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Cardano As The Center Of The Universe

Published 21.11.2023

In the Midnight Special video, Charles Hoskinson described the role of Cardano in the context of Midnight and partner chains. Midnight was mentioned several times, but the explanation revolved around interoperability, supernodes, a common set of rules, etc. What is being built is big. It must be added that it will take years to deliver. This article is based on our understanding of Charles' video and may not be completely accurate.

The Most Valuable Thing Of The Cardano Ecosystem

The biggest tangible achievement of the Cardano ecosystem is the Cardano Assets and Settlement Layer (CASL). That is the layer that in the original design had the name Cardano Settlement Layer (CSL).

CASL includes Ouroboros PoS, eUTxO model, Cardano native assets (CNA), Plutus scrips (on-chain part of applications), liquid staking, multi-delegation, on-chain governance, Babel fees (not implemented yet), and so on.

CASL will be improved over time. The eUTxO model will be improved, a new standard for security tokens is being worked on, the Plutus platform will be upgraded, and Input Endorsers will improve scalability.

This is a purely technological point of view.

However, the social and economic aspect is significant, as pool operators (SPOs) and stakers are important for success. 1200 active pools and 1.3M stakers are a solid basis for a high degree of decentralization.

CASL must be seen not only in the context of technology but also in the context of decentralization. In the picture, you can see what is behind the success of Cardano.

Charles explicitly mentioned that it didn't make sense to leave this. It's better to take advantage of it.

It is important to note that in addition to decentralization, pool operators provide computing resources to the Cardano network. Decentralization and computing resources cannot currently be exported to other ecosystems. What if it was possible to provide this as a service to other chains?

Pool operators would gain a new revenue stream and at the same time the decentralization and security of the entire industry would increase. If it were possible to connect the chains seamlessly (interoperability), more efficient and hybrid services could be built.

Charles presented an ambitious plan to achieve this grand goal.

Framework For Building Chains and Supernodes

The Cardano PartnerChain Framework (CPF) was talked about at the Cardano Summit. This framework should make it easier to build new blockchains. They can be partner chains of Cardano.

The basic idea is that CASL will be surrounded by multiple service layers (partner chains). CASL will be a place that will maintain its high decentralization, scale very well, and where tokens will exist. Services will be used by CASL. If there are to be tokenized real-world assets, CASL will be the place to create them. Services (partner chains) will use tokens from CASL.

However, partner chains may allow the minting of their custom tokens. For use cases that require privacy, it is necessary to use blockchain with shielded data (Midnight).

Partner chains can be built so that they are focused on specific use cases. It can be a decentralized storage, AI service, Oracles, identity management, KYC service, privacy service (like Midnight), DEX, or even a centralized (or semi-decentralized) service.

In this way, it will be possible to connect not only existing blockchains but also legacy systems that want to be more closely connected to blockchains.

Partner chains will have their consensus, tokenomics, governance, etc. They will essentially be independent chains that will be able to ensure their security. However, it will be possible to increase security by borrowing a part of it from CASL, i.e. essentially from the Cardano base infrastructure (SPOs).

Security from Cardano can be borrowed through Quorum sampling of the SPOs. SPOs can run a supernode and can keep part of the partner chain secure.

Partner chains will have a layer that can be described as a common set of rules. Partner chains will be able to communicate with Cardano and also with each other.

How to connect Cardano to Bitcoin and Ethereum? It is necessary to arrange that developers of other ecosystems can easily connect to Cardano. A surface layer that has a lot of hooks for interoperability must be created. It must be easy for developers to use a service. Thanks to unification, the connection will be easy and quick to implement. With this connection, for example, Bitcoin can use a DEX from the Cardano ecosystem.

In addition, trustless bridges are to be created that will use the technology of recursive proofs. Recursive proofs provide a high degree of assurance for supported chains.

Recursive proofs use Zero-Knowledge cryptography. This technology can be leveraged for interoperability in blockchains as it allows for the efficient verification of transactions and states across different blockchain networks. For example, one blockchain could provide a recursive proof of its state, which could then be verified by another blockchain, enabling trustless cross-chain interactions.

A decentralized service usually needs an infrastructure for its operation, which can be more or less decentralized. The base layer (CASL) must remain decentralized, but the service part can be less decentralized. As a whole, the service will be decentralized (self-custody of assets will be maintained). Decentralized infrastructure is something completely different from the blockchain. The infrastructure must have predictable fees, resources scale on demand, meet SLAs, etc.

The Cardano blockchain is essentially just a settlement layer with a thin programmability layer (Plutus scripts).

What is a supernode?

It is the ability to modularize and containerize each piece of infrastructure that SPOs can run. Partner chains will adhere to a common standard so they can be containerized. SPOs will be able to decide which service (partner chain) they want to support and operate on their node. With one click, they can download the service container and run it.

The goal is to make containers as lightweight as possible. For this, Mithril will be used, which will make it possible to create light (semi-light) nodes of partner chains. SPOs do not have to run full nodes of every partner chain, but they will still be able to reliably validate blocks.

SPOs can run nodes cheaply while being reliable and secure. Efficiency will ensure higher revenues.

The supernode concept is an already existing technology. Charles mentioned that the team was inspired by Hyperledger's Firefly and that it is a good reference.

In the image below, you can see the concept of a supernode in the Cardano ecosystem. SPOs (part of CASL) can run multiple light clients of partner chains (of their choice) in a containerized form on their supernode.

Stakers will see what partner chains are run by SPOs. Stakers can choose the SPO according to which partner chains they support.

The IOG team started building the Cardano PartnerChain Framework by leveraging (probably forking) Parity's Substrate. Substrate is a blockchain software development tool used by developers to create the parachains that make up the Polkadot network. Essentially, Substrate is the SDK with which developers can build any kind of blockchain not necessarily for the Polkadot ecosystem.

He said that Substrate was just a starting point and that an enormous amount of changes and modifications had already been made to make the framework meet the requirements of the Cardano ecosystem. Many former Parity developers are said to be working on it. This may be related to the fact that Parity Technologies was forced to lay off 30% of its employees (around 100).

Dual Tokenomics

In the context of Midnight, Charles talked about the dual token model. There should be two tokens. One will be shielded and exist on Midnight. The second will be minted on Cardano.

Common cryptocurrency coins try to fulfill two incompatible goals. Being stable so that service charges can be predicted in advance. Coins are supposed to be a kind of stable utility token.

On the other hand, cryptocurrencies are seen as investments. People expect them to grow in value markets. They reflect the success of the project. They also serve to decentralize the network and for governance.

In other words, in one context, stability is required, while in the other, high volatility must be expected.

The goal is to build a system that meets both requirements. However, more information has not yet been revealed, as the details are still being worked on.

On the plus side, there will be a relatively strong connection between Cardano and Midnight. Midnight governance should (hopefully) be based on a token that will exist on Cardano. We'll see.

It should be easy for users.

The user of the application pays for the service (ADA or, for example, with the Midnight token) and the fee will be automatically distributed among all those who provided part of the service. It is theoretically possible that an application on Ethereum (written in Solidity) will use a partner chain for data storage and KYC, and these services may need to use Cardano (CASL). It is therefore theoretically possible that part of the fee paid in ETH will be converted to ADA to pay the SPOs who operate the storage and KYC infrastructure.

Conclusion

Developers in the Cardano ecosystem must build an off-chain part in addition to the on-chain part of the application. They may consider making a new partner chain instead of the off-chain part.

Partner chains can provide a service for application developers. DEX on Cardano for native assets (ADA and token) can use the KYC service provided by Midnight. A KYC exchange can be created that will remain self-custody. Hybrid services will emerge, which is a better situation than having either fully centralized exchanges (CEX) or only non-decentralized (with limited options to comply with regulations).

Through the partner chain, developers from all ecosystems, including Cardano, will have access to various services. Through hooks, it will be possible to use not only services provided by partner chains but also CASL. Cardano can potentially become the center of the blockchain industry.

However, this is a very bold claim and may not happen. We expect that in the coming years, we will watch the battle between the dominant chains to become the dominant settlement layer. We don't think it will be Bitcoin because it doesn't have a good concept for tokens on the first layer. It could theoretically be Ethereum if it scaled better. The community should place particular emphasis on decentralization and governance. However, we must realize that decision-making is not driven by reason but by greed.

What the IOG team is building is big and, it must be added, very ambitious. I even dare to say that it can be bigger than Cardano (although Cardano can remain the center of everything - to become a trust anchor). Unfortunately, we do not know when the new framework will be available for developers. Once the framework is available, it may take another few years before the first services are created.

What Charles is talking about makes sense. It is a good direction because it will allow maintaining self-custody of assets and building services on top of blockchains using a more or less decentralized infrastructure (as needed) and supports interoperability.

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