What's Behind Metis's Industry-Leading Daily Trading Volume Growth?

CELR+7.19%

Ethereum's continuously rising Gas fees, while troubling, have spawned the imaginative Layer 2赛道. Before Ethereum 2.0 is successfully implemented, Layer 2 may be the best alternative. At the beginning of 2022, Metis in the Layer 2赛道 has performed quite impressively.

According to l2beat, as of January 15, Layer 2 expansion solution Metis's total locked value increased nearly 90% in the past 7 days, reaching $469 million, surpassing Optimism and Loopring to enter the Layer 2 TVL leaderboard at third place,仅次于Arbitrum和dYdX.

Interestingly, Metis's founding team has certain ties to the non-profit organization Crypto Chicks, and Vitalik's mother is one of the latter's founders, which naturally sparks speculation. Of course, Metis's current impressive data performance may stem more from its own mechanism design and technical capabilities.

The demanding technical requirements of Layer 2 expansion solutions have correspondingly raised the understanding cost for ordinary users. Therefore, this article attempts to provide a comprehensive analysis of Metis, this rising star in the Layer 2赛道, using simple and easy-to-understand language, for reference only and does not constitute investment advice.

I. Based on Optimistic Rollup with Certain Improvements

Metis is built on Optimistic Rollup technology, which determines that high speed (less than 1 second), low fees (less than $1), and Ethereum-level economic security are its foundation.

Of course, Optimistic itself has a major challenge: withdrawing Layer 2 assets to Layer 1 (Ethereum mainnet) requires a 1-2 week exit period. Metis's ability to quickly attract fans lies in its solution to this Optimistic pain point.

Specifically, Metis has optimized the trading data verification process. By introducing verifier nodes in the Layer 2 computation layer, Metis implements a competitive mining mechanism, improving the efficiency of verification nodes while ensuring the authenticity and validity of trading on the Metis chain. This enables fully trustless data transmission between Layer 2 and Layer 1, avoiding intervals and delays in the transfer process. Therefore, withdrawing assets from Metis to Ethereum mainnet takes only a few hours or even minutes. This is also Metis's core selling point for attracting developers and users.

In addition, Metis preceded Optimistic in achieving compatibility with the Ethereum Virtual Machine (EVM), allowing developers to connect to a better development environment within 10 minutes without changing development languages, greatly reducing developer switching costs.

II. Building Its Own Layer 2 Platform with Ethereum-Compatible MVM

It's worth noting that the Ethereum-compatible Metis Virtual Machine (MVM) is a fork of the Optimism Virtual Machine (OVM) and mirrors the OVM in functionality and code execution. However, Metis has optimized its design, with the following three most effective improvements:

1. Integrated IPFS, Truly Achieving Encrypted Data Storage:

To avoid on-chain storage costs on Ethereum, Metis allows data instances from its verification nodes to be stored on IPFS (InterPlanetary File System). This allows users and developers to access content from Metis through the MVM's IPFS resolver, bringing two major benefits.

First, data can be encrypted within the Metis protocol, allowing users to store confidential information. Second, the IPFS resolver enables Metis applications to directly access and link to stored data, such as underlying data for artwork or music NFTs.

2. Accelerating Ethereum Application Transition to Layer 2 Through Middleware Polis

Unfamiliar programming languages and development environments are the biggest obstacle to migrating from Ethereum Layer 1 to Layer 2. Building on Ethereum EVM compatibility, Metis uses middleware Polis to provide developers with "low-code to no-code" templates for deploying and managing new applications, thereby one-click reducing developer costs for using and learning new code. Polis is more suitable for code beginners, and often this group of young Gen Z programmers are more passionate about crypto assets like Bitcoin. In other words, Polis may be a traffic attraction tool for the new generation of developers.

3. Added Sequencer Pool Model and Metis Ranger System to Strengthen Self-Correction Capability

Compared to other Layer 2 solutions, Metis focuses on achieving stronger network auto-correction functionality, thereby achieving the security and scalability required for long-term sustainable operations. To this end, Metis created the sequencer pool model and Metis Ranger (user-participatable nodes) system. The corresponding principle is that Metis randomly selects a new sequencer for each block and relies on a group of nodes (Rangers) to monitor sequencer activity. Stimulated by incentive mechanisms, users can discover on-chain fraud information and status by acting as verification nodes to obtain corresponding token rewards.

In addition, these new verification nodes are also allowed to launch new MVM execution environments to expand capacity as block space demand increases, striving to achieve so-called "infinite scalability" conditions.

The superposition of these technical optimization solutions makes Metis more outstandingly practical among numerous Layer 2 projects. Compared to the ZK Rollups solution adopted by Loopring and Immutable X, Metis, which is highly compatible with Ethereum EVM, is more attractive to on-chain applications. In addition, with the support of the IPFS data system, Metis can view on-chain content through decentralized methods, while Loopring and Immutable X cannot obtain the entire blockchain history and cannot guarantee blockchain visibility. Therefore, Metis is also superior to ZK Rollups solutions in data visibility.

These theoretical technical advantages allowed Metis to secure $5 million in funding as early as March 2021, when the bull market was just beginning, with investors including Water Drop Capital, YBB Foundation, and Consensus Lab, among others. In addition, after May, Metis tokens also rose all the way, once breaking above $300.

But Metis's ambitions may not stop there. It hopes to build a complete Layer 2 application ecosystem. Just last November 15, Metis and its investors jointly launched a $100 million incentive program to attract quality projects to join. In addition, Metis has also reached cooperation with cross-chain return optimizer Beefy Finance, cross-chain interoperability protocol Poly Network, and other cross-chain applications to obtain more cross-chain traffic.

III. Launching Specific DAO Application Scenario DAC, Top-Tier DEX Becomes a Double-Edged Sword for Development

Combining the hot concept of DAO, Metis, which aims to become Layer 2 underlying application infrastructure, has launched the new concept of DAC (Decentralized Autonomous Company). Unlike DAO which only has voting governance functions, DAC is more like an on-chain distributed business entity that allows anyone to build decentralized businesses on-chain, activating the entire ecosystem value through economic activities. According to its vision, Metis is equivalent to Tmall, while DAC is equivalent to thousands of merchants, with the former providing technical services to the latter. In addition, Metis will also play the role of incubator, providing DACs with one-stop operational training and promotion incubation services, thereby enhancing Metis's liquidity.

Of course, the DAC vision is still long-term and is unlikely to constitute positive news for current value. In fact, a closer look shows that Metis's remarkable recent rally is likely due to its generous incentive strategy.

Last December 28, Metis and Layer 2 expansion protocol Celer Network announced the joint launch of the Metis Token liquidity mining program to promote the integration of Celer and Metis mainnet. Users can conduct specific liquidity mining operations on c Bridge, a cross-chain payment network launched by Celer. Just two days later, Metis's total locked value responded by exceeding $200 million.

In addition, Netswap, the top-tier DEX that the Metis ecosystem relies on, also announced around January 5 that it would airdrop 1% of its total tokens to early users, generating some heat in the market. As of January 1, its total locked value had exceeded $100 million. It can be said that Netswap's airdrop activity, combined with the liquidity mining activity launched jointly with Celer, facilitated Metis's bullish market in the short term.

However, Netswap's existence for Metis is more like a double-edged sword. First, compared to other Layer 2 projects, the Metis ecosystem is still in an early stage, and no well-known lending and NFT applications have been born on-chain. Over-reliance on Netswap may create a "siphon" effect during the growth period, which is not conducive to the growth of other projects. Second, since Metis tokens can only be decentralized trading on Netswap DEX, and fees on the Metis chain are settled in Metis's native currency, this greatly reduces convenience for developers. It should be noted that developers can enjoy NEAR public chain network services without exchanging ETH in their hands for NEAR. Finally, Netswap has no obvious advantage compared to other top-tier DEXs and lags significantly in ecosystem scale. Therefore, Metis's Layer 2 ecosystem dream still has a long way to go.

Although Metis's trading volume growth is impressive, there is still a gap between its total market value and top-tier public chains. When large-scale trading occurs, whether it can achieve its envisioned high speed and low cost cannot yet be 100% confirmed. For developers, investors, and ecosystem participants, time may tell.

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