Introduction

Welcome to the inaugural edition of our biweekly market report, HashStack!

HashStack offers readers key updates on the latest market trends, insights, and developments. Each edition provides timely analysis of major news, sector developments, and emerging opportunities, helping you stay on top of everything in the Web3 space.

DATUM — Decentralized Mining Protocol launches

Traditionally, Bitcoin block building has been dominated by mining pools: The top 5 mining pools account for over 80% of all blocks mined.

Source: mempool.space

Traditionally, large mining pools determine their desired block template in accordance with Bitcoin consensus and select transactions to be included. Miners then contribute to find the block and earn a share of the block reward based on their hashrate contribution. With more than 80% of blocks mined by the top 5 mining pools, this could threaten the censorship resistance of Bitcoin.

OCEAN’s introduction of the Decentralized Alternative Templates for Universal Mining (DATUM) protocol marks a positive development toward decentralizing the Bitcoin mining industry. Available open-source, the DATUM protocol enables individual miners of OCEAN mining pool to construct their own block template. Miners may also be interested in Stratum, a decentralized mining protocol now on V2.

Marking a win for decentralized bitcoin block mining, a solo bitcoin miner using FutureBit’s Apollo device and its own stratum server has successfully mined a sovereign bitcoin block, the first in more than a decade.

Coinbase supports Taproot Address

That’s more positive news for the Bitcoin community: Coinbase now allows users to transfer BTC to taproot addresses, opening up more users to the Bitcoin community. The Taproot upgrade introduced in 2021 aimed to address scalability and privacy issues on Bitcoin by implementing Schnorr Signature which batches multiple signatures into one. This has facilitated the growth of more activity on Bitcoin with users of taproot address being able to interact with Ordinals, Runes and the other Bitcoin-native assets.

Second’s Ark implementation

Second, a company dedicated to scaling Bitcoin through Ark and other layer 2 technologies, kicked off an Ark implementation on Bitcoin mainnet. Ark is compatible with Lightning Network and also much more efficient when making payments as it requires only one round trip between client and server as compared to the multiple trips required for a lightning channel payment process.

ZeroSync announces BitVM Alliance

The newly formed BitVM alliance will champion developments for BitVM bridges. ZeroSync, its founding member, announced the alliance with participating members from Citrea, Element, Fiamma, and Strata.

LN Summit 2024 Summary

Did you miss out on the LN Summit in Tokyo? Attendee roasbeef recapped the latest news about the Lightning protocol in his LN Summit 2024 Notes & Summary/Commentary.

Tokenization Protocol, Midas, launched mBTC to allow investors to earn yield on BTC

Launched alongside Midas’s existing products, mBASIS and mTBILL, mBTC will allow investors to earn a 4% yield paid out in Bitcoin-denominated assets rather than fiat. mBTC can be used on the Ethereum ecosystem, supporting wBTC.

Stacks’ Nakamoto upgrade goes live

The successful launch of Stacks’ largest Nakamoto upgrade has significantly enhanced the network by enabling higher transaction throughput, mitigating MEV (Miner Extractable Value), and ensuring 100% Bitcoin finality. Since the upgrade, yields on Stacks have shown a steady increase as MEV mitigation measures take effect, making staking more attractive for stackers. Transactions can now be confirmed within seconds, as elected Bitcoin miners are authorized to mine multiple Stacks blocks during their designated periods. This Nakamoto upgrade also sets the stage for the anticipated launch of sBTC, a 1:1 Bitcoin-pegged asset on Stacks. Managed by a set of sBTC signers, sBTC will unlock BTC as a programmable productive asset that can be widely used across the Stacks ecosystem. Upcoming campaigns will aim to incentivize further use cases and yield opportunities for sBTC holders, expanding the sBTC’s utility and appeal.

What Lies Ahead For Ethereum?

Here’s a summary of the main points from Vitalik Buterin’s recent blog posts (Part 1 — Part 3) on Ethereum’s future:

1. Single Slot Finality & Lower Staking Requirements: To enable smaller validators to participate on Ethereum, Buterin aims to achieve single-slot finality and reduce the minimum staking requirement from 32 ETH to 1 ETH.
2. Improved Transaction Speed: EIP-7781 which was later merged with another proposal, EIP-7782, intended to reduce Ethereum’s block time from 12 to 8 seconds. This speed improvement will enhance security, benefitting the rollup-centric future, especially for based rollups such as Taiko.
3. Scaling via PeerDAS & Data Sampling: Ethereum plans to increase transaction throughput by raising blob counts from 3 to between 8 and 16 per block using PeerDAS and transitioning from 1D to 2D sampling. These changes should improve scalability while managing costs and centralization risks.
4. Quantum Resistance: Anticipating future quantum threats, Ethereum will gradually transition from KZG commitments to quantum-resistant alternatives.
5. Rollup Advancements: To support rollups reaching “stage 2,” Buterin suggests formalizing verification of SNARK provers and a multi-prover system, which Taiko has already adopted.
6. Addressing Block Construction Centralization: Research focuses on decentralizing block construction by adding inclusion lists and enabling multiple concurrent proposers to reduce centralization risks.
7. Staking and Dilution Risks: The increase in staked ETH may result in downwards pressure on ETH yields and also potentially resulting in an inflationary Ethereum environment. Proposed solutions include staking caps, adjusting issuance curves, and implementing a two-tiered staking system.

Kraken launches its L2, Ink, joining the OP Superchain

Centralized exchange Kraken announced the launch of their L2 named Ink. Built on the OP Stack, Ink joins the ranks of other OP Stack chains like Base, Manta, Plume, Aevo, Unichain, and Sonenium, among others. Currently, the Superchain members already command 43% of all L2 transactions in October. As chains like Ink and Unichain emerge, a virtuous cycle is set in motion: new and existing projects will choose to launch on the OP Stack to harness synergies within the OP Superchain, further cementing OP Stack popularity among L2s.

Source: OP Labs

Helios, a light client developed by a16z for a multichain future, is a trustless, efficient light client written in Rust. Currently, rollups need to run full nodes to state sync to the L1 and this can be very inefficient as it requires a significant amount of memory, storage and CPU. However, with Helios, networks can now run light clients that sync in seconds and are lightweight enough to be supported on mobile devices. Starting off with OP Stack chains such as Base and Optimism, Helios will play an increasingly important role as optimizations are made to support various consumer devices and more L2s are being supported.

This year has seen a rise in institutional adoption of blockchain, primarily through inflows into BTC and ETH ETFs. DBS, Singapore’s largest bank, launches DBS Token Services, offering institutional tokenization solutions to enhance liquidity and operational efficiency. Payment providers are also expanding crypto access, with Venmo partnering with MoonPay and Stripe acquiring Bridge for $1.1B to strengthen stablecoin capabilities.

Additionally, Chainlink, in partnership with Euroclear, SWIFT and other institutions, is testing AI, oracles, and blockchain to deliver near real-time corporate data onchain. Despite positive results, a few areas have been identified for improvements such as model hallucination, incorporating various compliance standards, and navigating the complex liability dynamics between involved parties when using LLMs and decentralized infrastructure.

Virtuals Protocol, a platform for creating your own AI agent, launched with huge success. Its most successful AI Agent, Luna, now manages her own social media account, interacts live with users 24/7, and can autonomously transfer funds to users as well. Building on Luna’s success, Virtuals Protocol has experienced rapid growth, now home to over 600 AI agents. The protocol has launched a new platform, fun.virtuals, allowing users to easily generate their own AI tokens.

Aptos Foundation has announced their partnership with FLock.io to develop AI-powered tools that enable a seamless Move programming experience for developers. FLock.io has developed its own LLM that when compared with ChatGPT-4o showed outperformance in generating Move-specific code.

Coinbase has now made it easy for users to launch their own AI agents within minutes through their new tool called Based Agent developed using CoinbaseDev SDK, OpenAI and Replit. Based Agents deployed possess capabilities such as being able to transfer assets, check account balance, create tokens, deploy NFTs, mint NFTs among others. This announcement came shortly after Coinbase CEO publicly offered Truth Terminal, an AI chatbot, its own crypto wallet and Luna, an AI agent on Virtuals Protocol, displayed its capabilities in performing autonomous onchain transactions. With tooling and infrastructure now making it easier for developers and users to create AI agents, the looming future where agents intelligently represent users’ intents and perform on their behalf has made waves and generated significant interests over the past weeks.

Swell Network’s new yield vault, earnETH

Swell Network introduced earnETH, a yield aggregator that allows users to deposit various assets to earn enhanced DeFi yields, points and airdrops from ecosystem partners. Currently, deployed assets will be used across whitelisted DeFi protocols including Curve, Morpho, Pendle, and Ion. Additionally, Swell L2 has also announced their move to become part of the OP Superchain by building on top of OP Stack.

Puffer Finance announced DAO launch

With the launch of $PUFFER, Puffer Finance has announced the launch of the PufferDAO that will be in charge of the governance of Puffer LRT, UniFi and UniFi AVS.

Lido’s implemented the first stage of community staking module with plans to go permissionless in future

Lido Finance community staking module goes live on mainnet. This launch decentralizes Ethereum’s network validators by lowering the barrier to entry for solo stakers. Thus far, the rollout has yielded positive results with ⅓ of the CSM share limit already filled within 1 week and onboarding 140+ permissionless node operators operating 900+ validators. Currently in early adoption mode, CSM will eventually become permissionless which could see further decentralization of the node operator set.

Additionally, Lido also announced their integration with Chainlink CCIP that will further enhance the user experience by enabling users to seamlessly participate in staking from various L2s. Previously complicated procedures of bridging to Ethereum mainnet to acquire wstETH is now simplified into a single transaction made possible with the programmable token transfer feature of Chainlink CCIP. Direct staking is now offered by various DeFi frontends such as XSwap, OpenOcean and Interport. In the future, this could serve as a catalyst to bring more DeFi activity of wstETH to L2s from Ethereum.

Jito see early success in its restaking efforts

Jito Labs, well known for JitoSOL which is their MEV-boosted liquid staking token, has entered into the restaking space. Partnering with several vault partners such as Fragmetric, Renzo Protocol, and Kyros, the first phase of Jito restaking has been met with enthusiastic response, hitting the cap of $25M within a few hours and onboarding more than 2,500 LRT holders.

Uniswap launches permissionless cross-chain bridge

In a poll conducted on X on 1 July 2024, 37% of respondents chose in app bridging as a feature they would like to see implemented. A few months later, Uniswap launched a permissionless cross-chain bridge powered by the Across Protocol that now allows users to bridge native assets and stablecoins across nine different networks on the Uniswap web and wallet.

Uniswap also announced Unichain, an L2 network powered by the OP Stack currently in testnet. Through the use of Trusted Execution Environment (TEE) and rollup-boost developed in collaboration with Flashbots, this transition from an application to an appchain is a strategic move that will allow them to have better control over consumer experiences and redistribute MEV capture back to users.

Morpho announces vault with Sturdy Finance

Morpho will launch an AI-optimized yield aggregator vault in collaboration with Sturdy Finance’s SN10 Bittensor subnet and Gauntlet’s Aera. This collaboration will demonstrate how AI can improve the efficiency of capital allocation across Morpho’s four vaults.

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