Overview of Web3 Development in Various Fields in the First Half of 2024

Ethereum

Zero Knowledge

ZKVM and ZKEVM technologies have made significant progress in the first half of 2024. An increasing number of ZKEVM projects are starting to shift towards the ZKVM architecture, with the PSE team under the Ethereum Foundation being a representative example. Taiko has already collaborated with Risc0's ZKVM, and Scroll is also preparing in this field. The emergence of Plonky3 has driven this shift, as it outperforms Halo2 in terms of performance and enhances user experience.

Currently, the virtual machines available in this field include ZKWASM, Succinct's SP1, a16z's JOLT, and Risc0. Polyhedra's ZK Prover performs excellently and plans to develop its own virtual machine in the future. Aztec and Mina are also developing their respective virtual machines, but their performance benchmarks have not yet been released.

Key factors driving broader adoption will depend on multiple aspects, such as proof cost, proof efficiency, and development time. It is currently widely believed that zkVM is well-suited for building and deploying verifiable applications, which deserves further attention.

In terms of middleware, the activity level of proof verification systems remains very high, with Brevis, Alignlayer, and Nebra collaborating with Eigenlayer to enhance security. Due to the relatively high cost of zk proofs, the market is gradually shifting towards adopting hybrid solutions of OP and ZK to improve proof efficiency. In terms of applications, catalysts such as verifiable AI and verifiable off-chain data will bring more application demands, and attention can be maintained on these innovative areas.

MEV, chain abstraction/account abstraction, intent

MEV Development Updates:

• The Flashbots team has been experimenting with and developing products that utilize Intel Software Guard Extensions, recently attempting to use Trusted Execution Environments (TEEs) for privacy computing on the Ethereum Virtual Machine. These use cases include storing and processing sensitive data, ensuring that auction bids are protected from tampering and data leaks.
• Fully homomorphic encryption ( FHE ) is also seen as a potential solution against MEV, as it keeps data encrypted at all times, eliminating the possibility of selective reordering.

Block Builder:

According to data from relayscan, the block construction market has become highly concentrated among a few builders, including some high-frequency trading firms that are known for catering to their own trading needs. Currently, beaverbuild, titan builder, and rsync builder are the most dominant and profitable builders in the market. This phenomenon of centralization has prompted further research into the design of block auction mechanisms, aimed at preserving the censorship resistance of Ethereum.

Relay:

Relay still plays a crucial role in block supply, with over 90% of blocks transmitted through relays. The Titan builder launched Titan Relay this year, which has grown rapidly since its launch.

When assessing a Relay, several factors need to be considered:

• Performance and reliability can be analyzed through metrics such as uptime, latency, and bidding failures.
• The scalability of Relay refers to its ability to serve a large number of validators.

In the MEV track, the next stage, how MEV-related projects can achieve value capture and successfully design tokens are critical questions.

Chain abstraction and account abstraction:

Chain abstraction is a persistent and crucial concept for achieving large-scale user adoption, aimed at enhancing the user experience by making users unaware of the existence of the blockchain, or even not knowing which chain they are using. NEAR, as one of the early pioneers in this field, has launched a multi-chain signing feature that allows one account to be used across different chains. Supported chains include: Bitcoin, Ethereum, Cosmos ecosystem chains, Dogecoin, XRP Ledger, TON network, Polkadot, etc.

Refer to the CAKE framework proposed by Frontier.tech, which includes permission layer, solver layer, settlement layer, etc. Among them, account abstraction (AA) can also be included in the permission layer. The AA domain is mainly divided into two categories: smart contract wallets and modular services. As we mentioned in the 2023 domain review, smart contract wallets play a crucial role in providing a seamless user experience through intent-driven design.

Significant progress in this field includes:

• The number of AA accounts has exceeded 12 million, and the number of UserOps calls has surpassed 49 million.
• The number of active smart wallet accounts per week is also on the rise, with Polygon remaining the network with the most smart accounts. Another popular platform is Base, which may benefit from the launch of the Coinbase smart wallet that features compatibility.

With the inclusion of EIP-7702 in Ethereum's Pectra upgrade, it will provide a more seamless and user/developer-friendly experience, as it aims to improve upon the previous account abstraction (AA) design, such as ERC-4337, which was costly and lacked native support for converting externally owned accounts ( to smart accounts ). Therefore, the focus can be on whether improvements at the infrastructure level can lead to new applications.

Apart from AA, other tracks worth paying attention to in the field include strategy engines, intent frameworks, and preconfirmation, among others. The related projects in the intent domain are still actively under development, and their specific performance and PMF are yet to be observed.

Bitcoin

Bitcoin Rollup has attracted significant attention earlier. However, over time, interest seems to have waned, and we observed this at the Bitcoin Asia event. The number of emerging projects has decreased, and fundraising in the current environment appears to be challenging. Nevertheless, we are still witnessing some notable technological breakthroughs, such as BitVM. Some Rollup projects are exploring integration with BitVM. Recently, BitVM has rapidly innovated, for example, by creating the BitVM cross-chain bridge. This bridge can be used for large cross-chain transactions, while smaller transactions are expected to continue relying on multi-signature or HTLC swaps to enhance economic efficiency.

Overall, despite the challenges faced by Rollup, technological developments like BitVM may still provide opportunities for Rollup, such as interoperability.

Income-oriented Bitcoin strategy

Yield-oriented strategies are also gaining attention, with more and more projects offering wrapped BTC to holders, providing users with returns, while also being easy to generate TVL. For example, projects like Mezo integrate multiple products, where Rollup is just one of many components, along with other products like tBTC and Acre's stBTC( liquidity staking).

In this field, we continue to exercise caution, investing in teams with clear technological advantages, well-defined market strategies, or proven success experience.

Asset Protocol: BRC20, Runes, Atomicals, RGB, Taproot Assets

The performance of BRC-20 tokens remains weak, with ORDI performing poorly compared to the beginning of the year. Overall, not many highlights or improvements have been found in BRC20 so far. Despite the strong attention that Runes generated after the Bitcoin halving, this interest has gradually faded. This aligns with the trend of declining network activity and fees. The integration of Taproot assets with the Lightning Network may reignite market interest and momentum.

Overall, under the premise of sustainable adoption of Bitcoin assets, infrastructure providers serving this growing asset class may become attractive investment opportunities.

Bitcoin Staking

Staking(restake) is a feature that was not originally in Bitcoin but was later modified. The emergence of this track is also because it can be considered as solving two problems: the demand for BTC yield on the capital side and the need for products to be tied to the Bitcoin main chain.

Staking can be roughly divided into three categories according to the reduction mechanism:

1. The principal will be slashed: Babylon is an example of this method.
2. Loss of earning opportunity on interest slash(: CoreDAO primarily focuses on reducing potential earnings rather than reducing principal.
3. Non-slash: This category includes self-hosted second-layer networks ) such as Rollups (, which aim to increase TVL and promise returns, as well as financial management projects like BounceBit, where users' bitcoins are managed by an asset management team to generate profits.

Staking)restake(The earliest track of Babylon has already formed its own ecological system, and basically, many applications related to Bitcoin will consider leveraging Babylon to achieve relevance with the main chain. The projects related to staking in the Babylon ecosystem will mainly focus on implementing auxiliary functions.

This track is expected to be similar to EigenLayer, with some applications and infrastructure being developed in imitation, and the market performance and ecological development will need to be further observed after the mainnet goes live. For example, the Babylon mainnet reached its limit shortly after going live. We remain optimistic about the future development of Babylon.

) Bitcoin DeFi, MEV

BTCFi: Recently, there has been a lot of discussion about Bitcoin financial applications such as ###BitcoinFi and BTCFi(. Currently, the focus is still on lending and stablecoin applications. Using various methods, such as locking assets on Bitcoin while processing the logic of issuing assets on L2, or choosing different asset issuance methods, will lead to different trade-offs.

Wrapped BTC: WBTC, tBTC, FBTC, and SolvBTC have recently garnered significant attention. The competition in this space is expected to intensify. For example, the Solv Protocol has witnessed tremendous demand through extensive partnerships, DeFi integrations, and cross-chain composability, prompting the protocol to secure over 13,500 Bitcoin staked. As more projects seek to leverage Bitcoin in DeFi applications, we anticipate that competition in this area will further escalate.

Bitcoin DEX and related applications: On-chain DEX still primarily use PSBT, while some projects like Satflow use pre-confirmation strategies in the memory pool, although this method carries the risk of being replaced.

MEV: The activation of RBF and the introduction of new types of assets have made MEV scenarios on Bitcoin more active. Projects like Rebar aim to establish MEV infrastructure similar to what Flashbots has done on Ethereum, while projects like Alkimiya focus on the fee/block space market. Currently, MEV-related activities mainly come from transaction acceleration services. We will continue to monitor the ongoing developments in this field and observe new projects continuously launching various services to mitigate the negative impact of MEV on users.

) Bitcoin technology development

OP_CAT:

Although OP_CAT is an easy-to-implement opcode, its activation introduces many functionalities, such as relatively simple Merkle tree verification of the hashes of two elements ### to more complex operations like using stacked Schnorr signatures for transaction verification. However, concerns about its flexibility may introduce some unpredictable risks. In May 2024, OP_CAT was enabled as a soft fork in the Bitcoin trial client (, which is a client on the signet network ). The method of soft fork has also been subject to various debates and uncertainties during the last Taproot upgrade. It's not just the content of the upgrade itself, but also discussions about how the soft fork upgrade process should be conducted, thus OP_CAT may not be enabled in the short term; if enabled, it will certainly be accompanied by various controversies. The same applies to other soft fork upgrades, including OP_CTV( which has already been widely debated once in 2022 ), APO, and so on.

BitVM:

BitVM has made significant breakthroughs in enhancing Bitcoin's expressive capabilities. BitVM2 has made improvements over the previous design, enhancing the verification capabilities of complex computations while reducing trust assumptions. Recent key developments have focused on the development of the BitVM bridge, which has reached a certain level of maturity and security, with the potential to achieve testnet/mainnet maturity by the end of 2024. The BitVM bridge is likely to primarily handle large assets, leaving space for the continued existence of other cross-chain bridges. Alternative cross-chain solutions to the BitVM bridge through multi-signature bridges or atomic swaps still provide practicality for end users, offering faster and lower-cost alternatives. In addition, we may also see the establishment of new validator networks on BitVM2 in the future.

( Channel, Joinpool class solution

Significant progress has been made on solutions related to channels and Joinpool. These solutions allow two or more users to share a UTXO on the main chain, while off-chain allocations can be executed based on business logic for )vTXO###. When users want to exit, they can settle back on the main chain through a unilateral exit.

In addition to Hedgehog, the recent focus has mainly been on Ark. Burak launched Ark v2, which offers higher capital efficiency and introduced a related concept called Brollups.

Statechain is another interesting solution, similar to the UTXO Mercury Layer based on Joinpool. The Mercury Layer has made significant progress in this field, while new projects like Mach are developing the underlying infrastructure.

Bitcoin, as the largest asset, in history