ZetaChain: Navigating Chain Abstraction with Native Bitcoin

Table of Contents

1. Fragmented Networks, Overheated Infrastructure Wars, and Declining UX

2. How ZetaChain Abstracts Fragmented Interactions and Processes Across Chains
2-1. The concept of Chain Abstraction and ZetaChain’s direction
2-2. How ZetaChain achieves Chain Abstraction
2-3. Advantages in growth and scalability compared to other competing projects
2-4. Positioning as a major player in the Bitcoin ecosystem beyond chain abstraction

3. ZetaChain’s Strategy for Ecosystem Expansion and Liquidity

4. ZetaChain's Potential to Emerge as a Major Player in the Chain Abstraction Narrative

 

 

1. Fragmented Networks, Overheated Infrastructure Wars, and Declining UX

The new platform ZetaChain I want to introduce in this article solves the UX problem in crypto with a Layer 1 blockchain approach, unifying fragmented blockchain networks into a seamless environment. But why is ZetaChain focused on solving the UX problem?

The Web3 space has witnessed exponential growth over the past decade. From 2014 to 2024, the total market capitalization of the cryptocurrency sector has surged by over 200-fold. Yet, despite this meteoric rise, Web3 has struggled to achieve mainstream cultural integration. Behind the scenes, an intense battle among infrastructure projects for dominance continues to brew. This battle, or "infrastructure wars," is expected to escalate further in 2024 with the emergence of new networks emphasizing advancements like zero-knowledge (zk) rollups, enhanced developer experiences (DX), and app-specific chains.

While these infrastructure wars have driven technological advancements in blockchain networks, they have also led to increased complexity. For instance, Bitcoin’s maximum theoretical transactions per second (TPS) hovers around 7, while Ethereum reaches approximately 119 TPS. When compared to Web2 networks like Visa and PayPal, these figures are inadequate to handle a large user base and transaction volume. However, in response to these limitations, new blockchain networks have emerged, boasting significantly higher TPS. Aptos, launched in 2022, claims a theoretical TPS of 160,000, while Monad, still awaiting its mainnet launch, projects a TPS of 100,000.

Yet, contrary to these technological advancements, the user experience (UX) in Web3 has deteriorated. The proliferation of networks has made the process of using blockchain technology increasingly complex. As of August 2023, there are 274 blockchain networks listed on DeFi platforms, and the actual number could be significantly higher when considering unlisted networks. This fragmentation has made it difficult for users to seamlessly transfer assets or exchange information across platforms, posing a significant barrier to mass adoption in the Web3 ecosystem.

In response to the challenges posed by fragmented blockchain networks, the concept of "chain abstraction" has emerged as a critical development in Web3 infrastructure. Chain abstraction refers to the technology that unifies multiple blockchain networks into a single, seamless platform, allowing users to interact with different networks without noticing their underlying differences. This approach maximizes interoperability between networks and significantly enhances the UX, making it a pivotal development in Web3 infrastructure.

ZetaChain stands out as a leading project in chain abstraction. In August 2023, ZetaChain secured $27 million in funding from prominent investors, including Blockchain.com, Human Capital, Vy Capital, Sky9 Capital, and Jane Street Capital, underscoring its potential. ZetaChain is designed as a universal blockchain that integrates various networks into a cohesive environment, enabling users to access Web3 services effortlessly, without the need to navigate through the complexities of different networks.

 

2. How ZetaChain Abstracts Fragmented Interactions and Processes Across Chains

2-1. The concept of Chain Abstraction and ZetaChain’s direction

'Abstraction' refers to the process or method of simplifying a complex system or concept to reveal only its essential components while concealing detailed implementations and unnecessary complexities. In the current Web2 environment, users can send emails by simply composing a message and clicking the send button, without any awareness of the underlying technical processes such as server communication, data encryption, or spam filtering. However, in the Web3 environment, even a simple task like a token swap involves a complicated series of steps: 1) purchasing tokens on an exchange, 2) transferring them to a wallet, 3) connecting the wallet to a dApp, and 4) signing the transaction. And this is only for a single network; engaging with multiple networks requires even more steps, such as using bridges.

Source: mohitkarekar

In Web3, various efforts have been attempted to simplify user experiences through abstraction. Notable examples include Account Abstraction, which aims to streamline the complex procedures related to user accounts, and bridges that facilitate the movement of assets across chains. However, these solutions address only specific issues, such as account management or asset transfers, and fail to offer a comprehensive abstraction framework. This limitation has led to the recent rise of 'Chain Abstraction', a concept that encompasses account abstraction, bridges, oracles, and more. Chain Abstraction refers to the technical approach that allows users to utilize Web3 services without needing to grasp the underlying complexities of blockchain networks. By enabling seamless interaction across multiple blockchains, chain abstraction has the potential to greatly enhance the user experience, allowing users to easily perform complex operations that span different networks.

ZetaChain is a leading project in advancing chain abstraction, enabling seamless interactions across various blockchains. Designed to maximize interoperability among different blockchain networks, ZetaChain simplifies cross-chain transactions, making it easier for users to navigate the Web3 ecosystem.

Specifically, ZetaChain abstracts the intricate processes involved in moving assets and executing transactions across different networks. This enables users to engage with blockchain services without perceiving the differences between networks. For example, ZetaChain allows users to transfer and swap tokens from one chain to another with just a single click.

2-2. How ZetaChain achieves Chain Abstraction

ZetaChain is a Proof-of-Stake (PoS) blockchain network built on the Cosmos SDK and the Tendermint Practical Byzantine Fault Tolerance (PBFT) consensus algorithm, offering rapid block generation times of under five seconds and instant finality. Beyond its validator nodes, ZetaChain incorporates observers and TSS signers to facilitate interactions with other blockchains. Observers are responsible for verifying and reaching consensus on events and states from external chains, while TSS signers handle decentralized account management by generating cryptographic signatures through the Threshold Signature Scheme (TSS), which requires a minimum number of participants to approve a transaction.

ZetaChain implements chain abstraction—facilitating seamless interactions across different blockchains—through its native execution layer, the Universal EVM. This layer is compatible with the Ethereum Virtual Machine (EVM) and is designed to support omnichain smart contracts that ensure interoperability across various blockchains. The omnichain smart contracts on the Universal EVM offer several key functionalities: 1) they are as programmable as traditional smart contracts, 2) they can directly manage assets across external blockchains, and 3) they can be invoked from external chains.

With this architecture, ZetaChain enables, for example, developers to build omnichain swap applications allowing users to move and swap assets between networks seamlessly, all with a single click. When a user submits a transaction on a connected chain, the tokens are first transferred to a TSS account on a connected chain. An observer then verifies the transaction and passes it along to the Universal EVM. Within the Universal EVM, the tokens are issued under ZetaChain’s native token standard, ZRC-20. These tokens are then swapped for the desired token via ZetaChain's liquidity pool, utilizing $ZETA tokens as an intermediary. Finally, the ZRC-20 tokens are burned on the Universal EVM and native assets are released on the destination chain before being distributed to the user.

ZetaChain is continuously evolving to further enhance its chain abstraction capabilities. ZetaChain plans to launch omnichain staking, enabling users to stake native assets from other blockchains, such as BTC, ETH, and BNB, directly on ZetaChain’s PoS network. The platform also aims to streamline the process of multi-step cross-chain transactions, abstracting them into a single, unified action.

2-3. Advantages in growth and scalability compared to other competing projects

To assess ZetaChain's competitive edge, we'll compare it to Axelar and Layer Zero, leading projects in the Settlement Layer of the Cake Framework, designed by Frontier Research. According to Frontier Research, chain abstraction can be divided into three layers, each requiring the integration of multiple infrastructure layers:

• Permission Layer: This layer abstracts processes related to user intent, such as key and account management. This layer aims to maximize user convenience by executing transactions across different target chains

• Solver Layer: This layer abstracts the costs and speeds of transactions and internal protocol paths based on the user’s balance and intentions

• Settlement Layer: After the user confirms the transaction, this layer ensures its execution by bridging the user’s assets to the target blockchain and performing the transaction

Source: frontier.tech

ZetaChain operates as a Layer 1 network that supports cross-chain interoperability and currently performs functions within the Settlement Layer, such as execution, data availability, and bridging. In contrast, Axelar, although also a PoS network utilizing the Tendermint BFT consensus process like ZetaChain, functions mainly as a relay for bridging, limiting its scope to this function. In short, Axelar is limited to the function of a messaging protocol between chains, while ZetaChain aims to be a platform on top of which universal apps can be built

ZetaChain's operation as a Layer 1 network provides it with significant security advantages. The dApps on the network generate a substantial number of transactions, which can be leveraged to incentivize validators. As of August 26, Axelar had recorded a total of 2.35 million transactions, including 1.77 million GMP (General Message Passing) transactions and 587,000 cross-chain token transfers. In contrast, ZetaChain had recorded a total of 143 million transactions, including 143 million zEVM transactions and 969,000 cross-chain transactions. As the ZetaChain network continues to grow, this gap is expected to widen. Additionally, ZetaChain’s infrastructure supports features like liquid staking, which can further enhance security and network activity.

In terms of user experience (UX), a comparison between Squid, a dApp using Axelar, and Eddy Finance, ZetaChain’s native dApp, shows that Squid has a slight edge in UX. The transaction fees and swap speeds were similar, but Squid offers a "boost" feature that allows users to complete swaps within a minute for an additional fee. Squid also supports 71 networks, whereas Eddy Finance currently supports 5 networks. However, it's noteworthy that ZetaChain supports Bitcoin, a non-smart contract chain, and solana has already been added on the testnet. While Axelar might have a slight advantage in UX, ZetaChain stands out in terms of network growth and scalability.

Furthermore, let’s compare the cross-chain swap feature with LayerZero, a leading cross-chain messaging protocol. The competitive advantage of LayerZero is assessed through Stargate, a prominent DApp using LayerZero, similar to Axelar.

To transfer ETH and USDC across chains, users typically rely on lock-and-mint or burn-and-mint methods, or use protocols like Stargate, which has separate liquidity pools for each network. Currently, Stargate maintains ETH liquidity pools across 11 networks, including Ethereum. However, lock-and-mint or burn-and-mint methods present a challenge: the token differs depending on the bridge used. For instance, both wETH and cbETH maintain the same value as Ethereum but are recognized as distinct assets. Although maintaining a single liquidity pool per network, as Stargate does, allows for the use of native ETH, it results in fragmented liquidity across different networks. In contrast, ZetaChain uses its proprietary token standard, ZRC-20, on its execution layer. As a result, all ETH transferred to ZetaChain is issued uniformly as ETH.ETH. This allows all applications within the ZetaChain ecosystem to use the same token standard, providing advantages in liquidity consolidation and capital efficiency.

However, this advantage applies specifically to DApps operating within ZetaChain. It is important to note that LayerZero is a project aimed solely at supporting cross-chain interoperability, so its objectives are fundamentally different. In addition, liquidity remains a challenge, as ZetaChain's liquidity is not yet deep enough to make it less popular than LayerZero and Axelar  

In terms of UX, ZetaChain outperformed LayerZero. According to on-chain data analytics firm @lookonchain, sending $USDT from the BNB Chain to Ethereum incurred a gas fee of $3.13 on Stargate and $2.15 on Eddy Finance. By contrast, using ZetaChain for the swap resulted in approximately 31% lower fees (though it’s important to consider that fluctuations in gas fees may have been due to minor timing differences). Additionally, while LayerZero only offers the ability to bridge assets across networks, ZetaChain enables both bridging and swapping simultaneously with a single click.

Source: X(@lookonchain)

2-4. Positioning as a major player in the Bitcoin ecosystem beyond chain abstraction

To enable Bitcoin, which lacks native smart contract functionality, to be utilized in DeFi and other on-chain applications, Wrapped BTC (WBTC) was introduced. WBTC is issued by BitGo, a custodian that holds BTC in its reserves and issues equivalent wrapped tokens on the Ethereum network. These tokens are pegged to the value of BTC and are widely used within Ethereum's DeFi ecosystem. As of August 23, there were 154,676 WBTC in circulation on Ethereum, with BitGo controlling approximately 97% of BTC in this form.

However, the increasing scale and usage of WBTC have raised concerns about centralization, specifically the risks of a single custodian holding such a large volume of BTC. In response, BitGo has announced plans to transition BTC custody to a multi-jurisdictional framework through a joint venture with Bit Global, based in Hong Kong and Singapore. This move has generated speculation about a potential shift in control, particularly due to the strategic partnership between the joint venture and Justin Sun, founder of Tron.

In this context, various companies and projects are emerging to challenge WBTC's dominance. Coinbase, for example, has announced its plan to issue cbBTC, while numerous other projects are entering the market, signaling a significant shift in how BTC will be utilized on-chain.

Amid these developments, ZetaChain is well-positioned to capitalize on the evolving ecosystem. By employing a decentralized Threshold Signature Scheme (TSS), ZetaChain offers a solution for managing Bitcoin that avoids the centralization issues associated with BitGo. This decentralized approach allows Bitcoin to be seamlessly integrated and utilized within the ZetaChain network. As ZetaChain expands its offerings within the Bitcoin ecosystem—such as support for BTC staking and enhanced BTC compatibility—it has the potential to emerge as a strong decentralized alternative to WBTC. Observing how ZetaChain positions itself and secures a foothold in the Bitcoin ecosystem will be essential as the market continues to evolve.

 

3. ZetaChain's strategy for ecosystem expansion and liquidity

ZetaChain as a Layer 1 blockchain is rapidly expanding its ecosystem by leveraging its technical moat to maximize cross-chain interoperability. Currently, over 270 dApps are integrated into the ZetaChain ecosystem, with various projects choosing ZetaChain for its unique ability to facilitate seamless interactions across different blockchains. To further drive ecosystem growth, ZetaChain has launched an active grant program. In April, ZetaChain introduced the ZetaChain Ecosystem Growth Program, committing 5% of the total $ZETA supply to support promising and impactful projects within its ecosystem. Of this, 1% is specifically allocated to Bitcoin-related initiatives, aiming to bolster the Bitcoin ecosystem by awarding grants to projects focused on 1) Bitcoin infrastructure, 2) Bitcoin DeFi, and 3) Bitcoin gaming and social applications. For a comprehensive list of the integrated dApps, please refer to the ecosystem page.

This aggressive ecosystem expansion has positioned ZetaChain as a strong performer in terms of network activity. As of 11 September 2024, ZetaChain reported approximately 240,000 monthly active users, ranking 11th among all Layer 1 networks—a clear indicator of its growing market presence.

source: DappRadar

As of 19 September 2024, ZetaChain’s TVL stood at approximately $9.43 million, doubling in the last week, with its native DeFi protocol, iZiSwap, contributing $4.79 million. 

ZetaChain launched the 'Fall Harvest' liquidity incentive program on 4 September 2024, allocating 1 million $ZETA to be distributed over two months through various quests involving several dApps within the ZetaChain ecosystem. Major participants include Eddy Finance and Puffer Finance. The program aims to catalyze liquidity inflows and strengthen the ecosystem, making it crucial to monitor how effectively ZetaChain can leverage this initiative to enhance liquidity and support its rapid growth.

source: DefiLlama

On the institutional front, ZetaChain has made significant strides. Coinbase, which already supports ZETA (ERC-20) and ZetaChain through the Coinbase Wallet, has announced plans to add native ZETA support. Additionally, OKX has conducted a ZETA airdrop campaign, and Crypto.com has begun supporting ZetaChain staking. Expanding the ecosystem through partnerships with major exchanges is promising, as it opens avenues for increased user adoption and liquidity inflows. It will be essential to watch how ZetaChain capitalizes on these efforts to further energize its ecosystem.

 

4. ZetaChain's Potential to Emerge as a Major Player in the Chain Abstraction Narrative

ZetaChain is uniquely positioned to become a key player in the chain abstraction narrative. At its core, ZetaChain aims to simplify interactions across various blockchain networks, effectively shielding users from the underlying complexities. This approach holds the potential to enhance the accessibility of blockchain technology and contribute to the broader democratization of Web3. A key competitive advantage for ZetaChain is its decentralized asset management system, which leverages the Universal EVM and TSS methods to deliver both security and convenience to users.

ZetaChain has great potential for further growth and expansion. Increasing TVL and attracting more users and liquidity within the ecosystem present significant opportunities for ZetaChain. While major dApps like Eddy Finance have made a promising start, there is an exciting opportunity for ZetaChain to attract a wider range of dApps and significantly enhance its liquidity. Additionally, strengthening its support network and infrastructure will further enhance ZetaChain's capacity to attract and retain users.

With a stronger and more vibrant ecosystem, ZetaChain has the potential to emerge as a major player in the chain abstraction narrative. The chain abstraction that ZetaChain is focused on is undoubtedly a crucial element for the broader adoption of Web3. The platform’s efforts to support native Bitcoin and extend its compatibility to other major networks, such as Solana and BASE, are particularly noteworthy and underscore its strategic importance. As ZetaChain continues to refine its technology, attract users, and secure greater liquidity, it will be intriguing to observe how it carves out its position within the rapidly evolving Web3 infrastructure space. Ultimately, ZetaChain has the potential to emerge as a major L1 player in the competitive arena of Web3 infrastructure development.