Translated version:
Reasons for the decline of ICP: maverick technology and cold and thin ecology
original Titanio Geek Web3 2023-08-02 08:02 Posted on Zhejiang
Author: Titanio, Geek web3
Introduction: Since 2022, with the gradual decline of new public chains such as Solana and the increasing prosperity of Ethereum Layer 2, the stories of the “Ethereum Killers” seem to have been forgotten by the world, and the former " contending of schools of thought" no longer exists . But if we look back at history, the new public chain narrative starting from EOS is always a gorgeous chapter in the history of Web3 development that cannot be ignored.
When it comes to the new public chain, Dfinity (ICP) must be a topic that cannot be avoided. With the huge financing of nearly 200 million US dollars, a gorgeous team of cryptographers and maverick technology, ICP was once sought after by countless people; After the high opening in 2021, ICP plummeted all the way, from the popular “Heavenly King Project” to the despised “Heavenly Death Project”, which made countless people sigh. At the same time, the thin and deserted ecology also makes ICP feel ashamed in front of competing products such as Solana.
Looking back on history and reflecting on the past, what are the factors that affect the ecological development of ICP? Can unique technology help ecological development? Can the “Death Project” be revived again? This article will start from the technical characteristics of ICP, and then to the defects of its NNS governance system and the lack of a unified token standard, briefly analyze the difficulties in its development process, and clearly show the reasons for the decline of this “Tianwang Project” for readers.
Technical Features of ICP: Decentralized AWS
First, let me introduce ICP’s smart contract system - Canister (called “container” or “jar” in China), which is the carrier of DAPP, allowing the bytecode of WebAssembly (WASM) to run in it, and can support multi-language writing program of.
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ICP allocates dedicated memory for each Canister . If you think of ICP as a supercomputer, then Canister is a process in the computer. Each Canister process contains its own running memory. You can encapsulate data related to smart contracts in a specific container. This is ICP’s unique data storage method - Canister allows you to put the state of the program, database and even front-end data (such as game assets) in this container, with the intention of further expanding DAPP. It can be said that ICP is actually a platform equipped with containers, and many Canister containers are deployed on ICP nodes through containerization technology.
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At the same time, Canister supports the gas fee payment function. Users do not need to own native assets, and the project side pays the handling fee on behalf of them. This is essentially the “gas fee payment” mechanism that many low-threshold wallets on Ethereum need to implement. This also makes many people have mass adoption expectations for ICP - users can get Web2-level UX without buying native assets from the beginning (especially without paying high gas fees when blocks are congested).
But ICP has a major flaw : it does not support global state. Ethereum has a setting of “global state”. For all smart contracts, the state of all accounts is publicly visible, and there is a “globally visible” state storage structure managed by State Trie; but ICP is completely different. . Specifically, the program (smart contract) in the ICP has its own exclusive Canister (container). The data of different smart contracts are encapsulated in their own independent containers. The outside world cannot see the details of the data, and can only be provided by the Canister. Interface to access internal data.
In other words, ICP does not have a “globally visible” state storage structure like Ethereum, and the interaction between different Canister programs is asynchronous, and calls to multiple contracts cannot be completed at the same time. Obviously, this is very unfriendly to the Defi protocol, making the ICP ecology out of touch with Defi for a long time. Some people think that Ethereum is a “world accounting machine” that simply conducts asset transactions, while ICP is actually a “decentralized AWS” that supports complex web applications.
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In addition to the unique Canister setting, ICP also adopts a layered architecture, mainly including containers, subnets, nodes, and data centers. We can regard ICP as a system composed of multiple subnets (Subnet), each subnet is essentially a public chain. In each subnet, multiple Canisters (containers) are carried. These containers are the basic unit of interoperability in ICP. Each Canister contains the code and status uploaded by the user.
The bottom layer of ICP is an independent data center that hosts dedicated hardware. Nodes (Nodes) run on top of the data center, and nodes are responsible for processing data and state transitions in subnet containers. This layered structure design provides ICP with higher scalability and flexibility, enabling it to meet application scenarios of different scales and needs, and also makes it look and feel closer to cloud services.
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Some people believe that ICP achieves fragmentation from the beginning through subnetting. Now ICP has 40 subnets, the largest subnet contains 13 Validator nodes, and the smallest has only 1 Validator. Combined with the above-mentioned interaction (communication) between Canisters is asynchronous, the overall advantage of the ICP design is high efficiency and can achieve cross-subnet communication.
At present, all subnets add up to about 20 blocks per second. However, due to the small number of nodes in each subnet, its theoretical security is doubtful. Applying to become an ICP node still needs the approval of the ICP Foundation. The hardware configuration of the node is extremely high (far more than public chains with heavier node configurations such as Solana and Sui). Therefore, the degree of decentralization of ICP has been criticized by many people.
Regarding this point, the project team of a certain ICP ecology said frankly: After all, most of the “applications” running on the ICP are not financial transactions related to assets, so the pursuit of security is not so strict. ICP is essentially just a decentralization A cloud platform with a higher degree of automation than AWS.
The above points aside, ICP has successfully integrated BTC into its system. Through proprietary Chain Key, threshold ECDSA and other cryptographic algorithms and a set of special retrieval mechanisms, ICP and BTC can be directly integrated, so that ICP’s smart contracts can directly hold real rather than mapped BTC assets. The specific implementation is as follows:
In the network layer, a BTC adapter randomly connected to 8 nodes in the BTC network is implemented, the BTC block is pulled into the ICP network, and all UTXO sets are updated according to the transaction data contained in the block, so that the ICP The container can know the latest status of the BTC chain , and the program in the ICP container can verify and retrieve BTC blocks and UTXO.
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At the same time, the threshold ECDSA algorithm is the key technology that enables ICP smart contracts to accept and output BTC transactions, and it is an extension of the ECDSA signature algorithm. In a way similar to MPC (multi-party secure computing), the protocol distributes the private key fragments associated with the smart contract to the subnet nodes responsible for signatures for secret sharing to obtain a higher level of security. In short, the ICP smart contract can hand over the private key management rights to multiple nodes, rather than a single node or smart contract itself. When the contract wants to export BTC transactions, it needs the cooperation (2/3) of nodes exceeding the threshold number in the subnet to create a complete ECDSA signature and allow the transaction to be released.
ICP’s asset integration solution is a step further than the current cross-chain bridge solution. Most cross-chain bridges only provide BTC mapping instead of native BTC, and are highly dependent on the nodes of third-party cross-chain bridges, which will have many security risks. ICP can put native BTC into Canister, and even directly save the private key of the address on the BTC chain.
Compared with the traditional cross-chain method that relies on third-party cross-chain bridge nodes, ICP’s BTC ledger can easily run on a decentralized subnet with a large number of nodes. As long as the security of the subnet is sufficient, ICP’s BTC ledger Just be safe.
Rational Man Trap: Token Price and Lockup
However, history has proved that no matter how superior or unique the technology is, it cannot make up for the lack of ecological construction. Since the launch of the independent network, the ICP ecological projects are still in the embarrassing situation of “no one uses them”, and then fall into “ecological scarcity → outflow of excellent projects → ecological The vicious circle of further loss of participants”. What the author wants to focus on here is not the specific ecological development and support issues, but to try to explain from another perspective why ICP is in today’s predicament.
There is a view that within a few hours of ICP’s listing, it was subjected to price manipulation by some forces (the founder of ICP has always believed that it was done by SBF and FTX), and the market value of ICP was continuously pushed up with the price of Token, which once exceeded 2300 Billion US dollars, second only to BTC and ETH, jumped to third place in market value. However, with the end of the pull-out behavior, the price of ICP began to fall sharply. In just 6 weeks, the market value of ICP shrank by 90%.
The sharp drop in Token has greatly damaged the reputation of the ICP ecology and the Dfinity Foundation, causing ICP to be further attacked by various forces.well below the actual value. (It is said that a16z, which has always pursued long-termism, has now cleared its ICP)
The author does not intend to evaluate the authenticity of the above statement here, but only provides readers with a possible point of view ( another interesting point of view is that a series of behaviors by ICP founder Dominic that disgust investors are the reasons why ICP was banned An important reason for the smashing of the market and the isolation of the ecology ). In fact, it is the lock-up mechanism that affects the price of Token more . For the selling pressure of pledged interest-earning assets/neuron unlocking selling pressure, please refer to the following figure:
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Facts have proved that the Dfinity Foundation’s lock-up for early investors did not play the expected role: the existence of a large number of chips at the bottom and the inflated price at the beginning of the listing made the gap between the highest point and the chip-intensive area too huge , except for early investors, almost no one is willing to participate in the pull of this part of the price range. But at this moment, early investors are still profitable. For them, it is profitable to reinvest the interest generated at this stage to NNS or sell the interest; and when the Token further falls to a certain price, the early Due to the existence of opportunity cost, investors have actually entered the state of “locked in and losing money”. In this state, early investors will be more inclined to sell the interest, and it is very likely to lose money after the neuron expires and unlocks. Sell, thereby further exacerbating the decline.
This death spiral of “sell more and more, and sell more and more at a certain price” has seriously hindered the rebound of ICP and the development of the ecology . bit ) , ecological participants can only hold the ICP Token itself most of the time, and determined Holders will find a fact: the returns brought by their contributions in the ecology cannot keep up with the depreciation of the Token!
The game assumed by rational people goes a step further, and retail investors and project parties turn to the public chain ecology they think is more promising (which also takes away liquidity), further reducing the number of Cycles burned on the chain (that is, the number of ICPs), And the early investors who locked up their positions for 8 years were powerless and entered a state of “lying flat”.
Although it may lead to a large drop in Token prices, the author believes that if you want to solve the death spiral as soon as possible, you must conduct a thorough clearing—that is, unlock and release all long-term pledged neurons at one time, fully release liquidity, and maintain the status quo. The longer it is delayed, it will only lead to gouging out the flesh and causing sores.
The Governance Dilemma of NNS
When VCs invest in projects, an important criterion is whether Token has governance rights, and retail investors also like to use Token governance rights as an enabling factor. Dfinity’s N NS system enables Token holders to fully participate in the governance of the public chain, but what about the actual operation of on-chain governance?
Before analyzing public chain governance, we must first understand the governance system. Here is a brief introduction to Dfinity’s governance system—NNS system: NNS is an on-chain governance system that allows all community members to submit proposals and vote. The voting rights of community members are proportional to the amount of ICP they hold, and the length of the pledge period will affect their voting weight. Community members who participate in voting will receive ICP Token as a reward. These rewards are called “NNS rewards”. Holders who pledge ICP in neurons can participate in governance through manual voting or following the votes of other neurons.
In contrast, the governance voting of many blockchain projects is “dictatorial”. Only big whales/investors/project parties are eligible to initiate governance proposals, while retail investors often only have the right to participate.
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As early as two years ago, the Dfinity Foundation adjusted the strategy of NNS governance. This reform adjusted some reward parameters of NNS governance, making voters who actively participate in voting more beneficial, and those ICP pledgers who do not participate in NNS governance Earnings will be greatly reduced. At the same time, the foundation no longer participates in active voting, which further reduces the benefits of many nodes that follow the official neurons by default and do not set up voting.
However, the governance system faces two problems:
One is that the NNS system does not restrict the right to propose proposals , but allows all neurons to propose and vote, resulting in the emergence of a large number of garbage proposals, and the neurons that support the passage of a large number of garbage proposals can actively participate in governance Vote to get more Token rewards ( similar to the fact that Filecoin storage nodes deliberately store a lot of junk data )-in a sense, this behavior is a mockery of on-chain governance.
The second is the defects brought about by the over-democratization of the governance system - extremely low efficiency and inevitably split communities. A typical example is that the community still does not have a unified token standard ! It is true that developers can choose token standards according to their own conditions, but the poor communication between the eastern and western developer communities and the lack of understanding between them make the unification of token standards still far away, and in the development of the ecosystem Added another stumbling block. In this case, the liquidity will be severely fragmented. Even if a DEX is produced, the SWAP of assets will be severely hindered. There have been accidents where NFTs were lost during transfers to wallets of different token standards.
How to find a balance in the governance system so as to ensure efficiency while maintaining democratization? This issue has been debated from ancient times to modern times, and from Web2 to Web3. Among the trade-offs between the two, Dfinity chose the former, giving ecological participants sufficient power to discuss, but as far as the current situation is concerned Look, this choice does more harm than good for the public chain that has not yet built enough economic benefits—it eventually becomes the occasional half-push and half-quit of the foundation, and the two hates of existing users.
It is very difficult to solve this predicament, and it is no different from the difficulty of “a great man descended from heaven” to hope that there will be a charismatic leader like Andre Cronje in the ecology in the short term to promote development.
Item Churn and Inventory Cycles
All public chains that lack users and liquidity injection will inevitably fall into the rug spiral:
The project ran away → retail investors’ confidence and finances were damaged, and they left the ecology → the liquidity further deteriorated, and the normal project party’s income became less and less or even unable to obtain income → the project ran away.
The situation on Dfinity is particularly serious. Taking the NFT sector as an example, Entrepot is the only NFT exchange in the early stage of the ecology, and Entrepot adopts a review system for NFT listings. The NFT ecology of Entrepot has relatively good development, and the growth rate of NFT is also very impressive. Taking the data in February 2022 as an example, Entrepot is still performing well at this time:
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However, the limitations of the platform itself led to the influx of a large number of rug projects, and NFT, which had just started to improve, was hit immediately. With projects such as CCC and Yumi joining the war of NFT exchanges, Entrepot further liberalized NFT projects in order to retain market share. The review, and the new items on it have also changed from being sold out at the beginning to no one patronizing.
Project parties that are normally operating will also choose their own way out due to the decline of the public chain. For example, Dmail, which adhered to the Dfinity ecology at the beginning, finally turned to the multi-chain ecology after several failed attempts, and then cooperated with Sei, Worldcoin, etc.
Compared with the ecology of other public chains, the biggest difference between Dfinity is that its Defi sector is the last link in the entire ecology. There are several reasons for this:
One is that Dfinity has not introduced EVM, and cannot easily fork various classic projects like Avalanche or Fantom;
Second, the token standard in the ecology is still not unified , which has greatly weakened the liquidity in the ecology in a sense;
The third is the most important point, that is, the unique architecture of Dfinity itself makes it different from the global transaction atomicity of traditional public chains. Canisters interact asynchronously and lack globally visible ledgers, so the development of its Defi projects is very difficult.
Judging from the destroyed ICP and ICP total transaction volume data, the ICP ecology has fallen into a very embarrassing situation:
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Summarize
In fact, it is not difficult for us to understand the enthusiasm of the public for Dfinity in 2021. After all, the number of cryptographers included in the ICP team is the largest among all public chain projects, and the team lineup is also extremely luxurious: Intel, IBM, Coinbase, Facebook, Google wasm…
At the same time, a group of well-known VCs are all investors of ICP, and there are many top institutions such as A16Z, Polychain, and Multicoin. ICP’s own slogan “decentralized AWS” is even more eye-catching, luring countless people to invest real money, looking forward to the next milestone paradigm beyond Ethereum and EOS.
But Dfinity’s technology is not conducive to its ecological construction - although Dfinity’s technical features are very unique today, such as reverse Gas, Canister’s scalability, and the architecture itself can be expanded horizontally, etc., but these features are not in the public chain. The battle did not work as expected.
In addition, Dfinity’s governance system also faces challenges, including a large number of garbage proposals and excessive democratization, which have already been mentioned earlier. As a strong candidate for the “ETH killer”, it still has the potential and advantages that many public chains do not have, and these technical characteristics are an important bargaining chip for its development, but at the same time, the ICP Foundation and its ecology itself also need to face current challenges and try to find a new way out.
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