In-depth Interpretation of Assembly: Exploring the Modular Public Chain in the Web3 Era Based on IOTA

Written by: Li Xi, LD Capital

Trends in Modular Public Chains

If you have been paying attention to the evolution of public chain technology, you must be familiar with the term "modular."

In 2022, as Web3 emerged as a breakout concept, it naturally raised new requirements for the underlying infrastructure that supports this concept—public chains. Although single-chain solutions still offer the best composability, and Solana seems to have achieved the best TPS, it has made certain compromises—or sacrifices—in decentralization and security due to the constraints of the classic trilemma.

Recent consecutive outages have highlighted the limitations of single-chain systems (of course, Solana theoretically can also deploy Rollups for scaling in the future).

On the other hand, ETH L2 has finally officially launched, with Arbitrum and Optimism demonstrating the feasibility of fraud-proof Rollup L2, while the cryptographic validity proof-based Zk-Rollup solutions from Starkware and Zk-sync are expected to be officially deployed in 2022. ETH has set a good precedent for modular public chains through L2 scaling.

However, this brings about a new consideration—Is ETH the best Layer 1 choice for supporting modular public chains?

Is ETH the Best Modular Choice?

Currently, we can identify three main issues:

"1" Strong liquidity fragmentation among multiple L2s - Currently, there are already eight familiar players based on ETH Rollup L2: Arbitrum, Optimism, Starkware, Zk-sync, Polygon, Aztec, Boba, and Metis; it wouldn't be surprising to see 10-20+ Rollups emerge in the future.

While cross-chain bridges can alleviate this issue to some extent, Vitalik Buterin has recently stated: "The future will be 'multi-chain' rather than 'cross-chain,' as cross-chain bridges have fundamental security limitations."

"2" The timeline for ETH 2.0's transition from POW to POS is uncertain, and sharding has been temporarily shelved, leading to significant uncertainty regarding the timeline for full scaling—this is due to the historical technical baggage of ETH.

"3" A third point that many people may not realize, but is perhaps the most important, is ETH's ecological historical baggage—ETH's own L1 will compete for resources with L2, at least for the foreseeable future.

Let’s elaborate on this point a bit more, as it is crucial and one of the important reasons for our investment in Assembly.

ETH's current scaling method is Rollup, whether it is fraud-proof or ZK-Rollup. L2 serves as the Execution Layer (EL), packaging and compressing all transactions, and periodically uploading them to ETH L1. Here, ETH L1 serves two roles: as the Settlement Layer (SL) for Rollup and as the Data Availability Layer (DA).

From the SL perspective, all settlement transactions must compete for resources with native DApps on ETH L1. This is usually not a major issue, but during a Gas War (if there is a large amount of liquidation on L1 or a popular NFT is competing for minting), the performance of all Rollups will be significantly affected.

From the DA perspective, storing data on Ethereum L1 is a very expensive choice, which is why transaction fees on Arbitrum and Optimism are much cheaper compared to ETH L1, but still expensive relative to Alt L1—because the costs of the DA layer cannot be reduced (ZK-Rollup can theoretically have lower fees than Optimistic Rollup due to higher data compression ratios).

All of these issues stem from ETH's ecological historical baggage—namely, that for the foreseeable future, economic activities of DApps on ETH L1 will not cease, and all these activities will compete for the expensive and scarce resources of ETH L1.

Is it possible for a Layer 1 to solely focus on SL+DA without running any DApps as EL?

Of course, it is possible. New-generation public chains like Polkadot have relay chains that only handle SL+DA, while all data processing is done by parachains. In the Cosmos ecosystem, there are even designs like Celestia【3】that extract the DA layer separately to provide DA services for all Rollups, focusing solely on that service.

Of course, we can argue that ETH L1's security is the best, and that security makes SL and DA the best choice. However, if the market purely valued security, it would not have given rise to the colorful multi-chain era we see today. Even Starkware, a legitimate L2 solution for ETH, offers users the option of placing the DA layer on Starkware itself rather than ETH L1 as a "cheap" option. In the balance between security and performance, we will certainly see various different modular solutions.

The Assembly smart contract layer based on IOTA is another modular direction that we believe is worth exploring.

The Modular Path Based on IOTA

IOTA may be a project that has faded from the memory of many old investors and is not well-known among many new investors.

However, back in 2017-2018, IOTA was one of the three main players in the DAG (Directed Acyclic Graph) data structure, occupying a position in the top ten of cryptocurrency market capitalization for quite some time due to its innovative Tangle ledger architecture and high TPS.

Later, as the entire blockchain industry entered the DeFi era dominated by smart contracts, IOTA gradually faded from people's view, and the representatives of DAG-type public chains were replaced by new-generation contract-supporting chains like Fantom and Avax.

Characteristics of IOTA 1.0 Era:

1) High concurrency, high TPS

2) Based on the UTXO model, no gas fee

3) Does not support smart contracts

4) Centralized Coordinator (provided by the foundation)

Thus, while low fees and high TPS are advantages, its lack of contract support and centralized nodes are quite different from the current mainstream blockchain development, which is the main reason IOTA has faded from view in recent years.

However, with the arrival of the modular public chain trend in 2022, along with the release of IOTA 2.0 and Assembly, we have reason to believe that IOTA has the potential to occupy a place in the modular public chain market.

Assembly, in conjunction with IOTA 2.0, can meet the various demands for modular public chains in the Web 3.0 era:

1) High TPS - The underlying Tangle ledger DAG data structure ensures high concurrency.

2) Scalable - Similar to multi-chain networks like Cosmos or Polkadot, new contract chains can be continuously deployed.

3) EVM compatible, while also supporting Web Assembly.

4) Developers can flexibly customize incentives and fees for each chain.

5) No MEV.

6) Shared security.

7) Overview of Assembly's Technology.

The technical white paper for Assembly has been released, and here is a brief summary of its core technical features.

1. UTXO Based on DAG at the Core

The UTXO ledger, represented by BTC, allows for concurrent writes, providing a significant advantage in scalability compared to the account model represented by ETH. However, the account model is inherently suitable for smart contracts due to the existence of global and objective states, and its Turing completeness and functionality far surpass those of UTXO-based scripts. This is why the vast majority of smart contract chains are based on the account model rather than UTXO. But conversely, in a modular stack, what if a UTXO-based L1 only needs to handle settlement and does not need to process any contracts or run DApps?

Not supporting smart contracts becomes an advantage, as there will be no competition for resources between L1 DApps and L2, while L1's processing, under the UTXO and DAG model, can theoretically support massive high concurrency, thus having a huge advantage in the number of supported L2s.

2. Assembly - Layer 1.5

Assembly can be seen as a Layer 1.5, which is a smart contract architecture layer where the various smart contract chains built on Assembly are the true Layer 2s.

To facilitate understanding, you can view the entire IOTA + Assembly as a Layer 1 similar to Polkadot's relay chain, with all contract chains connected to Assembly acting like parachains on Polkadot, appearing as Layer 2.

Assembly itself operates similarly to other public chain nodes, providing its own token ASMB for POS staking. In the event of errors or malicious behavior, validators will be penalized (slashed). The ASMB token also serves as the governance token for the entire Assembly ecosystem, including chain configuration, committee rotation parameters, and gas fee settings for each chain.

3. Shared Security

In a multi-chain parallel structure, shared security is an unavoidable topic. As long as there are scenarios involving cross-chain calls, chains with weaker security will inevitably become the weakest link in the barrel theory, thereby affecting the overall security of the barrel. In the new "native modular public chain," Polkadot achieves strict shared security through slot auctions.

Cosmos, on the other hand, currently has loosely self-regulated chains, with no shared security at all (the 2022 version of Cosmos 2.0 will introduce shared security based on Atom Hub). Avax achieves relatively shared security by assigning a designated subset of the "overall validator pool" to each subnet.

It is clear that Polkadot has the highest security requirements, but slot auctions have deterred many projects; Cosmos is the most flexible but currently faces significant security concerns; Avax's subnet validation design strikes a relative balance between the two.

Assembly uses a model similar to ETH 2.0's fraud-proof Rollup, where each validator stakes assets as a security guarantee. Any third party can provide fraud evidence when a validator updates the chain's state incorrectly and receive rewards. This ensures that as long as there is one honest validator in the validator committee, the chain's state will not be maliciously altered.

Of course, you may have a question: In ETH, the staking of validator assets, "arbitration" of fraud proofs, and slashing of staked assets are all accomplished through smart contracts on the ETH main chain.

This smart contract acts as the "supreme court," indirectly achieving shared security for all Rollup chains. However, since IOTA's L1 does not support contracts, who takes on the role of the supreme court?

The answer is—a separate smart contract chain created on Assembly to implement all necessary "supreme court" logic and ensure the security of all other smart contract chains. This special chain is called the "root chain."

The reason the root chain has the highest security is that its validators are a group of special nodes—according to the white paper, in the IOTA 2.0 ledger, the validators of the root chain will be selected from so-called high mana value nodes. High mana validators are owners of L1 IOTA nodes, selected in a decentralized manner based on access to mana and consensus mana as weight factors.

This also introduces an unavoidable topic, namely the underlying L1 IOTA 2.0 and its Mana system.

4. IOTA 2.0

Compared to version 1.0, IOTA 2.0 has undergone many technical updates and iterations. Here are the two most important ones:

First, the removal of the Coordinator - The Coordinator is a special node in the network that protects it from attacks and assists in confirming transactions, but the foundation-provided Coordinator has led to a high degree of centralization in the entire network. One of the most important improvements in IOTA 2.0 is the removal of the Coordinator (which will be implemented in three phases, currently in the first phase and about to enter the second phase).

Second, the introduction of the Mana system - Preventing Sybil attacks and controlling network congestion are core security and functional requirements for any blockchain or distributed ledger system. Consensus mechanisms like POW and POS are largely based on this premise. IOTA is not a blockchain in the strict sense, and therefore does not have traditional POW and POS, but uses a Mana system.

Mana is used to measure the influence of different modules, including FPC voting, dRNG (distributed random number generation), autopeering, and congestion control. In simple terms, you can think of it as a system similar to a node reputation system; nodes with higher Mana values have higher integrity and security.

Similarly, the interests of the L1 ledger are closely related. Thus, as mentioned above, through high Mana validators for the root chain's validation, the security assumption of smart contract chains on L2 can be approximately equated to the security assumption of the IOTA L1 ledger.

Final Thoughts

In conclusion, let’s revisit the modular public chain structure introduced at the beginning of this article. If a Layer 1 has a Layer 2 with Rollup-like technology and can achieve:

"1" Relative security - 6 years of operation since the mainnet launch in 2016 without major incidents;

"2" High TPS, low fees, scalability;

"3" No competition for resources between any L1-based DApps and L2 - L1 only handles settlement or settlement + DA.

IOTA 2.0 is precisely the Layer 1 we have found that meets these criteria. We have no doubt that in the wave of modular public chains, ETH will continue to lead technological innovation in the public chain track. At the same time, with the support of the Assembly smart contract layer as Layer 2, we are also very optimistic about IOTA 2.0 + Assembly occupying a place in the modular public chain market in 2022.