What Are POAPs, and Why Should You Collect Them?

Key Takeaways

  • POAPs are unique proof of attendance NFTs verified on the xDai sidechain.
  • Many crypto communities have started giving out POAPs to engage with their members.
  • POAP collections can also function as decentralized identities, unlocking new possibilities for their use.

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POAPs are unique NFT badges given out to attendees of both virtual and real-world events. While POAPs can be used to keep a record of your life experiences, others envision a future where POAPs play a much bigger role in the digital economy. 

POAPs Explained

POAP (pronounced poh-ap) is an acronym for Proof of Attendance Protocol. These NFT badges are given out to prove attendance of an event, whether it took place virtually or in the real world. Each badge is unique, meaning that the only way to get a certain POAP is to be at the event. Collectors can quickly accumulate a unique collection of POAPs which documents their experiences and travels through the crypto space. 

All POAPs are created with the ERC-721 standard used for NFTs. However, for an NFT to be classed as a POAP, it needs to meet a certain set of criteria. First, it must be minted through the official POAP smart contract. Second, it needs to contain metadata related to a specific time or date, up to one year in length. Finally, all POAPs must have an image associated with them.

While POAPs were originally minted on the Ethereum main net, since in October 2020, POAPs have been created and distributed on the Ethereum sidechain xDai. Since xDai is designed for fast, inexpensive transactions, POAPs can be minted by issuers for very little cost. As such, POAPs are usually distributed for free to whoever is eligible to claim them. 

POAPs can also be migrated from xDai to Ethereum if the user pays the gas fee to do so. However, due to high fees on Ethereum, most users opt to leave their POAPs on xDai where they can view them on the POAP app. Although POAPs look to remain on xDai for the foreseeable future, Ethereum co-founder Vitalik Buterin has hinted that they could be hosted on optimistic rollups in the future. 

So far, POAPs have been given out at over 100 Ethereum community events, such as EthGlobal, Dappcon, and the recent Ethereum Community Conference in Paris. Over 7000 POAPs were claimed across these events, creating a provable record of attendance stored on the blockchain.

Additionally, several online crypto communities are also using POAPs to engage with their members. DAOs such as SushiSwap and ShapeShift distribute badges to attendees of weekly community meetings, AMA participants, and voters on governance proposals. Elsewhere, popular metaverse game Decentraland regularly gives out POAPs to commemorate in-game events, such as the recent 10 million user party hosted by MetaMask. 

Animated web series and NFT project Stoner Cats has also made use of POAPs. During the project’s launch, many people who tried to mint a Stoner Cat had their transactions fail due to a poorly written smart contract, costing users a combined $790,000 in gas fees. To compensate those affected, the Stoner Cats team gave out a limited Rekt Stoner Cats Minters POAP and refunded the gas fees of unsuccessful transactions.

Rekt Stoner Cats Minters POAP

Why Collect POAPs?

While they’re certainly fun to collect, these blockchain badges may also have a greater untapped potential. 

One example is that engagement and time spent in a community can be measured by the number of POAPs in a user’s wallet. Earlier this year, the Bankless DAO used POAPs to help allocate funds for its subscriber airdrop. The DAO decided to airdrop tokens to wallet addresses that had claimed Bankless POAPs in the past, with more POAPs equalling a larger share of the airdrop. 

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Other communities that issue POAPs are also working on incentives for collectors. SushiSwap has started introducing perks for POAP holders, such as the ability to draw faster on collaborative community artworks, which are then distributed to participants as fractionalized NFTs. While this may not seem like much compared to a full-blown token airdrop, the Sushi POAPs can be claimed by anyone attending its events, while the Bankless DAO only distributed its POAPs to paid subscribers. 

Sushi POAP
Sushi’s First Birthday POAP

More than measuring engagement through the number of badges collected, an individual’s POAP collection can also be viewed as a highly reliable, decentralized identity. For this to happen, POAP issuers must ensure that those attending events do not get more than one POAP each and prevent non-attendees from receiving them. As long as issuers act as reliable oracles, every POAP issued increases the strength and validity of all POAP collection identities. 

By Viewing POAP collections as decentralized identities, users have identified practical applications for the blockchain badges. For example, SushiSwap AMA host 0xTangle has talked with members of the Sushi community about using POAPs as a kind of blockchain résumé. When hiring in the crypto space, employers can use an applicant’s POAP collection as a reliable record of their involvement in a community. This has a great deal of value when hiring people into self-governing, community-driven entities such as DAOs, which need to ensure everyone working in them is aligned with the organization’s goals. 

The use of POAPs has grown steadily since the project launched its current version on xDai in October 2020. Users have only scratched the surface of possible uses for POAPs, with suggested applications such as social graphs and under collateralized loans yet to materialize. With limitless applications and a low barrier to entry, POAPs have the potential to help redefine identity in crypto.

Disclaimer: At the time of writing this feature, the author owned BTC, ETH, and several other cryptocurrencies. 

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How Polygon and xDai Will Adopt EIP-1559

Key Takeaways

  • Polygon and xDai are two Ethereum sidechains. They run their own consensus mechanism and have their own native tokens.
  • The two networks are planning to introduce their own takes on Ethereum’s EIP-1559 fee burning proposal.
  • Introducing a variant of EIP-1559 could lead their native tokens to appreciate in price due to a reduction in the supply of tokens available on the market. .

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To maintain their compatibility with Ethereum, Polygon and xDai have also planned to implement the fee burning proposal used in EIP-1559 on their own networks.

EIP-1559 on Sidechains

Ethereum shipped EIP-1559 last week after much anticipation, but it’s not the only network that should benefit from the update.

The Ethereum blockchain has historically faced gas fee issues due to its auction-based fee model. Before EIP-1559, the system incentivized miners to add new transactions to blocks by prioritizing users who paid the highest gas price. 

Users who wanted to get their transactions added to the new blocks more quickly could bid a higher gas fee, which would often result in a spike. The auction-based model would often result in users overpaying or underpaying in gas to add their transaction to a block.

EIP-1559 overcomes the problems associated with the auction-based model by introducing a base fee that adjusts on a block-by-block basis. The base fee changes dynamically based on network usage to ensure that once a transaction is paid for, it is added to the next block. The upgrade also enhances Ethereum’s maximum gas limit per block from 12.5 million to 25 million.  

The EIP-1559 proposal launched after surging gas fees had led to bottlenecks on Ethereum throughout the bull market of this year.

Another important aspect of EIP-1559 is the introduction of a fee burn. While users have the option to add a tip for miners, the base fee gets burned and removed from the ETH supply. This adds deflationary pressure to the asset and could mean the supply falls over time if the burn rate exceeds issuance. 

While EIP-1559 has been a hot topic of conversation across the crypto community in recent weeks, there’s one aspect to the upgrade that hasn’t received as much attention: the impact it will have on sidechains.

Sidechains are independent EVM-compatible blockchains that run parallel to Ethereum. They have their own consensus mechanism, a limited set of validators, and function as a more scalable and cheaper alternative than Ethereum. 

Ethereum’s two most popular sidechains are Polygon and xDai. Both networks have gained a significant amount of traction as the Ethereum ecosystem has grown. They also both have plans to implement their own modified takes on EIP-1559.  

Polygon to Allocate Base Fees to Treasury

Polygon has seen exponential growth in 2021. The project has inked several partnerships with several leading crypto teams, including DeFi blue chips like Aave, Balancer, and Curve Finance, and a wide variety of NFT-based games. It currently holds over $9 billion in total value locked across hundreds of popular DeFi, NFT, and gaming dApps.  

Like Ethereum, the Polygon team is planning to introduce a base transaction fee and dynamic block sizes to deal with network congestion. Hamzah Khan, Head of DeFi at Polygon, told Crypto Briefing that the team is aiming to make the upgrade in line with EIP-1559. However, the launch will likely take some time as the community needs to finalize details, with a possible community vote to follow. A proposal for the update was put forward on the Matic Network developer forum on Jun. 18, though an agreement has not yet been reached. 

The EIP-1559 upgrade will introduce a base fee to transactions on Polygon. However, instead of burning the base fee, the team has proposed sending it to a foundation contract that is controlled through governance. Later on, the community would be able to vote on how to spend it.

According to the Polygon team, rather than burning the fee, allocating it to its treasury will result in more sustainable tokenomics. This is because the supply for Polygon’s MATIC token is Polygon’s native token supply is limited unlike Ethereum’s, which could cause the token price to increase at a much faster rate than intended. 

The upgrade is expected to help mitigate denial of service (DoS) attacks from entities aiming to exploit Polygon’s cheap transaction fees. In fact, Polygon suffered one such spam attack in June for a few hours.

xDai to Burn STAKE Tokens 

xDai, a rising EVM-compatible sidechain, has also decided to implement its own upgrade in response to EIP-1559. Similar to Polygon, xDai has developed a healthy ecosystem of EVM-based dApps, with about $158 million in total value locked in the network. 

The team told Crypto Briefing that it was working hard to bring EIP-1559 to xDai to truly be compatible with Ethereum. Commenting on the upgrade, xDai founder Igor Barinov said:

“xDai has always maintained Ethereum compatibility by following the Ethereum hardforks. While higher transaction fees on xDai have been an unexpected financial bonus for validators, high gas fees have also created some friction for users.”

xDai follows a dual-token model. It uses the XDAI stablecoin for transaction fees and another token called STAKE for governance and security.

One important point to note is that new XDAI tokens are only generated on the network when users lock DAI from Ethereum mainnet in a bridge contract.

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Blockone Settlement

Following the EIP-1559 upgrade, the sidechain will introduce a base fee paid in XDAI. It will also get burned like ETH does on Ethereum. However, the burn may cause a mismatch between XDAI and DAI tokens locked on the xDai bridge from Ethereum mainnet.

To maintain consistency, the corresponding amount of DAI locked on xDai bridge will be removed and used to buy and burn STAKE on the Ethereum network. This process will reduce STAKE’s supply and increase value for the STAKE token, which helps protect xDai’s consensus. Speaking of the deflationary mechanism, Barinov said:

“The EIP-1559 upgrade should serve the community well by reducing overall STAKE token supply by creating a deflationary environment and providing consistent, predictable fees for users.”

The Price Impact of EIP-1559

Adopting an adaptation of EIP-1559 could have a positive price impact on the native tokens for the sidechains that implement the update. 

The Polygon team has proposed sending MATIC fees to its treasury for later use, meaning a large number of tokens would no longer be available to sell on exchanges.

Locking the base fees may help the token price appreciate, which would benefit all token holders. Since the beginning of 2021, the MATIC price has grown by more than 4,000%. It’s currently the 19th-ranked cryptocurrency with a market cap of $7.5 billion.

xDai’s STAKE, meanwhile, has a market cap of just under $50.7 million, significantly less than the $158 million in total value locked. The network is home to major DeFi projects like Curve Finance and SushiSwap. Furthermore, active wallets and transactions on xDai are rising each month.

The increase in activity generates sizable fees for validators. In the last 30 days, the protocol has generated over $200,000 in transaction fees according to Dune Analytics. Once EIP-1559 is implemented, a portion of the fees will be used to buy back and burn STAKE governance tokens.

After implementing its own version of EIP-1559, the continuous buyback and burn process could make STAKE a deflationary token. As an increasing number of tokens get burned, the price could appreciate.

This news was brought to you by ANKR, our preferred DeFi Partner.

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Hop Protocol launches USDC bridge between Ethereum, Polygon, and xDai

Hop Protocol, a team working on interoperability within Ethereum’s layer-two ecosystem, has launched its Hop bridge for the first time. 

A July 12 blog post notes the bridge has been launched with limited functionality, currently supporting “instant” USD Coin (USDC) transfers between the Ethereum mainnet, Polygon, and xDai Chain.

Hop plans to expand the number and assets it supports over “the next couple of weeks,” including crypto assets Ether, Matic, and Wrapped Bitcoin, stablecoins Dai and Tether, and forthcoming layer-two networks Optimism and Arbitrum.

The bridge locks up tokens that a user wishes to transfer between networks, issuing its own “hTokens” that can be quickly and cheaply transferred between layer-twos. The hTokens are destroyed on redemption. 

Hop will also launch a StableSwap automated market maker on each supported network to facilitate exchange between hTokens and their underlying assets, with Hop offering liquidity providers a 0.04% cut of all fees earned on transactions.

The StableSwap deployment on Polygon will also offer a liquidity mining program for USDC liquidity providers with more than $180,000 worth of MATIC slated for distribution.

While layer-two networks have emerged as the dominant scaling solution for Ethereum, the ecosystem has lacked the infrastructure facilitating the fast movement of assets between respective layer-twos.

Related: EY publishes an Ethereum scaling solution to the public domain

In March, Ethereum co-founder Vitalik Buterin revealed that sharding had been pushed behind the chain merge in the Eth2 roadmap amid the success of layer-twos, predicting that rollups will scale Ethereum by a factor of 100.

However, while Buterin had then predicted rollups would be launched within a few weeks, the Ethereum ecosystem still has not seen major rollups solutions launch to mainnet, with Optimism currently targeting July 26 for launch and Arbitrum yet to open up its guarded launch.