Ideas continue being thrown around every day in the crypto space. New approaches, solutions to existing problems, and half-baked but potentially paradigm-changing ideas, all are intriguing.
Ideas, even if it’s just casually thrown out, could give insights on where the space is moving toward. They give hints to what problems the community is actively working to solve.
These are the topic discussed often lately. The list is not necessarily an extensive explanation (I would need to write one full article for each), but merely a general introduction to the topic mentioned.
Soulbound token
Soulbound token other name is non-transferable NFTs.
Vitalik especially popularizes the term ‘soulbound’ through an extensive article he posted on his site.
The name itself is pretty explanatory.
A soulbound token is an NFT permanently linked to one individual. Its non-transferable trait solves the problems crypto currently suffer, such as:
- The fact that people can amass voting rights by trading transferable governance tokens. Hence it’s not ideal for decentralizing power.
- Sybil attacks, where one user creates multiple wallets to participate in profitable crypto events such as airdrop.
- The fact that crypto still needs KYC. Soulbound tokens can act as proof of identity that is private and secure, proofing it’s us without revealing any info about us.
- A way to prove that we’re participating in an event. Vitalik’s favorite use case of soulbound token is for Proof of Attendance (POAP.)
Better AMMs
Current DEXs mostly use Automated Market Maker or AMMs to execute trades. In the beginning, AMMs were seen to be such an innovation. The main reason is their permissionless nature. Few people realized that AMMs was created partly due to the fact that it’s not possible to create traditional orderbooks on-chain.
Over time, we began to see the weakness of AMMs, mainly something we call impermanent loss (IL.) IL is inevitable for liquidity providers. All this time, the biggest profit from being an LP is the emission reward (usually the governance token from the DEX.) But soon we discover this practice is unsustainable. Once emissions dried up, liquidity dried up, and the protocol would be dying.
Some proposed solutions:
- Onchain order book
Orderbook, like in traditional exchanges, is only possible on-chain if the chain has high transaction throughput. Something impossible to do on general layer 1 like Ethereum (and subsequently, layer 2 too.)
Partly this is the reason why dYdX team is planning to create their own chain (it’s going to be cosmos-based.) Because relying on base layer infrastructure is not enough for them. One has to wipe their own infra to reach the high performance they want.
Another project exploring the possibility of on-chain orderbook is Sei Network. Just like dYdX v.4, it’s also going to be a cosmos-based L1.
- Single-sided liquidity provider
Single-sided LPs have been around for some time. But during the era where you can make easy money farming protocol’s tokens, single-sided staking was an afterthought.
Recently people began to explore its potential. Some still argue even single staking on an LP doesn’t protect users from IL. But hopefully, we get some improvement as the space keeps evolving.
MEV
Maximal extractable value (formerly, Miner), is the profit you can get from arbitrage or taking advantage of the transparent nature of blockchain transactions.
MEV is truly the grey area, but inevitable problems the community shall face together.
Discussions around MEV are far and wide, and multidisciplinary. I categorize them into several types:
The opportunist. You’d see people with information on how to become MEV searchers.
The observers. Such as discussion about interesting MEV events that have ever happened.
The builders. A part of crypto has accepted how MEV is unavoidable (and something one can never control.) Hence they have been trying to take a constructive approach of:
- To minimize its damage. This can be done by democratizing the opportunity for MEV search, just like Flashbot aims to do.
- To protect regular users from it. Such as providing MEV-free DEX with encrypted transactions (e.g. Enclave Markets) so you don’t get attacked by MEV bots.
- Private transactions service. Another way to protect yourself from MEV is to immediately submit your transaction to block producers, which is only possible if you know someone who runs validators. Services like this connect users to validator owners in the hope to democratize access. (See Eden Network.)
- MEV as a service. Basically, you pay people to frontrun your transaction. They can keep a certain percentage of the profit while the rest is returned to you. The logic is, for example for a $100k MEV opportunity, it’s better to pay $20k to an assigned MEV searcher and get back the remaining $80k than to lose the entirety of $100k to a random MEV searcher.
The critics. MEV, due to both its big profit potential yet ‘gray’ ethically, is a slippery slope for the spirit of fairness and decentralization crypto upholds. The last group we have here is the critics, and I deem them very important to the MEV discussions.
Someone needs to hold people accountable. Especially for developers who have the means to dominate the MEV space.
For example, Flashbot is criticized to be a threat to censorship-free ethos of crypto as it only accepts OFAC-compliant addresses for their RPC endpoints. Flashbot itself is already criticized because like Lido with Ethereum staking, it also has the potential to be a domineering, centralized force in the crypto space.
Reversible transactions
Just recently crypto community lost its mind over a proposal, which you can read in the tweet above.
Someone proposed the possibility of making Ethereum transactions reversible. The kneejerk reaction from the community was a combination of ridicule and blatant dismissive attitude — so unlike crypto which welcomes even the most controversial exploration. The fear is concentrated around how Ethereum will lose immutability and instant finality if reversible transactions exist.
I’d say they need to chill.
Digging into the comments, we saw how the idea of reversible transactions is not exactly new, as Vitalik himself tweeted about it in 2018.
I see the need for reversible transactions especially in cases where escrow service is needed. In the past year, I have been toying with the idea of a decentralized freelance platform. Web2 freelance platform is limited in so many ways (country-gated, KYC-ed, not anon-friendly, complicated, not to mention #1 issue related to payment due to TradFi inefficient banking system.)
But a freelance platform still needs a third party, for example, to hold the fund the client pay and to release it only when the freelancer has submitted the work client wants, or to return the fund if the deadline has passed. This is an example problem that reversible transactions could solve. Add that with some ZK-proofing so no human is needed to verify the work freelancer submit, and soulbound tokens so your reputation as a freelancer isn’t transferable (or being taken away from you), I can see how this can be a killer platform of the future.
In short, reversible transactions have a bright future in the blockchain industry. It’s a topic worth exploring and shouldn’t be discouraged.
Post-merge Ethereum
Ethereum post-merge discussions centered around how the network should not become more centralized.
There are two key parties that are criticized and watched over by the community.
The first is Lido staking. Lido started as a public good. People who don’t have the means to stake Ethereum at home can stake through Lido. But as the protocol grows and now it’s dominating the liquid staking space, people beginning to see the potential systemic risk of it.
Second, it’s Flashbot MEV operations. Just like Lido, flashbot started and claimed to be public good. But it’s a slippery slope to let the entity to become the biggest in the industry without any substantial competitors.
by mevboost.org
On top of that, both Lido and Flashbot have stated that they’re planning to always be OFAC-compliant, which is an unfortunate attitude for a crypto protocol.
The scrutiny toward both of them is necessary.
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