Proof of Alpha #20: Blast critique, hybrid zk fraud proofs and CZ plea deal
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Newsletter edition. Calls Blast a multisig-controlled deposit contract with no real L2 bridge and almost USD 200m in it, argues for hybrid zk fraud proofs as a cheaper stopgap before full validity rollups, and recaps the Binance settlement with $1.3B withdrawn.
Key claims
Blast held almost USD 200m under a 3/5 multisig at the time
Hybrid zk fraud proofs only generate proofs when fraud is detected, cutting cost vs zk rollups
$1.3B withdrawn from Binance after the US indictment
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✨🪬 Proof of Alpha #20🪬✨
💭 zkAlpha Thoughts
My take on Blast
Blast is a Ponzi scheme that has no connection to Layer 2 solutions (L2s). ThEy DoN'T HaVe A BrIdGe. People are blindly investing money into a smart contract that currently serves no purpose other than taking their deposits (almost USD 200m in there already lol). The contract owner (3/5 Multisig) has full control over the funds. It's somewhat amusing, but also a sad reflection of how many are abusing the term L2 for marketing and growth. By remaining silent while our friends and trusted brands promote single-node chains as Ethereum L2s, we have inadvertently created a trend that has now become much larger. We have created a monster. It's not too late to rectify the situation, but it will require a transparent and honest community discussion about what truly constitutes an L2 and which chains are genuinely secured by Ethereum (Citing Bartek from L2Beat and Steven Goldfeder here).
Steven Goldfeder (Arbitrum) has also long raised concerns about the risks of marketing L2s without fraud proofs or any meaningful L1-derived security. The typical response he received was, "they're good people, we can trust them to eventually develop fraud proofs and avoid scams in the meantime." Steven doesn't necessarily disagree with that sentiment. Quoting Steven: "However, they then encouraged others to build their own 'L2' without fraud proofs, and the 'they're good people' argument falls apart when applied to hundreds of teams that have barely been vetted. Be cautious and conduct thorough due diligence on the chains you are using. L2Beat is an excellent resource to navigate through the marketing and understand the actual security of a particular chain."
Unfortunately, as David Mihal pointed out, "Blast is just the beginning. The L2 space used to be an elite community, with top researchers developing complex ZK circuits, WASM interpreters, and fault proofs. As it becomes easier to fork and launch an L2, we will witness an influx of degenerate tokenomics injected into new chains. Brace yourself."
I personally dislike this trend, but it is likely to continue.
The Case for hybrid zk fraud proofs
A lot of the validity rollups are subsidising the costs of zk proof generation. Truly scalable and efficient zk proving systems and hardware might still be a few years out. In the meantime using a hybrid approach where zk proofs are used to prove fraud (reducing dispute down to a smaller number of rounds, significantly reducing withdrawal times). Fuel network, Kroma, LayerN or Metis are examples of projects implementing this. Most of them will eventually transition to full validity rollups when the tech is ready though. Putting the pieces together, using zk proofs to prove fraud in the optimistic case saves cost compared to zk rollups, as the proofs only have to be produced if fraud is detected, while the succinctness property of zk proofs ensures small fraud proofs that can easily and efficiently be verified on-chain.
CZ Follow-Up
Following up on the CZ situation in the past 24h: 1.3 billion in user funds withdrawn from Binance following US Government indictment. CEO Changpeng Zhao himself is facing 18 months in prison as part of his plea deal with the US Government. However, CZ was released from custody on a USD 175m bond! The Binance founder Zhao Changpeng CZ also issued an internal letter saying "I will have to deal with some pain, but will survive", quoting Star Trek (2009) , "l need everyone to continue performing admirably". Matrixport analyst Markus Thielen said that the settlement is a very favorable outcome for CZ and Binance. With CZ stepping down and the fine being lower than the previously feared $10 billion, Binance is likely to remain one of the top three exchanges for the next 2-3 years. More exchanges will strengthen their compliance and become part of the monitoring sharing agreement, which will facilitate the approval of spot Bitcoin ETFs in the United States.
🔍 zkAlpha Redings & Research Insights
📚 Check out my Substack article on @ComposableFin's IBC expansion beyond the @Cosmos, bringing trust-minimzed interoperability to @Ethereum and L2s!
📚 @archetype: MEV & The Evolution of Crypto Exchanges: Part I
📚 @placeholdervc: Virtual Blockchains In The Modular Era
📚 @fuel_network: Introducing Hybrid Proving
📚 @aztecnetwork: Shared State Trees
📰 zkAlpha News
📣 Introducing M2 with @CelestiaOrg underneath. M2 by @movementlabsxyz is the first Move-based Ethereum L2 scaled using Celestia’s modular data availability layer, accelerating the creation of high-performance consumer apps.
📣 Ephemeral ZK L3: A vertical scaling solution using ZK state channels for Autonomous Worlds.
📣 @dymension: The Internet of RollApps
📣 @RollkitDev x CosmWasm on @CelestiaOrg Mainnet Beta
📣 @StarknetDigger’s breakdown of @KakarotZkEvm
📣 @kunalgoel analyzing @Solana tokenomics
📣 Conversation between Brendan Farmer (Polygon) and Steven Goldfeder (Arbitrum) about rollup training wheels and trust assumptions.
📣 So it seems @LineaBuild Multisig Owners have decided to make a significant upgrade to their @safe multisig, as they have added a Module giving it a "backdoor access" to the Safe.
📣 @radius_xyz partnering with @HerodotusDev!
📣 @wiskerstrade SDK coming
📣 Overview of the @binance / @cz_binance situation by @jinglingcookies
📣 Introducing Bridged $USDC Standard, a new way to expand access to $USDC & reduce fragmentation.
📣 Circle’s Bridged $USDC Standard deployed on @Scroll_ZKP Mainnet!
📣 @dYdX: MEV prevention via Cosmos ABCI++
📣 unshETH Introducing "Liquid Blast ETH" (blETH) - A liquid wrapper for @Blast_L2 deposits.
📣 @JupiterExchange announced a lot of changes to the Airdrop eligibility
📣 A bullish thesis on @Blast_L2.
📣 Introducing @superformxyz Protocol: The Universal Yield Marketplace.
📣 @eigencloud launched stage 2 of testnet last week!
📣 Preparing for the Superchain future: Work is underway to make it possible to securely upgrade all $OP Chains simultaneously!
📣 Introducing zkRisk for Perpetual Futures
📣 Sam Altman returning to @OpenAI
📣 @IntentX_ announce $2.5M seed round led by Magnus Fund has closed!
📣 @privy_io announce $18M Series A, led by @paradigm!
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