lead to risks of collateral review (governments may force Rollups to review collateral) and liquidity risks (if the sorter is shut down, L2 cannot fully operate, although some have security mechanisms and users can force funds back to L1). Rollup earns money through sorters, with revenue coming from L2 transaction costs, and can also earn money through order transactions and extracting MEV in the future. The cost of Rollup is mainly the cost of publishing data back to the main network, which will decrease after the Dencun upgrade is implemented in early 2024 on Ethereum.

Universal Rollups (such as Optimism Mainnet and Arbitrum One) still face challenges as applications compete for L2 block space, cross-chain fragmentation and increased bridging risks between Rollups, and increased developer costs for deploying dapps on multiple chains. A popular solution is to create a composable Rollup ecosystem that shares infrastructure, allowing ecosystem chains to gain customizable execution environments, simplified cross-chain communication, and increased revenue opportunities. Note that this is part of the trend of roll-apps, where each dapp is its own Rollup, typically built as an L3 on top of L2, so there is no need to worry about block space scarcity caused by other applications. Examples of Rollup ecosystems are often accompanied by developer toolkits, including Optimism SuperChain, Arbitrum Orbit, zkSync HyperChain, and Starknet L3s.

The examples of L2/Rollup include:

Arbitrum: Arbitrum is an optimistic Rollup solution that provides Arbitrum Rollup (general OR, current version is Arbitrum One), Arbitrum AnyTrust (low-cost OR with off-chain data, current version is Arbitrum Nova), Arbitrum Orbit (customizable chain interconnect universe, settled with One or Nova), and Arbitrum Stylus (allows writing smart contracts in Rust), all supported by Arbitrum's Nitro technology stack.

Optimism: The OP mainnet is a Layer 2 optimistic rollup equivalent to Ethereum virtual machine. It provides the OP Stack, a standardized, shared, and open-source development stack for supporting Optimism, and The Superchain, a shared bridging, decentralized governance, upgrade, and currently developing communication protocol chain network. Importantly, Coinbase has built its Layer 2 Base using the OP Stack.

Polygon: Polygon offers a range of extended solution options, with the most popular being Polygon PoS (a sidechain that relies on its own validator network to ensure security), but Polygon plans to upgrade to zkEVM validium (similar to ZKR, but with off-chain data availability). Polygon also has the Polygon zkEVM and its Polygon Chain development kit, and is in the process of converting its MATIC token to the ecosystem-wide POL token.

Mantle: Mantle is a best solution, similar to OR, but uses off-chain data availability. Mantle uses MantleDA and its data availability committee to handle its data availability.

Linea: Created by ConsenSys, Linea is a type 2 zkEVM, which means it is fully compatible with Ethereum dapps.

Starkware: StarkWare has developed StarkEx (an independent licensed Validity Rollup) and StarkNet (an unlicensed decentralized ZKR). StarkNet uses STARK instead of the more common SNARK for zero-knowledge Rollup, providing enhanced security but with larger proof sizes and longer verification times. StarkNet uses the Cairo smart contract language, although there is also a compiler that can convert Solidity code to Cairo code.

Stablecoin

Stablecoins are digital currencies that are pegged to the value of another asset (usually the US dollar) in order to reduce the inherent volatility of cryptocurrencies. Stablecoins are primarily used to facilitate simple and efficient cryptocurrency trading (fiat-to-crypto exchanges are cumbersome, so about 75% of cryptocurrency trading volume involves at least one stablecoin), but their use is increasingly expanding to decentralized applications, payments, remittances, and settlements. Stablecoins have many advantages, including speed, cost, transparency, inclusivity, and programmability, and are considered one of the "killer applications" of cryptocurrencies.

Stablecoins are typically classified into three types based on their collateral:

Fiat collateralized stablecoins are stablecoins that are backed by cash or fixed-income instruments and are minted and redeemed by a central authority. They have the strongest track record of price stability, are very straightforward, and will be the first stablecoins to have robust regulatory oversight. However, they introduce centralization into an otherwise decentralized environment, requiring additional trust assumptions. Fiat collateralized stablecoins account for approximately 90% of the stablecoin market value, with USDT and USDC being the most popular examples.

Cryptocurrency collateral, where smart contracts rely on monetary policy, arbitrage, and over-collateralization to maintain their pegged value. Cryptocurrency collateral stablecoins eliminate many of the centralized drawbacks of fiat collateral stablecoins, but require over-collateralization, making their capital efficiency lower. Maker's DAI stablecoin is the most famous example.

Algorithmic stablecoins, one type of stable mechanism that maintains an anchored price without collateral, have more theoretical properties. Algorithmic stablecoins have the advantages of capital efficiency and decentralization, although they have not yet achieved price stability, with failed examples including Empty Set Dollar, Basis Cash, Iron Finance, and TerraUST.

Stablecoin companies make money through transaction fees or by earning interest on the reserves that support stablecoins. Throughout the history of cryptocurrency, there has been controversy surrounding Tether's USDT support, and many fiat-backed issuers have increased transparency of their reserves and released monthly proof-of-reserve reports. Finally, it should be noted that regulation of stablecoins varies by jurisdiction, with some regions having robust regulatory frameworks (such as the EU's MiCA), some regions still developing/unclear (such as the US), and some regions outright banning them (such as China).

Blockchain

Bitcoin

Ethereum has a rich decentralized application ecosystem, covering areas such as DeFi, NFT, DAO, and more. Although other blockchains have optimized for speed and other features, activity still remains concentrated on Ethereum, especially during bear markets, due to its strong network effects.

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