Metis breaks into the top five of Layer 2, revealing the secrets behind its disruptive decentralized strategy

Author: @auggest_crypto, GryphsisAcademy

TL;DR:

1. Rumors about the Metis founding team being "Vitalik Buterin's mother/best friend," whether as a gimmick or a real connection, are actually beneficial for Metis in every way.

2. Metis's ecosystem projects are developing rapidly, covering all the hot topics in the market, attracting numerous well-known developers, showcasing its precise capture and application of market trends.

3. Metis recently launched ecosystem incentive projects totaling billions of dollars, attracting more quality projects to deploy on Metis, continuously expanding its ecosystem and demonstrating its proactive work attitude and contribution to ecosystem growth.

4. Unlike other Layer 2 solutions, Metis focuses on decentralized sequencers for breakthroughs, ensuring network security and decentralization through the creation of sequencer pools and node staking mechanisms, addressing the centralization issues of single sequencers in other Layer 2 solutions.

5. The $METIS token has a wide range of uses, including network fees, node staking, and governance voting, serving not only as a value benchmark but also contributing to network development.

1. Project Summary

Metis is an Ethereum Layer 2 network that stands out among many Layer 2 networks by introducing decentralized sequencer pools and Hybrid Rollup technologies, aiming to ensure decentralization and security while maintaining high throughput and fast transactions.

2. Project Details

2.1 Team

The team currently consists of around 11-50 members, with an average tenure of 1.8 years, and the total number of employees has increased by 4% in the past six months.

Elena Sinelnikova (Co-Founder): Founder of the blockchain non-profit organization Crypto Chicks, which is dedicated to blockchain education and primarily provides opportunities for women to learn and enter the blockchain field.

Kevin Liu(Co-Founder & Product Lead): Kevin is the co-founder and CEO of ZKM (zkm.io) and also serves as the strategic director of the MetisDAO Foundation, overseeing the development and promotion of the foundation's internal strategic plans. Kevin completed his MBA at the University of the Chinese Academy of Sciences and is an active researcher in token economics, DAOs, and governance protocols.

Yuan Su(Co-Founder & CTO): Yuan Su holds a bachelor's degree in computer science and an MBA. He has held several management positions at IBM Canada and CaseWare since 2003, with extensive experience in software engineering and management. In 2022, Yuan founded Nuvo Technology Company.

2.2 Financing Status

Metis has completed $1 million in angel and seed funding, followed by $4 million in Series A funding, with investors including Block Dream Fund under OKEx, Genblock Capital, Cryptomeria Capital, and others.

Currently, institutions participating in investing in Metis include Gate.io, DFG, AU21, HOT labs, CatcherVC, Parsiq, Chain Capital, Genblock Capital, OK, and others.

2.3 Recent Developments

2.3.1 Community Testing

Source: https://x.com/MetisDAO/status/1746940547619545590?s=20

On January 16, the Season 1 Community Testing was launched on the Sepolia testnet, testing the POS Sequencer pool by exploring various Dapps. Users will also receive corresponding Testing Points rewards.

Currently, the applications supporting Season 1 Community Testing include Hummus Exchange, League.Tech, Tethys Finance, Midas Games, Netswap, and more projects like Enki and League.Tech will join later. Each Dapp corresponds to different points pools, and each operation has different point ratios. Participants can earn testnet $METIS at no cost through network participation and earn points.

The current details regarding points and rewards are as follows:

1. All participants can earn points by completing corresponding tasks, and a single operation can be repeated, but each repetition only earns 75% of the points from the previous time.
2. If the amount held is greater than the total points, the points will convert to the amount held (increasing points).
3. The more points earned, the higher the rewards, proportional to the participant's points ranking.

It is worth noting that the EDF plan launched by Metis in December 2023 (totaling 4.6M $METIS) will allocate $3M in tokens to achieve Sequencer decentralization. This community testing not only offers rich incentives at zero cost but also paves the way for future Sequencer profit-sharing plans. As a member of the Metis community, actively participating in ecosystem construction will yield rewards that other Layer 2 solutions cannot currently provide.

2.3.2 MetisEDF

On December 18, Metis officially launched the MetisEDF (Ecosystem Development Fund) plan, allocating 4.6M $METIS (valued at $5.5 billion) to achieve decentralized Sequencer implementation (as mentioned above), Dapp grants, Dapp Building mining incentives (as below), liquidity incentives, and other ecosystem development activities.

The Dapp Building, officially known as BMR (Builder Mining Rewards), will allocate 10,000 $METIS tokens monthly to ecosystem projects, with 4,000 tokens linked to trading volume metrics.

There are no restrictions on ecosystem projects; whether DeFi, ReFi, DeSci, NFT, DAO, or GameFi, they can all receive incentives. Rewards distribution is calculated based on the proportion of a project's transaction count to the total transaction count in the ecosystem, ensuring that project parties can receive fair returns.

Source: https://metisdao.medium.com/dapps-wanted-4c4938ee0c70

2.3.3 MetisJourney

On December 6, Metis provided a $5M incentive program #MetisJourney for the DeFi category to incentivize and attract more related Dapps to deploy.

Basically, Metis will focus on: decentralized Sequencer community testing, migrating the DA layer to Ethereum, achieving Sequencer decentralization, and focusing on LSD project ecosystem deployment.

The above are the main developments from December 2023 to the present. In just two months, Metis has provided billions of dollars in incentive programs, from large-scale community participation in Sequencer decentralization testing to incentives for the activity of each project. From funding support, community support to ecosystem resources, these actions have undoubtedly expanded Metis's influence and activity.

These developments are also positively reflected in its ecosystem data. As of the time of writing, Metis's TVL and daily TPS have ranked among the top 5 in Layer 2, with a 120% increase in TVL over the past month and a price increase of 337.16%; currently, Metis's TPS is processing 9.36 transactions per second. Although this is significantly lower than networks like zkSync Era and Arbitrum, the comprehensive data and update dates indicate that Metis's network updates and iterations are relatively fast (for example, the last highest data for the Optimism network was in July last year), and its performance and speed are relatively excellent.

These data fully demonstrate Metis's strong development momentum and market recognition in the Layer 2 field, showcasing its immense potential and value in the Layer 2 market.

3. Technical Framework

3.1 Hybrid Rollups

As early as March 2023, Metis proposed the Hybrid Rollup solution, combining OP-Rollup and ZK-Rollup technologies, allowing Metis to leverage the advantages of both ZK-Rollup and OP-Rollup.

For example, OP-Rollup's optimistic assumption that all transactions are correct allows for rapid on-chain processing, improving network processing speed; ZK-Rollup has advantages in proving transaction validity and protecting user privacy. By combining the two, Metis DAO's Hybrid Rollup will achieve:

1) EVM Compatibility: Even though it is a hybrid Rollup solution, it remains EVM compatible, allowing existing Dapps to integrate easily.

2) Enhanced Security: By incorporating validity proofs, Rollup adds an extra layer of security on top of fraud proof designs, ensuring the accuracy of off-chain transactions and reducing centralization risks.

3) Lightning-fast Transaction Confirmation: Utilizing ZK Rollup technology allows for rapid final confirmation of transactions, reducing confirmation time.

4) Optimized Capital Efficiency: By minimizing Gas consumption through Hybrid Rollup capabilities, users can allocate resources more wisely, optimizing their capital efficiency.

The ZKM launched by the Metis DAO Foundation is an open-source ZKP system service provider based on MIPS technology, developing the ZK Rollup component zkMIPS, a functional component that addresses the shortcomings of OP Rollup and ZK Rollup, and combines the advantages of both Rollups for efficient application of Hybrid Rollup.

By splitting transactions between the two Rollup types, ZKM can:

• Quickly process simple transactions on OP Rollup
• Use ZK Rollup for transactions requiring higher security
• Avoid including too many fraud proofs on the main chain, thus reducing costs

This hybrid approach aims to balance speed, security, and cost, achieving the optimal Rollup solution, allowing ZKM to adapt to a wide range of transactions and different user needs.

3.2 Decentralized Sequencer

In Layer 2 Rollup solutions, the Sequencer is responsible for collecting, ordering, and submitting user transactions. Due to its sorting function, it is prone to MEV gray income, where the sequencer can disrupt or front-run transactions or prioritize processing high Gas transactions to gain extra profits, making transactions less decentralized, or a single sequencer being attacked could affect the entire network.

To address this issue, Metis has designed a series of technologies to decentralize the Sequencer. Here are the basic concepts for understanding this framework:

1. Tendermint Consensus Algorithm

In a consensus round, validator A is selected as the proposer and collects a batch of transactions, packaging them into a new block. Other validators check the validity of the block and vote; if the final affirmative votes exceed 2/3, the block achieves finality.

2. Threshold Signature Scheme (TSS) Multi-Party Computation (MPC)

Both are cryptographic technologies, where:

a) Threshold Signature Scheme: A threshold signature is a special digital signature technique that allows a group of users to share control over a key. In this scheme, the key is divided into multiple parts (or shares), with each user holding a part. Only when a sufficient number of users (reaching the set threshold) act together can a valid digital signature be generated. This method increases system security, as an attacker must obtain enough key shares simultaneously to attack the system.

b) Multi-Party Computation (MPC): It allows multiple parties to jointly compute the output of a function without directly sharing inputs. For example, in a class exam, to protect students' privacy, individual scores cannot be disclosed to others, but the average score needs to be calculated. Each student can provide their score input without knowing the inputs of other participants, thus obtaining the result. Non-participants can only know the final result, while participants can know their data and results, achieving privacy protection.

Metis transforms the traditional single-point Sequencer into a Sequencer Pool by introducing node staking mechanisms, rotation mechanisms, etc., to achieve decentralization (anti-MEV + solving single point of failure).

1) Sequencer Pool

Source: Metis Chinese Blog

For cost-effectiveness, most current Layer 2 solutions operate their centralized single Sequencer, which introduces single point of failure issues; if attacked, the entire network will be affected. Metis has established a Sequencer node pool to solve this problem, ensuring that even if one sequencer in the pool goes offline for any reason, the network can continue to operate normally.

In terms of anti-MEV, previously only a single centralized entity could see the transaction pool content. Now, Metis introduces multiple sequencers, and any sequencer that enters through staking has the right to see the transaction pool content and process transactions.

Thus, in this situation, if a sequencer intends to act maliciously, it first does not guarantee that it will be selected to process transactions; secondly, other sequencers are observing the transaction pool, and once discovered, they will be penalized. Additionally, when transactions enter the sequencer pool, the Tendermint consensus algorithm requires that ⅔ of the sequencers must sign to package and submit the transaction, further ensuring that transactions will not be disrupted.

By expanding the number of sequencer nodes through the sequencer pool, competition and transparency are increased, and by introducing a consensus algorithm, power is decentralized, eliminating the risk of technical single control, thus enhancing the decentralization of the sequencer.

2) Node Staking

We know that MEV is the miners' cake. When Metis utilizes the sequencer pool to make profits public, it disrupts the miners' ability to manipulate profits. Will miners resist and strike, leading to reduced network processing efficiency, especially for DeFi transactions that could cause asset losses for users, resulting in user attrition, and a vicious cycle of reduced user engagement leading to further miner losses?

Essentially, the path to decentralizing the sequencer is not a technical trade-off but a dispute over interests. The biggest challenge in achieving sequencer decentralization is not a technical issue but the resistance of vested interests.

How does Metis address the issue of miner profits?

Metis introduces a node staking mechanism, requiring nodes to stake the network token $METIS to participate in the network; to become a sequencer node, at least 20,000 $METIS must be staked (valued at approximately $2.4 million). However, once a sequencer participates in transaction block production, it can simultaneously earn Gas income from processing transactions and additional $METIS staking incentives. This not only compensates miners for lost MEV profits but also creates a positive feedback loop that increases miner profits. How is this achieved?

First, in terms of anti-MEV, it is unfriendly to miners but friendly to users. Users no longer need to pay extra Gas for quick transaction processing and will not be front-run by miners, preserving their rightful interests. This mechanism is something that cannot be enjoyed in current other Layer 2 solutions. When user interests are protected, users will flock to the network; as transaction volume increases, the Gas fees received by miners will also increase; since Metis uses the native token $METIS as network Gas, each user transaction will increase the demand for purchasing $METIS, stabilizing or raising its price, thus the staking incentives held by miners will appreciate with the ecosystem's growth.

Additionally, validators are set up to reward those who discover malicious sequencers with a portion of the penalized assets of the malicious nodes, incentivizing validators to enhance their scrutiny.

By setting participation thresholds for nodes, the sunk costs for nodes are increased; once discovered to be malicious, the staked large amounts of tokens will be fully penalized. By establishing token incentives for node staking, the enthusiasm for node participation is increased, binding network interests with miner interests. However, staking also controls the circulation of tokens in the market, maintaining the token price while inversely urging nodes not to act maliciously to avoid losing substantial assets, achieving "using tokens to protect the network."

3) Sequencer Rotation

After transactions are processed, they need to be broadcast to other nodes for ledger synchronization (Proposer), which is responsible for finalizing the transactions. To ensure that the Proposer node does not encounter issues during the transaction finalization phase, Metis introduces a rotation mechanism.

All Sequencer Lists are stored in an address controlled by MPC, and the Sequencer selected from the pool to handle transactions is determined by the POS mechanism. Based on the voting weight of each Sequencer node (related to the amount staked) and combined with a hash value random drop method, block producers are selected in a fairer manner. Of course, if a Sequencer shuts down or stops providing service, it will also be rotated, ensuring that the network operates 24/7 and avoiding network paralysis.

Metis's sequencer pool and staking amounts are closely linked, binding node interests with network interests, fully ensuring the Sequencer's anti-censorship and decentralization, returning network profits to all contributors involved in construction and operation. The network's funding volume is primarily supported by the DeFi category, and Metis's decentralized sequencer undoubtedly provides a strong attraction for its DeFi products. Thus, DeFi Lego such as Farming, LSD, Lending, CDP, etc., will gradually build a flourishing Metis.

3.3 MVM

Metis has designed its own virtual execution environment MVM based on OP-Rollup, which is EVM compatible while separating computation and storage modules. This not only allows any existing Ethereum dApp to be easily built on Metis but also provides users with better processing efficiency and lower Gas fees.

Since MVM is designed based on OP-Rollup, it inherits its fraud proof workflow. When validators package transaction results on-chain, there is a challenge period that allows anyone to raise a fraud proof for questioning. If accepted, the erroneous state update will be revoked. The MVM_Verifier in MVM serves this purpose.

By separating computation and storage operations, transactions are first computed off-chain, while the on-chain retains the transaction storage state, achieving reduced on-chain costs and efficient processing brought by concurrent operations.

4. Economic Model

4.1 Distribution Mechanism

The native token of Metis is $METIS, with a total issuance cap of 10M, issued in May 2021. The shares corresponding to "advisors, founding team, and investors" have been fully unlocked, and the remaining tokens will be allocated to community development.

Currently, 4.5M $METIS is in circulation. Analyzing the circulating supply through 0xscan shows that nearly 76.53% of the tokens are in the Metis Bridge, EOA addresses hold 17.94%, and the number of holding addresses has increased by 17.5% in the past month, with holders primarily being long-term holders; over half of the holders have held $METIS for more than a year. About 80% of holders have token values not exceeding $1K, with only a few holders possessing over $100K in tokens, indicating a relatively decentralized token distribution.

Additionally, among the CEXs supporting $METIS, Kucoin, MEXC, and Gemini have the best liquidity.

4.2 Token Use Cases

$METIS is primarily used for the following:

1) Network transaction fees: Users need $METIS as transaction Gas when interacting with Metis. The network returns 30% of the transaction fees to the protocol to support its development.

2) POS Staking: Nodes must stake to participate in the network; simultaneously, (sequencer) nodes can earn both $METIS block rewards and staking rewards.

3) Community Governance: Holding $METIS grants ecological governance rights, allowing participation in network proposal voting.

Unlike other Layer 2 tokens such as Optimism and Arbitrum, which can only be used for governance, $METIS has a rich variety of use cases, undoubtedly creating more demand for token purchases while controlling market circulation through token staking. These two measures have contributed to a price increase of 299.82% for $METIS in the past month (of course, other factors related to the project's active efforts cannot be ruled out).

Furthermore, $METIS is currently not listed on well-known exchanges like Binance. If it can successfully complete the decentralized sequencer testing and resolve the core issues of single point failure and malicious behavior in Layer 2, it is believed that both $METIS and the ecosystem will experience significant leaps.

5. Ecosystem Projects

Metis's current ecosystem covers a range of areas including DeFi, Infrastructure, Wallet, GameFi, DEX, SocialFi, NFT, and Bridge, with a majority in DeFi and infrastructure. Notable developers such as Daniel (who brought $1 billion in TVL to the Fantom ecosystem) have developed WAGMI, along with emerging projects like League Tech, Hercules, Enki, etc. We will introduce these projects in detail.

1) WAGMI

WAGMI (formerly Popsicle Finance) was officially deployed on Metis on January 10 and received a $2M grant from Metis.

WAGMI is developed by renowned developer Daniele Sestagalli, who has attracted billions of dollars in ecosystem projects for Avalanche and Fantom. The development of WAGMI on Metis will significantly enhance market sentiment towards Metis, increasing market value expectations due to its industry influence, development technology, and ecosystem resources.

As a comprehensive DeFi solution, WAGMI currently provides functions such as Swap, liquidity pools, and GMI, and will support arbitrage bots, perpetual trading, and more in the future.

Once it supports perpetual contract trading, it will allow the creation of liquidity pools for leveraged trading without permission, and liquidity pools can be created for users to trade native tokens of ecosystem projects like Revenant, Hummus, Netswap, Athena, Tethys, greatly expanding the trading space for users and bringing higher activity and liquidity to the ecosystem.

Additionally, on January 2, WAGMI announced a partnership with DWF Labs for market-making, with DWF purchasing 26.6 million $WAGMI. Whether in terms of project development or strategic deployment on Metis, WAGMI and its backer Daniele are likely to bring a strong positive impact to Metis.

2) Enki

ENKI is the first Native LSD protocol on Metis, launching a testnet for the decentralized sequencer based on Metis Sequencer (opened on January 19). ENKI is an important part of the Metis nodes, aiming to simplify the staking process for sequencers in the Metis ecosystem to enhance staking yields, allowing even users with fewer Metis tokens to participate.

Users can earn rewards by staking $METIS. The decentralized POS Sequencer community testing of Metis requires each sequencer to stake 20,000 $METIS. For nodes with insufficient funds, they can go to the ENKI platform to allow community users to participate in node staking and receive node testing incentives and mining incentives.

At the same time, ENKI will be a key focus for Metis in the LSD track, and the platform's TOKEN will hold significant value within the Metis ecosystem.

Overall, ENKI's solution lowers the participation threshold for users, enabling more users to engage in the Metis ecosystem, providing a more inclusive and efficient staking and yield platform.

3) League Tech

League Tech is a SocialFi platform on Metis, similar to "Friend.tech" on Metis, introducing new features such as short-selling mechanisms, dynamic reputation, badge systems, league creation and betting, and a three-tier access model.

It is currently actively preparing to participate in community testing.

4) Hercules

Hercules is a DEX developed using CamelotDEX technology, tailored specifically for Metis, providing a variety of DeFi financial services. It mainly offers the following types of services:

I) Dynamic AMM: Supports dynamic asset liquidity based on the UniSwap V2 model.

II) Directional Swap Fee: Customizable fees based on direction (buy or sell).

III) NFT liquidity positions: Obtain non-fungible collateral positions (spNFTs) after opening positions, enjoying additional composability for higher capital efficiency.

V) Customized Launchpad: A tailored platform offering various token issuance strategies: fair issuance, recommendations, discounts, airdrops, whitelists, etc.

Hercules's financial services are rich and aim to become the primary DEX for Metis by creating a wide range of financial tools.

5) NUVO

Metis's first inscription project, Nuscriptions, features NIP-20 and NIP-721 protocols, providing efficient DeFi solutions by addressing congestion and high fees, suitable for inscription deployment, minting, and transfer.

It mainly includes two key product functions:

1) NuMarket: A dynamic trading platform for asset flow between EVM and Inscriptions, enhancing accessibility and market dynamics.

2) NuDex: A dedicated derivatives trading market that allows transactions to be initiated at zero cost (no $METIS Gas required). It offers perpetual contract trading, margin trading, spot trading, lending, and borrowing functions, providing a cutting-edge financial experience.

As an inscription protocol, NUVO also provides asset flow and derivatives trading, offering rich support for liquidity of inscriptions and other assets.

In addition to these emerging protocols, several leading DeFi applications actively support Metis, such as AAVE, Stargate, Sushi, etc., bringing a large number of users and liquidity to Metis. The support of these leading DeFi applications not only validates the reliability and stability of Metis's technology but also significantly enhances Metis's market recognition and influence.

Of course, Metis also has some native projects worth noting, such as NetSwap (the first native DEX), Tethys Finance (financial services platform), Hummus Protocol, etc., leveraging Metis's technological advantages, especially in DeFi, which should not be underestimated in terms of user experience and ecosystem support.

6. Conclusion

1. Since its inception, Metis has attracted widespread market attention due to its co-founder's identity as "Vitalik Buterin's mother/best friend." Whether as a gimmick or a real connection, this market heat has brought significant favorable exposure to Metis.
2. Metis's current ecosystem projects are thriving, covering all the hot topics in the market, such as the inscription NUVO, the social aspect League Tech (Friend.tech), and the LSD track Enki, along with numerous well-known developers like Daniele (who brought billions in TVL to Fantom) joining. It is evident that Metis has precisely captured and applied market trends, with a prosperous ecosystem and active developers laying the foundation for Metis's explosive growth.
3. Metis has recently launched numerous ecosystem incentive projects totaling billions of dollars, attracting more quality projects to deploy on Metis while maintaining existing projects, continuously expanding its ecosystem. Its proactive attitude has also contributed to significant growth in both volume and application within the ecosystem.
4. Compared to other Layer 2 solutions, Metis focuses on decentralized sequencers for breakthroughs, creating sequencer pools and node staking mechanisms, along with the currently promoted community testing, which not only maintains network security and decentralization but also returns improper profits of sequencers to the community, addressing the long-standing issue of centralized single sequencers in other Layer 2 solutions.
5. The $METIS token is distinct from other Layer 2 tokens due to its greater utility, serving as network fees, node staking, and governance voting. $METIS not only serves as a value benchmark but also contributes to network development.