By Elias Simos · Sep 27 2020
Last updated: Sep 29 2020
Welcome to the first edition of our new monthly update on the most important developments in the Substrate Ecosystem curated by Elias Simos, Protocol Specialist at Bison Trails.
—Elias Simos, Protocol Specialist
It’s been a busy couple of months for the Polkadot/Substrate ecosystem. The network successfully transitioned from Proof of Authority (stewarded by the Web3 foundation) to public Proof of Stake Mainnet on the 21st of July, 2020, and since launching in liquid markets on the 19th of August, 2020, has climbed to be the 5th most valuable network by liquid market capitalization in the cryptoasset universe. Kusama is doing well too and is currently ranked 44 by liquid marketcap.
Under the market surface, things are developing equally fast, with the roll out of network governance, adjustments to key network parameters, increased interest in parachain launches, and delivery of important pieces of infrastructure being some of the highlights.
Below we look at the most noteworthy events in the Substrate ecosystem since the Relay Chain launched on public Mainnet.
- Protocol v0.8.24 was released on Sep. 17, 2020, which will introduce native runtime 24 for Polkadot. The proposed upgrade has been put towards a vote on Referendum #5 which is thus far tilting in the Aye’s favor at a ratio of ~5:2, with 0.66% of DOTs participating.
- Version 2.0 of Substrate launched on Sept. 23, 2020. The framework, which provides the foundation for more easily building Polkadot compatible blockchains, now includes off-chain workers and 70+ composable modules. Off-chain workers are a powerful addition to the Substrate collection of building blocks, that will allow Substrate developers to run heavier computations that leverage off-chain data, without holding up consensus.
See here for a refresher of how governance is enacted in Polkadot
Referendum 1 - DOT redenomination
- The first governance vote on the Polkadot public Mainnet passed in favour of redenominating DOTs at a 100:1 ratio. 1 pre-vote DOT is now expressed as 100 DOT tokens, such that the nominal price per token has changed from $x to $x/100, while the overall market cap remains the same.
- The referendum’s mandate went into effect on the 21st of August, 2020 (Block #1,248,328).
- Contrary to the Web3 Foundation’s guidelines suggestion that exchanges wait for the redenomination to come into effect before they listed DOTs, some jumped the gun with early listings and had to later face the community’s outcry.
Referendum 2: Increasing validator limit from 196 to 236
- The second governance vote was an effort to increase the active set of validators on the relay chain from a maximum of 196 to a maximum of 236. Approximately 2.5M DOTs participated in the vote (~12.5M USD at the time of the vote aka ~0.33% of the DOT liquid cap). While the vote concluded with a 3:2 ratio of Ayes to Nays, the governing body failed to reach the required supermajority for the motion to pass.
- Given the low participation and Polkadot’s adaptive quorum biasing for governance, more than 90% of participants would have had to vote “Aye” in order for the motion to pass.
- In Polkadot, validators must be in the active set to earn rewards. The more active validators there are, the harder it is for all of them to communicate and work together to produce blocks. So while it’s beneficial for the network to have more entities validating blocks and be more decentralized, given the current network state, it appears that - by the community’s response - there is no perceived marginal benefit in increasing the validator set.
Motion 16: Web3Italy Validator slashing refund
- Between August 10th and 11th, a collection of validator nodes associated with the Web3 Foundation went offline at the same time, incurring the network’s “correlated slashing” penalty. When 10% or more of validators in the active set go offline at the same time, the network considers this to be a high probability for an attack and therefore an existential threat, which drastically increases the penalty associated with inactivity.
- Web3Italy’s validator went offline at the same time as a set of Web3 Foundation validators, and remained offline for approximately 14 hours. Had the Web3 Foundation nodes remained operational, Web3Italy’s validator would have incurred a Level 1 penalty - meaning they would have been kicked out of the active set, but not incur slashing penalties. The slashing took place between Block 1217588 and Block 1217601.
- Raul Romanutti of Parity submitted a motion to return the slashed funds to Web3Italy, given that the incident wasn’t an attack and posed no existential threat to Polkadot. A heated public debate ensued on whether returning the funds is appropriate, with many noting that it could set a dangerous precedent for the network. The motion was later accepted.
- While the lines here are blurry, our view is there are valid concerns about the precedent this decision sets for the future of Polkadot. The governance decision to re-instate Web3Italy’s balance is sidestepping the slashing rules of the protocol, which are fundamental in keeping a PoS protocol that secures billions of dollars in value together, in perpetuity. In a sense, a protocol like Polkadot is only as strong as its weakest link - and slashing is a powerful mechanism to incentivize the links that make up the network to operate at the highest level of operational excellence. If that incentive is undermined, it’s not unreasonable to expect that the operational excellence side of the equation will be too.
- Interestingly, although the debate was heated on Twitter, the discussion on the public governance forum of Polkadot was minimal; only a handful of people voiced their opinions on the Polkadot Direction Element chat which mirrors the low voter turnout on the Motion.
See here for a refresher on Parachains
Rococo Testnet v1
- In early August, Rococo v1 - the first parachain testnet - went live on Polkadot. The release allows users to (i) register a Substrate-based chain as a parachain and message the Relay Chain, and (ii) write logic for parachains to send messages to other parachains through the Relay Chain. The Testnet has launched in Proof of Authority mode and is designed to solely support parachain deployment.
- On the 21st of August, Plasm and Acala became the first parachains to launch in Rococo. Other entrants include Darwinia, Laminar’s Turbulence, and Robonomics.
Acala launch and traction
- Acala is the first DeFi project within the Substrate ecosystem. The parachain aims to become the DeFi “landing pad” on Polkadot, allowing developers to deploy their Solidity smart contracts through the EVM runtime module.
- Its first product is a cross-chain-capable, multi asset-collateralized, and decentralized stablecoin (aUSD). They also shipped a lending protocol and a decentralized exchange on Rococo. The team will launch a staking derivative to collateralize DOTs that participate in Polkadot consensus (though an Acala-operated trustless staking pool) and issue derivatives (L-DOTs) that can be then used to earn yield in DeFi markets. The implications of this experiment could be far reaching, especially as eth2 gears up to launch and the debate heats up around whether DeFi yields pose a security threat for the Beacon chain.
- Since launching in Testnet, Acala has generated over 15,000 new accounts, 150,000 transactions, and $52 million of total value locked.
Three phase plan for parachain launch
- The launch of Parachains on public Mainnet will take place over 3 phases. Phase 0 will introduce parachain support without slashing or cross-chain messaging enabled. Phase 1 will introduce slashing and a primitive version of cross-chain messaging; these features will be fully functional in Phase 2.
- Initial parachain offerings on Kusama will remain on Kusama for Mainnet in parallel to their DOT-based network counterparts. A definitive date is not yet public, but our expectation is that Parachains will be live by the end of year.
Getting a secure, robust, and scalable blockchain network up and running is only the beginning of the Polkadot journey. A crucial next step is seeding the network with activity and valuable assets. To that end, a lot of activity is happening in the trustless bridge space, primarily prompted by grants from the Web3 Foundation. This activity will eventually enable non-native assets to flow to the Polkadot ecosystem and vice versa. Some of the most notable efforts are:
- Polkadot <> Ethereum - a collaboration between Snowfork and the Web3 Foundation
- Polkadot <> Cosmos - a joint effort between cdot, Chorus One and Informal systems, funded both by the Web3 and Intechain Foundations.
- Acala <> renBTC - a collaboration between the Acala team and Republic Protocol, to deploy the RenVM bridge module onto the Acala Network. Minting and burning will be handled by Acala, while the gateway will be supported by Ren. At the time of writing, the renVM’s Assets Under Custody (AUC) stand at north of 20k BTC that have floated onto the Ethereum chain.
Fundraising and grant activity
Web3 Foundation grants Wave 7 (Q3 2020)
- Swisscom Blockchain received a grant to build a way to solate validators while maintaining node connections using cloud-based containers and sentry nodes (with a view to open sourcing part of that solution for the benefit of the broader Polkadot validator ecosystem).
- Acala - closed a Series A round of $7M at a fully diluted valuation of ~$65M
For an extensive list of the various projects building on Polkadot, you can refer here.
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