Equilibrium's Infra Bulletin #5: Chainlink CCIP, Blockspace Derivatives and Zero-Knowledge Processing Unit (ZPU)

Equilibrium Labs builds the state-of-the-art of decentralised infrastructure. We are a global team of ~35 people who tackle challenges around security, privacy and scaling.

This newsletter allows us to share more about what we read, what excites us and what we think is relevant to the space. In addition, you will get a glimpse into the organisation and our culture.

Research, Articles and Industry News:

📚ChainLink Cross-Chain Interoperability Protocol (CCIP) Hits Mainnet - Recommended by Hannes:

• Chainlink CCIP is a cross-chain messaging protocol that enables bridging tokens through either burn/mint (native transfers) or lock/mint mechanisms (wrapped transfers), as well as sending arbitrary messages. The latter allows for cross-chain smart contracts, such as using your assets on chain A as collateral on chain B to take out a loan, without having to bridge. Another new feature is additional instructions about the intended use on the destination chain, such as swapping to another token and depositing as collateral in the lending market - all in one transaction.

• CCIP is powered by Chainlink’s decentralized oracle network (DON). This means that for a protocol that’s already using existing Chainlink services (i.e. oracles) - which includes a lot of dApps - using CCIP requires little/no additional trust assumptions. In addition, CCIP features additional layers of protection via the Active Risk Management (ARM) Network, which is an independent, secondary network of nodes that monitor the validity of all cross-chain transactions. The ARM Network acts as a verification layer and will periodically submit heartbeat checks when the system is operating as normal. If the ARM Network’s heartbeat messages stop or its nodes notice any nefarious activity, an emergency shutdown is automatically triggered to stop a particular cross-chain service. This helps protect user funds against potential black swan (i.e. very unlikely negative) events.

  

  CCIP Architecture

• Key Takeaway: Blockchain interoperability is a key friction in a multichain world. Following the latest big bridge victim Multichain - we’re again reminded about the need for secure cross-chain messaging solutions. While some options such as storage proofs might be more trustless, CCIP offers a more production-ready alternative that requires little additional trust assumptions for protocols already using Chainlink’s services. CCIP launched on mainnet this week (early access) and protocols already using it include Aave (cross-chain governance) and Synthetix (cross-chain token transfers).

📚Opportunities and Considerations of Ethereum’s Blockspace Future - Recommended by Joakim:

• The business model of Ethereum (and other blockchains) revolves around selling blockspace. Blockspace is a commodity that is leveraged by various participants to interact with smart contracts powering applications, support additional layers of infrastructure, or directly settle transactions. However, the pricing of blockspace (gas) is volatile and unpredictable. Similarly to how derivatives have strengthened spot markets of more traditional commodities (e.g. oil) and provided additional risk-management tools to various stakeholders, Ethereum’s spot gas market could also benefit from having a derivatives market.

  

  Ethereum Average Gas Price (Gwei) is Volatile

• Gas derivatives could act as a tool for broader price discovery around Ethereum blockspace and improve both the user and developer experiences (for example by relying on paying a fixed price for gas). The two-sided market consists of:

  • Potential buyers include L2s that want to lock in their cost of publishing data to an L1, as well as applications, wallets and other infrastructure actors who abstract users from purchasing blockspace (block builders, account abstraction and middleware…).

  • Potential sellers include validators that supply blockspace and want to secure revenue in advance by locking a price. Various other market participants (traders, market makers…) might also want to participate by both buying and selling to speculate on the market direction or to provide liquidity for a fee.

• Something to consider is that EIP-4844 creates a multi-dimensional fee market on Ethereum that creates two prices for Ethereum blockspace—one for data and one for execution. Derivatives could create interesting ways for participants to hedge or speculate between these two spot markets. Another complication is that not all blockspace is created equal. For example, with block congestion users simply pay a fee for inclusion, whereas with contention users pay a fee to express the desire to be included in a certain order in the block. The chart below shows that some users are willing to pay exponentially higher prices for contention (blockspace at the top or back of the block), but the majority of users just pay to be included (i.e. congestion). Therefore, it’s more likely that a derivatives market would be catered towards the latter, namely inclusion.

  

  Gas price (wei) of the Proposer Payment (Effective gas price - Base gas price) by location of a transaction in the block

• While there have been previous attempts of creating hash rate derivatives around the Bitcoin network, they have seen limited uptake. Ethereum benefits from a wider range of natural market participants, which increases the likelihood of growth in a liquid, two-sided market. Even though it might take years before the surrounding infrastructure and market participants are mature enough, protocols such as Alkimiya are already moving the space forward.

• Key Takeaway: Gas derivatives could improve the price discovery of blockspace and help various stakeholders manage risk in their operations. While it could be extended to other blockchains as well, Ethereum is the most likely candidate for now, given a wider range of natural market participants and growth in L2 traffic.

📚 ZPU: The Zero Knowledge Processing Unit - Recommended by Hannes:

• The performance overhead associated with proof generation is a major challenge for the adoption of zero-knowledge proofs (ZKPs) in real-world applications. ZKP algorithms typically involve complex mathematical operations on large integers, such as large-size polynomial computations and multi-scalar multiplications on elliptic curves. In addition, the space is constantly evolving with new and more efficient proof schemes being developed at a rapid pace. This makes it difficult for existing hardware accelerators to keep up with the ever-changing landscape.

• Zero Knowledge Processing Unit (ZPU) is a new hardware accelerator by Ingonyama that’s designed to address this problem by trying to achieve both performance AND adaptability. The ZPU is built on:

  • Instruction Set Architecture (ISA) is a set of instructions that a processor can execute. Utilizing an ISA rather than fixed hardware enables continued software improvement post-fabrication, which allows for programmability and enables the ZPU to adapt as new advancements emerge.

  • The ZPU features an interconnected network of Processing Elements (PEs) which are defined by the ISA. The PE’s core structure is tailored to serve the common operations in ZK, such as elliptic curve point addition for multi-scalar multiplication and butterfly operation for Number Theoretic Transform (NTT).

  

  PE Network Structure

• To assess performance, Ingonyama focused on the key operations fundamental to the algorithms they are aiming to accelerate, namely NTT butterfly operation and the elliptic curve (EC) point addition operation. The tests show that the ZPU can match (or in some cases even exceed) the performance of existing state-of-the-art ASIC designs for these operations while offering greater adaptability to changes in ZK algorithms and cryptographic primitives.

• Key Takeaway: ZPU is a new hardware accelerator by Ingonyama that aims to address the performance needs of ZKPs while remaining adaptable to future changes in ZK algorithms and cryptographic primitives. While there are trade-offs to consider, such as the balance between high and low bit width native support in a PE, the ZPU seems to be able to match the performance of current state-of-the-art ASIC designs in the key cryptographic operations.

Personal recommendations from our team:

📚Reading: The Quantum Thief - Hannu Rajaniemi: A recent discovery that some of our team members really enjoyed. Good SciFi by a Finnish author - need I say more?

🎧Listening: Barcelona Guitar Trio & Dance - Billie Jean: Co-operation can take many forms, such as this impressive cover by four people playing on one guitar 🤯

💡Other: Electric Capital Developer Report 2023 Mid-Year Update: The report published a couple of weeks ago showed that there are currently 21.3K monthly active open-source developers. While this is a decrease of 22% YoY (since June 2022), we can see from the chart below that the developers who left recently were newcomers (<12m in crypto) and responsible for less than 20% of all code commits.