🟣 The Spiderchain in the Bitcoin L2 Multiverse

Tether taps TRM for TRON tracking

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Macauley Peterson & Donovan Choy
September 10, 2024

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Welcome back to 0xResearch. Here's what we’ve got for you today:

  • Botanix approach to L2

  • Redstone ETH staking index

  • Tether tackles illicit transactions

  • CT: Web2 Brute?

Bitcoin L2 week, day 2.

Before tackling the many projects angling to benefit from BitVM, there’s one attempting a decentralized L2 in a radically different way: Botanix.

BitVM is not the wei

Botanix CEO Willem Shroé sees bitcoin as “the most pure, [...] most decentralized, most secure money ever made,” but two years ago, when coming up with the thesis for Botanix, he recognized that the network effects of the Ethereum Virtual Machine (EVM) are unmatched.

“I wanted to bring in EVM natively on Bitcoin,” Shroé told Blockworks. Bitcoin’s UTXO model, but Ethereum’s account model.

Botanix’s core innovation is a decentralized system of multisig wallets known as the "Spiderchain," which enables users to securely bridge bitcoin from the base layer to interact with dapps built on the EVM.

The Botanix team looks at Ethereum rollups — which today rely on multisig wallets for, at minimum, admin functions like upgrades — as being too centralized.

Most rollup multisigs rely on a two-thirds honest majority assumption, although they range in size and powers. Arbitrum is among the best, with a 9-of-12 multisig for its DAO and Security Council (which handles emergencies).

With few exceptions, rollups have centralized sequencers that can censor, often without the remedy of a unilateral exit to mainnet. Again Arbitrum does well here in allowing users to unilaterally exit back to mainnet, for instance in the event of a sequencer failure.

“These different trust assumptions are basically solved if you go decentralized,” Shroé said.

The first Bitcoin L2 — excluding sidechains, but we’ll get there — was the Lightning Network, which allows P2P payment channels, essentially a 2-of-2 multisig.

“It’s this decentralized network of 2-of-2 multisigs,” Shroé said. “That's a little bit what the Spiderchain aims to do, but then in a bigger fashion.”

Initially, the network operates with its proof-of-stake consensus as a federated EVM sidechain with 15 whitelisted members, although the ultimate goal is to have a fully permissionless and decentralized node set. Think 10,000 full nodes operating in groups of 100 per multisig. 

It will use decentralized sequencers from day one, according to Shroé. These features give it a leg up over rollups built using BitVM, he argues.

“You have all the BitVM trust assumptions,” Shroé said. “You go through enough loops of challenge-response games, [and] you end up in a federation assumption.”

— Macauley Peterson (X: @yeluacaM | Farcaster: @Macauley)

New benchmark for ETH staking rates

In global finance, short duration US Treasury bills are the benchmark for a “risk-free” yield by which global investors judge the performance of all investments.

The closest equivalent of that within DeFi is the Ethereum staking rate, given the chain’s reliability and security. Yet, ETH staking rewards lack the longevity of a TradFi index. So for a “global market index,” its supply and demand dynamics still change far too much, far too often.

Oracle provider RedStone is launching the Composite Ether Staking Rate (CESR) in collaboration with CoinDesk as the industry’s first onchain benchmark for Ethereum staking yields.

CESR wants to serve as a structured, institutional-grade benchmark that tracks the average yield across the Ethereum ecosystem.

“Blue-chip lending protocols like Morpho, Aave, Compound, Pendle will have a chance to create markets that rely on standardized staking yield instead of a single provider like Lido,” RedStone COO Marcin Kazmierczak said.

The index’s price feed will employ a daily “push” model by RedStone oracles, in contrast to the more computationally intensive and technically superior “pull” model that newer oracle providers like Pyth, Stork and RedStone themselves pioneered for faster chains in recent years.

Previous Ethereum network upgrades like EIP-1559 or the Merge hard fork have fundamentally altered ETH’s supply issuance by burning more ETH or reducing overall issuance. On the other hand, market innovations like the rise in the restaking sector changes the demand dynamics of ETH staking.

A general decline of ETH staking yield over the last two years

ETH staking yields will continue to change as the staking rate ebbs and flows and perhaps if Ethereum core devs build enough consensus to lower ether issuance.

In the recent Ethereum Foundation Reddit AMA, Ethereum core devs Justin Drake and Anders Elowsson signaled their desire to reduce Ethereum’s token issuance, with Drake citing “social coordination” as the main bottleneck in pushing the proposal forward.

— Donovan Choy (X: @donovanchoy | Farcaster: @donovan)

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Tether is tops on TRON:

Today, $60.7 billion USDT exists on the TRON blockchain, about 51% of the total USDT circulating supply. Some of that USDT is used for criminal activity, and both TRON and Tether are stepping up efforts to thwart it.

TRON, Tether and the blockchain analytics firm TRM Labs are forming a “T3 Financial Crime Unit” to combat the use of USDT on the TRON chain for illicit means. In the weeks since the unit’s launch, over $12 million USDT has been tagged as scams or fraud schemes and subsequently frozen by Tether.

“By collaborating with TRM Labs and Tether, TRON is helping to ensure that blockchain technology is used to make our world a better place, and sends a clear message that illicit activity is not welcome in our industry,” TRON founder Justin Sun said.

— Donovan Choy

The Aptos ecosystem is accelerating, with both the network and core projects gaining notable volume, transactional activity and deposits. Aptos’ TVL has grown significantly, rising 263% year to date from $116 million at the start of the year to over $425 million today. Ondo Finance’s tokenized US Treasurys product, USDY, has surpassed $15 million, bringing RWAs to Aptos and highlighting the realities of new innovative financial products that bridge TradFi and decentralized platforms. 

MetaDAO offers a platform for DAOs to engage in futarchy, using conditional markets and profit incentives for improved decision-making. Conditional markets allow market participants to speculate on whether or not the passage of a proposal will increase a token’s market value. By crowdsourcing information from market actors, DAOs can utilize futarchy to identify decisions that will be most beneficial for their token’s market price. MetaDAO as an organization is explicitly engaged in decision-making on the criteria that market participants believe a decision will be accretive to the price of the META token.

In August, equity markets experienced volatility but ultimately ended higher as inflation continued to ease, with the PCE Price Index showing inflation at 2.5%. The Federal Reserve signaled cuts for next month, reflecting progress on inflation and a softening labor market. While the S&P 500 and NASDAQ closed higher, bitcoin faced challenges, declining 11% from $63k to $57k. Despite this setback, bitcoin's market dominance reached 56.4%, suggesting either a shift in market dynamics due to ETFs or the early stages of a bull run. Network activity remained robust, with August marking the second-highest monthly transaction count ever recorded, highlighting bitcoin's growing ecosystem despite its recent price performance.

We’re asking all the hard questions at Permissionless.

Hear the leading voices in the Cosmos ecosystem discuss the past, present, and future of the space.

The three actively managed funds will target equities in the blockchain and AI realms while seeking to manage volatility.

With its unmatched security, stability and emerging layer-2 solutions, Bitcoin is uniquely positioned to lead this charge.

The insights, views and outlooks presented in the report are not to be taken as financial advice. Blockworks Research analysts are not registered broker/dealers or financial advisors. Blockworks Research analysts may hold assets mentioned in this report, further outlined in the Firm’s Financial Disclosures.