DODO #Megascope brings you this week’s Highlights:

1. Arbitrum Governance Fiasco

2. MEV Bots Under Hacker Attack

3. zkSync Era New Project Onchain Trade Dissect

4. Data Check: Examining zkSync Era's Performance Metrics

👀 Weekly Digest

DeFi

Arbitrum Governance Proposal Event

On April 1, the Arbitrum Foundation initiated AIP-1 proposal through a service provider on Snapshot, which subsequently sparked intense community discussion and concerns, causing the $ARB price to fall in a short period. We have reviewed the timeline of the entire event and the points of contention. Overall, the Arbitrum team has caused a certain crisis of trust in governance issues, and it remains to be seen whether the new proposal can alleviate community concerns.

Timeline

1. Arbitrum Foundation launches ArbitrumDAO establishment proposal (AIP-1): The community proposed the establishment of a decentralized autonomous organization ArbitrumDAO, to be managed by ARB holders. At the same time, 7.5 billion ARB tokens would be transferred to the administrative budget wallet.

2. Cringe.eth questions the ARB token transfer: Community member Cringe.eth pointed out that 7.5 billion ARB tokens were withdrawn on March 16 and transferred to Binance on the 23rd, possibly selling 50 million ARB without DAO permission.

3. Patrick McCorry’s post: Foundation staff member Patrick McCorry posted in the community, stating that the Arbitrum Foundation views the AIP-1 vote as an "approval" rather than a "request," causing negative sentiment and distrust of Arbitrum community governance.

4. Public opinion fermentation, intense community reaction: The proposal sparked intense reactions from the community. The community strongly opposed and expressed dissatisfaction with Arbitrum's approval-based governance, with numerous institutions and DAO organizations publicly declaring their opposition to the proposal and casting dissenting votes.

5. AIP-1 vote result: In the end, the vote did not pass, with 76.67% opposing.

Points of Contention

1. ARB token transfer issue: The community questioned the team's sale of 50 million ARB tokens without DAO permission.

2. Nature of the AIP-1 vote: The community was dissatisfied with the Arbitrum Foundation treating the AIP-1 vote as "approval" rather than "request". The AIP-1 vote did not go through community discussion, rendering the community's governance rights nominal.

3. Arbitrum community governance transparency: The community expressed concerns about the transparency of Arbitrum community governance.

Arbitrum's Response to Controversy

1. Explaining the ARB token transfer issue: The foundation stated that it did not sell the 50 million ARB, 40 million of which had been lent to market makers and the remaining 10 million had been exchanged for fiat currency dedicated to operational costs.

2. Commitment to follow community recommendations: AIP-1 will be split into multiple parts, allowing the community to discuss and vote on different sections.

3. Publishing a transparency report: To improve governance transparency, Arbitrum released a detailed transparency report outlining the measures needed for DAO launch and operation. In the future, the DAO can modify the report's parameters and roles through AIP voting. This move aims to increase community trust in the governance process.

4. Introducing AIP-1.1 and AIP-1.2 (April 6):

• AIP-1.1: The proposal suggests placing the remaining 7 billion ARB tokens held by the foundation into a smart contract-controlled lockup, to be released gradually over four years. The foundation will not be able to access these tokens until the DAO approves a compliant budget and lockup schedule. Additionally, AIP-1.1 introduces explicit provisions on budget principles, categories, and transparency reporting. This will help supervise fund usage and strive to improve community trust in the foundation.

• AIP-1.2: This proposal is intended to modify the DAO core governance document to reduce the number of ARB tokens required for the proposal threshold from 5 million to 1 million. This adjustment is intended to lower the threshold for community members to participate in governance in an attempt to facilitate the implementation of decentralized governance.

• Three-day feedback period: DAO members will have three days to provide suggestions and comments on the AIP-1.1 and AIP-1.2 proposals. This reflects Arbitrum's emphasis on community input, aiming to better meet the needs of community members.

• One-week snapshot voting: After collecting feedback, the AIP-1.1 and AIP-1.2 proposals will undergo a one-week snapshot voting period. This voting arrangement attempts to provide ample time for community members to participate in decision-making, ensuring a fair and equitable governance process.

MEV Bots Under Hacker Attack

On April 3rd, some MEV bots suffered a devastating loss due to a baiting attack by hackers. We analyzed the attack process and its impact on the MEV landscape.

Attack Process

• The attacker first joined the validator nodes (a crucial step, as nodes can modify transaction information). Typically, transactions are broadcasted to nodes, which only verify the validity of the transaction and do not maliciously modify the transaction information.

• The attacker attempted to bait the MEV bots by identifying certain transaction pools monitored by them, and then initiating transactions targeting those pools.

• The attacker initiated transactions like a regular user, luring the MEV bots into performing a sandwich attack. In such attacks, MEV bots generally trade before the user, driving up transaction prices and then selling their tokens to profit.

• After detecting the MEV bot's actions, the attacker constructed invalid blocks, obtained transaction content in advance, and replaced the sell token step with their transaction, selling the pool tokens before the MEV bot and completing the attack.

Impact

• The attack was a malicious one targeting MEV bots. Moving forward, MEV bots should pay close attention to monitoring low-liquidity pools and implement risk control measures.

• This attack raises trust issues between MEV bots and validator nodes, potentially prompting some MEV bots to switch to operating their nodes.

• The cost of malicious activity for the attacker is too low; the verification mechanism should be further optimized.

zkSync New Project Onchain Trade Interpretation

Onchain Trade (OT) is a novel DeFi protocol deployed on the zkSync Era, allowing users to create single-token liquidity pools (instead of traditional dual-token liquidity pools). By virtually pairing user-deposited tokens with the native OSD stablecoin, single-token liquidity pools are achieved. This approach is more capital efficient, offering an optimized experience for traders, liquidity providers, and third-party projects.

OT Features

• Single-token liquidity pools reduce high capital costs for project launches: Unlike AMMs requiring dual-side liquidity supply, projects can launch tokens on OT with zero additional capital. Liquidity providers only need to deposit one type of token into the OT liquidity pool.

• Lower slippage on traditional AMMs: OT combines lending/borrowing pools with exchange pools, reducing transaction slippage.

• Introducing lending to improve capital efficiency: Traditional AMMs are extremely inefficient in capital utilization. In OT, liquidity providers (LPs) will receive fees from both exchanges and loans, while borrowers can directly borrow from the exchange pool.

• Introducing OSD stablecoin to save routing steps: When users want to exchange token A for token D, the actual transaction path might be A-B-C-D, leading to higher gas fees, transaction costs, and slippage. In OT, all assets are virtually paired with the OSD stablecoin, and all non-OSD assets can be traded through OSD, i.e., A-OSD-B, with only a single 0.3% (up to 0.06% for stablecoin exchanges) fee and lower slippage.

How Single-Token Liquidity Pools Are Implemented

OT introduces the concept of single-token liquidity pools, which is achieved by using the OSD stablecoin to pair with all assets. Project owners or oracles provide a price and deposit OSD stablecoins. When the pool's OSD balance is insufficient, i.e., when selling actions cause the OSD balance to fall below zero, OT will automatically rebalance the pool. LP tokens obtained during the rebalancing period belong to the protocol treasury.

• For example, if the USDT pool has a balance of 10,000 USDT and 0 OSD, Alice exchanges 10,000 USDT for 10,000 OSD. Since the OSD balance in the pool is zero, this action reduces the OSD balance to zero. The protocol will issue 10,000 OSD in the form of USDT LP tokens, Alice receives the OSD, and the treasury acquires the 10,000 USDT LP token. This process is called rebalancing. Based on this mechanism, users can provide single-sided liquidity.

Risks

• Currently, the pools introducing rebalancing include USDT, USDC, DAI, and ETH, whose price fluctuations are relatively small. If rebalancing is introduced to riskier assets with higher volatility, it could potentially cause the OSD to become unpegged.

• As the OSD is essentially a fully collateralized lending token, the transaction volume scale that OSD can absorb as a trading medium remains to be seen.

• Oracle pricing risk.

• Delay risk caused by zkSync network congestion.

Datacheck

On March 24th, zkSync Era Mainnet Alpha launched. Developers and users can build on and bridge funds to experience the power of zkEVM. Since that day, zkSync Era has attracted a mass of users, and currently its TPS ranks Top.2 among all Layer2 solutions.

1/ TVL

• There are few crypto assets on zkSync Era currently, ETH and USDC took up the most.

• ETH and USDC have a similar growth trend in the past 7 days. As of April 3rd, ETH is approaching 39k and nearly $ 70M, while USDC is close to $30M.

2/ Deposits from Layer1 to zkSync Era

• The number of txs fluctuates between 1k and 3k per hour, showing clear peaks and troughs.

• The average amount of ETH per transaction is within 0.5 ETH, mainly fluctuating between 0.1-0.2 ETH.

• The proportion of transactions with an amount less than 0.1 ETH is the highest, accounting for 2/3 of the total.

3/ Depositors

• In the first three days, it showed the highest increase in new users.

• The cumulative number of deposit wallets has reached 260,000.

4/ Stats of Network

• Number of transaction on zkSync Era has reached 3.6 million, and the number of blocks on Layer2 has reached 720,000.

• ZkSync Era txs require three Layer1 transactions (commitBlocks -> proveBlocks -> executeBlocks) to achieve finality. Currently, the cumulative triggered transactions have reached 7.1k, 7.1k and 562 respectively.

5/ zkSync Era Ecosystem

There are currently 26 ecosystem projects：

• Wallet: 4 (Argent…)

• Defi: 7 (SyncSwap, Mute.io…)

• Infra: 4 (Pyth…)

• NFT: 6 (Mint Square…)

• Bridges: 4 (Orbiter Finance, Multichain…)

• Tool: 1 (Thirdweb)

Data source: https://ecosystem.zksync.io/

6/ Stats of Projects on zkSync Era

• DEXes have attracted a considerable amount of TVL at present.

• SyncSwap & Mute.io have a TVL of 22M and 11M respectively.

• In the past 24 hours, the trading volume of SyncSwap and Mute.io was close, both at 3.3M, with transaction counts of 24,424 and 21,374 respectively.

(Data source from https://www.geckoterminal.com/zh/zksync/mute/pools & https://www.geckoterminal.com/zh/zksync/syncswap/pools)

🚄 Bullet News

Infrastructure

• Payment service provider Alchemy Pay has announced the completion of a $10 million funding round at a valuation of $400 million, with market maker DWF Labs investing. The new funds will be used to expand its business in South Korea, aiming to help local Korean companies achieve greater internationalization.

• DeFi platform M^ZERO has completed a $22.5 million seed funding round, led by Pantera Capital, with participation from Road Capital, AirTree, Standard Crypto, SALT Fund, ParaFi Capital, Distributed Capital, Kraynos Capital, Earlybird, and Mouro Capital. M^ZERO can be considered an Ethereum infrastructure layer, and it may issue governance tokens, but it will not be aimed at the general public.

DeFi

• Pancakeswap V3 officially launched, featuring on-chain lottery, perps in collaboration with ApolloX, a better farm experience, and liquidity provider integration. Pancakeswap V3 will adopt concentrated liquidity similar to Uni V3 to improve capital efficiency and will be equipped with automatic position management tools to assist users.