Coinbase says planned Base chain on Optimism’s OP Stack passes software audit
July 5, 2023
Exploring the tech behind crypto
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Hi, Bradley Keoun here, editor of The Protocol.
Crypto accounting became a hot topic after last year’s collapse of Sam Bankman-Fried’s FTX, which spurred jitters and led to added scrutiny of the reserves backing exchanges like Binance or asset-backed tokens such as the dollar-linked stablecoin Tether. One solution is Chainlink’s “Proof of Reserve” product designed to provide a real-time data feed to blockchain developers. But as our Sam Kesslerreports, the service is only as good as the data that’s being fed into it.
Also in this week’s issue of The Protocol, we highlight the market resurgence of vintage cryptocurrencies like bitcoin cash (BCH) and litecoin (LTC), a software audit for Coinbase’s planned Base blockchain and the new “Quantum Leap” upgrade for the Ethereum-focused blockchain project Starknet.
Chainlink ‘Proof of Reserve’ Proves Little Beyond Data Going In, Coming Out
Sergey Nazarov (Chainlink Labs)
Crypto infrastructure firm Chainlink claims its proof-of-reserves service – designed to help users verify that exchanges and asset managers have the backing they profess – “enables the reliable and timely monitoring of reserve assets using #ProofNotPromises.”
In reality, the system frequently relies on promises all the way down.
Chainlink Proof of Reserve is one of the only ways for crypto custodians to track real-world assets directly on blockchains, a service that unlocks a host of safety and transparency benefits for the end-users of decentralized finance (DeFi) products.
However, rather than help crypto users transact with more confidence and transparency, Chainlink’s reserve tech can also provide them with a false sense of security – adding a veneer of legitimacy and “decentralization” to the same inadequate accounting practices that were exposed by the collapse of the FTX exchange.
When it comes to integrating centralized data into decentralized protocols, a deep dive into Chainlink’s proof-of-reserves tech shows how “promises,” not “proof,” are often the best that one can realistically hope for.
Co-founders Uri Kolodny and Eli Ben-Sasson of StarkWare, the developer behind Starknet. (Natalie Schor/StarkWare)
Out with the new, in with the old. Older-vintage cryptocurrencies relying on the same proof-of-work security mechanism that Bitcoin uses are back in vogue, rallying in digital-asset markets as the U.S. Securities and Exchange Commission steps up scrutiny of other, popular altcoins that might be due to undergo more rigorous regulation. Bitcoin Cash (BCH), which hard-forked off the main Bitcoin blockchain in 2017, has more than doubled in price in the past 30 days. Bitcoin SV, another Bitcoin fork from 2017, is up 35% during the period. Litecoin, a 2011 Bitcoin fork, rose about 28% in the seven days through July 2. “Litecoin is a derivative of Bitcoin and operates on a proof-of-work blockchain, so it is improbable to be regarded as a security, which might be causing an uptick in market sentiment,” CryptoSlate reported. Meanwhile the digital banking service Revolut is preparing to delist tokens including Cardano’s ADA, Polygon’s MATIC and Solana’s SOL. The Blockchain Association is pushing back against the SEC’s campaign, arguing that Chair Gary Gensler should recuse himself from any decisions regarding “an enforcement action premised on the theory that a digital asset is a security.”
Polygon’s layer 2 status still up for debate. It might be one of the most arcane debates ever, but a flurry of recent announcements from Polygon recently have failed to resolve the question of whether the project’s original “PoS” chain qualifies as a legitimate “layer 2” atop Ethereum. According to the project’s website, the network has tens of thousands of decentralized apps, more than 3 million average daily transactions and $5 billion in secured assets. But crypto analysts argue it’s not a true “layer 2,” rather more of a “sidechain” or just a “scaling solution.” Just last month, Polygon proposed to turn the PoS chain into something known as a zkEVM validium, a move that could resolve several tech challenges including a “suboptimal security model,” according to the crypto financial firm Galaxy Digital. But in a recent report the Galaxy analyst Charles Yu immediately pivoted to discussing “whether Polygon is technically an ‘L2.’” There “continues to be debate,” he wrote. The sticking point is that the validium model requires “additional security assumptions with storing offline data,” according to Yu.
Coinbase, the big U.S. crypto exchange,says it’s confident in the security of its forthcoming layer 2 blockchain, Base, after disclosing last week that an internal protocol security team had been commissioned to “battle-test” the underlying code. The team also audited Optimism’sOP Stack – the platform upon which the new chain is being developed. “Completing these in-depth security workstreams without discovering critical severity bugs gave the Base team confidence to proceed towards mainnet launch,” according to a blog post on the Base website.
Also:
Starknet, a layer 2 to the Ethereum blockchain, said a major upgrade known as “Quantum Leap” is now about a week away from being deployed on its main network; features include an increase in the number of transactions per second (TPS) its blockchain can handle, and a reduction in the time-to-inclusion – the length of time needed to confirm and report a transaction. The upgrade went live Wednesday on a testnet.
Axiom, protocol allowing developers to write smart contracts on Ethereum that can retrieve data from the blockchain and then perform intensive computations on it, launches mainnet in alpha mode; founder says project could help to detect deepfakes.
Superstate, new short-term bond fund led by Compound founder Robert Leshner that proposes to uses Ethereum blockchain for secondary record-keeping, raised $4M. (ParaFi Capital, 1kx, Cumberland Ventures and Distributed Global.)
Web3Go, AI-backed blockchain data startup, raises $4M. (Binance Labs, HashKey Capital, NGC, Shima Capital)
Holders of the DeFi token Aave (AAVE) are taking part in a governance vote on whether 1,600 ether (ETH) valued about $3 million in the protocol’s treasury will be converted to wrapped staked ether (wstETH) and rocket pool ether (rETH).
Ethereum’s Shapella upgrade went through earlier this year, allowing staking withdrawals for the first time. And since then, more crypto traders and investors have opted for “liquid staking tokens” or LSTs – a type of tokens that works like a proxy for ether (ETH) that’s actually staked on the blockchain; the difference is that these tokens can be easily moved around and sold when the market turns – in contrast to the weeks-long waits to go in and out of the blockchain’s staking mechanism. Lido, with its stETH tokens, was an early mover in the space – and jumped to a lead so significant that some blockchain advocates worried it might become too dominant of a player on the supposedly decentralized Ethereum. Competitors sprung up, but in recent months Lido’s dominance has only increased, according to a new report from the analysis firm Glassnode. There’s now about 7.5 million circulating stETH tokens, or roughly 16 times the amount for the next closest competitor, Rocket Pool’s rETH, according to the report (and the chart, below).
Blueish line shows circulating supply of Lido’s stETH, versus orange line for Rocket Pool’s rETH. (Coin Metrics)
