As the third largest Layer 2, what notable progress and ecological projects does Metis have?

Author: flowie, ChainCatcher

On the eve of the Cancun upgrade, the Ethereum ecosystem Layer 2 finally has something to celebrate. Following the lead of Optimism, the lesser-known Metis has continued to impress, with its token price rising over $92, marking a 230% increase in the past week, making it the Layer 2 with the highest growth.

According to L2beat data, MetisO's TVL currently stands at $723 million, surpassing Base and zkSync to rank third. According to official data from December 27, the number of active wallets on Metis has increased by 850% in the past 10 days.

Source: L2beat

As a well-established Layer 2 project founded in 2021, Metis has always been in the spotlight, being co-founded by Vitalik's mother Natalia Ameline and her close friend Elena Sinelnikova. In the recent meme-driven market atmosphere, the sharply rising METIS has been humorously dubbed a Layer 2 meme coin by many crypto users. Additionally, several meme coins have also emerged on the Metis network.

Recommended Reading: "Vitalik's Mom's Best Friend: Analyzing the Team Behind Metis"

Beyond the backing of Vitalik's mother, the launch of the Metis Eco Development Fund (Metis EDF) on December 18, just before the surge in TVL and token prices, is widely regarded as a major catalyst for this increase. According to the official announcement, Metis plans to allocate 4.6 million METIS tokens for "sequencer mining, retroactive funding, new project deployment, etc.," with the specific distribution scheduled for the first quarter of 2024 after the launch of the Metis decentralized sequencer mainnet. Metis' new ecological fund has also stimulated a collective rise in its ecosystem projects.

Source: RootData

Previously, Metis announced plans to launch decentralized sequencers and hybrid rollups in 2024, providing significant opportunities for crypto users as the Cancun upgrade approaches.

On the Eve of the Cancun Upgrade, What Features and Progress Should We Pay Attention to in Metis?

Metis is based on Optimistic Rollup Layer 2, originally a fork of Optimism, and launched on the mainnet on November 19, 2021.

As a star Layer 2 project from the last cycle, Metis has garnered attention not only due to its co-founding by Vitalik's mother but also for advocating the concept of Decentralized Autonomous Companies (DAC). The concept of DAC was first proposed by Ethereum founder Vitalik Buterin, referring to decentralized enterprises that operate all their business on the blockchain. Metis is the first project to implement the DAC architecture. Unlike DAOs, which primarily handle voting and governance, DACs function more like fully operational companies, taking on all tasks of non-blockchain companies—managing payroll, marketing, information dissemination, insurance, etc. It uses tokens as an incentive mechanism, allowing everyone to create their own decentralized business and collaborate with others in the decentralized world.

In terms of technology and strategic direction, Metis also has some differentiated approaches that have attracted attention.

1. Attempting Decentralized Sequencers to Decentralize Power

Layer 2 has long been criticized for the centralization of sequencers, yet progress in addressing this issue has been slow.

According to a research report released by Binance in August this year, all major Ethereum L2s rely on centralized sequencers (dedicated sequencers designated by the project). While many Layer 2s include solving the decentralization of sequencers as part of their roadmap, there has yet to be a true consensus on how to achieve decentralization.

What are the dangers of centralized sequencers? In simple terms, there are two main aspects: first, they are prone to single points of failure; Arbitrum experienced two outages in 2021 due to sequencer node attacks. Second, they lead to resource concentration, allowing project teams to monopolize all revenue generated from that sequencer, while the community cannot share in the profits.

However, some practical considerations and profit motives have slowed the progress of decentralized sequencers. Crypto KOL Haotian pointed out that since sequencers are a core component of Layer 2, using distributed sequencers from the start could pose potential failure risks that affect user experience. Therefore, most project teams initially tended toward centralized operations to ensure safety and stability. The Binance research report also mentioned that users can bypass the sequencer and submit transactions directly to L1 (as long as they are willing to pay the increased gas costs). Although misbehaving sequencers may cause transaction delays and additional costs for users, they ultimately cannot fully censor transactions. This is also one reason why no major Layer 2 company has focused heavily on decentralized sequencers.

At the same time, using centralized sequencers offers many benefits to project teams. For example, centralized sequencers can significantly improve transaction confirmation speed and reduce transaction costs. More importantly, profit motives allow centralized sequencers to easily maximize their own interests, such as controlling gas pricing and directly profiting from it.

The Binance research report noted that in the early stages, most leading Layer 2s focused on enhancing their core products and features rather than decentralizing power, which is understandable. However, as Layer 2 network companies mature, market attention has shifted back to the decentralization of sequencers and improving credibility. With the Cancun upgrade approaching, discussions around Metis have also focused on solutions for decentralized sequencers.

Currently, several solutions have been proposed for the decentralization of sequencers. Crypto KOL Haotian (@tmel0211) categorized them into two strategic paths: one is the "soft distribution" strategy attempted by Arbitrum, Optimism, Starknet, and zkSync; that is, they choose a stacked strategic architecture, "sharing the core sequencer to create a Superchain multi-chain architecture, and then jointly govern through MPC multi-signatures, governance voting, etc., achieving a socialized 'transparent, decentralized' consensus."

The other is the "hard distribution" strategy attempted by Metis, EspressoSys, AstriaOrg, radius, etc., emphasizing the decentralization of technical consensus, such as having multiple entities operate the sequencer and using reward and punishment mechanisms to constrain individual sequencers to achieve fair ordering and transfer power and profits to the community.

Taking Metis as an example, Metis has established a sequencer pool composed of multiple sequencer nodes after administrator review, requiring at least 2/3 of the sequencers to sign off before submitting the packaged batch to the Rollup contract on L1. To prevent malicious behavior by sequencers, Metis has introduced Rangers to sample-check blocks, including whether the order of transactions has been altered or if malicious transactions have been inserted, etc.

In this sequencer architecture, Metis also incentivizes and constrains sequencer nodes through a reward and punishment mechanism. On one hand, sequencers entering the pool must stake at least 20,000 METIS to have block production rights. Participating sequencers can earn token rewards. Users can also stake to choose sequencer nodes and share rewards; on the other hand, validators checking the blocks can also earn mining rewards. When a sequencer node misbehaves, the system penalizes the staked assets of the malicious node, and validators can share in the confiscated assets.

Since Metis announced its restructuring to achieve sequencer centralization in early 2022, its decentralized PoS sequencer has been running on the Holesky testnet and will undergo community testing on January 3, 2024, at which point users can interact with Metis dApps deployed on the Holesky testnet to earn rewards. Metis has indeed made substantial progress in decentralized sequencers. “Metis Community Testing”

On December 18, the Metis Foundation announced that 300,000 of the 4.6 million METIS tokens in the ecological development fund would be used to incentivize sequencer mining. The specific distribution time is scheduled for the first quarter of 2024 after the launch of the Metis decentralized sequencer mainnet. “Metis EDF: A New Chapter for Metis”

Recommended Reading: “Binance Research Report: In-Depth Study of Decentralized Sequencers”

“Why is the Path to Decentralizing L2 Sequencers So Difficult?”

2. Combining Optimistic Rollup with Zero-Knowledge Proofs to Build the First Hybrid Rollup

Zero-Knowledge Rollups and Optimistic Rollups are currently the two mainstream Rollup architectures, but each has distinct advantages and limitations.

Optimistic Rollup offers good scalability and EVM compatibility, but due to the need to submit fraud proofs, the time for transactions to reach final confirmation can take up to a week. On the other hand, Zero-Knowledge Rollups can achieve faster transaction confirmations but face higher costs and security issues due to the need to verify validity proofs on-chain. The former has a poor user experience, while the latter struggles with cost-effectiveness and sustainability.

Therefore, the integration of Zero-Knowledge Rollups and Optimistic Rollups into Hybrid Rollups has become a significant trend. Projects like Fraxchain, Aztec, Miden, and Ola have announced Hybrid Rollups one after another.

In March of this year, MetisDAO officially announced the construction of the first Hybrid Rollup by combining the optimistic rollup architecture with zero-knowledge proofs to achieve the scalability of Optimistic Rollups and the security and fastest transaction confirmation features of Zero-Knowledge Rollups, providing users with a better experience.

According to their official blog, in the second quarter of 2024, Metis will advance the work related to launching Hybrid Rollup on the testnet.

3. In Terms of Token Functionality, METIS is Used for Governance, Network Gas Fees, and Node Staking

In addition to being used for governance, Metis' native token METIS has more use cases. For example, unlike most Layer 2s that use ETH as gas fees, Metis requires METIS to be consumed as gas for every transaction. It is known that most L2s use ETH rather than their own tokens for gas fees, partly because ETH is more popular among users, and earning ETH seems more profitable than holding their own tokens.

METIS can also be used for Builder mining rewards, where DAC members receive METIS rewards after completing each transaction on their Layer 2 network.

Additionally, as mentioned earlier, in the decentralized sequencer pool, sequencer nodes need to stake METIS to qualify as sequencer nodes, and users can also stake to choose sequencer nodes and share rewards; METIS is also used to incentivize Rangers to supervise and prevent malicious behavior in blocks.

4. Changes to Metis' Storage Layer Structure

To reduce gas costs, Metis has attempted to change its storage layer structure, altering the way data is published on Ethereum. By integrating decentralized storage with Memolabs, it only submits transaction commitments to the Ethereum main chain in Merkle tree format and provides complete transaction data in MemoLabs, allowing validators to download and submit fraud proofs when necessary. This initiative significantly reduces storage costs, with Metis' gas generally lower than mainstream Layer 2s.

In October of this year, the proposal for the Ethereum Layer 2 network Metis to "switch data availability back to Ethereum" was approved. Metis will revert to storing all transaction data on the Ethereum mainnet, transitioning from off-chain storage to the original traditional Optimistic Rollup format, thereby eliminating complexity in the Metis architecture and enabling complete data availability to achieve the highest security standards for Rollups and prepare for decentralized PoS sequencers. It is expected that Metis' transaction fees will increase, comparable to Optimism.

Recommended Reading: “Analyzing the New Version of Metis: The Ongoing Decentralization of the Lowest Gas Layer 2 | CatcherVC Research”

Under the Incentive of Over $100 Million Ecological Fund, What Projects on Metis Are Worth Noting?

According to information from the Metis official website, there are over 80 projects in the Metis ecosystem. Most are multi-chain projects like AAVE, Chainlink, and LayerZero, with around 10 single-chain projects such as NetSwap, Maia DAO, and Hummus.

From the data on defillama, most of its ecological projects are low market cap projects, and there has been a significant upward trend in the past month. Under the incentive of the 4.6 million METIS ecological development fund, whether its ecosystem will thrive has also become one of the focal points of interest for crypto users recently. This article reviews the noteworthy projects on the Metis network.

Maia DAO* (* MAIA ) and Hermes (HERMES)

Maia DAO was established in 2022 and is the first decentralized community-owned reserve currency protocol on the Metis network.

Maia DAO currently features sub-protocols Hermes DEX, TALOS transparent automated liquidity full-chain strategy, Maia decentralized strategy library, and Ulysses Omnichain liquidity protocol.

Maia DAO's current TVL has reached $15.76 million, with a 141% increase in the past week, mainly contributed by Hermes. The token for Maia DAO is MAIA, which was 100% fairly launched by the community. The total supply of MAIA is 9,785 tokens, with a fully diluted market cap of $586,000. Its current token price is $58, with a 222% increase over the past 7 days.

Hermes is similar to Uniswap. One of the main features of Hermes V2 is the ability to swap using concentrated and unified liquidity across any chain. This allows users to easily move between different chains and leverage the unique features and opportunities offered by each chain. HERMES has a total supply of 244 million tokens, currently priced at $0.13, with a more than 300% increase over the past 7 days.

NetSwap* (* NETT )

Netswap was established in 2022 and is a decentralized exchange running on Metis, using the same AMM model as Uniswap but with lower trading fees and faster transaction speeds.

NetSwap's TVL is $9.46 million, making it the second-largest native project after Maia DAO, with a 154% increase in TVL over the past week. Its token NETT has a total supply of 16,666,667 tokens, with a fully diluted market cap of $138 million, currently priced at $1.39, with over a 1020% increase in the past 7 days.

Tethys Finance* (TETHYS)*

Tethys Finance is a decentralized trading and lending protocol on Metis. Tethys Finance visualizes users' participation in projects and their funding situations on the Metis mainnet to facilitate asset management.

Tethys Finance's TVL has reached $4.98 million, with a 178% increase in the past week. The token TETHYS is currently priced at $0.86, with a 277% increase over the past 7 days, and its total supply is 6,159,637 tokens, with a fully diluted market cap of $531,000.

Revenant (GAMEFI)

Revenant is the first decentralized platform on Metis aimed at gamers, game developers, and investors.

Revenant has launched the arcade fighting game "Battle of Olympus," and is developing an NFT-based kingdom management game called Lazarus. Revenant has also invested in MetaGods, a P2E action role-playing game, and Froyo Games, a multi-chain GameFi infrastructure based on Ethereum and Binance Smart Chain.

Revenant's native token is GAMEFI, with a total supply of 3 million tokens and a fully diluted market cap of over $8 million. The current price of GAMEFI is $2.61, with a 619% increase over the past 7 days.

Hummus Exchange (HUM)

Hummus Exchange is a single-sided AMM (decentralized exchange) on Metis, designed to swap stable cryptocurrencies (USDT, USDC, DAI) on the Metis blockchain. Hummus features a single token supply, eliminating the impermanent loss risk for liquidity providers and offering traders ultra-low slippage.

The Hummus Exchange token HUM has a total supply of 300 million tokens, with a fully diluted market cap of $14.46 million. It is currently priced at $0.048, with a 347% increase over the past 7 days.

Athena Finance* (* ATH )

Athena Finance was established in 2023 as a decentralized yield aggregator on Metis, aiming to maximize returns and simplify the DeFi experience on the Metis network. The platform allows users to deposit stablecoins and earn higher yields from the Hummus platform without needing to stake their HUM and worry about accumulating veHUM. Athena Finance launched its mainnet in June of this year.

In addition to the native projects on Metis, many meme coins have recently emerged on Metis, such as the meme VMUM named after "Vitalik's Mom"; the meme coin BARSIK, representing Vitalik's mother's pet cat; and the dogecoin METINU on Metis, most of which currently have low market caps.