Metis: The Layer2 in MEME Narratives, the Dark Horse in Layer2 Competition?

Author: YBB Capital Researcher Ac-Core

Introduction:

Layer2 should be seen as a rich "Ethereum correctness" expansion path in our consciousness, but influenced by market rumors that the founding team of Metis is "Vitalik Buterin's mother / close friend," Metis has been dubbed the MEME Layer2 title, which undoubtedly strikes at the core of market investors' faith in Ethereum's orthodoxy. However, the essential attribute of blockchain remains "code + finance," and from an investment perspective, technology and market have always been a pair of happy enemies that are both apart and together. Can Metis stand out among many Layer2s by leveraging the issues of centralized sequencers and the disadvantages of strong control economic models?

Introduction to Metis

• (Left: Natalia Ameline, Right: Elena Sinelnikova) *

The MEME attribute originates from information on Metis's official website, where Metis co-founder and CEO Elena Sinelnikova has been promoting education and outreach in the blockchain industry and is also one of the co-founders of CryptoChicks, the world's largest female blockchain community. Another co-founder of CryptoChicks is Natalia Ameline, who is the mother of Ethereum founder Vitalik Buterin. Additionally, Vitalik Buterin's father, Dmitry Buterin, also led the establishment of the blockchain education company Blockgeeks, which is dedicated to developing courses related to blockchain technology. Metis Network was established in 2018 and issued in May 2021.

Metis is a Layer2 based on the Ethereum chain and is one of the earliest fork projects of Optimism. Its working principle is similar to other Layer2s, with the biggest highlight being that it is the first to successfully achieve the decentralization of sequencers in Optimistic Rollup. The network employs a Proof-of-Stake Sequencer Pool mechanism to ensure continuous availability and censorship resistance, while enabling fee sharing and sequencer staking. These sequencers are responsible for determining the order of transaction packaging, and during this process, they must obtain signatures from at least 2/3 of the sequencers in the pool to package and upload data to the Layer1 network. To prevent malicious behavior, Metis has also introduced a validator role to sample blocks and ensure that the sequencers' ordering of transactions is correct.

MPC (Multi-Party Computation) has advantages in privacy protection and decentralization; however, it also has some obvious disadvantages in blockchain networks that require consensus. The lack of relay nodes to distribute information leads to an increase in communication frequency, which in turn significantly raises communication costs within the network. Metis's solution is to transform single-point sequencers into a sequencer pool, achieving decentralization through a node staking mechanism and rotation mechanism, allowing decentralized sequencers to reach consensus and complete signatures. Although this may mean that the network costs do not end up being much lower than Layer1, it can achieve MEV resistance and solve single-point failure issues while distributing profits to node stakers.

The recent sharp increase in Metis's TVL has drawn attention to the importance of decentralized sequencers. According to L2BEAT data, it currently ranks fifth in TVL among all Layer2 networks using the OP solution. The original intention of Metis's decentralized sequencer design is to actively allocate the cake while also allowing the market to see the value capture of Layer2's native tokens.

Source: L2BEAT Data as of 24/02/01

Three Key Elements of Rollup​​​​​​

Rollup is one of the Layer2 solutions, also known as "layered stacking." Its working principle is to migrate the transaction computation and storage that occur on the Ethereum mainnet (Layer1) to Layer2 for processing and compression, and then upload the compressed data back to the Ethereum mainnet, thereby expanding Ethereum's performance.

Rollup can be divided into ZK Rollup and Optimistic Rollup based on different schemes to ensure the validity of the compressed data (i.e., data correctness). It involves off-chain computation, packaging transactions on-chain every few minutes for rolling validation and accounting, hence the name. However, although we usually refer to it as a Rollup chain, the off-chain part of Rollup is not a complete blockchain. Literally, Rollup rolls up a bunch of transactions to form a Rollup transaction, and all nodes, upon receiving this Rollup transaction, do not execute the rolled-up logic but only accept the execution results of these logics.

Source: Ac-Core Custom

• Sequencer

The sequencer is the role in L2 responsible for sorting, organizing, packaging transactions, and submitting them to the L1 network. Currently, most L2 projects rely on a single sequencer (usually the project team itself) to complete these tasks, which presents two security issues: 1. Single point of failure; if the sequencer encounters problems due to attacks or technical failures, the entire network will come to a halt;

2. Scalability issues; a single sequencer may struggle to handle the growing transaction volume.

• Validation

During the transaction process, the data packaged by the sequencer needs to be validated. Currently, most validations of Ethereum Rollup are executed by Ethereum Rollup smart contracts to ensure the credibility of the data. There are mainly two different validation methods: ZK Rollup (Zero-Knowledge Proof Rollup) and Optimistic Rollup (Optimistic Stacking). For example:

ZK Rollup:

Validation Method: ZK Rollup uses Zero-Knowledge Proofs to validate the correctness of all transactions occurring on Layer2. Zero-Knowledge Proofs allow the verifier to confirm the validity without knowing the specific transaction details;

Privacy Protection: ZK Rollup emphasizes user privacy, as what is submitted on Layer1 is a "proof" of the computational result rather than detailed transaction information. Specific transaction content occurs on Layer2, while Layer1 only verifies the validity of the Zero-Knowledge Proof.

Optimistic Rollup:

Validation Method: Optimistic Rollup adopts an "optimistic" strategy, assuming that all transactions are legitimate and only validating when necessary. Validation is completed through Fraud Proofs, which submit proof on Layer1 that transactions on Layer2 have violated the rules;

Real-time: Since it assumes all transactions are legitimate, transactions on Layer2 can proceed quickly, with validation occurring when disputes or disagreements arise.

• DA (Data Availability)

DA refers to data availability, which publicly publishes the state data of each transaction processed off-chain, allowing other participants to access and use this transaction state data. Some Layer2s write the transaction state data to Ethereum Layer1 to achieve DA. There are also some Rollup Layer2s that write key transaction data on third-party blockchains, with the premise of data availability being the trustworthiness of the data.

For example:

DA in Optimistic Rollup: Ensures that all transaction data from Layer2 can be obtained on Layer1. If the data is unavailable, anyone can raise objections on Layer1, which helps prevent potential data tampering or omissions;

Commitment in ZK Rollup: In Layer2, all transaction computation and storage occur, but only the computed results (referred to as Commitment) are submitted to Layer1. Zero-Knowledge Proofs are used to prove the correctness of these Commitments.

Note: In ZK Rollup, "Commitment" focuses more on verifying the correctness of transaction computation results on Layer2, while "data availability" is more concerned with ensuring that Layer1 can obtain all transaction data from Layer2. These two aspects are usually complementary to ensure the overall security and reliability of the system.

Among the three key elements of Rollup, the sequencer is considered the most critical. The sequencer is responsible for executing the sorting and compression of Layer2 transaction information off-chain. Since this process involves verifying the credibility of the data, achieving data availability is crucial. However, when the sequencer is decentralized, the implementation of data credibility verification and availability may not be as critical.

Metis Decentralized Sequencer Based on PoS Consensus​​​​​​

Source: Metis L2

• Selection of Sequencers

By locking $Metis on Metis, there is an opportunity to become a node, with weight calculated based on the amount of locked $Metis. The algorithm assigns a range to these nodes. Metis Rollup has improved the "transaction data validation section." In the Layer2 computation process, a role called "validator" has been introduced, incentivizing validation nodes to quickly validate transactions through a competitive mining mechanism. This process is achieved through a competitive mechanism. Similar to other Layer1 networks that use Proof-of-Stake (PoS) mechanisms, transactions on Metis also require nodes for validation. Therefore, there are no disputes regarding the data packaged and transmitted from Metis to L1, thus avoiding issues of intervals and delays when extracting assets from Metis to the Ethereum mainnet.

Compared to Optimistic Rollup, a significant difference in Metis Rollup is that extracting assets from Metis to Ethereum L1 only takes a few hours or minutes. This highlights the advantages of Metis Rollup in terms of transaction processing efficiency and speed. Overall, the higher the amount locked, the greater the probability of a node joining the sequencer. Of course, there is also a random component involved.

• Sequencer's MPC (Multi-Party Computation)

The decentralization of sequencers in Metis involves three key roles: Admin, Sequencer, and PoS-based consensus layer.

Admin: Responsible for setting key parameters for the overall network and managing the qualifications for sequencers to join the sequencer pool. The protocol party no longer has absolute control over such matters but executes them through proposals approved by the admin. One of the challenges of achieving decentralization is that the management of sequencers must be conducted in a decentralized manner while maintaining efficiency and convenience;

Sequencer: Metis employs TSS (Threshold Signature Scheme)-based MPC (Multi-Party Computation) signatures to manage the signing authority of multiple sequencers. Each sequencer has the right to decide a batch and allows all sequencers to participate through MPC signing. If the number of signatures exceeds 2/3, the batch is considered valid and can be submitted to the Rollup contract on L1. The MPC signing performed by the sequencer pool is managed by another contract in the PoS network. When the PoS network cannot detect the MPC address, it triggers the MPC module to generate keys;

PoS-based Consensus Layer: The PoS network is responsible for managing the contract that oversees the signing authority of sequencers, monitoring the MPC address, and triggering key generation. The generated keys are sharded and distributed to each sequencer in the pool for MPC signing. The setup of this module covers the lifecycle management of keys, including multi-signature generation, key re-sharing, application signing, deletion of signatures, etc.;

The reason for adopting TSS is its high fault tolerance and flexibility. Compared to multi-signatures, TSS does not require verification of each signature on-chain but aggregates the signatures of all signers for unified verification, thus improving transaction confirmation rates. Additionally, communication between PoS nodes uses independent Tendermint channels, while communication during MPC runtime uses the libp2p protocol. The design of this entire system aims to achieve efficient and secure decentralized management of sequencers.

• Transaction Process of Metis Sequencer

1. User initiates a transaction; 2. The transaction is forwarded to the network sequencer nodes; 3. Block generation: The sequencer creates a block when it accepts a valid transaction; 4. Final confirmation: Multi-Party Computation (MPC) nodes merge the block and forward it to the Ethereum main chain.

• Metis EDF

The Metis Ecosystem Development Fund (MetisEDF) provides funding support for various aspects, such as incentivizing protocol development and deployment, providing liquidity support, conducting security audits, and implementing liquidity mining programs. The allocation includes:

Sequencer mining: 65.4% ($3 million METIS / >$260 million);

Ecosystem grants: 34.6% ($1.6 million METIS / >$140 million).

Centralized Sequencer Issues

Source: Ac-Core Custom

The principle of Ethereum is that each node stores and executes every transaction submitted by users, which leads to a high level of security but also makes the entire network very expensive. Therefore, Rollup solutions are needed to scale the entire network. In simple terms, Rollup = a set of contracts on Layer1 + the Layer2 network nodes themselves, i.e., on-chain smart contracts + off-chain aggregators, relying on Ethereum for settlement, consensus, and data availability while being responsible for executing Rollup.

• On-chain smart contracts represent its trust model as a smart contract on Ethereum, leveraging Ethereum's security;
• Off-chain aggregators indicate that it will execute and aggregate transactions off-chain, compressing a large number of transactions and ultimately placing them on the Ethereum mainnet to achieve faster and cheaper results.

Layer2 network nodes consist of many components, among which the sequencer component is the most important. It is responsible for receiving transaction requests on Layer2, determining their execution order, batching the transaction sequences, and ultimately transmitting them to the Rollup project's contract on Layer1. Currently, all Layer2 Rollup sequencers on Ethereum are centralized, while Metis happens to occupy the advantage of decentralized sequencers.

Layer2 full nodes can obtain transaction sequences in two ways: one is directly from the sequencer, and the other is by reading the batch sent by the sequencer to Layer1, but the latter has a stronger immutability attribute. Since transaction execution changes the state of the blockchain ledger, to ensure consistency, Layer2 full nodes must not only obtain the transaction order but also synchronize the ledger state with the sequencer. Therefore, the sequencer's task is not only to send transaction batches to the Rollup contract on Layer1 but also to transmit the updated state results StateRoot/StateDiff after transaction execution to Layer1. In simple terms, the sequencer's work is to process and sort transactions to be added to the blockchain, responsible for batch processing transactions and publishing them to Layer1 smart contracts.

For Layer2 full nodes, as long as they obtain the transaction sequence of Rollup on Layer1 and the initial StateRoot, they can restore the Layer2 blockchain ledger and calculate the latest StateRoot. Conversely, if the StateRoot calculated by Layer2 full nodes does not match the StateRoot published by the sequencer to Layer1, it indicates fraudulent behavior by the sequencer. In summary, compared to Layer2's own network, Layer1 is more decentralized, trustless, and secure.

For example, Optimistic Rollup allows Layer2 full nodes to provide fraud proofs to demonstrate that the data published by the sequencer on Layer1 is incorrect. However, for Optimism, which lacks fraud proofs, if it truly wants to steal Layer2 user assets through the sequencer, it only needs to have the sequencer operator forge transaction instructions and transfer other people's assets on Layer2 to its own address, ultimately using the Rollup's built-in Bridge contract to transfer the stolen coins to Layer1.

Views on Metis

Source: Chaindebrief

The biggest hype in Layer2 recently is undoubtedly the Cancun upgrade, but this will not produce unique benefits for Metis but rather general ones. Setting aside the market sentiment influenced by "Vitalik Buterin's mother / close friend," the biggest competitive point of Metis compared to other Layer2s lies in its decentralized sequencer and decentralized economic model. The TVL reflects a market value that is more aligned with users' confidence in Metis.

Unlike other Layer2s that tightly hold financial power, Metis distributes more profits to users. The economic model of OP Rollup is generally in a strong control state, continuously issuing OP Token rewards to stimulate development and interaction through a centralized approach, profiting from gas price differences. In contrast, Metis decentralizes profit rights to stakers, significantly releasing the financialization attributes of Layer2 infrastructure, thus attracting considerable market attention.

MEME represents more of a culture and some socio-economic factors. Just like when we buy MEME, our expectations for tenfold, hundredfold, or even thousandfold returns come not only from the investment potential but also from our recognition and appreciation of its narrative and various factors. Ultimately, the market's response to Metis's growing TVL is a reflection of investment expectations. From a market perspective, if inscriptions are a tester of public chain performance, then MEME is to some extent a touchstone for market recognition.