🟣 Trump’s Lightning burger

Can Stroom and RGB unlock Lightning’s full potential?

Author

Macauley Peterson
September 20, 2024

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

  • Bitcoin DeFi: Lightning

  • Chart: Bitcoin volatility

  • Listen & Read: Analysts chat Polymarket

  • CT: Saylor buys

Let’s talk Lightning:

Donald Trump paid a visit to New York Greenwich PubKey bar the other day and bought burgers using the Lightning Network (LN) and Zaprite. It wasn’t exactly a great showcase of the technology, and is more likely to be mocked than to motivate new converts.

What will it take to get greater Lightning adoption? Viktor Ihnatiuk runs a Bitcoin-focused venture studio called Boosty that’s tackling this question on a couple fronts.

“Lightning Network has a chicken-and-egg problem — they don't have enough transactions because they don't have any public liquidity and vice versa,” Ihnatiuk told Blockworks.

The Kraken crypto exchange recently removed support for Lightning deposits and withdrawals, which a spokesperson told Protos was “the result of technical changes.”

There is only about 5,500 BTC available in the LN, partly because the average APY for providing liquidity to Lightning channels is less than 1%.

One project, Stroom, aims to bootstrap liquidity for the LN by introducing a liquid staking protocol that allows users to earn yield on their bitcoin without locking it up in traditional staking models. 

Instead, “Stroom routes it into Lightning nodes, and then gives me a liquid token that I can use in Aave,” Ihnatiuk explained.

“One of the limitations of Lighting is that it has no [virtual machine], so there is no business logic associated with Lightning.”

That’s a problem Thunderstack, another Boosty Labs venture, is targeting with the RGB protocol for Lightning.

Originally created by Giacomo Zucco, based on research by Peter Todd, RGB introduces a system where smart contract data is managed off-chain and verified by users themselves, therefore enhancing scalability and privacy.

“It's essentially a business layer logic on top of Bitcoin and on top of Lighting Network that allows you to send assets in the form of obligation,” Ihnatiuk said. “It's like a peer-to-peer obligation transferring network.”

The end goal may be for the LN to become a viable option for connecting new Bitcoin L2s.

“RGB is a super technology to close this triangle of Bitcoin as a settlement layer, Lightning as a transaction execution layer and RGB as a business logic layer,” Ihnatiuk said.

Using Lightning is also part of the endgame vision for BitVM creator Robin Linus.

“I believe in a future of sidechains, rollups and zkcoins, which are all interconnected via Lightning,” he had already written in April. “I think LN is great as a central settlement layer for instant payments.”

Breez CEO Roy Sheinfeld’s favorite analogy looks to the Chinese abacus.

“You can think about the payment channel as a wire on an abacus with beads on both ends of the channel,” Sheinfeld told Blockworks. “The magic of Lighting is the fact that we can move beads from my end of the channel to your end of the channel…without publishing the transactions to the chain.”

Lightning maintains state between two counterparties trustlessly, and uses ordinary Bitcoin transactions, but settles only when the channel is closed.

“If you run a Lightning node, you trust yourself and you trust the chain, [but] you don't add other dependencies.”

In many ways, that’s the ultimate layer-2.

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

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BTC’s relative volatility:

According to VanEck, despite recent spikes in correlation with the NASDAQ, bitcoin’s behavior over the past year indicates it’s doing something unique. While BTC and the tech-heavy index may seem to move together, their daily price changes do not align closely. Interestingly, bitcoin’s volatility remains near its one-year average, contrasting with elevated volatility in assets like the S&P 500 and JPY. This divergence, VanEck analysts say, suggests that bitcoin may be on the verge of a significant move higher, buoyed by favorable macro conditions.

— Macauley Peterson

SKALE is a modular network of EVM-compatible chains with pooled security. As the pioneer of the chain subscription model, its main value proposition is offering a gas-free blockchain experience for end users. SKALE chain growth will be a key metric to follow as the network’s economic sustainability depends on new chains joining the network and paying a monthly subscription fee.

Will prediction markets go the way of GMX forks? That’s one question discussed in the latest analyst roundtable on the 0xResearch podcast. Special guest Michael Ippolito, Blockworks’ co-founder, suggested that Polymarket’s first mover advantage is about to be challenged in a big way.

Derivatives DEXs proliferated, L2 rollups are now relatively easy to launch thanks to RaaS providers, and pump.fun made memecoin launches a breeze. Similarly, the prediction market space is about to get crowded.

According to Alliance DAO, Ippolito said, there are some 30 new prediction markets under development. “That’s going to be challenging to sustain any token values, just when you have that many different options,” he told the panel.

Boccaccio agreed. “Post election season, I don’t see any of those prediction markets surviving. Polymarket has to survive — if you raise $70 million you have to survive at least one election cycle.”

The US election is a major driver of Polymarket’s adoption, Blockworks’ data dashboard shows. Though there’s far more competition in the sports betting industry, Danny Knettel pointed out.

“The sports bet angle is going to be a lot harder than the election angle,” Knettel said. “Fanduel and Draft kings…those guys are making millions and billions, and they’re spending and they have official partnerships with the NFL [and] the biggest sports associations today.”

Ryan Connor sees a “non-zero” chance for Drift to make inroads — at least with the crypto community — due to Solana blinks technology.

“Arguing on Twitter is the PMF today. In a highly financialized space, what better experience is there than being able to read a Twitter argument and at the end of the thread there’s a Solana blink that has to bet on some real-world outcome of what settles that outcome?” Connor said, citing other similar internet subcultures.

“You have an installed base in crypto of 100,000 people who like to bet money and who are very ideologically driven…perhaps we settle some of these debates in real time on the Drift platform via blinks on Twitter.” That’s an area with no direct competition yet.

— Macauley Peterson

SKALE is a network of EVM-compatible chains with pooled security. SKALE stands out by offering a gas-free blockchain experience for end-users. It is able to do this by shifting validator compensation to developers. This business model has allowed SKALE to find traction in the gaming sector, demonstrated by the activity in the Nebula and Calypso hubs. As the network matures, SKALE chain growth will be a key metric to follow as the network’s economic sustainability depends on new chains joining the network and paying their monthly subscription fee.

Despite ORCA being down ~70% YTD, Orca's fundamentals remain strong, with several tailwinds further strengthening its near- and long-term outlook. Orca is ~2x more capital efficient than Raydium, and its market share has almost doubled since it bottomed in June. With the launch of Splash Pools, Orca is now looking to capture a portion of Raydium's memecoin volume, while remaining king on DeFi-related tokens such as stablecoins and LSTs. Finally, as the SVM proliferates beyond Solana, Orca is in a solid financial position to quickly expand to new SVM chains like Mantis and Eclipse.

0xResearch readers and listeners are asking a crucial question: What lies ahead for the Cosmos ecosystem? 

At Permissionless, hear from leading voices in Cosmos on the future of the network.

The more choices LPs have to manage their capital, the more likely they are to remain engaged with a given decentralized platform.

Plus, Blockworks’ Jason Yanowitz thinks we’ll see some “really fun stablecoin competition for the first time in years.”

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.