Author: Lao Bai, Partner of ABCDE Capital and Advisor of Amber Group
After discussing RWA, let’s talk about noteworthy developments regarding ETH and Solana.
Ethereum
The most notable topic on ETH would be Justin’s recent proposal for Native Rollup. This is an advanced extension of the current Based Rollup, although the implementation difficulty has increased significantly.
Let’s briefly discuss Based Rollup:
This is the initiative being pursued by Puffer/Taiko, where the ordering rights are assigned to L1, as opposed to traditional L2. This approach has two primary benefits: 1) L1 can capture more value, and 2) all Based Rollups theoretically form interoperability.
Initially, I had doubts about point 2, but during a discussion with a founder of a Based Rollup project, I confirmed that interoperability can indeed be achieved. This is because within any 12S Slot on L1, there is a specific chosen validator responsible for block production, and all Based Rollup transactions will be ordered by that chosen validator. Therefore, these Based Rollups can indeed achieve interoperability.
However, two subsequent issues arise:
1) Currently, several L2s that occupy absolutely critical positions have no motivation to transition to Based Rollup. 2) If, in the future, there are dozens or even hundreds of Based Rollups, the burden on the validator responsible for block production on L1 will significantly increase, as will their hardware requirements. Since validators are randomly elected, all Candidate’s hardware requirements must also keep up; otherwise, they simply cannot handle the ordering of dozens or hundreds of L2s. Consequently, the decentralization of ETH Validators will inevitably be greatly impacted.
Regarding these two questions, I welcome everyone to leave comments for discussion.
Now let’s talk about Native Rollup:
While Based Rollup entrusts ordering rights to L1 validators, Native Rollup assigns the proof system to L1 validators. It introduces a precompiled contract that allows L1 to perceive the state transitions of Native Rollup in each block (this precompiled contract needs to be added in a future hard fork upgrade). Initially, the proof system will use Re-execution (where L1 validators run through the transactions themselves) as the preliminary scheme, followed by Real-Time Proving (based on Snark proofs) as the optimization scheme. However, this requires significant advancements in ZK technology (being able to produce a block proof in seconds is currently unattainable, and it may take at least 3 to 5 years).
There are three points worth mentioning about Native Rollup:
1) You will find that this is quite similar to the early scalability solutions of ETH; isn’t this sharding rather than Rollup? 2) You will see that ETH and Solana meet at a certain point; Solana’s two scalability projects, MagicBlock’s Ephemeral Rollup and Lollipop’s expanded execution layer, have a conceptual similarity to Native Rollup, both giving a sense of sharding. 3) I am not 100% certain but I believe/hope that Native Rollup and projects like MagicBlock will allow users to experience the platform without needing to switch networks. This means that you stay on ETH/Solana L1 in MetaMask/Phantom, and your assets do not go through the bridge process of entering or exiting L2; Native/Ephemeral Rollup acts merely as an external execution layer that completes the computation and automatically settles on L1, thus avoiding liquidity island issues.
However, it seems that the ideal is rich while the reality is skinny. Not to mention the technical difficulty and landing time, the existing L2 interest distribution issue makes it hard to remain optimistic. The cryptocurrency space has evolved to a point where it is no longer characterized by the spirit of crypto punk and technological supremacy, but rather by pragmatism.
As for next month’s Prague upgrade, there are already many interpretations online, and I will not elaborate further. I hope that after this upgrade, 7702 can resolve the previous chaotic account abstraction of various EIPs and present a chain-level final solution. Of course, whether end-users and developers will embrace it is another story.
Solana
Recently, there are also two noteworthy developments regarding Solana.
One is the highly discussed SIMD-0228 proposal from a while ago. The proposal essentially aims to change Solana’s inflation model, shifting from a fixed annual decrease of 15% in issuance to a dynamically adjusted inflation rate based on the staking ratio.
Overall, it encompasses several characteristics:
1) Enhanced status for MEV revenue (in Q4 2024, Solana’s MEV revenue is expected to be 10 times that of Q1, but with Pump.fun cooling down, I am curious what 2025’s MEV revenue will look like). 2) Dynamic adjustment of issuance, with three balance points set at 65%, 50%, and 33% based on the staking ratio. 3) The new proposal may not be favorable for small and medium validators. 4) It can be seen that Solana is transitioning from “overpaying for security” to “seeking the minimum necessary payment.”
This proposal ultimately failed as it did not gather 66.7% of the affirmative votes, but it came close, securing around 61%. Although the proposal did not pass, there are two interesting points worth mentioning.
1) Anatoly was not too disheartened; he believes that “Solana’s governance needs to be rapid and decisive, and swift governance actions will be key to seeking better solutions.” In other words, the failure of SIMD-0228 is also a reflection of Solana’s autonomous efficiency. From its initiation by Multicoin to community discussions and the end of voting, this proposal took only about a month, demonstrating the importance of “quick passage/failure” for the rapidly evolving Solana ecosystem. 2) Chinese media’s interpretations of this proposal’s inflation rate are almost entirely incorrect. The majority of Chinese media, including Chinese Twitter, interpreted the inflation aspect of this proposal as “reducing inflation by 80%,” which means lowering the current inflation from 4.8% to around 0.8% under a staking ratio of approximately 65%. When I first saw this, I was astonished; several sources echoed this interpretation! How could that be? Validators would erupt in outrage! Even if MEV revenue increases, a sudden 80% drop in issuance revenue would lead to a rhythm of validator strikes… Upon reviewing the original proposal and interpretations by English KOLs, it appears that under the current staking ratio, the inflation rate would decrease from 4.8% to around 4%, not directly to 0.8%. It seems that the author of the earliest interpretation in the Chinese community misread the formula and mistakenly understood it as a decrease to 0.8%, and subsequently, all media and KOLs copied this misunderstanding.
The second point to mention is not exactly news; it is something expected in 2024. However, I first learned about it during a chat with the founder of a RWA project on Solana, which is the Solana Token Extension. Many may not know about it, so I’ll share some details.
Solana Token Extension: A new generation of SPL token standards, which is a chain-level token solution for Solana, including privacy transactions (only the amount is private, and the transfer parties cannot hide their identities), transfer hooks (such as requiring KYC, enforced royalties), non-transferable tokens (similar to SBT), yield-bearing assets, metadata, etc., totaling 19 options that can be freely combined and utilized.
This is also why that RWA project chose Solana; aside from TPS, Solana offers native privacy and KYC token standard solutions at the chain level, which can be combined. This is far more flexible than the various individual ERC token standards on ETH. Meanwhile, nascent Move-based chains currently do not have such rich native-level usability, making Solana their only choice. This has significantly boosted my confidence in Solana; it is clear that Solana can do much more than just Pumpfun and Meme. I believe that by flexibly utilizing these Token Extensions, many meaningful projects can be developed.
Finally, having discussed ETH and Solana, I will write the last piece of this series this weekend, focusing on observations and thoughts regarding Crypto X AI in 2025.
Original link: Lao Bai’s X
Part 1 of the series: “ABCDE Partner: Market and Reflections from the First-Class Perspectives of Eastern and Western VCs”
Part 2 of the series: “ABCDE Partner Lao Bai Discusses the Application Scenarios and Recent Developments in the RWA Race”
