Syscoin is presented as a modular multi role layer “related” to Bitcoin. There’s a lot going on, a lot of modules and a lot of acronyms around Syscoin. Let’s break it down and understand exactly how is it related to Bitcoin, how it compares to other projects and what potential does it have.
What is Syscoin
Syscoin started as a fork of bitcoin, which is a proof of work blockchain. Over the years it has successfully picked many new concepts from the blockchain industry and integrated them to Syscoin in a consistent design. Syscoin has kept its code closely up to date with bitcoin core making sure to integrate new upgrade (ex: taproot). However the difference in the code is non-negligent and the upgrades may not be seamless.
Technologies
Besides sharing the initial code base, the other major relation is that Syscoin is merge mined with bitcoin. Merge mining is a technique that allows miners to efficiently use their computational power to mine multiple cryptocurrencies simultaneously. It enhances the security of auxiliary chains and provides additional rewards to miners without requiring extra resources. It is equivalent to restaking in the Ethereum ecosystem although much different. Merge mining leverages computational power, whereas restaking involves the allocation and reallocation of staked tokens. Syscoin shares the security and difficulty from Bitcoin miners on the Bitcoin network. Syscoin plans to use BTC difficulty to create in a decentralized way a difficulty-based re-staking concept.
We do not view Syscoin as a complete Bitcoin Layer2 yet as data is not exchanged between the blockchains. However, with the new BTC Eigenbridge, it may become possible to transfer assets from and to bitcoin.
While Syscoin is primarily a Layer 1 blockchain with its own base protocol, it incorporates several Layer 2 technologies and features to enhance scalability, speed, and interoperability.
By trying to combine too many concept, Syscoin is evolving into a general purpose blockchain that tries to solve many challenges at the same time. While this offers a lot of options, it can be very confusing and hard to market. We will go over these concepts.
Concepts
Syscoin offers many solutions across several layers. Solutions include micropayments, smart contracts, value bridging, data layer and more. Let’s review them and compare them with other projects.
UTXO chain
the UTXO chain forms the core Layer 1 blockchain, leveraging the same principles as Bitcoin for secure and efficient transaction processing. Syscoin allows for the creation of Syscoin Platform Tokens (SPTs) directly on its blockchain. These tokens can represent various assets and are managed using the UTXO model. Besides SPTs, Syscoin supports ordinals with the Taproot support.
NEVM chain
The NEVM (Network-Enhanced Virtual Machine) chain is a layer-2 solution on top of the UTXOchain. It introduces Ethereum-compatible smart contracts and decentralized applications (dApps) to the Syscoin platform, enabling developers to build and deploy sophisticated blockchain applications with programmable logic. Assets created on the UTXO chain, such as Syscoin Platform Tokens (SPTs), can interact with smart contracts deployed on the NEVM chain. This integration allows for diverse asset management and advanced use cases that combine the strengths of both chains.
The bridge allows assets created on UTXO to be bridged to the NEVM chain
Z-DAG
Zero Confirmation Directed Acyclic Graph technology in Syscoin is implemented as a Layer 2 solution on top of Syscoin’s Layer 1 blockchain. This structure allows Z-DAG to enhance the performance of Syscoin by enabling high-speed, low-latency transactions while still benefiting from the security and finality provided by the Layer 1. Z-DAG is primarily built on top of Syscoin’s UTXO model, where it enhances transaction processing speed and scalability. While it directly operates on the UTXO layer, the improved transaction efficiency also benefits the NEVM layer, indirectly supporting the performance of smart contracts and dApps on Syscoin. This integrated approach allows Syscoin to offer a robust and scalable blockchain platform that leverages both UTXO and NEVM models. Other projects such as Hedera HashGraph and Kaspa use Z-DAG technology, however, instead of using it as a layer2 solution, it is directly integrated in their core consensus mechanism.
Data layer
The data layer allows users to store arbitrary data on the blockchain, enabling a wide range of applications beyond simple token transfers and asset management. The Syscoin Platform Data layer is implemented on top of the UTXO chain, leveraging the security and immutability of the underlying blockchain. It can also be utilized in conjunction with the NEVM (Network-Enhanced Virtual Machine) layer. Smart contracts deployed on the NEVM chain can interact with data stored on the UTXO chain.
Rollux
Rollux is and OP Stack that serve as layer-2 scaling solutions in the Syscoin ecosystem, positioned between the UTXO and NEVM layers. By aggregating transactions off-chain and submitting aggregated transactions to the UTXO chain, rollups enhance scalability, reduce fees, and improve the efficiency of smart contract execution within the Syscoin network. It is important to note that Syscoin’s rollux offer both Optimistic rollups and zk-rollups approaches. Assets can be transferred between rollux and NEVM through a bridge.
How does Syscoin compare to Stacks
Syscoin and Stacks are blockchain platforms that enhance the capabilities of Bitcoin and Ethereum in unique ways. Syscoin leverages Bitcoin’s security through merge mining while incorporating Ethereum-compatible smart contracts and Layer 2 solutions like Z-DAG and zk-Rollups for scalability and fast transactions. It also features a bridge for interoperability with Ethereum. In contrast, Stacks operates as a Layer 1 blockchain that anchors its transactions to Bitcoin, using a unique consensus mechanism called Proof of Transfer (PoX). Stacks integrates directly with Bitcoin to provide smart contract functionality and rewards STX holders with Bitcoin through its stacking mechanism. Both platforms aim to combine the security of Bitcoin with advanced blockchain functionalities but employ different approaches to achieve their goals.
Stacks has gained more rapid and widespread adoption, particularly due to its innovative approach of leveraging Bitcoin’s security and introducing smart contracts. However, Syscoin’s longer history and solid integration with both Bitcoin and Ethereum ecosystems also make it a notable player. The choice between the two often depends on the specific needs and interests of the developers and users involved.
In terms of numbers, as of the time of writing, Stacks has a fully diluted market cap of 4.1b compared to 0.13b for Syscoin. Stacks has a TVL of 127M compared to almost no TVL on Syscoin. Overall, Stacks appears to have more widespread adoption and usage in terms of both protocol and third-party applications.
Overall, Syscoin is a promising technology, but it has yet to be battle-tested and seems to be more focused on improving its technology than growing its ecosystem.
In this article, we will go over the concepts of liquidity layer and explore what differentiates Elixir.
Price discovery in liquidity pools
Decentralized exchanges use an automated market maker (AMM) model to facilitate trades. Instead of relying on order books, users trade against liquidity pools that contain reserves of various tokens. These pools are automated by smart contracts, adjusting token prices based on supply and demand.
For pools with low liquidity, this can be problematic since a large trade can affect the supply and demand metric of that specific pool, while the price of that token remains stable on the overall market. This phenomenon is known as “slippage”. Slippage occurs when a trade is executed for a larger size than the liquidity available in the pool. In such cases, the price of the token can deviate from the market price as the trade absorbs the available liquidity in the pool. So a token price can vary from a pool to another and it creates arbitrage opportunities. Traders monitor different pool and can buy low on a platform and sell high on another, which will stabilize the price across the platforms.
Prevention mechanisms
Decentralized exchanges such as Uniswap implement a constant product market maker mechanism. This ensures that the tokens pair quantities in a liquidity pool stays consistent. Consequently, when the price of one token rises from increased demand, its pool quantity decreases while the other token’s quantity rises. This regulates the price automatically. Other mechanisms include offering incentives for providing liquidity, multiple pools for the same pairs and advanced trading features like limit orders.
While these methods assist in reducing the impact of slippage to a certain degree, decentralized exchanges still face some challenges in offering liquidity and price stability compared to centralized exchanges. Traders and liquidity providers must assess these aspects before engaging in trading and providing liquidity on DEXes.
Aggregation Platforms
Various platforms like 1inch consolidate liquidity from multiple DEXes and liquidity pools, enabling traders to tap into increased liquidity and potentially reduce slippage by dividing orders among various providers.
While these platforms helps users automatically find the best prices the basic problem remains low liquidity.
Elixir liquidity layer
Elixir is a DeFi protocol that specializes in offering an infrastructure for liquidity provision and management. What differentiates Elixir from other liquidity layers such as Uniswap is its dynamic liquidity provision model. Elixir focuses on efficiency and optimization. The protocol dynamically adjusts rewards based on market conditions and liquidity needs, incentivizing liquidity provision where it’s most needed. By dynamically adjusting rewards and liquidity allocations, the protocol aims to maximize liquidity utilization and improve overall market efficiency. Elixir is natively integrated with many leading decentralized exchanges and orderbook exchanges.
Currently, Elixir have an airdrop program where you earn potions for providing liquidity. You can provide liquidity on ethereum mainnet or on arbitrum/SUI by using their native integration with dexes.
Here’s the documentation, make sure to understand all the risks included in supplying liquidity as many layers of smart contracts are involved.
The first generation of defi applications allows users to swap various tokens without the need for traditional intermediaries like exchanges. It enables users to trade tokens directly from their cryptocurrency wallets through smart contracts. Users can become liquidity providers by depositing pairs of tokens into liquidity pools. In return, they earn fees from trades.
This is an efficient way for users to earn a yield on assets they already own, however there’s the risk of impermanent loss. If a token price drops significantly , the liquidity provider ends up holding the asset with the least value. Most of the defi protocols now lets the users specify the price ranges they are comfortable with. If these prices are exceeded, the user exits the pool automatically. While this helps protect from impermanent loss, it takes more management and monitoring. When a users exits the pool automatically, he stops earning yields. The users have a choice to enter managed pools where a 3rd party would rebalance and manage the pool for a small fee.
Pool managing tools
New tools like Aperture helps users to manage pools from different providers. It offers an “intent” infrastructure where users declare their goals and the platform executes them. It offers automatic rebalancing strategies, automatic fee compounding and much more. There is an airdrop campaign ongoing where you can earn points while interacting with the protocol. We recommend doing an extensive research before using the platform. You need to understand the smart contract risks associated and understand how the “position permit” signatures work. Here’s an example of a rebalancing.
Most DEFI platforms incentivize user for locking their assets. Most DEFI protocols allow users to borrow against their collateral, however borrowing APY can be very high and if a user lends a stable coin versus a variable asset, he’s at risk of liquidation risk, so he has to constantly check the health factor. This concept encourages users to lock their assets and discourages micro transactions.
Fluidity aims to solve this problem by allowing users to convert their assets to their “fluid” counterpart. Fluidity protocol automatically invests the native assets in DEFI apps like Compound or Solend. Assets can also be used in in yield generating strategies. When a fluid asset is converted back to the native asset, the latter is removed from the defi protocols.
To encourage transactions, fluidity distributes the rewards when a user uses fluid assets. A random factor in calculating the reward is added to incentivize users while protection mechanisms are in place to prevent transaction spamming.
Project outlook
The basic concept is good, however it might be too abstract for the average user. We can see the layers of smart contract risks is piling up since fluidity uses other protocols for yield generation. There’s also a risk of loss in defi investing strategies which might depeg the ratio of 1:1 of fluid assets. A full review of how the native assets are lent out should be done if you plan to convert a sizeable amount. You can review the full documentation.
The project is audited and for now, there’s still a lot of centralization. The centralization is mostly at the level of the defi protocol configuration, large rewards are reviewed before distribution. So the project is still very dependent on the team. This helps to stabilize the project as it moves towards decentralization.
Airdrop potential
The governance token of fluidity FLY is already issued. It is mostly used as a governance token, but it is planned to be used as a utility token. For now it can be staked and used in vaults. The FLY token was dropped in 2 “waves” and a 3rd “wave” is currently ongoing.
You can earn “loot bottles” convertible to FLY token for the next 74 days by staking FLY and you can earn a multiplier by transacting FLY and FUSDC on selected platforms like jumper.exchange
You can check their airdrop campaign and don’t forget to do your own research before jumping on board.
Layer3 offers unique interactive experiences that help users discover new blockchain protocols and earn via perpetual incentives. By completing quests, users get the chance to interact with new token less protocols and get the chance to be eligible for future airdrops while building their online identities.
For new projects, Layer3 offers an engaging platform where they can build their communities, drive adoption and network growth. Layer3 has many solid competitors, however it distinguishes itself with smaller easy to complete quests.
Layer3 and Mercle both have hinted that they are aiming for a decentralized model that is user owned. This means that a potential airdrop is possible. For layer3, to be eligible, you will have to complete at least 100 quests that offer a CUBE NFT. Each cube costs around 0.25$ excluding network fees. To complete each quest, you will have to complete some tasks on different platforms, provide liquidity, do some bridging, some swapping, etc…
Each quest will have a cost and a small capital will be needed. On average, you should expect to burn between 100 to 200$, so you will have to do your own research and see if it’s worth it to embark on this journey. As of today, there’s 18 days left for season 1. It’s important to note that the first 100 cube will get you eligible for season 1, so you will have to expect more seasons to follow. Once the 100 cubes are collected, you will get the following message:
Comparison
What would a future token be worth? It’s impossible to predict, but let’s compare with Galxe which already have a token:
Users: 17M users for Galxe versus 1.1M for Layer3
Layer3 has over 49M quest completion, while Galxe has over 73k campaigns launched by 5k different brands.
We can see that Galxe is more advanced than layer3 and it offers more products such as a galxe passport for sybil protection.
Presently Galxe’s token is worth 4.32$. It is up from the 1$ range during the bear market. It has 200M total supply with 50% of the tokens already in circulation. The market cap is around 0.5b with a diluted market cap of 0.86b.
While it is not clear what is the net revenue of Layer3 or Galxe, so the token price is based solely on speculation. However GAL token is used for the following:
Governance token
Paying for application module fee
Paying for Galxe oracle engine and credential API
Curating Digital credentials
We can see that the GAL token is not simply a governance token, but is also a utility token used to pay for Galxe core services. This could drive the price up when Galxe services are in high demand. So the platform adoption is directly correlated with the token price.
Most of the protocol fee will go to credential curators and the rest goes to All the protocol fees go to the Galxe Community treasury. It would be interesting if a portion of the fees goes to the GAL token holders.
By comparing Layer3 to Galxe, Layer3 will have a smaller market cap and the value of its potential future token will depend on the utility it will have within the ecosystem and what benefits it will have for token holders.
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