- 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.
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.
@poapxyz thoughts on being a very early user of optimistic rollups today?
— vitalik.eth (@VitalikButerin) August 13, 2020
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.
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.
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.
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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- 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.
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.”
After activation of EIP-1559 on xDai the BASEFEE in xDai will be burned and unlocked Dai will be used to burn STAKE which will align incentives between stakers/delegators on EasyStaking, POSDAO, and StakeBeacon. It’s unlikely that BASEFEE proposed to go a treasury like on Polygon pic.twitter.com/Ca2a9f7avF
— Igor Barinov 🦇🔊 (@barinov) June 25, 2021
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.
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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.
We’re proud to officially launch the Hop bridge starting with instant $USDC transfers between @ethereum, @0xPolygon and @xdaichain.
➡ https://t.co/z8K0uAa2xg pic.twitter.com/PVtCuG5nDb
— HopProtocol (@HopProtocol) July 12, 2021
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.
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Curve Finance, a decentralized exchange popularly used for trading stablecoins, has launched on Fantom and xDai’s growing ecosystems.
Curve’s Multi-Chain Future
Curve Finance has released an identical version of its decentralized exchange on Fantom and xDai.
On Fantom, three pools are available, while xDai has only one: the protocol’s DAI, USDC, and USDT pool. With the proper incentivization mechanisms, the protocol should drive significant liquidity to the two chains.
When Curve ported its protocol to Polygon, the move contributed to the Ethereum scaling solution’s exponential growth. The decentralized exchange provides deep pools of liquidity with minimal price slippage even on large transactions. A month after it had launched on Polygon, many yield farmers migrated from Ethereum and Binance Smart Chain.
As both Fantom and xDai are Ethereum Virtual Machine compatible, porting an Ethereum-native protocol like Curve doesn’t require rewriting most of the code. Minimal changes are sufficient to release a working product.
A bit of CRV arrives to https://t.co/oCPLGumIRA pic.twitter.com/jgibhOtW0r
— Curve Finance (@CurveFinance) July 1, 2021
Curve has been the talk of DeFi recently, particularly after it launched its highly anticipated V2 update. The protocol added concentrated liquidity feature pioneered by Uniswap V3 and gave the option to trade volatile assets. The project has also been central to ongoing DeFi rivalries involving Yearn.Finance, Alchemix, and Convex Finance as it distributes CRV rewards to the respective protocols.
Curve was one of Ethereum’s first DeFi protocols and has significantly grown in recent years. It contains about $7.95 billion in total value locked according to DeFi Pulse, which places it second behind only Aave.
Disclaimer: The author held ETH and several other cryptocurrencies at the time of writing.
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Players of the decentralized real-time strategy game, Dark Forest, have introduced new and innovative ways of earning cryptocurrency within the virtual ecosystem.
The play-to-earn plugin “Broadcast Market” was integrated into the game on May 31, according to a tweet by programmer Blaine Bublitz. The developer noted that Broadcast Market is the first plug-in featuring its own smart contract that directly communicates to Dark Forest.
This is the first plugin that has its own smart contract that talks directly to Dark Forest. It allows you to broadcast a planet to receive a reward or, if you are in need of extra broadcasts, you can post a bounty to the board!
— Blaine Bublitz (@BlaineBublitz) May 31, 2021
Bublitz added that he and collaborator Jacob Rosental, “Project Sophon,” intend to develop additional plug-ins for the game in future, thanking Dark Forest for supporting their work.
Dark Forest praised the plug-in as showcasing the possibilities enabled by decentralization, emphasizing that players and not just Dark Forest’s official developers can expand the DApp’s gameplay and functionality:
“Thanks to interoperability, *new game features* in a decentralized game can be added by anyone, not just the original devs — this is literally not possible in traditional games.”
Dark Forest is a real-time strategy space-conquest game where players discover and capture planets in an infinite, procedurally-generated, cryptographic universe.
It has been built on Ethereum using zkSNARKs to provide zero-knowledge proofs. The cryptography secures the hashes that are created to represent planet locations in the smart contract.
Broadcast Market has been developed by Project Sophon allowing gamers to reveal the location of any planet in the Dark Forest universe once every 24 hours. Competitive players need more than a single planet broadcasted so users can now earn xDAI just by broadcasting a planet for another player, the website explained.
xDAI is a derivative of the MakerDAO stablecoin DAI hosted on an Ethereum layer-two sidechain of the same name offering high-speed and low-cost transactions. Project Sophon stated that they would take a 20% listing fee, paid by the creators of Broadcast Requests, for posting on the Broadcast Market.
The MMO, or massively multiplayer online game, was launched in August 2020, recently upgrading to version 0.6 on May 21.
Other blockchain gaming platforms encouraging play-to-earn mechanics include Axie Infinity — a play-to-earn virtual world populated by collectible fantasy creatures that are represented as nonfungible tokens (NFTs).
On May 3, Cointelegraph reported that the pseudonymous digital landowner and crypto whale, Flying Falcon, had
Chainlink (LINK) oracles have made their way to xDai, an Ethereum sidechain that has seen growing adoption among DApp developers who cannot afford to stay on the Ethereum mainnet.
As announced by Chainlink on Thursday, its price feeds are live on the xDai mainnet, offering price data for an initial set of trading pairs including LINK/USD, AAVE/USD, DOT/USD and SUSHI/USD. More pairs can be quickly added if there is demand, the company said.
The integration was completed by Protofire, a development workshop and xDai validator. The team received a Chainlink Community Grant to port native Chainlink oracles on xDai, including a token bridge adapter that enables native LINK payments for the oracle’s functionality.
The integration of Chainlink price feeds is the latest in a series of positive adoption news for the xDai project. The chain was already hosting major Ethereum-based DApps like Perpetual Protocol, a derivatives platform, and Omen, a prediction market developed by Gnosis. The inclusion of native Chainlink oracles removes a major barrier for projects relying on them, potentially opening up xDai for more DApps who wish to escape from the congested Ethereum mainnet.
Decentralization is good, but it won’t pay for gas
xDai is a relatively centralized sidechain secured by an independent set of validators. Sidechains are a type of chain where a standalone blockchain uses another’s token as a native currency for paying transaction fees — in xDai’s case, that token is MakerDAO’s Dai. The architecture binds the economies of the two environments, but the sidechain is otherwise a completely independent entity with its own security rules.
In the Ethereum community, xDai is commonly known as a centralized layer two solution. It was launched by PoA Network, a project whose name directly hints to centralization — Proof of Authority is the somewhat euphemistic name of a consensus model where the validators are chosen by the project’s insiders, instead of a community.
The xDai chain has since its launch transitioned to a Proof-of-Stake model very similar to that used by EOS or Binance Smart Chain. The total number of validators can never exceed 19, compared to the tens of thousands of validators in Ethereum’s Beacon Chain. The benefit this architecture provides is faster scalability, with xDai offering an advertised 70 transactions per second for simple token transfers.
In a conversation with Cointelegraph, Friederike Ernst, chief operating officer at Gnosis, agreed that xDai is somewhat centralized:
“It is not as decentralized as mainnet, this goes without saying. Obviously these are for very different use cases: you don’t want to do things on xDai where you need the economic consensus guarantees of layer one. But for many things, you don’t actually need them.”
The allure of xDai comes in part from its almost plug-and-play compatibility with Ethereum. Its OmniBridge allows moving any token to xDai and back, while its blockchain architecture is almost identical to Ethereum. This makes porting DApps or infrastructure elements like oracles very easy.
The centralization concerns seem to be not enough to stop adoption. Chainlink sees itself following developer demand, with Johann Eid, head of integrations at Chainlink Labs, telling Cointelegraph that “smart contract developers should have the option to work with whichever chain is the best fit for their use case.”
For Omen, the decision to set up shop on xDai was a matter of immediate necessity, Ernst explained:
“For most things, the gas costs outweigh the downsides of being on a PoA chain. And the fact of the matter is, while people are betting on a lot of layer two solutions, very few of them are in production.
The growing adoption of xDai or Binance Smart Chain is seemingly at odds with the crypto community’s preference of decentralization. Ethereum fans often believe that the prevalence of DeFi on the blockchain is the result of its more decentralized architecture and community spirit. Indeed, the rise in usage of blockchains like Tron or BSC occurred after it became clear Ethereum could not cope with its load.
At the same time, decentralization appears to be not enough by itself. For example, the most Ethereum-like blockchain in existence is Ethereum Classic, which was formed by a community who believed that Ethereum was not decentralized enough. It has failed to attract almost any interest from DApp developers.
More centralized solutions have a major benefit going for them — they work, right now. Rollup-based layer two solutions are still in development, with Optimistic Rollups being closest to release. Ernst was not particularly enthusiastic about its one week withdrawal waiting period, though. “I’m a huge fan of zkRollups. There you don’t have the withdrawal limitations, but the technology is not developed enough.”
While some developers continue waiting for rollup-based solutions, platforms like xDai can advance unimpeded. “Ultimately, it’s a tradeoff between the higher security guarantees offered by Ethereum and the usability, innovation, speed and cost savings right now on L2 sidechains,” an xDai spokesperson told Cointelegraph. As long as gas fees on Ethereum remain high, DApps may bforced to choose practicality over ideology.
Perpetual Protocol, a DeFi project offering decentralized perpetual contracts using the layer-two Ethereum scaling solution xDai, has emerged as the sixth-largest DEX by weekly trade volume after operating for only one month.
Based on data from Dune Analytics shared by Perpetual Protocol, the DEX’s weekly trade volume of more than $299 million would rank the project above the likes of Synthetix, dYdX, and Kyber, and below Balancer.
The milestone was shared in a blog post celebrating the project’s first month of operation — a period in which the DEX drove more than $500 million in total volume and generated more than $500,000 in trading fees.
All trading fees generated by the protocol are currently sent to an insurance fund designed to secure the protocol, with the project planning to divert 50% of fees to PERP stakers once its staking pool has launched.
In the blog post, Perpetual Protocol noted that it spent only $183 to execute 179,000 transactions as gas fees on xDai are just one-one-hundredth of those on the Ethereum mainnet. With Perpetual Protocol covering the gas fees of its traders, the DEX would have had to pay out $18,300 in fees if it was operating directly on Ethereum.
Congratulations to the @perpprotocol, just over one month old and already making some serious moves with trading volume surpasing 500M!
Running on @xdaichain, gas for more than 179K transactions was only $183! https://t.co/RiqoUY4xit
— xDai Stake (@xdaichain) January 18, 2021
XDai is one of several L2 scaling solutions that are offering an alternative to the heavy fees associated with operating directly on the Ethereum mainnet, with Synthetix recently launching the first stage in its transition to optimistic roll-ups.
Looking ahead, Perpetual expects to introduce limit order functionality during the first quarter of 2021, and will also launch staking in February.
Decentralized exchanges emerged as a cornerstone of the crypto ecosystem during DeFi’s Q3 2020 boom, with leading DEX Uniswap now processing almost $1 billion in volume each day and regularly surpassing many major centralized exchanges by trade activity.
Despite the booming volume, the DEX sector is currently dominated by a handful of platforms — with roughly half of the combined DEX trade activity taking place on Uniswap, and 90% of combined volume transpiring on the four largest platforms.