Messari: A Detailed Explanation of Oasis Network's Operating Mechanism, Economic Model, and Roadmap

Original Author: James Trautman, Messari

Original Title: "Oasis Network: Growing a Responsible Data Economy with Privacy"

Translation: Gu Yu, Chain Catcher

Key Points

• Oasis Network aims to be a privacy-centric, scalable proof-of-stake (PoS) Layer 1 smart contract platform, compatible with the Ethereum Virtual Machine (EVM).
• The network's value proposition lies in its multi-layer modular architecture, which enables scalability and flexibility for deploying low-cost, privacy-focused smart contracts.
• Given the scale of the Layer 1 smart contract economy, there are significant value-added opportunities for the network.
• The launch of Emerald ParaTime and the subsequent rollout of DeFi applications sparked noticeable network activity in early 2022.
• The anticipated launch of Cipher ParaTime in Q2 2022 is expected to enable privacy smart contracts and drive new use cases in DeFi.
• Parcel ParaTime is a set of privacy-first data governance APIs designed to give users better control over their data and enable developers to deploy isolated computing environments for privacy-preserving analytics.
• A growth strategy consisting of ecosystem funds, grant programs, developer accelerators, and community initiatives is already in place to support ecosystem growth.

As use cases expand and alternatives to the Ethereum network grow exponentially by the end of 2021, Layer 1 smart contract platforms are in a full sprint to capture market share and adoption. Networks like Terra, BNB Chain, Fantom, and Avalanche have witnessed unprecedented growth in average daily network transactions, daily active addresses, market capitalization, and total value locked (TVL). Much of this growth can be attributed to competitive forces shaping traditional industry strategies, similar to Michael Porter's competitive strategies.

The congestion of the Ethereum network, the slow rollout of Layer-2 scaling solutions, the ability to bridge cross-chain assets, and the capacity to execute smart contracts on more efficient networks have allowed new alternatives to gain competitive positions as differentiated solutions and cost leaders.

While Layer 1 platforms exhibit many fundamental differences, nearly all aim to address the blockchain trilemma by achieving sufficient decentralization, scalability, and security while supporting smart contracts. Although their smart contracts inherit the data availability and security of the blockchain, they also inherit its lack of privacy.

Currently, Layer 1 does not support privacy on its public networks, as all records are logged on the blockchain and can be read by anyone. The potential to link distributed ledger addresses to real identities raises privacy concerns. As adoption increases, users may begin to prefer privacy around their activities or sensitive data. In a sense, this lack of privacy could be viewed as a fourth issue that Layer 1 platforms need to address, perhaps the "fourth dilemma" that may trigger the next round of adoption competition.

As adoption continues, new platforms with privacy solutions may begin to experience the exponential growth recently achieved. One such platform, Oasis Network, is a Layer 1 designed to address the trilemma and can flexibly host privacy-enabled smart contracts. With its unique architecture and deployment of privacy computing technology, Oasis Network is sowing the seeds for the development of an open, responsible data economy.

Background

The Oasis team was founded in 2018 and consists of contributors from around the world with diverse backgrounds ranging from startups to traditional finance and technology companies. The team also has a strong academic foundation. Oasis Labs' founder Dawn Song is a professor at the University of California, Berkeley, known for her research in computer security and artificial intelligence. Oasis Labs is an active member of the Oasis ecosystem and one of the early contributors to Oasis technology. The team has raised funds from well-known venture capital firms and investors such as Andreessen Horowitz (a16z), Polychain Capital, Pantera, and Binance Labs to support the initial development of the network.

After launching a private testnet in 2018, the project's public testnet underwent various iterations, along with bug bounties, audits, and network upgrades, before the public mainnet launched in 2020. Fast forward to today, it has undergone additional technical development and ecosystem expansion, including a $200 million ecosystem fund.

Initially, the Oasis network was designed as a privacy-focused, scalable proof-of-stake (PoS) smart contract platform compatible with the Ethereum Virtual Machine (EVM). Its privacy and scalability features aim to advance DeFi and Web3 by creating a new type of digital asset called tokenized data. Unlike existing tokenized data solutions at the application layer, Oasis's tokenized data solution operates at the network layer, allowing applications to build on its privacy computing technology and leverage its advantages. Overall, this design aims to allow users to control their generated privacy data and monetize it, thereby incentivizing what Oasis calls a data responsibility economy.

Network Architecture

Overview

Oasis Network employs a modular architecture that separates consensus and smart contract execution into the consensus layer and ParaTimes layer, respectively. The two layers are integrated to provide the same functionality as a single network. However, separating these layers allows ParaTimes to handle transactions of varying complexities while sharing consensus. With this flexibility, workloads and upgrades processed on one ParaTime can work in concert under consensus to independently ensure network security and finality without affecting other ParaTimes.

Consensus Layer

The consensus layer accepts updated state hashes from ParaTimes and writes them into the next block of the Oasis blockchain, while ParaTimes operate as independent networks that can be configured and customized to run specific applications. The network's two-layer modular solution addresses both security and scalability issues. While the flexibility of independently developing ParaTimes supports scalability, it also supports specific execution solutions, such as privacy computing technology, to address smart contract privacy issues.

Source: Oasis

The consensus layer is the foundation of the Oasis network, designed around modular principles that allow for consensus agnosticism, enabling it to interchange with any consensus logic in the future. Currently, the base layer consists of a modified version of Tendermint Core, a Byzantine Fault Tolerant (BFT) consensus engine. It uses a PoS mechanism and a set of decentralized validator nodes and node operators. Validator nodes are randomly selected to form a committee that accepts state hashes from ParaTimes, maintains a public distributed ledger, and ultimately secures the network. The size of the committee determines the security of the Oasis blockchain, currently set at 110 validator nodes. Additionally, unlike most consensus layers, node operators run a unique type of node tasked with providing a minimal service set specifically for ParaTime functionality (e.g., staking and registration).

Consensus Layer Beyond Tendermint Core

As shown in the consensus layer diagram above, multi-layer consensus begins at the top, with nodes responsible for providing a minimal service set. These services range from maintaining epoch-based timing services to coordinating key manager runtimes and storing and publishing policy documents and state updates required for key manager replication. This multi-node architecture is designed to reduce complexity and ultimately lower the risk of computational errors in the execution layer.

Furthermore, Tendermint Core uses the Application Block Interface (ABCI) to link consensus logic, which serves as the interface between Tendermint and individual applications. Since the Oasis network has multiple services that need to be provided by the consensus layer, it uses an ABCI application multiplexer to perform some common functions and dispatch transactions to the appropriate specific service nodes. This is how core consensus interacts with each service node.

Core Layer Staking and Consensus Voting Power

The current voting power mechanism is stake-weighted, meaning that consensus voting power is proportional to its stake. In this model, the network requires signatures from validators representing more than two-thirds of the total committee shares to sign a block. Note that in Tendermint, the opportunity for validators to propose blocks is also proportional to their voting power based on a randomly generated block proposer order.

Validators must stake at least 100 tokens to contribute to the network's security. Each registered entity can have only one node selected for the consensus committee at a time. The opportunity to be selected for the committee will be proportional to the validator's stake weight (self-raised amount plus delegated stake).

The network's current target inflation rate is between 2% and 12%, and the amount of rewards for validators depends on the length of time staked. To qualify for rewards during a given period, nodes need to sign at least 75% of the blocks in that period.

The network will only penalize double-signing. Double-signing penalties will result in the loss of the minimum staked amount and freezing of the node. Freezing nodes is a precaution to prevent nodes from being overly penalized. The network will not penalize for activity or uptime. If a validator or delegator transfers their staked funds, Oasis requires a 14-day unbonding period. During this time, the staked tokens are still at risk of being penalized for double-signing and will not earn rewards.

ParaTime Layer

The ParaTime layer is the smart contract execution layer, composed of multiple parallel ParaTimes, each representing a computing environment with shared state. Operating a ParaTime requires the participation of node operators, who contribute nodes to an open or closed computing committee in exchange for rewards. Oasis uses differential testing to verify ParaTime execution. This verifiable computing technology allows for smaller committees and requires a smaller replication factor to achieve the same level of security, which Oasis claims is more efficient than sharding or parallel chain models. Two key features include (1) randomly selecting computing nodes from the overall pool to form a computing committee; and (2) accepting results only when all committee members agree.

If discrepancies exist, a separate protocol called "discrepancy resolution" will be enabled as an additional security parameter. In a sense, the functionality of smart contract execution is similar to the consensus layer and its use of node operators and computing committees. ParaTimes can be operated by anyone and can have their own reward systems, participation requirements, and structures; meanwhile, node operators can participate in any number of ParaTimes.

As mentioned earlier, the separation from consensus allows the network to address scalability issues through its modular design. This separation also allows ParaTimes to differ from one another. One distinction is the ability to run privacy-enabled ParaTimes or non-privacy ParaTimes, the latter being similar to Ethereum and other alternative Layer 1 networks.

Additionally, ParaTimes can independently evolve even in the face of advancements in security, scalability, or privacy technology while maintaining consensus. In other words, the network can maintain a public distributed ledger while having an independent ParaTimes ecosystem that can evolve with technological advancements, allowing it to adapt and serve future use cases.

Beyond privacy, ParaTimes can also flexibly configure parameters such as the scale of committee execution, which relates to the level of security required to meet specific business needs. Furthermore, ParaTimes can run different VMs, such as EVM or Rust-based smart contracts, and can be designed as permissioned or permissionless systems. Ultimately, the customization and flexibility of ParaTime allow developers to achieve an ideal balance between security, performance, and privacy.

Privacy ParaTimes

Privacy-enabled smart contract execution is one of Oasis's well-known core value propositions. The upcoming Cipher ParaTime will support privacy smart contracts. In privacy ParaTimes, nodes need to use a secure computing technology called Trusted Execution Environment (TEE). TEE acts like a black box for smart contract execution. By using key management (as shown in the ParaTime layer diagram above), encrypted data enters the black box (i.e., Secure Enclave) along with the smart contract, where the data is decrypted, processed by the smart contract, and then re-encrypted before being sent out of the black box.

This process ensures that data remains private and is not disclosed to node operators or application developers. Other secure computing technologies, such as Zero-Knowledge Proofs (ZKP), can also be used to execute privacy smart contracts. The interchangeability of secure computing technologies is another example of the modularity and value proposition of the ParaTime layer.

ROSE Token

The ROSE token is the native token of the Oasis Network, used for transaction fees on the consensus layer, staking, and delegation, as well as for smart contract operations that incur fees on the ParaTime layer. The token is also expected to be used for network governance, currently being modeled as a hybrid off-chain and on-chain mechanism, with changes to the network being democratically decided by node operators. Voting power is expected to be proportionate to both self-staked and delegated shares.

Assuming the network's privacy value proposition allows for sustained momentum, the token may increase in value through increased protocol revenue, expanded network infrastructure and node operator stakes, and demand for governance stakes. The token itself has a fixed supply of 10 billion ROSE. Not all tokens were publicly released at the launch of the mainnet. Due to the release schedule and lock-up periods, only a small portion (1.5 billion ROSE) of the existing token supply was introduced into circulation at the mainnet launch.

As a percentage of the total existing token supply, the number of ROSE tokens allocated for various network functions follows the distribution below.

Supporters: Between 2018 and 2020, Oasis raised over $45 million from well-known investment funds, which received 23% of the total supply cap at the network launch.

Core Contributors: As compensation for their contributions to the development of the Oasis network, 20% of the total supply cap was allocated at the network launch to core contributors.

Foundation Grant Fund: With the initial allocation of 10% of the total supply cap, the mission of the Oasis Foundation's grant fund is to develop and maintain the Oasis network. A portion of the foundation tokens that were not introduced into circulation at launch is staked on the network. Foundation staking rewards return to the network through validator delegation, network functionality development, and ecosystem grants.

Community and Ecosystem: Funding programs and services for participants in the Oasis Network community, including developer grants from the Oasis Foundation and other community incentives, initially accounted for 18.5% of the total supply cap.

Strategic Partners and Reserves: Funding programs and services provided by major strategic partners within the Oasis network initially accounted for 5% of the total supply cap.

Staking Rewards: On-chain rewards will be paid to stakers and delegators for contributing to the security of the Oasis network. Approximately 2.35 billion ROSE (23.5% of the supply cap) will be paid out as staking rewards to stakers and delegators over four years. Rewards will be distributed through an on-chain mining mechanism, calculated based on the number of blocks produced, the number of nodes participating in staking, and the amount of tokens staked.

Unallocated tokens for staking will be distributed according to the following 10-year release schedule:

The above token supply curve begins with the release in 2020. The rapid growth of unlocked tokens begins after 12 months and starts to stabilize in the recent 15 months. By 2024, the token supply will further stabilize until it reaches a steady level in the 10th year.

Current Status and Outlook of the Oasis Network Ecosystem

Current Status

Like many digital assets, the valuation of the ROSE token has declined by about 50% year-to-date (YTD), while trading volumes across exchanges have also decreased. The top three trading pairs by volume are Binance trading (USDT, BUSD, BTC), currently accounting for about 45% of all ROSE trading volume.

Although trading volumes have decreased, the liquidity of the ROSE token remains relatively healthy, with daily trading volumes ranging from $100 million to $500 million, corresponding to an average trading volume of about $125 million year-to-date. Despite the decline in valuation and trading volume metrics, network usage has shown a significant upward trend.

At the beginning of 2022, the average daily transaction volume on the network's consensus layer was below 10,000 transactions. By mid-January, transaction volume had grown to over 140,000 transactions, an increase of approximately 2,600%. The current daily transaction volume is 110,000 transactions, exceeding the year-to-date average of 100,000 transactions, indicating an upward trend. As of March 15, 2022, the consensus was composed of 153,000 active addresses, processing a total of 7 million transactions. Additionally, Emerald launched this year, achieving a daily transaction volume of up to 3.8 million, with an average daily transaction volume of about 650,000.

In addition to market data and network usage, the network infrastructure has grown from 100 active validators to 110, witnessing the evolution of decentralization metrics.

Currently, seven validators contribute to less than 33% of the total network share. The method behind the Nakamoto Coefficient assumes that 33% is the total stake threshold required to compromise the network. The higher the coefficient, the more secure the network is considered, as it requires more validators to collude against the network. Given this approach, Oasis's Nakamoto coefficient is similar to that of other Layer 1 networks, even though most other networks launched before Oasis, allowing them more time to decentralize their networks. Only time and adoption rates will determine the extent to which Oasis Network increases its validator set and diversifies its stake distribution.

Ecosystem Overview

The token symbol ROSE for Oasis Network may have a reason behind it.

An oasis is a fertile place in a dry environment. The water it provides turns into a thriving ecosystem of flora and fauna. Similarly, Oasis Network provides resources for applications to build DeFi services and new use cases. Assessing the current state of Oasis Network is the starting point for evaluating the ecosystem. Given recent developments and anticipated value propositions, it will be a primary consideration to see if it successfully thrives as we look forward to 2022.

One key driver of recent growth has been the result of launching Emerald ParaTime. Emerald is an EVM-compatible system, crucial for executing Solidity-based smart contracts. The compatibility and stability support of EVM means that any tokens developed for Ethereum can be migrated using existing cross-chain bridge infrastructures like Wormhole, CBridge, and Multichain, which were put into use earlier this year. Emerald also allows the ERC-20 token standard to run natively on the OASIS network. Ultimately, the launch of Emerald has brought a range of DeFi activities to the network, reflected in the increase in daily transactions at the beginning of 2022.

DeFi on the OASIS Network

Beyond Emerald, the network has also launched DeFi infrastructure, including the OASIS wallet for ROSE tokens, and integrated with cross-chain bridges like Multichain. This led to the network's first DeFi application, YuzuSwap (YUZU). YuzuSwap is the first community-developed decentralized exchange (DEX) on the network, providing users with low-cost trading services. The DEX allocates 20% of all trading fees to the YUZU DAO, where YUZU token holders can use these funds to incentivize further protocol growth. Within a month, YuzuSwap achieved a TVL exceeding $100 million, with trading volume reaching $1 billion.

Another major contributor to recent growth is ValleySwap (VS), a DEX that recently launched on February 24, 2022. The launch of ValleySwap clearly brought a resurgence of network activity at the end of February, as daily transaction volumes surged at that time. As of March 15, YuzuSwap and ValleySwap generated daily transaction volumes of approximately $1-3 million, respectively, accounting for $37 million and $125 million in TVL.

The third largest application on OASIS is Fountain Protocol (FTP), the network's first lending protocol. It launched with 200,000 FTP in incentives and generated over $7 million in TVL on its first day. Using Fountain, users can experience managed DeFi assets with high capital efficiency and leverage the low-cost OASIS network. As of March 15, Fountain Protocol has grown to become the third largest DeFi application on the Oasis Network, with a TVL of $17 million.

With the launch of these DeFi protocols, Oasis Network has not only seen an increase in daily transactions but also a rapid growth in TVL.

Intuitively, the market cap to TVL ratio has decreased as the market cap fell by 50%, while TVL increased by 190%. This fundamental ratio represents how the network is valued relative to the locked value. If the ratio is large, the network is considered overvalued. In other words, a network with an MCAP/TVL below 1 represents a network value less than the capital locked across the network. Given that the network's market valuation was close to $1 billion before the DeFi launch, it makes sense to see such a sharp decline in that ratio after the increase in TVL.

Ecosystem Beyond Emerald

Oasis Network is launching two additional ParaTimes beyond Emerald: Parcel ParaTime and Cipher ParaTime. Parcel is a system for storing, managing, and computing sensitive data. By integrating the Parcel SDK into their applications, developers can incorporate privacy-preserving data storage, governance, and computation. This ultimately serves as a tokenized data engine that can convert any data file into an NFT.

Through Parcel, Oasis Network aims to cultivate a responsible data society using tokenized data. Data providers on the Oasis network will be able to use their tokenized data by receiving rewards from applications that analyze or control how their sensitive information is used across different services. This concept differs from the data ownership we are familiar with today, as the data is not monetized or controlled by those who generate it.

Currently, Parcel is a permissioned ParaTime used by enterprise partners such as Binance, Genetica, and BMW. Binance is one such partner, collaborating with Oasis to combat bad actors across various exchanges. As theft and attacks become prevalent in cryptocurrency, exchanges need a platform to identify and ban bad actors. Oasis and Binance created the CryptoSafe platform to enable exchanges to share threat intelligence data. Using the network's privacy computing capabilities, data can be kept confidential even when compared across exchanges. While Parcel is currently a permissioned network, it is expected to become a permissionless network by the end of 2022, bringing tokenized data into the public realm.

Additionally, the third piece of the puzzle is Cipher ParaTime. Cipher is a privacy smart contract system set to launch in Q2 2022. Cipher is central to Oasis's value proposition, enabling privacy computing with WebAssembly smart contracts.

As additional ParaTimes are launched, they have the potential to open the network to an ecosystem aimed at privacy-first DeFi, including privacy-preserving decentralized exchanges. To this end, they aim to make it easier for DEXs to prevent front-running, allow NFT users to privately protect their assets, and potentially release more value from traditional credit and lending markets seeking privacy. Below are examples of how DeFi applications can unlock the value of Parcel and Cipher.

In this example, users will be able to leverage cryptographic techniques and Trusted Execution Environments (TEEs) to protect their privacy data while monetizing and disclosing it to various DeFi services through Parcel. For instance, a user's risk profile and reputation can be used so that lending services can manage risk and assess appropriate collateral requirements. With this knowledge, lending services like Aave can offer under-collateralized loans based on a good reputation. It will be interesting to track their adoption and usage, as the market opportunities for these ParaTimes are vast. Additional usage of these ParaTimes may also generate or replace network activity, similar to what their Emerald counterpart did in early January.

Competitive Landscape

Compared to the top five protocols by TVL, Oasis's metrics may not be as large, but they represent the market opportunities that the network possesses compared to other Layer 1 platforms. There are also several other key projects worth noting. First, Oasis launched its consensus layer later than most of the top L1s that exist today. It also only launched its EVM-compatible ParaTime in January of this year. Finally, none of them have placed privacy computing technology at the center of their ecosystems.

Nonetheless, when we evaluate each network during the same period, Oasis has outpaced each top chain in terms of TVL growth. As of March 15, 2022, Ethereum's TVL had decreased by 23%, while Oasis's TVL had increased by 192%. While this is likely a result of the high growth typically experienced by any early efforts,

The key to Oasis narrowing the gap with its billion-dollar peers may rely on its privacy value proposition. If adoption becomes evident and the gap narrows even by a small percentage, Oasis will position itself as a market player supporting privacy-enabled smart contracts.

Path Forward, Potential Challenges, and Growth Strategy

Like many networks in this competitive space, positioning in the market may present some challenges. The growth of the network infrastructure for additional ParaTimes needs to continue with successful launches. As with any network launch, there may be potential risks and setbacks due to a lack of infrastructure and decentralization.

Given the network activity generated by the recent DeFi launches, Oasis needs to find strategies for successfully launching more ParaTimes, maintaining growth, and seeking opportunities to narrow the gap with more mature networks. In light of this, Oasis appears to have strategies in place to mitigate these challenges. In addition to the anticipated launches of Cipher and Parcel, the Oasis Foundation has also raised over $200 million in funding with partners including Binance Labs, Pantera, Dragonfly Capital, and others for developers and projects looking to build on the Oasis network. Looking ahead, the ongoing growth of Emerald and the launch of Cipher and Parcel must be assessed alongside the capital efficiency of the ecosystem fund.

Beyond the ecosystem fund, the Oasis Foundation collaborates with development teams through grants and the DevAccelerator program to build applications and integrations on the Oasis network. The result of these programs is that several grant recipients are actively building.

Finally, Oasis Network has implemented strategies for community building through ambassador programs and university initiatives. Oasis seeks to establish a global ambassador community to host meetups, answer developer questions, and stress-test the Oasis network. The university program spans five continents, with over 25 university departments and blockchain clubs participating. Members of the university program run nodes and build applications, including Berkeley's blockchain, Tsinghua University's Digital Finance Student Association, and the Blockchain Society at Cambridge University.

Oasis is co-organizing ecosystem funds, grants, accelerator programs, and community initiatives to mitigate network risks by expanding network infrastructure and driving network activity in the foreseeable future.

Conclusion

As Ethereum continues its architectural redesign and combines scaling solutions, the race for adoption and market share among Layer 1 smart contract platforms may be far from over. New use cases continue to require alternative solutions, one of which may well meet the demand for privacy computing technology on a purpose-built modular execution layer. With its unique architecture and deployment of privacy computing technology, Oasis Network seeks to fulfill such demand. As the network expands applications on Emerald and launches Cipher and Parcel, Oasis is well-positioned to narrow the gap in the Layer 1 competition.

While technical challenges may arise in the process, Oasis's growth strategy includes ecosystem funds, incentive programs, and community initiatives aimed at mitigating such challenges and driving growth. Although many Layer 1s experienced exponential growth in 2021, Oasis has not fully participated in the competition, as significant developments and releases have yet to occur. For this reason, this year is a pivotal one for Oasis Network as it releases its value proposition to the decentralized world.