LBank Labs · Follow
15 min read · Mar 6, 2024
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Author: F.F from LBank Labs Research team
In the world of Blockchain development, the search for a scaling solution is relentless. Many emerging protocols aim to become the ultimate foundational chain, positioning themselves as layer 0, relay chain, beacon chain, ominchain, or other inventive terms. Stripping down these narratives, the critical issue they address is verifying the state transition of the connected chains. This dilemma traces back to the early days of bridges and light clients, and now we’re hearing buzzwords like OP rollups and ZK rollups. It’s a significant leap in history, moving from re-executing the transition to confirm its validity, to building trust via a solid challenge system or moon math zero-knowledge proof.
Taking this a step further, if we don’t need to verify the entire state of the connected chain or rollups, essentially because the extra state unrelated to us isn’t our concern, we only need to ensure our transaction’s state is valid. This approach could reduce the cost of cross chain, and the technical challenge here is to verify the transaction, or in essence, the signature. That’s where the Threshold Signature Scheme (TSS) becomes useful. TSS serves as more than an asset bridge, it’s lighter than previous cross chain solutions and can easily connect to other chains due to the similar underlying cryptography algorithm.
While we’ve been discussing the omnichain solution from a backend perspective, there are also clever frontend integration and aggregation methods, enabling users to browse Dapps as they desire, much like an App Store and mini programs. However, that’s a topic for another time. In this series, we’ll examine protocols using TSS in the market, and identify those that offer the most robust infrastructure and the most suitable use cases.
Kicking off with ZetaChain, primarily because it was the first to weave TSS into the Chain Abstraction narrative, and it provides precise market pricing for this single narrative.
ZetaChain itself is built on Cosmos SDK and Tendermint Consensus, which is an omnichain solution with a team of specialists from various fields. It offers two primary features: multi-chain smart contracts and cross-chain message passing. These capabilities allow for asset transfers, messaging, and native asset liquidity trading, among other applications.
The platform’s Threshold Signature Scheme (TSS) is vital for the security and efficiency of cross-chain transactions, reducing system load and enhancing efficiency. The network is maintained by Core Validators and Observer-Signers, each with specific roles and rewards. Notably, ZetaChain supports Bitcoin transaction initiation and has a unique mechanism for managing transaction fees and friction costs.
ZetaChain has quickly developed an ecosystem that includes validators, wallets, DeFi protocols, and more. Despite its rapid growth, the ecosystem projects need further refinement and optimization to improve performance.
The ZetaChain team consists of 41 core members specializing in a variety of disciplines, including business administration, computer science, computer engineering, marketing, and more. They have extensive skills in JavaScript, blockchain, project management, social media and more.
ZetaChain’s founder, Ankur Nandwani,a was an early employee at Coinbase and one of the creators of the Basic Attention Token (BAT), a currency of exchange used on the Brave web browser, where users earn BAT tokens as rewards for viewing ads, which they can then use to exchange for other cryptocurrencies or rewards. Lucas Janon is the Head of Product Engineering at ZetaChain. Presively, he was the Co-founder and Technical Advisor at Designstripe. Beside that, the core team is build by the community spirit, claim themselves the core contributors of ZetaChain.
ZetaChain presents two different omnichain solutions: multi-chain smart contracts and cross-chain message passing.
ZetaChain’s omnichain contracts are a novel feature that allows contracts to be deployed on ZetaChain, which can then use and orchestrate assets on any connected chains, as well as on ZetaChain itself. Every connected chain is assigned a unique ZetaChain address through the Threshold Signature Scheme (TSS).
These contracts allow for the transfer of assets, making them available to the omnichain contract as ZRC20. They also enable messaging, where the omnichain contract address and data are used to call the omnichain contract by address and pass arguments from the message.
This functionality provides several use cases:
- It allows for pairing and trading of native asset liquidity. This includes native token transfer and swaps, and ERC20 token transfer and swaps. The benefit here is a decrease in the bridge cost, as the cost of transfer is significantly less than that of a general bridge.
- It adds a smart contract layer to chains that do not have a native smart contract layer, such as Bitcoin and Dogecoin. This allows these chains and their assets to be incorporated into other parts of the DeFi ecosystem natively.
- It enables the adjustment of existing EVM protocols like Aave, Uniswap, and Curve.
Cross-chain message passing is another significant feature of ZetaChain. It allows for the deployment of CCM-enabled contracts on connected chains that can pass arbitrary message data and value between each other. This requires some modifications and additions to the standard solidity contract interface.
The process is initiated from the CCM-enabled contract on the origin chain. From there, ZetaChain acts as a relayer, transmitting the message to the destination chain. The CCM-enabled contract on the destination chain then uses the Connector API to receive the message and handle it.
This feature serves as a general-purpose solution for more complex logic cross-chain protocols, eliminating the need to build liquidity on ZetaChain.
In ZetaChain, the Threshold Signature Scheme (TSS) plays a pivotal role in ensuring the security and efficiency of cross-chain transactions. Unlike traditional methods, TSS allows the system to verify the validity of the transaction itself without the need to verify the entire state of the blockchain. This is achieved by focusing on the verification of the transaction’s signature, thereby reducing the load on the system and increasing efficiency.
The system is maintained by two categories of validators: Core Validators and Observer-Signers. Core Validators are allocated 75% of the block rewards. They have the critical responsibility of securing and maintaining the network. On the other hand, Observer-Signers, who are awarded 25% of the block rewards, are tasked with securing and maintaining the observation of external chains and the Threshold Signature Scheme (TSS) addresses. This role is pivotal in enabling the network’s cross-chain functionality.
The Observer-Signers would be further subdivided into Observer Validators and TSS Signer Validators, but these two roles are currently combined into a single set of validators. Observer Validators undertake the task of observing external chains and relaying pertinent events to Core Validators. They make up 12.5% of the total block rewards. TSS Signer Validators, who also receive 12.5% of the total block rewards, collectively hold standard ECDSA/EdDSA keys. These keys are instrumental for authenticated interaction with external chains. The keys are distributed among numerous signers in such a manner that a supermajority of them is required to sign on behalf of the ZetaChain. Currently, Observer-Signers are composed of following 9 validators.
The inbound flow of transactions in ZetaChain refers to cross-chain transactions that are observed on connected chains. Observers broadcast a MsgVoteOnObservedInboundTx to vote on an inbound transaction. The execution of the cross-chain transaction is triggered by the final vote that shifts the ballot to the "finalized" state. There are different ways to handle these transactions.
If the destination chain is ZetaChain and the Cross-Chain Transaction (CCTX) does not contain a message, ZRC20 tokens are deposited into an account on ZetaChain.
If the CCTX contains a message, not only are ZRC20 tokens deposited, but a contract on ZetaChain is also called with the contract address and the arguments for the contract call contained within the message.
If the destination chain isn’t ZetaChain, the transaction status changes to “pending outbound” and the CCTX is processed as an outbound transaction.
As for the outbound flow, to process pending outbound transactions, observers enter into a Threshold Signature Scheme (TSS) keysign ceremony to sign the transaction, and then the signed transaction is broadcast to the connected blockchains. Once a transaction is “confirmed” or “mined” on connected blockchains, observers vote on ZetaChain by sending a VoteOnObservedOutboundTx message. Once the vote surpasses the threshold, the voting is finalized and the transaction's status changes to final.
ZetaChain handles transaction fees and friction costs in a distinct and efficient manner. One of the ways this is achieved is through the creation of a corresponding liquidity pool each time support for a new chain is added. This pool is established between ZETA, which is ZetaChain’s native token, and the native gas asset of the newly supported chain. By doing so, a system is put in place that ensures liquidity is consistently provided to the Threshold Signature Scheme (TSS) addresses on all connected chains. This is an essential aspect of the chain’s operations as it facilitates the free flow of transactions across the network.
Moreover, ZetaChain smartly uses its existing Zeta pool as an intermediary in its operations. This strategic move allows for the creation of any type of liquidity pool on zEVM, ZetaChain’s Ethereum Virtual Machine. This enhances the flexibility of the network and provides users with more options.
In addition to the regular pools, ZetaChain also has specific pools, such as those between ZETA and Gas on each chain. These pools are especially beneficial for applications that aim to facilitate cross-chain value transfer through messaging. By providing such features, ZetaChain significantly increases its utility for users who need to perform complex transactions across different chains.
Further enhancing its utility, ZetaChain also has a pre-deployed system contract that comes with several features. The contract includes a ZRC20 version of Zeta’s Native Token, providing users with a versatile token compatible with the ERC20 standard. It also features Uniswap v2, a popular decentralized trading protocol, which has already been deployed on zEVM. This allows users to easily swap tokens in a decentralized manner directly on ZetaChain.
The system contract also comes with helpers that have ZRC20 data indexed by chain ID. These helpers are designed to provide users with essential information about the different tokens in the network. Moreover, there’s a helper designed to estimate the gas required for an external transaction. This feature is vital for users as it helps them understand the potential costs of their transactions before they execute them.
The combination of these mechanisms allows ZetaChain to efficiently handle transaction fees and friction costs, making it a user-friendly and cost-effective option for those seeking to perform cross-chain transactions.
When initiating a Bitcoin transaction using the ZetaDocs frontend, you must adhere to a series of steps and rules to ensure the process is successful. The transaction you are looking to initialize must comprise at least two outputs.
The first output has a specific destination. It must be addressed to a unique Bitcoin address, known as the Threshold Signature Scheme (TSS) Bitcoin address. The TSS Bitcoin address is crucial in facilitating the cross-chain functionality of the network.
The second output has a different requirement. It must be a memo output, specifically in the format of OP_RETURN PUSH_x [DATA]. This memo output has a byte limit, and it must not exceed 80 bytes. The [DATA] in the memo output is not just random data. It is an array of bytes that contains encoded information. This encoded information comprises the recipient address of the deposit being made into the Zeta Chain's version of ERC-20 (ZRC-20) or the smart contract on Zeta Chain's Ethereum Virtual Machine (zEVM). This recipient address or smart contract will be invoked by this Bitcoin transaction.
Depending on the purpose of the transaction, the memo [DATA] will take on different forms. If the main purpose of the Bitcoin transaction is to deposit Bitcoin into the BTC ZRC-20 on the zEVM, then the [DATA] should take on a specific structure. It should be exactly 20 bytes long and consist of an Ethereum-style address. The Ethereum-style address is a standard format for storing Ethereum addresses on the blockchain.
On the other hand, if the purpose of the Bitcoin transaction is not just to deposit Bitcoin but to deposit Bitcoin and also use the deposited amount to call a smart contract on zEVM, then the [DATA] field will look a little different. This field should consist of a smart contract address, and a binary message. This binary message will then be forwarded to the smart contract that it was intended for. The format of the [DATA] in this case is [zEVM contract address (20B)] + [arbitrary binary message].
The transaction will also incur a fee, called the deposit fee. This deposit fee is calculated using the formula AverageFeeRateBlockX * GasPriceMultiplier * DepositIncurredVBytes. The DepositIncurredVBytes is a constant value, fixed at 68vB, and the GasPriceMultiplier is defaulted to 2. This mechanism provides an efficient way for ZetaChain to handle transaction fees and friction costs, making it a user-friendly and cost-effective option for those seeking to perform cross-chain transactions.
Given the architectural design of ZetaChain, it should be quite straightforward to build liquidity aggregation and a native token swap protocol in DeFi. Simultaneously, the ability to initiate transactions on other chains is a powerful solution for building aggregation protocols and providing users with a seamless experience.
232 ecosystem projects are displayed on ZetaChain’s official website. It’s impressive to see so many ecosystem projects launched only one month ago. Unlike Ethereum and other bytecode compatible Rollups, ZetaChain’s different solidity contract means developers only need to copy, paste, or change the rpc to deploy.
However, upon closer examination, these ecosystem projects appear underprepared for the mainnet launch. This rapid eco-development requires refinement and optimization.
The journey of ZetaChain could begin with ZetaHub, which serves as a hub for newcomers to Zeta. It not only acts as an ecosystem guide for users but also assists them in providing liquidity, earning XP, and even participating in governance.
ZetaChain shows compatibility with Ethereum Virtual Machine (EVM), which is modified into what is known as zEVM. Part of this compatibility is the introduction of ZRC20, an extension of the ERC20 protocol. This protocol supports additional functionalities, such as deposits from and withdrawals to connected chains. ZRC20 tokens, which can only be minted by the ZetaChain protocol, use the symbol of ticker.network, for example USDC.ETH.
The whitelist mechanism of ZetaChain ensures that only Native gas tokens of connected blockchains and whitelisted ERC-20 tokens can be minted.
For deposits, native/ERC-20 tokens are transferred to and locked in the TSS address or an ERC-20 custody contract. Then, ZRC20 tokens are minted on ZetaChain and deposited to the recipient address. The sender is determined by the input data field. The first 20 bytes of the input data field could either be an Externally Owned Account (EOA) address or a contract address. One of the key benefits of this process is that there are no additional transaction fees for EVM chains.
For withdrawals, ZRC20 tokens are burnt on ZetaChain. Afterwards, the native/ERC-20 tokens are transferred to the recipient address on the connected chain from a TSS address or an ERC-20 custody contract.
Among the 232 ecosystem projects, 47 validators and 31 wallets are listed. Additionally, accelerators such as BTC Startup Lab and Web3Port are featured on the ecosystem page. The page also includes Bitcoin Mainnet, Ethereum Goerli testnet, BNB Smart Chain Testnet, and Polygon Mumbai, as well as DAO protocols and other marketing, growth, and analysis resources like QuestN. Furthermore, nine security companies or protocols, including Immunefi and Zellic, are also listed. The real ecosystem project in the traditional sense are around 100. Then we carefully analyze the following the sectors and provides a true picture of the ZetaChain ecosystem.
DeFi
The DeFi sector is a significant part of the ZetaChain ecosystem, with key Dapps including Eddy Finance, Accumulated Finance, and Range Protocol. At present, there are 42 DeFi protocols. Among them are two decentralized exchanges, Eddy Finance and AbstraDex; a liquidity management protocol, Range; and two staking protocols, Accumulated Finance and ZetaEarn. There’s also a launchpad, Bounce, and a bridge that includes Chord, rhino.fi, and Owlto Finance. Apart from these, there’s an E-Commerce site known as Shopcek. While these platforms are active, there are also 11 testnets and four sites that are currently down. Furthermore, 11 among these are not directly on ZetaChain, including Curve..
Eddy Finance is a platform that offers native token swaps, supporting Bitcoin, Ethereum, BSC, and ZetaChain. While the gas estimation on EVM chains seems to work well, switching to Bitcoin tends to slow down the estimation process and often results in failed transactions. The transaction history on Eddy Finance does not update in real time, which can cause delays in tracking transaction statuses. In terms of swapping, Eddy Finance adopts the general Uniswap model on ZetaChain. However, it has encountered several failures, especially when swapping between different ZR20 token pairs.
Accumulated Finance is an omnichain liquid staking protocol integrated with Curve. To participate in liquid staking on this platform, users must first mint stZETA with ZETA. The stZETA is a liquid staking derivative of ZETA, with a 1:1 ratio. Users can then stake their stZETA to start earning staking rewards. The rewards are given in the form of wstZETA, which accumulates and automatically compounds stZETA staking rewards.
Range Protocol is building a universal on-chain asset management platform aimed at helping investors manage their liquidity on ZetaChain. At present, it supports four pairs of liquidity of iZUMi.
Infrastructure ZetaChain’s infrastructure is commendable due to its EVM compatibility. Early on, many well-known infrastructure providers like Ankr and Pyth supported ZetaChain.
Several tools are available for ZetaChain. These include blockchain explorers like ZetaS and the ZetaChain Mainnet blockchain explorer provided by Blockscout. Another available tool is the Broearn explorer. Lastly, the Token Bulksender provides a bundle sending service.
Gaming
There are 12 gaming projects listed on the page. One has no website, one’s site is down, and four have not launched on ZetaChain. Ultiverse is a comprehensive platform that combines AAA social gaming, NFTs, DeFi, and DEXs. We selected one of the available projects, but the participation fell below projections, with only single-digit applicants.
NFT
There are 20 NFT projects listed on the page, with five on the testnet, one site down, and five not launched on ZetaChain. The most usable marketplace appears to be Weave6, which achieved a trading volume of 2.5M and recently completed the IDO on BounceBit. For creators, we recommend using NFTs2Me and Omnisea to create your collection.
Social
The social sector encompasses various platforms, including general social platforms, task platforms, and development platforms. There are 21 social projects, with three sites down, one on the testnet, four not launched on ZetaChain, and one native protocol not yet launched. Among the available protocols, we recommend using Dmail for sending trustless emails, ZNS connect for native domains, and Sugar, a great DID protocol that provides a good user experience. Looking at the social sector, we can anticipate a promising future for omnichain social platforms that combine NFT, DeFi, and other sectors into an omnichain aggregation platform. After all, connecting to a new chain or rollup is as simple as initiating a transaction.
From the perspective of ZetaChain, its architecture and ecosystem suggest that it was hurriedly launched before reaching a mature state of development. It still has steps to make towards decentralization, and the small group of Observer-Signers is a weak point in its security model. The separation of the validator group appears to be a tactic to reduce the technical burden, reminiscent of the existing combination of PoS chain and MPC network. Despite a large number of ecosystem developments, most are not ready for the mainnet launch. It’s not just about quantity, but quality. We are eager to see ongoing improvements in the protocols, from basic code adjustments to deployment and UI/UX optimization. On the bright side, ZetaChain’s experienced founder has the potential to drive development, and a positive community atmosphere among core team members bodes well for the crypto-native protocol.
Looking at Chain Abstraction, we see both the challenges and the promising future of TSS implementation on chain. It took over three years to launch the ZetaChain mainnet, and the end product still feels incomplete. However, based on the ecosystem projects presented, we anticipate an omnichain future and seamless user experience provided by Chain Abstraction. It may take some time, but we believe it’s on the horizon.
- https://www.zetachain.com/
- https://hub.zetachain.com/
- https://zetachain.blockscout.com/
- https://www.zetachain.com/ecosystem
- https://www.rootdata.com/Projects/detail/ZetaChain?k=MjEwNA%3D%3D
Disclaimer: This article is provided for informational purposes only and should not be considered as financial advice. The cryptocurrency market is highly volatile and unpredictable. Always conduct thorough your own research and consult with a qualified financial professional before making any investment decisions.
