Metis L2 - is Decentralization a Myth?
So our first breakdown might also be our most unusual. For the most part, we will be looking to do a deep dive into new or upcoming projects; in this way, we hope to have a positive impact on teams joining our home here on Metis Andromeda. Additionally, we wish to be as unbiased as possible; as we explain below, that is not strictly the case in this instance.
We thought an appropriate place to start this journey would be with a review of Metis itself. It goes without saying that we are bullish on Metis (after all, we chose to make our home here), but that doesn’t mean we are going to pull any punches. *Cries in lost EDF funding.*
This audit will also be unusual in that it will be a bit less complete than the standard we hope to set; Metis is a huge project, and we can’t hope to cover everything. We hope to give a solid overview of what Metis is, what it hopes to become, what it does well, and what we believe is holding it back.
What is Metis?
Metis is a Decentralized Optimistic Rollup L2 on the Ethereum Blockchain. What the hell does any of that mean? Let’s break it down;
First of all Metis is built on Ethereum, which is a Layer 1 blockchain – if you don’t know what Ethereum is, this article is probably the wrong place to start your blockchain journey.
A Layer 2, or L2, is a network that sits on top of the Layer 1; networks like Metis exist to make transactions on their parent chain (in this case Ethereum) cheaper, faster, and more efficiently. How do they do this?
All rollups essentially work by taking a bunch of transactions and processing them on their own network before bundling them up and submitting them to the mainnet. This way, they still benefit from Ethereum’s incredible security but avoid its transaction time and expensive gas fees.
Instead of a bunch of individuals each paying their own Ethereum gas fee, Metis collects them and submits them all at once. View it like sharing shipping costs with a friend when you’re both ordering from the same online store.
Currently, there are two types of rollups:
Optimistic Rollups:
How It Works: Optimistic rollups bundle multiple transactions together off-chain and then submit them to Ethereum as a single transaction. The transactions are assumed to be valid (“optimistic“) and are only checked if someone challenges them. Optimistic rollups have a week-long “challenge” period in which submissions can be challenged (early adopters of Metis will recall a week-long time frame to bridge funds off of Metis).
Analogy: Imagine you go shopping and receive a receipt for your purchases; everyone can see your receipt, but no one immediately verifies if every item you bought is correctly listed. The system operates on the assumption that your receipt is correct (“optimistically”). However, anyone has the opportunity to check your receipt later. If they find a mistake, they can report it, and the error will be corrected. Additionally, you will be fined, and the person who found the mistake will be rewarded. This encourages everyone to be vigilant over those trying to abuse the trust system.
Advantages:
- Efficiency: Since not every transaction is checked immediately, the process is faster and requires less computational power.
- Scalability: Can handle a high volume of transactions because it doesn’t need immediate validation.
Disadvantages:
- Potential Delays: If someone challenges the receipt, the process to verify and correct it can introduce delays.
- Trust: The system relies on the assumption that most transactions are honest, which might not always be the case.
zk-Rollups:
How It Works: zk-rollups use zero-knowledge proofs to bundle transactions and provide cryptographic proof that the transactions are correct. Each batch of transactions is verified through these proofs, ensuring they are correct and valid without needing to trust the transactions.
Analogy: A zk-Rollup is more like an ATM that, whenever you perform a transaction, immediately checks and verifies your balance and other transaction details using a complex algorithm. The ATM provides a proof that your transaction is correct, and this proof is quick and easy for anyone to check.
Advantages:
- Immediate Verification: Each transaction is verified instantly, ensuring accuracy and security.
- Security: Provides strong guarantees that all transactions are correct, reducing the risk of fraud.
Disadvantages:
- Complexity: The verification process is computationally intensive, requiring sophisticated algorithms.
- Resource Intensive: Can be more resource-demanding, which might limit its scalability compared to optimistic rollups.
As mentioned, Metis is currently an Optimistic rollup. In March 2023, they announced they are working on the world’s first hybrid rollup – you can read more about it below.
Decentralization
If you don’t know what decentralized means, you can get a run down by hovering over the word. Metis aims to be the first decentralized L2 and, as we’ll discuss below, it certainly has a good claim to that title. However, whilst Metis is well on its way to becoming decentralized, it has a ways to go yet. Please see the Decentralization section below for details.
Decentralized Sequencers:
What Are Sequencers? Sequencers are entities responsible for ordering and bundling transactions before they are processed on the blockchain. They ensure transactions are processed efficiently and in the correct order.
Advantages:
- Security and trust – having decentralized sequencers prevents any single point of failure.
- Transparency and fairness, preventing any one entity from having undue influence.
- Community empowerment, allowing every Metis holder the chance to benefit from the financial structure on the Network. Basically staking rewards but like, actual ones, not just printed tokens.
Current Situation:
The Metis Foundation currently has two Sequencer nodes operated by Artemis Finance and Enki Protocol.
Applications to run further sequencers are on the way. Anyone interested can apply here.
If and when these go live, Metis will have the strongest claim on decentralization of any L2, at least in terms of sequencers – below we discuss decentralization in more detail.
What Sets Metis Apart?
So let’s start with the things we like about Metis and why we chose to make it the home of VestaDAO;
The tech:
Metis has some seriously smart people working for it. As mentioned in the What Is Metis section above, they are breaking new ground in the blockchain world. First L2 with decentralized sequencers. On-chain data. Tons of infrastructure for businesses such as DACs. Despite literally accomplishing things no other L2 has, Metis has not had a single unannounced outage.
Additionally, Metis aspires to be the world’s first hybrid L2 rollup. This will mean it combines both of the L2 technologies. By combining optimistic and zk-rollups, Metis will leverage the strengths of both approaches:
Scalability and Speed: Optimistic rollups handle high volumes of transactions quickly and cost-effectively. Additionally, they provide an easier development environment.
Security and Assurance: zk-rollups provide cryptographic security and immediate finality, ensuring all transactions are valid.
The Vision:
Right from their outset, the Metis team has had a strong commitment to their vision – and their vision is huge; to be the home of real-world web3 adoption. They have demonstrated their commitment to this with their suite of business tools, a focus on providing key infrastructure through their EDF, and by leading the pack by aspiring to be both the first hybrid L2 and the first L2 to begin the process of decentralizing their sequencers (see above).
I’m sure everyone has heard their more zealous crypto friends talk about “mass adoption” or crypto “replacing the dollar”. We make no speculation on whether either of these things are likely to happen, but if they did; Metis is preparing to have a stake in that adoption. By contrast, something like Bitcoin simply couldn’t handle the volume of mass adoption without its own fully developed L2s.
Long Term Ambition:
Metis has an easily demonstrated focus on the long term. This can be extremely frustrating to your average holder; when meme coins are exploding and Metis refuses to play the hype game.
Metis’ commitment to its long-term goals is one of the things we like most about it. Examples of this are the five-year EDF schedule – preparing to ensure a steady inflow of projects to the network over a timeline that is rarely seen in web3.
We believe that this long-term ambition will keep Metis relevant, independent of wider market cycles.
No Compromise On Goals
This ties in to both the ambition and vision; the Metis team seems unwilling to compromise on what it is they want to achieve. Again, this can be very frustrating to short-term holders, but should be encouraging to long-term investors. Examples of this are Metis delivering on their decentralized sequencers years after their announcement; they have stuck firmly to their roadmap with little variation. In short, they are not distracted by short-term narratives.
Vitalik's Mom
She’s on the team.
What Needs Improvement:
So we’ve explored the good; let’s talk about what needs work.
General Communication:
The general community sentiment is that Metis needs to do a better job with its communication. Those who have been in the project a long time know that Metis almost always delivers on its projects; however, they are not always the best about effectively communicating delays.
Recent examples include implementing the Dencun upgrade and the release of airdrops for test network users and the layer3.xyz tasks, which are still not complete with little to no communication regarding the plan for this. Both the Metis Telegram and Discord have been swamped with questions regarding these (especially airdrop farmers who felt they had been cheated). There may very well be/have been good reasons for these delays but there was not clear communication about the reasons for it.
On a wider level, there are difficulties dissecting the exact nature and ambition of the Metis project. Even for this article, despite lengthy research, our team had to reach out for clarification on a number of issues including the actual decentralization ambition of the project and the difference in role and responsibilities of Metis Governance and the Metis Foundation.
On the one hand, we agree that having no hype and eventually delivering is better than the inverse. On the other, poor communication makes Metis a difficult project to trust, especially as an outsider. Regardless of intentions, lack of clarity quickly turns to FUD in web3; a space in which many, if not most, have been burned by projects in the past.
Some suggestions from the community include regular press releases and/or medium articles with plain language updates; highlighting not only the tech but also the direct user benefit of upcoming changes.
This may be a lack of awareness or simply poor internal communication between dev teams and community teams. Either way, we feel this is one of the easiest and best improvements Metis could make.
Metis should demonstrate more accountability for projects it shills:
The Metis team has always maintained the general web3 rhetoric of “do your own research” and “we take no responsibility for third-party projects”. This is reasonable as no one can ever fully know someone else’s intentions. However, we believe Metis could have more internal awareness of the influence it has when it invests its stamp of approval on other projects.
The most notable example, by far, was BinaryDAO – a project that cropped up in 2022- marketing themselves aggressively and promising heavy returns to buyers. They stole a huge chunk of their presale money without any mention of it in their documentation. They proceeded to run the project into the ground before “compensating” holders (at a huge loss) and disappearing entirely. Throughout this process, the Metis team on social platforms were actively endorsing BinaryDAO – at least as late as October 2022. As far as we can find, the Metis team has never publicly addressed what went wrong here; another example of poor communication and accountability.
Recently, this has become even more important with the introduction of the EDF. Just so there is no lack of clarity, the next section is not a shot on Hercules – our interactions with them thus far have not suggested they are anything but a positive addition to our ecosystem – NFA. When the EDF awarded $1 million (more at current Metis prices) to Hercules, we believe they should have taken on more oversight with regards to their launch. This was not the case and as a result, there were multiple issues, including no release of full tokenomics prior to launch and issues with white lists. This is, not only our team’s individual experiences, but a shared feeling among active Metis community members. We are in current active communication with the Hercules team to get clarity.
When Metis endorses projects and there are issues like these, it reduces trust in the whole network.
We believe Metis should either apply more oversight themselves or alternatively hire a third party to dig into projects prior to endorsing them. One common suggestion, we’ve heard, is to KYC the parties receiving funding from the foundation. If a recipient knows their government name is on file somewhere, and attached to their project, it would most likely discourage bad practice such as misuse of funds or otherwise.
Decentralization? Not Quite:
So this is a tricky one, because as mentioned above Metis does genuinely seem to have a strong drive to become fully decentralized. There are currently some pieces missing; some which we feel are justified and others that we believe could be addressed in a more urgent fashion.
Let’s talk a bit about where Metis sits now. We’ve already discussed the sequencers in length; two sequencer nodes managed by third-party entities is a great start. As more are created Metis will be able to comfortably claim to be a decentralized network, but let’s talk about the wider picture; namely the tokenomics and issues surrounding the Metis Foundation and EDF.
The Metis Foundation:
Firstly, we believe a body like the Metis Foundation is absolutely necessary for a project like Metis to succeed. Without any direction and, more importantly, management of funds; there wouldn’t be co-operation and drive to create a fully fleshed-out ecosystem. The Metis Foundation is currently run almost exclusively by Metis founders; which makes a ton of sense – even over the course of years. Where the issue lies is the mechanism for replacing them; being voted for by Eco Nodes. An Eco Node is a self-sufficient business based on the Metis ecosystem; one that can prove that it can survive off of its own revenue or external funding. This sounds great in theory; but there appears to currently be no way to apply to become one of these Eco Nodes; the only mention we could find was on the Metis Foundation website and the application link is broken as of 29.05.24.
We would like to see the Metis foundation take proactive steps to ensure that a wide variety of protocols have the opportunity to apply and secure their position to increase trust that this important eventual step towards decentralisation will be made. We are aware this comes with risks. Perhaps there are even plans to make this happen. But again, if this is the case, effective communication could increase community morale and their perception of the ecosystem as a whole.
EDF Funding:
The Ecosystem Development Fund is again a great idea in theory; providing strong monetary incentives for projects to take the leap and establish themselves on the Metis network. As discussed already, we believe there is a lack of oversight on the projects awarded this funding. The community has a vested interest in these funds being distributed to the best possible candidates, but currently has no say in that matter. We would ideally at a minimum like to see projects have to submit minimum criteria they will meet in terms of their communication and transparency before these funds are awarded. The ideal would be that further down the line, projects submit plain language proposals and the community vote on which ones receive funds. We appreciate this latter goal might not happen overnight as certain ecosystem staples are required and should perhaps rightly be prioritised in the first year of funding.
Tokenomics And The Problem With Token Based Votes:
One of the issues with DAO voting in general is that large holders have an undue influence on votes; in the recent vote that approved Artemis Protocol as one of the sequencer managers; 80% of the votes (the threshold for passing) were made by just 10 wallets.
As the protocol ages, it is likely that token control will be more dispersed but there are steps that could be taken right now. First and foremost is an active campaign to encourage more people to vote. Some steps have been taken to do this but we believe they are doomed to fail because of the second missing step. Which ultimately brings us on to what we believe is the biggest barrier standing between Metis and decentralization;
No Decentralization Without Transparency:
There is no decentralization without transparency. Simply put, your average investor often has a difficult time understanding the nuances of what a project does. This is at the core of what VestaDAO is looking to accomplish; demystify the ecosystem.
Many projects (and the people who promote them) hide behind a wall of tech jargon and buzzwords. We believe one of the main reasons more people do not participate in the future of Metis is simply feeling they would be unable to make an informed vote.
This ties in to every issue we’ve discussed so far that Metis has yet to tackle. Clear information aids in communication and accountability; in a very obvious way. It aids in decentralization in that it allows users to make more informed decisions with their votes; and makes any issue with the fairness of votes due to lack of token distribution an issue that can be discussed and addressed. It means the community can have more of an informed say in which projects should be awarded EDF funding, or indeed the rights to manage sequencers.
We believe the solution to this is the Metis team looks to introduce either their own project breakdown team to deliver unbiased plain English information on a proposed project’s team, fundamentals and tech OR they employ a third party to do so; either VestaDAO or otherwise.
Conclusion (TL:DR):
Metis has many fantastic things going for it; world-class groundbreaking tech, a clear long-term vision, and a well thought out internal structure that will enable them to continue delivering for the foreseeable future.
They are let down by a disconnect between their dev team and decision makers, and the average investor. We believe there are some simple proactive steps they could take to fix this and will be proactively looking to be involved in helping them do so.
