Overview of Web3 Development in Various Fields in the First Half of 2024

Ethereum

Zero Knowledge

ZKVM & ZKEVM

In the first half of 2024, more and more ZKEVM projects are beginning to shift towards the ZKVM architecture, represented by the PSE team under the Ethereum Foundation. Taiko has collaborated with Risc0's ZKVM, and Scroll is also preparing. The catalyst for this transition is Plonky3, which outperforms Halo2( in terms of performance while being slightly inferior in stability ), and enhances the user experience.

The currently available virtual machines include: ZKWASM, Succinct's SP1, a16z's JOLT, and Risc0. Polyhedra's ZK Prover performs excellently and plans to develop virtual machines in the future. Aztec and Mina are also developing their own virtual machines, but performance benchmarks have not yet been released.

The key factors for widespread adoption depend on proof costs, efficiency, and development time. It is currently widely believed that zkVM is suitable for building and deploying verifiable applications, which deserves further attention.

ZK Middleware

In terms of middleware, the activity level of proof verification systems remains high, with Brevis, Alignlayer, and Nebra collaborating with Eigenlayer to enhance security. Due to the relatively high cost of zk proofs, the market is gradually shifting towards OP and ZK hybrid solutions to improve proof efficiency. In terms of applications, catalysts such as verifiable AI and verifiable off-chain data will bring more demand, and attention can be maintained on these innovative areas.

MEV, chain abstraction/account abstraction, intent

MEV Development Trends

Flashbots has been experimenting and developing products that utilize Intel Software Guard Extensions. Recently, it attempted to use Trusted Execution Environments (TEEs) for privacy computing on the Ethereum Virtual Machine. These use cases include storing and processing sensitive data, ensuring that auction bids are protected from tampering and data leakage.

Fully homomorphic encryption ( FHE ) is also seen as a potential solution to combat MEV, as it always keeps data encrypted, eliminating the possibility of selective reordering.

Block Builder

According to relayscan data, the block construction market has become highly concentrated among a few builders, including some high-frequency trading firms known for catering to their own trading needs. Currently, beaverbuild, titan builder, and rsync builder are the most dominant and profitable builders in the market. This centralization has triggered further research into the design of block auction mechanisms aimed at maintaining Ethereum's resistance to censorship.

Relay

Relay still plays a crucial role in block supply, with over 90% of blocks transmitted through relays. Titan builder launched Titan Relay this year, and it has grown rapidly since its launch.

When assessing Relay, the following factors need to be considered:

• Performance and reliability can be analyzed through metrics such as uptime, latency, and bidding failures.
• The scalability of Relay, which is the ability to service a large number of validators.

In the MEV space, we have previously invested in several successful projects, including Primev, the inventor of preconfirmation, Titan, the leader in the block construction market, and FastLane, one of the few successful MEV systems aside from Flashbots. In the next stage, how MEV-related projects can achieve value capture and successfully design tokens are critical issues.

Chain Abstraction and Account Abstraction

Chain abstraction is a persistent and key concept for achieving large-scale user adoption, aimed at enhancing the user experience so that users are unaware of the existence of the blockchain, and may not even know which chain they are using. NEAR, as one of the early pioneers in this field, has launched a multi-chain signature feature that allows one account to be used across different chains. The supported chains include: Bitcoin, Ethereum, Cosmos ecosystem chains, Dogecoin, XRP Ledger, TON network, Polkadot, and more.

You can refer to the CAKE framework proposed by Frontier.tech, which includes permission layer, solver layer, settlement layer, etc. Among them, account abstraction (AA) can also be included in the permission layer. The AA field is mainly divided into two categories: smart contract wallets and modular services. As we mentioned in the 2023 field review, smart contract wallets play a crucial role in providing a seamless user experience through intent-centric design.

Significant advancements in this field include:

• The number of AA accounts has exceeded 12 million, and UserOps call count has surpassed 49 million.
• The number of active smart wallet accounts per week is on the rise, with Polygon remaining the network with the most smart accounts. Another popular platform is Base, likely benefiting from the launch of the Coinbase smart wallet, which has compatibility.

With the inclusion of EIP-7702 in the Pectra upgrade of Ethereum, this will bring a more seamless and user/developer-friendly experience, as it aims to improve the previous account abstraction (AA) design, such as ERC-4337, which is costly and lacks native support for converting externally owned accounts ( into smart accounts. Therefore, it is worth focusing on whether improvements at the infrastructure level can bring about new applications.

Apart from AA, other tracks worth paying attention to in the field include strategy engines, intent frameworks, preconfirmation, etc. The relevant projects in the intent domain are still under active development, and their specific performance and PMF are yet to be observed.

Bitcoin

Bitcoin Rollup attracted a lot of attention earlier. However, over time, interest seems to have waned, and we observed this at the Bitcoin Asia event. The number of emerging projects has decreased, and fundraising in the current environment appears to be challenging. Nevertheless, we are still witnessing some significant technological breakthroughs, such as BitVM. Some Rollup projects are exploring integration with BitVM. BitVM has recently innovated rapidly, for instance, it has created the BitVM cross-chain bridge. This bridge can be used for large cross-chain transactions, while smaller transactions are expected to continue relying on multi-signature or HTLC swaps to improve economic efficiency. For more details, please refer to previous research.

Overall, although Rollups face challenges, technological developments like BitVM may still provide opportunities for Rollups, such as interoperability.

) Yield-oriented Bitcoin strategy

Yield-oriented strategies are also gaining attention, with more and more projects providing wrapped BTC for holders, generating returns for users while also easily increasing TVL. For example, projects like Mezo integrate multiple products, where Rollup is just one of many components, along with other products like tBTC and Acre's stBTC### liquid staking(.

In this field, we continue to be cautious, investing in teams with clear technological advantages, well-defined market strategies, or proven successful experiences.

) Asset Protocol: BRC20, Runes, Atomicals, RGB, Taproot Assets

The performance of BRC-20 tokens remains weak, with ORDI performing poorly compared to the beginning of the year. Overall, there haven't been many highlights or improvements in BRC20 so far. Although Runes once sparked strong attention after the Bitcoin halving, this interest has gradually faded. This trend aligns with the decline in network activity and fees. The integration of Taproot assets with the Lightning Network may reignite market interest and momentum.

Overall, under the premise of sustainable adoption of Bitcoin assets, infrastructure providers serving this growing asset class may become attractive investment opportunities.

Bitcoin Staking

Staking###restake( is a feature that originally did not exist in Bitcoin but was later modified. The emergence of this sector is also due to its ability to address two issues: the demand for BTC interest generation on the funding side and the need for products to be bound to the Bitcoin main chain.

Staking can be roughly divided into three categories according to the reduction mechanism:

1. The principal will be affected by slash: Babylon is an example of this method.
2. Lost opportunity for earnings on interest slash): CoreDAO primarily focuses on reducing potential earnings rather than reducing principal.
3. Non-slash: This category includes self-custodied Layer 2 networks ( such as Rollups ) that aim to increase TVL and promise returns, as well as financial projects like BounceBit, where users' Bitcoins are managed by an asset management team to generate returns.

Staking(restake)The earliest track of Babylon has already formed its own ecosystem. Basically, many applications related to Bitcoin will consider leveraging Babylon to achieve relevance with the main chain. Projects related to staking within the Babylon ecosystem will mainly focus on implementing auxiliary functions, as detailed in the Babylon ecosystem section.

This track is expected to be similar to EigenLayer, creating some applications and infrastructure. Market performance and ecological development will need further observation after the mainnet goes live. For example, the Babylon mainnet reached its limit shortly after launch. We remain optimistic about the future development of Babylon.

( Bitcoin DeFi, MEV

BTCFi: Recently, there have been quite a few projects related to Bitcoin financial applications such as )BitcoinFi and BTCFi###. Currently, what we can see is still focused on lending and stablecoin applications. Using various methods, such as locking assets on Bitcoin while processing the logic of issuing assets on L2, or choosing different asset issuance methods, will lead to different trade-offs.

Wrapped BTC: WBTC, tBTC, FBTC, and SolvBTC have recently garnered significant attention. The competition in this space is expected to intensify. For example, Solv Protocol has witnessed tremendous demand through extensive partnerships, DeFi integrations, and cross-chain composability, leading to the protocol securing over 13,500 Bitcoin staked. As more projects seek to leverage Bitcoin in DeFi applications, we anticipate that the competition in this field will further escalate.

Bitcoin DEX and related applications: On-chain DEX still mainly uses PSBT, while some projects like Satflow use pre-confirmation strategies in the memory pool, although this approach carries the risk of being replaced.

MEV: The activation of RBF and the introduction of new types of assets have led to a more active MEV scenario on Bitcoin. Projects like Rebar aim to establish MEV infrastructure similar to what Flashbot has done on Ethereum, while projects like Alkimiya focus on the fee/block space market. Currently, MEV-related activities mainly come from transaction acceleration services. We will continue to monitor the ongoing developments in this field and observe new projects continuously launching various services to mitigate the negative impact of MEV on users. For more information, please refer to our previous report.

( Bitcoin technology development

)# OP_CAT

Although OP_CAT is an easily implementable opcode, its activation introduces many functionalities, such as relatively simple Merkle tree verification of the hash of two elements ### to more complex operations like using additive Schnorr signatures for transaction validation. However, concerns about its flexibility may introduce some unpredictable risks. In May 2024, OP_CAT was enabled as a soft fork in the Bitcoin trial client ### in a client on the signet network (. The soft fork method had various debates and variables during the last Taproot upgrade. It is not only about the content of the upgrade itself, but also about the process of how the soft fork upgrade occurs, which has also been a topic of considerable discussion. Therefore, OP_CAT may not be enabled in the short term; if enabled, it will certainly be accompanied by various controversies. The same applies to other soft fork upgrades, including OP_CTV ), which was already widely debated in 2022 (, APO, and so on.

)# BitVM

BitVM has made significant breakthroughs in enhancing the expressive power of Bitcoin. BitVM2 has made improvements based on previous designs, enhancing the verification capabilities for complex computations and reducing trust assumptions. Recent key advancements have focused on the development of the BitVM bridge, which has reached a certain level of maturity and security, with the potential to achieve testnet/mainnet maturity by the end of 2024. The BitVM bridge may primarily handle large assets, leaving space for the continued existence of other cross-chain bridges. Alternative cross-chain solutions to the BitVM bridge, such as multi-signature bridges or atomic swaps, still hold practicality for end users, offering faster and lower-cost alternatives. Additionally, we may also see the establishment of new validator networks on BitVM2 in the future.

( Channel, Joinpool class solution

Significant progress has been made on solutions related to channels and Joinpool. These solutions allow two or more users to share a UTXO on the main chain, while off-chain allocations can be executed based on business logic )vTXO###. When users want to exit, they can settle back on the main chain through a unilateral exit.

In addition to Hedgehog, recent attention has mainly focused on Ark. Burak launched Ark v2, offering higher capital efficiency and introduced a related concept called Brollups.

Statechain is another interesting solution, similar to the UTXO Mercury Layer based on Joinpool. The Mercury Layer has made significant progress in this field, and new projects like Mach.