[PIP-57] $SCALE index creation

Disclaimer: this proposal is only the initial draft for community discussion. The assets suggested are more of a guide to get discussion going rather than a final index.

Rationale

Ethereum gas fees are incredibly high lately and this has recently seen a boom in transactions on other chains such as BSC. An analogy doing the rounds currently is that Eth mainnet is like Manhatten, expensive and where everyone wants to be if they can afford it. L2’s are like suburbs of New York or new settlements in neighbouring states, with more and more people going to spend some of their time in these other settlements.

Put short, Eth is gentrifying, and people are flocking to alternatives. Given that gas prices are unlikely to be drastically reduced on the Eth mainnet any time soon, it seems probable that the ecosystems will grow on these L2’s and thus also the usership. BSC has proven that when there is things to do and high APY opportunities available with low fees, people flock.

State of play:

Currently, there are no clear winners and there is more exciting prospects rolling out in the coming months with exciting zk rollups and optimistic rollups coming off the production line, as there is so many contenders and the need is absolutely critical to scale off main chain, a diversified allocation to get broad exposure to the scaling options would be extremely compelling.

Index composition

The draft composition for SCALE includes some of the most relevant projects in the segment, that have tokens available. Below you can find an initial list of options I have found, this is not a final list, I am not an expert on L2 and this is what I was able to come up with so far. I hope with discussion this list could be refined or added to considerably.

ROLL UPS

1 - $LRC from @loopring : Loopring builds protocols, infrastructure, and user-facing products on layer 2 (zkRollups).

2 - $ZKS from @ZkSwaps : ZKSwap is a token Swap protocol based on Automated Market Maker (AMM) similar to Uniswap. Using ZK-Rollup technology, ZKSwap supports all the features you would expect with super high throughput and no gas fees.

3 - $CTSI from @cartesiproject : Cartesi rollups are smart contracts run off-chain on Cartesi Machines. Since these support Linux, developers have the option to dispense with Solidity and the limitations of the EVM to create smart contracts with myriad mainstream software stacks, toolchains, standard libraries, file systems, and other OS resources.

PLASMA

4 - $MATIC from @0xPolygon : Polygon - a protocol and a framework for building and connecting Ethereum-compatible blockchain networks.

5 - $OMG from @omgnetworkhq : The OMG Network leverages Layer-2 Plasma architecture to provide high throughput and strong safety guarantees for third parties who wish to build scalable, decentralized payment apps on Ethereum.

SIDE CHAINS

6 - $SKL from @nearprotocol : SKALE Network eliminates unnecessary complexity so that you can speed up your dApps and smart contracts in no time with essentially no additional coding. Use your existing deployment script (for example — truffle, as in this code sample) and just change 2 lines of code to deploy your solidity smart contracts to a configurable decentralized elastic sidechain.

7 - $STAKE from @xdaichain : The xDai blockchain is a sidechain of the Ethereum blockchain. This means it has the same properties as Ethereum, but uses a different method to make sure transactions are valid and consistent across all nodes in the distributed network (consensus). The STAKE token is separate from xDai and is used to protect chain consensus.

STATE CHANNELS

8 - $RDN from @raiden_network : The Raiden Network is an off-chain scaling solution, enabling near-instant, low-fee and scalable payments. It’s complementary to the Ethereum blockchain and works with any ERC20 compatible token. The Raiden project is work in progress. Its goal is to research state channel technology, define protocols and develop reference implementations.

INTEROPERAL1

9 - $NEAR from @nearprotocol : NEAR is a decentralized application platform that is secure enough to manage high value assets like money or identity and performant enough to make them useful for everyday people, putting the power of the Open Web in their hands.

Allocation

It would be premature to propose an allocation, the above are an unordered list of interesting L2 topic related projects. I would prefer to gather more options before considering what a sensible allocation looks like.

Details

Smart-contract: PieVault
Rebalance: Quarterly
Cap: Unlimited
Strategies: I’m aware that some tokens ($STAKE) can be delegated to earn rewards, I imagine this would be too complicated for a first iteration, however if the index proved popular that could potentially be an avenue to investigate.

Resources

15 Likes

Nice proposal. We have traditionally done allocations as a function of market cap. I think it would be interesting for this one to try allocations based on either TVL or transaction volume to signify actual usage of these scaling solutions.

7 Likes

I love this and haven’t heard of $CTSI until now. I’d choose this pie for some exposure.

Maybe the pie could rebalance by transaction volume? There’s a lot of Stake staked to secure the chain but that value doesn’t necessarily translate to users.

Doing it this way would also attract a lot of attention. Does anyone else rebalance that way?

I’d agree that if we can peg weights closer to TLV that would be a more interesting play.

I’d support this Pie and I think it has good legs.

Not sure if there are supposed to be 7 and repeated one by accident or if there are supposed to be 6.

What’s OMG up to these day’s I’ve largely felt plasma fell to the wayside…

Good looks assembling this @Lui

@jnova I definitely like the idea of doing allocation based on TVL, . Only risk I see there is if the token is a representative of the TVL, we are not judging the token on it’s own merits. For example you could have two L2’s with 1B TVL each, one token is purely a governance token and another is utility token that stakes the network and is therefore valued higher by the market. What do you think?

2 Likes

Very good point. I haven’t looked at each of these tokens to know if there are meaningful differences there. But I do like the idea of anchoring our allocation on adoption in some way vs. market cap, which could lead us to buy hype instead of value. I’ll leave it to the big brains to sort out the details :slight_smile:

2 Likes

Nice proposal. It’s cool to see sometime more structured :rofl:

I’ll try think if there is other interesting tokens.
ps: I discovered some , so thank you

Yes this was my only question when I was reading. I guess with PieVault the idea is to generate yield. And I’m not sure if it will be easy with those tokens.
But on the other side, if they are in the future, more options will probably be available soon. So it can be a good bet. Do this pie when those tokens are still under evaluated , and build a nice PieVaul with more stratagies later .

Might want to switch out ZKS for zksync

4 Likes

Fully support this idea. The only way this thing scales quickly is via L2.

One big player missing from this proposed is NEAR

Anything else here worthy?

4 Likes

Hey @Lui great proposal! Agree on the point made by @jnova and @BlockEnthusiast that an allocation somehow correlated to TVL would make a lot of sense.

I started playing with some numbers on this spreadsheet but was somehow struggling to collect meaningful TVL data for some of the proposed underlying assets.

How about following a mixed approach such as the one below?

  1. compute the allocation as 30d average Mcap (Adjusted Market Weight)
  2. adjust the sentiment score in a way that would mostly factor in the project TVL (+ few grades on its innovation/functionality to the ecosystem)
  3. compute the Overall Weight as a 50/50 weighted average among the Adjusted Market Weight and the Sentiment Weight calculated from the sentiment score
1 Like

Agree that likely some additional projects could be added…

2 Likes

TBH I’ve also struggled to collect TVL data on L2’s and sidechains, I hope that Coingecko will fill this problem soon. If you find something would be great to share.

I think this sounds like a good approach.

I added NEAR to the hypothetical list.

What’s the TLDR on NEAR I’ve never heard it before? Is it an L2? A sidechain?

Thanks @Bozo that’s a handy infographic. When I was checking some of the other L2’s (matter labs, starkware) I couldn’t find an actual token so that’s why it’s not included.

But this is a handy list, is anyone involved or can speak on some of the projects missing in pie that are in the infographic?

There is no token for zksync or?

2 Likes

I found Loopring is storing TVL and transactions here: https://duneanalytics.com/Brecht/loopring

First time I came across Dune analytics, very nice app. If some one is handy with SQL it should be possible to create a dashboard with at least some of the L2/Sidechain projects with TVL and transactions. I was also trying this with Parsec but didn’t have any success.

Edit: And here is some data on xDAI: https://blockscout.com/poa/xdai/

I saved that infographic because I’ve been meaning to look into those L2 projects.

I’ve only used Loopring atm and am looking into Zksync and ZKswap now.

Here’s another Graphic. You will see many of the L2 projects already mentioned but there might be some more that weren’t Included. This graphic is more about the entire Ecosystem and where L2 falls within it.

Btw with SNX using Optimism(optimistic rollups) would that qualify?

ZK Swap reply to Matter Labs

I wanted to make a similar proposal discussion after seeing the “Invest > Layer 2” in Zerion:

(sorted by market cap in the link)

I think this is a fantastic proposal @Lui.

L2 is emerging and is an open playing field right now. A PieVault that was able to give broader exposure (higher number of projects) would allow investors to hedge the multiple options and bet on the success of the entire ecosystem.

If we can get accurate data then TVL would be a novel way to represent the success of each player, something that definitely hasn’t been done before in this industry.

4 Likes

I’m in for a TVL weighted L2 pie! Very cool.

4 Likes

Thanks for the comments all.

In terms of driving forward here.

From my pov there is two questions to determine:

a. Can we confirm the initial projects to include in the pie?
Please throw in any other options you believe should be included. We would need to add additional options like Optimisim, aztec, zksync as they become available.

I would say we give it until this Sunday 7th, to put a finish this process, I would update the initial post with a final list of assets.

b. Organize data using TVL mixed approach.
Once we have the list @gabo we could collaborate on gathering the TVL data and any additional data required for your mixed approach

Next steps: Would the next step then be to put it to a more formal vote or is there some more steps inbetween?

4 Likes