[Infrastructure] How Omni Expands the Modular Ecosystem
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TL; DR
- The interdependence of blockchain services has posed challenges in delivering high-security trustless values.
- To address this challenge, EigenLayer has emerged, which provides security at a low cost, enabling the sustainability of the protocol and relatively high rewards.
- The challenges faced in the modular era mirror those of the multichain era.
- Omni is rapidly expanding its ecosystem as an infrastructure layer to address security, performance, and global compatibility issues.
- Post-launch, Omnichain will need to address three key areas: risks associated with EigenLayer, dual-staking tokenomics, and relay incentivization.
- To gain a quantitative understanding of the protocol, consider the risks associated with the value created by the Omni Protocol and compare its cost to that of existing services.
1. Challenges in the Modular Era and Tasks for Bridge Protocols
It’s been nearly three years since Ethereum decided that the solution to scalability was L2, specifically rollups. Vitalik emphasized in his roadmap that infrastructure updates are essential for tackling the complexities of the rollup-centric modular era. Last June, Vitalik’s article The Three Transitions specifically addressed the inconvenience of one person having multiple addresses.
In fact, the challenges of the modular era are similar to the challenges of the multichain ecosystem. 1) fragmented execution environments that weaken network effects, 2) fragmented liquidity that increases transaction costs, and 3) increased complexity that hinders user experience. As a solution to these issues, bridge services have emerged.
Let’s delve into the realm of blockchain bridges, which are typically assessed based on three critical factors: cost, security, and performance (user experience). This evaluation process bears a resemblance to the scalability trilemma: achieving higher security and faster performance often incurs increased costs, while efforts to address cost and performance may compromise security. Similarly, prioritizing higher cost and security can lead to diminished performance.
Essentially, a bridge service is essentially an iteration of locking and minting. During token locking, validating, and minting, the protocol seeks to optimize solutions by weighing cost, security, and performance considerations. Simply put, if you lock and validate a token for a high level of security, take 10 hours to lock and validate it, and then repeat it a thousand times, you shouldn’t have any security incidents. Conversely, streamlining validation processes through frequent data writes to smart contracts can expedite validation but at a significant cost increase.
While bridge protocols can be assessed using various criteria, those employing consensus algorithms for validation share a crucial similarity: the cost of an attack must surpass the value of the assets managed by the bridge. In a Proof of Stake (PoS) ecosystem, this cost is directly proportional to the quantity of assets staked.
The Cost of Security
The level of security in a Proof of Stake (PoS) consensus algorithm is directly tied to the value of the assets being staked. Let’s simplify this concept. For instance, if 100 million won is staked into a bridge service, the cost of attacking the service must always exceed 100 million won to safeguard the staked assets.
However, incentivizing staking poses its challenges. Investors typically weigh the risk/reward ratio before committing to an investment. Therefore, encouraging staking requires offering rewards that outstrip those of other stable protocols. Currently, Ethereum stands as one of the most stable and highly secure chains, offering a 4% annualized reward for staking. Consequently, newer and less stable protocols must structure their tokenomics to provide rewards surpassing 4%. Yet, this reward scale effectively translates into a cost for the protocol, presenting a significant barrier to designing sustainable tokenomics
EigenLayer presents a great alternative to protocols grappling with these challenges. Actively Validated Services (AVSs) secured by Ethereum through EigenLayer need not directly compete with Ethereum’s rewards. For instance, to compete with a protocol that offers a 10% reward, it needs to offer only 6% or more as Ethereum provides 4%. This flexibility facilitates the maintenance of higher sustainability levels compared to other protocols, achieved by reducing costs or establishing a virtuous cycle in tokenomics that factors in higher rewards.
The Omni Protocol effectively addresses the issues of the modular era while leveraging the benefits of the EigenLayer. Currently, L2BEAT reports 47 active L2 projects on Ethereum. Let’s delve into how Omni tackles the mounting complexity and liquidity challenges, which are evolving faster than the multichain era.
2. Omni
Vision
“Omni is a natively secured, externally verified interoperability network that establishes a new precedent in security, performance, and global compatibility for the future of Ethereum’s modular ecosystem.”
Let’s take a look at Omni’s vision. Omni aims to set a new standard for interoperability in Ethereum’s modular execution environments, by ensuring robust security, optimal performance, and seamless global compatibility. Security is achieved by using restaked ETH via EigenLayer, performance is achieved by using an external verification system for lightning-fast speeds, and global compatibility is achieved by providing a programmable state layer within Omni. The diagram below illustrates its approach to achieving security, performance, and global compatibility.
2.1. Architecture
2.1.1. Security
Omni employs a dual staking mechanism for its PoS security, utilizing two staking assets to maintain network resilience. Such models are commonly embraced to enhance security through diversified incentives and foster broader network engagement. In Omni’s case, security is reinforced by the ETH restaked via EigenLayer, “reducing the cost of security implementation”, while the protocol’s native token incentivizes active network participation.
Protocols that employ restaking as part of their staking model, which is directly linked to their security, are expected to adopt a dual staking model, similar to Omni’s approach. This stems from the necessity of establishing an initial incentive structure to catalyze a positive cycle of tokenomics during the protocol’s launch phase. Relying solely on restaked ETH could render the protocol passively responsive to market dynamics. However, for a dual-staking framework to thrive over time, careful consideration must be given to how the native token’s utility is generated and sustained across various market conditions.
2.1.2. Performance
Fast validation is essential to ensure a seamless user experience. Blockchain validation typically occurs through four main methods:
- Storing data required for validation (e.g., rollups)
- Assuming no issues and validating during the challenge period (e.g., optimistic approach)
- Minimizing the required data for validation by utilizing the same interface (e.g., lightclients in Cosmos-IBC)
- Employing an externally independent consensus mechanism through an intermediate message forwarder (e.g., relays)
The downside of storing data directly, as in option 1, is the high cost. Having a challenge period, as in option 2, makes delivering a seamless user experience difficult. Additionally, a fixed interface, as in option 3, limits the number of rollups that can be supported. Against this backdrop, Omni employs the BFT consensus algorithm to achieve performance through an externally independent consensus mechanism. The BFT consensus algorithm, advantageous in yielding high performance with a limited set of validators and ensuring instant finality, is best suited for the problems that Omni has set out to resolve.
The tokenomics for security can act as a barrier when using an externally independent consensus mechanism. In order to address the security issue, projects can opt to give up the benefits of its own tokens and choose the tokenless PoA. Resolving the security issue through restaking, Omni chooses an external consensus mechanism while benefiting from its token utility.
2.1.3. Global Compatibility
Global compatibility entails the ability to integrate all types of rollups. This straightforward definition encompasses several important considerations. Firstly, rollups offer diverse scaling possibilities, utilizing various virtual machines (VMs), programming languages, and data availability layers. Therefore, they should not rely on a specific technology stack. Moreover, since each rollup operates with native assets, addressing gas costs is imperative.
To address these challenges, Omni has developed its own execution layer based on the Ethereum Virtual Machine (EVM), providing the groundwork to support diverse applications through smart contracts. The architecture overview showcases the Portal Contract, which unifies interfaces necessary for communication with different rollups and facilitates communication through relays. This demonstrates how Omni’s programmable execution layer enables flexible adaptation to evolving interoperability requirements.
In addressing the gas fee issue, the Omni Protocol supports a method where the source chain pays the target chain’s gas on the source chain. This feature significantly enhances interoperability, enabling cross-chain function execution rather than simple token transfers between chains. The evolution of Cosmos IBC, from handling token transfers to facilitating cross-chain calls via Interchain Accounts (ICAs) and proposing features like Interchain queries (ICQs), illustrates the steps necessary to enhance cross-chain interoperability. Despite occurring between homogeneous chains, this development took a significant amount of time. However, this prolonged duration was driven by Omni Protocol’s proactive approach, as it proposed a foundation with high interoperability in mind, aligning with its mission to unify all rollups.
The whitepaper proposes another use case: Natively Global Applications (NGAs), a new category of applications that dynamically propagate contracts and interfaces to any rollup. Suppose you mint a token and deploy your smart contract on a different chain to improve usability. As a developer, you don’t want to have to manage upgrades for every rollup or deploy a new contract for every additional rollup. In addition to high operational costs, unmanaged smart contracts can also become security vulnerabilities. A globally compatible Omni protocol will bring about a future where a single interface will reduce the operational costs of applications.
2.2. Investment & Ecosystems
Interoperability stands as a hallmark of blockchain technology. Thus, having investors and partners capable of collaborating across various protocols is paramount for a project’s success. In the case of bridges, the ability to engage with numerous key players is crucial. Here, we briefly outline Omni’s investments and achievements within the ecosystem.
Omni successfully closed its first funding round on April 23rd, raising $18M. Notably, the round garnered participation from industry-leading investors, including Pantera Capital, Two Sigma Ventures, Jump Crypto, Coinbase Ventures, and The Spartan Group. Furthermore, Omni has recently forged collaborations with prominent Layer 2 (L2) teams such as Optimism, Arbitrum, Scroll, and Starknet, bolstering its ecosystem significantly. A closer look at Omni’s ecosystem reveals robust support for all major L2 solutions.
As numerous Actively Validated Services (AVSs) approach launch, there is a pressing need to allocate a portion of EigenLayer’s current reserves to expedite project development. As reported by CoinDesk, Omni has signed a $600M-worth ETH restaking deal with Ether.fi. In addition, Swell, Kelp, Bedrock, and EigenPie have announced their intentions to restake over $1B in Ether, making Omni among the most likely AVSs to launch successfully.
3. Further Discussions
As blockchain technology grows, even single services become highly interdependent. This creates challenges in maintaining high-security levels, a problem addressed by EigenLayer’s restaking concept. Through restaking, decentralized services can offer robust security at a reduced cost, fostering sustainability and incentivizing participation in a virtuous cycle. Now that three years have passed since the introduction of the rollup roadmap, there is a growing imperative to address interoperability issues. Omni is rapidly scaling at the nexus of these challenges, proposing technologies that satisfy security, performance, and compatibility requirements.
For a successful blockchain project launch, three key factors are essential: defining a significant problem area and proposing a solution, securing strong investor support for the initial phase, and fostering valuable partnerships to promote interoperability. While Omni has made significant strides in achieving these goals, ongoing attention is needed in the following three areas to monitor its continued growth:
1. Eigenlayer Risks
EigenLayer’s distinct reward scheme, compared to Ethereum, may pose centralization risks and increase the likelihood of slashing incidents, potentially undermining user predictability. Collaboration among Ethereum, EigenLayer, and each AVS is crucial to fortifying the ecosystem and addressing this challenge.
2. Dual-Staking Tokenomics
As AVS and dual staking are still nascent, the sustainability of tokenomics remains uncertain. Efforts should be directed towards establishing a robust tokenomics model, either through a deflationary model like Ethereum or Injective, or a fee-sharing approach like Uniswap. I remain optimistic about Omni as it has already established a foundation of “relatively high sustainability” by adopting a restaking approach.
3. Relay Incentivization Strategies
Traditional bridge platforms have encountered difficulties with relay compensation schemes. As the number of supported rollups increases, the demand for relays grows linearly, resulting in a corresponding rise in infrastructure operating costs. Omni’s strategy for resolving this challenge will be closely scrutinized as it navigates through these complexities.
4. Conclusion
Blockchain technology is constantly evolving to make trustless transactions more affordable. Efforts have been made to optimize gas costs, invent a new data structure named blob to tackle the expense of storing data in rollups, and achieve lower-cost security with EigenLayer. As technology progresses, new services emerge, demonstrating greater competitiveness and leading to paradigm shifts.
The introduction of restaking represents a major, paradigm-shifting update. Similar to how the Dencun upgrade opened up opportunities to use smart contract wallets on L2, restaking will create new possibilities for decentralized applications that previously struggled to offer sustainable tokenomics due to high costs.
As Ethereum’s execution environment rapidly transitions to L2, the problem areas that Omni aims to solve will inevitably be addressed in the pursuit of scalability in a modular manner. If we define sustainability as Service Creation Value — Cost > 0, then we can quantitatively understand the emerging Omni protocol by evaluating the value it creates, assessing potential risks, and comparing its costs to existing services.
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