tag:www.coingecko.com,2005:/learnCoinGecko Buzz2024-03-28T21:03:39Ztag:www.coingecko.com,2005:Post/12782024-03-28T21:03:39Z2024-03-28T09:15:07ZWhat Is Data Availability in Blockchains?<h2 dir="ltr">What Is Data Availability?</h2>
<p dir="ltr">Data availability on the blockchain ensures that all participants have the transaction data needed to verify blocks, even with resource limitations and scalability needs. Without it, independent verification crumbles, compromising the entire system.</p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Data availability is crucial in blockchains to ensure all network participants can verify transactions and maintain the system's integrity and trust. Rollups on blockchain networks also rely heavily on data availability to function effectively.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Challenges such as data withholding, the scalability-security trade-off, and technical limitations pose significant hurdles to efficient data availability.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Data Availability Layers (DALs), like Celestia, use techniques such as erasure coding to ensure reliable storage and accessibility of blockchain data.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Innovative solutions like Data Availability Sampling and Data Availability Committees are also being developed.</p>
</li>
</ul>
<hr>
<p dir="ltr"><img alt="What is Data Availability crypto" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9846/content_What_is_Data_Availability_crypto.webp" style="width: 1200px; height: 600px;"></p>
<p dir="ltr">Blockchain technology’s traits of <a href="https://www.coingecko.com/en/glossary/immutable" target="_blank">immutability</a> and <a href="https://www.coingecko.com/en/glossary/trustless" target="_blank">trustlessness</a> promise to overhaul how humans record and verify data (starting with finance). Today, large public blockchains like Ethereum face a challenge: <strong>data availability.</strong></p>
<p dir="ltr">For businesses, developers, and users depending on <a href="https://www.coingecko.com/learn/what-is-a-blockchain" target="_blank">blockchain technology</a>, this can lead to serious concerns about the reliability and efficiency of accessing vital information.</p>
<p dir="ltr">Imagine buying a house where the seller assures you all the paperwork and records are in order. But, when you move in, you discover critical documents are missing. You can't prove the sale was legitimate, and your ownership is in question. This unsettling scenario is similar to the risks blockchains face if data isn't fully available for verification.</p>
<p dir="ltr">Data availability is the pillar of “<strong>Don’t trust. Verify.</strong>”</p>
<h2 dir="ltr">Understanding Data Availability</h2>
<p dir="ltr">In blockchain, data availability refers to the ability of network participants to access and verify the data stored on the blockchain. This data includes transaction details, block information, and the state of the <a href="https://www.coingecko.com/en/glossary/ledger" target="_blank">ledger</a>.</p>
<p dir="ltr">By ensuring data availability, blockchain networks can retain;</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Independent Verification:</strong> Any node can fully validate the legitimacy of new blocks and transactions, preventing fraud or invalid information from being added to the blockchain.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Decentralization and Trust:</strong> It reinforces the core principles of blockchain — eliminating the need to trust a central authority and allowing users to independently verify the network's state.</p>
</li>
</ul>
<p dir="ltr">In the <a href="https://www.coingecko.com/learn/eip-4844-proto-danksharding-low-gas-fees" target="_blank">Ethereum modular roadmap</a>, executions are offloaded to rollups. <a href="https://www.coingecko.com/learn/optimistic-vs-zero-knowledge-rollups" target="_blank">Rollups</a> record transactions that take place on their platforms and once these are confirmed, the transaction record is confirmed on the Layer 1 blockchain. For anyone monitoring the system, the data availability layer ensures that anyone can verify the inputs and outputs of these transactions to ensure they were conducted correctly.</p>
<div><span style="font-size:11px;"><img alt="Ethereum rollups data availability" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9845/content_Data_Availability_Ethereum_Rollups.webp" style="width: 1200px; height: 610px;">Source: <a href="https://\ethereum2077.substack.com/p/data-availability-in-ethereum-rollups">ethereum2077.substack.com/p/data-availability-in-ethereum-rollups</a></span></div>
<p dir="ltr">A robust data availability model ensures that the blockchain is resilient and reliable, as it prevents data withholding and ensures that all necessary information is available to validate transactions.</p>
<p dir="ltr"><strong>Some of the widely used data availability solutions, which will be discussed later, are:</strong></p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Data Availability Layer (DAL)</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Data Availability Sampling (DAS)</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Data Availability Committee (DAC)</strong></p>
</li>
</ol>
<h2 dir="ltr">Role of Data Availability in Block Verification</h2>
<div dir="ltr"><span style="font-size:11px;"><img alt="Data availability " loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9827/content_Data-availability.webp" style="width: 1200px; height: 600px;">Source: <a href="http://docs.celestia.org/learn/how-celestia-works/data-availability-faq">docs.celestia.org/learn/how-celestia-works/data-availability-faq</a></span></div>
<p dir="ltr">Block verification in blockchain is deeply intertwined with the concept of data availability. Each step in the verification process relies on the ability of nodes to access and examine the complete and accurate data of blocks and transactions.</p>
<p dir="ltr"><strong>There are five parts to block verification:</strong></p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Block propagation</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Transaction validation</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Block header verification</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Consensus mechanism compliance</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Blockchain update</strong></p>
</li>
</ol>
<div dir="ltr" role="presentation"><span style="font-size:11px;"><img alt="Blockchain Verification Process" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9828/content_Data_Availability_%282%29.webp" style="width: 1200px; height: 675px;">Credits: Sankrit</span></div>
<div dir="ltr" role="presentation"> </div>
<h3 dir="ltr">Block Propagation</h3>
<p dir="ltr">When a new block is created, it is broadcast to the network. For effective block verification, this block must be readily available to all participating nodes. <strong>If nodes can't access the block data, they can't begin the verification process.</strong></p>
<h3 dir="ltr">Transaction Validation</h3>
<p dir="ltr">Each block contains a list of transactions. Nodes first verify the validity of these transactions. This involves checking if the transactions comply with the network's rules, such as ensuring that the digital signatures are correct and that the sender has the necessary funds. <strong>All relevant transaction data must be accessible to the nodes for proper validation</strong>.</p>
<h3 dir="ltr">Block Header Verification</h3>
<p dir="ltr">The block header includes important information like the hash of the previous block, the timestamp, and the nonce. Nodes check the block header to ensure it fits within the blockchain's protocol. The hash of the previous block links the new block to the existing chain, establishing a chronological and unalterable sequence. <strong>Full data availability is vital to verify that the new block correctly references the previous block in the chain.</strong></p>
<h3 dir="ltr">Consensus Mechanism Compliance</h3>
<p dir="ltr">Blockchains use various consensus mechanisms (like <a href="https://www.coingecko.com/en/glossary/proof-of-work-pow" target="_blank">Proof of Work</a> or <a href="https://www.coingecko.com/learn/crypto-staking" target="_blank">Proof of Stake</a>) to agree on the current state of the ledger. In this step, nodes verify that the block adheres to the specific rules of the consensus mechanism employed. For instance, in Proof of Work, nodes check if the block hash meets the required difficulty target. <strong>Successful verification is contingent upon the availability of all necessary block data.</strong></p>
<h3 dir="ltr">Blockchain Update</h3>
<p dir="ltr">Once a block is verified, it is added to the blockchain. Each node updates its copy of the ledger, ensuring continued data availability for future verification processes.</p>
<h2 dir="ltr">Challenges in Data Availability</h2>
<p dir="ltr">While data availability is a cornerstone of blockchain scalability and efficiency, it is not without its challenges.</p>
<h3 dir="ltr">Data Withholding and Trust</h3>
<p dir="ltr">In a blockchain network, particularly in rollups, the integrity of the entire system hinges on the assumption that all necessary data is available for verification and execution. However, there's always a risk that a participant (like a sequencer) might withhold critical data, either inadvertently due to system failure or deliberately for malicious reasons.</p>
<h3 dir="ltr">Scalability vs. Security Trade-Off</h3>
<p dir="ltr">Another significant challenge is the classic trade-off between scalability and security.</p>
<p dir="ltr">Improving data availability can enhance scalability, but it might come at the cost of security. Ensuring that a blockchain network is scalable, by enhancing data throughput, shouldn't compromise the network's security. This balancing act is critical to the long-term viability and trustworthiness of blockchain networks.</p>
<h3 dir="ltr">Technical and Infrastructural Limitations</h3>
<p dir="ltr">Scaling data availability is not just about improving software algorithms but also about overcoming hardware and network limitations. The capacity of nodes to store and transmit large volumes of data plays a crucial role in determining how scalable a blockchain network can be.</p>
<h3 dir="ltr">The Complexity of Modular Approaches</h3>
<p dir="ltr">Decoupling data availability from other blockchain functions like execution and consensus offers numerous benefits but also introduces complexity to the system's design and operation. This complexity can manifest in the integration of different modules and maintaining the overall cohesiveness and efficiency of the blockchain.</p>
<h3 dir="ltr">Interoperability and Standardization Issues</h3>
<p dir="ltr">As blockchain technology evolves, different networks and solutions are emerging with their approaches to data availability. This diversity, while beneficial in promoting innovation, also raises concerns about interoperability between different systems and the need for standardization to ensure seamless interaction and data exchange.</p>
<h2 dir="ltr">Data Availability and Scalability</h2>
<p dir="ltr">Blockchains today are suffering from a scalability dilemma. They aim to be completely trustless, leading to multiple nodes storing entire copies of the ledger.</p>
<p dir="ltr">As blockchains grow and transaction volumes increase, requiring every single node to store and process the complete transaction history becomes a bottleneck for scalability.</p>
<p dir="ltr">Not all nodes can handle the storage and processing demands of a fully replicating blockchain (a type of blockchain network where every node maintains a complete copy of the entire ledger), especially on devices with lower resources.</p>
<p dir="ltr">This gets problematic because of the following:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Storage Bloat:</strong> As transactions pile up, requiring every node to store everything gets expensive and burdensome, especially for less powerful devices.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Verification Overhead:</strong> Processing every transaction becomes slower as the data grows. This hampers network speed and throughput.</p>
</li>
</ul>
<p dir="ltr">If there is a practical and efficient solution for data availability without loading the blockchain, verification can be sped up without compromising decentralization.</p>
<p dir="ltr">To overcome the data availability and scalability dilemma, which relies on a single blockchain to handle all processes, there is a rise in specialized data availability solutions that offer better overall performance and cheaper gas costs.</p>
<h2 dir="ltr">What Is a Data Availability Layer?</h2>
<p dir="ltr">Data availability layers (DALs) are on-chain or <a href="https://www.coingecko.com/en/glossary/off-chain" target="_blank">off-chain</a> data storage solutions. They separate the task of making data available from other blockchain functions like execution (processing transactions) and consensus (agreeing on the order of transactions).</p>
<p dir="ltr">In systems with a data availability layer, the blockchain's data is stored separately from the main chain. This layer is responsible for ensuring that the data is stored reliably and can be accessed by nodes when needed for validation.</p>
<p dir="ltr">Techniques like erasure coding, data sharding, and other forms of data partitioning are often used in a data availability layer. These techniques ensure that data is stored in a way that even if some parts are lost or become unavailable, the entire data can still be reconstructed.</p>
<h3 dir="ltr">Synergy Between Rollups and Data Availability Layers</h3>
<p dir="ltr">Rollups are a form of scaling solution for blockchains like Ethereum. They are designed to increase the transaction processing capacity of a blockchain by executing transactions outside the main blockchain (off-chain) and then posting the transaction data back to the main chain.</p>
<p dir="ltr">However, <strong>for rollups to function effectively, they rely heavily on the underlying data availability infrastructure. If there is no assurance of data availability</strong>, i.e., data can be accessed whenever needed, then the entire model of rollups would come crashing down.</p>
<p dir="ltr">Essentially, the throughput of Ethereum – the amount of data it can handle and process – hinges on how effectively the data availability layer operates. This linkage is crucial for Ethereum's vision of scaling, where rollups play a significant role.</p>
<blockquote>
<p dir="ltr"><em>“Ethereum, this system, would provide non-scalable computation and scalable data. And what a rollup does is it converts scalable data and non-scalable computation into a scalable computation.”</em></p>
</blockquote>
<p dir="ltr" style="text-align: right;">— Vitalik Buterin, co-founder of Ethereum</p>
<p dir="ltr">Data availability layers, like <a href="https://www.coingecko.com/learn/what-is-celestia-tia-data-availability-modular-blockchain" target="_blank">Celestia</a>, serve as the backbone for rollups, ensuring that data required for validating transactions is readily available. This availability is not just about ensuring efficiency but also about securing the network. It ensures that the rollup’s operations are transparent and verifiable, thereby maintaining trust among users.</p>
<p dir="ltr">Now, let's look at some common data availability solutions. </p>
<h2 dir="ltr">What Is Data Availability Sampling?</h2>
<p dir="ltr"><strong>Data availability sampling is a technique used by blockchains to ensure that data in a blockchain network is indeed available to all nodes, without requiring every node to download and verify the entire dataset.</strong></p>
<p dir="ltr">In blockchain networks, especially those with high transaction throughput, ensuring that all data (such as transaction data or state changes) is available to all participants is critical. This availability is necessary for validating transactions and maintaining the network's integrity. However, downloading and verifying all data can be impractical, especially for nodes with limited resources.</p>
<p dir="ltr">Data availability sampling tackles this problem by allowing nodes to randomly sample small parts of the blockchain data. Instead of verifying the entire data set, nodes verify random chunks.</p>
<p dir="ltr">This approach dramatically reduces the amount of data each node needs to handle, making it feasible for nodes with limited bandwidth or storage capacity to participate in the network.</p>
<h3 dir="ltr">How Data Availability Sampling Works</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Data Segmentation:</strong> The blockchain data is divided into small pieces or chunks.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Random Sampling by Nodes:</strong> Nodes in the network randomly select and download only some of these chunks rather than the entire data set.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Probabilistic Verification:</strong> By analyzing these samples, nodes can probabilistically verify the availability of the entire data set. If the sampled chunks are available and valid, it is highly likely that the rest of the data is also available and valid.</p>
</li>
</ul>
<h2 dir="ltr">What Is a Data Availability Committee (DAC)?</h2>
<p dir="ltr">A Data Availability Committee (DAC) is a specialized group of trusted nodes that work together to ensure the availability of blockchain data, typically in off-chain scaling solutions.</p>
<p dir="ltr">There are two key functions of a DAC:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Data Verification:</strong> DAC is responsible for verifying that data, such as transactions or state changes, is correctly stored and can be accessed when needed.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Ensuring Accessibility:</strong> DAC ensures that the data required for validating transactions or smart contracts is available to any participant in the network who might need it.</p>
</li>
</ol>
<p dir="ltr">Ideally, a Data Availability Committee should be composed of a decentralized group of participants to avoid central points of failure or control. These participants are often chosen based on certain trustworthiness criteria or through a decentralized selection process.</p>
<p dir="ltr">Data Availability Committees are particularly useful in the following:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Layer 2 Scaling Solutions:</strong> Such as rollups in Ethereum, where they can help in managing data associated with off-chain computation.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Sharded Blockchains:</strong> Where different shards may have different data sets, ensuring the availability of data across shards becomes crucial.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Blockchains with High Throughput:</strong> In networks with a high volume of transactions, these committees help maintain efficiency and speed.</p>
</li>
</ul>
<h2 dir="ltr">Data Availability vs. Consensus</h2>
<p dir="ltr">Both data availability and consensus play a part in transaction verification and validation. Hence, it is easy to confuse the two or not see the thin line that separates them.</p>
<p dir="ltr"><strong>Data availability ensures all blockchain data is accessible to participants, while consensus is the agreement on transaction validity and order.</strong></p>
<p dir="ltr">Here’s a table comparing data availability and consensus side-by-side:</p>
<table border="1" cellpadding="5" cellspacing="5" style="width: 100%;">
<colgroup>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 20%;"> </td>
<td style="width: 40%;">
<p dir="ltr" style="text-align: center;"><strong>Data Availability</strong></p>
</td>
<td style="width: 40%;">
<p dir="ltr" style="text-align: center;"><strong>Consensus Mechanism</strong></p>
</td>
</tr>
<tr>
<td>
<p dir="ltr"><strong>What does it do?</strong></p>
</td>
<td>
<p dir="ltr">Ensures all necessary information is accessible for validation.</p>
</td>
<td>
<p dir="ltr">Enable a unified decision-making process for validating transactions and adding them to the blockchain.</p>
</td>
</tr>
<tr>
<td>
<p dir="ltr"><strong>Why is it important?</strong></p>
</td>
<td>
<p dir="ltr">To prevent data manipulation, withholding, or loss, ensure every participant can independently verify blockchain data.</p>
</td>
<td>
<p dir="ltr">To prevent double spending and fraudulent transactions, maintain overall network trust and security.</p>
</td>
</tr>
<tr>
<td>
<p dir="ltr"><strong>Examples of solutions</strong></p>
</td>
<td>
<p dir="ltr">Data Availability Layer (DAL), Data Availability Sampling (DAS), Data Availability Committee (DAC)</p>
</td>
<td>
<p dir="ltr">Proof of Work (PoW), Proof of Stake (PoS), Delegated Proof of Stake (DPoS)</p>
</td>
</tr>
<tr>
<td>
<p dir="ltr"><strong>What are some challenges?</strong></p>
</td>
<td>
<p dir="ltr">Scalability issues, data bloat, and ensuring data is evenly and widely distributed.</p>
</td>
<td>
<p dir="ltr">Finding a balance between throughput, security, and decentralization (trilemma).</p>
</td>
</tr>
</tbody>
</table>
<div> </div>
<h2 dir="ltr">Top Data Availability Protocols in 2024</h2>
<p dir="ltr">Data availability protocols are on the rise owing to the demand for scalability. Some of the most popular ones are:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Celestia</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Near DA</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">EigenLayer</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Avail</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">KYVE</p>
</li>
</ol>
<h3 dir="ltr">Celestia: The Modular Pioneer</h3>
<div dir="ltr"><img alt="Celestia Data Availability Layer" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9830/content_Screenshot_2024-03-28_at_2.18.51%E2%80%AFAM.webp" style="width: 1200px; height: 674px;"></div>
<p dir="ltr"><a href="https://celestia.org" rel="nofollow noopener" target="_blank">Celestia</a> stands out as a blockchain explicitly designed to be a data availability layer (DAL). It doesn't focus on smart contracts or execution.</p>
<p dir="ltr">Its core functions are ordering transactions, ensuring they're available, and using Data Availability Sampling (DAS) to allow even resource-constrained nodes to participate in verification.</p>
<p dir="ltr">This makes it a potential backbone for rollups and other modular blockchain architectures that want to offload data-heavy tasks.</p>
<h3 dir="ltr">Near DA: Sharding with Availability Focus</h3>
<div dir="ltr"><img alt="Near Data Availability Sharding" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9831/content_Screenshot_2024-03-28_at_2.25.11%E2%80%AFAM.webp" style="width: 1200px; height: 674px;"></div>
<p dir="ltr">Near Protocol's approach to scaling involves sharding, dividing the blockchain into smaller subsets.</p>
<p dir="ltr">However, ensuring data from a specific shard can be accessed network-wide is crucial. <a href="https://near.org/data-availability" rel="nofollow noopener" target="_blank">Near DA</a> offers solutions to coordinate data availability between shards, enabling a more scalable system while allowing for efficient cross-shard communication.</p>
<h3 dir="ltr">EigenLayer: Restaking for Enhanced Services</h3>
<div dir="ltr"><img alt="EigenLayer restaking data availability" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9832/content_Screenshot_2024-03-28_at_2.25.23%E2%80%AFAM.webp" style="width: 1200px; height: 674px;"></div>
<p dir="ltr"><a href="https://www.coingecko.com/learn/eigenlayer-restaking-ethereum" target="_blank">EigenLayer</a> presents a unique model. It allows users to "<a href="https://www.coingecko.com/learn/what-is-restaking-crypto" target="_blank">restake</a>" their Ethereum (ETH) to provide additional services on top of the Ethereum network. One such potential service is enhanced data availability, as seen in <a href="https://www.coingecko.com/learn/mantle-modular-blockchain-scaling" target="_blank">Mantle</a>, a rollup that is currently using EigenDA technology for data availability . This could offer greater flexibility and customized data availability solutions tailored to different use cases.</p>
<h3 dir="ltr">Avail: Polygon's Data Availability Solution</h3>
<div dir="ltr"><img alt="Avail data availability layer Polygon" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9833/content_Screenshot_2024-03-28_at_2.25.37%E2%80%AFAM.webp" style="width: 1200px; height: 674px;"></div>
<p dir="ltr"><a href="https://polygon.technology/blog/polygon-labs-doubles-down-on-ethereum-data-availability-roadmap-spins-off-avail" rel="nofollow noopener" target="_blank">Polygon Avail</a> is a data availability layer within the <a href="https://www.coingecko.com/learn/pol-polygon-ecosystem-token-polygon-2-0" target="_blank">Polygon ecosystem</a>. It employs a combination of erasure coding (which makes data resilient to loss) and a Data Availability Committee to guarantee data retrieval. With its connections to Polygon's established network, Avail has broad adoption potential.</p>
<h3 dir="ltr">KYVE: A Web3 Data Warehouse</h3>
<p dir="ltr"><img alt="KYVE decentralized data storage" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9834/content_Screenshot_2024-03-28_at_2.25.48%E2%80%AFAM.webp" style="width: 1200px; height: 674px;"></p>
<p dir="ltr"><a href="https://www.kyve.network/" rel="nofollow noopener" target="_blank">KYVE</a> is a decentralized data storage network specializing in making validated data easily retrievable. While not a blockchain itself, its efficient data storage and indexing mechanisms make it a potential building block for scalable blockchain applications needing reliable access to external data or specialized data availability solutions.</p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">Blockchains sought to break down the walled gardens of centralized databases and empower individuals with direct access and control. Yet, as this space matures, we're witnessing a subtle ‘recentralization’ creep, not in terms of a single authority.</p>
<p dir="ltr">The ideal of a blockchain shouldn't be just to scale for scale's sake. It should be about maintaining accessibility and true verifiability for the average user. Data availability solutions take us one step closer to blockchain utopia.</p>
<p dir="ltr">As we move forward, the tug-of-war between scalability and security will continue to heat up, perhaps at least until a solution or middle-ground is found that is satisfactory to all.</p>
<p dir="ltr">This article is only for educational and informational purposes and should not be taken as financial advice. Always do your own research before investing in any crypto protocols.</p>
Sankrit Khttps://www.coingecko.com/learn/data-availability-blockchain-cryptoWhat Is Data Availability?
Data availability on the blockchain ensures that all participants have the transaction data needed to verify blocks, even with resource limitations and scalability nee...tag:www.coingecko.com,2005:Post/12772024-03-27T15:41:48Z2024-03-27T09:54:31ZGuide on Earning Points for Potential BounceBit Airdrop<!-- GetResponse Analytics --><script type="text/javascript">
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<h2 dir="ltr">How to Earn Points on BounceBit</h2>
<p dir="ltr">To start earning points on BounceBit, you need an early access code. After connecting your wallet, you can earn points by depositing tokens, where the amount deposited will influence the points you receive. You can claim points every 24 hours and earn Boost and Swift cards to give you additional rewards. Read on to find out how to get access codes.</p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">BounceBit is a BTC restaking blockchain that aims to let Bitcoin holders earn yield through funding rate arbitrage. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">The ecosystem is secured by a dual-token staking system using BTC and BounceBit’s native token, BB.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Users can participate in the Water Margin Event that gives early access to the platform while earning points for depositing tokens.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="Earn Points on BounceBit" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9825/content_BounceBit_Early_Access.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">BounceBit is building a BTC <a href="https://www.coingecko.com/learn/what-is-restaking-crypto" target="_blank">restaking</a> infrastructure to give Bitcoin holders a way to earn yield on idle <a href="http://www.coingecko.com/en/coins/bitcoin" target="_blank">BTC</a> tokens. The ecosystem is a Proof-of-Stake Layer 1 secured by validators that stake both BounceBit’s native token, BB, and BTC which enhances the value of BTC by enabling its active role in network validation. With this dual-token system, BounceBit leverages native Bitcoin’s security, liquidity, and low volatility. The protocol interacts with Bitcoin on the asset level instead of the protocol level with funds secured by the regulated custody of Mainnet Digital and Ceffu. </p>
<p dir="ltr">By blending DeFi and CeFi yield mechanisms, the protocol offers unique opportunities for Bitcoin holders. The CeFi framework allows users to lock idle BTC to earn yield through funding rate arbitrage. BounceBit then converts the Bitcoin into wrapped versions like bounceBTC to enhance the token’s functionalities, allowing users to engage in staking, restaking, and other on-chain activities. For example, users can delegate their bounceBTC to validators in exchange for a <a href="https://www.coingecko.com/learn/what-is-liquid-staking-liquid-staked-derivatives-you-need-to-know" target="_blank">Liquid Staking Derivative</a>, stBTC, which can be restaked to earn additional rewards. Otherwise, they can directly stake BTC to shared security clients (SSCs) like sidechains, bridges, and oracles or participate in DeFi activities including <a href="https://www.coingecko.com/learn/what-is-an-automated-market-maker-amm" target="_blank">AMMs</a>, <a href="https://www.coingecko.com/learn/leverage-crypto-trading-how-does-it-work" target="_blank">leverage trading</a>, and <a href="https://www.coingecko.com/learn/what-is-yield-farming" target="_blank">yield farming</a>. </p>
<p dir="ltr">The protocol recently closed a $6 million funding round led by Blockchain Capital and Breyer Capital. Other participating investors include dao5, CMS Holdings, Bankless Ventures, OKX Ventures, and angel investors such as Nathan from Anchorage Digital, Calvin and Jessy from Eigenlayer, Kevin and Ashwin from Brevan Howard, and others.</p>
<p dir="ltr">Currently, BounceBit is running the Water Margin Event that offers early access for users to interact with the platform and accumulate points and rewards. Users can experience staking with the different providers of yield strategies with BTCB and/or USDT. With the Mainnet launch set for April and interest around BounceBit continuing to grow, now is a great time to start earning points! </p>
<p dir="ltr"><strong>Do note that there is no official announcement from the BounceBit team that participating in the Water Margin Event by following the steps below will result in a token airdrop. </strong></p>
<h2 dir="ltr">Step 1: Early Access</h2>
<p dir="ltr">Head to <a href="https://bouncebit.io/" rel="nofollow noopener" target="_blank">https://bouncebit.io/</a> and select <strong>Early Access</strong>.</p>
<div dir="ltr"><img alt="BounceBit Early Access" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9806/content_1._bouncebit.webp" style="width: 1250px; height: 617px;"></div>
<p dir="ltr">You will need an invite code that you can find either on Twitter under #BounceBit or through their Discord Channel which we included below.</p>
<p>Here are our invite codes that you can use. Do note that each invite code is valid for one user.</p>
<p dir="ltr"><a href="https://bouncebit.io?code=KNZF5" rel="nofollow noopener" target="_blank">https://bouncebit.io?code=KNZF5</a> </p>
<p dir="ltr"><a href="https://bouncebit.io?code=D4DDS" rel="nofollow noopener" target="_blank">https://bouncebit.io?code=D4DDS</a> </p>
<p dir="ltr"><a href="https://bouncebit.io?code=CMUXM" rel="nofollow noopener" target="_blank">https://bouncebit.io?code=CMUXM</a> </p>
<p dir="ltr"><a href="https://bouncebit.io?code=9NA2G" rel="nofollow noopener" target="_blank">https://bouncebit.io?code=9NA2G</a> </p>
<div dir="ltr"><img alt="Enter BounceBit Early Access Code" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9807/content_1.1_early_access_code.webp" style="width: 1250px; height: 739px;"></div>
<p dir="ltr">After entering the invite code, you will need to connect your wallet, follow BounceBit on Twitter, and join the BounceBit Discord channel.</p>
<div dir="ltr"><img alt="Connect wallet to Bouncebit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9808/content_1.2_connect_wallet_etc.webp" style="width: 1250px; height: 600px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 2: Deposit Tokens</h2>
<p dir="ltr">After you have connected your wallet, go to <strong>Deposit</strong> your tokens either on Ethereum or BNB Chain. </p>
<div dir="ltr"><img alt="Deposit tokens on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9809/content_deposit.webp" style="width: 1250px; height: 631px;"></div>
<p dir="ltr">The available tokens on Ethereum are Wrapped Bitcoin (<a href="https://www.coingecko.com/en/coins/wrapped-bitcoin" target="_blank">WBTC</a>), <a href="https://www.coingecko.com/en/coins/bounce" target="_blank">Bounce</a> (AUCTION), DAII (<a href="https://www.coingecko.com/en/coins/daii" target="_blank">DAII</a>), Multibit (<a href="https://www.coingecko.com/en/coins/multibit" target="_blank">MUBI</a>), and Tether (<a href="https://www.coingecko.com/en/coins/tether" target="_blank">USDT</a>) while on BNB Chain you can deposit Bitcoin BEP2 (<a href="https://www.coingecko.com/en/coins/bitcoin-bep2" target="_blank">BTCB</a>) or First Digital USD (<a href="https://www.coingecko.com/en/coins/first-digital-usd" target="_blank">FDUSD</a>).</p>
<div dir="ltr"><img alt="Tokens available on BounceBit Ethereum" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9810/content_2.1_ethereum.webp" style="width: 1250px; height: 877px;"></div>
<div dir="ltr"> </div>
<div dir="ltr"><img alt="Tokens available on BounceBit BNB Chain" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9811/content_2.2_bnb_chain.webp" style="width: 1250px; height: 972px;"></div>
<p dir="ltr">In this example, we are depositing USDT on Ethereum but recommend using BNB Chain for cheaper gas fees. </p>
<p dir="ltr">To be eligible for drawing points and receiving rewards, you need to deposit at least $10 worth of tokens. However, the amount you deposit will influence the points you receive. </p>
<p dir="ltr">This point distribution system as well as the gas fees you incur should be taken into consideration when deciding how much to deposit.</p>
<div dir="ltr"><img alt="Deposit on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9812/content_2.3_deposit_usdt.webp" style="width: 1250px; height: 865px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 3: Claim Points</h2>
<p dir="ltr">Head to <strong>Points Paradise</strong> to access the hourglass that distributes points every 24 hours. After connecting your wallet and depositing, you will need to wait for the first 24 hours.</p>
<div dir="ltr"><img alt="Claim Points on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9813/content_3._points_page.webp" style="width: 1250px; height: 609px;"></div>
<p dir="ltr">Once the time has passed, you can make your first claim.</p>
<p dir="ltr">As written above, the number of points you receive is determined by your deposit. Your points will accumulate with each draw and move your ranking higher on the leaderboard, giving you more chances for exclusive rewards. </p>
<div dir="ltr"><img alt="Points claimed on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9814/content_points_claimed.webp" style="width: 1250px; height: 686px;"></div>
<div dir="ltr"> </div>
<getresponse-form e="1" form-id="160c7f82-6d38-46a1-9974-b323ce663aaa"></getresponse-form>
<p> </p>
<p> </p>
<h2 dir="ltr">Step 4: Invite Others</h2>
<p dir="ltr">Points earned by those you invite will give you an additional 10% points. </p>
<p dir="ltr">Under <strong>Invite</strong>, each user is given five invite codes to create a team and those with a cumulative deposit of 0.1 BTC will earn a Boost draw for each member. Boost draws can give users either a Swift card to expedite the hourglass time or a Boost card which gives extra bonuses for each point claim.</p>
<p dir="ltr">Additionally, as teams complete milestones, members have the chance to obtain more invite codes.</p>
<div dir="ltr"><img alt="Invite codes on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9815/content_4._invites.webp" style="width: 1250px; height: 664px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 5: Keep Drawing</h2>
<p dir="ltr">As you continue to claim points, you will also get to draw different levels of Boost cards and Swift cards to give you extra rewards. </p>
<p dir="ltr">The Boost cards come in different tiers and offer various levels of bonus points with each claim. The rarity tier ascends from N, R, SR, SSR, to UR.</p>
<div dir="ltr"><img alt="Draw Boost cards on BounceBit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9816/content_boost_cards.webp" style="width: 1250px; height: 605px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Sidenotes</h2>
<p dir="ltr">To join the BounceBit Discord server, head to <a href="https://discord.gg/bouncebit" rel="nofollow noopener" target="_blank">https://discord.gg/bouncebit</a> and you will be redirected to the Discord app. </p>
<div dir="ltr"><img alt="Join BounceBit Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9817/content_Join_discord.webp" style="width: 1250px; height: 578px;"></div>
<p dir="ltr">After you click <strong>Join BounceBit Server</strong> you will be added to the #new-members channel. </p>
<div dir="ltr"><img alt="Complete steps to join BounceBit Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9818/content_complete_steps.webp" style="width: 1250px; height: 738px;"></div>
<p dir="ltr">Click <strong>Complete</strong> and read and agree to the rules.</p>
<div dir="ltr"><img alt="Agree to BounceBit Discord server rules" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9819/content_agree_to_rules.webp" style="width: 1250px; height: 1057px;"></div>
<p dir="ltr">Then head to the #verify-here channel to complete the Captcha verification. </p>
<div dir="ltr"><img alt="Verify Captcha on BounceBit Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9820/content_verify.webp" style="width: 1250px; height: 749px;"></div>
<p dir="ltr">You can find invite codes to the Water Margin Event in the #invite-code-share channel.</p>
<div dir="ltr"><img alt="BounceBit Discord Invite Code Sharing channel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9821/content_invite_codes.webp" style="width: 1250px; height: 677px;"></div>
<div dir="ltr"> </div>
<h3 dir="ltr">BounceBit Premium</h3>
<p dir="ltr">Early Access gives users the chance to interact with delta-neutral investment options with a minimum deposit of 0.1 BTCB or 1,000 USDT. However, it is not explicitly written that interacting with this will increase your points. Therefore, we will not cover the steps in participating with this product and recommend that you thoroughly consider it before proceeding as the process involves a significant amount of assets that are prone to market volatility.</p>
<p dir="ltr">If you wish to try it out for yourself, head to Premium.</p>
<div dir="ltr"><img alt="BounceBit Premium" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9822/content_premium.webp" style="width: 1250px; height: 592px;"></div>
<p dir="ltr">A pop-up will appear for you to read and acknowledge the agreement. </p>
<div dir="ltr"><img alt="BounceBit Premium Agreement" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9823/content_5._premium.webp" style="width: 1250px; height: 579px;"></div>
<p dir="ltr">You can then see the different yield strategies. </p>
<div dir="ltr"><img alt="BounceBit Yield Strategies" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9824/content_stake.webp" style="width: 1250px; height: 882px;"></div>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">BounceBit is a native BTC restaking blockchain secured by a dual-token staking system using BTC and BB. The Proof-of-Stake mechanism leverages native BTC security with full EVM compatibility. By blending DeFi and CeFi yield mechanisms, users can earn yield on idle BTC. BounceBit is currently providing early access to the protocol through the Water Margin Event, letting users interact with the platform while earning points. </p>
<p dir="ltr">As mentioned above, there is no official announcement from the BounceBit team that participating in the Water Margin Event will result in a token airdrop. </p>
Stephanie Gohhttps://www.coingecko.com/learn/bouncebit-points-potential-airdrop
How to Earn Points on BounceBit
To start earning points on BounceBit, you need an early access code. After connecting your wallet, you can earn points by depositing tokens, where the amount de...tag:www.coingecko.com,2005:Post/12762024-03-25T18:25:21Z2024-03-25T09:32:22ZWhat Is Render Network and How It Rents Out GPU Power<p><meta charset="utf-8"></p>
<h2 dir="ltr">What Is Render Network and RNDR?</h2>
<p dir="ltr">Render Network is a peer-to-peer network that rents out idle GPU power to content creators and AI applications, where transactions are processed securely and transparently using the blockchain and smart contracts. The RNDR token is the native token of Render Network, and it is used to pay for rendering jobs on the platform. </p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Render Network is backed by OTOY, a cloud rendering company. It pools dormant GPU power and creates a marketplace where individuals and entities ("Creators") can leverage this dormant power to process high-quality graphics, train AI models, and more.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Render Network offers Creators scalability, privacy and security, and transparency, utilizing Proof-of-Render to manage the validation process for a delivered job and the remuneration for each Node Operator.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Node operators are paid in RNDR, the project’s native token, for completing a job. RNDR also serves as the governance token of the project, and it is currently on the rise due to the interest in the AI narrative.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="What is Render Network Crypto" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9805/content_What_is_Render_Network_Crypto.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">In 2023, Render Network’s token, <a href="https://www.coingecko.com/en/coins/render" target="_blank">RNDR</a>, rose in value by over 1,000%. Render Network's rise is attributed to an increase in interest in <a href="https://www.coingecko.com/learn/crypto-ai-artificial-intelligence-coins" target="_blank">AI</a>, and the subsequent demand for GPUs to train AI models that <a href="https://www.theinformation.com/articles/ai-developers-stymied-by-server-shortage-at-aws-microsoft-google" target="_blank">outstrips</a> the supply of major cloud-server providers like Amazon Web Services, Microsoft, Google, and Oracle. </p>
<p dir="ltr">Render Network is designed to rent out dormant GPU power, allowing Creators to access a network of idle GPUs for compute power. While originally positioned as a solution for Creators to render graphics and other assets at scale, it has since branched out beyond movies and games, and Render Network now also supports AI computing, where GPU power can be rented to train generative AI models.</p>
<p dir="ltr">Render Network is founded by Jules Urbach, who is also the founder of OTOY, a cloud rendering service that delivers cinematic quality 3D graphics. </p>
<h2 dir="ltr">Understanding Render Network</h2>
<p dir="ltr">As mentioned above, Render Network aims to overcome the bottleneck around computational infrastructure where the centralized GPU cloud is unable to meet demands for computing power, resulting in high prices and lack of availability. Render Network connects individuals or entities (referred to as "Creators") that need GPU power, with those who have idle GPU resources ("Node Operators").</p>
<p dir="ltr">Render Network overcomes the limits of the centralized cloud by renting out dormant GPU power to Creators or other protocols. Device owners anywhere in the world can become Node Operators, who commit their idle GPUs to Render Network, and earn RNDR whenever their GPU power is used to complete a job. </p>
<p dir="ltr">This means Creators and applications can easily obtain GPU power to render high-definition graphics or train an AI model via this setup, paying a fee that is significantly lower than the centralized GPU cloud. This has led to Render Network becoming a major protocol to watch in both <a href="https://www.coingecko.com/learn/depin-crypto-decentralized-physical-infrastructure-networks" target="_blank">DePIN</a>, where major studios have used Render Network in their production workflow, and the AI space.</p>
<blockquote>
<p dir="ltr">“In the case of one layer to what we are providing, DePIN…studio movies have been rendered on decentralized nodes in our system with end-to-end encryption — you’re getting faster speed, you’re getting one tenth of cost, you have massive availability, and a ledger can authenticate what an image is or where the data came from, that’s built into the crypto part of it — we have Proof of Render.</p>
<p dir="ltr">Generative AI on the inference and training side also fit to the kinds of GPUs that are already on Render. You don’t need an H100 to do training on generative video. One of the more exciting propositions for us is we look at the Apple ecosystem where you have GPUs with 120 gigabytes of video memory, those are out there in the tens of millions. Tapping into that is going to be a massive win over the cost of the scaling issues we have on centralized clouds. That’s where I see huge advantages of decentralized approaches like we have.”</p>
</blockquote>
<p dir="ltr" style="text-align: right;">— <a href="https://medium.com/render-token/ai-and-depin-solana-spaces-eth-denver-btn-march-1st-2024-59a8899b3046" rel="nofollow noopener" target="_blank">Jules Urbach, Founder @ Render</a></p>
<p dir="ltr">Due to increase in demand and in anticipation of future network growth, the Render Foundation decided to move Render Network to Solana. One of these considerations is blockchain throughput, where the project claims that “(at) peak moments, the Render Network could already have more frames completed within a single second than ETH's TPS.” There is also anticipation around emerging technologies that open up new applications, such as the <a href="https://www.metaplex.com/posts/expanding-digital-assets-with-compression-for-nfts" rel="nofollow noopener" target="_blank">emerging Merkle Tree compression for NFTs developed by Solana Labs and Metaplex</a>.</p>
<h2 dir="ltr">How Render Network Works</h2>
<p dir="ltr">Render Network’s operation consists of</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">A <a href="https://www.coingecko.com/learn/what-is-a-blockchain" target="_blank">blockchain</a> network</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Creators, who create jobs that require GPU power</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Node Operators, who are GPU owners that commit their idle GPUs to the network</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">OctaneRender, the engine used in the Render Network client</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">A multi-tier pricing protocol and</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Proof-of-Render, a consensus system that guides the general operation.</p>
</li>
</ul>
<p dir="ltr">Render Network was first deployed on the Ethereum blockchain and was also recently launched on the Solana blockchain, with plans to eventually move to the latter. The blockchain layer handles payments, where public ledgers ensure that all Creator-Node Operator interactions are transparent, where all parties (and the Foundation Team) can ensure that all transactions are processed correctly and can be identified and corrected if needed. </p>
<div dir="ltr"><img alt="How Render Network works" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9802/content_render_scheme.webp" style="width: 1040px; height: 444px;" loading="lazy"></div>
<p dir="ltr">Creators who wish to rent GPU power from the Render Network create a job. The job contains the details of the task, where the fee is determined by the job’s parameters and the network’s resource availability.</p>
<p dir="ltr">Node Operators use OctaneRender, a rendering application developed by OTOY, the graphics development firm behind Render Network. To ensure the privacy and security of assets and Creators on the network, the system uses end-to-end encryption and hashing, along with other measures. </p>
<p dir="ltr">A multi-tier pricing protocol handles the job allocation. It uses a reputation-based system to rank Node operators and lets creators select from pricing three tiers. Tier 1 services are used by the project’s trusted partners. Creators who wish to obtain a high-quality service can select Tier 2. Tier 3 is the economy tier.</p>
<p dir="ltr">Tier 1 services are handled by highly rated node operators and are usually executed faster. Once node operators start processing the job, creators can track the progress of their job in real time using OctaneRender. Highly rated node operators also receive more job allocations. </p>
<p dir="ltr">Render Network’s Proof-of-Render (POR) consensus algorithm coordinates the processing of the job. Similar to how the Proof-of-Work consensus algorithm works, the node operator commits their computing resources (GPU) to process the task. However, instead of a mathematical puzzle, the task here is a graphics rendering job. Upon delivering the job, the POR algorithm updates the node operator's status, including changes to the reputation score based on the quality of the task delivered.</p>
<h2 dir="ltr">Benefits of Render Network</h2>
<p dir="ltr">Now, let’s take a look at some of the benefits Render Network brings to the field of GPU processing.</p>
<h3 dir="ltr">Scalability</h3>
<p dir="ltr">Creators who use Render Network access an on-demand GPU power, where they can rent as much GPU power for their task as needed. With <a href="https://blocktelegraph.io/blockchain-startup-rndr-surpasses-google-amazon-gpus/" rel="nofollow noopener" target="_blank">reports</a> stating that Render Network has more GPUs than Amazon’s and Google’s networks, it’s not a stretch to say that Render Network Creators have access to an infinitely scalable GPU power sourcing system.</p>
<h3 dir="ltr">Privacy and Security</h3>
<p dir="ltr">As Render Network handles jobs from individuals to globally recognized studios, it has taken measures to protect the privacy of Creators and assets on the network. These measures include encrypting all assets, limiting individual asset storage to short term, and watermarking individual frames to ensure payment is made before scenes are downloaded.</p>
<h3 dir="ltr">Transparency and Fair Pricing</h3>
<p dir="ltr">Render Network claims to offer Creators and Node Operators a fully transparent system. As mentioned above, by utilizing the blockchain to handle payments, all Creator-Node Operator interactions are publicly verifiable on the blockchain’s public ledgers. Creators and Node Operators both need to build reputation scores to access larger amounts of concurrent GPU nodes (Creators) or receive a higher volume of jobs (Node Operators), which depend on the number of jobs completed successfully. This is combined with a multi-tier pricing system that allows users to pay according to their needs and budget. </p>
<h2 dir="ltr">Use Cases of Render Network</h2>
<p dir="ltr">Render Network’s GPU processing power can be rented for a variety of applications, ranging from film and game development to AI. Render Network supports use cases beyond those outlined below, including physics and mathematical simulations or project mapping.</p>
<h3 dir="ltr">Film, Games, and Other Media</h3>
<p dir="ltr">Films and game development demand high-quality graphics, and creators in the space could benefit from a scalable supply of GPU power to bring their visions to life. Artist and 3D Motion Designer Raoul Marks has used Render Network to create the opening title sequences for shows including Westworld Season 4. </p>
<blockquote class="twitter-tweet">
<p dir="ltr" lang="en">A: "LightStage is used in almost every <a href="https://twitter.com/hashtag/Marvel?src=hash&ref_src=twsrc%5Etfw">#Marvel</a> & <a href="https://twitter.com/hashtag/StarWars?src=hash&ref_src=twsrc%5Etfw">#StarWars</a> film for digital doubles & the openings of Ant Man & The Wasp and Captain Marvel were rendered in Octane (the former on the cloud!). <a href="https://twitter.com/hashtag/Disney?src=hash&ref_src=twsrc%5Etfw">#Disney</a> is an investor in <a href="https://twitter.com/OTOY?ref_src=twsrc%5Etfw">@OTOY</a> since 2016..."<a href="https://twitter.com/hashtag/RNDR?src=hash&ref_src=twsrc%5Etfw">#RNDR</a> <a href="https://twitter.com/hashtag/cloudrender?src=hash&ref_src=twsrc%5Etfw">#cloudrender</a> <a href="https://twitter.com/hashtag/cloud?src=hash&ref_src=twsrc%5Etfw">#cloud</a> <a href="https://twitter.com/hashtag/rendering?src=hash&ref_src=twsrc%5Etfw">#rendering</a></p>
— The Render Network (@rendernetwork) <a href="https://twitter.com/rendernetwork/status/1280508966511038466?ref_src=twsrc%5Etfw">July 7, 2020</a>
</blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<h3 dir="ltr">Artificial Intelligence (AI)</h3>
<blockquote class="twitter-tweet">
<p dir="ltr" lang="en">The Render Network, the leading blockchain GPU network, is exploring support for AI and machine learning tasks.<br>
<br>
The latest RNP-004 - Open Compute Clients is a proposal by <a href="https://twitter.com/ANTBIT_OFFICIAL?ref_src=twsrc%5Etfw">@ANTBIT_OFFICIAL</a> to leverage Render Network nodes for AI / ML workloads via the network’s API..🧵</p>
— The Render Network (@rendernetwork) <a href="https://twitter.com/rendernetwork/status/1678888420108652548?ref_src=twsrc%5Etfw">July 11, 2023</a>
</blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<p dir="ltr">On July 11, 2023, <a href="https://x.com/rendernetwork/status/1678888420108652548?s=20" rel="nfollow noopener" target="_blank">Render Network shared its plans to support AI and machine learning tasks</a> (jobs); the integration will allow node operators on the network to take on rendering jobs for AI-generated graphics and prototypes. As generating images is computationally demanding, Render Network’s rent-as-you-go GPU allows these applications to render high quality images for a lower cost. </p>
<h3 dir="ltr">Architecture and Product Design</h3>
<p dir="ltr">Architects and product designers can also utilize Render Network to develop high-quality 3D visualizations for their designs. Product designers can prototype at scale, testing texture and colors through parallelized GPU rendering, while architects can create immersive virtual reality architectural renders.</p>
<h2 dir="ltr">Render Token and its Utility</h2>
<p dir="ltr"><a href="https://www.coingecko.com/en/coins/render" target="_blank">Render Token (RNDR)</a> is the native token of the Render Network. The Render Network team released RNDR in October 2017 and has since this time integrated the token into the growth and development plans for the Render Network. According to the project, the total supply of RNDR tokens sits at 536,870,912. 25% of the total supply has been used in fundraisers and 10% allocated to the project’s reserves. The use cases for RNDR include;</p>
<h3 dir="ltr">Governance</h3>
<p dir="ltr">As the governance token of the project, the Render token is the political structure of the project and represents individual influence and community strength.</p>
<p dir="ltr">RNDR holders make up the Render DAO and are eligible to submit development proposals (Render Network Proposal (RNP)) and also vote on proposals. Each RNDR holder has a decision weight proportional to the number of tokens held. According to the project, each proposal goes through a prior review process before being set up for voting on the governance portal, which is open to any RNDR holder. </p>
<h3 dir="ltr">Paying for Jobs</h3>
<p dir="ltr">RNDR is the base currency of the Render Network. Creators who wish to render their graphics via GPU from Node Operators pay RNDR for the job. The cost for a job is determined by the GPU power required to render the graphics. On the Render Network, this is measured in OctaneBench (OBH), which is a tool created by OTOY to define the GPU power provided by any combination of graphics cards into a single score.</p>
<p dir="ltr">However, to simplify the payment process for Creators who are not conversant with cryptocurrency, Render Network introduced the RNDR credit which can be purchased using bank cards, but these credits still reflect the RNDR value of the payment to be made, and Node Operators receive their rewards in RNDR.</p>
<h3 dir="ltr">Burn and Mint Equilibrium</h3>
<p dir="ltr">The Burn and Mint Equilibrium (BME) is a tokenomics model for the RNDR token. According to the project, this is meant to create more value for the token via a better pricing and remittance arrangement for Creators and Node Operators. In line with this model, the network computes the cost of jobs in dollars. Creators will be required to burn RNDR equal to this dollar value to create a job on the network. Creators who don’t hold the RNDR token will be required to purchase the token to create a job, which creates a constant demand for the RNDR token. </p>
<p dir="ltr">When a job is created, the Node Operator who processes the job will receive their reward in RNDR tokens. The network mints RNDR per epoch. For every epoch, it computes the job processed and the percentage processed by each Node Operator. 90% of the RNDR token minted per epoch is used for Node Operator rewards while the rest is allocated to availability rewards. Node Operator receive rewards according to job processes and uptime challenges completed (also known as availability). Part of the availability reward is also used to incentivize Creators to create a job on the Render Network. The mechanism adjusts emissions according to the network’s demand status.</p>
<h2 dir="ltr">Rise of Render Token (RNDR)</h2>
<div dir="ltr"><img alt="Render Token Price Chart" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9801/content_render_chart.webp" style="width: 1200px; height: 876px;"></div>
<p dir="ltr">RNDR has been consistently setting new highs since Q4 2023; first it ended the year 2023 as one of the best-performing assets with over 1,000% gain, and reaching a new all-time high of $13.53 on March 17 2024. </p>
<p dir="ltr">The Render token is on the rise, fueled by the interest in AI and GPU manufacturer Nvidia’s record quarterly revenue of over $22 billion. In addition, Mac Pro hardware users enjoy the first year of OctaneRender VFX software for free, which could further drive interest in RNDR from Creators. </p>
<p dir="ltr">Moreover, with the demand for GPUs to train AI processing models, there is now an additional demand stream for Render Network's services. Render Network's pay-as-you-go approach is also more appealing for smaller enterprises and individuals, as Creators only pay for what they need. </p>
<p dir="ltr">RNDR currently trades on decentralized exchanges on Ethereum and Solana blockchain and centralized exchanges like Binance, Kucoin, and Gate exchange. See <a href="https://www.coingecko.com/en/coins/render" target="_blank">active trading pairs for RNDR</a>.</p>
<h2 dir="ltr">Final Thoughts</h2>
<p dir="ltr">As the demand for AI and next-generation media increases, so does the demand for GPU computing power. With Render Network's access to a vast network of idle GPUs, the project is able to offer scalable GPU power based on a Creator's needs. Unlike its centralized competitors, Render Network doesn't have to limit GPU availability while offering competitive rates, as its pricing model is based on $1 worth of RNDR, reducing the impact of the RNDR token's volatility. Render Network uses blockchain technology and smart contracts to create a transparent decentralized marketplace for GPU power, where Node Operators can monetize their idle GPUs while Creators can access a cost-effective and efficient rendering solution based on their needs. </p>
<p dir="ltr">This article is provided only for information and education purposes, and it is not meant to be taken as financial or investment advice. Readers are recommended to do your own research before investing any capital into any protocol.</p>
Joel Agbohttps://www.coingecko.com/learn/what-is-render-network-rndr-crypto
What Is Render Network and RNDR?
Render Network is a peer-to-peer network that rents out idle GPU power to content creators and AI applications, where transactions are processed securely and...tag:www.coingecko.com,2005:Post/12752024-03-22T04:29:13Z2024-03-22T09:01:06ZReal World Asset Tokenization Explained: XDC Network Preferred for RWA Tokenization<p dir="ltr"><img alt="RWA Tokenization XDC" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9800/content_RWA_Tokenization_XDC.webp" style="width: 1200px; height: 600px;"></p>
<p dir="ltr"><em>This article is sponsored by XDC.</em></p>
<p dir="ltr">In an era when blockchain technology is redefining the boundaries of finance, XDC Network emerges as a pioneering platform, bridging the gap between digital and traditional asset worlds. This article delves into the transformative potential of integrating Real World Assets (RWA) with blockchain through the lens of XDC Network, showcasing how this innovative blend is setting new paradigms in the financial landscape.</p>
<h2 dir="ltr">The Role of Real World Assets (RWA) in Blockchain</h2>
<p dir="ltr"><a href="https://www.coingecko.com/learn/what-are-real-world-assets-exploring-rwa-protocols" target="_blank">Real World Assets (RWA)</a> refer to tangible or intangible assets from the traditional economy, such as real estate, commodities, or financial instruments, that are tokenized and brought onto the blockchain. This integration offers unprecedented benefits, including enhanced <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a>, transparency, and global access while democratizing investment opportunities.</p>
<p dir="ltr">However, tokenizing real world assets poses unique challenges, such as ensuring regulatory compliance, establishing reliable valuation methods, and creating robust frameworks for asset management and transfer. XDC Network addresses these challenges head-on, providing a secure and compliant RWA tokenization and trade environment.</p>
<h2 dir="ltr">Understanding XDC Network</h2>
<p dir="ltr">XDC Network is a pioneering, carbon-neutral, and EVM-compatible Layer 1 blockchain, renowned for its enterprise-grade capabilities. Leveraging a unique XinFin Delegated Proof of Stake (XDPoS) consensus mechanism, it achieves remarkable transaction speeds of 2 seconds and over 2000 TPS, with minimal gas fees (around $0.0001). </p>
<p dir="ltr">Designed for interoperability and compliance with ISO 20022 financial messaging standards, the XDC Network excels in facilitating Trade Finance, payment processing, and Real World Asset (RWA) tokenization. Its robust, scalable, and efficient platform underscores a commitment to innovation, making it a preferred choice for businesses seeking advanced blockchain solutions.</p>
<p>With a robust infrastructure, XDC Network ensures lightning-fast transactions, minimal fees, and enhanced platform interoperability. This makes it an ideal ecosystem for developing and hosting Real World Assets, allowing seamless integration into the digital economy.</p>
<h2 dir="ltr">Showcasing RWA Ecosystem on XDC Network </h2>
<p dir="ltr"><a href="https://www.coingecko.com/en/categories/xdc-ecosystem" target="_blank">XDC Network Ecosystem</a> involves various RWA projects, demonstrating the network's capacity to revolutionize different sectors. </p>
<h3 dir="ltr">1) ComTech Gold (CGO)</h3>
<p dir="ltr"><a href="https://comtechgold.com/" rel="nofollow noopener" target="_blank">ComTech Gold</a> (CGO) is a groundbreaking digital asset backed by 100% physical gold. Each CGO token represents one gram of pure gold, and the gold backing CGO is securely stored with Transguard, a reputable vault operator in the UAE. </p>
<p>CGO tokens are directly linked to real-world gold. Every <a href="https://www.coingecko.com/en/coins/comtech-gold" target="_blank">circulatory CGO token</a> has a corresponding piece of physical gold stored in a vault. These gold bars are standardized 1 kg bars with 999.9 purity. This system's transparency ensures that each CGO token is backed by an identifiable piece of gold, complete with its audit trail.</p>
<p dir="ltr">CGO's value remains stable because it's directly tied to the international gold rate. It is fully Shariah-compliant and certified by a renowned UAE Shariah scholar group that proves the CGO. Investors holding CGO tokens have the unique advantage of being able to convert them to physical 1 kg gold bars whenever they choose. CGO is available on Lbank, Bitmart, Bitrue, and Xswap Dex exchanges. Apart from exchanges, anyone can buy CGO directly from ComTech Gold's mobile application using this <a href="https://comtechgold.com/assets/ComTechGoldAPP%E2%80%93Step-by-StepGuide-Updated.pdf" rel="nofollow noopener" target="_blank">simple guide</a>.</p>
<h3 dir="ltr">2) U.S. Treasury Securities Tokenization by Yieldteq (USTY)</h3>
<p dir="ltr">U.S. Treasury Securities Tokenization by <a href="https://www.yieldteq.io/" rel="nofollow noopener" target="_blank">Yieldteq</a> is an innovative XDC Network application designed to modernize traditional financial instruments through blockchain technology. This initiative allows for the tokenization of U.S. Treasury Securities, bridging conventional financial systems and the burgeoning field of decentralized finance (DeFi). </p>
<p dir="ltr">USTY falls under the jurisdiction of the Securities and Exchange Commission (SEC) in the United States. USTY tokens are subject to securities laws, which aim to protect investors and ensure transparency in the financial markets. </p>
<h3 dir="ltr">3) STASIS (EURS)</h3>
<p dir="ltr"><a href="https://statis.net/" rel="nofollow noopener" target="_blank">STASIS</a> EURO, or <a href="https://www.coingecko.com/en/coins/stasis-eurs" target="_blank">EURS</a>, is a digital version of the Euro. It's a stablecoin, which means each EURS is worth the same as one Euro, and they keep enough real Euros to back up all the EURS they create. They focus on stablecoins, cryptocurrencies designed to have a stable value. They aim to make it easy for people to use digital money. </p>
<p dir="ltr">The STASIS-issued EURS has gained recognition as a dependable asset within the Euro stablecoin sector, appealing to a broad audience, including users, businesses, traders, and merchants. Its distinct attributes, backed by thorough research, demonstrate EURS's superiority as a multichain asset. The STASIS team's commitment to multichain development has led to enhancements in transaction speed, reduced fees, and improved scalability, further expanding the EURS user base. The integration of EURS with the XDC network has fortified its position, attracting a new global community and enterprise participants. EURS can be traded or bought from exchanges, namely HitBTC, Indodax, Yobit, Curve, and Xswap Dex. </p>
<h3 dir="ltr">4) Kinesis Money (KAU) (KAG)</h3>
<p dir="ltr"><a href="https://kinesis.money/" rel="nofollow noopener" target="_blank">Kinesis Money</a> is a monetary system that allows users to manage and spend gold and silver as money. It offers digital currencies fully backed by physical gold and silver, known as Kinesis Gold (<a href="https://www.coingecko.com/en/coins/kinesis-gold" target="_blank">KAU</a>) and Kinesis Silver (<a href="https://www.coingecko.com/en/coins/kinesis-silver" target="_blank">KAG</a>). One KAU is equivalent to one gram of physical gold bullion, and one KAG is equivalent to one ounce of physical silver bullion.</p>
<p dir="ltr">The system is designed to provide a stable and transparent way to protect wealth by using precious metals as a medium of exchange. Users can earn yields by holding, spending, referring, or minting these digital currencies. The gold and silver are stored in secure vaults, and the ownership is verified through regular independent audits. Kinesis Money aims to offer a fair and rewarding monetary system that is resistant to inflation and provides a true store of value, contrasting with traditional currencies that can be susceptible to devaluation. </p>
<h3 dir="ltr">5) TradeFinex</h3>
<p dir="ltr"><a href="https://tradefinex.org/" rel="nofollow noopener" target="_blank">TradeFinex</a> is a blockchain-based platform that facilitates trade finance solutions by connecting trade finance originators with a network of banks and financial institutions. Built on the XDC Network, TradeFinex leverages blockchain technology to provide a secure, transparent, and efficient mechanism for various trade finance transactions.</p>
<p dir="ltr">Recently, Zoth — a Web 3 fixed-income marketplace, has completed its successful Supply Chain Financing (SCF) pilots via the tokenization of invoices using the XDC Network. InvoiceMate, acting as the loan originator, achieved a notable feat by securing funds for client H & H International LLC through the tokenization of essential documentation, including the invoice. The pilots used TradeFinex's open-source smart contract standards. They were funded using FXD, a fully decentralized stablecoin soft pegged to U.S. Dollars, and over-collateralized with the XDC token using the Fathom Protocol. It is easy to <a href="https://portal.tradefinex.org/add-pool" rel="nofollow noopener" target="_blank">create a regulated pool</a> on the TradeFinex marketplace for improved cash flow and easy access to trade financing, strengthening buyer/supplier relationships.</p>
<h3 dir="ltr">6) Fathom Dollar (FXD)</h3>
<p dir="ltr">Fathom Dollar FXD is an XDC Network-based stablecoin. It represents a stable-price cryptocurrency issued and developed by <a href="https://fathom.fi/" rel="nofollow noopener" target="_blank">Fathom</a> DAO, which FTHM, a decentralized autonomous organization, fuels. The value of <a href="https://www.coingecko.com/en/coins/fathom-dollar" target="_blank">FXD</a> is softly pegged to the U.S. dollar and is supported by an over-collateralized XDC Token, which is securely held in smart-contract vaults while creating new FXD tokens. </p>
<p dir="ltr">One of the primary objectives of FXD is to address the existing gap in trade finance by offering direct access to alternative investors for micro, small, and medium-sized enterprises (MSMEs). Through platforms like portal.tradefinex.org and fathom.fi, Leveraging the fast, scalable, and secure infrastructure of the XDC Network, FXD provides Stable options to MSMEs with a more accessible and cost-effective means to access the necessary capital for business growth. This initiative contributes to economic expansion and job creation, empowering MSMEs to thrive in the global marketplace. </p>
<p dir="ltr">Minting Fathom Dollar FXD is done with simple steps, such as keeping XDC in an escrow contract. Here are the steps to mint FXD: </p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Connecting the Wallet to <a href="https://dapp.fathom.fi/#/" target="_blank">Fathom Dapp</a> </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Opening the Position</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Entering the amount of Collateral XDC </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Clicking on Open this position </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Approving the Position. </p>
</li>
</ol>
<p dir="ltr">Currently, more than 1 million FXD has been minted, keeping 2.5 million XDC locked as collateral. Anyone can swap or buy <a href="https://www.coingecko.com/en/coins/fathom-dollar" target="_blank">Fathom Dollar FXD</a> on the Fathom Dex, Xswap, or Bitrue exchange.</p>
<h2 dir="ltr">The Future of XDC Network and Real World Asset Tokenization</h2>
<p dir="ltr">The fusion of blockchain technology and Real World Assets is just beginning, with XDC Network leading the charge toward a more integrated, efficient, and transparent financial ecosystem. As blockchain technology evolves and adoption widens, XDC anticipates even more innovative applications of RWA, further enhancing platforms' utility and reach. </p>
<p dir="ltr">The XDC Network warmly welcomes Real World Asset (RWA) projects to join our platform and build on the XDC Network. XDC encourages these projects to actively engage with the community by posting any support needs or inquiries on the <a href="https://www.xdc.dev/" target="_blank">XDC.Dev</a> forum, where they can find assistance and collaboration opportunities. </p>
<p dir="ltr">The future aims to hold promising developments for XDC Network, including technological advancements, expanded partnerships, and growing community engagement, which will bolster its position as a critical player in the RWA Blockchain space. </p>
<h3 dir="ltr">XDC Network Market Updates</h3>
<p dir="ltr">While writing, the trading volume of XDC Network (<a href="https://www.coingecko.com/en/coins/xdc-network" target="_blank">XDC</a>) is $19,206,596 in the last 24 hours, trading at $0.042, where the price is 77.88% lower than the all-time high price and 10,684.76% higher than the all-time low price. XDC is traded on the exchanges namely Kucoin, Bitfinex, Uphold, Gate.io, HTX, CEX.io, Bitget, HitBTC, Huobi, Indodax, Bitrue, CoinDCX, Coins.ph, Bitmart, FMFW, Lbank, MEXC, BLOX, Mercatox, CoinEX, StealthEx, Whitebit, Bybit, CoinW, DigiFinex, BuyUcoin, Liquid, Bequant, ProBit, Changelly Pro, Proton DEX, Kinesis. XDC is also listed on Xswap DEX, Globiance DEX, Changelly, SwapZone, Simple Swap, and more, and the list can be found at <a href="https://xinfin.org/get-xdc" target="_blank">Get XDC on the website</a>.</p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">XDC Network exemplifies the transformative potential of blockchain technology when applied to Real World Assets, offering a glimpse into a future where digital and traditional finance converge seamlessly. As we stand on the brink of this new era, the opportunities for innovation, investment, and growth are boundless. </p>
<p dir="ltr">Always do your own research before investing in any cryptocurrency or project. This article is for educational and informational purposes only and should not be taken as investment advice.</p>
CoinGeckohttps://www.coingecko.com/learn/xdc-network-rwa-tokenization
This article is sponsored by XDC.
In an era when blockchain technology is redefining the boundaries of finance, XDC Network emerges as a pioneering platform, bridging the gap between digital...tag:www.coingecko.com,2005:Post/12702024-03-21T13:30:05Z2024-03-22T04:45:29ZParallel Network Airdrop: Guide on Earning Parallel Points<!-- GetResponse Analytics --><script type="text/javascript">
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<h2 dir="ltr">How to Earn Parallel Points </h2>
<p dir="ltr">You can earn Parallel Points by engaging in activities on the Parallel Testnet, such as lending and borrowing. Based on information from the project, these Parallel Points will be exchangeable for future tokens at a predetermined ratio, although there is no confirmed airdrop period at time of writing. </p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Parallel Network is an Ethereum Layer 2 solution powered by Arbitrum’s Nitro stack.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">The protocol offers an omni-chain experience for users to interact with various blockchains from one place through consolidated liquidity. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">It has raised $30 million and is supported by investors and partners including Sequoia, Polychain Capital, and Coinbase Ventures.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="Earn Parallel Points Parallel Network Airdrop" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9778/content_Earn_Parallel_Points_Parallel_Network_Airdrop.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">Parallel Network is a full stack <a href="https://www.coingecko.com/learn/what-are-layer-2-crypto-protocols" target="_blank">Layer 2</a> scaling solution built on Ethereum with Arbitrum’s Nitro Stack, the same technology behind <a href="https://www.coingecko.com/en/categories/arbitrum-ecosystem" target="_blank">Arbitrum</a>, <a href="https://www.coingecko.com/en/categories/aave-tokens" target="_blank">AAVE</a>, and Socket DL. It offers an omni-chain that consolidates <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a> from various blockchains such as Ethereum, Arbitrum, and Base into one platform by employing native L2 Broker Accounts. The L2 Broker Accounts are essentially proxy <a href="https://www.coingecko.com/learn/crypto-smart-contracts" target="_blank">smart contracts</a> which act as trustless and noncustodial entities that sit between Automated User Operations and native chains supported by Parallel. With this method of employing Broker Accounts, liquidity is aggregated to enhance capital efficiency and create an omni-chain ecosystem where users can perform actions on other chains. </p>
<p dir="ltr">As a scaling solution built on Ethereum, it inherits many security properties from Ethereum itself while providing faster and cheaper transactions on its various products including native yield, lending, and staking. By being an <a href="https://www.coingecko.com/learn/ethereum-virtual-machine-evm" target="_blank">EVM</a>-compatible chain, contracts written for the Ethereum mainnet can also be deployed onto Parallel Network without any modifications for users to interact with Web3 apps, wallets, and more. Parallel Network also aims to provide a platform with a secure, transparent environment that makes decentralized applications more accessible while reducing the learning curve for new users. </p>
<p dir="ltr">Parallel Network’s team comprises individuals with experience from Stanford Cryptography and Solidity, Ubudu, and Alibaba, all working to integrate academic insight with industry experience. Together, the team has successfully raised $30 million with backing from <a href="https://www.coingecko.com/en/categories/coinbase-ventures-portfolio" target="_blank">Coinbase Ventures</a>, Sequoia, Polychain Capital, and more. </p>
<p dir="ltr">Now, Parallel Network’s early access testnet is open for users to explore the platform and try out the various products. Additionally, users can earn Parallel Points which will be exchangeable for Parallel’s <a href="https://www.coingecko.com/learn/governance-tokens" target="_blank">governance token</a> in the future. </p>
<p dir="ltr">The Parallel Points are tabulated based on Supply and Borrow categories. Interacting within these two categories as often as possible will directly influence the accumulation of points which are distributed every hour of the day. Now is a good time to interact with the Parallel Network testnet and start earning Parallel Points!</p>
<p dir="ltr"><strong>Do take note that there is no confirmed airdrop period.</strong></p>
<h2 dir="ltr">Step 1: Connect Wallet </h2>
<p dir="ltr">Go to <a href="https://app-staging.parallel.fi" rel="nofollow noopener" target="_blank">https://app-staging.parallel.fi</a> where you will be prompted to connect your wallet and choose the network. Select Parallel Testnet.</p>
<div dir="ltr"><img alt="Connect to Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9721/content_1._Connect_to_Parallel.webp" style="width: 1250px; height: 771px;"></div>
<h2 dir="ltr">Step 2: Get ETH on Sepolia Testnet</h2>
<p dir="ltr">Go to <a href="https://faucet.quicknode.com/ethereum/sepolia">https://faucet.quicknode.com/ethereum/sepolia</a> and connect your wallet. Ensure that the selected Chain is Ethereum and the Network is Sepolia. </p>
<div dir="ltr"><img alt="Get Sepolia ETH Quicknode" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9722/content_4._ETH_sepolia.webp" style="width: 1250px; height: 724px;"></div>
<p dir="ltr">If you have a QuickNode account, you can log in for a 4x bonus or choose to share a tweet for a 2x bonus. Otherwise you can choose to receive 0.05 ETH.</p>
<p dir="ltr">Do note that the QuickNode faucet only allows you to claim tokens every 12 hours.</p>
<div dir="ltr"><img alt="Get extra Sepolia ETH Quicknode" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9723/content_4.0_get_extra.webp" style="width: 1250px; height: 746px;"></div>
<p dir="ltr">You can also check out other <a href="https://www.coingecko.com/learn/sepolia-eth" target="_blank">Sepolia faucets to collect Sepolia ETH</a>. </p>
<h2 dir="ltr">Step 3: Bridge ETH to Parallel</h2>
<p dir="ltr">Back on Parallel Network, click on <strong>Apps</strong> and choose <strong>Bridge</strong> to be redirected to the bridge.</p>
<div dir="ltr"><img alt="Bridge to Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9724/content_bridge.webp" style="width: 1250px; height: 508px;"></div>
<p dir="ltr">On the bridge, set it to bridge your ETH from Sepolia to Parallel Testnet and proceed to deposit it in your wallet. <img alt="Deposit Sepolia ETH to Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9725/content_4.1_bridge_ETH.webp" style="width: 1250px; height: 703px;"></p>
<p dir="ltr">Alternatively, if you are unable to bridge ETH through the <strong>Bridge</strong> option under <strong>Apps</strong>, you can do so through the <strong>Deposit more</strong> button under <strong>Airdrop</strong>.</p>
<p><img alt="" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9799/content_deposit_more.webp" style="width: 1250px; height: 625px;"></p>
<p dir="ltr">Do take note that the Parallel Testnet deposits take approximately five minutes to enter your wallet. Sign the transaction in your wallet and proceed with the next step while you wait for the deposit to arrive in your wallet.</p>
<div dir="ltr"><img alt="Parallel Testnet Deposits take 5 mins" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9726/content_4.2_bridge_details.webp" style="width: 1250px; height: 815px;"></div>
<h2 dir="ltr">Step 4: Join Airdrop team</h2>
<p dir="ltr">In the same <strong>Apps</strong> menu, select <strong>Airdrop</strong> to access the page.</p>
<div dir="ltr"><img alt="Start participating in Parallel Airdrop" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9727/content_3._airdrop.webp" style="width: 1250px; height: 592px;"></div>
<p dir="ltr">You will need to enter an invite code to join a team. Be sure to get the code from trusted sources such as the Parallel Telegram community or you can use our code: <strong>2F2D6</strong> to join. </p>
<p dir="ltr">Each team has a maximum size of members so you might not be able to use older codes once the team has filled up.</p>
<div dir="ltr"><img alt="Parallel Invite Code" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9728/content_3.1_invite_code.webp" style="width: 1250px; height: 566px;"></div>
<p dir="ltr">After your code is accepted, connect and sign with your wallet.</p>
<div dir="ltr"><img alt="Connect Wallet to Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9729/content_3.2_sign_wallet.webp" style="width: 1250px; height: 846px;"></div>
<p dir="ltr">Next, you will need to connect your X account. Click on <strong>Connect</strong> and in the pop-up window, authorize the app to access your account. </p>
<p dir="ltr">Once your account is connected, Twitter can follow Parallel’s account and retweet the Twitter post without any additional pop-up windows. </p>
<div dir="ltr"><img alt="Connect X Twitter to Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9730/content_3.3_connect_X.webp" style="width: 1250px; height: 639px;"></div>
<div dir="ltr"> </div>
<div dir="ltr"><img alt="Authorize Parallel to access Twitter/X" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9731/content_3.4_authorize_on_x.webp" style="width: 1250px; height: 903px;"></div>
<p> </p>
<getresponse-form e="1" form-id="160c7f82-6d38-46a1-9974-b323ce663aaa"></getresponse-form>
<p> </p>
<h2 dir="ltr">Step 5: Create a Parallel Account</h2>
<p dir="ltr">Click <strong>Create Parallel Account</strong> and Parallel will create the account connected to your wallet address.</p>
<div dir="ltr"><img alt="Create Parallel Account" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9732/content_2._create_parallel_account.webp" style="width: 1250px; height: 649px;"></div>
<h2 dir="ltr">Step 6: Get Test Tokens</h2>
<p dir="ltr">Before you can get the test tokens, you will need to deposit the Sepolia ETH to pay for gas. You can only proceed once the ETH has arrived in your wallet on the Parallel testnet.</p>
<p dir="ltr">Click on <strong>Deposit</strong> to input the ETH amount and confirm the deposit in your wallet.</p>
<div dir="ltr"><img alt="Deposit ETH into Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9733/content_5._Deposit_ETH.webp" style="width: 1250px; height: 539px;"></div>
<div dir="ltr"> </div>
<div dir="ltr"><img alt="Confirm Deposit to Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9734/content_5.1_deposit_parallel.webp" style="width: 1250px; height: 588px;"></div>
<p dir="ltr">With ETH now in your Parallel account, you can select <strong>Get Test Tokens</strong> and confirm the transaction in your wallet. </p>
<div dir="ltr"><img alt="Get Test Tokens on Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9735/content_6._get_test_tokens.webp" style="width: 1250px; height: 539px;"></div>
<p dir="ltr">Once the transaction is executed, your wallet will reload with various ERC-20 and ERC-721 tokens. </p>
<div dir="ltr"><img alt="Parallel Testnet Test Tokens" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9736/content_6.1_test_tokens.webp" style="width: 1250px; height: 613px;"></div>
<h2 dir="ltr">Step 7: Execute Activities</h2>
<p dir="ltr">Back in the <strong>Apps</strong> menu, head to the <strong>Lending</strong> application.</p>
<div dir="ltr"><img alt="Lending on Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9737/content_7._lending_app.webp" style="width: 1250px; height: 560px;"></div>
<p dir="ltr">You will first need to supply tokens to one of the pools. In this example, we are supplying USDT tokens. Input the amount and confirm the transaction in your wallet. </p>
<div dir="ltr"><img alt="Supply USDT Tokens Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9738/content_7.1_supply_tokens.webp" style="width: 1250px; height: 576px;"></div>
<div dir="ltr"> </div>
<div dir="ltr"><img alt="Successfully supplied USDT tokens Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9739/content_7.2_success.webp" style="width: 1250px; height: 698px;"></div>
<p dir="ltr">Once you have supplied, you can borrow against your <a href="https://www.coingecko.com/learn/crypto-collateral-defi" target="_blank">collateral</a>. Similar to the supply example, we will be borrowing USDT. Input the amount and confirm the transaction in your wallet.</p>
<div dir="ltr"><img alt="Borrow against collateral Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9740/content_7.3_borrow.webp" style="width: 1250px; height: 625px;"></div>
<div dir="ltr"> </div>
<div dir="ltr"><img alt="Borrowing success on Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9741/content_7.4_success.webp" style="width: 1250px; height: 566px;"></div>
<p dir="ltr">Other than supplying and borrowing tokens, you can also supply (lend) NFTs. There will be one <a href="https://www.coingecko.com/en/nft/otherdeed-for-otherside" target="_blank">Otherdeed NFT</a> in your wallet to supply. </p>
<div dir="ltr"><img alt="Lend NFT Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9742/content_7.5_NFT_tokens.webp" style="width: 1250px; height: 629px;"></div>
<p dir="ltr">Click <strong>Supply</strong> and choose the Otherdeed NFT. Confirm the transaction in your wallet.</p>
<div dir="ltr"><img alt="Supply Otherdeed NFT Parallel Testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9743/content_7.6_supply_otherdeed.webp" style="width: 1250px; height: 623px;"></div>
<h2 dir="ltr">Step 8: Galxe Campaign (Optional)</h2>
<p dir="ltr">Parallel Network is also running a <a href="https://www.coingecko.com/learn/galxe-gal" target="_blank">Galxe</a> campaign, however, it is not apparent if the points earned on Galxe will impact any future airdrops. </p>
<p dir="ltr">Head to <a href="https://galxe.com/parallel/campaign/GCwDst4jkH" rel="nofollow noopener" target="_blank">https://galxe.com/parallel/campaign/GCwDst4jkH</a> and log in with your wallet.</p>
<div dir="ltr"><img alt="Parallel Galxe Campaign" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9744/content_8._Galxe_campaign.webp" style="width: 1250px; height: 630px;"></div>
<h3 dir="ltr">8A: Follow on Twitter</h3>
<p dir="ltr">The first task is to follow Parallel on Twitter which will be done via a pop-up window.</p>
<div dir="ltr"><img alt="Follow Parallel on Twitter X" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9745/content_8.1_follow.webp" style="width: 1250px; height: 1099px;"></div>
<h3 dir="ltr">8B: Join Discord</h3>
<p dir="ltr">Next is to have a member role in the Parallel Network Discord community. You will be prompted by the GalxeBot to accept an invitation to the server which will open your Discord app. Make sure you are already logged in.</p>
<div dir="ltr"><img alt="Join Parallel Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9746/content_8.2_discord.webp" style="width: 1250px; height: 628px;"></div>
<p dir="ltr">Go to the verify channel to pass verification first by filling in a captcha test.</p>
<div dir="ltr"><img alt="Verify Parallel Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9748/content_8.3_verify_on_discord.webp" style="width: 1250px; height: 725px;"></div>
<h3 dir="ltr">8C: Join Telegram</h3>
<p dir="ltr">Similarly to Discord, the Galxe Bot will prompt you to join the Telegram channel. You need to choose your country and input your mobile number to receive a confirmation message on your Telegram account. </p>
<div dir="ltr"><img alt="Join Telegram Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9749/content_8.4_telegram_bot.webp" style="width: 1250px; height: 722px;"></div>
<p dir="ltr">Then accept the access request from Galxe Bot.</p>
<div dir="ltr"><img alt="Accept Galxe Bot Telegram Access" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9750/content_8.4.1_galxe_bot_accept.webp" style="width: 1250px; height: 725px;"></div>
<h3 dir="ltr">8D: Like Tweet</h3>
<p dir="ltr">A pop-up window will direct you to the tweet to like.</p>
<div dir="ltr"><img alt="Like Parallel Tweet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9751/content_8.5_Like_tweet.webp" style="width: 1250px; height: 1076px;"></div>
<h3 dir="ltr">8E: Repost Tweet</h3>
<p dir="ltr">A pop-up window will direct you to the tweet to repost.</p>
<div dir="ltr"><img alt="Repost Parallel Tweet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9752/content_8.6_Repost_tweet.webp" style="width: 1250px; height: 961px;"></div>
<h3 dir="ltr">8F: Create Testnet Account</h3>
<p dir="ltr">If you have followed the steps above, this step will automatically be completed. </p>
<p dir="ltr">Otherwise, it will redirect you to the Parallel testnet page where you can create a new Parallel account following the step above. </p>
<div dir="ltr"><img alt="Create Parallel Testnet Account Galxe" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9753/content_8.7_create_parallel_account.webp" style="width: 1250px; height: 259px;"></div>
<h3 dir="ltr">8G: Refer Friends</h3>
<p dir="ltr">You can choose to refer friends via a link, QR code, or tweet.</p>
<div dir="ltr"><img alt="Referrals for Parallel" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9754/content_8.8_refer.webp" style="width: 1250px; height: 391px;"></div>
<h2 dir="ltr">Sidenotes</h2>
<p dir="ltr">You may encounter some error messages while interacting with the Parallel testnet. This is normal for testnets and you can refresh the page, disconnect and reconnect your wallet, or even try again at a later time.</p>
<p dir="ltr">Crypto testnets let users interact with various products and features without needing to invest any capital. All tokens used are test tokens that act to represent the value of real tokens and can only be used on the testnet. </p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">Parallel Network is an omni-chain platform that offers users the opportunity to interact with various blockchains from one place by employing a consolidated liquidity mechanism. It is currently running its early access testnet phase for users to explore the ecosystem while earning Parallel Points for a future airdrop of the protocol’s governance token. </p>
Stephanie Gohhttps://www.coingecko.com/learn/parallel-network-airdrop-how-to-earn-parallel-points
How to Earn Parallel Points
You can earn Parallel Points by engaging in activities on the Parallel Testnet, such as lending and borrowing. Based on information from the project, these Paralle...tag:www.coingecko.com,2005:Post/12742024-03-20T09:51:35Z2024-03-20T10:46:38ZComparing Solana DeFi to Ethereum DeFi<h2>Solana DeFi vs. Ethereum DeFi</h2>
<p>Ethereum's EVM (Ethereum Virtual Machine) is currently dominating DeFi, and Ethereum alone (excluding its Layer 2s) has over $43 billion in TVL. However, Solana is bringing capabilities that Ethereum cannot accomodate in its current state, where its ability to cater to high-frequency, on-chain trasactions lets it support AMM aggregators and CLOB exchanges without the need for L2 solutions.</p>
<hr>
<h3>Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Capital efficiency is a pivotal element underpinning the vitality and sustainability of DeFi protocols.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Ethereum and its EVM is still dominating DeFi, although it faces scalability challenges, where developers have to balance optimizing smart contract execution with minimizing gas consumption. Meanwhile, Solana is looking to introduce parallel processing, where multiple transactions can be executed in parallel, enhancing Solana's scalability. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Ethereum is still ahead of all other chains in TVL and number of protocols, although Solana is growing at a faster rate. </p>
</li>
</ul>
<hr>
<div><img alt="Solana DeFi vs Ethereum DeFi" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9798/content_Solana_DeFi_vs_Ethereum_DeFi.webp" style="width: 1200px; height: 600px;"></div>
<p>The boundaries of technology and finance are being pushed in today’s DeFi sector, catalyzing a transformative era in which protocols look to leverage blockchain technology to outcompete on speed, fees, and efficiency. Within this evolving landscape, the principle of capital efficiency has emerged as a cornerstone metric, pivotal in evaluating the operational and financial prowess of these new and novel protocols. This report delves into the significance of capital efficiency, exploring its definition, importance, and calculation methodologies as it pertains to blockchains. While Total Value Locked (TVL) has long been a core metric for comparing smart contract blockchains, incorporating different capital efficiency metrics alongside TVL can provide a more complete and nuanced picture. While a high TVL is inarguably beneficial for a blockchain, its liquidity, and network effects, it is what users and dApps are able to do with this TVL that is most important. By dissecting the application of capital efficiency in TradFi and extending the analysis into the dynamic realm of DeFi, we uncover the multifaceted impact of this metric on maximizing returns, enhancing competitive advantage, and fostering sustainable growth. </p>
<h2>Capital Efficiency</h2>
<p>In Traditional Finance (TradFi), particularly within the startup ecosystem, the concept of capital efficiency stands as a key metric, reflecting a company's adeptness at utilizing its financial resources to fuel growth and generate returns. To define it in more mathematical terms, capital efficiency measures the ratio between the funds a company allocates towards growth initiatives and the revenue these efforts yield. At its core, capital efficiency looks to clearly calculate the proficiency with which a company deploys its capital and the return this expense generates. This metric serves as a crucial indicator of a company’s operational and financial health, especially for startups navigating the precarious early stages of development. This concept underscores the importance of leveraging financial resources effectively to bolster a company’s profitability and growth prospects.</p>
<h3>In DeFi</h3>
<p>The relevance of capital efficiency extends into the burgeoning field of Decentralized Finance (DeFi), where it emerges as a pivotal element underpinning the vitality and sustainability of DeFi protocols. The pursuit of capital efficiency within these decentralized ecosystems is critical for several reasons:</p>
<ul role="list">
<li>Maximization of Returns: Capital efficiency enhances the potential for user profits by optimizing investment strategies.</li>
<li>Competitive Advantage: Protocols that demonstrate high capital efficiency attract a larger user base and more liquidity, positioning them favorably against competitors.</li>
<li>Enhancement of Liquidity: Effective capital utilization ensures optimal use of user-provided liquidity, facilitating smoother transactions, loans, and other financial operations. This not only minimizes slippage but also improves the overall trading experience, drawing more participants to the platform.</li>
<li>Risk Reduction: DeFi platforms mitigate risks by diversifying investments across various assets or protocols, thereby limiting the impact of individual failures and protecting user funds.</li>
<li>Promotion of Innovation and Sustainability: A focus on capital efficiency encourages the development of innovative solutions, contributing to the long-term growth of the DeFi ecosystem.</li>
</ul>
<p>Capital efficiency serves as a critical barometer for the operational effectiveness of protocols within the digital asset landscape. This metric, which gauges the adeptness with which capital is utilized, is pivotal for stakeholders/Liquidity Providers (LPs) looking to yield farm, i.e., put their crypto assets “to work.” However, how LPs calculate capital efficiency, as well as, how they weigh that against other important factors such as smart contract risk and fees, is critical in a user’s risk-adjusted returns.</p>
<p>Some popular ways of calculating capital efficiency are evaluating the ratio of total trading volume to the total value locked (TVL) or total volume divided by fully diluted market cap (FDV). While these can be helpful to a potential LP, no one metric tells the whole story (discussed more in later sections). The quest for high capital efficiency raises concerns about the potential for skewed figures, primarily through the strategic reduction of swap fees. While lower fees can enhance a DEX's capital efficiency by necessitating less TVL to achieve higher volumes, this approach may not invariably translate to increased returns for liquidity providers (LPs). The nuanced relationship between capital efficiency and fee generation underscores the importance of a comprehensive evaluation beyond mere efficiency metrics. A DEX that showcases superior capital efficiency might not necessarily deliver proportionate revenue to its LPs, highlighting the complex interplay between operational efficiency and profitability.</p>
<h3>Liquidity Efficiency</h3>
<p>DeFi represents a pivotal shift in the financial sector by offering services that operate without centralized oversight, leveraging community-contributed liquidity. This model of community-provided liquidity contrasts sharply with TradFi, where liquidity is typically provided by well-capitalized, institutional entities. DeFi's reliance on its user base for liquidity introduces operational complexities, particularly given the generally lower capitalization of its participants. This necessitates a more strategic and efficient use of available funds to ensure platform functionality and success.</p>
<p>The challenge for DeFi platforms is to attract and sustain liquidity, which is essential for transaction execution, platform stability, and user satisfaction. In simple terms, liquidity refers to the ease with which an asset can be bought or sold without causing significant price movement. It indicates the presence of enough market depth for traders to execute their transactions quickly. Without adequate liquidity, platforms may experience increased transaction costs and reduced efficiency, jeopardizing user retention. Consequently, DeFi initiatives employ mechanisms such as liquidity mining and yield farming to incentivize user participation and liquidity provision, which are vital for their long-term viability. Other strategies to enhance liquidity (and capital) efficiency in the DeFi world include:</p>
<ul role="list">
<li>Liquidity Pool (LP) Management: Beyond maintaining healthy liquidity levels, the strategic deployment of these funds is crucial for maximizing participant returns.</li>
<li>Unlocking Collateral Assets: Collateral is essential for borrowing within DeFi. Expanding the range of acceptable collateral types not only improves capital efficiency but also lays the groundwork for innovative business models and higher profitability.</li>
<li>Protocol-Owned Liquidity: While Liquidity Mining can initially attract users through high Annual Percentage Yields (APYs), it can also lead to market saturation and rapid declines in Total Value Locked (TVL). Projects are thus exploring ways to manage their liquidity more effectively, ensuring stable, long-term growth.</li>
<li>DeFi and Interactive Non-Fungible Tokens (NFTs): The integration of Interactive NFTs in DeFi projects opens up new avenues for attracting value and enhancing capital efficiency for users. For instance, certain lending protocols have introduced NFTs with financial utilities, such as serving as collateral.</li>
</ul>
<p>These attempts to enhance <a href="https://www.coingecko.com/learn/liquidity-efficiency-defi" target="_blank">liquidity efficiency</a> are looking to improve the overall user experience but also initiate a virtuous cycle of growth, attracting more users and fostering a competitive and diverse ecosystem. </p>
<h2>DeFi’s Efficiency Evolution</h2>
<h3>Simple AMMs to Concentrated Liquidity</h3>
<p>Uniswap's evolution from its first version to the third has significantly advanced the landscape of DeFi, particularly in the realm of on-chain token swaps and liquidity efficiency. Uniswap V1 laid the groundwork by introducing decentralized <a href="https://www.coingecko.com/learn/liquidity-pools-crypto-defi" target="_blank">liquidity pools</a> for token pairs, rewarding users for their liquidity contributions. Advancing this concept, Uniswap V2 brought several enhancements, including ERC-20 to ERC-20 swaps, the integration of a price oracle, and expanded support for non-standard ERC-20 tokens.</p>
<p>However, it was Uniswap V3 that marked a significant leap in liquidity efficiency through two groundbreaking features: <a href="https://www.coingecko.com/learn/uniswap-vs-trader-joe" target="_blank">concentrated liquidity</a> and multiple fee tiers. Unlike its previous versions, where liquidity was distributed evenly across the entire price curve of its markets, V3 introduced the concept of concentrated liquidity. This innovation allows liquidity providers to allocate their capital to specific price ranges, optimizing the use of funds by concentrating liquidity where it is most needed. As a result, pools can offer greater liquidity within targeted price segments, enabling individualized price curves and allowing for more efficient trading without increasing gas costs per liquidity provider.</p>
<div><span style="font-size:11px;"><img alt="Concentrated Liquidity" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9780/content_Concentrated_Liquidity.webp" style="width: 1104px; height: 918px;"></span></div>
<div><span style="font-size:11px;"><a href="https://blog.perp.fi/what-role-do-liquidity-providers-play-in-uniswap-v3-2cdf921ca29d" rel="nofollow noopener" target="_blank">Source</a></span></div>
<div>The introduction of concentrated liquidity not only enhances capital efficiency—by up to 4,000 times relative to V2—but also enables providers to achieve higher returns on their capital within selected price ranges. This focused approach allows for comparable or enhanced gains with reduced principal investment.</div>
<p>Additionally, Uniswap V3's multiple fee tiers represent a strategic evolution in risk compensation for liquidity providers. With three distinct fee tiers (0.05%, 0.30%, and 1%) available for each <a href="https://www.coingecko.com/learn/what-are-trading-pairs-cryptocurrency" target="_blank">token pair</a>, liquidity pools can tailor their fee structures to better align with the volatility and risk profile of the assets involved. This customization ensures that providers are adequately compensated for the risks they assume, further refining the economic model of liquidity provision on Uniswap.</p>
<h3>Balancer V2’s Liquidity Management</h3>
<p>Balancer V2's asset manager functions by dynamically allocating capital between trading activities and yield-generating opportunities. This allows LPs to earn passive income on their assets, even in periods when trading fees are not being actively generated. This dual revenue stream significantly enhances the attractiveness of providing liquidity on Balancer V2, presenting a compelling value proposition for investors seeking to optimize their DeFi asset allocations.</p>
<h3>Reducing Collateral Utilization Rates and Improved Liquidations</h3>
<p>On the collateralization front, DeFi has continually improved with the more efficient use and liquidation of <a href="https://www.coingecko.com/learn/crypto-collateral-defi" target="_blank">collateral</a>. Liquity is one such project that was able to drive down the amount of over-collateralization needed (from ~150% to ~110%) by optimizing its liquidation process and the speed at which it executes. Similarly, other protocols have automated the rebalancing of deposited collateral, smoothing out the liquidation process and potentially reducing the risk for lenders. These innovations indicate a trend towards minimizing collateral requirements without compromising the security and stability of lending platforms, offering a glimpse into a future where financial operations are both more efficient and user-friendly.</p>
<h3>Intents</h3>
<p><a href="https://www.coingecko.com/learn/what-are-centralized-crypto-exchanges-cex" target="_blank">Centralized Exchanges (CEXs)</a> remain at the forefront of the crypto market, favored for their quick transaction times, robust liquidity, and diverse trading options. Their edge lies in superior user interface (UI) and user experience (UX) designs, which have become the gold standard for trading platforms. These elements are crucial in attracting and retaining users, offering them a seamless and efficient trading environment.</p>
<p>Conversely, <a href="https://www.coingecko.com/learn/what-is-a-decentralized-crypto-exchange-dex" target="_blank">Decentralized Exchanges (DEXs)</a> grapple with slower transaction speeds due to blockchain confirmations and generally suffer from lower liquidity levels compared to CEXs. Additionally, the UX design of many DEXs falls short of the refined interfaces provided by CEXs, posing a hurdle to wider adoption.</p>
<p>Intent-based DEXs emerge as a solution to these challenges, aiming to align the platform's features with the specific trading needs of users. An intent is essentially a user-signed declaration of desired outcomes, articulated through constraints that focus on end goals rather than specifying the exact steps to achieve them. This method facilitates a more intuitive and fluid process for executing trades, allowing users to convey their broader objectives to the protocol without getting bogged down in the minutiae of transaction details. By adopting intents, users gain the ability to delegate the execution of transactions to third parties while retaining control over their assets. </p>
<p>Key focus areas include enhancing liquidity and capital efficiency. <a href="http://www.coingecko.com/learn/liquidity-crypto" target="_blank">Liquidity</a> is vital for a stable trading environment, enabling smooth price discovery and reducing <a href="https://www.coingecko.com/learn/slippage-crypto" target="_blank">slippage</a>. Achieving this requires significant capital input from liquidity providers (LPs). Capital efficiency, on the other hand, focuses on maximizing returns on the capital locked in by LPs, which is essential for the success of DEXs. Future developments are likely to concentrate on improving capital efficiency through innovative mechanisms, such as flexible staking options or new yield strategies, to optimize asset allocation and boost returns.</p>
<h3>Hashflow</h3>
<p><a href="https://www.coingecko.com/learn/what-is-hashflow-hft" target="_blank">Hashflow</a> has taken a more radical departure from conventional DeFi models by eliminating the on-chain pricing function entirely. By leveraging off-chain pricing mechanisms, Hashflow facilitates direct quote provision by market makers to traders in real time. This system ensures that capital allocation is optimized with precision, allowing market makers to capture the spread on successful trades or quickly reallocate their capital should the quote remain unfilled.</p>
<h2>LSTs: Rehypothecation of Assets in DeFi</h2>
<p>Each native crypto asset (i.e., ETH, SOL, MATIC, etc.) in a Proof of Stake (PoS) ecosystem plays a multifaceted role, serving as a crucial component in lending, borrowing, and liquidity provision across decentralized exchanges. Yet, the conventional framework of staking imposes a significant limitation—once staked, the asset becomes non-rehypothecatable, preventing its use within the broader DeFi ecosystem. This dichotomy forces the crypto asset holders to choose between earning staking yields or utilizing their assets within DeFi protocols.</p>
<p>In DeFi’s quest for increased capital efficiency, <a href="https://www.coingecko.com/learn/what-is-liquid-staking-liquid-staked-derivatives-you-need-to-know" target="_blank">liquid staking</a> emerged as a groundbreaking solution to this dilemma, offering a mechanism that allows for the staking of the asset while retaining its liquidity. By engaging in liquid staking, holders can deposit their assets into a staking contract and receive a tokenized derivative in return. This derivative mirrors the utility of the native asset, enabling participation across DeFi protocols without sacrificing the benefits of staking yields. Such an innovation significantly enhances the flexibility and yield potential for stakeholders, reshaping the incentive structures within the cryptocurrency domain.</p>
<p>While Ethereum boasts the largest liquid staking market (by TVL), platforms like JitoSOL on Solana are pioneering similar innovations. JitoSOL enables stakers to earn yields on their staked SOL through a derivative token, which can be utilized within DeFi ecosystems. A unique aspect of JitoSOL is its integration of Miner Extractable Value (MEV) extraction, providing an additional revenue stream atop traditional staking rewards. This feature not only enhances the attractiveness of JitoSOL as an investment but also contributes to the growth and vibrancy of the DeFi space on Solana by increasing the total value locked (TVL) and transaction volume across protocols.</p>
<h2>The Quest for Unsecured Credit in DeFi</h2>
<p>Perhaps the most ambitious under-explored area in DeFi is the provision of unsecured credit. The constraint of over-collateralization limits the scope of lending protocols, tethering them to the safety net of liquidations. Transitioning towards unsecured lending necessitates robust identity and reputation systems to mitigate the risk of default without the safeguard of collateral. Initiatives like Celo's integration of phone numbers with public keys and its exploration of decentralized Eigentrust for establishing on-chain identity and reputation are pioneering efforts to bridge this gap. Successfully implementing unsecured credit would not only mark a significant milestone in DeFi's evolution but also potentially revolutionize how credit is extended in the digital age, offering a seamless, trust-based system that rewards positive financial behavior.</p>
<h2>The EVM Dominates DeFi Currently </h2>
<p>Ethereum and its <a href="https://www.coingecko.com/learn/ethereum-virtual-machine-evm" target="_blank">Ethereum Virtual Machine (EVM)</a> are infamous for expanding upon Bitcoin’s functionality, creating a Turing-complete environment that enables smart contract execution. At their core, smart contracts are computer programs hosted on blockchain platforms, which autonomously execute actions when predetermined conditions are met. </p>
<p>Over the last ~7 years, Ethereum has become synonymous with smart contract development, largely due to its support for languages such as Solidity and Vyper. Solidity, an object-oriented programming language, draws inspiration from C++, JavaScript, and Python, and is tailored for compatibility with the Ethereum Virtual Machine (EVM). Vyper, on the other hand, offers an experimental approach to contract development, with design cues taken from Python, emphasizing security and simplicity.</p>
<p>As of February 2024, ~90%+ of the total DeFi TVL is held in contracts written in Solidity, the preferred programming language of Ethereum’s Virtual Machine (EVM). Vyper, an additional smart contract language designed for the EVM, holds ~2% of the entire TVL. Meaning, ~96% of DeFi value is stored on EVMs built in Solidity or Vyper.</p>
<div><img alt="TVL Dominance" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9781/content_TVL_Dominance.webp" style="width: 1083px; height: 522px;">
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<div><span style="font-size:11px;">Source: DeFiLlama</span></div>
<p>The EVM plays a pivotal role in the Ethereum ecosystem, acting as an abstraction layer that seamlessly bridges the gap between smart contract code and the hardware executing the code. The programming language, Solidity, used by developers is designed to ultimately compile down to EVM bytecode, an even simpler set of instructions that the EVM can interpret and then execute. Through this process, the EVM can then take the current valid state and apply a series of transactions to produce a new valid state.</p>
<div><span style="font-size:11px;"><img alt="EVM Layer" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9782/content_EVM_Layer.webp" style="width: 1200px; height: 814px;"></span>
</div>
<div>
<span style="font-size:11px;"><a href="https://chainlinkgod.medium.com/the-layer-1-chain-rotation-thesis-a-retrospective-analysis-3cbd2dcdc1f8" rel="nofollow noopener" target="_blank">Source</a></span></div>
<p>One of the unique features of the EVM is the concept of gas (discussed in future sections). Unlike <a href="https://www.coingecko.com/learn/what-is-bitcoin" target="_blank">Bitcoin</a>, which simply charges users for each financial transaction, Ethereum's model charges users based on the computational instructions executed. This element of gas adds a new layer of complexity to the system and is largely responsible for how much or how little the blockchain can scale.</p>
<h3>Issues with Solidity and the EVM</h3>
<p>Despite the EVM being the undisputed leader in the VM space currently, it is widely accepted that it has significant tradeoffs compared to other, newer VMs. Scalability and performance issues present significant challenges that need addressing to enhance the EVM's efficiency and utility. Moreover, the inherent complexities of smart contract coding and the interaction between composable dApps introduce a heightened risk of bugs and security vulnerabilities.</p>
<p>Among the prevalent security risks seen in the EVM and with Solidity code are re-entrancy attacks. This type of vulnerability enables an attacker to repeatedly call a contract's function in a malicious loop, potentially draining funds or destabilizing the protocol. Another common issue lies in simple coding or mathematical errors within smart contracts, where even minor oversights in formulae or calculation logic can lead to significant financial losses. Additionally, the oversight in enforcing correct call permissions represents a critical vulnerability. Contracts that fail to restrict function calls to authorized roles adequately may inadvertently grant malicious actors the ability to execute unauthorized transactions or alter contract states.</p>
<p>Despite the allure of rapid deployment capabilities, the reality is that securing dApps against evolving threats requires a continuous commitment to learning, vigilant code auditing, and the implementation of advanced security measures. This environment not only places user funds in perpetual jeopardy but also demands significant investment from developers in terms of time and resources to fortify their applications against malicious exploits. </p>
<p>As for the scalability of the EVM, the concept of gas is integral to the network. Gas serves as a metric for the computational effort required to execute transactions and smart contracts. Each transaction is allocated a specific amount of gas, setting a cap on the computational steps that can be performed. This system, while designed to mitigate spam transactions and allocate network resources fairly, introduces a “self-imposed” scalability ceiling for the network. Developers aiming to optimize contract execution in the EVM face the task of minimizing gas consumption. Strategies include bytecode optimization—reducing the number of opcodes (basic operations of the EVM)—and employing techniques like loop unrolling and code simplification. Other scaling enhancements to the EVM over the years include incrementally increasing the block size and reducing the block times (via the transition to PoS). While these improvements over the years have led to a ~3-5x gain in scalability from Ethereum’s genesis, the EVM is still far less performant than other blockchain VM designs.</p>
<div><img alt="Ethereum Average Gas Limit Chart" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9784/content_Ethereum_Average_Gas_Limit_Chart.webp" style="width: 994px; height: 573px;">
</div>
<p>Alt-L1 blockchains like Tron and Binance Smart Chain have chosent to adopt the EVM but push the limits of its performance to the detriment of other areas of the blockchain. Binance Smart Chain (BSC) has pursued scalability by significantly increasing the gas limits and utilizing faster block times. While this approach has led to lower transaction fees and higher transaction volumes, it raises concerns about the network's long-term viability (state bloat) and decentralization (~30 validators). As the state size expands, the hardware requirements to run a node may become prohibitive, threatening the decentralized nature of these networks.The reliance on increasing gas limits to manage congestion suggests a temporary fix rather than a sustainable solution.</p>
<h2>The SVM: DeFi’s Next Dominant VM?</h2>
<p>Solana's blockchain architecture represents a pioneering approach to resolving the scalability trilemma—a challenge that involves balancing scalability, security, and decentralization. Key to its strategy are several innovative technologies that ensure its position as a highly performant and competitive protocol in the blockchain ecosystem. These different innovative technologies culminate in an alternative virtual machine known as the Solana Virtual Machine (SVM).</p>
<h3>Programming Language</h3>
<p>In the world of blockchain technology, where most alt-L1 chains have chosen to piggyback off of the success of the EVM, Solana has chosen a divergent path. Opting against EVM compatibility, Solana leverages the Low-Level Virtual Machine (LLVM) framework, a cornerstone in modern programming that offers a suite of modular and reusable compiler and toolchain technologies. The LLVM serves as an intermediary, facilitating the translation from high-level code to machine code, thereby ensuring optimal performance across diverse hardware setups. </p>
<p>The most common programming language used in the Solana ecosystem is Rust. The decision to prioritize Rust as the primary language for Solana is rooted in the language's distinctive capabilities and the strategic advantages it brings to Solana's infrastructure. Rust's reputation for facilitating high performance and concurrency aligns seamlessly with Solana's architectural goals, particularly its focus on scalability. </p>
<p>Similar to Ethereum’s smart contracts, Solana introduces the concept of "programs." These programs, primarily authored in Rust but also supporting C and C++, are what power Solana’s blazing-fast DeFi and NFT ecosystems. At the heart of Rust's approach to memory safety is its ownership model coupled with the borrow checker mechanism, which collectively obviates the need for a garbage collector. This strategic design choice ensures Rust achieves the high-performance characteristic of languages like C and C++, while significantly enhancing safety.</p>
<h3>Turbine and Gulf Stream</h3>
<p>At the heart of Solana's scalability solutions is Turbine, a block propagation protocol inspired by BitTorrent. Traditional blockchain networks face scalability issues as the bandwidth needed to support an expanding network of nodes increases, alongside the time required to propagate on-chain data. Turbine addresses this by breaking data into smaller packets that are transmitted through random paths to validators across the network. Each validator, in turn, forwards the packet to a group of peers known as a "neighborhood," facilitating efficient data distribution without overburdening the network. </p>
<p>Gulf Stream plays a critical role in mempool management by advancing transaction caching to the network's edge. This innovation ensures that block leaders have the necessary data to process transactions swiftly, bypassing the traditional mempool model. In Solana's architecture, the mempool is internal, reducing the public exposure of unconfirmed transactions and limiting Maximum Extractable Value (MEV) opportunities to those operating validators. </p>
<h3>Account Model and Parallel Processing via SeaLevel</h3>
<p>A critical differentiator for Solana is its account model, which contrasts sharply with Ethereum's. While Ethereum allocates storage for each smart contract within its account, Solana adopts a bifurcated model. Here, on-chain programs are housed in immutable accounts containing only executable bytecode, with the program's state stored separately in non-executable accounts. This separation is pivotal, as it permits the parallel execution of smart contracts by distributing the state across various accounts, thus avoiding data conflicts and enhancing transaction efficiency. </p>
<p><a href="https://www.coingecko.com/learn/what-is-parallelization-parallel-execution-blockchain" target="_blank">Parallel execution</a> within the context of cryptocurrencies is a technique that enables the simultaneous processing and execution of multiple transactions. This approach is a radical departure from older blockchain designs, like Bitcoin and Ethereum, that must process transactions/blocks sequentially in order to validate state changes and reach consensus. In these older systems, transactions are processed one by one, in a linear sequence, to prevent conflicts between transactions. Adopting parallel execution can significantly enhance a cryptocurrency network's scalability, reduce delays, and boost overall performance.</p>
<div><img alt="EVM vs SVM Transaction Processing" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9785/content_EVM_vs_SVM_Transaction_Processing.webp" style="width: 716px; height: 402px;">
</div>
<p>In systems designed for parallel processing, transactions are batched and executed concurrently by various validators across the network. This structure allows the network to achieve a higher transactions per second (TPS) rate, facilitating greater throughput and enhancing the network's capacity to scale. </p>
<p>The transaction processing mechanism in Solana adds additional elements of complexity compared to Ethereum. Solana eschews a public mempool system in favor of direct transaction forwarding to the network's current and impending leaders. This mechanism, coupled with Solana's emphasis on continuous block production, contrasts sharply with Ethereum's fixed block intervals. Additionally, the SVM also requires transactions to list all accounts that will be read from or written to, including those to be called programs. This requirement is what enables the parallel processing of transactions, ensuring that two totally distinct transactions that do not share dependencies can be executed simultaneously without creating a consensus issue. The implications of this system are twofold: it enables rapid pre-confirmation of transactions but introduces unpredictability and potential inefficiencies in transaction inclusion and prioritization.</p>
<div><span style="font-size:11px;"><img alt="Sealevel Parallel Processing" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9786/content_Sealevel_Parallel_Processing.webp" style="width: 1200px; height: 632px;"></span>
</div>
<div><span style="font-size:11px;"><a href="https://twitter.com/squadsprotocol/status/1648681277342756865?s=43&t=p8A8gSOBiCJVrzYvy7c5mQ" rel="nofollow noopener" target="_blank">Source</a></span></div>
<p>At the core of Solana's design philosophy is the optimization of transaction throughput on high-performance, multi-core processors. This strategy is predicated on leveraging the steady increase in processor cores, facilitating the parallel processing of transactions. Such an approach enables Solana to outpace traditional blockchain platforms that rely on sequential transaction processing, offering a more scalable solution.</p>
<p>However, the Solana development experience is not without its challenges. The platform's unique architecture necessitates a nuanced approach to transaction parallelization and account management, introducing a complexity unfamiliar to developers seasoned with platforms like Ethereum. This complexity requires developers to meticulously plan the architecture of their on-chain programs and the distribution of state across accounts, presenting a steeper learning curve but also unlocking the potential for creating highly efficient and scalable applications.</p>
<h3>Pipelining</h3>
<p>The concept of pipelining, borrowed from traditional computing, is applied in Solana to validate large blocks of transactions rapidly. This process involves overlapping multiple instructions during execution to increase throughput. In Solana, the Transaction Process Unit (TPU) serves as the pipeline, accelerating the network by preemptively handling tasks such as packet fetching, signature verification, and token crediting, thereby streamlining the transaction validation process.</p>
<h3>Localized Fee Markets</h3>
<p>Initially, Solana implemented a system where accounts were assigned a fixed compute limit, quantified in "compute units" (CUs). Once this limit was reached within a block, no additional transactions could alter the state of the account. This design led to the all-too-predictable outcome of chain congestion and fee spikes when the network experienced high demand. To address some of the challenges and suboptimal user experiences induced by these compute limits, the concept of local fee markets was introduced in 2022. This innovation allows users to pay priority fees to validators to signal the urgency of modifying the state of an account that has already hit its compute cap within the block. This mechanism not only mitigates spam by enabling important transactions to outbid less critical ones but also enhances the efficiency of the blockspace market by providing a flexible, demand-driven approach to managing and accessing compute resources.</p>
<div><span style="font-size:11px;"><img alt="localized fee market" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9787/content_localized_fee_market.webp" style="width: 693px; height: 424px;"></span>
</div>
<div><span style="font-size:11px;"><a href="https://www.decentralised.co/p/the-solana-ecosystem" rel="nofollow noopener" target="_blank">Source</a></span></div>
<p>Local fee markets theoretically ensure that demand spikes in one transaction category do not disproportionately affect network fees as a whole. Despite its innovative potential, the practical execution of local fee markets in Solana has faced challenges, with the network predominantly employing a “first-price, greedy fee” system. This model has proven inefficient, especially during peak demand periods, as it lacks a mechanism for users to accurately predict and manage transaction fees. Various proposals are in the works aiming to address these issues surrounding the fee market structure.</p>
<h2>Solana vs. Ethereum DeFi</h2>
<h3>TVL</h3>
<p>As previously discussed, Ethereum is currently the clear leader in the DeFi space, with ~$43 billion in TVL to Solana’s ~$2 billion and ~9x the number of protocols. </p>
<div><span style="font-size:11px;"><img alt="Ethereum DeFi Leader" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9788/content_Ethereum_DeFi_Leader.webp" style="width: 517px; height: 492px;"></span></div>
<div><span style="font-size:11px;"><a href="https://defillama.com/chains" rel="nofollow noopener" target="_blank">Source</a></span></div>
<p>However, while Solana’s DeFi TVL is markedly smaller than Ethereum’s, it is growing at a faster rate. Over the course of 2023, Solana's TVL grew from ~$210 million to an impressive ~$1.5 billion and since then has surpassed the $2 billion mark.</p>
<div><img alt="Solana TVL" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9789/content_Solana_TVL.webp" style="width: 1200px; height: 675px;"></div>
<div> </div>
<div>TVL is simply one part of the equation. Thanks to the efficiency improvements made by DeFi protocols over the years, the absolute number of TVL may no longer be the north star but rather what you can <em>do with</em> the TVL you have. To be clear, no project wants <em>less</em> TVL or liquidity but an argument can be made that thanks to the advantages of the SVM over the EVM, the same TVL is not required to produce a similar or better DeFi experience.</div>
<p>Part of a superior user experience and healthy DeFi ecosystem is a diverse and dynamic mix of applications. As can be seen in the image below, Ethereum and Solana both rank ahead of most competitors in “DeFi Diversity,” with Ethereum edging out Solana. </p>
<div><img alt="DeFi Diversity" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9790/content_DeFi_Diversity.webp" style="width: 1200px; height: 648px;">
</div>
<div> </div>
<h3>Transactions and Daily Active Addresses (DAA)</h3>
<p>Transaction costs play a pivotal role in influencing user behavior on blockchain networks. High fees can deter activity, especially among retail users who engage in smaller trades. This is one aspect where Solana shines, especially in terms of efficiency for a normal DeFi user. Solana's exceptionally low transaction fees, sometimes as minimal as $0.002, have democratized access to high-frequency trading, yield farming, airdrop hunting, NFT minting, etc. The low fees have enabled retail traders to execute hundreds of transactions an extremely low cost that are otherwise cost-prohibitve on Ethereum. Therefore, as one would expect given Solana’s cheap fees and higher throughput, Solana regularly processes ~10x the daily transactions of Ethereum and other chains.</p>
<div><img alt="Daily Transactions" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9791/content_Daily_Transactions.webp" style="width: 718px; height: 527px;"></div>
<div> </div>
<div>
<img alt="Daily Active Addresses" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9792/content_Daily_Active_Addresses.webp" style="width: 722px; height: 534px;"></div>
<h3>DEX Volume to TVL</h3>
<p>DeFi metrics used to gauge the performance and efficiency of different chains often come under intense scrutiny. One such metric, the DEX volume-to-total value locked (TVL) ratio, has recently highlighted Solana's notable performance over Ethereum. This ratio, one measure of capital efficiency, suggests that Solana has recently begun to significantly outpace Ethereum, suggesting a higher level of operational efficiency within its ecosystem.</p>
<div><span style="font-size:11px;"><img alt="DEX Volume to TVL Ratio" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9793/content_DEX_Volume_to_TVL_Ratio.webp" style="width: 1200px; height: 675px;">Source: DeFiLlama, Dune, Decentralised.co</span></div>
<p>The surge in transaction volume on Solana really began to take off in Q4 2023. Was there some upgrade or technological improvement that suddenly made Solana more capital efficient? No. Rather, the surge can, in part, be attributed to the proliferation of Solana projects announcing points programs and airdrops, such as the one announced by <a href="https://www.coingecko.com/learn/what-is-jupiter-crypto-solana" target="_blank">Jupiter</a>, a leading DeFi dApp on Solana. While airdrops serve as a significant catalyst for increased activity, their fleeting nature does little to highlight the capital efficiency of a chain.</p>
<div><img alt="Solana vs other Chains" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9794/content_Solana_vs_other_Chains.webp" style="width: 884px; height: 520px;"></div>
<div>How Solana compares to other leading chains as of Q1 2024.</div>
<div>
<span style="font-size:11px;">Source: 21Shares</span></div>
<p>That said, it's imperative to recognize the inherent technological capabilities that Solana brings to the table—capabilities that Ethereum, in its current state, cannot accommodate. Specifically, the design of order books like Phoenix presents a challenge on Ethereum's base layer, prompting platforms like dYdX and Aevo to create separate chains to bypass these limitations. The presence of AMM aggregators (Jupiter) and central-limit order book (CLOB) type exchanges (Phoenix) underscores Solana's ability to cater to high-frequency, on-chain transactions without the need for centralized exchanges or L2 solutions This combination of speed and low transaction costs is a game-changer, especially for market makers.</p>
<h2>What Constitutes “Ethereum” in a Rollup-Centric World?</h2>
<p><a href="https://www.coingecko.com/learn/optimistic-vs-zero-knowledge-rollups" target="_blank">Rollups</a> have emerged as the central strategy for Ethereum scaling, signaling a significant shift of on-chain activity towards <a href="https://www.coingecko.com/learn/what-are-layer-2-crypto-protocols" target="_blank">Layer 2 (L2) chains</a>. By offloading computation and minimizing on-chain transaction data, rollups effectively alleviate the computational demand on the Ethereum network, entrusting the heavy lifting to the rollup chain. This shift not only optimizes network efficiency but also maintains the integrity and accessibility of transaction data for validation purposes.</p>
<p>This evolution to a “rollup-centric” future marks a clear delineation in Ethereum mainnet's users, use cases, and on-chain activities. Ethereum hopes to eventually transition into a settlement layer for the L2 ecosystem, where individual users predominantly transact at the rollup level. While this future is not yet fully materialized, as of Q1 2024, early signs of this transition are beginning to show.</p>
<div><img alt="TVL of Ethereum L2s" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9795/content_TVL_of_Ethereum_L2s.webp" style="width: 1200px; height: 474px;">The TVL of all Ethereum L2s over time. L2s hold ~12x the TVL of Solana. </div>
<div><span style="font-size:11px;"><a href="https://l2beat.com/scaling/summary" rel="nofollow noopener" target="_blank">Source</a></span></div>
<div> </div>
<div>
<span style="font-size:11px;"><img alt="Ethereum L2 DAU" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9796/content_Ethereum_L2_DAU.webp" style="width: 1200px; height: 520px;"></span>The growth in Ethereum L2 DAU. </div>
<div><span style="font-size:11px;"><a href="https://substackcdn.com/image/fetch/f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fsubstack-post-media.s3.amazonaws.com%2Fpublic%2Fimages%2F297adcae-f443-4b27-97f1-93793a3a925c_1644x712.png?utm_source=substack&utm_medium=email">Source</a></span></div>
<p>Given this reality, any attempt to analyze or, even worse, quantify Ethereum’s key metrics (TVL, usage, fees, etc.) would fall woefully incomplete if simply analyzing Ethereum mainnet on its own. Instead, it can be argued that to get a better (albeit not perfect) understanding of Ethereum’s key metrics, any analysis must include Ethereum mainnet plus rollup activity. While introducing rollup metrics is more representative of Ethereum’s overall activity, they also introduce significant noise and questionable on-chain user activity that can misrepresent organic activity. </p>
<h2>Caveats to Measuring On-Chain Activity</h2>
<p>This is an important acknowledgment as well as the understanding that all on-chain metrics are flawed in a vacuum. Some examples of key metrics and their shortcomings include:</p>
<ol role="list">
<li>Market Cap: can be artificially inflated with low float and illiquid trading pools</li>
<li>TVL: can be “gamed” by double-counting certain assets or deposits </li>
<li>Volume: wash-trading, especially on low-fee chains</li>
<li>New/Active Users: addresses are usually free to create, and with the proliferation of airdrop farming, user counts are irregular, and retention is difficult</li>
<li>DeFi Velocity or Capital Efficiency </li>
</ol>
<p>The concepts of capital efficiency or “DeFi Velocity,” in which we quantify the frequency at which a single dollar is transacted on a chain, have emerged as proxies for efficient DeFi usage. Admittedly, this measure offers a more nuanced view of chain utilization beyond mere transaction counts or total value locked (TVL). However, our attempts to measure the usage, and eventual “efficiency”, of various blockchains and their users must take into account any issues with the data. </p>
<p>In recent analyses, Solana, Injective, and <a href="https://www.coingecko.com/learn/what-is-zksync" target="_blank">zkSync Era</a> have distinguished themselves by ranking at the forefront in terms of 7-day transaction volumes, signaling robust activity on their respective networks. Solana and Injective, in particular, have witnessed a surge in transactions. This uptick in activity could be traced back to several factors, including technological advancements, ecosystem developments, or increased user adoption. </p>
<p>Or, as is almost universally agreed upon with the case of zkSync, the anticipation surrounding airdrops has also played a significant role in propelling its transaction volume, with airdrop farmers and bots actively engaging in daily transactions. This behavior underscores the speculative dynamics often present within the DeFi sector, where the prospect of token rewards can significantly influence chain activity.</p>
<div><span style="font-size:11px;"><img alt="DeFi velocity" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9797/content_DeFi_velocity.webp" style="width: 680px; height: 410px;"></span></div>
<div><span style="font-size:11px;"><a href="https://twitter.com/jinglingcookies/status/1745800313834033271">Source</a></span></div>
<p>It’s important to approach these volume metrics with a degree of skepticism, as not all activity may be indicative of healthy ecosystem engagement. Observers have rightly noted that a portion of the reported volume could be inflated by practices such as wash trading, where trades are artificially created to give an impression of heightened activity or are simply quirks in the design of a specific project (<a href="https://twitter.com/WazzCrypto/status/1752074605525860749" rel="nofollow noopener" target="_blank">Phoenix volumes</a>). This manipulation can distort the true picture of ecosystem health and vibrancy, highlighting the need for more refined metrics and scrutiny to assess blockchain and DeFi ecosystem performance accurately.</p>
<p>Additionally, capital efficiency is but one aspect of a DeFi user’s experience and the basis on which they make decisions. The discourse around capital efficiency must also extend to include swap fee annual percentage rates (APR), a metric that LPs are likely to prioritize over capital efficiency. The swap fee APR offers a direct measure of return on the capital deployed, presenting a more tangible assessment of capital profitability compared to the abstract nature of capital efficiency. </p>
<p>A pool with a higher fee percentage may exhibit lower capital efficiency and, consequently, a diminished swap APR for its LPs, illustrating the direct impact of fee structures on profitability. Conversely, a reduction in fees can markedly enhance capital efficiency, though the effect on swap fee APR may not be as pronounced, suggesting a delicate balance between attracting LPs through competitive fees and ensuring satisfactory returns.</p>
<p>This distinction is crucial for traders and LPs alike, as it enables a deeper understanding of liquidity depth and pricing advantages, thereby informing better trading and investment decisions. Despite the value of capital efficiency as an indicator, its significance is magnified when considered alongside other metrics, enabling a holistic view of a protocol's financial health.</p>
<p>Protocols may tout capital efficiency as a lure for investment without adequately addressing the profitability prospects for LPs. This discrepancy underscores the need for comprehensive financial reporting and analysis tools that can equip stakeholders with the insights necessary to navigate the complex dynamics of the DeFi ecosystem. As the industry evolves, the development of such tools will be indispensable in harmonizing capital efficiency with the financial well-being of liquidity providers, ensuring a balanced approach to protocol evaluation and investment decision-making.</p>
<h2>Conclusion</h2>
<p>The discussion on capital efficiency within both Traditional Finance (TradFi) and Decentralized Finance (DeFi) illuminates its critical role in guiding the operational and financial success of entities operating within these realms. This report has elaborated on how capital efficiency is not merely a gauge of financial resource utilization but a key determinant of a blockchain’s capability to innovate, remain competitive, and foster a vibrant DeFi ecosystem. Particularly, high-speed, low-cost blockchains such as Solana emerge as frontrunners in enhancing capital efficiency, offering a stark contrast to slower, more costly counterparts like Ethereum. This distinction underlines the evolving nature of financial ecosystems that increasingly prioritize efficiency, showcasing a transition towards blockchain solutions that afford optimized capital deployment, reduced operational costs, and heightened transactional throughput.</p>
<p><span style="font-size:11px;"><em>Disclaimer: This report was commissioned by the Solana Foundation. This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.</em></span></p>
Reflexivity Researchhttps://www.coingecko.com/learn/solana-defi-vs-ethereum-defiSolana DeFi vs. Ethereum DeFi
Ethereum's EVM (Ethereum Virtual Machine) is currently dominating DeFi, and Ethereum alone (excluding its Layer 2s) has over $43 billion in TVL. However, Solana is ...tag:www.coingecko.com,2005:Post/12682024-03-19T04:43:05Z2024-03-19T07:15:05ZGMX V2: Trade on Arbitrum and Win<h2 dir="ltr">What Is GMX V2?</h2>
<p dir="ltr">GMX V2 has introduced a lot of improvements for traders and liquidity providers: more assets, faster execution, isolated pools, lower trading fees, and increased swap incentives. This March, to celebrate the launch of GMX’s new Trading Leaderboard and EIP-4844 (which vastly reduced gas fees for Layer 2s like Arbitrum) GMX is holding the <a href="https://app.gmx.io/#/competitions/" target="_blank">GMX #EIP4844 Trading Competition</a>. A prize pot of 280,000 ARB tokens is available for the winners, and all trades on GMX V2 on Arbitrum automatically qualify for the competition. </p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">GMX is the largest protocol by TVL on the Arbitrum Layer 2 network. The on-chain exchange is also available on Avalanche.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">GMX is a decentralized derivatives trading platform that enables users to trade perpetual contracts with up to 50X leverage for listed assets, and offers spot swaps as well.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">GMX V2 offers improvements like reduced trading fees, rapid 1-click trading, as well as isolated pools for better risk management.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">To celebrate the launch of its leaderboard and the Dencun upgrade on the Ethereum network, GMX is launching a trading competition with over $500,000 worth of ARB tokens in prizes for participants. </p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="GMX EIP4844 Trading Competition" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9766/content_GMX_EIP4844_Trading_Competition.webp" style="width: 1200px; height: 675px;"></div>
<p dir="ltr"><em>This article is sponsored by GMX.</em></p>
<p dir="ltr"><a href="https://www.coingecko.com/learn/what-is-gmx-guide-to-the-decentralized-perpetual-exchange" target="_blank">GMX</a> is Arbitrum’s largest protocol by TVL, with over $600 million in crypto assets locked in the protocol based on <a href="https://defillama.com/chain/Arbitrum" rel="nofollow noopener" target="_blank">DefiLlama data</a>. GMX is a non-custodial decentralized derivative trading platform that allows users to trade perpetual contracts of assets like BTC, ETH, and SOL with up to 50X leverage. It uses smart contracts to manage the core aspects of the platform, including asset custody, arrangement of leverage loans for leveraged positions, and an algorithm that oversees the liquidation and emission of earnings to traders and liquidity providers.</p>
<p dir="ltr">According to <a href="https://dune.com/gmx-io/gmx-analytics" rel="nofollow noopener" target="_blank">Dune analytics reports</a>, GMX’s total volume is over $186 billion, with over 550,000 users. GMX claims to bring leverage trading closer to cryptocurrency investors by allowing them to obtain its services without giving up custody of their assets or personal information. In October 2023, GMX V2 went live on the Arbitrum mainnet.</p>
<p dir="ltr">Here’s more about GMX V2:</p>
<h2 dir="ltr">GMX V2 Improvements</h2>
<p dir="ltr">GMX V2 is an upgrade on the first version (V1) of the GMX protocol. The <a href="https://gmxio.substack.com/p/gmx-v2-beta-is-now-live" target="_blank">V2 upgrade claims to offer significant improvements to key areas of the platform</a> with a focus on enhancing the user experience. </p>
<p dir="ltr">For traders, the V2 upgrade offers lower fees, with trading fees slashed to 0.05% - 0.07% of the traded volume. Traders will also enjoy low <a href="https://www.coingecko.com/learn/slippage-crypto" target="_blank">slippage</a> due to V2’s deep liquidity, and faster execution speed thanks to a new <a href="https://www.coingecko.com/learn/crypto-blockchain-oracle" target="_blank">oracle</a> system developed with Chainlink, which ensures orders are carried out at the closest execution price possible. </p>
<p dir="ltr">For liquidity providers, the V2 upgrade offers adaptive funding fees that help balance open interest, plus increased swap incentives. The swap incentive is also meant to maintain a balance between the tokens in the pool. For instance, when the ratio of longs versus shorts increases, incentives are offered to traders to sell the longed tokens for short tokens to rebalance the pool. With optimized incentives as part of the V2 upgrade, GMX hopes to operate more balanced pools.</p>
<p dir="ltr">There is also the addition of the isolated pool mode, where each pool operates independently and liquidity providers can customize their exposure to specific tokens. This separates the V2 pools from the multi-asset pool GLP model that was popularised by GMX V1. In addition, GMX has also added new assets (Aave, OP, BNB) and added markets for synthetic assets, which can be used to trade tokens like Near, Doge and Atom – for which sufficient <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a> does not exist on the two blockchains GMX is live on, Arbitrum and Avalanche. </p>
<p dir="ltr">Perpetual trading is growing in demand amongst cryptocurrency investors, as they allow traders to speculate on price movements without owning the underlying asset and access <a href="https://www.coingecko.com/learn/leverage-crypto-trading-how-does-it-work" target="_blank">leverage</a>, increasing their market exposure. </p>
<h3 dir="ltr">What Are Perpetual Futures?</h3>
<p dir="ltr">Perpetual futures are a form of futures contracts, where the major difference between perpetual contracts and normal futures contracts is contract expiration design. The traditional form of futures contracts has a stated expiry date, after which the contracts can no longer be traded. In contrast, perpetual contracts have no expiry period, thus, a trader’s position is valid for as long as they leave it open and maintain it.</p>
<p dir="ltr">The profit or loss will continue to accrue until the trader decides to close the trade or the exchange liquidates the trader’s account in cases of unmaintained losing trades.</p>
<p dir="ltr">When trading perpetuals, never invest more than you can afford to lose. The cryptocurrency market is extremely volatile with price swings, and can lead to substantial losses if not managed carefully. </p>
<h2 dir="ltr">GMX #EIP4844 Trading Competition</h2>
<p dir="ltr">Arbitrum is the largest <a href="https://www.coingecko.com/learn/what-are-layer-2-crypto-protocols" target="_blank">Layer 2</a> rollup on Ethereum, and the recent launch of <a href="https://www.coingecko.com/learn/eip-4844-proto-danksharding-low-gas-fees" target="_blank">EIP-4844</a>, which is part of the Dencun upgrade, is expected to improve user experience on L2 networks with a decrease on gas fees. As a dApp deployed on Arbitrum, GMX will benefit from the EIP-4844 upgrade to offer users a more cost-effective perpetual trading platform to users. </p>
<p dir="ltr">On March 11 2024, GMX announced the <a href="https://app.gmx.io/#/competitions/" target="_blank">GMX #EIP4844 Trading Competition</a> to commemorate the implementation of the EIP-4844 improvement upgrade on the Ethereum blockchain and also the launch of the GMX leaderboard. </p>
<p dir="ltr">According to the announcement, GMX is dedicating 280,000 ARB (about $500,000) to the competition’s prize pool. The trading competition started on March 13 2024, and will consist of two phases, each lasting for a week. </p>
<p dir="ltr">The first trading competition will commence on March 13, and end on March 20. The second trading competition will commence on March 20, and end on March 27. During this period, users who trade on the platform are eligible for a share of the competition’s prize pool. </p>
<p dir="ltr">The contest is divided into two categories.</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Top PnL ($)</p>
</li>
</ol>
<p dir="ltr">The Top PnL ($) prizes are awarded to the 1-18 highest notional PnL ($), based on the total realized and unrealized profit and loss for the competition period, including fees and price impact. </p>
<ol start="2">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Top PnL (%)</p>
</li>
</ol>
<p dir="ltr">The Top PnL (%) prizes are awarded to the 1-18 highest PnL according to percentage gains. In this case, PnL (%) is defined as [PnL / Capital Used].</p>
<p dir="ltr">Every trader on the platform is eligible for both prize categories, and the prize breakdown is as follows.</p>
<h3 dir="ltr">Prizes for Top PnL ($) Category</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">1st Highest Notional PnL: 50,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">2nd Highest Notional PnL: 25,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">3rd Highest Notional PnL: 10,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">4-18th Highest Notional PnL: 1,000 ARB</p>
</li>
</ul>
<p dir="ltr">TOTAL: 100,000 * 2 weeks = 200,000 ARB (~$400,000)</p>
<h3 dir="ltr">Prizes for Top PnL (%) Category</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">1st Highest PnL (%): 10,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">2nd Highest PnL (%): 7,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">3rd Highest PnL (%): 5,000 ARB</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">4th-18th Highest PnL (%): 1,200 ARB</p>
</li>
</ul>
<p dir="ltr">TOTAL: 40,000 * 2 weeks = 80,000 ARB (~$160,000)</p>
<p dir="ltr">The <a href="https://app.gmx.io/#/leaderboard" target="_blank">leaderboard statistics</a> can be accessed on the GMX trading platform.</p>
<p dir="ltr">For more information on the #EIP4844 trading competition, including participation criteria and rules, please <a href="https://gmxio.substack.com/p/the-gmx-eip4844-trading-competition" target="_blank">refer the official announcement</a>.</p>
<p dir="ltr">Ready to compete? Here’s a quick primer on how to use GMX V2.</p>
<h2 dir="ltr">How to Trade on GMX V2</h2>
<p dir="ltr">GMX offers direct asset swaps, perpetual trading, and arbitraging. You can switch between direct swaps and perpetuals on GMX. </p>
<h3 dir="ltr">To Perform Direct Swaps on GMX</h3>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Launch the GMX dApp and click <strong>Connect Wallet</strong> from the top right corner to connect your wallet to the platform.</p>
</li>
</ol>
<div dir="ltr"><img alt="Connect Wallet to GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9756/content_Connect_Wallet_to_GMX.webp" style="width: 1200px; height: 567px;"></div>
<ol start="2">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Click <strong>Trade</strong> from the right corner of your screen to enter the trading application.</p>
</li>
</ol>
<div dir="ltr"><img alt="Start Trading on GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9757/content_Start_Trading_on_GMX.webp" style="width: 1200px; height: 478px;"></div>
<ol start="3">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Check the version button indicated above to ensure that you are using GMX <strong>V2</strong>.</p>
</li>
</ol>
<div dir="ltr"><img alt="Use GMX V2" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9758/content_Use_GMX_V2.webp" style="width: 1200px; height: 323px;"></div>
<ol start="4">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">From the operation menu on the right side of your screen, click <strong>Swap</strong> to navigate to the direct swap application.</p>
</li>
</ol>
<div dir="ltr"><img alt="Direct Swaps on GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9759/content_Direct_Swaps_on_GMX.webp" style="width: 1200px; height: 354px;"></div>
<ol start="5">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Select the assets you wish to swap and enter the amount.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Check the box next to <strong>Acknowledge Price Impact</strong> to proceed with your swap.</p>
</li>
</ol>
<div dir="ltr"><img alt="Acknowledge Price Impact GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9760/content_Acknowledge_Price_Impact_GMX.webp" style="width: 1200px; height: 518px;"></div>
<ol start="7">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Click <strong>Swap [selected asset]</strong> to proceed.</p>
</li>
</ol>
<div dir="ltr"><img alt="Swap Selected Assets" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9761/content_Swap_Selected_Assets.webp" style="width: 1200px; height: 460px;"></div>
<ol start="8">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">On the dialog that pops up, verify the details of your trade and click <strong>Swap</strong> to continue.</p>
</li>
</ol>
<div dir="ltr"><img alt="Confirm trade details on GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9762/content_Confirm_trade_details_on_GMX.webp" style="width: 1200px; height: 566px;"></div>
<ol start="9">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Confirm the transaction from your wallet to complete.</p>
</li>
</ol>
<h3 dir="ltr">How to Trade Perpetual Contracts on GMX</h3>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">As in the case of direct swaps, connect your wallet to the platform and navigate to the trading platform.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Ensure that you are still on GMX V2.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">To switch to the perpetual trading tab, click on your preferred position.</p>
</li>
</ol>
<p dir="ltr">That is, click <strong>Long</strong> if you intend to take a leveraged long position on an asset and vice versa.</p>
<div dir="ltr"><img alt="Set Perpetuals position GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9763/content_Set_Perpetuals_position_GMX.webp" style="width: 1200px; height: 285px;"></div>
<ol start="4">
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Set the parameters of your trade; the asset to be used as your collateral, the amount you wish to pay, and the asset you are taking a position on.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Drag the slider to set your leverage.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Check your entry price, liquidation price, and entry fee. If satisfactory, confirm your position.</p>
</li>
</ol>
<div dir="ltr"><img alt="Confirm position" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9764/content_Confirm_position.webp" style="width: 1200px; height: 570px;"></div>
<p dir="ltr">Once you confirm your position, it appears on the position tab. You can manage your positions from the Positions tab.</p>
<div dir="ltr"><img alt="Manage positions on GMX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9765/content_Manage_positions_on_GMX.webp" style="width: 1200px; height: 615px;"></div>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Click <strong>Positions</strong> to view active trades and manage your trades.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"> Click <strong>Close</strong> to close your position or set a stop-loss or take-profit order.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">To set a stop-loss or take-profit order, click <strong>Trigger</strong> and set a price at which your trade closes automatically.</p>
</li>
</ol>
<h3 dir="ltr">Arbitraging on GMX</h3>
<p dir="ltr">GMX offers users to earn on <a href="https://www.coingecko.com/learn/what-is-crypto-arbitrage-trading-and-is-it-profitable" target="_blank">arbitrage</a> opportunities. Arbitraging is available for direct swap pairs and perpetual pairs.</p>
<p dir="ltr">On the swap platform, positive price impact can be arbitraged. Traders can receive more assets than they should normally receive when they purchase an asset whose USD value is higher than the USD value of the paired currency. For instance, for a pair like BTC-USDT, traders will receive more BTC if they swap USDT to BTC when the USD value of BTC is higher than the USD value of USDT in the pool.</p>
<p dir="ltr">For perpetual traders, traders will receive funding if they take and maintain the minority position in an unbalanced perpetual trading pool. That is, if there are more long positions than short positions for a selected asset, traders will receive funding if they take a short position on the asset. The funding tends to taper off as the positions balance. This incentivizes traders to close their long or short positions or take the opposite position to rebalance the pool. </p>
<h2 dir="ltr">Final Thoughts</h2>
<p dir="ltr">From March 13, 2024, to March 27, 2024, interactions with the GMX V2 protocol qualify you to compete for a share of the 280,000 ARB tokens dedicated to the trading competition. The EIP4844 upgrade is a significant one for the Ethereum network as a whole but especially for Layer 2 networks like Arbitrum and applications built on them, like the GMX trading platform. </p>
<p dir="ltr">With the upgrade, traders on GMX will enjoy cheaper prices for fees paid for on-chain validation in addition to the reduced trading fees as part of the GMX V2 upgrade. With these, GMX hopes to lower the barrier to participating in decentralized derivatives trading. With the incentivized trading competition, traders could be compelled to trade more on the platform and experience the cost-efficiency of the Arbitrum network and GMX trading platform.</p>
<p dir="ltr">This article includes a brief guide on how to get started on GMX. However, note that it is not exhaustive of the operations you can perform on the platform. It is also important to understand how the protocol works in general and how it affects you as a user, and ensure that you only invest what you can afford to lose, as the crypto market is extremely volatile. This article is only meant to provide information and should not be taken as investment advice.</p>
CoinGeckohttps://www.coingecko.com/learn/gmx-trading-competitionWhat Is GMX V2?
GMX V2 has introduced a lot of improvements for traders and liquidity providers: more assets, faster execution, isolated pools, lower trading fees, and increased swap incentives....tag:www.coingecko.com,2005:Post/12642024-03-18T22:00:00Z2024-03-20T04:52:30ZCrypto Machine Learning: Develop a Crypto Algorithmic Trading Strategy with Python<p id="Machine-Learning-in-Crypto:-Create-Your-Algorithmic-Trading-Strategy-with-Python">Machine learning has become instrumental in the world of algorithmic trading strategies, utilizing numerical, categorical, and ordinal data to build simplified models of the real world. This article will leverage <code>pycgapi</code>, an unofficial Python wrapper for accessing the <strong><a href="https://www.coingecko.com/en/api?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">CoinGecko API</a></strong>, to fetch crucial market data and build an algorithmic trading strategy.</p>
<p>By combining Python's computational capabilities with the rich datasets provided by CoinGecko, we will apply machine learning techniques to develop, test, and implement algorithmic trading strategies in the cryptocurrency space. More specifically, we'll focus on utilizing the unsupervised machine learning algorithm called the <strong>Hierarchical Risk Parity (HRP) portfolio strategy</strong>.</p>
<hr>
<h2><img alt="Crypto machine learning - how to develop a crypto algo trading strategy with Python" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9720/content_Design_Your_Own_Crypto_Algorithmic_Trading_Strategy.webp" style="width: 1200px; height: 600px;"></h2>
<h2 id="Prerequisites">Prerequisites</h2>
<p>In this section, we've outlined the necessary background knowledge, software, and libraries you'll need, as well as steps to set up your environment, to follow along with the tutorial.</p>
<h3 id="Background-Knowledge">Background Knowledge</h3>
<ul>
<li>
<strong>Python Proficiency</strong>: You should be comfortable with basic programming concepts like variables, loops, and functions, as well as more advanced topics such as working with libraries and handling data.</li>
<li>
<strong>Understanding of Financial Markets</strong>: A basic understanding of financial markets and instruments, especially cryptocurrencies, will be beneficial.</li>
<li>
<strong>Mathematics and Statistics</strong>: Knowledge of basic mathematics and statistics is recommended to follow the financial analysis parts of the tutorial.</li>
</ul>
<h3 id="Google-Colab">Google Colab</h3>
<p>This tutorial utilizes <a href="https://colab.google/?utm_campaign=learn&utm_content=crypto-algo-trading-strategy-python" target="_blank">Google Colab</a>, a free cloud service that allows you to write and execute Python in your browser with zero configuration required, access to free GPUs, and easy sharing. Using Google Colab eliminates the need for local setup and ensures that everyone has access to the same computing environment, making it easier to follow along and troubleshoot.</p>
<div style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;"><em><strong>💡Pro-tip: </strong>I recommend familiarizing yourself with the Colab interface and functionalities by reviewing their <a href="https://colab.google/notebooks/?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">Curated Notebooks</a>.</em></div>
<h3>Configure API Keys</h3>
<p>For accessing crypto data and automating trades, we will be using the CoinGecko and Alpaca APIs.</p>
<ul>
<li>
<strong>CoinGecko API</strong>: Used to fetch cryptocurrency market data.</li>
<li>
<strong>Alpaca API</strong>: Enables automated trading on the Alpaca platform.</li>
</ul>
<p>Setting up your API keys for these services allows us to programmatically retrieve real-time crypto data and execute trades, which are essential components of algorithmic trading. To obtain your API keys:</p>
<ul>
<li>Log in to your CoinGecko account and go to the <a href="https://www.coingecko.com/en/developers/dashboard?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">Developer's Dashboard</a>. Click on "Add New Key". Store in a secure location.</li>
<li>Log in to your Alpaca account and navigate to the <a href="https://app.alpaca.markets/paper/dashboard/overview?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">Paper Trading Dashboard</a>. Click on "Generate" in the API Keys box. After creation, your API key and secret will be displayed. It's crucial to save these securely at this point, as the secret key will not be shown again. If you lose the secret key, you'll need to generate a new pair.</li>
</ul>
<h4 id="Store-API-Keys-in-Google-Colab-Secrets">Store API Keys in Google Colab Secrets</h4>
<p>In Google Colab, click the key icon in the left side menu.</p>
<p><img alt="Google Colab Secrets - Store API keys" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9767/content_1.webp" style="width: 59px; height: 299px;"></p>
<p>Enter the name for each key, paste the key as the value, and grant the notebook access to each key.</p>
<p><img alt="Crypto Machine Learning" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9768/content_2.webp" style="width: 480px; height: 432px;"></p>
<p>For accessing financial data, configure your API keys as follows:</p>
<script src="https://gist.github.com/nathanramoscfa/de68bb18393fa7ccfc0e1a1bafb7271c.js"></script>
<h3 id="Install-Required-Libraries">Install Required Libraries</h3>
<p>This tutorial utilizes several custom Python libraries:</p>
<ul>
<li>
<strong>pycgapi</strong>: A client for accessing the CoinGecko API for cryptocurrency data.</li>
<li>
<strong>alpaca-py</strong>: The official Python library for the Alpaca trading API, enabling automated trading strategies.</li>
<li>
<strong>PyPortfolioOpt</strong>: Offers portfolio optimization techniques, such as mean-variance optimization.</li>
<li>
<strong>bt</strong>: A flexible backtesting framework for Python used to test and develop quantitative trading strategies.</li>
</ul>
<p>Run the following commands in a Google Colab cell to install them:</p>
<script src="https://gist.github.com/nathanramoscfa/7054d9fad77791f4509600271c1633f3.js"></script>
<h3 id="Import-Libraries">Import Libraries</h3>
<p>Once the installations are complete, import the necessary libraries using the following code. These libraries will help us manipulate data, perform financial analysis, construct portfolios, and run machine learning algorithms.</p>
<script src="https://gist.github.com/nathanramoscfa/2051546fe49aa52ef8d386dd5d97345b.js"></script>
<hr>
<h2 id="Initialize-API-Clients">Initialize API Clients</h2>
<p>Now, let's set up the clients needed to interact with the CoinGecko and Alpaca APIs. These clients act as the bridge between our Python code and the external services, allowing us to fetch real-time cryptocurrency data and execute trades programmatically.</p>
<p id="Configure-API-Clients">For CoinGecko, we'll be using a pro API key due to the amount of data required and to operate with higher rate limits.</p>
<p>For Alpaca, you will need either a paper (simulated trading) or live trading API key, depending on your trading mode preference.</p>
<script src="https://gist.github.com/nathanramoscfa/865bbf33dfda4e19d518685298343e90.js"></script>
<h3 id="Initialize-CoinGecko-API-Client">Initialize CoinGecko API Client</h3>
<p>To interact with the CoinGecko API, we initialize a client that will make requests for cryptocurrency data. This data is crucial for making informed trading decisions in our algorithm.</p>
<script src="https://gist.github.com/nathanramoscfa/f8135e2274d9256684cbc13bbd6e2bad.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>CoinGecko API Server Status: {'gecko_says': '(V3) To the Moon!'}</code>
</pre>
<h3 id="Initialize-Alpaca-API-Client">Initialize Alpaca API Client</h3>
<p>For executing trades, we use the Alpaca API client. This client will be configured for either paper trading (simulated) or live trading, based on our earlier paper setting.</p>
<script src="https://gist.github.com/nathanramoscfa/504f2f863a65694fe57bfffebc3a6440.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Alpaca Trading Client Initialized: Paper Trading </code>
</pre>
<hr>
<h2 id="Investment-Universe">Investment Universe</h2>
<p>In this section, we align the tradable cryptocurrency tickers from Alpaca with their corresponding coin IDs in CoinGecko. This alignment is crucial because Alpaca and CoinGecko use different formats for cryptocurrency tickers. For example, Alpaca uses currency pairs like "BTC/USD", whereas CoinGecko identifies cryptocurrencies by coin IDs, such as "bitcoin". By reconciling these formats, we ensure our strategy only considers cryptocurrencies that are both tradable on Alpaca and have data available on CoinGecko.</p>
<h3 id="Tradable-Crypto-Tickers-on-Alpaca">Tradable Crypto Tickers on Alpaca</h3>
<p>First, we retrieve all tradable cryptocurrency tickers from Alpaca, focusing on those we can trade and have data for on CoinGecko.</p>
<script src="https://gist.github.com/nathanramoscfa/8a4e4eadbc3ef61e4b27c399e39dccc9.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Tradable Currency Pairs on Alpaca:
tradable
symbol
AAVE/USD True
AAVE/USDC True
AAVE/USDT True
AVAX/USD True
AVAX/USDC True</code>
</pre>
<h3 id="Crypto-Tickers-from-CoinGecko">Crypto Tickers from CoinGecko</h3>
<p>Next, we match the tradable tickers from Alpaca with CoinGecko coin IDs, excluding those with a base currency of "BTC" to focus on US Dollar-based pairs.</p>
<script src="https://gist.github.com/nathanramoscfa/18d542020152b443958aaa3a1924bc5b.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>100%|██████████| 56/56 [00:09<00:00, 5.98it/s]
Found CoinGecko IDs for 20 assets.</code>
</pre>
<h3 id="Collect-CoinGecko-Coin-IDs">Collect CoinGecko Coin IDs</h3>
<p>We collect the CoinGecko coin IDs from the search results, excluding stablecoins to focus on risky assets.</p>
<script src="https://gist.github.com/nathanramoscfa/0ea9ceeda75e0a7ebc52ae4da6d67319.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>CoinGecko Coin IDs:
aave
avalanche-2
basic-attention-token
bitcoin
bitcoin-cash
chainlink
curve-dao-token
dogecoin
ethereum
litecoin
maker
polkadot
shiba-inu
sushi
tezos
the-graph
uniswap
yearn-finance</code>
</pre>
<h3 id="Map-CoinGecko-Coin-IDs-to-Alpaca-Trading-Symbols">Map CoinGecko Coin IDs to Alpaca Trading Symbols</h3>
<p>Finally, we create a mapping between the CoinGecko coin IDs and Alpaca trading symbols for use in subsequent trading logic.</p>
<script src="https://gist.github.com/nathanramoscfa/61260f72ac79f311c81f24d4b2c84025.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Ticker Mapping:
aave: AAVE/USD
avalanche-2: AVAX/USD
basic-attention-token: BAT/USD
bitcoin-cash: BCH/USD
bitcoin: BTC/USD
curve-dao-token: CRV/USD
dogecoin: DOGE/USD
polkadot: DOT/USD
ethereum: ETH/USD
the-graph: GRT/USD
chainlink: LINK/USD
litecoin: LTC/USD
maker: MKR/USD
shiba-inu: SHIB/USD
sushi: SUSHI/USD
uniswap: UNI/USD
usd-coin: USDC/USD
tether: USDT/USD
tezos: XTZ/USD
yearn-finance: YFI/USD</code>
</pre>
<hr>
<h2 id="CoinGecko-API-Data">Fetching Real-time & Historical Crypto Price Data</h2>
<p>Use the CoinGecko API to fetch real-time and historical crypto price data. This is essential for the analysis underlying our trading strategy.</p>
<h3 id="Earliest-Start-Dates">Earliest Start Dates</h3>
<p>The availability of historical data is assessed to ensure each cryptocurrency in our selection has sufficient historical data for analysis. Use this information to assess whether you should to omit any assets whose earliest start date is too recent.</p>
<script src="https://gist.github.com/nathanramoscfa/b00fda96319b1010d2c09db3232fa257.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>100%|██████████| 18/18 [00:13<00:00, 1.37it/s]
Earliest Data Start Dates:
the-graph 2020-12-17
aave 2020-10-03
avalanche-2 2020-09-22
uniswap 2020-09-17
sushi 2020-08-28
polkadot 2020-08-19
curve-dao-token 2020-08-14
shiba-inu 2020-08-01
yearn-finance 2020-07-18
tezos 2018-07-03
maker 2017-12-20
chainlink 2017-11-09
bitcoin-cash 2017-08-02
basic-attention-token 2017-06-08
ethereum 2015-08-07
dogecoin 2013-12-15
bitcoin 2013-04-28
litecoin 2013-04-28
Name: Start Dates, dtype: object</code>
</pre>
<h3 id="Current-Prices">Current Prices</h3>
<p>We download current market prices for each selected cryptocurrency, providing a current view of market conditions.</p>
<script src="https://gist.github.com/nathanramoscfa/a2e746ed2156e5df370797167e1d67d4"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Current Prices:
usd
AAVE/USD 102.730000
AVAX/USD 38.930000
BAT/USD 0.270338
BTC/USD 53392.000000
BCH/USD 270.950000
LINK/USD 18.960000
CRV/USD 0.599837
DOGE/USD 0.086983
ETH/USD 3152.620000
LTC/USD 71.140000
MKR/USD 2092.800000
DOT/USD 7.990000
SHIB/USD 0.000010
SUSHI/USD 1.570000
USDT/USD 1.000000
XTZ/USD 1.130000
GRT/USD 0.293909
UNI/USD 10.690000
USDC/USD 1.000000
YFI/USD 8325.900000</code>
</pre>
<h3 id="Historical-Data">Historical Data</h3>
<p>We download historical price, market capitalization, and trading volume data for each selected cryptocurrency. This dataset is crucial for analyzing market behavior over the specified period.</p>
<script src="https://gist.github.com/nathanramoscfa/9dd3ad59f1a450dd1ef70481c4c4b662.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>100%|██████████| 20/20 [00:12<00:00, 1.63it/s]
Historical Prices:
bitcoin bitcoin-cash chainlink \
timestamp
2022-11-21 00:00:00+00:00 16304.076856 104.914267 5.780015
2022-11-22 00:00:00+00:00 15814.335281 103.401328 5.878893
2022-11-23 00:00:00+00:00 16171.628978 108.902578 6.386520
2022-11-24 00:00:00+00:00 16608.009985 114.523828 6.721798
2022-11-25 00:00:00+00:00 16596.035758 116.688272 6.833340
curve-dao-token dogecoin
timestamp
2022-11-21 00:00:00+00:00 0.512044 0.077732
2022-11-22 00:00:00+00:00 0.501516 0.075124
2022-11-23 00:00:00+00:00 0.633928 0.078690
2022-11-24 00:00:00+00:00 0.688066 0.082338
2022-11-25 00:00:00+00:00 0.689696 0.081835 </code>
</pre>
<h3 id="Categorical-Data">Categorical Data</h3>
<p>Finally, categorical information for each cryptocurrency is collected. This data helps to understand the diversification and exposure of the portfolio across different cryptocurrency categories.</p>
<script src="https://gist.github.com/nathanramoscfa/913aa57ded9be06e1cf8521c4d9034b6.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>100%|██████████| 20/20 [00:09<00:00, 2.08it/s]</code>
</pre>
<h2 id="Data-Processing">Data Processing</h2>
<p>This section outlines the steps to normalize, analyze, and visualize the historical cryptocurrency data, setting a foundation for machine learning analysis.</p>
<h3 id="Normalize-Prices-for-Comparative-Analysis">Normalize Prices for Comparative Analysis</h3>
<p>Given the significant price differences across cryptocurrencies, we normalize all prices to start at $1. This approach enables a direct comparison by equalizing the initial investment across all assets.</p>
<script src="https://gist.github.com/nathanramoscfa/60e817e3eb46fff74a608dc08018f879.js"></script>
<h3 id="Compute-Historical-Returns">Compute Historical Returns</h3>
<p>We calculate daily and cumulative returns from the normalized prices, which serve as key metrics for evaluating asset performance.</p>
<script src="https://gist.github.com/nathanramoscfa/3498e27db6139cbfd56ac9f8c8a05753.js"></script>
<h3 id="Visualize-Cumulative-Returns">Visualize Cumulative Returns</h3>
<p>Visualizing the cumulative returns of selected cryptocurrencies not only brings the data to life but also aids in the identification of standout performers and underperformers within our investment universe.</p>
<script src="https://gist.github.com/nathanramoscfa/72fc7bbd53746d06e14190496380350a.js"></script>
<p><img alt="Cumulative Returns Over Time - Crypto Algo Trades" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9769/content_3.webp" style="width: 990px; height: 590px;"></p>
<h3 id="Prepare-Data-for-Machine-Learning">Prepare Data for Machine Learning</h3>
<p>Prior to machine learning analysis, we standardize the historical returns. This normalization ensures that all data features contribute equally to the analysis, improving algorithm performance.</p>
<script src="https://gist.github.com/nathanramoscfa/810866a3cfec6d3f612ea22a5b455db9.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Standardized Historical Returns:
bitcoin bitcoin-cash chainlink curve-dao-token \
timestamp
2022-11-22 00:00:00+00:00 -1.451238 -0.430926 0.357041 -0.492130
2022-11-23 00:00:00+00:00 0.874272 1.263095 2.156707 3.000000
2022-11-24 00:00:00+00:00 1.068304 1.223372 1.276908 1.909221
2022-11-25 00:00:00+00:00 -0.155862 0.403770 0.343712 0.027544
2022-11-26 00:00:00+00:00 -0.314597 -0.667662 0.001589 -0.341132
dogecoin
timestamp
2022-11-22 00:00:00+00:00 -1.023868
2022-11-23 00:00:00+00:00 1.392055
2022-11-24 00:00:00+00:00 1.359091
2022-11-25 00:00:00+00:00 -0.205570
2022-11-26 00:00:00+00:00 2.897963 </code>
</pre>
<h2 id="Algorithmic-Trading-Strategy">Algorithmic Trading Strategy: What is Hierarchical Risk Parity (HRP)?</h2>
<p><strong>The Hierarchical Risk Parity (HRP) method, introduced in <a href="https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2708678?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">López de Prado (2016)</a>, uses hierachical clustering to group assets, not by past returns, but by the similarity in their price series. </strong>HRP aims to minimize estimation errors found in conventional portfolio optimization methods by constructing a diversified portfolio that considers the hierarchical relationships between assets. HRP's effectiveness lies in its robustness to market shifts, often outperforming classical diversification techniques.</p>
<h3 id="Hierarchical-Risk-Parity">Hierarchical Risk Parity</h3>
<p>We start by structuring our assets using hierarchical clustering. This method begins with each asset as a separate cluster and merges them iteratively based on their correlations. The outcome reveals natural groupings in the data, aiding in diversified portfolio construction.</p>
<script src="https://gist.github.com/nathanramoscfa/5f9758bff963882246e37aab77c3c66c.js"></script>
<p><img alt="Asset clusters for hierarchical clustering - machine learning in crypto" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9770/content_4.webp" style="width: 841px; height: 710px;"></p>
<p>The dendrogram shows how assets link together, with closer branches indicating similar price behaviors. For instance, Bitcoin and Ethereum cluster early, indicating correlated price movements. Conversely, Maker's distinct branch suggests its price behavior is less correlated with the others.</p>
<h3 id="Portfolio-Optimization">Portfolio Optimization</h3>
<p>In the portfolio optimization phase, Hierarchical Risk Parity (HRP) is employed to integrate the clustering results into the asset allocation process. This method accounts for the inherent structure and relationships between assets identified through hierarchical clustering. A crucial step in this process involves computing a risk model using a covariance matrix. The Covariance Shrinkage method, specifically the Ledoit-Wolf shrinkage, is applied to historical returns, which tempers estimation errors by combining the sample covariance with a structured estimator, or "shrinkage target," resulting in a more stable and robust covariance matrix. The HRP model uses this refined covariance matrix to determine the optimal asset weights, aiming for a diversified portfolio that is less sensitive to estimation errors and more attuned to underlying market structures.</p>
<script src="https://gist.github.com/nathanramoscfa/804cda9967982625088424d780809624.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>HRP Optimized Portfolio:
Optimized Weights
Asset
bitcoin 8.68%
polkadot 7.26%
litecoin 7.14%
ethereum 7.02%
dogecoin 6.85%
tezos 6.74%
shiba-inu 6.58%
uniswap 6.26%
basic-attention-token 6.24%
aave 5.56%
chainlink 5.11%
yearn-finance 4.6%
maker 4.22%
avalanche-2 4.17%
curve-dao-token 3.89%
bitcoin-cash 3.76%
sushi 3.16%
the-graph 2.77%
Expected annual return: 45.7%
Annual volatility: 43.4%
Sharpe Ratio: 1.01</code>
</pre>
<p>The output of this optimization presents the asset weights guided by the HRP approach and the robust covariance estimation. The performance metrics, which include expected annual return, annual volatility, and Sharpe Ratio, provide a comprehensive view of the portfolio's risk-reward profile.</p>
<h3 id="Categorical-Weighting">Categorical Weighting</h3>
<p>Finally, we use categorical data to evaluate our portfolio's exposure across various cryptocurrency categories.</p>
<script src="https://gist.github.com/nathanramoscfa/5487236a3710fc8c8c4a1e0a2a0b5012.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Categorical Weights:
Decentralized Finance (DeFi) 35.56%
Smart Contract Platform 34.06%
Layer 1 (L1) 30.37%
Proof of Stake (PoS) 27.96%
Governance 27.68%
Proof of Work (PoW) 26.43%
Meme 13.43%
Layer 0 (L0) 7.26%
Name: Category Weights, dtype: object
Note: Categories can overlap so weights unlikely to total 100%.</code>
</pre>
<p>The portfolio's largest categorical weighting is in Decentralized Finance (DeFi) at 35.56%, closely followed by Smart Contract Platforms at 34.06%. Both Layer 1 protocols and Proof of Stake mechanisms also hold significant weights, emphasizing the portfolio's tilt towards foundational blockchain technologies and governance systems.</p>
<hr>
<h2 id="Backtesting-Strategy">Backtesting Strategy</h2>
<p>Backtesting is a crucial step in evaluating the performance of any trading strategy. It allows us to simulate how the strategy would have performed in the past, providing insights into potential future performance. This section outlines the backtest of a Hierarchical Risk Parity (HRP) strategy against other benchmark strategies, including Equal Weighted (EW), Equal Risk Contribution (ERC), and Monte Carlo simulation of randomly generated portfolios.</p>
<h3 id="Strategy-Logic">Strategy Logic</h3>
<h4 id="Hierarchical-Risk-Parity-(HRP)-Strategy">Hierarchical Risk Parity (HRP) Strategy</h4>
<p>The HRP strategy aims to optimize asset allocation by considering the hierarchical structure of asset correlations, thus potentially reducing portfolio volatility and improving returns. The <code>WeighHRP</code> class, defined below, implements this strategy by selecting assets and rebalancing the portfolio based on a lookback period.</p>
<script src="https://gist.github.com/nathanramoscfa/5fd7d4d521be769207e8eb89c1dfa6f2.js"></script>
<h4 id="Equal-Risk-Contribution-(ERC)-Strategy">Equal Risk Contribution (ERC) Strategy</h4>
<p>The ERC strategy seeks to allocate portfolio weights in a way that each asset contributes equally to the portfolio's risk, aiming for a more balanced risk distribution across assets.</p>
<script src="https://gist.github.com/nathanramoscfa/dbe0cea786d349f23307f1c6edb14c7a.js"></script>
<h3 id="Backtest-Engine">Backtest Engine</h3>
<p>The backtest engine simulates the performance of these strategies over a specified period. It uses historical price data to execute trades according to each strategy's logic and calculates the portfolio's value over time.</p>
<script src="https://gist.github.com/nathanramoscfa/fc6733a4132f5b055996ff1a34740a96.js"></script>
<h3 id="Run-the-Backtest">Run the Backtest</h3>
<p>To initiate the backtest, we set the number of simulations for random portfolios and the lookback period for rebalancing.</p>
<script src="https://gist.github.com/nathanramoscfa/9fec56bc86298dba20ee6131d7211ea8.js"></script>
<p><code>nsim = 1000 # number of random portfolios to be simulated lookback = 3 # period in months used to recalculate weights</code></p>
<p>The risk-free rate is also defined to calculate the excess return used for risk-adjusted performance.</p>
<script src="https://gist.github.com/nathanramoscfa/ca4a100f1d676dd670e1a0653a0f8bc4.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>[*********************100%%**********************] 1 of 1 completed
Average Risk-Free Rate: 3.95%</code>
</pre>
<p>Run all backtests and plot the performance results of a $100 starting value portfolio for each backtest.</p>
<script src="https://gist.github.com/nathanramoscfa/0d86800dd7d238c9b631d2854474f425.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>100%|██████████| 3/3 [00:01<00:00, 2.23it/s]
100%|██████████| 1/1 [00:00<00:00, 7345.54it/s]
100%|██████████| 1/1 [00:00<00:00, 10866.07it/s]
100%|██████████| 1/1 [00:00<00:00, 11214.72it/s]
100%|██████████| 1000/1000 [02:17<00:00, 7.29it/s]</code>
</pre>
<p><img alt="Backtest results" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9771/content_5.webp" style="width: 1114px; height: 563px;"></p>
<h3 id="Plot-Security-Weights">Plot Security Weights</h3>
<p>Visualizing the weight allocations over time provides insights into how each strategy changes to market conditions. It helps in understanding the diversification and risk management approach of each strategy.</p>
<script src="https://gist.github.com/nathanramoscfa/0b3cb0d34ee785def479eed5db6d997a.js"></script><script src="https://gist.github.com/nathanramoscfa/613c9361c59bbe6590a1a9d4849d38ce.js"></script>
<p><img alt="Plot security weights" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9772/content_6.webp" style="width: 1107px; height: 563px;"></p>
<script src="https://gist.github.com/nathanramoscfa/e52c957b32703a404e8667c0ff1cf540.js"></script>
<p><img alt="EW Portfolio Weights chart" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9773/content_7.webp" style="width: 1098px; height: 563px;"></p>
<script src="https://gist.github.com/nathanramoscfa/46415d501939587a0a8f5cbf0fff5ecb.js"></script>
<p><img alt="ERC Portfolio Weights" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9774/content_8.webp" style="width: 1099px; height: 563px;"></p>
<h3 id="Backtest-Results">Backtest Results</h3>
<p>After running the backtests, we compile and display the performance statistics for each strategy. This includes measures such as total return, annualized return, maximum drawdown, Sharpe ratio, and others. Comparing these metrics across strategies helps in evaluating their relative performance and risk characteristics.</p>
<script src="https://gist.github.com/nathanramoscfa/d8510fbf6e4a8bcb0ddaa7d32c33410b.js"></script>
<p>Backtested Portfolios:</p>
<ul>
<li>HRP: Hierarchical Risk Parity</li>
<li>EW: Equal Weighted</li>
<li>ERC: Equal Risk Contribution</li>
<li>ARP: Aggregate Random Portfolio</li>
</ul>
<style type="text/css">table {
color: #ffffff !important; /* Force white text color */
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</style>
<table bgcolor="#333333" border="1" cellpadding="2" cellspacing="0" style="text-align: right">
<thead>
<tr>
<th><code> </code></th>
<th><code>HRP</code></th>
<th><code>EW</code></th>
<th><code>ERC</code></th>
<th><code>ARP</code></th>
</tr>
</thead>
<tbody>
<tr>
<th><code>Start</code></th>
<td><code>2023-02-20</code></td>
<td><code>2023-02-20</code></td>
<td><code>2023-02-20</code></td>
<td><code>2023-02-20</code></td>
</tr>
<tr>
<th><code>End</code></th>
<td><code>2024-02-21</code></td>
<td><code>2024-02-21</code></td>
<td><code>2024-02-21</code></td>
<td><code>2024-02-21</code></td>
</tr>
<tr>
<th><code>Risk-free rate</code></th>
<td><code>3.95%</code></td>
<td><code>3.95%</code></td>
<td><code>3.95%</code></td>
<td><code>3.95%</code></td>
</tr>
<tr>
<th><code>Total Return</code></th>
<td><code>48.35%</code></td>
<td><code>33.08%</code></td>
<td><code>41.14%</code></td>
<td><code>33.06%</code></td>
</tr>
<tr>
<th><code>CAGR</code></th>
<td><code>48.23%</code></td>
<td><code>33.00%</code></td>
<td><code>41.05%</code></td>
<td><code>32.96%</code></td>
</tr>
<tr>
<th><code>Max Drawdown</code></th>
<td><code>-33.78%</code></td>
<td><code>-36.41%</code></td>
<td><code>-34.94%</code></td>
<td><code>-43.75%</code></td>
</tr>
<tr>
<th><code>Calmar Ratio</code></th>
<td><code>1.43</code></td>
<td><code>0.91</code></td>
<td><code>1.17</code></td>
<td><code>0.89</code></td>
</tr>
<tr>
<th><code>MTD</code></th>
<td><code>13.56%</code></td>
<td><code>15.68%</code></td>
<td><code>14.39%</code></td>
<td><code>15.95%</code></td>
</tr>
<tr>
<th><code>3m</code></th>
<td><code>31.77%</code></td>
<td><code>30.82%</code></td>
<td><code>31.19%</code></td>
<td><code>31.46%</code></td>
</tr>
<tr>
<th><code>6m</code></th>
<td><code>76.87%</code></td>
<td><code>80.28%</code></td>
<td><code>79.53%</code></td>
<td><code>81.93%</code></td>
</tr>
<tr>
<th><code>YTD</code></th>
<td><code>8.63%</code></td>
<td><code>5.53%</code></td>
<td><code>7.50%</code></td>
<td><code>5.77%</code></td>
</tr>
<tr>
<th><code>1Y</code></th>
<td><code>48.35%</code></td>
<td><code>33.08%</code></td>
<td><code>41.14%</code></td>
<td><code>33.06%</code></td>
</tr>
<tr>
<th><code>Since Incep. (ann.)</code></th>
<td><code>48.23%</code></td>
<td><code>33.00%</code></td>
<td><code>41.05%</code></td>
<td><code>32.96%</code></td>
</tr>
<tr>
<th><code>Best Day</code></th>
<td><code>9.36%</code></td>
<td><code>9.23%</code></td>
<td><code>9.16%</code></td>
<td><code>15.85%</code></td>
</tr>
<tr>
<th><code>Worst Day</code></th>
<td><code>-9.39%</code></td>
<td><code>-9.93%</code></td>
<td><code>-9.68%</code></td>
<td><code>-12.25%</code></td>
</tr>
<tr>
<th><code>Monthly Sharpe</code></th>
<td><code>1.25</code></td>
<td><code>0.91</code></td>
<td><code>1.08</code></td>
<td><code>0.64</code></td>
</tr>
<tr>
<th><code>Monthly Sortino</code></th>
<td><code>3.18</code></td>
<td><code>2.16</code></td>
<td><code>2.58</code></td>
<td><code>2.03</code></td>
</tr>
<tr>
<th><code>Monthly Mean (ann.)</code></th>
<td><code>53.01%</code></td>
<td><code>44.69%</code></td>
<td><code>49.09%</code></td>
<td><code>44.56%</code></td>
</tr>
<tr>
<th><code>Monthly Vol (ann.)</code></th>
<td><code>39.36%</code></td>
<td><code>45.00%</code></td>
<td><code>41.97%</code></td>
<td><code>56.57%</code></td>
</tr>
<tr>
<th><code>Monthly Skew</code></th>
<td><code>0.02</code></td>
<td><code>0.11</code></td>
<td><code>0.04</code></td>
<td><code>0.64</code></td>
</tr>
<tr>
<th><code>Monthly Kurt</code></th>
<td><code>-1.46</code></td>
<td><code>-1.46</code></td>
<td><code>-1.37</code></td>
<td><code>0.23</code></td>
</tr>
<tr>
<th><code>Best Month</code></th>
<td><code>20.41%</code></td>
<td><code>22.63%</code></td>
<td><code>21.89%</code></td>
<td><code>36.18%</code></td>
</tr>
<tr>
<th><code>Worst Month</code></th>
<td><code>-13.34%</code></td>
<td><code>-15.81%</code></td>
<td><code>-14.99%</code></td>
<td><code>-17.08%</code></td>
</tr>
<tr>
<th><code>Avg. Drawdown</code></th>
<td><code>-7.82%</code></td>
<td><code>-7.39%</code></td>
<td><code>-8.17%</code></td>
<td><code>-20.19%</code></td>
</tr>
<tr>
<th><code>Avg. Drawdown Days</code></th>
<td><code>22.40</code></td>
<td><code>28.75</code></td>
<td><code>22.53</code></td>
<td><code>101.14</code></td>
</tr>
<tr>
<th><code>Avg. Up Month</code></th>
<td><code>12.09%</code></td>
<td><code>12.53%</code></td>
<td><code>12.13%</code></td>
<td><code>16.29%</code></td>
</tr>
<tr>
<th><code>Avg. Down Month</code></th>
<td><code>-6.33%</code></td>
<td><code>-8.61%</code></td>
<td><code>-7.17%</code></td>
<td><code>-9.36%</code></td>
</tr>
</tbody>
</table>
<p>During the one-year sample period from February 20, 2023, to February 21, 2024, the Hierarchical Risk Parity (HRP) strategy outperformed the Equal Weighted (EW), Equal Risk Contribution (ERC), and Aggregate Random Portfolio (ARP) strategies in terms of total return, with HRP achieving a 48.35% return. It also exhibited a Compound Annual Growth Rate (CAGR) of 48.23% and a maximum drawdown of -33.78%. While the HRP strategy showed a notable Calmar Ratio of 1.43 and the highest Monthly Sharpe Ratio of 1.25 among the strategies, indicating a favorable risk-adjusted return during the sample period, it is important to recognize that these results are specific to the timeframe analyzed. The performance of the HRP strategy, compared to the others, underscores its effectiveness in this particular context without necessarily implying overall superiority across all market conditions or time periods.</p>
<h3 id="Monte-Carlo-Hypothesis-Test">Monte Carlo Hypothesis Test</h3>
<p>In the hypothesis test, we are examining whether the Hierarchical Risk Parity (HRP) strategy's performance, as measured by the monthly Sortino ratio, is significantly better than what could be expected by random chance from a selection of portfolios. The null hypothesis (H<sub>0</sub>) and alternative hypothesis (H<sub>a</sub>) are defined as follows:</p>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code><strong>H<sub>0</sub>:</strong> Strategy's return ≤ 1,000 random portfolios. (μ<sub>strategy</sub> ≤ μ<sub>random</sub>)
<strong>H<sub>a</sub>:</strong> Strategy's return > 1,000 random portfolios. (μ<sub>strategy</sub> > μ<sub>random</sub>)</code>
</pre>
<p>Here, μ<sub>strategy</sub> is the mean monthly Sortino ratio of the investment strategy, and μ<sub>random</sub> is the mean monthly Sortino ratio of the random portfolios.</p>
<script src="https://gist.github.com/nathanramoscfa/d975706d9347401c2fa12eb10c743b3a.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Result: The portfolio outperformed the sample of randomly generated portfolios.
T-statistic: 18.0693
P-value (one-tailed): 0.0000
Significance Level: 0.05</code>
</pre>
<p><img alt="Distribution of Monthly Sortino Ratios with Critical Threshold" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9775/content_9.webp" style="width: 855px; height: 547px;"></p>
<p>Upon running the test, the results display a p-value of 0.0000 and a t-statistic of 18.0693. If we reject the null hypothesis, we are asserting that there is sufficient evidence to claim that the investment strategy has outperformed the random portfolios with a confidence level of 95%. The plot further substantiates this finding, showing the investment strategy's Sortino ratio significantly to the right of the critical Sortino ratio threshold and the distribution of the random portfolios.</p>
<script src="https://gist.github.com/nathanramoscfa/ad8d0327a5315bf77be5d18eeb94a109.js"></script>
<p><img alt="Hypothesis Test Visualization" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9776/content_10.webp" style="width: 855px; height: 547px;"></p>
<p>The plot visualizes the results of the hypothesis test for the Hierarchical Risk Parity (HRP) strategy's performance. The blue curve represents the t-distribution of t-values obtained from the Monte Carlo simulation. The red shaded area to the right of the black dashed line signifies the critical region for our alpha level of 0.05, where any t-statistic falling within this region would lead us to reject the null hypothesis. Our observed t-statistic, indicated by the green dashed line, falls well within the critical region, affirming that the HRP strategy's performance is statistically significantly greater than that of the random portfolios. The critical t-value of 1.65 is the threshold above which we reject the null hypothesis, and our t-statistic of 18.07 vastly exceeds this, providing strong evidence against the null hypothesis in favor of the alternative.</p>
<hr>
<h2 id="Automating-Strategy">Automating Strategy</h2>
<p>This section introduces a trading bot that automatically executes the Hierarchical Risk Parity strategy, converting targeted allocations into market orders while managing existing positions and respecting minimum trade thresholds. The bot also features a preview mode to validate trades before execution.</p>
<h3 id="Trading-Bot">Trading Bot</h3>
<p>The function <code>create_positions_dataframe</code> converts the account positions into a Pandas DataFrame. This standardized format is essential for the trading bot to assess current holdings against target allocations.</p>
<script src="https://gist.github.com/nathanramoscfa/8d571e4e851fd93df320b4f23a72ad5f.js"></script>
<p>The <code>preview_mode</code> flag allows users to test the trading bot without executing real trades, providing a safeguard and a means to validate the bot's logic before live operation. If <code>preview_mode</code> is set to <code>False</code>, then the trading bot will execute live orders. <strong>Use with caution.</strong></p>
<script src="https://gist.github.com/nathanramoscfa/15e7f289edfba1b0c1670ecb8e024be9.js"></script>
<p>The <code>min_trade_value</code> is set to $100, indicating that the bot will ignore any trades below this amount to ensure that transactions are economically viable.</p>
<script src="https://gist.github.com/nathanramoscfa/2d835164011930eb9f31793c31872592.js"></script>
<p>Here we initialize our trading bot, fetching current account details and holdings. It assesses the portfolio's value, cash availability, and buying power. Based on the optimized weights from our strategy, the bot prepares a list of trades, considering the minimum trade value threshold to avoid executing economically insignificant trades. The trading bot then simulates the execution of these trades, providing an overview of buy and sell orders. This simulation allows for a final review before live trading, ensuring alignment with our strategy and capital allocation rules.</p>
<script src="https://gist.github.com/nathanramoscfa/5c3b6a9eb702b6637126bb4b182bf2d8.js"></script>
<pre style="color: #ffffff; background-color: #333333; padding: 10px;">
<code>Starting Trading Bot...
Portfolio Value: $102,198.99
Cash: $14,678.53
Buying Power: $29,357.06
Account Holdings:
qty side market_value cost_basis
symbol
AAVE/USD 53.031986 PositionSide.LONG 5449.036580 4873.639530
AVAX/USD 56.150439 PositionSide.LONG 2166.845424 2175.267990
BAT/USD 13704.653261 PositionSide.LONG 3705.436739 3453.435575
BCH/USD 20.679385 PositionSide.LONG 5605.560950 5374.841049
BTC/USD 0.304311 PositionSide.LONG 16271.957289 15619.655041
CRV/USD 10941.174129 PositionSide.LONG 6583.960944 0.000000
DOGE/USD 34293.311273 PositionSide.LONG 2987.156601 2956.426365
DOT/USD 463.152266 PositionSide.LONG 3719.112695 0.000000
ETH/USD 2.761884 PositionSide.LONG 8713.744512 8071.661684
GRT/USD 7204.676907 PositionSide.LONG 2120.480507 1720.671372
LINK/USD 277.058115 PositionSide.LONG 5253.215799 5090.194804
LTC/USD 101.623754 PositionSide.LONG 7216.099548 7009.420266
SUSHI/USD 2899.258768 PositionSide.LONG 4541.109008 3664.692075
UNI/USD 682.816928 PositionSide.LONG 7777.284814 5011.261719
XTZ/USD 4775.295230 PositionSide.LONG 5409.454436 0.000000
Preparing Trades...
100%|██████████| 18/18 [00:00<00:00, 4038.16it/s]
Previewing Trades...
Preview sell order for BTC/USD: Notional $7,400.06
Preview sell order for ETH/USD: Notional $1,535.29
Preview sell order for UNI/USD: Notional $1,379.63
Preview sell order for CRV/USD: Notional $2,612.51
Preview sell order for BCH/USD: Notional $1,760.83
Preview sell order for SUSHI/USD: Notional $1,314.69
Preview buy order for DOT/USD: Notional $3,700.53
Preview buy order for DOGE/USD: Notional $4,011.43
Preview buy order for XTZ/USD: Notional $1,474.67
Preview buy order for SHIB/USD: Notional $6,725.72
Preview buy order for BAT/USD: Notional $2,669.74
Preview buy order for AAVE/USD: Notional $231.18
Preview buy order for YFI/USD: Notional $4,696.04
Preview buy order for MKR/USD: Notional $4,313.82
Preview buy order for AVAX/USD: Notional $2,091.79
Preview buy order for GRT/USD: Notional $711.45
Total Trades: 16
Sell Trades: 6
Buy Trades: 10
Done!</code>
</pre>
<div class="jp-RenderedHTMLCommon jp-RenderedMarkdown jp-MarkdownOutput " data-mime-type="text/markdown">
<p>The trading bot initiation displays a portfolio valued at $102,198.99, with $14,678.53 in cash and $29,357.06 available for buying power. The current account holdings are diversified across various cryptocurrencies, with Bitcoin holding the highest market value in the portfolio. The bot is set to preview 16 trades, consisting of 6 sells and 10 buys, with transactional decisions based on optimizing portfolio weightings. Notably, the largest intended transaction is a sell order for Bitcoin at a notional value of $7,400.06, demonstrating the bot's capability to handle significant trade volumes. The trade previews successfully conclude the session, signaling readiness for actual execution pending confirmation.</p>
<p><a href="https://www.coingecko.com/en/api/pricing?utm_campaign=learn&utm_content=crypto-algo-trading-strategy-python" target="_blank"><img alt="compare CoinGecko API plans and pricing" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9777/content_CoinGecko_Sign_Up_CTA_-_updated_March_2025_%281%29.webp" style="width: 1200px; height: 574px;"></a></p>
<hr>
<h2 id="Risks-and-Considerations">Risks, Considerations & Conclusion</h2>
<p>Algorithmic trading, while offering numerous benefits such as speed, efficiency, and the elimination of emotional decision-making, comes with its own set of risks and considerations. A key risk involves the potential for overfitting, where a strategy might perform exceptionally well on historical data but fails to predict future movements accurately. This is particularly pertinent to machine learning-based strategies like Hierarchical Risk Parity (HRP), which may capture noise as a signal if not properly validated.</p>
<p>The allure of machine learning in finance can sometimes overshadow the inherent limitations of these algorithms. It's crucial to maintain a scientific level of skepticism towards any trading strategy, regardless of its complexity or the sophistication of the algorithms involved. The success of machine learning models, including HRP, depends heavily on the quality and relevance of the data they are trained on, and their performance can be significantly impacted by market conditions, structural changes in the economy, or regulatory environments.</p>
<p>Trading bots, although powerful, operate under the constraints of their programming. They lack the human capacity for judgment and context-based decision-making, which can sometimes lead to unintended trades or failure to adapt to new market conditions. Additionally, technical issues such as connectivity problems, system crashes, or software bugs can result in missed trades or duplicate orders. Moreover, financial markets are influenced by a myriad of factors that are difficult to quantify, such as political events, changes in consumer behavior, or the emergence of new technologies. These elements can lead to situations that a machine learning model or trading bot has never encountered, potentially leading to suboptimal decisions.</p>
<p>In conclusion, while machine learning and algorithmic trading strategies like HRP can be valuable tools for investors, they should not be viewed as infallible solutions. Traders must exercise due diligence, continuous monitoring, and rigorous backtesting against out-of-sample data to ensure that these strategies remain robust under various market conditions. It is also vital to have risk management protocols in place to mitigate potential losses when the strategies do not perform as expected.</p>
<hr>
<p id="Disclaimer"><em>Disclaimer</em></p>
<p><em>The information provided in this article, including but not limited to text, graphics, code examples, and any other material, is for educational and informational purposes only. It is not intended as, and should not be construed as, financial advice, investment recommendation, or an endorsement of any particular security, strategy, or investment product. The article discusses concepts related to algorithmic trading strategies in the context of cryptocurrency markets using machine learning techniques. The examples and strategies outlined are provided to illustrate the application of machine learning in analyzing cryptocurrency data and do not constitute advice on investing or trading in cryptocurrencies or any other assets. The strategies and examples presented are purely hypothetical and are not guarantees of future performance or success. Investing and trading in cryptocurrencies involve significant risk, including the potential loss of principal. Market conditions, economic factors, and the volatile nature of cryptocurrencies can affect investment outcomes. Readers are strongly encouraged to conduct their own research and consult with a qualified financial advisor or investment professional before making any investment decisions. The author and publisher of this article are not responsible for any financial losses or damages resulting from the application of the information provided.</em></p>
<hr>
<p>Looking for more crypto algorithmic trading guides that leverage Python? Check out this article that focuses on <a href="https://www.coingecko.com/learn/crypto-trading-algorithm/?utm_campaign=learn&utm_content=crypto-algorithmic-trading-strategy-python" target="_blank">artificial neural networks</a> in crypto algo trading.</p>
</div>
Nathan Ramos, CFAhttps://www.coingecko.com/learn/crypto-algorithmic-trading-strategy-pythonMachine learning has become instrumental in the world of algorithmic trading strategies, utilizing numerical, categorical, and ordinal data to build simplified models of the real world. This articl...tag:www.coingecko.com,2005:Post/12652024-03-15T16:23:48Z2024-03-19T05:56:35ZWhat Are Pre-Markets in Crypto and Whales Market<h2>What Are Crypto Pre-Markets and How Do They Enable Trading Pre-Launch Tokens?</h2>
<p><meta charset="utf-8"></p>
<p dir="ltr">Crypto pre-markets allow users to trade tokens that haven't been issued or distributed, where sellers deposit collateral and buyers deposit funds with an agreement to settle the order when the token generation event is completed.</p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Pre-market platforms allow users to trade tokens that are yet to be issued or launched on trading platforms. Trades are made as a pledge between the buyer and seller to satisfy the order when the token generation event is concluded.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Decentralized pre-markets use smart contract technology to develop a P2P trading platform and enact regulations that are expected to compel the transacting parties to satisfy their parts of the pledge within a set time frame.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Whales Market is an example of a decentralized pre-market platform. It allows OTC trades and protocol points trades in addition to trading tokens pre-launch. Some centralized exchanges have also launched pre-market platforms.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">This article discusses pre-markets and how they enable users to trade pre-launch crypto assets.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="Pre-Markets Crypto Trade Pre-Launch tokens and points" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9719/content_Pre-Markets_Crypto_Trade_Pre-Launch_tokens_and_points.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">In most token generation events and airdrops, community members already know the amount of tokens they will receive when the claiming process begins. However, trading of these tokens is impossible until the token generation event is complete. Users can attempt to trade these allocations through peer-to-peer (P2P) trading, but there are risks involved. </p>
<p dir="ltr">But what if there was a safer way to trade token allocations and points (which are likely to translate into future airdrops)? </p>
<p dir="ltr">Enter pre-market trading platforms, which offer users a safer pre-launch trading experience. </p>
<h2 dir="ltr">Understanding Pre-Markets in Crypto</h2>
<p dir="ltr">In the traditional financial sector, pre-markets are trading sessions conducted before the market opens for the day. However, unlike the mainstream market, cryptocurrency trading never stops. </p>
<p dir="ltr">Pre-markets in crypto refers to the trading of tokens that are yet to be launched or distributed to allocated wallets. It provides investors with an opportunity to bet on the market performance of the token, letting users trade the token during the speculative period between the allocation announcement, token distribution, and official listing on a trading platform. </p>
<p dir="ltr">Pre-markets aren’t limited to tokens; they can also be used to trade protocol points, which could potentially become an airdrop criteria in the future. </p>
<p dir="ltr">Do note that pre-market trading is highly speculative, and always do your own research before investing in any project. </p>
<h3 dir="ltr">Why Are Pre-Market Platforms Growing in Popularity? </h3>
<p dir="ltr">The key purpose of a pre-market platform is to deliver a trustless platform where users can conduct such trades securely. Before such platforms, investors resorted to crude arrangements to trade tokens pre-launch, exposing themselves to security risks and limited availability.</p>
<p dir="ltr">These P2P pre-launch token trading setups are built on trust. Like any trust-based system, this process has its risks and could lead to significant losses when any of the parties fail to satisfy their part of the trade. Moreover, traders are only limited to their own social network, as searching for external partners is challenging and brings with it increased risks. </p>
<p dir="ltr">New pre-market trading platforms connect buyers and sellers all over the world, which increases the options available while allowing traders to have a more holistic view of the asset’s valuation. At the same time, with multiple buyers and sellers, it also improves <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a> conditions and enables traders to buy and sell as many tokens or points as they wish. </p>
<p dir="ltr">Apart from benefits to pre-market traders, another important role such platforms play is to offer insight to investors who plan on trading the assets after launch. Just like pre-markets in traditional finance, pre-markets in crypto allow investors to gauge the financial strength of the asset before official trading by using the demand and ‘ready seller’ statistics from the pre-market platform.</p>
<h2 dir="ltr">How Pre-Markets Work</h2>
<p dir="ltr">Pre-markets are structured like regular P2P trading platforms, with the key difference being that pre-markets retain custody of funds from both parties until the conditions are satisfied. In the case of decentralized pre-markets, funds are held by <a href="https://www.coingecko.com/learn/crypto-smart-contracts" target="_blank">smart contracts</a>, while centralized pre-markets rely on custodians to hold and release funds.</p>
<p dir="ltr">On pre-markets, traders can either create an order or fill an already created order. This could be a buy order or a sell order. To create an order, a trader specifies a price and the amount they wish to sell or buy at the stated price. Once the order is created, they are displayed on the platform.</p>
<p dir="ltr">To create a sell order, the seller might be required to deposit <a href="http://www.coingecko.com/learn/crypto-collateral-defi" target="_blank">collateral</a>. The seller's collateral is held in custody pending the completion of the order. Failure to complete an order could result in total or partial loss of the collateral. The pre-market platform usually specifies the trade settlement period, where the seller is required to provide the pledged asset before the settlement period elapses and defaulting penalties are applied.</p>
<p dir="ltr">Buyers are required to pay the full value of the token they wish to purchase while filling an existing order or creating their order. The buyer’s funds are held in custody pending the provision of the asset by the seller.</p>
<p dir="ltr">Decentralized pre-markets use smart contracts to manage the safekeeping of sellers’ collateral, buyers’ payments, and the release of assets to both parties when the trade is complete. Meanwhile, on a centralized pre-market platform, this role is fulfilled by the platform operating as a neutral third party that facilitates the trade and ensures the transaction is completed smoothly. </p>
<h2 dir="ltr">Types of Pre-markets Trading Available</h2>
<p dir="ltr">There are different types of assets available for trading on pre-markets; do note that trading these assets is highly speculative and potentially risky.</p>
<h3 dir="ltr">Pre-TGE Token Trading Market</h3>
<p dir="ltr">Pre-TGE (Token Generation Event) trading markets are the most popular pre-markets in the crypto space, where the majority of such events are related to airdrop projects. Traders can participate in active trading of a project’s token before they are distributed or listed on exchanges. </p>
<p dir="ltr">Sellers in a pre-TGE market are usually recipients of the airdrops or investors who secured an allocation in pre-sale projects, while buyers are investors who attempt to take full advantage of the most speculative period in the trading of the token. However, anyone can assume the seller side of the trade as long as they can provide the pledged amount before the settlement time elapses. Pre-TGE trading platforms have seen exponential growth in terms of user count and trading statistics as this idea continues to appeal to cryptocurrency investors.</p>
<h3 dir="ltr">Point Markets</h3>
<p dir="ltr">Point systems are also growing in popularity. Projects award points to users as a measure of their activities on the platforms. While these points don’t have monetary value in themselves like tokens, the issuing project could apply them in different ways, including potentially converting them to tokens as part of their loyalty reward program. </p>
<p dir="ltr">Points markets allow recipients of these points to trade them freely. It provides a marketplace where users can sell their points for supported cryptocurrencies. While the points market features similar architecture to pre-TGE markets, it also involves time-based custody of committed assets pending completion of the trade agreement or the elapsing of the settlement period. </p>
<p dir="ltr">On Whales Market, the buyer will receive the equivalent amount of the protocol’s tokens (upon TGE) based on the total points purchased after settlement. </p>
<p dir="ltr">Now, let’s take a look at Whales Market, a decentralized pre-market platform that allows users to trade pre-TGE tokens, points, and even OTC trading for select tokens. </p>
<h2 dir="ltr">What Is Whales Market?</h2>
<p dir="ltr"><a href="https://whales.market/" rel="nofollow noopener" target="_blank">Whales Market</a> is a multi-chain OTC and a pre-market platform deployed first on the Solana network. The platform has since then expanded to Base, Arbitrum, Ethereum, and a few other networks. </p>
<p dir="ltr">According to data from <a href="https://dune.com/whalesmarket/whales-market-solana" rel="nofollow noopener" target="_blank">Dune Analytics</a>, over 20,000 investors have interacted with the platform on Solana since its launch in January 2024 and it has a total volume escrowed of over $48.7 million. </p>
<div dir="ltr"><img alt="Whales Market Total Value Escrowed" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9703/content_unnamed_%2843%29.webp" style="width: 1099px; height: 371px;"></div>
<p dir="ltr">Whales Market utilizes a smart contract protocol that handles pre-market orders and OTC trades. According to the platform, the goal is to offer the most secure way to conduct P2P trades for pre-launch tokens, points, and regular OTC swaps, as the smart contract removes the need for a third party or a centralized admin/custodian. </p>
<p dir="ltr">Unlike centralized alternatives, it claims that every process on the platform is permissionless and automated using smart contracts deployed on the respective blockchains. Whales Market has overseen pre-market trades for some notable projects that have conducted their token generation event since it launched. Some of these projects include Starknet, Wormhole, and <a href="http://https://www.coingecko.com/learn/aevo-airdrop" target="_blank">Aevo</a>.</p>
<h2 dir="ltr">Pre-Market Trading on Whales Market</h2>
<div dir="ltr"><img alt="Pre-Market Trading Whales Market" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9702/content_Screenshot_%281927%29.webp" style="width: 1200px; height: 613px;"></div>
<p dir="ltr">On the pre-market platform, traders can create and fill orders for pre-launched tokens using smart contracts.</p>
<p dir="ltr">Sell-side smart contracts manage the custody of the collateral presented by the seller and the applications of penalties in case the seller fails to supply the agreed number of tokens before the settlement period. On the buyer’s end, a smart contract is developed to handle the custody of the buyer’s funds and the release of the agreed assets to the buyer when they are supplied by the seller. </p>
<p dir="ltr">The buyers’ funds and sellers’ collateral are locked in a condition-based contract pending the satisfaction of the trading conditions from both parties. In the event a seller fails to supply the asset, buyers can claim a designated amount of the seller’s collateral. </p>
<h2 dir="ltr">Points Trading on Whales Market</h2>
<div dir="ltr"><img alt="Points Trading on Whales Market" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9701/content_Screenshot_%281928%29.webp" style="width: 1200px; height: 609px;"></div>
<p dir="ltr">Points from projects like <a href="https://www.coingecko.com/learn/what-is-kamino-finance-kmno" target="_blank">Kamino</a>, Ether.fi, and <a href="https://www.coingecko.com/learn/how-to-use-friend-tech" target="_blank">friend.tech</a> can be traded on Whales Market. The Points Market allows users to wager on these points prior to their conversion to actual tokens. The technology behind the Points Market is similar to the Pre-Market. However, in the Points Market, the seller is only able to claim the payment made for the points after they have been converted to proper tokens. In a case where the points weren’t converted to tokens by the project, the order gets canceled and the funds are returned to the buyer, for a filled order.</p>
<p dir="ltr"> Whales Market claims that the smart contracts deployed on both ends of the trade ensure that users can securely trade their points without the need to trust each other or report to a central authority. The condition-based contracts for the Points Market treat the conversion of the points to tokens as a probability until an official announcement in that regard by the project, where the funds from both parties are held in the smart contract until these conditions are certain and satisfied.</p>
<h2 dir="ltr">Final Thoughts</h2>
<p dir="ltr">Pre-markets are highly speculative, where they allow traders an early start on the trading of tokens before they are distributed and listed on exchanges. Pre-markets also offer investors a safer alternative to purchasing pre-launch tokens, as they involve either neutral third parties (centralized institutions) or decentralized smart contracts to enforce the smooth execution of a trade. </p>
<p dir="ltr">If you are looking to trade pre-launch tokens, you can consider centralized platforms like Kucoin or Bybit, or decentralized platforms like Whales Market, which also offers additional trading opportunities for points and OTC trades. </p>
<p dir="ltr">Pre-markets are still in their early stages, and users are advised to do their own research before purchasing any points or pre-launch tokens. Note that this article is only meant to educate readers on pre-market platforms and how they work, and should not be taken as financial advice.</p>
Joel Agbohttps://www.coingecko.com/learn/pre-markets-crypto-whales-marketWhat Are Crypto Pre-Markets and How Do They Enable Trading Pre-Launch Tokens?
Crypto pre-markets allow users to trade tokens that haven't been issued or distributed, where sellers deposit co...tag:www.coingecko.com,2005:Post/12692024-03-14T08:27:43Z2024-03-15T05:42:32ZWhat Is EIP-4844 and Proto-Danksharding?<h2 dir="ltr">What Is EIP-4844?</h2>
<p dir="ltr">EIP-4844 is an Ethereum upgrade to reduce transaction costs, specifically on Layer 2s, and improve scalability through Proto-Danksharding. This introduces "blob-carrying transactions” – a sort of temporary storage – which would offload “blobs” to special shards. </p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Sharding is adopted as the long-term solution for Ethereum’s scalability challenges.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">EIP-4844 (a.k.a. proto-danksharding) lays the groundwork for danksharding. Danksharding is a scaling solution for Ethereum focusing on optimized data availability and shard block production without increasing the load on validators.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">EIP-4844 primarily targets rollup fees, not directly affecting the cost of transactions on the Ethereum mainnet, with fees on Layer 2s going as low as $0.01 on Base. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">EIP-4844 introduces blob-carrying transactions, a new transaction type, and a multi-dimensional fee market.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="EIP-4844 Proto Danksharding" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9718/content_EIP-4844_Proto_Danksharding.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">The Ethereum network has grown to be a sort of “world computer” for most on-chain assets and smart contracts. It is the largest blockchain in terms of TVL. Despite shaping the future of decentralized finance, Ethereum is notorious for its high gas fees.</p>
<p dir="ltr">Users have to pay <a href="https://www.coingecko.com/en/glossary/transaction-fee">transaction fees</a> every time they interact with the blockchain. This fee is used to keep the network running by paying those who maintain and manage the infrastructure. Ideally, <strong>a public blockchain should be able to run on minimal resources to bring down costs and pave the way for mass adoption</strong>.</p>
<p dir="ltr">Historically, average transaction fees has reached a high of over $200 at times of congestion, and is currently over $20. Such high fees make ETH impractical for sending and receiving small amounts, as is the case with everyday transactions.</p>
<div dir="ltr"><img alt="ETH average transaction fee chart by Etherscan" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9711/content_Screenshot_2024-03-08_at_6.32.33%E2%80%AFPM.webp" style="width: 1200px; height: 649px;"></div>
<p dir="ltr">In the effort to make Ethereum more practical for daily users, the concept of ‘<a href="https://www.coingecko.com/en/glossary/sharding" target="_blank">sharding</a>’ the Ethereum blockchain <a href="https://cdn.hackaday.io/files/10879465447136/Mauve%20Paper%20Vitalik.pdf" rel="nofollow noopener" target="_blank">emerged in 2016</a>. Today, with the implementation of EIP-4844, sharding is closer to reality than ever.</p>
<p dir="ltr"><strong>This article will explore EIP-4844 and its implementation of proto-danksharding.</strong></p>
<h2 dir="ltr">What Is EIP-4844 and Proto-Danksharding </h2>
<p dir="ltr"><strong>EIP-4844 is an <a href="https://www.coingecko.com/en/glossary/eip-ethereum-improvement-proposal" target="_blank">Ethereum Improvement Proposal</a> that would be implemented as an interim upgrade to the Ethereum network, while the blockchain proceeds to undergo full danksharding in the future.</strong></p>
<blockquote>
<p dir="ltr"><em>“EIP-4844 is an upgrade that adds block space to the Ethereum network.”</em></p>
</blockquote>
<p dir="ltr" style="text-align: right;">- Dankrad Fiest | Ethereum Researcher, Co-Author of EIP-4844</p>
<p dir="ltr">Ethereum, since its inception, has faced challenges related to scalability, transaction speed, and high gas fees.</p>
<p dir="ltr">The network's shift from <a href="https://www.coingecko.com/en/glossary/proof-of-work-pow" target="_blank">Proof of Work (PoW)</a> to <a href="https://www.coingecko.com/en/glossary/proof-of-stake-pos" target="_blank">Proof of Stake (PoS)</a> with the Ethereum 2.0 upgrade marked a significant step in addressing these issues. However, gas fees remained a blocker for most users. Sharding, a process that splits the blockchain into many parts, was accepted as the long-term solution to lower Ethereum gas fees.</p>
<p dir="ltr">Sharding a blockchain, especially one as big and active as Ethereum, is no easy feat. Therefore, <a href="https://www.linkedin.com/in/dankrad-feist-77677339/" rel="nofollow noopener" target="_blank">Dankrad Fiest</a>, a researcher at the Ethereum Foundation, proposed a unique way of sharding, which was accepted by the rest of the Ethereum community due to its simplicity and practicality.</p>
<p dir="ltr">Traditional blockchain sharding aimed to enhance Ethereum's transaction processing capacity by dividing the network into smaller segments (shards), each capable of processing transactions independently. This approach faced challenges, such as potential security risks with fewer validators per shard and the complex process of data migration between shards.</p>
<p dir="ltr">Instead of sharding the entire blockchain state, Dankrad’s method focuses on sharding data storage. This means that instead of storing a full copy of the blockchain state, nodes would only need to store parts of the data. This new way of sharding the blockchain was named “Danksharding”, after the author.</p>
<p dir="ltr">Danksharding is primarily designed to augment the performance of <a href="https://www.coingecko.com/learn/optimistic-vs-zero-knowledge-rollups" target="_blank">Layer 2 rollups</a> like Arbitrum and Optimism, which handle transactions off-chain and then batch and post them to the Ethereum mainnet.</p>
<p dir="ltr">Before sharding the Ethereum blockchain, Ethereum developers (one of them was Diederik Loerakker, a.k.a. protolambda) concluded they first needed to implement a simpler version. <strong>Together, they authored <a href="https://eips.ethereum.org/EIPS/eip-4844" rel="nofollow noopener" target="_blank">EIP-4844</a> and proposed ‘proto-danksharding’ (a portmanteau of “protolambda” and “danksharding”)</strong>. Proto-Danksharding only attaches one blob to a block, but by the time full Danksharding is achieved, there will be 64 blobs to a block.</p>
<div dir="ltr"><img alt="" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9712/content_Screenshot_2024-03-08_at_5.27.19%E2%80%AFPM.webp" style="width: 1200px; height: 396px;"></div>
<p dir="ltr">Proto-danksharding does not scale the blockchain entirely, instead, it paves the way to shard the blockchain by introducing a new type of transaction.</p>
<h2 dir="ltr">How Does EIP-4844 Work?</h2>
<p dir="ltr">EIP-4844 introduces the concept of "blob-carrying transactions." These are a new type of transactions on the Ethereum network that can carry large amounts of data (blobs, short for “Binary Large Objects”) at a much lower cost compared to regular transactions. And EIP-4844 "bolts blobs onto blocks," as succintly put by Ethereum contributor Ben Edgington. </p>
<blockquote>
<p dir="ltr">“We’re building a blockchain that maintains the full security as we are used to, anti-serialization from Ethereum, but does it by providing a data availability layer that scales beyond what the individual node can process.”</p>
</blockquote>
<p dir="ltr" style="text-align: right;">- Dankrad Fiest | Ethereum Researcher, Co-Author of EIP-4844</p>
<p> </p>
<h3 dir="ltr">Blobs in EIP-4844</h3>
<div dir="ltr"><img alt="Life of a blob" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9714/content_73d74033af5cbcb581f859d9b5485cf3-2.webp" style="width: 1200px; height: 366px;"></div>
<p dir="ltr">"Blobs" refer to large chunks of data that are included in certain types of Ethereum transactions. The concept of blobs is central to the proposal's strategy for improving the scalability of the Ethereum network.</p>
<p dir="ltr"><strong>The idea behind blobs is to store data that is not immediately necessary for the operation of the Ethereum blockchain.</strong> This data can be referenced and used by off-chain systems, such as <a href="https://www.coingecko.com/learn/what-are-layer-2-crypto-protocols" target="_blank">Layer 2 scaling solutions</a> like rollups.</p>
<p dir="ltr">Therefore, blobs are stored in Ethereum’s consensus layer, not the more computationally intensive execution layer, and away from <a href="https://www.coingecko.com/learn/ethereum-virtual-machine-evm" target="_blank">the EVM</a>.</p>
<p dir="ltr">Further, since blob data is not permanent, and is deleted approximately every 2 weeks, it would inherently lower storage requirements for <a href="https://www.coingecko.com/en/glossary/node" target="_blank">Ethereum nodes</a>, making it very cost-effective.</p>
<p dir="ltr">Blobs are essentially an alternative to CALLDATA when they are used. While they are much larger (about 125kB), blobs are cheaper than CALLDATA because they are temporary.</p>
<p dir="ltr"><strong>To process blobs, a new type of transaction is introduced — blob-carrying transactions.</strong></p>
<h2 dir="ltr">How Proto-Danksharding Scales Ethereum Layer 2s</h2>
<p dir="ltr">Layer 2 solutions like rollups bundle transactions off-chain and then submit them to the main Ethereum blockchain in batches. This reduces the load on the main chain and brings down fees.</p>
<p dir="ltr">However, <strong>rollups themselves rely on including data in the form of CALLDATA on the main chain, which can still be expensive</strong>.</p>
<p dir="ltr">Blob transactions are a new type of transaction that help reduce bloat on the blockchain.</p>
<p dir="ltr">Counterintuitively, blobs are not smaller in size - they can be as large as 128kB per blob. The innovation lies in the fact that they are purged after a short period (few weeks). As a result, storage is freed up on the chain that consequently scales the network.</p>
<p dir="ltr"><strong>Let’s break this down using an analogy.</strong></p>
<p dir="ltr">The batch of transactions that a rollup posts to the main chain consists of two parts:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Data of all transactions</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Execution check by a prover</p>
</li>
</ol>
<p dir="ltr">Think of this process like a football game. The transaction data in a rollup is a list of all moves that players make, where as the execution check is like a referee who double-checks the footage for any unfair play or misconduct.</p>
<p dir="ltr">Sensibly, this “list of moves” (transaction data) has to only exist long enough for the “referee” (prover) to review and make a decision. Once the decision is made, the footage can be deleted to make space for the next footage.</p>
<p dir="ltr">Earlier, this data was in the form of CALLDATA, which is permanent. Basically, the hard drive that stores the footage used to fill up quickly and new ones had to be bought which was expensive.</p>
<p dir="ltr">Now, with blobs, the old hard drives can be reused because the data is automatically deleted. Thus, reducing costs and making room for more utility within the space.</p>
<h2 dir="ltr">How Does Proto-Danksharding Reduce Gas Fees?</h2>
<p dir="ltr">While EIP-4844 does not provide full scalability to Ethereum, it is the stepping stone to lower gas fees. Note that the gas fees reduced through EIP-4844 are on Layer 2, not Layer 1. <strong>The data storage costs Layer 2 solutions on the Ethereum mainnet would become 10 to 100 times cheaper.</strong></p>
<p dir="ltr">Proto-danksharding considerably lowers gas fees mainly by the following:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Having more data capacity: </strong>Blobs are very large non-persistent data packets that free up storage through deletion.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Increasing efficiency for Layer 2 solutions: </strong>Rollups can process many transactions off-chain and then post the aggregated data to the Ethereum blockchain as a single blob.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Offloading transaction data to blobs: </strong>A substantial amount of transaction data is offloaded from the Ethereum mainnet to blobs.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Reducing on-chain data storage: </strong>More data is processed off-chain, which reduces the amount of data that needs to be stored on-chain.</p>
</li>
</ol>
<p dir="ltr">Since more transaction data is included within each Ethereum block post the implementation of proto-danksharding, the result is reduced gas fees.</p>
<h3 dir="ltr">Impact of EIP-4844 After Launch</h3>
<p dir="ltr">Jesse Pollak, creator of Base, shared the cost reduction of EIP-4844 on network fees. </p>
<blockquote class="twitter-tweet">
<p dir="ltr" lang="en">after 2 years of hard work, blobs are now live on <a href="https://twitter.com/base?ref_src=twsrc%5Etfw">@base</a><br>
<br>
before: $0.31<br>
after: $0.00 (but actually $0.0005)<br>
<br>
wallets need to update to handle these cost reductions! <a href="https://t.co/solIX9D4HM">pic.twitter.com/solIX9D4HM</a></p>
— Jesse Pollak (jesse.xyz) 🛡️ (@jessepollak) <a href="https://twitter.com/jessepollak/status/1768071129854562698?ref_src=twsrc%5Etfw">March 14, 2024</a>
</blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<p dir="ltr">Also, based on charts available on <a href="https://dune.com/Marcov/layer-2-transaction-cost" target="_blank">Dune Analytics by Marcov</a>, there was a sharp drop in gas fees for most optimistic rollups after the Dencun Upgrade was finalized on 13 March 2024.</p>
<div dir="ltr"><img alt="Avg transaction cost USD on Layer 2s" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9717/content_Avg_transaction_cost_usd.webp" style="width: 1091px; height: 499px;"></div>
<p dir="ltr">While it's unlikely that fees will continue to stay this low, as the price will increase while demand goes up, it still gives an indication of the gas savings post EIP-4844. </p>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<h2 dir="ltr">A Multi-Dimensional Fee Market by EIP-4844</h2>
<p dir="ltr">Blobs, while temporary, are still stored on every Ethereum node. Therefore, they consume resources and have to be paid for.</p>
<p dir="ltr">Ethereum’s fee market, as introduced by <a href="https://www.coingecko.com/learn/ethereum-what-is-eip1559-pros-and-cons" target="_blank">EIP-1559</a>, is meant to process blocks – it is one-dimensional. Blobs are not the same as blocks — so, the current fee market is not suitable. To solve this, EIP-4844 introduces a “<a href="https://ethresear.ch/t/eip-4844-fee-market-analysis/15078" rel="nofollow noopener" target="_blank">multi-dimensional fee market</a>,” which builds upon EIP-1559.</p>
<p dir="ltr"><strong>The multi-dimensional fee market involves two distinct types of fees;</strong></p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>one for the regular transaction data (like smart contract interactions, token transfers, etc.), and</strong></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>another for the blob data introduced in EIP-4844.</strong></p>
</li>
</ol>
<p dir="ltr">These two fee types are subject to different pricing mechanisms.</p>
<p dir="ltr">The regular transaction data fees continue to be managed by the EIP-1559 model, with a base fee and an optional priority fee. The blob data fees, on the other hand, have a separate fee structure, reflecting the cost of including these large data sets in the blockchain.</p>
<p dir="ltr"><strong>Regular users of Ethereum will primarily interact with the standard fee market (as per EIP-1559).</strong> However, they indirectly benefit from the scalability improvements brought by the efficient handling of blob data.</p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">EIP-4844 (dubbed proto-danksharding) paves the way for danksharding, which is estimated to increase Ethereum’s throughput to 100,000 TPS (on rollups).</p>
<p dir="ltr">Scaling the Ethereum network from 15 TPS to 100K TPS is an iterative process, and sharding the blockchain is a monumental task where a lot of things could go wrong because of the inherent complexity.</p>
<p dir="ltr"><strong>Proto-danksharding implements many of the necessary changes beforehand so as to simplify the process of danksharding and abstract away most of the complexity.</strong></p>
<p dir="ltr">EIP-4844 is part of “The Surge” - a phase in Ethereum’s long-term roadmap. <a href="https://www.coingecko.com/learn/ethereum-shanghai-upgrade#the-surge" target="_blank">Learn more about The Surge here.</a></p>
<div dir="ltr"><img alt="" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9715/content_Ethereum_Roadmap_Updated.webp" style="width: 1200px; height: 1196px;"></div>
<p dir="ltr">As always, please note that this article is only for educational and informational purposes and should not be taken as investment advice. Always do your own research before investing in any cryptocurrencies.</p>
Sankrit Khttps://www.coingecko.com/learn/eip-4844-proto-danksharding-low-gas-feesWhat Is EIP-4844?
EIP-4844 is an Ethereum upgrade to reduce transaction costs, specifically on Layer 2s, and improve scalability through Proto-Danksharding. This introduces "blob-carrying transa...tag:www.coingecko.com,2005:Post/12662024-03-14T04:39:37Z2024-03-14T07:19:00ZOverview of Decentralized Compute<h2>Decentralized Compute in Crypto</h2>
<p>Decentralized compute brings crypto and AI together. Decentralized compute protocols are looking to utilize the unused computing power in our world, building open-source models through compute incentivization, or working towards a future where AI models can be created in a grassroots manner.</p>
<hr>
<h3>Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Decentralized compute is a necessary piece of the crypto + AI tech stack.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Decentralized compute platforms are emerging as a solution to the scarcity of state-of-the-art GPUs, which are essential for AI training, as they create a secondary market that allows for the immediate leasing of excess compute capacity.</p>
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<p dir="ltr" role="presentation">This article covers three decentralized compute protocols: <strong>Bittensor</strong>, <strong>Akash</strong> and <strong>Gensyn</strong>.</p>
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<div><img alt="Decentralized Compute" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9710/content_Decentralized_Compute.webp" style="width: 1200px; height: 600px;"></div>
<h2>What Is Decentralized Compute?</h2>
<p>As the world has quickly come to realize that <a href="https://www.coingecko.com/learn/crypto-ai-artificial-intelligence-coins" target="_blank">AI</a> isn’t going anywhere and will only play a more crucial role in our day-to-day lives and workflows, the crypto industry has come to a similar agreement. Projects have been releasing rapidly, building against the centralized and closed-source AI companies dominating the traditional AI landscape. Even though OpenAI is the most well known AI team – thanks to ChatGPT – there are a variety of other teams, organizations and research labs working to build the most efficient and performant large language model (LLM) given today’s technology. Crypto + AI projects are taking the opposite approach, working to collaborate on decentralized and open-source AI designed to operate on the global distributed ledgers we know as blockchains. </p>
<p>Today’s report will focus on a few projects leading in the vertical referred to as <strong><em>decentralized compute</em></strong> – a necessary piece of the crypto + AI tech stack. These protocols we’ll be examining today are looking to either take advantage of the vast amount of unused computing power in today’s world, building open-source models via compute incentivization or generally working towards a future where AI models can be created in a more grassroots manner. We are focused on covering a few first-movers and a newer team, these being <strong>Bittensor</strong>, <strong>Akash</strong> and <strong>Gensyn</strong>.</p>
<p>We hope this report is analytical, engaging and highlights the necessity of decentralizing AI at a crucial turning point in the industry. Additionally, this report should help you understand some of the synergies between blockchains and AI, along with some potential futures in a world with more decentralized AI in the hands of many. If we wish to truly accelerate technology and usher in an era of economic growth and more distributed knowledge, there needs to be a close relationship between the broader crypto industry and open-source AI developers. </p>
<p>Let’s dig in.</p>
<h2>High Level Overview</h2>
<p>The landscape of AI computing is undergoing a transformative shift with the rise of decentralized compute solutions. At its core, AI necessitates vast computational resources for both the training of models and execution of inferences. This demand has escalated sharply as AI models have grown more complex and grown in their demand for compute. </p>
<p>A notable example is OpenAI, which observed its compute requirements accelerating from doubling every two years to doubling every <strong>three and a half months</strong> between 2012 and 2018. This exponential growth in demand has not only intensified the competition for computational resources but also significantly driven up costs, prompting some within the crypto mining sector to repurpose their GPUs for cloud computing services. </p>
<p>Central to the challenge is the scarcity of state-of-the-art GPUs, such as Nvidia's offerings, which are essential for AI training. The high demand for these GPUs has led to long wait times and necessitated lengthy contracts that may lock in more compute capacity than a company can use, thus exacerbating market inefficiencies. Decentralized compute platforms emerge as a solution to these challenges, creating a secondary market that allows for the immediate leasing of excess compute capacity, thereby increasing supply and accessibility while also offering competitive pricing.</p>
<div><img alt="A100 GPU Count" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9705/content_A100_GPU_Count.webp" style="width: 1200px; height: 794px;"></div>
<div>A pivotal advantage of decentralized compute is its resilience against censorship, providing a counterbalance to the increasing concentration of AI development among a few large technology firms. This concentration raises concerns over these entities' potential to dictate the norms and values embedded in AI models, especially as they push for regulations that may stifle innovation outside their control. Decentralized compute platforms like Akash, among others, democratize access to computational resources, ensuring a more equitable playing field for AI development.<br>
<img alt="Bigger is better Decentralized Compute" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9706/content_Bigger_is_better_decentralized_compute.webp" style="width: 1200px; height: 461px;">
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<p>Akash Network exemplifies this decentralized approach through its open-source "supercloud" platform, leveraging a proof-of-stake mechanism to facilitate a marketplace for cloud compute resources. Akash's model connects tenants, who seek computational resources, with providers, using a reverse auction system to ensure competitive pricing. This ecosystem is underpinned by validators who maintain network integrity and facilitate transactions using Akash's native token, <a href="https://www.coingecko.com/en/coins/akash-network" target="_blank">AKT</a>, thereby incentivizing participation and securing the network. </p>
<p>Despite the promise of lower costs and increased accessibility, the adoption rates for services like GPU leasing on Akash have been modest. This highlights a critical challenge for decentralized compute platforms: the need to balance supply with actual demand. Although Akash has shown impressive metrics for on-chain adoption, the utilization rates for its computational resources indicate that supply still outpaces demand, suggesting that the sector has yet to fully capitalize on its potential market. </p>
<p>Gensyn represents another facet of the decentralized compute sector, focusing specifically on machine learning model training. It introduces a novel verification system to ensure the accuracy and integrity of external computations, thereby addressing a significant challenge in decentralized compute. Gensyn's approach not only makes machine learning training more accessible and cost-effective but also promises to leverage excess compute from a variety of sources, thereby broadening the pool of computational resources available for AI development. </p>
<p>Bittensor, on the other hand, seeks to commodify artificial intelligence generation through a decentralized protocol that encourages collaborative model training and inference. It introduces an innovative "Proof of Intelligence" mechanism, where participants, known as miners, earn rewards by contributing to the collective intelligence of the network. This approach aims to foster a more distributed and collaborative model of AI development, in contrast to the centralized models that currently dominate the field. </p>
<p>The emergence of decentralized compute for AI is part of a broader trend towards leveraging blockchain and crypto technologies to create more open, accessible, and equitable technological ecosystems. While platforms like Akash, Gensyn, and Bittensor offer promising glimpses into the potential of decentralized compute, the sector as a whole faces significant challenges in terms of adoption, regulatory hurdles, and ensuring sufficient supply and demand balance. The success of these initiatives will likely depend on their ability to demonstrate clear advantages over centralized alternatives, including cost savings, censorship resistance, and the facilitation of innovation through more open access to computational resources.</p>
<p>As we look to the future, the integration of decentralized compute platforms could pave the way for a new era of AI development, characterized by greater democratization of computational resources and the empowerment of a wider range of stakeholders to contribute to the advancement of AI technologies. For this potential to be fully realized, the decentralized compute sector must navigate the complex landscape of technological, regulatory, and market challenges that lie ahead.</p>
<h2>Project Analysis</h2>
<p>With the general outline of decentralized compute out of the way, we can focus our attention on some of the current leaders building the future. While this report isn’t supposed to be entirely comprehensive or declarative of these protocols as winners, it should give you a better understanding of the various approaches being taken and how crypto technologies can enable decentralized artificial intelligence systems at scale.</p>
<h2>What Is Bittensor?</h2>
<p>You may remember Bittensor from another Reflexivity report a few months back, prior to the recent explosion of open-source AI models, volatile price action within the crypto + AI vertical and increased attention towards the idea of decentralized AI networks. Today, Bittensor’s native token <a href="https://www.coingecko.com/en/coins/bittensor" target="_blank">TAO</a> is trading at a $4.1 billion circulating market capitalization, with a vast majority of the crypto + AI mindshare.</p>
<p>Bittensor represents a significant leap forward in the realm of decentralized AI and blockchain technology, offering a unique framework that aims to revolutionize how digital commodities, particularly AI, are created and validated within a decentralized network. Unlike traditional blockchain systems such as Bitcoin, Ethereum, and Filecoin, which intertwine the core functions of the blockchain with the validation systems, Bittensor introduces a paradigm shift by separating these components. This separation allows for the creation and validation of digital commodities off-chain, enabling more complex and compute-intensive tasks to be undertaken without burdening the blockchain itself. This innovative approach is made possible through the implementation of Yuma Consensus (YC), which serves as the backbone of Bittensor's validation mechanism, ensuring agreement among validators of the network's sub-mechanisms.</p>
<p>Bittensor's protocol represents a groundbreaking advancement in the integration of blockchain technology with AI, focusing on decentralizing the computational efforts required for AI model training and inference. The core of Bittensor's innovation lies in its unique approach to consensus, validation, and the incentivization of computational contributions, which are critical for the functioning of decentralized AI networks. Here, we delve into the high-level details of these core components, elucidating how Bittensor differentiates itself from traditional blockchain and AI models. </p>
<p>At the heart of Bittensor's protocol is the Yuma Consensus, a novel consensus mechanism specifically designed to accommodate the network's unique requirements. Unlike conventional consensus algorithms that focus solely on agreement on transaction validity or block creation, YC is engineered to ensure agreement among validators regarding the value of computational tasks performed by nodes in the network. This is particularly challenging in the context of AI, where the "correctness" of an output isn't always binary or easily quantifiable. </p>
<p>YC operates by transforming the various incentive mechanisms developed by subnet validators into a cohesive incentive landscape. This ensures that miners are not just randomly executing tasks but are directed towards activities that are collectively agreed upon to add value to the network. Through YC, Bittensor is able to create a dynamic and adaptive network where the validation of intelligence – such as AI model outputs – is achieved through consensus, despite the subjective nature of what constitutes valuable intelligence. </p>
<p>Bittensor introduces a concept known as <strong>"Proof of Intelligence"</strong>, an innovative proof mechanism that validators use to verify the contributions of nodes in the network. This goes beyond the traditional proof of work or proof of stake mechanisms by requiring nodes to actually contribute valuable computational work – such as processing AI model training or inference tasks – towards the network's collective intelligence. </p>
<p>The Proof of Intelligence mechanism ensures that the contributions of nodes are not merely computational efforts expended for the sake of security (as in proof of work) but are directly tied to the network's goal of generating and improving AI models. This aligns the incentives of network participants with the overarching objectives of Bittensor, creating a self-reinforcing ecosystem where the generation of AI intelligence is both the means and the end. </p>
<p>A distinctive feature of Bittensor's protocol is the separation of its core blockchain functions from its validation systems, which are designed to be off-chain. This separation allows the validation systems to be data-heavy and compute-intensive without overwhelming the blockchain itself. It also provides the flexibility needed to accommodate the complex and evolving requirements of AI model validation, which can vary significantly across different subnets within the Bittensor network. </p>
<p>The off-chain validation systems are crucial for maintaining the scalability and efficiency of the network. They enable validators to employ sophisticated AI models and algorithms to validate the contributions of nodes, ensuring that the network can support a wide range of AI applications without compromising on speed or performance. </p>
<p>Bittensor utilizes a subnet structure to organize its decentralized compute resources, allowing for the creation of specialized markets or "subnets" for various digital commodities, including AI models, data, and computational power. Each subnet operates under its own set of rules and incentive mechanisms, defined by the subnet validators, but all contribute towards the collective goal of building decentralized intelligence. </p>
<p>The incentivization of contributions in Bittensor is handled through TAO which is used to reward nodes for their computational contributions and to facilitate transactions within the network. This token-based economy ensures that participants are financially motivated to contribute valuable resources to the network, driving the growth and development of Bittensor's decentralized AI ecosystem.</p>
<p>At its core, Bittensor's technological breakthrough lies in its ability to facilitate the development of decentralized commodity markets, or 'subnets', under a unified token system. These subnets operate through Bittensor's blockchain, allowing for seamless interaction and integration into a singular computing infrastructure. This is akin to the abstraction Ethereum introduced for decentralized contracts but applied to the inverse innovation of digital markets created by Bitcoin. Bittensor's framework simplifies the creation of these powerful systems, providing a platform where every inter-networked market is accessible and connectable to the whole, thereby building a hierarchical web of resources that culminates in the production of intelligence.</p>
<p>The primary value Bittensor brings to the decentralized compute sector is its focus on leveraging the power of digital markets to advance society's most crucial digital commodity – Artificial Intelligence. By directing digital market dynamics towards the creation and ownership of machine intelligence, Bittensor aims to democratize the benefits and ownership of AI, ensuring it is accessible from the ground up rather than being monopolized by technology giants. This vision positions Bittensor as a key platform in the future of technology, providing a language for writing markets for bespoke commodities such as compute and offering front-end customers access to resources at lower costs without intermediaries.</p>
<p>For developers, Bittensor presents an opportunity to reimagine applications that are currently slow, expensive, or archaic by utilizing incentive mechanisms to decentralize processes. This opens up a myriad of possibilities for machine learning engineers, intelligence companies, trading firms, and various other stakeholders to innovate and monetize their contributions to this grand resource allocation system. Bittensor's approach to building decentralized applications powered by intelligence not only paves the way for new business opportunities but also allows developers to engage in the creation of unstoppable applications atop an incentivized infrastructure.</p>
<p>Bittensor’s plans for the future involve the continued development of its protocol to support a wider range of AI applications and computational tasks. This includes enhancing the protocol's scalability, security, and efficiency, as well as expanding its ecosystem to include more developers, validators, and users. By fostering a collaborative and open community, Bittensor aims to accelerate the development of decentralized AI applications, making them more accessible and equitable for all.</p>
<p>In essence, Bittensor's innovation lies not just in its technical architecture but also in its vision for a decentralized future where AI and blockchain technology converge to create a more open, efficient, and equitable digital world. As Bittensor continues to evolve, it stands as a testament to the potential of decentralized technologies to reshape the landscape of AI development and deployment, heralding a new era of digital innovation that is collaborative, transparent, and inclusive.</p>
<h2>What Is Gensyn?</h2>
<p>The Gensyn Protocol emerges as a groundbreaking solution within the decentralized compute sector, specifically designed to facilitate deep learning computation in a trustless environment. By leveraging Layer 1 blockchain technology, Gensyn enables direct and immediate rewards for those contributing their computational resources for machine learning tasks. This innovative approach eliminates the need for centralized administration or legal enforcement by automating task distribution and payment through smart contracts. Gensyn's challenge lies in the verification of completed ML work, a complex issue that intersects various fields including complexity theory, cryptography, and optimization. Addressing this, Gensyn introduces a unique verification mechanism that is both efficient and scalable, overcoming the limitations of traditional replication methods.</p>
<p>At the heart of Gensyn's verification system are three key concepts: probabilistic proof-of-learning, graph-based pinpoint protocol, and a Truebit-style incentive game. Probabilistic proof-of-learning uses metadata from gradient-based optimization processes to generate certificates of work, which can be efficiently verified. The graph-based pinpoint protocol allows for the consistent execution and comparison of verification work, ensuring its accuracy. Lastly, the Truebit-style incentive game employs staking and slashing mechanics to incentivize honest behavior among participants, creating a financially rational ecosystem for all involved.</p>
<p>Gensyn's ecosystem comprises four main roles: Submitters, Solvers, Verifiers, and Whistleblowers. Submitters are the users who provide tasks for computation, paying for the completed work. Solvers perform the actual ML tasks and generate proofs for verification. Verifiers play a crucial role in ensuring the integrity of the non-deterministic training process by replicating parts of the Solvers' proofs and assessing their validity. Whistleblowers act as a safeguard, monitoring Verifiers' work and challenging inaccuracies to maintain the system's integrity.</p>
<p>The protocol's operation unfolds across eight distinct stages, beginning with task submission, where submitters outline their tasks and provide necessary data and models. This is followed by profiling to establish baseline thresholds for verification, task training by Solvers, and proof generation. Verification of proofs by Verifiers and potential challenges by Whistleblowers ensure the accuracy and honesty of completed tasks. Contract arbitration may occur if disputes arise, ultimately leading to settlement where participants are compensated based on their contributions and the outcomes of verification and challenges.</p>
<p>Gensyn's innovative approach to decentralized ML computation addresses significant challenges in the sector, such as verifying the authenticity of completed work without requiring redundant computations. By integrating advanced cryptographic and game-theoretic principles, Gensyn ensures a high degree of trust and security in the decentralized execution of ML tasks. This not only broadens access to computational resources for deep learning projects but also incentivizes the participation of a wide array of compute providers, from individuals with underutilized hardware to large-scale data centers.</p>
<p>In the broader context of the decentralized compute sector, Gensyn stands out for its focus on deep learning computation, offering a specialized platform that complements general-purpose decentralized computing networks. By solving the critical issue of work verification in a trustless environment, Gensyn enables more efficient and scalable deployment of ML tasks across a distributed network. This positions Gensyn as a core player in the ongoing evolution of decentralized computing, driving forward the capabilities and applications of AI and ML in a decentralized, open, and accessible manner.</p>
<p>As the decentralized compute sector continues to expand, platforms like Gensyn not only contribute to the technical advancements in blockchain and AI but also embody a shift towards a more democratic and equitable computational landscape. By empowering a global network of contributors to participate in ML projects, Gensyn is paving the way for a future where access to computational resources is not a bottleneck but a catalyst for innovation and progress in AI research and development.</p>
<h2>Gensyn’s Roadmap</h2>
<p>Gensyn's vision for the future is deeply rooted in decentralization and governance, aimed at transforming the landscape of machine learning (ML) computation through its innovative protocol. Gensyn Limited, the entity behind the protocol's development, is setting the stage for a radical shift towards open-source development post-Token Generation Event (TGE).</p>
<p>This shift will be guided by the Gensyn Foundation, which represents the protocol's interests and governs through a decentralized model. The Foundation will issue tokens at the TGE, initiating a governance structure led by an elected council to make decisions through on-chain proposals and referenda. Initially leaning on core members and the early community for rapid protocol development, the governance model is designed to evolve into a more decentralized council over time. This structure ensures that Gensyn remains adaptable and aligned with the community's interests, driving forward the protocol's development and the broader ecosystem through a treasury funded by a small percentage of task fees.</p>
<p>The roadmap for Gensyn's technological advancement is laid out in three strategic phases: testnet, canarynet, and mainnet, each serving a major role in the protocol's maturity. The initial focus will be on developing a testnet to test core technologies, involving early adopters and core community members who will play a crucial role in refining the protocol. Following the testnet, Gensyn plans to launch on the Kusama relay chain as a canary network, introducing a canary utility token with real economic value. This phase is seen as a beta version of the protocol, offering access to new features with some associated risk. The final phase involves launching the protocol on the Polkadot relay chain as a mainnet, establishing Gensyn as a hardened, live protocol for global use. This structured development process ensures that Gensyn's protocol is robust, secure, and ready for widespread adoption, embodying a foundational layer for ML compute akin to Ethereum's role for smart contracts.</p>
<p>Beyond technical development, Gensyn's long-term vision extends to creating an ecosystem that addresses fundamental challenges in applied ML: access to compute power, data, and knowledge. By providing on-demand access to global compute resources at fair market prices, Gensyn tackles the first challenge head-on. The Foundation aims to foster solutions to the remaining challenges through research, funding, and collaborations, envisioning a future where anyone can train ML models on a self-organizing network. This ambition aligns with the broader goal of reducing Web3's dependency on Web2 infrastructure, decentralizing crucial components of the digital ecosystem.</p>
<p>Looking ahead, Gensyn aspires to democratize ML development and training, making foundation models decentralized and globally owned. This approach not only accelerates collaborative development but also lowers barriers to fine-tuning models, paving the way for equitable participation in AI advancement. Gensyn's commitment to connecting academic and industrial silos through a common, decentralized infrastructure marks a significant step towards collective exploration of AI's future. By leveraging the collective power of every source of compute in existence, Gensyn stands at the forefront of realizing Artificial General Intelligence, representing a monumental leap for humanity towards a more connected and equitable technological future.</p>
<h2>What Is Akash?</h2>
<p>Akash Network represents a pioneering move in the realm of decentralized cloud computing, launched as a mainnet in September 2020 and built upon the Cosmos blockchain framework. Its inception was driven by a vision to democratize access to cloud computing resources, offering a marketplace for underutilized compute at rates substantially lower than those of traditional cloud service providers. By leveraging blockchain technology for the coordination and settlement of transactions, Akash facilitates a decentralized ecosystem where users can securely engage in the leasing and utilization of compute resources, primarily focusing on containerized cloud-native applications managed through Kubernetes.</p>
<p>Akash encountered significant hurdles related to user onboarding and retention, primarily due to the complexities associated with managing a Cosmos wallet and the volatility of its native token, AKT. Recognizing the evolving landscape of computing, which is increasingly shifting towards GPU-based computations, particularly for AI and machine learning workloads, Akash pivoted its focus towards GPU compute, capitalizing on the supply shortage and the shift towards more graphically intensive computing tasks.</p>
<div><img alt="Akash Supercloud" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9707/content_Akash_Supercloud.webp" style="width: 1200px; height: 518px;"></div>
<p>Amid the evolving landscape of decentralized compute, Akash Network's strategic pivot to emphasize GPU compute reflects a keen understanding of the sector's direction. This shift is not merely a response to technological trends but a strategic repositioning within a competitive ecosystem where the demand for AI and machine learning capabilities is surging. The decentralized compute sector, characterized by its emphasis on leveraging blockchain technology to distribute computing tasks in a more democratized manner, is becoming increasingly relevant. In this context, Akash's focus on providing enterprise-grade GPU resources is particularly significant. It caters to a critical need for high-performance computing power, essential for the complex computations required in today's AI-driven applications. By doing so, Akash is carving out a niche that aligns with the sector's broader trajectory towards more specialized and high-demand compute solutions.</p>
<p>The transition to GPU compute has seen Akash's network grow to support 150-200 GPUs, with utilization rates of 50-70%, mainly focusing on enterprise-grade chips like Nvidia's A100s, known for their AI workload capabilities. This shift acknowledges the broader market trend towards AI model training, where high-performance GPUs are in high demand. Akash's supply side strategy targets a diverse range of GPU providers, including public hyperscalers, private companies, crypto miners, and enterprises with underutilized GPUs, aiming to unlock a secondary marketplace that can significantly enhance the visibility and utility of idle compute resources.</p>
<p>On the demand side, Akash has made strides in improving user experience and broadening its appeal to a wider audience. Innovations such as allowing payments in stablecoin USDC, integrating with popular wallets like MetaMask, and launching front-end solutions like AkashML demonstrate Akash's commitment to reducing friction for users and making cloud compute more accessible. The addition of consumer-grade and AMD chips alongside its existing Nvidia portfolio illustrates Akash's response to evolving market needs and its ambition to support a broader range of compute tasks, including AI model inference, which is anticipated to surpass model training in market size.</p>
<p>Traditional cloud computing models often lead to inefficiencies, such as overprovisioning and underutilization, which Akash aims to mitigate through its decentralized approach. By enabling individuals and organizations to lease out their idle compute power, Akash not only optimizes the use of existing resources but also contributes to a more sustainable and cost-effective computing ecosystem. This approach resonates with the ethos of the decentralized compute sector, which prioritizes accessibility, efficiency, and the democratization of technology. As Akash continues to innovate and adapt to market needs, its role in shaping the future of decentralized compute becomes increasingly necessary, offering a blueprint for how decentralized platforms can meet the growing demand for flexible and accessible computing solutions.</p>
<p>Akash's roadmap is ambitious, focusing on enhancing product features such as secret management, on-demand and reserved instances, and improving service discoverability. Its efforts to demonstrate the network's capability for AI model training and inference underscore the potential of decentralized platforms to rival traditional cloud services, offering a more flexible, cost-effective, and accessible solution for compute-intensive tasks.</p>
<h2>More on the Akash Roadmap and Recent Updates</h2>
<p>The trajectory of Akash Network throughout 2023 has been a testament to strategic foresight and community-driven innovation, setting the stage for a significant acceleration in 2024 and beyond. The burgeoning demand for computing resources, a cornerstone for the advancement of technology, underscores the necessary role of platforms like Akash. The network, through its open-source ethos and commitment to decentralization, has positioned itself as a crucial enabler of technological progress, standing in contrast to the cautious approach advocated by some factions within the tech community. </p>
<p>This dichotomy between decelerationists and techno-optimists underscores a broader debate on the pace of technological advancement, with Akash firmly aligning with the latter, advocating for an acceleration of technological progress through permissionless access to computing resources.</p>
<p>2023 marked a watershed year for Akash, characterized by significant milestones that bolstered its standing as the premier decentralized cloud compute network. A radical move to open-source the entire codebase and the addition of GPU support – initially for NVIDIA and subsequently AMD models – were pivotal in enhancing network capabilities. This open framework for community contributions, mirroring a DAO, fostered a vibrant ecosystem where innovation thrives. </p>
<p>The formation of Special Interest Groups (SIGs) and Working Groups (WGs), overseen by a Steering Committee, has cultivated a collaborative environment that contrasts sharply with the organizational challenges observed in many DAOs. This structured approach to open-source development has not only facilitated significant network improvements but also showcased the potential for a well-organized community to drive sustained technological progress.</p>
<div><img alt="Steering Committee Akash" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9708/content_Steering_Committee_Akash.webp" style="width: 1200px; height: 671px;"></div>
<p>The introduction of GPU support on the Akash Network was a strategic response to the global GPU shortage, addressing a critical bottleneck in the AI and machine learning sectors. By making a wide range of GPUs accessible on the network, including high-performance chips for AI training and consumer-grade GPUs for broader applications, Akash has alleviated some of the supply constraints plaguing the industry. This move has not only expanded the network's capabilities but also underscored Akash's role in democratizing access to high-performance computing, making it a key player in the decentralized compute landscape.</p>
<p>A significant milestone was the collaboration between Overclock Labs and ThumperAI to train a foundation AI model on Akash, dubbed <strong>"Akash-Thumper"</strong> (AT-1). This endeavor not only highlights Akash's capabilities in distributed model training but also emphasizes the network's potential to facilitate open-source AI development. By documenting the training process and making AT-1 publicly available, Akash is paving the way for broader adoption of decentralized compute for AI training, setting a precedent for transparency and community engagement in the development of AI technologies.</p>
<p>Looking ahead to 2024, Akash's roadmap is ambitious, focusing on scaling the network through the onboarding of high-performance compute providers and expanding community contributions. The network's alignment with the principles of Defensive Accelerationism reflects a commitment to accelerating technological progress while mitigating the risks of centralized control. This stance is particularly relevant in the context of cloud computing, where the concentration of power among a few corporations poses challenges to innovation and accessibility.</p>
<p>Akash's engagement in key industry events and its visibility in the media further underscore its growing influence in the decentralized compute sector. By showcasing its capabilities and engaging with the broader tech community, Akash is not only raising awareness of the potential of decentralized cloud computing but also fostering a dialogue on the future of technology development. With the network reaching consistent utilization levels and plans to incentivize providers to increase compute supply, Akash is poised for significant growth, promising to enhance the accessibility and efficiency of cloud computing in the years to come.</p>
<p>In summary, Akash Network's strategic progress in 2023 has laid a solid foundation for its ambitions in the coming years. By embracing open-source principles, fostering a vibrant community, and continuously expanding its technological capabilities, Akash is at the forefront of the decentralized compute movement. As the network continues to evolve, its commitment to democratizing access to compute resources will undoubtedly play a critical role in shaping the future of technology, making it a key player in the ongoing discourse on technological acceleration and innovation.</p>
<h2>Applications for Crypto & AI</h2>
<p>The fusion of decentralized technologies, particularly blockchain and AI, heralds a transformative era for various sectors, from finance to healthcare, and beyond. This integration, especially through protocols like Gensyn, not only innovates in terms of infrastructure but also democratizes access to powerful AI capabilities. Here, we explore several major synergies that arise from the confluence of crypto and AI protocols, illustrating the potential for a more open, efficient, and collaborative digital future.</p>
<p>Firstly, the synergy between decentralized AI and blockchain technology promises a radical shift in data sovereignty and privacy. Traditional AI systems rely heavily on centralized data repositories, posing significant risks regarding data security and privacy. Decentralized AI, underpinned by blockchain protocols, enables a model where data is stored across a distributed network, significantly enhancing data security and user privacy. This model not only protects against data breaches but also empowers individuals with control over their data, allowing for a more consensual use of data in AI model training. </p>
<p>For instance, decentralized AI can leverage techniques such as federated learning, where AI models are trained across multiple decentralized devices or servers without exchanging or centralizing the data, thereby preserving privacy while still benefiting from diverse datasets.</p>
<p>Secondly, the integration of crypto mechanisms with AI enhances the scalability and accessibility of AI models. Traditional cloud-based AI services often come with high costs and gatekeeping that limit access to small developers and companies. Crypto-economic models, like those proposed by Gensyn, incentivize the contribution of computational resources to the network through tokens or other crypto rewards. This not only lowers the barrier to entry for AI development by reducing costs but also stimulates a more vibrant ecosystem of AI innovation. By distributing the computational load across a global network of participants, decentralized AI can scale more effectively, accommodating the growing demand for AI services without the bottlenecks of centralized infrastructure. This model supports the development of more robust and diverse AI models by tapping into a wider range of data sources and computational strategies, potentially leading to innovations that are more representative and less biased.</p>
<p>Lastly, the confluence of blockchain and AI opens new avenues for transparent and trustless AI operations. One of the challenges in current AI implementations is the "black box" nature of AI algorithms, where the decision-making process is often opaque, leading to trust issues. Blockchain technology, with its inherent transparency and immutability, can provide a verifiable record of AI operations, decisions, and model evolution. This transparency is crucial for sensitive applications of AI, such as in finance, healthcare, and legal systems, where stakeholders need assurance about the fairness, accuracy, and compliance of AI decisions. </p>
<p>Smart contracts can automate the execution of AI-driven decisions in a trustless manner, ensuring that actions are taken based on predefined criteria without the need for intermediaries. This synergy enhances trust in AI systems and enables their integration into a broader range of applications.</p>
<p>The synergies between decentralized AI and blockchain technology are poised to redefine the landscape of digital innovation. By enhancing data privacy, scalability, accessibility, and trust in AI operations, these synergies open up unprecedented opportunities for collaborative development, equitable access, and the ethical use of AI. As protocols like Gensyn mature and more initiatives emerge at the intersection of crypto and AI, we stand on the cusp of a new era where decentralized technologies empower humanity to harness the full potential of AI in a manner that is open, inclusive, and aligned with the principles of a decentralized web.</p>
<p><em>Disclaimer: This research report is exactly that — a research report. It is not intended to serve as financial advice, nor should you blindly assume that any of the information is accurate without confirming through your own research. Bitcoin, cryptocurrencies, and other digital assets are incredibly risky and nothing in this report should be considered an endorsement to buy or sell any asset. Never invest more than you are willing to lose and understand the risk that you are taking. Do your own research. All information in this report is for educational purposes only and should not be the basis for any investment decisions that you make.</em></p>
Reflexivity Researchhttps://www.coingecko.com/learn/overview-of-decentralized-computeDecentralized Compute in Crypto
Decentralized compute brings crypto and AI together. Decentralized compute protocols are looking to utilize the unused computing power in our world, building open...tag:www.coingecko.com,2005:Post/12672024-03-13T04:42:23Z2024-03-13T13:00:18ZHow Hacken Is Tokenizing Its Equity With HAI<p dir="ltr"><img alt="Hacken Tokenizing Equity HAI" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9709/content_Hacken_Tokenizing_Equity_HAI.webp" style="width: 1200px; height: 600px;"></p>
<p dir="ltr"><a href="http://hacken.io" target="_blank">Hacken</a>, a blockchain security auditor, is tokenizing its equity linked to the company’s native token, HAI. Opportunity to exchange HAI for Hacken Equity Shares (HES) <a href="https://hackenio.cc/hes" target="_blank">is available for existing and new HAI holders</a>. It makes Hacken the first crypto company that enables its community to own a part of the real business. </p>
<p dir="ltr">10% of the company’s equity is now tokenized assets on the Ethereum blockchain, which can be exchanged for 100 million HAI. Each Hacken Equity Share is valued at 1 million HAI, with 100 shares available. Based on reports from Hacken, 87% of the acquired HAI tokens will be burned. </p>
<p dir="ltr">This private equity offering not only shows an example of merging digital assets with real-world value but also brings a new context to a broader financial ecosystem.</p>
<blockquote>
<p dir="ltr">"Embarking on the next level of the Web3 journey, Hacken pioneers a new precedent where token investment transcends digital realms to become integral in real-world deals. Our commitment to RWA tokenization signifies more than a strategic move; it marks a transformative shift, fostering cohesion, diversity, and connectivity within our community. It means a broader evolution in how private crypto investors engage with blockchain projects."</p>
</blockquote>
<p dir="ltr" style="text-align: right;">- Dyma Budorin, Co-Founder and CEO of Hacken</p>
<h2 dir="ltr">What Is HAI? </h2>
<p dir="ltr"><a href="http://www.coingecko.com/en/coins/hacken" target="_blank">HAI</a> is the native token of the Hacken ecosystem and a work-to-earn, product-utility, and governance token. It serves as an incentivization token, bringing together a community of like-minded individuals that contribute to building Web3 trust, transparency, and security. </p>
<p dir="ltr">HAI is also the governance token in hDAO, where holders obtain voting power that can be used to vote on proposals. Any member of the community can submit improvement proposals to the community for review, and acceptance depends on the majority vote. </p>
<h2 dir="ltr">HAI Token Utility</h2>
<p dir="ltr">Now, let’s look at some examples of HAI token utility. </p>
<h3 dir="ltr">Trust Army</h3>
<p dir="ltr">HAI is a work-to-earn token, where the Trust Army – a platform providing users with Web3 data collection tasks and education – receives HAI for submitted reports. Trust Army users can use HAI for Membership staking which allows them to earn rewards and improve user experience with enhanced Trust Fuel.</p>
<p dir="ltr">The Trust Army consists of the Academy and Missions. In the Academy, community members can gain DYOR skills including utilizing on-chain and off-chain data to master token economies. As users complete more Academy chapters, they’ll be able to access Missions where they can complete tasks that cover Web3 data research and collection.</p>
<p dir="ltr">After completing tasks around researching specific projects, users can submit a report to be verified by Trust Army Validators. Upon the approval of the report, users receive payment in HAI.</p>
<h3 dir="ltr">HackenProof</h3>
<p dir="ltr">HackenProof is the Hacken bug bounty platform, connecting crypto projects with the ethical hacker community and professional smart contract auditors to identify and uncover security issues. Companies can set up rewards in HAI. Advantages for hackers, in particular extra bug bounty rewards for using HAI coupons, to be introduced shortly.</p>
<h3 dir="ltr">Hacken Extractor</h3>
<p dir="ltr">Hacken Extractor is a decentralized smart contract monitoring security solution. According to the project, Hacken Extractor can track smart contract status and activity in real-time and notify clients of any irregularity based on triggers set by the clients. Once these triggers occur, clients can set up administrative smart contract actions that will execute automatically. HAI allows businesses to benefit from HAI-based subscriptions or Hacken Membership and pay 20-30% less.</p>
<h3 dir="ltr">Hacken Engineers Day Index (HEDI)</h3>
<p dir="ltr">Hacken tokenizes the security audit team with the HEDI. HEDI is price-protected investment opportunity in HAI token via a synthetic asset backed by the services of Web3 security experts. This investment can be swapped into HAI token in 1 month with a 10% options execution price. It can also be exchanged for Hacken’s cybersecurity services.</p>
<h2 dir="ltr">Why Is Hacken Tokenizing Its Equity?</h2>
<p dir="ltr">Tokenization will bring more accountability and transparency to Hacken while establishing a tight connection between its native token and business ecosystem. This strategic move is part of Hacken’s aspiration to become a publicly traded company in the future. </p>
<p dir="ltr">It will also provide investors with the option to strengthen their crypto portfolio with DeFi assets linked to the real business, which offers the stability and lower-risk characteristics of TradFi. </p>
<p dir="ltr">RWA is the first step towards public organization status for Hacken, planned to be followed with:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Authorized Secondary RWA Market after the tokenization round ends.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Seizing exit opportunities during equity buybacks at the next investment Hacken rounds.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">IPO as a strategic goal for 2027.</p>
</li>
</ul>
<p dir="ltr">These open room for exit strategies for future shareholders. </p>
<p dir="ltr">According to the project, the technical implementation of Hacken’s tokenization is done by the asset tokenization protocol Brickken. Tokenized Hacken equity is brought to the Ethereum chain and is available on Brikken’s RWA marketplace for all KYC-verified investors. </p>
<hr>
<p dir="ltr"><strong>About Hacken</strong></p>
<p dir="ltr">Hacken is a trusted blockchain security auditor that delivers high-quality solutions at every level of blockchain security. Hacken`s services include <a href="https://hacken.io/services/blockchain-security/smart-contract-security-audit/" target="_blank">Smart Contract Audit</a>, Blockchain Protocol Audit, dApp Audit, Penetration Testing, and CCSS Audit. Its product portfolio features <a href="https://hackenproof.com" target="_blank">HackenProof</a> bug bounties, CER.live cybersecurity ranking, and <a href="https://extractor.live" target="_blank">Extractor</a> on-chain monitoring.</p>
<p dir="ltr">Since its inception in 2017, Hacken has evolved from a white-hat hacking startup into an established security partner for over 1500 blockchain-based projects. Today, Hacken collaborates and works with top DeFi players such as 1inch, MetaMask, ShapeShift, Unicrypt, and PolkaStarter; most promising blockchain protocols such as NEAR, Linea and Radix; key centralized exchanges like OKX, Gate.io and KuCoin; Web3 gaming projects like Sandbox and Enjin. Moreover, Hacken is among the few Web3 companies working with the public sector and traditional enterprises: European Blockchain Services Infrastructure by the EU Commission, digital banking leaders such as Revolut and Nubank, and major businesses like Anglo American and Arcelik.</p>
<p dir="ltr">Hacken's strategic goal is to evolve into a publicly listed company, blending equity and token capitalization for a pioneering model. </p>
CoinGeckohttps://www.coingecko.com/learn/hacken-tokenizing-equity-with-hai
Hacken, a blockchain security auditor, is tokenizing its equity linked to the company’s native token, HAI. Opportunity to exchange HAI for Hacken Equity Shares (HES) is available for existing a...tag:www.coingecko.com,2005:Post/12632024-03-12T14:13:28Z2024-03-18T03:35:51ZEthena Labs: Improving Potential Airdrop Eligibility Through Shards<!-- GetResponse Analytics --><script type="text/javascript">
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<h2 dir="ltr">How to Earn Shards With Ethena Labs Shard Campaign</h2>
<p dir="ltr">Users can earn Shards by buying, locking, and staking USDe, along with inviting people to use Ethena. These tasks have no pool limits, although users should still monitor partner tasks to see if they are able to earn extra Shards by completing them. </p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Ethena Labs is a synthetic dollar protocol with the aim to revolutionize DeFi through a censorship-resistant approach.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">The USDe token is the project’s Ethereum-based stablecoin which acts as a synthetic dollar that achieves stability through shorting ETH. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Investors such as Dragonfly, Binance Labs, Bybit, and more have participated in a fundraising round that successfully raised $14 Million.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="Ethena Shards Airdrop" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9700/content_Ethena_Shards_Airdrop.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">Ethena Labs is a synthetic dollar protocol built on the Ethereum blockchain that focuses on providing a crypto-native yield-bearing stablecoin not reliant on traditional banking system infrastructure. </p>
<p dir="ltr">The project’s <a href="http://www.coingecko.com/en/coins/ethereum" target="_blank">Ethereum</a>-based stablecoin, <a href="https://www.coingecko.com/en/coins/ethena-usde" target="_blank">USDe</a>, is positioned as a synthetic dollar rather than a stablecoin and is designed to achieve stability by hedging price exposure through shorting ETH using perpetual swaps. Ethena Labs also refers to USDe as the project’s ‘internet bond’ product, which offers a dollar-denominated savings instrument with the benefits of DeFi. </p>
<p dir="ltr">Founded in 2023, Ethena Labs has attracted attention from notable investors such as Dragonfly, OKX Ventures, Bybit, Deribit, and others who participated in the first seed round and raised $6.5 million. A recent fundraising round successfully raised an additional $14 million with investors including Brevan Howard Digital, Galaxy Digital, and Hashed, bringing the project’s total raised to $20.5 million and valuation to $300 million. </p>
<p dir="ltr">To mark the official launch of USDe to the public, Ethena Labs launched their Shard campaign to represent and track how much a user contributes to the ecosystem. The campaign will be split across multiple short-duration seasons, referred to as epochs, that will reward different activities involving USDe. </p>
<p dir="ltr">Users can earn Shards through the activities listed below. At the time of writing, the Shard campaign is in Epoch 2 which is in collaboration with <a href="https://www.coingecko.com/learn/pendle" target="_blank">Pendle Finance</a>. </p>
<p dir="ltr"><strong>Do take note that at the time of writing, there is no official announcement from Ethena Labs regarding a token release, and proceeding with the steps below is not guaranteed to result in receiving airdropped tokens.</strong></p>
<p dir="ltr"><img alt="How to earn Shards Ethena Labs" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9692/content_how_to_earn.webp" style="width: 1250px; height: 861px;"></p>
<p>Ethena Labs will conclude the Shard campaign in May or when the USDe supply reaches $1 billion, whichever happens the soonest. On top of the short timeline, the value of Shards being rewarded will decrease as the campaign carries on. This means that being early will result in a higher number of awarded Shards. That is why now is a good time to start exploring the Ethena ecosystem and interacting with USDe!</p>
<h2 dir="ltr">Step 1: Connect Wallet</h2>
<p dir="ltr">Head over to <a href="https://www.ethena.fi/" rel="nofollow noopener" target="_blank">https://www.ethena.fi/</a> to access the Shard campaign. Here you can either provide an invite code or click <strong>Enter the Ether</strong> to be redirected to the join page. </p>
<p dir="ltr">Click on <strong>Connect Wallet</strong> and choose from the various wallet options.</p>
<div dir="ltr"><img alt="Connect wallet to Ethena" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9693/content_1._Connect_Wallet.webp" style="width: 1250px; height: 563px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 2: Buy USDe</h2>
<p dir="ltr">At the top menu, click on <strong>Buy</strong> to access the buy USDe page. </p>
<p dir="ltr">Once you have input the amount you want to buy, confirm the transaction in your wallet.</p>
<p dir="ltr">Do take note that Ethereum gas fees are quite high at the time of writing and will likely continue to remain high in the near future. For this guide, transaction gas fees were averaging at $40. As such, we highly recommend that you take this into consideration when deciding how much you want to invest and if it is worth the gas fees. You can also check in during different times of the day to see if the gas fees are lower.</p>
<p dir="ltr">In this example, we are sending 1,000 USDC tokens in exchange for 997.2 USDe tokens and paying $31.20 in gas fees.</p>
<div dir="ltr"><img alt="Buy USDe" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9694/content_2._Buy.webp" style="width: 1250px; height: 675px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 3: Lock USDe</h2>
<p dir="ltr">At the top menu, click on <strong>Liquidity</strong> to access the page. </p>
<p dir="ltr">Click on <strong>Lock</strong> for USDe on Ethena which is listed as the second pool.</p>
<div dir="ltr"><img alt="Lock USDe Pools" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9695/content_3._Liquidity_and_lock.webp" style="width: 1250px; height: 660px;"></div>
<p dir="ltr">Then input the amount of USDe you want to lock and confirm the transaction in your wallet. Do note that when unlocking, the tokens will only be available to withdraw after seven days.</p>
<div dir="ltr"><img alt="Enter amount of USDe to lock" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9696/content_3.1_lock_amount.webp" style="width: 1250px; height: 705px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 4: Stake USDe</h2>
<p dir="ltr">At the top menu, click on <strong>Stake</strong> to be redirected to the page. </p>
<p dir="ltr">Input the amount of USDe you want to stake and then confirm the transaction in your wallet. Do note that when you unstake, your USDe tokens will only be available to claim seven days later.</p>
<div dir="ltr"><img alt="Stake USDe" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9698/content_5_stake_USDe.webp" style="width: 1250px; height: 654px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 5: Invite People to Ethena</h2>
<p dir="ltr">On the main Shard campaign page, you will be able to view and copy your referral link to share with others. </p>
<div dir="ltr"><img alt="Refer people to Ethena" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9699/content_6_refer.webp" style="width: 1250px; height: 763px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Sidenotes</h2>
<p dir="ltr">Each epoch of the Shard campaign will be in partnership with different projects. The first was with Curve Finance while the current one, epoch 2, is with Pendle Finance. Due to high demand and popularity, the activities in collaboration with partner projects tend to reach maximum capacity quickly. </p>
<p dir="ltr">At the time of writing, the task in relation to Pendle has already met its limit. On top of that, the pool to provide liquidity and lock LP tokens has also reached its limit. Hence, this guide is to help you fulfill the steps directly related to the Ethena ecosystem which have no pool limits. Each task is optional and you should only proceed with what you are comfortable with. </p>
<p dir="ltr">In the meantime, you can also keep an eye out for the partner tasks because Ethena Labs will occasionally increase the pool size or other users may withdraw their tokens and free up some space in the pool. </p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">Ethena Labs is gearing up to introduce a new financial experience on the Ethereum blockchain through their synthetic dollar protocol. They intend to provide an alternative to traditional stablecoins through USDe and various financial services through stability and yield generation. The Shard campaign will reward active users as part of their efforts to grow the community and ecosystem activity.</p>
<p dir="ltr">Airdrops are highly speculative and as mentioned above, following the above steps is no guarantee of an Ethena Labs airdrop, as there is no token release announcement at time of writing. Finally, note that this article is not meant to serve as financial or investment advice, and users should do their own research before depositing funds and interacting with any crypto protocol.</p>
<getresponse-form e="1" form-id="160c7f82-6d38-46a1-9974-b323ce663aaa"></getresponse-form>Stephanie Gohhttps://www.coingecko.com/learn/ethena-labs-airdrop-shard-campaign
How to Earn Shards With Ethena Labs Shard Campaign
Users can earn Shards by buying, locking, and staking USDe, along with inviting people to use Ethena. These tasks have no pool limits, althou...tag:www.coingecko.com,2005:Post/12622024-03-11T14:22:18Z2024-03-12T02:26:26ZWhat Is Kamino Finance? A Concentrated Liquidity Layer on Solana<h2 dir="ltr">What Is Kamino Finance?</h2>
<p dir="ltr">Kamino Finance is a Solana-based concentrated liquidity management tool that integrates lending, liquidity, and leverage into a unified DeFi product suite. This allows users to borrow and lend assets, provide leveraged liquidity, build automated liquidity strategies, and use concentrated liquidity positions as collateral.</p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Kamino Finance is a Solana-based concentrated liquidity management tool that enhances capital efficiency by allowing liquidity providers to allocate assets in specific price ranges.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">It combines lending, liquidity provision, and leverage, allowing users to engage in multiple financial activities on one platform.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Product suite includes features like Borrow and Lend, Multiply Vaults, Long/Short Vaults, Liquidity Vaults, and a DIY Vault Creator.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Offers yield-bearing LP tokens (kTokens) and a lending protocol with efficient loan-to-value ratios.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Kamino Points is a reward system that enhances user engagement and loyalty.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">KMNO tokens, the protocol's governance token, will be distributed via airdrops based on Kamino Points earned by users through various platform activities.</p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="What Is Kamino Crypto Solana" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9691/content_What_Is_Kamino_Crypto.webp" style="width: 1200px; height: 600px;"></div>
<p dir="ltr">In traditional <a href="https://www.coingecko.com/learn/what-is-an-automated-market-maker-amm" target="_blank">Automated Market Makers (AMMs)</a>, liquidity providers (LPs) deposit assets into a <a href="https://www.coingecko.com/learn/liquidity-pools-crypto-defi" target="_blank">liquidity pool</a>, which are then used to facilitate trades on the platform. This liquidity is spread across the entire price range for the trading pair. However, in a concentrated liquidity system, LPs can choose specific price ranges within which to allocate their liquidity.</p>
<p dir="ltr"><strong>A concentrated liquidity layer, thus, helps in optimizing capital efficiency. </strong></p>
<p dir="ltr"><a href="https://www.coingecko.com/en/exchanges/uniswap-v3-ethereum" target="_blank">Uniswap V3</a> is the most popular concentrated liquidity platform in the Ethereum ecosystem. In the Solana ecosystem, Kamino Finance is rallying in popularity, with over $836 million in TVL based on <a href="https://defillama.com/protocol/kamino" rel="nofolow noopener" target="_blank">DefiLlama data</a> at time of writing.</p>
<div dir="ltr"><img alt="Kamino Finance TVL" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9690/content_Kamino_Finance_TVL.webp" style="width: 973px; height: 396px;"></div>
<p dir="ltr"><strong>In this article, we will explore what Kamino Finance is, its key features, how to get started and how you can earn Kamino Points.</strong></p>
<h2 dir="ltr">Kamino Finance: Solana's Liquidity Destination</h2>
<p dir="ltr">In <a href="https://www.coingecko.com/learn/what-is-a-decentralized-crypto-exchange-dex" target="_blank">decentralized exchanges (DEXs)</a>, trade volume plays the biggest role in determining a dApp’s revenue. In conventional AMMs, <strong>the even distribution of liquidity across the entire price range often leads to capital inefficiency</strong>, especially in price ranges where trade volume is low. This is because <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a> that is locked in less active price ranges is not being effectively utilized to earn fees from trading.</p>
<p dir="ltr">Concentrated liquidity management, as implemented by Kamino Finance and the like, addresses this issue by allowing liquidity providers to allocate their assets in specific price ranges where they expect more trading activity. This targeted approach ensures that <strong>liquidity is concentrated in ranges with higher trading volumes, leading to more efficient use of capital</strong>.</p>
<p dir="ltr">Kamino Finance, in particular, stands out in the Solana ecosystem for its approach to concentrated liquidity. It offers automated tools and strategies to help LPs optimize their positions within the liquidity pools, making it easier to manage the complexities that come with concentrated liquidity provision.</p>
<p dir="ltr">Further, the platform allows users to borrow and lend their assets and also provide leveraged liquidity to concentrated liquidity DEXs. With Kamino, users can also build their own automated liquidity strategies and use concentrated liquidity positions as <a href="https://www.coingecko.com/learn/crypto-collateral-defi" target="_blank">collateral</a>.</p>
<div dir="ltr"><img alt="Kamino Finance" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9683/content_cl7u8izw0030409mi59sywker.webp" style="width: 1200px; height: 665px;"></div>
<p dir="ltr">The product suite includes:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong><a href="https://docs.kamino.finance/products/borrow-lend" rel="nofollow noopener" target="_blank">Borrow and Lend</a></strong> for supplying assets to earn yield and borrow against collateral.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong><a href="https://docs.kamino.finance/products/multiply" rel="nofollow noopener" target="_blank">Multiply Vaults</a></strong> for boosting SOL yields up to 10x.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong><a href="https://docs.kamino.finance/products/long-short" rel="nofollow noopener" target="_blank">Long/Short Vaults</a></strong> for Increasing Exposure with a single simple, one-click leverage.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong><a href="https://docs.kamino.finance/products/liquidity" rel="nofollow noopener" target="_blank">Liquidity Vaults</a></strong> for automated LP strategies and earning fees/rewards by deploying liquidity into DEXs.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>DIY Vault Creator</strong> for custom LP strategies.</p>
</li>
</ul>
<p dir="ltr">Kamino Finance consists of four essential primitives, which we'll delve into in the sections below:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Automated Liquidity Vaults</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Kamino Lend (K-Lend)</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Multiply</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Long/Short</p>
</li>
</ol>
<h3 dir="ltr">Automated Liquidity Vaults</h3>
<p dir="ltr">Kamino's first, Automated Liquidity Vaults, is a leading liquidity provider (LP) primitive on Solana. Kamino liquidity vaults issue yield-bearing LP tokens, “<a href="https://docs.kamino.finance/v/automated-liquidity/liquidity-vaults/ktokens" rel="nofollow noopener" target="_blank">kTokens</a>” to depositors, which are accepted as collateral in K-Lend.</p>
<p dir="ltr">The kTokens lay the foundation for powerful DeFi strategies, like leveraged liquidity provision, or <a href="https://arxiv.org/pdf/2208.03318.pdf#:~:text=We%20define%20a%20strategy%20to,affect%20the%20net%20portfolio%20value." rel="nofollow noopener" target="_blank">delta-neutral liquidity provision</a>. These kTokens can also be used in other DeFi applications (for example, as collateral in K-Lend), where users continue receiving the yield from the LP position.</p>
<p dir="ltr">Kamino's automated liquidity vaults allow users to earn yield on their crypto assets by offering liquidity to <a href="https://www.coingecko.com/learn/uniswap-vs-trader-joe" target="_blank">concentrated liquidity market makers (CLMMs)</a>.</p>
<p dir="ltr">A Kamino vault uses liquidity in an underlying DEX pool, consisting of two tokens. When users deposit into a vault, they can earn fees from trading volume. Kamino Finance automates the entire LP process to provide optimal capital efficiency and yields using <strong>automated position rebalancing, auto-compounding trading fees</strong> as well as additional incentive and <strong>auto-swap for single-sided deposits/withdrawals</strong>.</p>
<h3 dir="ltr">K-Lend</h3>
<p dir="ltr"><a href="https://docs.kamino.finance/kamino-lend-litepaper" rel="nofollow noopener" target="_blank">K-Lend (short for Kamino Lend)</a> is a lending protocol that operates on a peer-to-pool basis and is unifies borrowers, lenders, and liquidity providers. Think of it as a “decentralized matchmaker” between lenders and borrowers of crypto assets.</p>
<p dir="ltr">One of the standout features of K-Lend is its "Elevation Mode," inspired from Aave’s Efficiency Mode; it allows users to borrow highly correlated or soft-pegged assets at more capital-efficient loan-to-value (LTV) ratios.</p>
<p dir="ltr">In simpler terms, it groups together assets that are similar or have similar values (like different types of <a href="https://www.coingecko.com/learn/what-are-stablecoins-top-5-stablecoins-by-market-cap" target="_blank">stablecoins</a>) and sets rules for borrowing against them. This setup allows users to borrow more money compared to the value of their assets than they normally could. It's like getting a bigger loan for the same amount of collateral.</p>
<p dir="ltr">K-Lend also implements a poly-linear interest rate curve, offering a more gradual adjustment in interest rates compared to traditional lending platforms. This nuanced approach aids in maintaining market equilibrium and providing flexibility for borrowers.</p>
<div dir="ltr"><img alt="K-Lend Interest Rate Curve" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9675/content_Interest_Rate_Curve.webp" style="width: 1200px; height: 770px;"></div>
<p dir="ltr">K-Lend has various salient features that allows capital efficiency, and has a sophisticated risk engine to protect both borrowers and lenders.</p>
<p dir="ltr">The K-Lend interface includes the following:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>List View: </strong>To get an overview of lending pool.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Market Page: </strong>To get a detailed overview of the market for each asset in K-Lend.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Loan Dashboard: </strong>To get an overview of a user's position.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Risk Analysis:</strong> To simulate market movement impact on your loan.</p>
</li>
</ul>
<h3 dir="ltr">Multiply Vaults</h3>
<p dir="ltr">Multiply Vaults are designed to amplify users' exposure to specific yield-bearing assets by enabling leveraged positions. Essentially, they allow users to open leveraged positions to increase their exposure to certain assets.</p>
<div dir="ltr"><img alt="Kamino Finance Multiply Vaults" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9676/content_Screenshot_2024-03-08_at_3.01.03%E2%80%AFPM.webp" style="width: 1200px; height: 674px;"></div>
<p dir="ltr">For instance, a user can enhance their exposure to a yield-bearing asset like JitoSOL by borrowing SOL. This leverage is facilitated through K-Lend mechanisms. As long as the yield on the yield-bearing asset is higher than the borrow APY, users will enjoy a positive net APY (and a corresponding increase in SOL balance).</p>
<p dir="ltr">The yield in Multiply Vaults comes from two main sources – staking yield from LST tokens such as mSOL, JitoSOL, bSOL, and market-making yield from kTokens via trading fees in Kamino liquidity vaults. Some vaults combine both these sources, providing a diversified yield generation strategy.</p>
<p dir="ltr">Kamino has implemented various measures, like <a href="https://docs.kamino.finance/v/risk/protocol-mechanisms/automated-deleverage">auto-deleverage</a>, to manage risks. Auto-deleverage unwinds debt and collateral to maintain a safe balance of assets.</p>
<p>Liquidation can still occur in the event the borrow interest rate is higher than the LST yield for a sustained period of time, where a user's debt relative to the LST reaches the <a href="https://www.coingecko.com/learn/defi-liquidation-crypto" target="_blank">liquidation</a> threshold. </p>
<h3 dir="ltr">Long/Short Vaults</h3>
<p dir="ltr">Long/Short Vaults in Kamino Finance are a feature that allows users to <a href="https://www.coingecko.com/learn/short-selling-how-to-short-crypto" target="_blank">take leveraged bets on the price of an asset</a> without directly owning it. This means you can essentially speculate on whether the price will go up (long) or down (short), potentially amplifying your gains, but also multiplying your losses.</p>
<div dir="ltr"><img alt="Kamino Finance Long/Short Vaults" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9677/content_Screenshot_2024-03-04_at_11.53.59%E2%80%AFPM.webp" style="width: 1200px; height: 459px;"></div>
<p dir="ltr">They work like any other long/short mechanism but with the added advantage of Kamino Finance's capabilities. Here's how you can long/short:</p>
<p dir="ltr"><strong>Step 1: Select Leverage and Deposit Token</strong></p>
<p dir="ltr">Choose the amount of leverage you want to apply to your position (represented by 5x in the image). This means you'll be borrowing 4x your deposit amount to increase your exposure.</p>
<p dir="ltr">Now, select the deposit token (e.g., SOL) that you'll use as collateral.</p>
<p dir="ltr"><strong>Step 2: Kamino Deposits into K-Lend</strong></p>
<p dir="ltr">Kamino takes your deposited SOL and puts it into K- Lend, Kamino's lending protocol.</p>
<p dir="ltr"><strong>Step 3: Flash Loan to Borrow Leverage Token</strong></p>
<p dir="ltr">Kamino uses a flash loan to temporarily borrow an amount of USD Coin (USDC) equivalent to 4x your initial SOL deposit (because of your 5x leverage). Flash loans are a DeFi mechanism that allows you to <a href="https://www.coingecko.com/research/publications/undercollateralized-loans-the-future-of-defi-lending" target="_blank">borrow funds without collateral</a>, on the condition that you repay the loan within the same transaction.</p>
<p dir="ltr"><strong>Step 4: USDC is Swapped into Target Asset (SOL)</strong></p>
<p dir="ltr">The borrowed USDC is then swapped into the target asset you want to go long or short on (e.g., SOL in the image).</p>
<p dir="ltr"><strong>Step 5: USDC is Borrowed and Used to Repay Flash Loan</strong></p>
<p dir="ltr">The swapped SOL is then used to borrow USDC from K-Lend. This borrowed USDC is used to repay the initial flash loan.</p>
<h2 dir="ltr">Key Features of Kamino Finance</h2>
<p dir="ltr">One of the USPs of Kamino Finance is its easy to use product suite which offers transparent analytics, performance data details, as well as a comprehensive position information. Here are some of the key features of Kamino Finance:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Capital Efficiency:</strong> By enabling liquidity providers to pivot their assets on specific price ranges, Kamino Finance optimizes capital efficiency. This specific methodology ensures that the provided liquidity can be utilized strategically to meet market demand.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Low Slippage:</strong> <a href="https://www.coingecko.com/learn/slippage-crypto" target="_blank">Slippage</a> increases when there is low market liquidity or high volatility. However, concentrated liquidity layers help lower slippage for traders. This feature enables users to mitigate risks and carry out trading services at more favorable prices.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Dynamic Range Positioning:</strong> Liquidity providers can dynamically adjust their position within the price range based on market circumstances. Thus, dynamic range positioning helps in providing flexibility to changing trading patterns and volatility.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Incentive Mechanisms:</strong> The platform offers incentive mechanisms including yield farming and governance tokens to attract and retain liquidity providers. Users providing liquidity to Kamino are rewarded.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Decentralized Governance:</strong> Users can actively participate in the decentralized decision-making process. This ensures that the protocol evolves in a way that aligns with the interests of its community.</p>
</li>
</ol>
<h2 dir="ltr">Kamino Finance and Meteora: Advancing DeFi on Solana</h2>
<blockquote class="twitter-tweet">
<p dir="ltr" lang="en">1/ Excited to announce that, moving forward, Kamino will be collaborating with <a href="https://twitter.com/MeteoraAG?ref_src=twsrc%5Etfw">@MeteoraAG</a> on a range of product integrations<br>
<br>
To kick off, we'll be exploring new liquidity strategies via DLMM vaults on Kamino, while Kamino Lend will be integrated into Meteora Vaults<br>
<br>
🧵 <a href="https://t.co/o6Ka8HmP3N">pic.twitter.com/o6Ka8HmP3N</a></p>
— Kamino (@KaminoFinance) <a href="https://twitter.com/KaminoFinance/status/1735784452046102720?ref_src=twsrc%5Etfw">December 15, 2023</a>
</blockquote>
<script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
<p dir="ltr">Kamino utilizes Meteora's DLMM and dynamic pools to create improved strategies for liquidity providers (LPs) in their vaults. This would ultimately increase liquidity within the Solana ecosystem by inviting more users.</p>
<p dir="ltr">Liquidity providers on Kamino can choose the strategy that best suits their needs by selecting a relevant Meteora-based vault. This offers flexibility and potentially higher returns.</p>
<p dir="ltr">The collaboration between Kamino Finance and Meteora aims to achieve the following:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Enhance returns for LPs by offering optimized liquidity strategies and reward programs.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Boost liquidity in the Solana ecosystem by attracting more users to participate in DeFi activities.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Create a more user-friendly DeFi experience with Kamino managing positions and Meteora providing efficient liquidity solutions.</p>
</li>
</ul>
<p dir="ltr">Meteora's DLMM algorithms continuously analyze market conditions and automatically adjust the allocation of vault assets across different liquidity pools. This helps to:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Optimize returns: </strong>By strategically moving assets between pools with varying yields, Kamino aims to maximize returns for vault depositors.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Minimize impermanent loss:</strong> Impermanent loss is a risk associated with liquidity provision, where the price difference between deposited assets can cause potential losses. DLMMs can help mitigate this risk by adjusting pool allocations based on price movements.</p>
</li>
</ul>
<h2 dir="ltr">How to Get Started with Kamino Finance</h2>
<p dir="ltr">Follow these easy steps to navigate through the world of Kamino Finance:</p>
<h3 dir="ltr">Step 1: Visit Kamino.Finance and Connect Wallet</h3>
<div dir="ltr"><img alt="Kamino Finance Connect Wallet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9678/content_Screenshot_2024-01-31_at_1.28.32%E2%80%AFPM.webp" style="width: 1200px; height: 659px;"></div>
<p dir="ltr">Set up a Solana-compatible wallet, like <a href="https://www.coingecko.com/learn/ultimate-guide-to-solana-phantom-wallet" target="_blank">Phantom</a>, and make sure the wallet is funded with SOL to carry out activities on Kamino Finance. <strong>We suggest connecting a wallet with a balance of at least 0.15 SOL.</strong></p>
<p dir="ltr">Upon clicking the <strong>Connect</strong> button, Kamino Finance will request the following:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">View your wallet balance & activity</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Request approval for transactions</p>
</li>
</ul>
<h3 dir="ltr">Step 2: Choose a Product/Service</h3>
<div dir="ltr"><img alt="Kamino Finance Menu" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9674/content_Screenshot_2024-01-31_at_1.29.27%E2%80%AFPM.webp" style="width: 1200px; height: 82px;"></div>
<p dir="ltr">After connecting your wallet, choose from the list of options in the header navigation bar. For illustration purposes, we will go ahead with <strong>Liquidity</strong>.</p>
<div dir="ltr"><img alt="Liquidity on Kamino" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9679/content_Screenshot_2024-01-31_at_1.52.59%E2%80%AFPM.webp" style="width: 1200px; height: 375px;"></div>
<p dir="ltr"><strong>Liquidity</strong> allows you to deposit assets in a liquidity pool of your choice. Navigate through the available pools and markets to get an overview of the assets you can interact with.</p>
<h3 dir="ltr">Step 3: Deposit Assets</h3>
<p dir="ltr">To deposit assets in a liquidity pool, you require both tokens that make up the liquidity pool. In case you do not have both the tokens, Kamino Finance will perform the swap on your behalf – this is called <strong>Single Asset Deposit</strong>.</p>
<div dir="ltr"><img alt="Kamino Finance Asset Deposit" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9680/content_Screenshot_2024-01-31_at_1.40.51%E2%80%AFPM.webp" style="width: 1200px; height: 1261px;"></div>
<p dir="ltr">Here, we’ve chosen a WIF-SOL liquidity pool with Single Asset Deposit. So, Kamino Finance will automatically swap the appropriate amount of SOL to WIF.</p>
<p dir="ltr">After depositing, you will receive kTokens. In this case, <strong>kWIF-SOL</strong> tokens. Think of this as a receipt of your share in the pool.</p>
<h3 dir="ltr">Step 4: Earn Yield and Exit</h3>
<p dir="ltr">You will now begin earning yield from your deposits. Be mindful of impermanent losses and other opportunity costs.</p>
<p dir="ltr">To exit your position, choose <strong>Withdraw</strong> from the drop-down menu.</p>
<div dir="ltr"><img alt="Withdraw on Kamino Finance" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9681/content_Screenshot_2024-01-31_at_2.01.43%E2%80%AFPM.webp" style="width: 1200px; height: 1390px;"></div>
<p dir="ltr">Here, you can choose Single Asset Withdrawal (either SOL or WIF, in this case) or un-check the box to withdraw the assets in a specific ratio.</p>
<h2 dir="ltr">Introducing Kamino Points: An Airdrop Opportunity</h2>
<div dir="ltr"><img alt="Kamino Points" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9682/content_Screenshot_2024-01-31_at_2.26.50%E2%80%AFPM.webp" style="width: 1200px; height: 377px;"></div>
<p dir="ltr"><a href="https://docs.kamino.finance/kamino-points/overview#" rel="nofollow noopener" target="_blank">Kamino Points</a> are a unique aspect of the Kamino Finance ecosystem, serving as a reward mechanism. By offering rewards and incentives, Kamino aims to acquire new users, reward loyalty, and also present valuable products to the community.</p>
<p dir="ltr">Kamino Points is a system that allows users to earn points at the foundational level of the protocol’s usage. Kamino Points let users implement different points rates and powers collateral assets, debt asset, collateral/debt combinations, liquidity vaults, automated strategies such as long/short and leveraged staking.</p>
<p dir="ltr">These points will dictate how many KMNO tokens, the native token of Kamino Finance, will be airdropped to each user. The KMNO token will also serve as the protocol's governance asset, where its holders will influence incentive programs, revenue allocation, and risk management operations within the Kamino ecosystem, according to a <a href="https://twitter.com/KaminoFinance/status/1765750296318267521?s=20" rel="nofollow noopener" target="_blank">tweet</a> from Kamino.</p>
<p dir="ltr">This system is also applicable for activities beyond Kamino and boosts actions taken on other Solana protocols, or assets like NFTs, LP tokens available in users’ wallets.</p>
<h3 dir="ltr">How to Earn Kamino Points?</h3>
<p dir="ltr">Users can earn Kamino Points by actively participating on Kamino platform in these ways: </p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">By providing liquidity to eligible pools. The greater the liquidity contribution, the higher would be Kamino Points rewards.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">By engaging in trading activities within Kamino finance that are based on their trading volume. Kamino incentivizes active participation and contributes to the overall liquidity of the platform.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">By participating in yield farming programs. Users can earn extra Kamino Points by staking LP tokens or Kamino Points in specified farms.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">By actively engaging in governance decisions, users can earn Kamino Points as a reward for their contribution.</p>
</li>
</ol>
<p dir="ltr">Users can check how much Kamino Points they’ve earned <a href="https://app.kamino.finance/points" rel="nofollow noopener" target="_blank">here</a>.</p>
<p dir="ltr">Note that KMNO will be distributed via multiple airdrops across several months in late Q1 or early Q2 2024, with the first one slated for <a href="https://www.coindesk.com/business/2024/03/07/solana-defi-protocol-kamino-sets-kmno-token-airdrop-for-april/" rel="nofollow noopener" target="_blank">April</a>.</p>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">Kamino Finance has emerged as a promising dApp on the Solana blockchain. Providing liquidity in DeFi can be complex, especially when considering the best strategies to maximize returns and minimize risks like impermanent loss. Kamino Finance simplifies this process by offering automated tools and strategies.</p>
<p dir="ltr">Over the years, DeFi has evolved to offer more than just simple trading and liquidity provision. Kamino’s integration of lending and leverage within the same platform empowers users with more financial tools and strategies.</p>
<p dir="ltr">Additionally, incentive mechanisms like Kamino Points foster user engagement and loyalty, which is essential for the growth and sustainability of any DeFi platform.</p>
Sankrit Khttps://www.coingecko.com/learn/what-is-kamino-finance-kmnoWhat Is Kamino Finance?
Kamino Finance is a Solana-based concentrated liquidity management tool that integrates lending, liquidity, and leverage into a unified DeFi product suite. This allows us...tag:www.coingecko.com,2005:Post/12602024-03-11T12:05:00Z2024-03-11T04:36:46ZDevelopers' Guide: Build an Interactive Crypto Price Tracker with React JS<p><meta charset="utf-8">In this guide, we’ll harness the capabilities of React JS and leverage the <a href="https://www.coingecko.com/en/api?utm_campaign=learn&utm_content=crypto-price-tracker-react" target="_blank">CoinGecko API</a> to create a dynamic and feature-rich cryptocurrency price tracker. This tool will allow you to monitor real-time prices of your favorite digital assets and visualize their historical performance.</p>
<p dir="ltr">But why choose React JS over traditional spreadsheet solutions like Google Sheets or Excel? Let’s explore some compelling reasons:</p>
<ol dir="ltr">
<li role="presentation">
<strong>Dynamic Content Rendering: </strong>Unlike static spreadsheets, React JS enables dynamic content rendering – crypto price data will automatically update and provide real-time insights without the need to manually refresh or rely on external plugins.</li>
<li role="presentation">
<strong>Interactive Charts and Graphs: </strong>React JS allows you to integrate interactive charts, graphs, and visualizations seamlessly – whether it’s candlestick charts, line graphs, or pie charts, your price tracker will come alive with rich features that enhance your understanding of market trends.</li>
<li role="presentation">
<strong>Automation and Integration: </strong>React JS applications effortlessly integrate with APIs and external data sources, streamlining the process and makes it entirely automated, saving you time and effort.</li>
</ol>
<p dir="ltr">With that, let’s get started!</p>
<hr>
<h2 dir="ltr"><img alt="how to build a crypto portfolio tracker made with React JS" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9689/content_Build_a_Crypto_Portfolio_Tracker_with_React_JS_%281%29.webp" style="width: 1200px; height: 600px;"></h2>
<h2>Prerequisites</h2>
<p dir="ltr">To follow along, be sure to have the following installed:</p>
<ul dir="ltr">
<li role="presentation">
<strong>CoinGecko API:</strong> We will be using the <a href="https://www.coingecko.com/en/api?utm_campaign=learn&utm_content=crypto-price-tracker-react" target="_blank">CoinGecko API</a> to fetch the market chart data for cryptocurrencies. The CoinGecko API has a free Demo plan accessible to all users with a 30 calls/min rate limit and a monthly cap of 10,000 calls. Sign up for a CoinGecko account and apply for the Demo plan to generate your complimentary API key.</li>
<li role="presentation">
<strong>Node.js and npm: </strong>Node.js is a JavaScript runtime that allows you to run JavaScript on your server or your computer. npm is a package manager for Node.js. You can download both from the official <a href="https://nodejs.org/en" target="_blank">Node.js</a> website.</li>
<li role="presentation">
<strong>Text Editor or IDE: </strong>You will need a text editor or an Integrated Development Environment (IDE) to write your code. Some popular choices include Sublime Text, Atom, Visual Studio Code, and PyCharm. I will be using <a href="https://code.visualstudio.com/" target="_blank">Visual Studio Code</a> as the IDE, which is smart, fast and customizable IDE available in the market.</li>
</ul>
<hr>
<h3 dir="ltr">Set Up Your Project</h3>
<p dir="ltr">Create a new React project using create-react-app:</p>
<p dir="ltr"><code>npx create-react-app crypto-tracker<br>
cd crypto-tracker</code></p>
<p><img alt="Create a new React project using create-react-app:" loading="lazy" src="https://lh7-us.googleusercontent.com/dOqY2tarM6744fNWw9wkfkS02_90pqjAxvWRbF68WpdMQtGfjx8mFm8aP9KNL1maQTpkgJmYJTxTiv7A7Ywpp4NeSxn72R_3M9rSjjTj-92DYO4CgjAhRFesHWwXrFPMSXVcEx2FMrp-q9_OMfNheJE"></p>
<h3 dir="ltr">Install Required Libraries</h3>
<p dir="ltr">Our application will use several libraries:</p>
<ul dir="ltr">
<li role="presentation">
<strong>axios</strong>: A promise-based HTTP client for making requests to our API.</li>
<li role="presentation">
<strong>recharts</strong>: A charting library built on React components, for visualizing our data.</li>
<li role="presentation">
<strong>react-datepicker</strong>: A date picker component for React, for selecting the date range of our historical data.</li>
</ul>
<p dir="ltr">To install these libraries, navigate to your project directory in your terminal and run the following commands:</p>
<p dir="ltr"><code>npm install axios recharts react-datepicker</code></p>
<p><img alt="npm install axios recharts react-datepicker" loading="lazy" src="https://lh7-us.googleusercontent.com/qz39vKCYp6a78N81UdzeMEwvdZZyQHjFYWm9quIywM56ZVOy7jCBjHnEVlWwmtJqfXY-y9IZOhg_GpmdDBT96iScKwXG1lUJ0LcjclhdDa6c25dVXxNy6qAtkGZfKBzCuIXvE1_WjQCqiK2BH1GaCmY"></p>
<p dir="ltr">This will install the libraries and add them to your package.json file.</p>
<div dir="ltr" style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;"><em><strong>💡Pro-tip: </strong>Remember to replace the API key placeholder with your own CoinGecko API key before running the application.</em></div>
<p dir="ltr"> </p>
<h2 dir="ltr">Interactive Crypto Price Tracker - Complete Code in React JS</h2>
<p dir="ltr">The following is our complete code for the crypto price tracker, written in React JS, a popular JavaScript library for building user interfaces. The app.js file, which we’ll delve into, is the heart of our application. It contains the main components and the logic that ties everything together.</p>
<p><script src="https://gist.github.com/rollendxavier/d384ca9a1f299f507687c09056ea775a.js"></script></p>
<p>For a detailed view of the code, please refer to the provided GitHub repository: <a href="https://github.com/rollendxavier/crypto-portfolio-tracker-react" target="_blank">https://github.com/rollendxavier/crypto-portfolio-tracker-react</a></p>
<p dir="ltr">While the code may seem complex at first glance, don’t worry! We’ll unpack it in the following sections.</p>
<h3 dir="ltr">1. Importing Libraries and Styles</h3>
<p dir="ltr">First, we import the necessary libraries and styles.</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/4e1197fbc62d572856b5e88b24b190a9.js"></script></p>
<p dir="ltr">We’re importing React, <code>useState, useEffect,</code> and <code>useMemo </code>from the react library. <code>useState</code>, <code>useEffect</code>, and <code>useMemo </code>are hooks that allow us to use state and other React features in functional components. We’re also importing axios for making HTTP requests, several components from recharts for creating our line and pie charts, and DatePicker for our date picker component. </p>
<p dir="ltr">Lastly, we’re importing NewsTicker from our local components for displaying news updates. Finally, we’re importing the CSS for <code>react-datepicker</code> and our own custom CSS.</p>
<h3 dir="ltr">2. The CoinDetails Component</h3>
<p dir="ltr">The CoinDetails component displays the details of a selected coin.</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/e842d7a9b2dde5857e44bbc35554d390.js"></script></p>
<p dir="ltr">This component receives a coin object and a history array as props. The coin object contains the details of the selected coin, and the history array contains the historical price data of the coin. The chartData constant is created by mapping over the history array and transforming each data point into an object with date and price properties. This data is then used to create a line chart using the LineChart component from recharts. </p>
<p dir="ltr">The <code>priceChangeColor </code>constant is determined based on whether the 24-hour price change is less than 0, which would make it red, otherwise, it's green. This color is used to visually indicate whether the price has increased or decreased. The component returns a div containing the coin's name and symbol, the price change percentage, the current price, and the line chart of the historical data.</p>
<h3 dir="ltr">3. The App Component</h3>
<p dir="ltr">The App component is the main component of our application.</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/1e09dad8b1009de37be94124cc6e41d8.js"></script></p>
<p dir="ltr">In the App function, we’re using several state variables:</p>
<ul dir="ltr">
<li role="presentation">
<code>coins </code>is an array that will hold the list of all coins fetched from the API.</li>
<li role="presentation">
<code>selectedCoin </code>is an object that will hold the details of the currently selected coin.</li>
<li role="presentation">
<code>history </code>is an array that will hold the historical price data of the selected coin.</li>
<li role="presentation">
<code>loading </code>is a boolean that indicates whether the data is currently being fetched from the API.</li>
<li role="presentation">
<code>startDate </code>and <code>endDate </code>are date objects that represent the selected date range for the historical data.</li>
<li role="presentation">
<code>api_key </code>is a string that holds your CoinGecko API key.</li>
</ul>
<p dir="ltr">Additionally, we’re using the <code>useState </code>hook from React to manage these state variables. Each state variable has a corresponding setter function (like <code>setCoins </code>for coins) that we can use to update its value. The initial value of each state variable is set in the call to <code>useState</code>.</p>
<h3 dir="ltr">4. Fetching the Coin Data</h3>
<p dir="ltr">We use the <code>useEffect </code>hook to fetch the coin data from the API when the component mounts:</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/4e77c96addf4136f41068860d2306888.js"></script></p>
<p>We’re making a <code>GET </code>request to the <code>/coins/markets</code> endpoint of the CoinGecko API. The <code>vs_currency=usd</code> query parameter specifies that we want the coin prices in USD. The<strong> </strong><code>ids </code>query parameter is used to specify the ids of the coins we’re interested in, which are obtained by mapping over the holdings array and joining the ids with commas. The headers option is used to pass our API key in the request headers. When the response is received, we map over the holdings array, and for each holding, we find the corresponding coin in the response data. We then return a new object that spreads the properties of the holding and adds the <code>name, current_price, price_change_24h,</code> and <code>price_change_percentage_24h</code> from the coin data. The result is an array of updated holdings, which we set as the new value for the coins state. We also set loading to false to indicate that the data has been fetched. If an error occurs during the fetch, we log the error message to the console.</p>
<h3 dir="ltr">5. Handling Coin Selection</h3>
<p dir="ltr">The handleCoinSelect function is called when a coin is selected from the dropdown:</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/7fe9e8af1176c0f2917d8c179bb0aed9.js"></script></p>
<p dir="ltr">The<code> handleCoinSelect</code> function receives the id of the selected coin. It finds the coin in the coins array and sets it as the <code>selectedCoin</code>. It then sets loading to true to indicate that data is being fetched.</p>
<p dir="ltr">The function fetches the historical price data for the selected coin for the last 5 years. It does this by making a <code>GET</code> request to the /coins/{id}/history endpoint of the CoinGecko API for each year. The date query parameter is used to specify the date for which we want the historical data. The date is formatted and decremented by one year in each iteration of the loop.</p>
<p dir="ltr">Each <code>GET</code> request returns a promise that resolves to an array containing the timestamp of the formatted date and the USD price of the coin at that date. If an error occurs during the fetch, the promise resolves to an array containing the timestamp of the formatted date and 0 as a default value. These promises are stored in the promises array.</p>
<p dir="ltr"><code>Promise.all</code> is used to wait for all the promises in the promises array to be resolved. The resolved values form the history array, which is set as the new value for the history state. Finally, loading is set to false to indicate that the data has been fetched.</p>
<h3 dir="ltr">6. News Component</h3>
<p dir="ltr">Let's break down the News.js component.</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/409eb0022d474296557f74aa1b5d342e.js"></script></p>
<p dir="ltr">The NewsTicker component in React is designed to fetch and display cryptocurrency news. It uses the <code>useState</code> hook to manage the state of the news data, loading status, and any errors. When the component is first rendered, the <code>useEffect </code>hook triggers a GET request to the NewsAPI.</p>
<p dir="ltr">If the request is successful, the news articles from the response are stored in the news state variable, and isLoading is set to false. If an error occurs, the error message is stored in the error state variable and isLoading is also set to false.</p>
<p dir="ltr">The component’s return statement handles three scenarios:</p>
<ol dir="ltr">
<li role="presentation">If <code>isLoading </code>is true, a loading message is displayed.</li>
<li role="presentation">If there’s an error (i.e., error is not null), the error message is displayed.</li>
<li role="presentation">If the news data has been successfully fetched, a Marquee component is returned. This component displays the news articles in a marquee slider. Each article is represented as a link that opens in a new tab and displays the article’s description and published date.</li>
</ol>
<h3 dir="ltr">7. The CSS Component</h3>
<p dir="ltr">This CSS code styles a cryptocurrency app. It sets global styles like font and specific styles for classes like <code>.App, .news-ticker, </code>and <code>.coin-details</code>. It also styles elements within these classes, like <code>h1</code> and <code>p</code> within <code>.news-ticker</code>. Additionally, it styles tables and forms elements like select and <code>.ReactDatePicker</code> input. The styles include layout, colors, typography, and interactive states like hover.</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/590443d1061c1d87c22c8caf305ac9a4.js"></script></p>
<h3 dir="ltr">8. Rendering the Component</h3>
<p dir="ltr">Finally, we render the component:</p>
<p dir="ltr"><script src="https://gist.github.com/rollendxavier/3ef9743f57457ec255bd0efb48c75df9.js"></script></p>
<hr>
<h2 dir="ltr">Running Your React Application in VSCode</h2>
<p dir="ltr">Here are the steps to run your React application in Visual Studio Code (VSCode):</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Open the Terminal in VSCode: </strong>You can open the terminal by going to View > Terminal, or by using the shortcut `Ctrl + ``.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Start the Application: </strong>Once all dependencies are installed, you can start your application by running:</p>
</li>
</ol>
<p dir="ltr" style="margin-left: 40px;"><code>npm start</code></p>
<p dir="ltr">Our application should now be running and accessible at http://localhost:3000 (unless you’ve configured a different port).</p>
<p dir="ltr"><img loading="lazy" src="https://lh7-us.googleusercontent.com/C3_R1q6aEhuj8B683ZTIgPg_xwuTEtwyyl8ifgwg40qHVrgK6ivLckP9q36EyUBr59NWV_fnBWLnhxR3Da81r0QC0w9vUUxYRFK2XAY6R8GObJ80nKmBHSf-TzfEJOSCGZyLWIEa3GSVqdNJDMn8ElM"></p>
<p dir="ltr">The cryptocurrency dashboard builds a user-friendly interface comprising of three key elements:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>News Ticker: </strong>The NewsTicker component fetches and displays cryptocurrency news. It uses the react-marquee-slider package to create a scrolling news ticker. The news data is fetched from the NewsAPI and each news item is displayed as a clickable link that opens in a new tab.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Portfolio Tracker:</strong> This section provides an overview of the user’s cryptocurrency holdings. It displays a pie chart showing the distribution of the user’s holdings across different cryptocurrencies. It also includes a table listing each cryptocurrency the user owns, the amount they own, the current value of their holdings, and the 24-hour price change. The total value of the user’s portfolio, the return on investment (ROI), and the profit and loss (P&L) are also calculated and displayed.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Trends:</strong> This section allows the user to select a specific cryptocurrency and view its price trends over a specified date range. The user can select a cryptocurrency from a dropdown menu and specify the date range using two date pickers. Once a cryptocurrency and date range is selected, the CoinDetails component fetches and displays the historical price data for the selected cryptocurrency. The data is displayed as a line chart, with the date on the x-axis and the price on the y-axis.</p>
</li>
</ol>
<h3 dir="ltr"><img alt="Crypto Portfolio Tracker with React JS | CoinGecko API" loading="lazy" src="https://lh7-us.googleusercontent.com/jMmsbogDHBLZE1vwTwIAMro9jzTyw5CzrIQj0LKL6qOZNx0kEhEYvUroGnlIAUEZ_-asOID_zLZNrgAtpCC5whAQv1Dj3jRggGX7GqA7ijsD2GIBcB6Bt1QzxT1QpFzwx1nJndbruOHSNtMKUdVn3sc" style="width: 1200px; height: 570px;"></h3>
<h3 dir="ltr">Dynamic Loading</h3>
<p dir="ltr">While you interact with the app, behind the scenes, a "loading message" might appear briefly. This simply indicates that the application is diligently fetching data from the CoinGecko API or processing your selections. Once everything is ready, the relevant information and visualizations seamlessly populate your screen, allowing you to delve into your chosen cryptocurrency's performance.</p>
<p dir="ltr"><img alt="Line chart showing the price fluctuations of Ethereum" loading="lazy" src="https://lh7-us.googleusercontent.com/SOmvQ_M84FKB9vyurOcQnQSBcx_fqmdrlfKssCU9CkKERNBAxtX-WKwIE07y-D1dwCRvfDWx0kyCSDyNNfd6ya1apVryDJwSaI_0ClErIIqum4isPZ_ozPesTQULWMEJuem7ibALuehwmX1-EMwswZI" style="height: 867px; width: 1200px;"></p>
<p dir="ltr">The price chart shows the fluctuations of <a href="https://www.coingecko.com/en/coins/ethereum/?utm_campaign=learn&utm_content=crypto-price-tracker-react" target="_blank">Ethereum’s (ETH) price</a> over a selected time period. The chart captures both current and historical data, providing a comprehensive view of ETH price trends. The <em>x-axis</em> denotes time, and the <em>y-axis</em> denotes the price in USD. The line’s peaks and troughs represent the highs and lows of ETH respectively during the selected time range.</p>
<p dir="ltr">Additionally, there is a performance indicator for the last 24 hours with the price change. If the performance is positive, the indicator is green, and if it’s negative, the indicator is red. The chart provides a visual representation of ETH market performance.</p>
<h2 dir="ltr">Advanced Functionalities and Useful Endpoints</h2>
<p dir="ltr">While this guide covers only basic crypto tracker development, developers who might want to expand tracker functionalities can consider the following:</p>
<ul dir="ltr">
<li role="presentation">
<strong>Crypto Market Data</strong>: Provide the user with various market data such as market cap, volume, liquidity, dominance, and sentiment on the dashboard using the `<strong>/global</strong>` and `<strong>/coins/markets</strong>` endpoints.</li>
<li role="presentation">
<strong>Crypto Asset Tracking</strong>: Implement functionality to track a wider range of crypto assets. This could involve integrating with CoinGecko's `<strong>/coins/list</strong>` endpoint to fetch a comprehensive list of all available cryptocurrencies.</li>
<li role="presentation">
<strong>Real-Time Price Updates</strong>: Allow users to receive real-time price updates for their specified crypto assets. This would involve interacting with the `<strong>/simple/price</strong>` endpoint.</li>
<li role="presentation">
<strong>Historical Data Analysis</strong>: Expand the tracker to provide historical price data for different crypto assets. This would allow users to analyze price trends over time using the `<strong>/coins/{id}/history</strong>` endpoint.</li>
<li role="presentation">
<strong>Portfolio Analytics</strong>: Gain insights with <strong>/portfolio/overview</strong> to track performance, diversification, and risk.</li>
</ul>
<p dir="ltr">Developers can consider these endpoints to set up customizable alerts:</p>
<ul dir="ltr">
<li role="presentation">
<strong>Price Alerts</strong>: Set thresholds for specific coins using `<strong>/simple/price</strong>` to trigger alerts, and notify the user when the price of a crypto asset reaches a certain level and display it on the dashboard using the `/simple/price` endpoint.</li>
<li role="presentation">
<strong>Volatility Triggers</strong>: Get notified about significant price movements with `<strong>/coins/markets/chart</strong> `<strong> </strong>data analysis.</li>
<li role="presentation">
<strong>News, Trends & Sentiment</strong>: Integrate `<strong>/search/trending</strong>` and social media analysis for sentiment-based alerts, and display the latest news, trending coins, and popular categories from the crypto space on the dashboard using the `<strong>/search/trending</strong>` and `<strong>/coins/categories/list</strong>` endpoints.</li>
</ul>
<p dir="ltr">You can also use a library like Plotly or Dash to <a href="https://www.coingecko.com/learn/interactive-nft-price-tracker/?utm_campaign=learn&utm_content=crypto-price-tracker-react">create interactive charts</a> and graphs for your dashboard.</p>
<div dir="ltr" style="background:#eeeeee;border:1px solid #cccccc;padding:5px 10px;"><em><strong>💡Pro-tip: </strong>Developing advanced features require familiarizing yourself with the <a href="http://docs.coingecko.com/reference/introduction/?utm_campaign=learn&utm_content=crypto-price-tracker-react">API documentation</a>, understanding the various endpoints you’ll be interacting with, and the specific data each endpoint provides. Always prioritize the accuracy of your tracker's data and adhere to best practices in the crypto industry.</em></div>
<p dir="ltr"> </p>
<h3 dir="ltr">Common Issues: Browser’s Security Policies and CORS</h3>
<p dir="ltr">When making requests directly from a web browser, such as in a React app, the browser enforces certain security policies that don’t apply when making requests from a command line tool like curl or from a server-side script. This can lead to issues when interacting with APIs that are not set up to support CORS (Cross-Origin Resource Sharing) requests from your app’s origin.</p>
<h4 dir="ltr">Solution: Setting Up a Server-Side Proxy</h4>
<p dir="ltr">To resolve this issue, you can set up a server-side proxy. This involves setting up a server that makes the API requests on behalf of your React app. The React app makes requests to the proxy server, which then makes requests to the API. The proxy server can add the necessary headers to the responses to satisfy the browser’s security policies.</p>
<p dir="ltr">Here are the steps to set up a server-side proxy using Express.js:</p>
<ol>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Install Node.js and Express.js</strong>: First, ensure that Node.js is installed on your machine. Then, create a new directory for your application, initialize a new Node.js application, and install Express.<br>
<code>mkdir myapp</code><br>
<code>cd myapp</code><br>
<code>npm init -y</code><br>
<code>npm install express</code></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Create Your Server File</strong>: Create a new file in your application directory, such as app.js, and start writing your Express.js application. Here’s a basic example of a proxy server setup: <script src="https://gist.github.com/rollendxavier/07c9c85a854acbb3eb0a9df10a8a64f3.js"></script></p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation"><strong>Run Your Express.js Application</strong>: Start your Express.js application by running node app.js in your terminal. You should see the message “App is listening on port 3001” in your console.<br>
In your React app, you would then make requests to your proxy server instead of directly to the API:<br>
<code>axios.get(`http://localhost:3001/api/v3/coins/${id}/history?date=${formattedDate}`)</code></p>
</li>
</ol>
<p dir="ltr">Please note that this is a simplified example and might need to be adjusted based on your specific requirements. Also, remember to replace ‘<code>YOUR_API_KEY’</code> with your actual API key.</p>
<p dir="ltr"><a href="https://www.coingecko.com/en/api/pricing/?utm_campaign=learn&utm_content=crypto-price-tracker-react" target="_blank"><img alt="Subscribe to a pro API plan - CoinGecko API" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9686/content_CoinGecko_Sign_Up_CTA_-_updated_March_2025.webp" style="width: 1200px; height: 574px;"></a></p>
<hr>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">And there you have it – you’ve built a comprehensive cryptocurrency price tracker using React JS and the CoinGecko API. Not only does it allow you to monitor real-time prices of your favorite cryptocurrencies but also visualize their historical data. With the skills you’ve learned in this guide, you’re well on your way to creating even more complex and useful applications. Happy coding!</p>
<p dir="ltr"><em>Getting inspiration for other use-cases of our API? Check out this low-code tutorial that walks through how to build an <a href="https://www.coingecko.com/learn/ai-crypto-chatbot/?utm_campaign=learn&utm_content=crypto-price-tracker-react" target="_blank">artificial intelligence crypto chatbot</a>.</em></p>
Rollend Xavierhttps://www.coingecko.com/learn/crypto-price-tracker-reactIn this guide, we’ll harness the capabilities of React JS and leverage the CoinGecko API to create a dynamic and feature-rich cryptocurrency price tracker. This tool will allow you to monitor real-...tag:www.coingecko.com,2005:Post/12582024-03-08T17:00:12Z2024-03-08T09:14:40ZEthereum Momentum: Awaiting ETF Approval<div dir="ltr"><img alt="Ethereum Momentum Ethereum ETF" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9665/content_ethereum.webp" style="width: 950px; height: 475px;"></div>
<p dir="ltr">Ethereum is one of the key assets in the modern cryptocurrency world. Having evolved beyond its origins as a niche interest for developers and individual investors, it is now a pivotal element in institutional investment portfolios. Ethereum's transition is propelled by its innovative features – smart contracts, decentralized finance (DeFi) applications, and non-fungible tokens (NFTs), which expand its financial utility. What is particularly noteworthy nowadays is the anticipated introduction of Ethereum-based Exchange Traded Funds (ETFs) that should inject new liquidity and accessibility into the market, attracting institutional investors seeking regulated exposure to Ethereum's value.</p>
<p dir="ltr">In the forthcoming article, <a href="https://fbs.com/?utm_source=finanalysts&utm_medium=coingecko&utm_campaign=etf" target="_blank">FBS</a> Financial Market Analysts explore the strategic trading opportunities arising from the speculative buzz around Ethereum ETFs and its increased institutional adoption, as well as offer insights into navigating the evolving market landscape.</p>
<h2 dir="ltr">The Rise of Institutional Interest in Ethereum</h2>
<p dir="ltr">The growing institutional interest in Ethereum, particularly following the Merge, is expected to solidify its position as a leader in the digital asset category. This interest is driven by Ethereum's economic transition, scalability roadmap, and the vibrant ecosystem built on it. Bernstein's research highlights Ethereum's leading market capitalization, and liquidity as key factors attracting institutional investors.</p>
<p dir="ltr">Analysts suggest several factors that should significantly solidify Ethereum's potential in 2024. First, the possibility of BlackRock’s spot ETF being approved in the US may enhance Ethereum's mainstream adoption and price. Additionally, global regulatory changes, particularly those impacting the DeFi and NFT sectors, are expected to be crucial in shaping Ethereum's price dynamics. Growing institutional investments, alongside the expansion of the DeFi ecosystem, can potentially drive demand and price for Ethereum, with macroeconomic factors also indirectly influencing its value.</p>
<div dir="ltr"><span style="font-size:11px;"><img alt="Market Share of top NFT chains" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9663/content_Market_Share_of_top_NFT_chains.webp" style="width: 800px; height: 703px;"></span></div>
<div dir="ltr"><span style="font-size:11px;">Source: CoinGecko.com, CoinGecko 2023 Crypto Industry Report.</span></div>
<p dir="ltr">Experts from JPMorgan <a href="https://markets.businessinsider.com/news/currencies/ethereum-outlook-bitcoin-price-btc-crypto-market-etf-approval-mining-2023-12" rel="nofollow noopener" target="_blank">predict</a> Ethereum to outperform Bitcoin, backed by updates that improve transaction efficiency. Despite challenges from competing networks such as Solana and Cardano, Ethereum's technological foundation and institutional acceptance give it a potential market leadership position. The Shanghai upgrade and transition to Proof-of-Stake are highlighted as pivotal moments that have strengthened Ethereum's infrastructure and set the stage for 2024.</p>
<h3 dir="ltr">Shanghai Upgrade:</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">ETH Staking Withdrawals: Enabled the withdrawal of staked ETH, increasing liquidity;</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Improved Scalability: Enhanced network throughput and performance.</p>
</li>
</ul>
<h3 dir="ltr">Transition to Proof-of-Stake:</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Energy Efficiency: Made Ethereum more eco-friendly by reducing its carbon footprint;</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Increased Security: Enhanced overall network security, making 51% of attacks less feasible;</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Greater Decentralization: Allowed for broader participation in network security through staking;</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Higher Transaction Throughput: Promised to boost transaction capacity significantly.</p>
</li>
</ul>
<p dir="ltr">The institutional interest in Ethereum is not just speculative. It is backed by tangible upgrades and a solidifying ecosystem that promises to enhance its utility and appeal to a broader range of users and investors. Ethereum laid the groundwork for smart contracts, and despite its slower rise in comparison to the newer chains, institutions still perceive it as a stable and highly valuable instrument for the industry. As Ethereum continues to evolve, its ability to attract institutional investment, while navigating regulatory and competitive challenges will be crucial in determining its future market position and value. </p>
<h2 dir="ltr">The Path to Ethereum ETFs</h2>
<p dir="ltr">The path to Ethereum ETFs is marked by significant anticipation and regulatory scrutiny. As of early 2024, the landscape for Ether is becoming increasingly optimistic, with several developments suggesting a potential breakthrough in regulatory approval.</p>
<p dir="ltr">The US Securities and Exchange Commission (SEC) has set deadlines for approving several Ethereum ETF applications, with notable dates spanning from May to August 2024. The expectation of Ethereum ETFs' approval is grounded in the SEC's recent history of approving over ten spot Bitcoin ETFs, which has opened the door for other cryptocurrencies like Ethereum. The final deadline for the first wave of Ethereum ETF applications is anticipated to be May 23, 2024, with the industry eagerly awaiting the SEC's decision.</p>
<p dir="ltr">Moreover, Grayscale Investments, a major player in the digital asset space, has filed to convert its Ethereum Trust into a spot Ether ETF. This move, along with applications from other entities like Hashdex and a collaboration between Invesco and Galaxy Digital, demonstrates the growing interest and optimism surrounding the potential approval of ETFs. These applications encompass a variety of strategies, including spot Ether funds and ETFs that might integrate both spot holdings and futures contracts.</p>
<p dir="ltr">Some industry observers see the approval of Ether ETFs as a near certainty, given the SEC's implicit acceptance of Ether as a commodity through the approval of Ethereum futures ETFs. Analysts are optimistic about the transformative effect approved Ethereum ETFs could have on the market, potentially driving Ethereum's growth and institutional adoption in 2024.</p>
<p dir="ltr"><strong>FBS analysts summarize the reasons to be optimistic about Ethereum ETF approval:</strong></p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">SEC precedent: Bitcoin ETF approval sets a positive precedent.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Industry Support: Applications from major players such as Grayscale and others.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Diverse strategies: Offerings include both spot and futures ETFs.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Commodity status: The SEC has implicitly recognized Ether as a commodity.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Market Impact: Potential for significant market growth and institutional adoption.</p>
</li>
</ul>
<p dir="ltr">What about the difficulty? Despite the optimism, challenges such as liquidity concerns and the SEC's historical hesitance towards cryptocurrency products may obstruct the approval process. However, the industry is hopeful that the precedent set by Bitcoin ETF approvals and the changing regulatory landscape will pave the way for Ethereum ETFs. </p>
<p dir="ltr">The SEC's process for evaluating Ethereum ETF proposals involves meticulous scrutiny, which can extend up to 240 days through several delay periods. This extended timeline reflects the regulatory body's cautious approach towards integrating cryptocurrency products into mainstream financial markets. </p>
<p dir="ltr">Additionally, industry viewpoints vary significantly, with some analysts expressing optimism about eventual approval, while others, including prominent figures in the investment community, see a less than 50% chance of success, citing a potentially hostile regulatory environment for cryptocurrencies. This mix of cautious optimism and skepticism highlights the uncertain path Ethereum ETFs face in gaining regulatory approval.</p>
<h2 dir="ltr">FBS Perspective on Сhallenges and Opportunities for Ethereum</h2>
<p dir="ltr">In the given context, FBS financial market analysts point that the blockchain's shift towards Proof-of-Stake with the Shanghai upgrade marks a pivotal step towards sustainability, significantly slashing its energy consumption and setting a new standard for environmental responsibility within the crypto space. This transition addresses long-standing concerns over energy usage and underscores Ethereum's commitment to a greener blockchain ecosystem.</p>
<p dir="ltr">However, the FBS team believes this evolution brings challenges, particularly around the technical and security enhancements required to bolster Ethereum's scalability and user experience. The move to PoS has sparked debates over the potential for centralization, given the concentration of staking power among a few large entities. This raises questions about the influence these entities could wield over the network's decision-making processes, potentially straying from the decentralized ethos that Ethereum champions.</p>
<p dir="ltr">Adding to Ethereum's list of challenges is the stiff competition from other blockchains, notably Solana. Positioned as a high-performance execution engine emphasizing speed and efficiency, Solana represents a formidable rival, challenging Ethereum's dominance in the blockchain ecosystem. This rivalry highlights the competitive landscape of blockchain technology, where innovations and enhancements can significantly shift market positions.</p>
<p dir="ltr">Despite these hurdles, Ethereum stands on the brink of significant opportunities that could propel it to new heights. The anticipated approval of Ethereum ETFs in May 2024 is a milestone event poised to drive institutional adoption and enhance liquidity. Such regulatory advancements could strengthen Ethereum's market position and widen its investor base, bringing a new era of growth and expansion.</p>
<p dir="ltr">Technological advancements remain at the heart of Ethereum's potential, with ongoing upgrades like roll-up technology and the implementation of EIP-4844 poised to increase the network's transaction capacity dramatically. These innovations are critical for maintaining Ethereum's competitiveness, addressing scalability concerns, and improving the network's overall efficiency.</p>
<p dir="ltr">From the FBS’s analysts perspective, Ethereum's journey towards sustainability and its efforts to align with its foundational ideals, including decentralization and fostered ecosystem for decentralized applications (DApps), continue to shape its path forward. The FBS team particularly highlights scalability, security, and privacy enhancements as the main factors enriching the user experience and attracting new projects and developers to the platform.</p>
<p dir="ltr"><strong>ETHUSD, Weekly Timeframe</strong></p>
<div dir="ltr"><img alt="ETHUSD, Weekly Timeframe" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9664/content_ETHUSD__Weekly_Timeframe.webp" style="width: 950px; height: 534px;"></div>
<div dir="ltr"><span style="font-size:11px;">Source: FBS</span></div>
<p dir="ltr">Looking at the technical analysis of the ETHUSD pair, FBS analysts point out multiple similarities between Ether's current trajectory and its main competitor Bitcoin. Might Ether overcome the resistance area of $3,400, it could possibly grow to the level of $4,000, and if this level is crossed, further growth to the level of $4,800 by the end of the year. On the flipside however, a correction is also possible with key support levels at $3,400 and $2,900.</p>
<p dir="ltr">In the FBS analysts’ view, Ethereum's progression into 2024 is marked by a delicate balance between overcoming its challenges and seizing the opportunities. Its ability to navigate this landscape will be crucial in determining its role in the future of blockchain and decentralized finance.</p>
<h2 dir="ltr">Trading Strategies for Ethereum's Evolving Landscape</h2>
<p dir="ltr">With the rapidly evolving landscape of Ethereum and the crypto market, the potential approval of Ether ETFs in May 2024 is creating a buzz among traders and investors. The SEC's recent move to approve over ten spot Bitcoin ETFs has set a precedent that could extend to Ethereum, offering a new canvas for trading strategies.</p>
<p dir="ltr">Franklin Templeton and VanEck are among the firms that have submitted applications for spot Ethereum ETFs. The approval of these ETFs could mirror the Bitcoin ETF approval's effect on the market, potentially leading to a surge in Ethereum's price leading up to the decision date. However, the outcome of Bitcoin ETFs, which saw a sharp price increase followed by a sell-off, suggests a cautious approach for Ethereum traders.</p>
<p dir="ltr">For traders looking to navigate Ethereum's evolving landscape, <a href="https://fbs.com/?utm_source=finanalysts&utm_medium=coingecko&utm_campaign=etf" target="_blank">FBS</a> financial markets analysts point out several strategies that could be employed:</p>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Volatility Management: Given the potential for increased volatility around the ETF approval date, strategies such as dynamic hedging and dollar-cost averaging could be beneficial.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Using Market Sentiment: Understanding and exploiting market sentiment is very important, especially in a market influenced by speculation about institutional adoption and approval of ETFs.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Analysis tools: Using artificial intelligence and machine learning tools to analyze social media, news outlets, and other sources for sentiment indicators. Using AI for market analysis or resorting to algo-trading would also be a good idea.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Contrarian Investing: Considering positions against the market consensus when sentiment analysis suggests extremes of optimism or pessimism, which may indicate market turning points. Buy the rumor, sell the fact</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Timing Regulatory Decisions: Staying informed on regulatory developments will be crucial. The timing of trades around the expected decision date for ETF approvals could capitalize on market movements. Strategically timing trades around ETF regulatory decisions allows investors to capitalize on market volatility triggered by anticipation and reaction to such news.</p>
</li>
</ul>
<p dir="ltr">Flexibility and a keen eye on market sentiment and regulatory developments are key to capitalizing on Ethereum's evolving landscape. A well-considered approach incorporating volatility management, strategic timing, and risk diversification will be essential for traders looking to navigate these waters effectively.</p>
<h2 dir="ltr">Key Conclusions from FBS</h2>
<p dir="ltr">As 2024 unfolds, Ethereum is poised on the brink of transformative growth, driven by advancements and speculative momentum. The anticipation surrounding Ethereum ETFs, coupled with the network's significant technological strides, such as the Shanghai upgrade and transition to Proof-of-Stake, has set the stage for potential market leadership despite the looming shadow of competitors like Solana and Cardano. Simultaneously, Ethereum must address concerns over centralization and manage the delicate balance between innovation and user experience. As Ethereum strides towards a future marked by institutional adoption, environmental sustainability, and a thriving ecosystem of decentralized applications, its ability to adapt and innovate will be crucial in defining its trajectory in a rapidly evolving digital world.</p>
<hr>
<p dir="ltr"><strong>About FBS</strong></p>
<p dir="ltr">FBS is a licensed global broker with over 15 years of experience and more than 90 international awards. FBS is steadily developing as one of the market’s most trusted brokers, with its traders numbering more than 27,000,000 and its partners exceeding 680,000 around the globe. The annual trading volume of FBS clients is over $8.9 trillion. FBS is also the Official Partner of Leicester City Football Club.</p>
CoinGeckohttps://www.coingecko.com/learn/ethereum-momentum-awaiting-etf-approval
Ethereum is one of the key assets in the modern cryptocurrency world. Having evolved beyond its origins as a niche interest for developers and individual investors, it is now a pivotal element ...tag:www.coingecko.com,2005:Post/12552024-03-07T10:55:32Z2024-03-07T08:34:30ZWhat Are Bitcoin Layer 2s and Top Bitcoin Layer 2 Projects<p><meta charset="utf-8"></p>
<h2>What Are Bitcoin Layer 2s?</h2>
<p dir="ltr">Bitcoin Layer 2s are projects that scale the Bitcoin blockchain by developing an execution layer that offers increased throughput by processing transactions off the main chain. Bitcoin Layer 2s use bitcoin as the gas token, and use the Bitcoin blockchain for settlement.</p>
<hr>
<h3 dir="ltr">Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Bitcoin Layer 2 projects attempt to scale the Bitcoin blockchain by developing an execution layer capable of achieving higher throughput and performing more operations than the Bitcoin mainnet.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Bitcoin Layer 2 networks rely on the mainnet for the final settlement of the transactions on their execution layer; this way, they maintain the level of security and decentralization of the mainnet.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Examples of Bitcoin Layer 2 projects include Stacks, Liquid, Merlin network, and Rootstock Infrastructure Framework (RIF).</p>
</li>
</ul>
<hr>
<p dir="ltr"><img alt="What are Bitcoin Layer 2s?" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9666/content_What_are_Bitcoin_Layer_2s_.webp" style="width: 1200px; height: 600px;"></p>
<p dir="ltr">The Bitcoin network is only able to validate seven transactions per second, while this figure may seem paltry, it was in fact, sufficient at the time the technology went live. However, the growing adoption of Bitcoin, with the rise of <a href="https://www.coingecko.com/learn/bitcoin-ordinals-nft" target="_blank">Ordinals</a> and <a href="https://www.coingecko.com/learn/brc-20-tokens" target="_blank">BRC-20 tokens</a>, has increased the demand on the Bitcoin blockchain, overpowering the network’s capabilities in several instances, resulting in spikes in gas fees.</p>
<p dir="ltr">As the Bitcoin blockchain was originally designed mainly for P2P transfer of value, it trails contemporary blockchain designs in throughput but also in application. Regardless, it still maintains its reputation as the most decentralized and secure Proof of Work (PoW) blockchain network. To improve the efficiency and grow the application of the Bitcoin blockchain, Bitcoin Layer 2 projects are proposing technologies that improve these while utilizing the richly decentralized and sufficiently secure Bitcoin network. </p>
<h2 dir="ltr">Bitcoin Layer 2s and How They Work</h2>
<p dir="ltr">A blockchain network is made up of two interconnected layers – the execution layer and the consensus layer. </p>
<p dir="ltr">The execution layer handles the computation of transactions (state change requests) from the blockchain users and the sending of the details of these transactions to the consensus layer. </p>
<p dir="ltr">Meanwhile, the consensus layer runs the consensus algorithm and hosts miners (on PoW) or validators (on PoS) who verify the validation of transactions before approving them. The basis of <a href="https://www.coingecko.com/learn/what-are-layer-2-crypto-protocols" target="_blank">Layer 2</a> projects is the development of an execution layer, separate from that on the mainnet, and also an efficient connection with the consensus layer of the main network.</p>
<p dir="ltr">Bitcoin Layer 2s are off-chain execution environments that compute transactions and submit details of the transactions to the consensus layer of the Bitcoin network. How the different Layer 2 projects achieve this may differ, however, the plain strategy is similar. Each solution strives to create and maintain a relationship with the main network; then create an environment where regular transactions and any other advanced operations can occur, and promptly contract the settlement layer of the main network where due. By submitting transactions for final settlement on the Bitcoin network, Bitcoin Layer 2 networks claim to achieve the same (or close to) level of security and decentralization as the Bitcoin blockchain. </p>
<p dir="ltr">Building a separate execution layer allows them the freedom to employ several technologies (such as rollups) that deliver higher efficiency than the main network. In summary, Bitcoin Layer 2s attempt to scale the Bitcoin blockchain by developing complementary execution layers that settle transactions on the Bitcoin blockchain. This enables them to achieve a higher throughput in addition to undeterred security and decentralization.</p>
<p dir="ltr">The shift from the mainnet also allows Layer 2 projects to create an execution layer that works significantly differently from that of the mainnet. Layer 2 projects can develop execution environments that can run operations that are not possible on the main network,, such as smart contracts, which is especially for a blockchain like Bitcoin. </p>
<p dir="ltr">Bitcoin L2s are becoming more prominent, however, Ethereum L2s are relatively more popular. </p>
<h3 dir="ltr">Bitcoin Layer 2s Vs Ethereum Layer 2s</h3>
<p dir="ltr">The Bitcoin and Ethereum blockchain are both caught up with high demands by a growing user base. However, the Ethereum blockchain supports most contemporary blockchain applications like DeFi, NFTs, and more; this is not the same for the Bitcoin blockchain.</p>
<p dir="ltr">Layer 2 solutions for both networks apply similar strategies. As already explained, each Layer 2 network computes transactions on a separate execution layer and submits the transaction for settlement on the main network immediately or after a specific time interval.</p>
<p dir="ltr">The major difference is the purpose of these Layer 2 projects. Ethereum Layer 2 projects are mainly focused on scaling the network’s efficiency. For Bitcoin Layer 2 projects, this is just one of the two major purposes. Bitcoin Layer 2 projects not only attempt to scale the throughput of the Bitcoin network but also the applications. The Bitcoin blockchain doesn’t operate a virtual machine like the Ethereum blockchain, but Bitcoin L2 projects are developing execution layers that run virtual machines, some of them similar to the <a href="https://www.coingecko.com/learn/ethereum-virtual-machine-evm" target="_blank">EVM</a> used by the Ethereum blockchain. By this, the Bitcoin network gains an indirect virtual machine capability, allowing it to run <a href="http://www.coingecko.com/learn/crypto-smart-contracts" target="_blank">smart contracts</a> and other applications which new generation blockchains are known for.</p>
<table border="1" cellpadding="5" cellspacing="5" style="width:100%;">
<colgroup>
<col>
<col>
<col>
</colgroup>
<tbody>
<tr>
<td style="width: 25%;"> </td>
<td style="width:37.5%;">
<p dir="ltr" style="text-align: center;"><strong>Bitcoin Layer 2s</strong></p>
</td>
<td style="width:37.5%;">
<p dir="ltr" style="text-align: center;"><strong>Ethereum Layer 2s</strong></p>
</td>
</tr>
<tr>
<td>
<p dir="ltr">Settlement layer</p>
</td>
<td>
<p dir="ltr">Bitcoin blockchain</p>
</td>
<td>
<p dir="ltr">Ethereum blockchain</p>
</td>
</tr>
<tr>
<td>
<p dir="ltr">Major purpose</p>
</td>
<td>
<p dir="ltr">To scale speed, reduce cost, and introduce enhanced programmability</p>
</td>
<td>
<p dir="ltr">To scale speed and reduce cost</p>
</td>
</tr>
<tr>
<td>
<p dir="ltr">Dominant types</p>
</td>
<td>
<p dir="ltr">State channels and sidechains</p>
</td>
<td>
<p dir="ltr">Sidechains and rollups</p>
</td>
</tr>
</tbody>
</table>
<div dir="ltr"> </div>
<h2 dir="ltr">Types of Bitcoin Layer 2s</h2>
<p dir="ltr">Now, let’s look at some of the types of Bitcoin Layer 2s available, and how they work.</p>
<h3 dir="ltr">State Channels</h3>
<p dir="ltr">A cryptocurrency transaction between peers is basically a communication between two wallets and the consensus layer of the network. The state of the network changes after each transaction, and the validation layer examines the transaction before updating the whole network to the new state. State channel L2 networks are built around this setup; they utilize the partitionable communication between wallets and the execution layer to create an external channel for a cryptocurrency transaction; this channel is a plain communication layer. </p>
<p dir="ltr">While using a state channel L2 network, a new channel is created between the transacting parties. A <a href="https://www.coingecko.com/learn/mpc-wallet-vs-multi-sig-wallets" target="_blank">multi-sig</a> address is also created to hold Bitcoin on behalf of the transacting parties. This setup allows them to exchange information, creating a new state for each information exchanged. This is usually an asset transfer in which case the state change is a variation in the balances of the wallets. This change is recorded off-chain and for each new transaction, the channel overwrites the previous state. The communication on the state channel can proceed for as long as both parties desire. </p>
<p dir="ltr">At the end of each communication session, the channel is closed and the final state (the wallet balances at the end of the last transaction) is sent to the main network as a single transaction. The consensus layer updates the network’s state with the new data. State channels not only make the transactions faster but users also save on gas fees, especially where multiple transactions are run in a single session. An example of a state channel Bitcoin L2 network is the Bitcoin Lightning Network.</p>
<h3 dir="ltr">Sidechains</h3>
<p dir="ltr">Sidechains are semi-autonomous networks. Unlike state channels, sidechains can run their own consensus algorithm; however, they still maintain a level of communication with the main network. Sidechains are standalone networks created as a spinoff of the mainnet. These networks can define their own architecture, which could be totally different from that of the main network. Bitcoin sidechain L2s are capable of running smart contract transactions and host advanced protocols like <a href="https://www.coingecko.com/learn/what-is-a-decentralized-crypto-exchange-dex" target="_blank">decentralized exchanges</a>. Sidechains create a pathway for users to operate away from the mainnet.</p>
<p dir="ltr">Using a bridge, sidechains create communication between the main network. Users can transfer assets between both networks using the bridge. A smart contract is used to develop an asset lock and mint protocol that guides the asset movement. Designs for sidechains could differ significantly; some sidechains operate a separate security system. In cases like this, they do not extend the security structure of the Bitcoin mainnet and only share other resources like assets with the mainnet. In some other designs, the sidechain integrates the security facility of the main network, either as a complementary system or the main security facility of the sidechain. Examples of Bitcoin L2 networks that utilize sidechains include the Stacks network and Rootstock Infrastructure Framework (RIF).</p>
<h3 dir="ltr">Rollups</h3>
<p dir="ltr"><a href="https://www.coingecko.com/learn/optimistic-vs-zero-knowledge-rollups" target="_blank">Rollups</a> are primarily an execution layer. They maintain a relationship with the Bitcoin network as the consensus layer. Rollup L2 networks create an execution environment where users can perform an array of operations. Data from these transactions are sorted into batches and are submitted to the consensus layer of the mainnet for final settlement. Depending on the capability, a rollup batch can contain up to 10,000 transactions, and these transactions are submitted to the consensus layer of the mainnet for settlement at once. This way, Layer 2 rollup networks can achieve a significantly improved speed and reduced fees by bundling up multiple transactions and submitting them for finalization on the Layer 1 as a single transaction.</p>
<p dir="ltr">Rollups can be classified as optimistic or zero-knowledge rollups. Optimistic networks batch transactions without prior validations, as a security fix, there is a challenge period of around seven days, where anyone who suspects foul play can compute a fraud-proof to challenge the rollup transaction. Once the challenge period has elapsed, the batch is deemed valid and accepted on the Layer 1 chain. </p>
<p dir="ltr">Zero-knowledge rollups run preliminary validations on each transaction data using zero-knowledge validity proofs, removing the need for a querying period. As a result, transactions from zero knowledge rollups are hashed into the main net instantly. An example of a Bitcoin L2 rollup network is Merlin Network.</p>
<h2 dir="ltr">Top Bitcoin L2 Networks</h2>
<p dir="ltr">The Bitcoin L2 network headcount is on the increase, where these networks offer solutions to known Bitcoin bottlenecks on a separate network. Here are some of the notable Bitcoin L2 networks.</p>
<h3 dir="ltr">Lightning Network</h3>
<p dir="ltr">Joseph Poon and Thaddeus Dryja started working on the Bitcoin Lightning Network as early as 2015; however, a stable version of the project was launched three years later in 2018. The Lightning Network claims to process up to a million transactions per second, presenting a huge performance improvement, relative to the main network. The Bitcoin Lightning Network is a state channel L2 network that is built to process transactions between two parties away from the Bitcoin network. It creates a separate layer that consists of a set of nodes that run the Lightning Network software and the communicating wallets.</p>
<p dir="ltr">For each transaction session, a new channel is created. To create a Lightning Network channel, both parties deposit Bitcoin into a multi-sig address. The parties involved run transactions utilizing the Bitcoin held in the multi-sig address while the Lightning Network software rebalances the wallets. At the end of each session, the channel is terminated, and the network sends the transaction data to the main network for settlement as a single transaction. </p>
<p dir="ltr">The Lightning Networks allow an infinite number of transactions for the price of a single transaction, thereby saving costs in fees and delivering a superfast transaction platform. The Lightning Network has gained wide usage since its launch, independent merchants and some centralized exchanges have also integrated the solution for payment, user deposits, and withdrawals, respectively.</p>
<h3 dir="ltr">Stacks Network</h3>
<p dir="ltr"><a href="https://www.coingecko.com/learn/stacks-stx" target="_blank">Stacks</a> is a semi-standalone Bitcoin sidechain. It runs its own consensus algorithm – the Proof of Transfer (PoX) consensus algorithm – and also operates a native token, Stacks (<a href="https://www.coingecko.com/en/coins/stacks" target="_blank">STX</a>). PoX is a hybrid of PoS and Proof of Burn consensus algorithms. It connects miners on the Bitcoin blockchain and Stackers on the Stacks network. </p>
<div dir="ltr"><img alt="How Bitcoin L2 Stacks works" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9662/content_unnamed_%2842%29.webp" style="width: 950px; height: 695px;"></div>
<p dir="ltr">As in the PoS consensus algorithm, Stackers stake their STX tokens on the stack network while miners on the Bitcoin blockchain ‘bribe’ stackers (with Bitcoin) to earn the rights to validate a block on the Stacks network. The selected Bitcoin miner validates the block and earns rewards in STX. A miner’s chances of being selected to validate a block on the Stacks network is relative to the amount of Bitcoin they have committed to the network. Stackers on the other hand earn BTC rewards as an incentive for strengthening the Stacks network by locking their tokens. BTC earned by a stacker is relative to the amount of STX they locked on the network.</p>
<p dir="ltr">To put it simply, Stacks Network doesn’t settle transactions on the Bitcoin network, instead, it ‘borrows’ miners from the Bitcoin network to validate transactions on its own layer, thereby gaining a large pool of validators. Stacks operates a bridge that allows the bridging of Bitcoin between its network and the Bitcoin network, where Bitcoin bridged to Stacks network is represented as SBTC. The network is capable of running advanced smart contract operations and supports decentralized applications like DeFi protocols. According to DefiLlama, the <a href="https://defillama.com/chain/Stacks" rel="nofollow noopener" target="_blank">TVL across DeFi protocols on the Stacks network is over $216 million</a> at the time of writing.</p>
<h3 dir="ltr">Rootstock Infrastructure Framework (RIF)</h3>
<div dir="ltr"><img alt="Rootstock Bitcoin L2" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9661/content_unnamed_%2841%29.webp" style="width: 950px; height: 370px;"></div>
<p dir="ltr">In December 2023, Uniswap developers submitted a <a href="https://gov.uniswap.org/t/deploy-uniswap-v3-on-rootstock-bitcoin-sidechain/22466" rel="nofollow noopener" target="_blank">proposal</a> to deploy the decentralized exchange on the Rootstock network with a starting liquidity of $400k; citing a solid security environment, compatibility with the Bitcoin blockchain, and the EVM. Rootstock is an EVM-compatible Bitcoin sidechain. It runs the PoW consensus algorithm and interplays with the Bitcoin network via its two-way Proof of Work (PoWPeg) protocol that allows the transfer of assets between the Bitcoin network and Rootstock network. Users on the Bitcoin network lock their BTC on the Rootstock smart contract and mint an equivalent amount (at a 1:1 ratio) on the Rootstock network, where it is represented as <a href="https://www.coingecko.com/en/coins/rsk" target="_blank">RBTC</a>.</p>
<p dir="ltr">The Rootstock network operates a consensus layer similar to that of the Bitcoin blockchain. It runs the PoW consensus algorithm and the hash rate on both networks is the same, therefore Bitcoin miners can validate blocks on both blockchains using the same facility, which is also known as Merged mining. Miners on the RootStock network are incentivized with RBTC. With an execution layer capable of advanced smart contract operations, Rootstock extends the functionality of the Bitcoin blockchain with more efficiency. At the time of writing, over <a href="https://defillama.com/chain/Rootstock" rel="nofollow noopener" target="_blank">$240 million worth of crypto assets are locked on DeFi protocols deployed on the Rootstock network</a>.</p>
<h3 dir="ltr">Liquid Network</h3>
<p dir="ltr">With a final settlement time of two minutes, Liquid Network claims to offer a faster layer for transacting with Bitcoin via its sidechain. It was launched in 2018 by Blockstream. The Liquid Network sidechain allows users to perform advanced operations like token issuance and running confidential transactions. Via a two-way peg facility, it allows Bitcoin holders to port their BTC between the Bitcoin and Liquid networks. Bitcoin bridged to the Liquid Network is represented as L-BTC (liquid BTC). The bridging facility offers a 1:1 asset representation on both networks using a burn and mint mechanism guided by smart contracts deployed on both networks.</p>
<div dir="ltr"><img alt="Liquid Network Bitcoin L2" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9660/content_unnamed_%2840%29.webp" style="width: 950px; height: 871px;"></div>
<p dir="ltr">In place of a consensus algorithm like PoW, the Liquid Federation guards the Liquid Network. The Liquid Federation is composed of delegated parties including cryptocurrency organizations like centralized exchanges and prominent developers. The members of the Liquid Federation take up the role of transaction validation and running the two-way peg facility.</p>
<h3 dir="ltr">Merlin Network</h3>
<p dir="ltr">Merlin is a Bitcoin native EVM-compatible Layer 2 rollup network. It is ‘native’ in the sense that, unlike most other EVM Bitcoin L2s, users can access the Merlin network via their Bitcoin wallets. Bitcoin wallet connection to the Merlin network is powered by <a href="https://developers.particle.network/reference/introduction-to-btc-connect" rel="nofollow noopener" target="_blank">BTC Connect</a>, a Bitcoin native wallet protocol developed by Particle Network. Merlin supports EVM wallets and can be <a href="http://www.coingecko.com/learn/add-merlin-chain-to-metamask" target="_blank">accessed via wallets like MetaMask</a>. Merlin uses zero knowledge rollups to batch transactions performed on its execution layer for final settlement on the Bitcoin blockchain. By validating thousands of transactions at once, Merlin is able to achieve significant improvements in speed and resource management (fees), and by settling these transactions on the Bitcoin network, Merlin claims to maintain the security level (or close to) of the Bitcoin network.</p>
<p dir="ltr">Merlin’s EVM compatibility means that developers on Ethereum and other EVM networks can deploy their applications on the network without making significant changes to the original codebase. Merlin supports Ethereum and Bitcoin protocols and smart contracts like BRC-420 and ERC token standards. DeFi applications are already launching on the network and at the time of writing, DefiLlama reports an overall <a href="https://defillama.com/chain/Merlin" rel="nofollow noopener" target="_blank">TVL of over $13 million for the Merlin network</a>. </p>
<h3 dir="ltr">SatoshiVM</h3>
<p dir="ltr">SatoshiVM is a zero knowledge rollup Bitcoin L2 network that is compatible with the EVM ecosystem. According to the project (at the time of writing) over 4,500 bitcoins have been bridged to the network and about 480,000 unique wallets have interacted with the network. </p>
<div dir="ltr"><img alt="SatoshiVM Bitcoin Layer 2" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9659/content_unnamed_%2839%29.webp" style="width: 950px; height: 716px;"></div>
<p dir="ltr">SatoshiVM operates an execution layer that uses rollups to batch transactions and submit them to the Bitcoin network for final settlement. This lets SatoshiVM achieve a significantly higher transaction speed while saving costs for users and maintaining sufficient decentralization and good security. The native token of the network is Bitcoin, and gas fees on SatoshiVM are also paid in Bitcoin.</p>
<p dir="ltr">Using this approach, SatoshiVM expands the use cases of Bitcoin and the application of the Bitcoin network. Bitcoin bridged to the network can be used on DeFi applications on the network. It is also capable of running other advanced operations like inscriptions (<a href="https://docs.sarc20ipt.com/sarc-20/readme" rel="nofollow noopener" target="_blank">SARC20</a>). SatoshiVM is still in the testnet stage at this time.</p>
<h3 dir="ltr">RGB</h3>
<p dir="ltr">RGB is an off-chain smart contract protocol powered by the Bitcoin Lightning Network that allows transacting parties on a Lightning Network channel to design contractual agreements with or without issuing tokens. RGB is not necessarily a token protocol but supports the issuance of smart contract tokens. RGB is an improvement of<a href="https://en.bitcoin.it/wiki/Colored_Coins" rel="nofollow noopener" target="_blank"> colored coins</a> and presents a smart contract protocol that operates away from the Bitcoin blockchain, allowing users to perform smart contract operations with significantly improved speed and reduced fees. It uses the Bitcoin blockchain as a state commitment layer, Bitcoin script as an ownership control system, and zero knowledge proofs to achieve transaction confidentiality.</p>
<p dir="ltr">As a supplementary protocol capable of interacting with the Bitcoin and Lightning Network, RGB presents an extra layer of programmability for the Bitcoin blockchain, allowing users to explore advanced blockchain-level automation while leveraging the Bitcoin architecture and paying even lesser fees compared to other smart contract protocols like ERC on Ethereum.</p>
<p dir="ltr">While Layer 2 projects strive to scale the Bitcoin network, a few challenges emerge. These are mostly around security and routine user experience.</p>
<h2 dir="ltr">Challenges of Bitcoin L2 networks. </h2>
<p dir="ltr">Some of the challenges facing contemporary Bitcoin L2 networks include;</p>
<h3 dir="ltr">Secure Bridging Between Bitcoin and Its L2 Networks</h3>
<p dir="ltr">Bitcoin L2 networks like sidechains use <a href="https://www.coingecko.com/learn/crypto-bridges-blockchain-interoperability" target="_blank">bridges</a> to create a resource-sharing pathway between their network and the Bitcoin network. These bridges work via the traditional design: a smart contract on the source and destination chains that guides the locking of assets on the Bitcoin network, and the minting of an equivalent on the sidechain. </p>
<p dir="ltr">However, this design is known to have security and user experience issues. Bridges built this way have suffered hacks amounting to billions of dollars in losses to users. The lock and mint arrangement is prone to several security risks, although advanced bridging protocols are steering away from this approach and exploring more secure ways to create inter-chain connections. But at time of writing, Bitcoin L2 projects still rely on arrangements like this, thereby causing potential security concerns. </p>
<h3 dir="ltr">Speed and Cost of Settling Proofs on the Bitcoin Network</h3>
<p dir="ltr">A rollup or state channel is only complete after the final settlement on the main network. The speed and the cost of settlement are significant for the L2 network. Bitcoin scaling networks have proven to be effective, however, future improvements in this area are still expected. As seen on Ethereum, notable effort is being made to further improve the speed and cost-effectiveness of L2 networks via the <a href="https://www.eip4844.com/" rel="nofollow noopener" target="_blank">Dencun upgrade</a>. If Bitcoin L2 networks must get better over time, a similar effort will be required from Bitcoin developers.</p>
<h2 dir="ltr">Final Thoughts</h2>
<p dir="ltr">The Bitcoin Lightning Network developed a faster way to send Bitcoin at a time when one of the highest challenges of Bitcoin as a widely used financial instrument was its slow transaction processing speed. This solution grew as one of the most prominent attempts at scaling the Bitcoin network. With the advent of other Layer 2 Bitcoin scaling solutions, developing a faster way to transact Bitcoin is now just one of the goals of Bitcoin scaling. What this means for the Bitcoin blockchain could be argued amongst communities and the different Bitcoin schools of thought, however, the Bitcoin blockchain will certainly benefit significantly from an improved throughput and probably from an increased use case.</p>
<p dir="ltr">For Blockchain enthusiasts, the idea of running advanced operations like DeFi and NFTs on the most decentralized and secure blockchain is also enticing. Bitcoin Layer 2s claim to offer this and have enjoyed a positive reception so far. While it is not certain how these solutions will develop going forward, the progress made so far is significant.</p>
<p dir="ltr">Having said this, it is important to keep in mind that despite the progress being made, these solutions are still emerging and are prone to future changes. Adequate risk management strategies are also suggested. Also, note that this article is only for educational purposes and should not be taken as financial advice. Featured projects are not endorsed by CoinGecko.</p>
Joel Agbohttps://www.coingecko.com/learn/bitcoin-layer-2s-top-bitcoin-layer-2s
What Are Bitcoin Layer 2s?
Bitcoin Layer 2s are projects that scale the Bitcoin blockchain by developing an execution layer that offers increased throughput by processing transactions off th...tag:www.coingecko.com,2005:Post/12492024-03-06T16:29:08Z2024-03-08T03:51:54ZPotential Berachain Airdrop: Guide to Testnet Interactions<!-- GetResponse Analytics --><script type="text/javascript">
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<h2 dir="ltr">Testnet Interactions on Berachain</h2>
<p dir="ltr">The Berachain testnet allows users to swap BERA, mint HONEY, provide liquidity on BEX liquidity pools, trade perpetuals, and lend HONEY. In addition, users can also complete tasks on Galxe to earn points, and mint an NFT as proof of early participation on the chain. </p>
<hr>
<h3 dir="ltr"> Key Takeaways</h3>
<ul>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Berachain is an EVM-compatible blockchain that is built on the Proof-of-Liquidity consensus mechanism.</p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">The project successfully raised $42 million in funding at $420 million valuation with notable investors such as Polychain, Hack VC, and Tribe Capital. </p>
</li>
<li aria-level="1" dir="ltr">
<p dir="ltr" role="presentation">Users can now interact with Berachain’s testnet to learn more about the three-token system (BERA, HONEY, BGT). </p>
</li>
</ul>
<hr>
<div dir="ltr"><img alt="Berachain Testnet Interactions" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9658/content_Berachain_Testnet_Interactions.webp" style="width: 950px; height: 475px;"></div>
<p dir="ltr">Berachain is an EVM-compatible blockchain built on top of the Cosmos-SDK, offering the same functionalities as well as a novel consensus mechanism called Proof-of-Liquidity (PoL). It is a Sybil resistance mechanism that calculates validator rewards based on the amount of provided <a href="https://www.coingecko.com/learn/liquidity-crypto" target="_blank">liquidity</a> to the trading infrastructure. </p>
<p dir="ltr">Protocols that pass a Berachain governance vote will get BGT (Bera Governance Token) tokens to distribute to their liquidity providers. By introducing the PoL mechanism, Berachain aims to encourage network participants to provide liquidity to various DeFi applications and create an effective synergy between validators and the ecosystem of projects. </p>
<p dir="ltr">The blockchain offers a three-token system comprising of BERA, the network token used for transactions and gas fees, HONEY, Berachain’s stablecoin that is pegged to the U.S dollar, and BGT, which is the blockchain’s approach on <a href="https://www.coingecko.com/learn/governance-tokens" target="_blank">governance tokens</a> that can only be earned by providing liquidity. Berachain’s design aims to emphasize interoperability, modularity, and ease of accessibility to foster a robust ecosystem. </p>
<p dir="ltr">Berachain was launched by four pseudonymous founders, three of whom launched Bong Bears, a non-fungible token (NFT) collection in August 2021. Founders Smokey the Bera, Papa Bear, Homme Bera, and Dev Bear, are self-described crypto natives who successfully raised $42 million in funding at $420 million valuation. Notable investors include Polychain, Hack VC, Shima Capital, Tribe Capital, and more.</p>
<p dir="ltr">As an upcoming Layer 1 blockchain, Berachain has recently opened its testnet to the public as a debut for its PoL consensus mechanism. Users can interact with the various dApps on the testnet while earning points on <a href="https://www.coingecko.com/learn/galxe-gal" target="_blank">Galxe</a>. </p>
<p dir="ltr">In the past, many projects have rewarded users who interacted with their testnets as a way of acknowledging their efforts. With the mainnet launch of Berachain planned after the completion of its testnet, now is an ideal time to check out the testnet and earn points on Galxe! </p>
<p dir="ltr"><strong>Do note that the Berachain team has not confirmed an airdrop at the time of writing and proceeding with the steps below does not guarantee an airdrop allocation. </strong></p>
<h2 dir="ltr">Step 1: Log in to Galxe</h2>
<p dir="ltr">Visit <a href="https://galxe.com/Berachain/campaign/GCjGGttCAG" rel="nofollow noopener" target="_blank">https://galxe.com/Berachain/campaign/GCjGGttCAG</a> and log in with either your social account or wallet. In this example, we are using <a href="https://www.coingecko.com/learn/complete-beginners-guide-to-metamask" target="_blank">MetaMask</a>.</p>
<div dir="ltr"><img alt="Login to Galxe with MetaMask Berachain" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9613/content_a.a_login_with_metamask.webp" style="width: 950px; height: 584px;"></div>
<p dir="ltr">Once your wallet is connected, set up a username to create your Galxe ID.</p>
<div dir="ltr"><img alt="Create Galxe ID for Berachain" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9614/content_a.b_create_id.webp" style="width: 950px; height: 509px;"></div>
<p dir="ltr">Click on the first task to be redirected to the Berachain Honey Dapp. This is part of ‘March of the Beras Daily’ which allows you to collect five points daily.</p>
<div dir="ltr"><img alt="Collect 5 points daily by visiting Berachain's Honey Dapp" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9615/content_a.c_complete_task_and_collect_points.webp" style="width: 950px; height: 289px;"></div>
<p dir="ltr">The second section, ‘March of the Beras Part One: Onboarding’ are tasks that reward you with higher points but can only be completed once to earn points. </p>
<div dir="ltr"><img alt="Complete list of March of the Beras Part One tasks to earn Berachain points" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9616/content_a.d_list_of_tasks.webp" style="width: 950px; height: 518px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 2: Twitter Tasks</h2>
<p dir="ltr">Click on ‘Follow @berachain on Twitter’ and you will be prompted to connect your account. You will need to tweet a verification message that is provided by Berachain. After publishing the tweet, copy the link and paste it to verify your account.</p>
<div dir="ltr"><img alt="Twitter verification for Berachain" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9617/content_a.e_twitter_verification.webp" style="width: 950px; height: 555px;"></div>
<p dir="ltr">With your Twitter account connected, you can proceed to follow the project and retweet the tweet.</p>
<div dir="ltr"><img alt="Follow and retweet Berachain on Twitter" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9618/content_a.f_follow_twitter.webp" style="width: 950px; height: 658px;"></div>
<div dir="ltr"><img alt="Repost Berachain Tweet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9619/content_a.g_repost.webp" style="width: 950px; height: 639px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 3: Visit the Main Website Page</h2>
<p dir="ltr">You will need to provide your email before visiting the main page. Click ‘Send a code’ and retrieve it from the email to complete the verification process. </p>
<div dir="ltr"><img alt="" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9621/content_a.h_bind_email.webp" style="width: 950px; height: 499px;"></div>
<p dir="ltr">Then you can click ‘Visit the Proof of Liquidity Main Website Page’ and be redirected to it. Just opening the website will earn you points but you can also take the opportunity to browse the page.</p>
<div dir="ltr"><img alt="Visit Berachain Proof of Liquidity Main Website Page" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9622/content_a.i_visit_page.webp" style="width: 950px; height: 519px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 4: Berachain Discord</h2>
<p dir="ltr">Log in to Discord before clicking on the Discord task. The Discord app will prompt you to authorize the GalxeBot’s request for access to your account. </p>
<div dir="ltr"><img alt="Authorize GalxeBot before connecting to Berachain Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9623/content_a.k_authorise_discord.webp" style="width: 950px; height: 538px;"></div>
<p dir="ltr">Before joining the Berachain Discord server, you will need to complete the verification process. Click on ‘Verify,’ read and agree to the rules, and submit your verification.</p>
<div dir="ltr"><img alt="Join and verify before joining Berachain Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9624/content_a.l_complete_steps.webp" style="width: 950px; height: 578px;"></div>
<div dir="ltr"><img alt="Agree to Berachain Discord rules" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9625/content_a.m_sign.webp" style="width: 950px; height: 883px;"></div>
<p dir="ltr">You will then have access to the Berachain Discord server where you can interact with the community. </p>
<p dir="ltr">Do note that to earn the Bera Cub role, you will need to be an active member. A message from co-founder, Smokey the Bera, in the faq channel warns users against asking for the role or being active just for the role. </p>
<div dir="ltr"><img alt="Earning the Bera cub role on Berachain Discord" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9626/content_discord_role.webp" style="width: 950px; height: 556px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 5: Berachain Docs</h2>
<p dir="ltr">Click ‘Visit the Berachain Docs’ and be redirected to the official documentation of Berachain. Here you can learn more about Berachain, read the developer guides, and check out the FAQ. </p>
<div dir="ltr"><img alt="Review Berachain docs" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9627/content_a.o_docs.webp" style="width: 950px; height: 509px;"></div>
<p dir="ltr">You can then return to Galxe to take the quiz. There are a total of five questions that are crafted from information in the Berachain docs. </p>
<p dir="ltr">The answers are: Proof of Liquidity, Providing Liquidity on DAO, BTC, Polaris EVM, and Faucet</p>
<div dir="ltr"><img alt="Take Berachain Quiz on Galxe" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9628/content_quiz.webp" style="width: 950px; height: 495px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 6: Drip Bera</h2>
<p dir="ltr">Click on ‘Drip $BERA’ to be redirected to the Berachain Artio faucet. Provide your wallet address and drip tokens. </p>
<p dir="ltr">Due to the nature of testnets, the tokens might take a while to appear in your wallet, or in some cases, fail to arrive. Refresh the page and your wallet every few minutes until the tokens arrive, or you can try it again once every eight hours.</p>
<div dir="ltr"><img alt="Drip testnet BERA tokens" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9629/content_1a_artio_drip.webp" style="width: 950px; height: 507px;"></div>
<p dir="ltr">You can also visit <a href="https://faucet.quicknode.com/drip" rel="nofollow noopener" target="_blank">https://faucet.quicknode.com/drip</a> to receive more tokens. </p>
<p dir="ltr">Select Berachain and the Artio network and paste your wallet address to continue. </p>
<div dir="ltr"><img alt="Collect more Berachain testnet tokens from QuickNode" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9630/content_1_go_to_faucet_and_connect_wallet.webp" style="width: 950px; height: 542px;"></div>
<p dir="ltr">If you have a QuickNode account, you can log in for a 4x bonus or you can share a generated tweet to get a 2x bonus. Otherwise, you can proceed with receiving 0.1 BERA.</p>
<p dir="ltr">Do note that the QuickNode faucet only allows you to claim tokens every 12 hours.</p>
<div dir="ltr"><img alt="Claim more testnet BERA with QuickNode" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9631/content_1.1_claim_test_tokens.webp" style="width: 950px; height: 567px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 7: Swap BERA</h2>
<p dir="ltr">Head to Berachain’s exchange, BEX, by clicking on the task. </p>
<h3 dir="ltr">How to Add Berachain Testnet to MetaMask</h3>
<p dir="ltr">Before connecting your wallet, you will need to add the Berachain network. In this example, we are using the MetaMask wallet. Open the list of networks in the top left corner and choose to add network.</p>
<div dir="ltr"><img alt="Add Berachain testnet to MetaMask" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9632/content_7.1_add_network.webp" style="width: 950px; height: 1599px;"></div>
<p dir="ltr">Then, select ‘Add a network manually’ and input the following information. </p>
<div dir="ltr"><img alt="Add Berachain testnet to MetaMask manually" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9633/content_7.2_network_manually.webp" style="width: 950px; height: 650px;"></div>
<p dir="ltr"><strong>Network name</strong>: Berachain Artio</p>
<p dir="ltr"><strong>RPC URL</strong>: https://artio.rpc.berachain.com/</p>
<p dir="ltr"><strong>Chain ID</strong>: 80085</p>
<p dir="ltr"><strong>Currency symbol</strong>: BERA</p>
<p dir="ltr"><strong>Block explorer URL</strong>: <a href="https://artio.beratrail.io/" rel="nofollow noopener" target="_blank">https://artio.beratrail.io/</a></p>
<p dir="ltr">After saving the network configuration, you should be connected to the Berachain Testnet.</p>
<h3 dir="ltr">Swap Tokens on BEX</h3>
<p dir="ltr">Back on the BEX, connect your wallet and select ‘Swap Tokens.’ </p>
<div dir="ltr"><img alt="Swap tokens on BEX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9634/content_swap_bera.webp" style="width: 950px; height: 479px;"></div>
<p dir="ltr">Choose to swap from BERA to STGUSDC and input the wanted amount.</p>
<div dir="ltr"><img alt="Swap BERA to STGUSDC" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9635/content_2_swap.webp" style="width: 950px; height: 502px;"></div>
<p dir="ltr">You will be given a preview of the swap before you confirm it in your wallet.</p>
<div dir="ltr"><img alt="Preview swap on BEX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9636/content_2.1_approve_swap.webp" style="width: 950px; height: 796px;"></div>
<p dir="ltr">After the transaction successfully goes through, you will receive your points on Galxe.</p>
<div dir="ltr"><img alt="Successful swap on BEX" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9637/content_2.2_swap_success.webp" style="width: 950px; height: 480px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 8: Mint HONEY</h2>
<p dir="ltr">The next task is to mint and hold HONEY. </p>
<p dir="ltr">Connect your wallet, select how much STGUSDC you would like to mint for HONEY and confirm the transaction in your wallet. </p>
<div dir="ltr"><img alt="Mint and hold HONEY" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9638/content_3_mint_honey.webp" style="width: 950px; height: 493px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Optional Steps</h2>
<p dir="ltr">The following steps are optional because they are not listed within the Galxe Berachain tasks. However, projects run testnets to see how users interact with the various dApps available and are inclined to recognise these transactions. </p>
<p dir="ltr">Therefore, the following steps are recommended to increase your interactions with the Berachain testnet. </p>
<h2 dir="ltr">Step 9: Provide Liquidity</h2>
<p dir="ltr">Proceed to <a href="https://artio.bex.berachain.com/pool" rel="nofollow noopener" target="_blank">https://artio.bex.berachain.com/pool</a> to see a list of available <a href="https://www.coingecko.com/learn/liquidity-pools-crypto-defi" target="_blank">pools</a>. In this example, we will provide liquidity to the 50STGUSDC-50HONEY pool.</p>
<p dir="ltr">Connect your wallet, select the pool, and input the amount of HONEY and STGUSDC you want to add. </p>
<div dir="ltr"><img alt="Contribute HONEY and STGUSDC to liquidity pool" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9639/content_4_liquidity_pool.webp" style="width: 950px; height: 517px;"></div>
<p dir="ltr">In the preview, you will be given the option to ‘Approve STGUSDC’ or ‘Approve Infinite.’ </p>
<p dir="ltr">Due to the occasionally unstable nature of testnets as well as the fact that the tokens hold no value, it is safe to approve infinite to save yourself the trouble of continuously approving transactions. </p>
<p dir="ltr"><strong>However, with mainnet networks and your real tokens, it is highly encouraged never to approve infinite as this gives the protocols unending access to your assets. </strong></p>
<div dir="ltr"><img alt="Confirm LP Additional Details" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9640/content_4.1_approve_infinite.webp" style="width: 950px; height: 516px;"></div>
<p dir="ltr">After approving infinite, add liquidity and approve the transaction in your wallet. </p>
<div dir="ltr"><img alt="Add liquidity to pool" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9641/content_4.3_add_liquidity.webp" style="width: 950px; height: 594px;"></div>
<p dir="ltr">By adding liquidity, you will be rewarded in BGT which you can claim from the pool page.</p>
<div dir="ltr"><img alt="Claim BGT tokens" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9642/content_pool_page.webp" style="width: 950px; height: 534px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 10: Trade Perpetuals</h2>
<p dir="ltr">Head to <a href="https://artio.berps.berachain.com/berpetuals" rel="nofollow noopener" target="_blank">https://artio.berps.berachain.com/berpetuals</a> to connect your wallet and start trading.</p>
<div dir="ltr"><img alt="trade Perps on Berachain" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9643/content_5_berps.webp" style="width: 950px; height: 505px;"></div>
<p dir="ltr">You can choose from four markets trading with USDC. In this example, we are leveraging BTC with HONEY.</p>
<div dir="ltr"><img alt="Leverage BTC with HONEY" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9644/content_5.2_choose_market.webp" style="width: 950px; height: 410px;"></div>
<p dir="ltr">Select the amount of HONEY to long, approve infinite, and confirm the transaction in your wallet.</p>
<div dir="ltr"><img alt="Enter long settings on Berachain perps" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9645/content_5.3_long_settings.webp" style="width: 950px; height: 413px;"></div>
<div dir="ltr"><img alt="Approve infinite on testnet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9646/content_5.4_approve_infinite.webp" style="width: 950px; height: 382px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 11: Lend HONEY</h2>
<p dir="ltr">Go to <a href="https://artio.bend.berachain.com/" rel="nofollow noopener" target="_blank">https://artio.bend.berachain.com/</a> to connect your wallet and click ‘Borrow Honey.’</p>
<div dir="ltr"><img alt="Borrow and lend HONEY on Bend" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9647/content_6_bend.webp" style="width: 950px; height: 511px;"></div>
<p dir="ltr">On the dashboard page, you can choose to supply HONEY.</p>
<div dir="ltr"><img alt="Supply HONEY on Bend" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9648/content_6.1_supply_honey.webp" style="width: 950px; height: 343px;"></div>
<p dir="ltr">Input the desired amount and ‘Approve Infinite.’</p>
<div dir="ltr"><img alt="Supply HONEY and approve infinite" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9649/content_6.2_approve_infinite.webp" style="width: 950px; height: 560px;"></div>
<p dir="ltr">Click on ‘Supply’ and confirm the transaction in your wallet.</p>
<div dir="ltr"><img alt="Supply HONEY" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9650/content_6.3_supply.webp" style="width: 950px; height: 526px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Step 12: Mint NFT</h2>
<p dir="ltr">The Honey Jar NFT project is an unofficial community initiative at the core of the Berachain ecosystem. The project includes elements inspired by the Bong Bear universe and other aspects related to Berachain</p>
<p dir="ltr">Minting the Ooga Booga Ticket NFT is another method to prove your early participation in the Berachain testnet. To mint it, go to <a href="https://faucet.0xhoneyjar.xyz/mint" rel="nofollow noopener" target="_blank">https://faucet.0xhoneyjar.xyz/mint</a> and connect your wallet.</p>
<div dir="ltr"><img alt="Mint NFT to prove early participation" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9651/content_7_ooga_booga.webp" style="width: 950px; height: 513px;"></div>
<p dir="ltr">You can choose between BERA and HONEY but in this example we used HONEY. The amount is already predetermined and you will need to approve it in your wallet.</p>
<div dir="ltr"><img alt="Use HONEY or BERA to mint NFT" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9652/content_7.1_approve_honey.webp" style="width: 950px; height: 508px;"></div>
<p dir="ltr">Once approved, you can mint the NFT and confirm the transaction in your wallet. </p>
<div dir="ltr"><img alt="MInt NFT and confirm transaction in wallet" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9653/content_7.2_mint_ooga_booga.webp" style="width: 950px; height: 489px;"></div>
<p dir="ltr">After the transaction is successful, the Ooga Booga Ticket NFT will appear in your inventory. </p>
<p dir="ltr">You can also keep a lookout for any occasion-themed NFTs such as the ‘Balentine’s Card’ which was released in conjunction with Valentine’s Day. </p>
<div dir="ltr"><img alt="Berachain NFTs in inventory" loading="lazy" src="https://assets.coingecko.com/coingecko/public/ckeditor_assets/pictures/9654/content_7.3_ticket_in_inventory.webp" style="width: 950px; height: 511px;"></div>
<div dir="ltr"> </div>
<h2 dir="ltr">Conclusion</h2>
<p dir="ltr">Crypto testnets allow developers to test new features, games, or dApps without breaking anything important. With Berachain set to release their mainnet soon, many users can interact with the testnet and carry out different types of transactions. Given that the testnet tokens do not involve real money, it is a great opportunity to interact with the ecosystem and learn more about Berachain.</p>
<p dir="ltr">Note that following the above steps does not guarantee an airdrop of Berachain tokens. This article is for informational purposes only and should not be taken as investment advice. Always do your own research into protocols before connecting your wallet.</p>
<getresponse-form e="1" form-id="160c7f82-6d38-46a1-9974-b323ce663aaa"></getresponse-form>Stephanie Gohhttps://www.coingecko.com/learn/potential-berachain-airdrop-testnet-interactions
Testnet Interactions on Berachain
The Berachain testnet allows users to swap BERA, mint HONEY, provide liquidity on BEX liquidity pools, trade perpetuals, and lend HONEY. In addition, users ca...