When it comes to new public chains, Dfinity (ICP) must be a topic that cannot be avoided. With a huge financing of nearly 200 million US dollars, a gorgeous team of cryptographers and unique technology, ICP was once sought after by countless people; but since After the high opening in 2021, ICP plummeted all the way, from the popular "King Project" in people's hearts to the despised "Death Project", which made countless people sigh. At the same time, the thin and deserted ecosystem also makes ICP feel embarrassed in front of competing products such as Solana.

Looking back at history and reflecting on the past, what are the factors that affect the development of ICP ecology? Can unique technology help ecological development? Can the "Death Project" be revived again? This article will start from the technical characteristics of ICP, then to the defects of its NNS governance system and the lack of unified token standards, briefly analyze the difficulties in its development process, and clearly show the reasons for the decline of this "king project" to readers.

Technical features of ICP: decentralized AWS

First, let’s introduce ICP’s smart contract system - Canister (called “container” or “can” in China). It is the carrier of DAPP, allowing WebAssembly (WASM) bytecode to run in it, and can support writing in multiple languages. program of.

ICP allocates dedicated memory to each Canister. If ICP is regarded as a supercomputer, then Canister is a process in the computer. Each Canister process contains its own running memory. You can encapsulate smart contract-related data in in a specific container. This is ICP's unique data storage method - Canister allows you to put the program's status, database and even front-end data (such as game assets) all in this container, with the intention of further expanding DAPP. It can be said that ICP is actually a platform equipped with containers. Many Canister containers are deployed on ICP nodes through containerization technology.

At the same time, Canister supports the gas fee payment function. Users do not need to own native assets, and the project party pays the handling fee. This is essentially the "gas fee payment" mechanism that many low-threshold wallets on Ethereum want to implement. This also makes many people expect mass adoption of ICP - users can get Web2-level UX without having to purchase native assets from the beginning (especially without paying high gas fees when blocks are congested).

But ICP has a major flaw: it does not support global state. Ethereum has a "global state" setting. For all smart contracts, the status of all accounts is publicly visible. There is a "globally visible" state storage structure managed through State Trie; but ICP is completely different. . Specifically, the programs (smart contracts) in ICP have their own exclusive Canister (container). The data of different smart contracts are encapsulated in independent containers. The outside world cannot see the details of the data and can only provide it to the outside world through Canister. Interface to access internal data.

In other words, ICP does not have a "globally visible" state storage structure like Ethereum. The interaction between different Canister programs is asynchronous, and calls to multiple contracts cannot be completed at the same time. Obviously, this is very unfriendly to the Defi protocol, which makes the ICP ecosystem have no connection with Defi for a long time. Some people believe that Ethereum is a "world accounting machine" that simply conducts asset transactions, while ICP is actually a "decentralized AWS" that supports complex web applications.

In addition to the unique Canister setting, ICP also adopts a layered architecture, mainly including containers, subnets, nodes and data centers. We can think of ICP as a system composed of multiple subnets, and each subnet is essentially a public chain. Each subnet is equipped with multiple Canisters (containers), which are interoperable basic units in ICP. Each Canister contains the code and status uploaded by the user.

The bottom layer of ICP is an independent data center hosting dedicated hardware. Nodes run on the data center. The nodes are responsible for processing data and state transitions in subnet containers. This layered structure design provides ICP with higher scalability and flexibility, enabling it to meet application scenarios of different sizes and needs, and also makes its look and feel closer to cloud services.

Some people believe that ICP has implemented sharding from the beginning through subnetworking. Now ICP has 40 subnets, the largest subnet contains 13 Validator nodes, and the smallest subnet only has 1 Validator. Combined with the fact that the interaction (communication) between Canisters mentioned above is asynchronous, the overall benefit of the ICP design is that it is highly efficient and can realize communication across subnets.

Currently, all subnets combined can produce approximately 20 blocks per second. However, since the number of nodes in each subnet is not large, its theoretical security is questionable. Applying to become an ICP node also requires approval from the ICP Foundation. The hardware configuration of the node is extremely high (far exceeding public chains with heavier node configurations such as Solana and Sui). Therefore, the decentralization of ICP has been criticized by many people.

Regarding this point, the project side of an ICP ecosystem said frankly: After all, most of the things running on ICP are "applications" rather than financial transactions related to assets, so there is no such strict pursuit of security. ICP is essentially just decentralization. A cloud platform that is more sophisticated than AWS.

Putting the above points aside, ICP has successfully integrated BTC into its system. Through proprietary Chain Key, threshold ECDSA and other cryptographic algorithms and a set of special retrieval mechanisms, ICP and BTC can be directly integrated, allowing ICP's smart contracts to directly hold real rather than mapped BTC assets. The specific implementation is as follows:

In the network layer, a BTC adapter is implemented that randomly connects 8 nodes in the BTC network, pulls BTC blocks into the ICP network, and updates all UTXO sets based on the transaction data contained in the blocks, making the The container can learn the latest status of the BTC chain, and the program in the ICP container can verify and retrieve BTC blocks and UTXOs.

At the same time, the threshold ECDSA algorithm is the key technology that enables ICP smart contracts to accept and output BTC transactions. It is an extension of the ECDSA signature algorithm. This protocol uses a method similar to MPC (Multi-Party Secure Computation) to secretly share the private key fragments associated with the smart contract to the subnet nodes responsible for signatures to obtain a higher level of security. In short, ICP smart contracts can hand over private key management rights to multiple nodes instead of being controlled by a single node or smart contract itself. When the contract wants to output a BTC transaction, it requires the cooperation of more than a threshold number of nodes in the subnet (2/3) to create a complete ECDSA signature to allow the transaction to be released.

ICP's asset integration solution goes further than the current cross-chain bridge solution. Most cross-chain bridges only provide BTC mapping, not native BTC, and are highly dependent on the third-party cross-chain bridge's own nodes, which will cause many security risks. ICP can put native BTC into Canister, and can even directly save the private key of the address on the BTC chain.

Compared with the traditional cross-chain method that relies on third-party cross-chain bridge nodes, ICP's BTC ledger can easily run on a decentralized subnet with a large number of nodes. As long as the security of the subnet is sufficient, ICP's BTC ledger It's safe.

Rational person trap: Token price and lock-up

However, history has proven that no matter how superior or unique the technology is, it cannot make up for the lack of ecological construction. Since the launch of the autonomous network, ICP ecological projects are still in the embarrassing situation of "no one is using it", and then fell into "ecological scarcity → outflow of excellent projects → ecological A vicious cycle of further loss of participants. What the author wants to focus on here is not the specific ecological development and support issues, but trying to explain from another perspective why ICP is in today's predicament.

There is a view that within a few hours of ICP being listed, it suffered price manipulation by certain forces (the founder of ICP has always believed that it was SBF and FTX). The market value of ICP continued to rise with the price of Token, and once exceeded 2,300 billion, ranking third in market capitalization after BTC and ETH. However, as the pulling action ended, ICP prices began to fall sharply. In just 6 weeks, ICP's market value shrank by 90%.

The collapse of Token has greatly damaged the reputation of the ICP ecosystem and the Dfinity Foundation, causing ICP to be further attacked by multiple forces. These short sellers have intensified the process of ICP price decline, making it far lower than its actual value. (It is said that a16z, which has always pursued long-termism, has now cleared ICP)

The author does not intend to evaluate the authenticity of the above statement, but only provides readers with a possible point of view (another interesting point of view is that ICP founder Dominic’s series of behaviors that disgusted investors led to ICP being dismissed. An important reason for the destruction of the market and the isolation of the ecology). In fact, what affects the price of Token more is its lock-up mechanism - the original intention is to prevent early investors from "smashing the market" and cashing out, but the eight-year lock-up cycle has brought about "hold-up" and targeting For the selling pressure of pledged interest-earning assets/the selling pressure of neuron unlocking, please refer to the figure below:

Facts have proved that the Dfinity Foundation’s lock-up for early investors did not have the expected effect: the existence of a large number of bottom chips and the artificially high price at the beginning of the listing made the gap from the highest point to the chip-intensive area too huge. , except for early investors, almost no one is willing to participate in this price range. But at this moment, early investors are still profitable. For them, it is profitable to re-invest and pledge the interest generated at this stage to NNS or sell the interest; and when the Token further falls to a certain price, early investors Due to the existence of opportunity costs, investors have actually entered a state of "holding up and losing money". In this state, early investors will be more inclined to sell interest, and are likely to lose money after the neurons are unlocked at maturity. Sell, thereby further exacerbating the decline.

This death spiral of "the more it falls, the more it sells, and when it reaches a certain price, it sells harder" has seriously hindered the rebound and ecological development of ICP. Due to the characteristics of Canister itself, Defi has been absent from the ICP ecosystem for a long time (thus leading to the lack of stablecoins). position), ecological participants can only hold the ICP Token itself most of the time. Determined Holders will discover the fact that the returns from their contributions within the ecosystem cannot keep up with the depreciation of the Token!

The game assumed by rational people has gone one step further. Retail investors and project developers have turned to the public chain ecosystem that they believe is more promising (also taking away liquidity), further reducing the number of Cycles burned on the chain (that is, the number of ICPs). The early investors who had locked up their positions for 8 years were helpless and entered a state of "laying flat".

Although it may cause the token price to drop significantly, the author believes that if you want to solve the death spiral as soon as possible, you must carry out a complete liquidation - that is, unlock and release all long-term pledged neurons at once, fully release liquidity, and maintain the status quo. The longer it is delayed, the more likely it is to cut out the flesh and cause sores.

The governance dilemma of NNS

When VC invests in projects, an important criterion is whether the Token has governance rights, and retail investors also like to use Token governance rights as an enabling factor. Dfinity’s NNS system enables Token holders to fully participate in the governance of the public chain, but how does on-chain governance actually operate?

Before specifically analyzing public chain governance, we must first understand the governance system. Here is a brief introduction to Dfinity’s governance system—NNS system: NNS is an on-chain governance system that allows all community members to submit proposals and vote. The voting power of community members is proportional to the amount of ICP they hold, and the length of the pledge period will affect their voting weight. Community members who participate in voting will receive ICP Tokens as rewards. These rewards are called "NNS rewards". Holders who stake ICP in neurons can participate in governance by voting manually or following the votes of other neurons.

In contrast, the governance voting of many blockchain projects is much "dictatorship". Only big whales/investors/project parties themselves are qualified to initiate governance proposals, while retail investors often only have the right to participate.

As early as two years ago, the Dfinity Foundation adjusted the NNS governance strategy. This reform adjusted some reward parameters of NNS governance, making it more beneficial for voters who actively participate in voting, and for those ICP pledgers who do not participate in NNS governance. Earnings will be significantly reduced. At the same time, the foundation no longer participates in active voting, which further reduces the benefits of many nodes that default to following official neurons without setting up voting.

However, the governance system faces two problems:

First, because the NNS system does not restrict the right to propose proposals, but allows all neurons to propose proposals and vote, resulting in the emergence of a large number of junk proposals, and the neurons that support the passage of a large number of junk proposals can actively participate in governance voting. And getting more Token rewards (the principle is similar to Filecoin storage nodes deliberately storing a lot of junk data) - in a sense, this behavior is a mockery of on-chain governance.

The second is the shortcomings caused by excessive democratization of the governance system - extremely low efficiency and inevitably divided communities. A typical example is that the community still does not have a unified token standard! It is true that developers can choose the token standard according to their own situation, but the poor communication and mutual understanding between the Eastern and Western developer communities make the unification of the token standard still far away, which further affects the development of the ecosystem. Another stumbling block. In this case, liquidity will be severely fragmented. Even if a DEX is built, the SWAP of assets will be severely hindered. There have been incidents of NFT being lost when transferring to wallets with different token standards.

How to find a balance in the governance system to ensure efficiency while maintaining democratization? This issue has been an issue of endless debate from ancient times to modern times, and from Web2 to Web3. Among the trade-offs between the two, Dfinity chose the former, giving ecological participants sufficient power to discuss, but as far as the current situation is concerned, Look, this choice will do more harm than good to the public chain that has not yet built enough economic benefits - it will eventually become a half-empty solution for the foundation that occasionally ends up, and the distaste for existing users.

It is very difficult to solve this dilemma, and hoping that a charismatic leader like Andre Cronje will emerge in the ecosystem in the short term to promote development is tantamount to "a great man descending from heaven."

Project loss and inventory cycle

All public chains lacking users and liquidity injection will inevitably fall into a rug spiral:

The project runs away → retail investors’ confidence and finances are damaged, leaving the ecosystem → liquidity further deteriorates, and normal project parties receive less and less income or even no income → the project runs away.

The situation on Dfinity is particularly serious. Taking the NFT sector as an example, the only NFT exchange in the early stage of the ecosystem was Entrepot, and Entrepot adopted an audit system for NFT listings. After the NFT is approved, it will be sold at designated points on the platform. This system makes the initial The NFT ecosystem is developing relatively well, and the growth rate of NFT is also very impressive. Taking the data in February 2022 as an example, Entrepot is still performing well at this time:

However, the limitations of the platform itself led to the influx of a large number of rug projects, and NFT, which had just started to improve, was immediately hit. As projects such as CCC and Yumi joined the NFT exchange war, Entrepot further liberalized NFT projects in order to retain market share. After the review, the new projects on it also changed from being sold out when they first went on sale to no one patronizing them.

Project parties that are operating normally will also choose their own way out due to the decline of the public chain. For example, Dmail, which initially adhered to the Dfinity ecology, finally turned to the multi-chain ecology after many unsuccessful attempts, and has since cooperated with Sei, Worldcoin, etc.

Compared with the ecology of other public chains, the biggest difference between Dfinity is that its Defi sector is the most developed link in the entire ecology. There are several main reasons for this:

First, Dfinity has not introduced EVM and cannot easily fork various classic projects like Avalanche or Fantom;

Second, the token standards within the ecosystem are still not unified, which in a sense has greatly weakened the liquidity within the ecosystem;

The third and most important point is that the unique architecture of Dfinity itself makes it different from the global transaction atomicity of traditional public chains. Canisters interact asynchronously and lack a globally visible ledger, so the development of its Defi project is very difficult.

Judging from the data of destroyed ICP and total ICP transaction volume, the ICP ecosystem has fallen into a very embarrassing situation:Summarize

In fact, it is not difficult for us to understand the public's enthusiasm for Dfinity in 2021. After all, the number of cryptographers included in the ICP team is the largest among all public chain projects, and the team lineup is also extremely luxurious: Intel, IBM, Coinbase, Facebook, Google wasm......

At the same time, a number of well-known VCs are investors in ICP, including top institutions such as A16Z, Polychain, and Multicoin. ICP's own slogan "Decentralized AWS" is even more eye-catching, inducing countless people to invest real money and look forward to the arrival of the next milestone paradigm that will surpass Ethereum and EOS.

But Dfinity’s technology is not conducive to its ecological construction - although Dfinity’s technical features are still very unique today, such as reverse Gas, Canister’s scalability, and the architecture itself can be infinitely expanded horizontally, etc., these features are not as good as the public chain. It did not work as expected during the war.

In addition, Dfinity’s governance system also faces challenges, including a large number of junk proposals and excessive democratization, which have been mentioned earlier. As a strong candidate for the former "ETH killer", it still has many potentials and advantages that public chains do not have, and these technical features are important chips for its development. However, at the same time, the ICP Foundation and its ecosystem itself also need to face current challenges and try to find new ways out!