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Posted on May 23, 2023Read on Mirror.xyz

Smilee Finance & NFT Standard ERC-6551|DODO Megascope 5.17-5.23

DODO #Megascope brings you this week’s Highlights:

  1. DeFi Project Analysis: Smilee Finance

  2. New gameplay for NFTs: ERC-6551

  3. OP Stack: Achieving Modular Multi-Proof Design

  4. Datacheck: Lido V2 Withdrawal Data

👀 Weekly Digest


Project Analysis: Smilee Finance

On May 12th, decentralized derivatives protocol Smilee Finance announced the completion of a $2 million seed funding round. Impermanent Loss (IL) is the problem that DeFi projects are dedicated to solving, and currently, most projects compensate for impermanent loss through trading fees and token subsidies. Smilee Finance aims to introduce a new on-chain product by transforming liquidity into Decentralized Volatility Products (DVPs).

Key Features and Mechanisms include:

  • DVP Strategies: DVPs are vault-based strategies that generate returns either by going long on volatility (making profits regardless of market direction) or going short on volatility (making profits when the market is stable or in equilibrium).

  • Operational Method: Based on the two DVP strategies mentioned above, the short volatility DVP pays a portion of the impermanent loss to earn returns, while the long volatility DVP pays a premium to "earn" the impermanent loss.

  • Definition of Each DVP: Each DVP is defined as a vault, which specifies the type of volatility exposure (long or short), token pairs (e.g., ETH/USDC, ETH/BTC), the formula for generating returns (defining the DVP strategy), maturity date, and auction period.

  • Liquidity-to-Volatility Engine: By fully solving the mathematical problem behind impermanent loss, it can be translated into any volatility-based returns through the liquidity-to-volatility engine. This ensures a perfect balance between long and short volatility DVPs.

Opportunities and Risks

  • The innovation lies in building DeFi primitives around volatility, allowing users to trade, hedge, and speculate on volatility on LP pairs.

  • Smilee's architecture is flexible, allowing for the creation of customizable DVPs to cater to the needs of more advanced applications from protocols, DAOs, or institutions such as market makers and hedge funds.

  • However, volatility products themselves come with certain risks. Additionally, IL remains a complex topic, and it is crucial for the product design to clearly display the risk and return to users.

  • Furthermore, even with the potential for LPs to earn additional yield, there may be an extreme imbalance in favor of long or short volatility, making the returns less attractive.


NFT Innovation: ERC-6551

ERC-6551 is a new Non-Fungible Token (NFT) standard that was released on the Ethereum mainnet on May 7th, 2023. Unlike traditional ERC-721 NFTs, these new NFTs can not only own and be traded but also function as smart contract wallets, holding other tokens and NFTs. This new functionality is achieved through a permissionless registry that is compatible with existing ERC-721 NFTs, allowing for the creation and management of these multi-functional tokens.

Working Mechanism

  • The limitation of ERC-721 NFTs is that they can only be owned, transferred, and lack the ability to own other assets (such as tokens or other NFTs) or interact with other smart contracts, or change and expand based on external factors or user input.

  • ERC-6551 solves this problem by utilizing a permissionless registry that is compatible with existing ERC-721 NFTs. Anyone can create a Token Binding Account (TBA) for any ERC-721 token by calling functions on the registry and paying a small fee.

  • The proxy contract representing the TBA inherits all the attributes and data of the original ERC-721 token and implements the EIP-1271 standard, allowing it to sign messages on behalf of the token and verify signatures. This enables the TBA to interact with other smart contracts and accounts on the Ethereum network, such as decentralized exchanges (DEXs), lending platforms, game environments, and hold other assets like tokens or other NFTs through function calls on the proxy contract.

Empowering Scenarios

  • Composability: ERC-6551 allows NFTs to be bundled with their related assets (such as other NFTs and tokens). If an ERC-6551 NFT is sold or transferred, each asset within it will be transferred together.

  • Identity: Each NFT has an independent identity and can interact with decentralized applications independently, regardless of the wallet it is held in, and can be associated with on-chain identities. This opens up new possibilities for loyalty programs or game rewards based on NFTs. Additionally, platforms can utilize the identity and reputation of NFTs to determine creditworthiness or mitigate counterparty risks.

  • Provenance: Provenance means users can access complete transaction history or utility information about an asset. Currently, NFTs do not provide detailed information about their past usage.

  • Dependency: Interacting with other on-chain assets or platforms autonomously, enhancing functionality and value.

Adoption Challenges

  • One of the main challenges for ERC-6551 is gaining support from existing NFT projects and platforms. Not all NFT projects support the ERC-6551 standard, such as CryptoPunks.

  • Additionally, some NFT platforms may be unwilling or unable to integrate with the ERC-6551 standard due to technical difficulties or commercial reasons.

  • ERC-6551 may present a larger attack surface as it becomes more popular, attracting attackers interested in exploiting vulnerabilities in ERC-6551 NFTs that hold assets and interact with applications.

  • ERC-6551 needs to provide a user-friendly and intuitive experience. Introducing new complexities and functionalities to NFTs, users will need a deeper understanding to effectively use ERC-6551, such as learning how to create, access, manage, and transfer Token Binding Accounts and their assets.


OP Stack: Modular Design for Multi-Prover Construction

The OP Mainnet is scheduled to upgrade to the Bedrock version on June 6th, 2023, at 16:00 UTC. OP Stack is a modular blockchain system, and the upcoming Bedrock upgrade will allow developers to utilize various types of proofs within OP Stack to provide more secure and adaptable solutions.

Existing Problem: Rigidity in Proof Design in Rollup

In the historical design of Rollup, the common approach was to first construct a proof and then make the system adapt to that proof. However, this method limited the flexibility of the system and led to debates in the L2 space mainly focused on optimistic proofs and validity proofs. In designing Bedrock, a more secure and forward-looking solution can be provided by building a system that can accommodate multiple proof methods.

Solution: Modular Design, Flexibility, and Security

  • Diverse Proofs: OP Stack will support multiple proof methods, with security being the most prominent one. Having multiple proof methods prevents any single proof from becoming the system standard.

  • Modular Design: The modular design of Bedrock has already enabled the implementation of multiple L2 clients in the Optimism ecosystem. This concept also paves the way for incorporating various proofs, including zero-knowledge (ZK) validity proofs, into OP Mainnet or other OP Chain variants such as Base, ensuring compatibility with future advancements.

  • Social Decentralization: When multiple independent teams or stakeholders participate in the implementation, it promotes social decentralization, which has a positive impact on the development direction of the network.

Implementation of Multi-Prover Design

The proof system of the OP Stack achieves modularity through standardized on-chain APIs and off-chain participants, enabling dispute contracts to flexibly switch proof schemes.

  1. Standardized On-chain APIs: Through this mechanism, Bedrock can dynamically add new proof schemes or create m-of-n schemes that require multiple proof schemes to operate.

  2. Standardized Off-chain Participants: Off-chain participants, also known as challengers, interact with dispute contracts, creating a maximum extractable value (MEV) opportunity that incentivizes honest behavior, protects the system, and ensures that the dispute game remains profitable to sustain its ongoing operation.

Two approaches are currently being developed to standardize off-chain participants:





🚄 Bullet News


  • Tornado Cash has suffered a governance attack, where the attacker with control over Tornado Cash governance was able to withdraw all locked votes, drain all tokens in the governance contract, and disable the router from functioning.


  • Lagrange Labs has raised $4 million in seed funding to develop its Zero-knowledge (ZK) system enabling secure interoperability across different blockchain networks. The funding round was led by investment firm 1kx and included contributions from Maven11, Lattice Fund, CMT Digital, and Daedalus Angels.

  • Narwhal Finance has announced the completion of its strategic funding round with a valuation of $25 million. The funding round included participation from Animoca Ventures and other investors.