SuDo Research

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[SuDo Research @SuDoResearch]

Here is our official website!
https://t.co/5VIQrwCy8X

On this website, you can see all our research articles as well as our VC portfolio. Contact us if you have any research collaboration or investment opportunities!

[Bitlight Labs⚡️ @BitlightLabs]

We’ve closed a $9.6M Pre‑A round led by @ambergroup_io and @FundamentalLabs to ship production‑grade RGB-Lightning integrations for Bitcoin‑native stablecoin rails.

Together, let’s advance Bitcoin, the Lightning Network, and RGB toward sovereign, low‑fee settlement for wallets and merchants.

Make Bitcoin smart.

[SuDo Research @SuDoResearch]

A glimpse of tokenized stock #tokenization
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#RWA has become a popular sector in the crypto world, and tokenized stocks are one of the most eye-catching applications. This thread will bring you into the core concepts, current solutions, and the challenges of tokenized stocks at the current stage.

◼️ What is tokenized stock and why do we need it?

Tokenized stocks are the on-chain representations of real-world stocks. Stock tokens are all (supposedly) 1:1 backed by real stocks. For example, when 1 #MSTR stock token is minted, 1 share of #MSTR stock is in custody. It ensures that the stock tokens are not arbitrarily minted without collateral, and also closely track the price of underlying assets.

In the real world, stocks trading typically faces barriers such as limit market time, geographic limitations, high trading fees, and lengthy withdrawal/deposit process. With stock tokens, users can trade beyond market hours, combine stocks with various DeFi strategies, and lower the threshold of the entry for stock market investment.

As the world's largest capital market, US stocks naturally become the first market to be tokenized.

Curious about current main players? See the intro of FOUR tokenized stock projects below.

◼️ Four projects in tokenized stock sector

1/ @RobinhoodApp
As a popular stock trading platform, Robinhood also wants to expand its business on blockchain. Robinhood now tokenizes US stocks based on @arbitrum and opens the commission-free market to EU users with only 0.1% FX fees. Although the token holders don't actually own the underlying stocks, Robinhood still share the dividend with them by rebasing the token amount. Notably, in current stage, Robinhood is more like embedding blockchain technology into their centralized platform, users can only trade and hold these tokens within Robinhood, not allowed to transfer to other platform or self-custody wallet.

It's not the end of Robinhood's road to tokenization world. It plans to first extend the trading hours from 24/5 to 24/7 (by utilizing the exchange Bitstamp they acquired on June 2, 2025) in Phase 2, then enables self-custody wallets and onchain interoperability in Phase 3.

However, there are some controversies around Robinhood, including the unauthorized tokenizations of private equities OpenAI and SpaceX, and a "rugged" event where Robinhood created OpenAI and SpaceX token pools on Uniswap, then burned the pools and renamed the tokens as demo1 and demo2 without prior notice.

Overall, Robinhood's model remains heavily centralized. It's closer to tradfi wrapper than a true on-chain asset. @eToro also announced its plan of tokenization US stocks on Jul 29, targeting the EU clients. Upon launch, the trading hours will be 24/5 with 100 popular US listing stocks, and soon to be 24/7. Would eToro become the strongest competitor of Robinhood? Let's wait and see.

2/ @xStocksFi
xStocks is backed by @BackedFi and @krakenfx , primarily launched on Solana. It is the first solution to extend regular U.S. stock trading hours to 24/7 with DeFi composability.

Backed Finance is the main service provider of xStocks tokenization, process as follow: the tokens are pre-create and stored in the tokenizer Backed Finance AG's wallet (on behalf of the issuer Backed Assets JE Limited). The qualified investors (or Authorized Participants) who have done the proper KYC procedures can send token issuance order to the issuer. Once the payment is received, the issuer will deduct the fees & taxes, kick off the stock buying process in accordance with the amount, and instruct tokenizer to activate the stock tokens. In this way, retail users don't need to mint the tokens directly but can still enjoy US stock exposure with no KYC needed. Currently, xStocks tokens have mint/redeem fees up to 0.5%, and probably a management fee of 0.25% in the future. Although users sacrifice the shareholder rights of the underlying stocks, the good news is, xStocks will still share the dividend by rebasing the quantity of stock tokens.

There are 2 channels that users can access to xStocks tokens: CEX and onchain DeFi. Different marketplace, different order matching mechanism. Those tokens on CEXs rely on orderbook and market maker on CEXs. The others onchain are traded on AMMs. Some of the tokens can now be found on Kamino, the largest lending protocol on Solana, but not yet open to borrow. Having said that, xStocks is still closest solution for crypto-native users.

3/ @MyStonks_Org
MyStonks tokenized 166 US stocks to tokens on Base, but users can connect wallets from Solana, BSC, Ethereum, and Base to access the token. It uses a similar way as CEXs to achieve this. After passing a simple KYC, users deposit their USDT/USDC to addresses that the platform assigned to them, then users can use the deposit to trade the stock tokens, with 0.3% trading fees. MyStonks is also the only solution that pays out the dividend in terms of USDT, rather than rebase the tokens. The pre-market and after-hours trading have also been opened on MyStonks.

The stocks on MyStonks is now over-collateral with the reverse rate of 118.56%, according to the Prove of Reserve page on the website. With the newly-added Merkle Tree function (proved by zk-SNARKs solutions), users can even verify their personal asset records and platform assets on their own. These information and functions make MyStonks' a better platform when it comes to transparency and verifiability.

Fun fact: it was a meme coin that was promoted by hacked Nasdaq X account. After CTO, it aimed to be the true "Nasdaq" onchain.

4/ @OndoFinance
Ondo's tokenized stock solution Ondo Global Markets is still under development. It aims to provide accesses to 24/7 services of DeFi and RWA, primarily on Ondo Chain with interoperability with other chains.

According to its document, Ondo GM uses a similar way as xStocks to do tokenization. The primary purchasers have to pass necessary KYC in order to mint/redeem tokens, the underlying stocks will be held by US licensed broker-dealer. To address concerns around centralization, Ondo promises to review and provide reserve reports every working day by independent 3rd-party Verification Agent. If the tokens encounter events such as backing fails, or the issuer cannot finish redemption requests, the Collateral Agent has priority to liquidate the collaterals and distribute the proceeds to tokenholders.

Given that Ondo has strong relationship with some tradfi giants and also onchain partners, it may quickly become the main market player in tokenized stock sector.

◼️ The challenges of tokenized stock
While these solutions unlock the potential of buying and using stocks as on-chain collaterals, this sector still has a long way to go.

Everyone should note, the "tokenized stocks" people trade are more like stock derivatives than real stocks. Stock token holders will not have any shareholder rights of the underlying stocks nor the right to redeem the real stocks. The transparency of current solutions is also a main issue. Users can barely track whether the underlying shares truly back their tokens, or they are actually nothing.

Liquidity is another problem to be solved. The projects mentioned above have limited liquidity, which may lead to high slippage and transaction delay. As @JupiterExchange co-founder @sssionggg said, stock tokens need to have new AMM to accommodate higher liquidity requirements.

There are no clear regulatory framework for tokenized stock, but SEC commissioner Hester Peirce emphasized that traders still need to consider the federal securities laws when making transactions of stock tokens. SEC chairman Paul Atskins also said they're considering to proceed an "innovative exception" for tokenizations.

Overall, the current generation of tokenized stocks still faces structural limitations - legal ambiguity, limited liquidity, centralized custody, and lack of real shareholder rights - that must be addressed before mass adoption can occur.

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That's a wrap for this thread - open to any discussions! Follow @SuDoResearch to learn more market news.

[SuDo Research @SuDoResearch]

KAITO: An in-depth overview

There are tons of AI search tools and even more info platforms, but Kaito is the first to turn attention into an asset, directly financialize the entire CT info. Its success has already inspired many projects trying to copy that. If you haven’t tried @KaitoAI yet, this thread will provide you with a concise overview.

Kaito quietly launched during the 2022 bear market. While most attention was on ChatGPT, Kaito chose to focus on AI-driven integration of crypto-related information. It began as a research-oriented AI search platform and data dashboard (Kaito Pro), but later went viral thanks to a system called Yap to Earn. This shift from ”finding information to earning from information“ was a turning point.

The core of Kaito is the concept of #InfoFi, which is the financialization of information. Using a proprietary algorithm, Kaito scores content on X based on factors like relevance, influence, and engagement quality. Creators earn Yaps: the greater their impact, the more Yaps they receive. These Yaps function as both a reputation metric and a ticket to airdrops, while also powering public leaderboards. In the end, every post you publish becomes a measurable unit of influence and attention.

This is not only valuable for creators. Projects benefit from it as well. For the first time, they can quantitatively identify the right KOLs to collaborate with and determine whose content truly drives exposure for their project. Traditional marketing focuses on broad exposure. Kaito enables each unit of attention to be priced, valued, and distributed with precision. Marketing budgets can now be allocated more effectively, directly rewarding KOLs who generate meaningful exposure. A single post becomes a measurable and monetizable economic action.

To date, Kaito has delivered 13 airdrops which include renowned projects in this cycle. The total value of airdrops distributed to the community has exceeded USD 74mn.

According to public data, Kaito generates over 32 million USD in annual revenue. Its main income sources are:
-Subscription services from over 700 teams (Kaito Pro / API)
-Listing fees from projects aiming to appear on the rankings
-Data services for extracting and analyzing community metrics

Since 2025/3/6, Kaito has allocated a portion of its revenue to buy back USD 5.4mn KAITO tokens. Additionally, token holders can stake their tokens to earn airdrops from other partnered projects.

Beyond Pro and Yaps, Kaito has launched several interesting experiments. One example is the Yapper Leaderboard, a public ranking system that transparently displays the informational contributions of each creator. Another is the Launchpad system, which allows token holders to vote for projects they support to be featured on the leaderboard. (Note: This feature was temporarily suspended in April.)

Of course, this kind of innovative system also comes with risks. The algorithm is a black box (and even if made public, it could be easily manipulated). There are concerns about CT KOLs forming cliques to dominate rankings, marginalization of ordinary users’ voices, and the platform’s heavy dependence on X as a data source. Still, in a world where attention is already capitalized by default, Kaito is at least trying to create a fairer set of rules for the game.

We believe Kaito is worth paying attention to because it seems to achieve Product-Market Fit at the current stage.
-Creators can earn
-Projects are willing to pay
-Users can discover genuinely valuable information

At the same time, the community is highly active, and the ecosystem continues to grow. Each participant — whether creator, builder, or user — can find a meaningful role to participate. Kaito’s true value may not only lie solely in its current business model, but also in its attempt to address two structural problems in the crypto space: information overload and wasted attention.

Finally, if you’d like to explore further:
Official website: https://t.co/urTR66p8wW
Dashboard: https://t.co/tRPUfO5JFm
Leaderboard: https://t.co/KpuTNbaqdT

$KAITO #KAITO #YAP #YAPS #YAPPER #YAPPERS #YAPPING

[Talus 🐸 @TalusNetwork]

1/ BREAKING NEWS: Talus has raised $6M in our latest funding round led by @Polychain to become the leading platform for decentralized AI agents! ⚡

At Talus, we’re building a transparent, censorship-resistant ecosystem where fully onchain AI Agents can collaborate in web3.

[SuDo Research @SuDoResearch]

With @BlackRock 's BUIDL @Securitize having been launched for 6 months now, let's look at where we are in the #RWA space and what to look forward to.

On-chain RWA for KYC'd entities has been easy: products like BUIDL, @Ondofinance , USYC, and @FTI_US BENJI offer on-chain US treasury products to eligible investors who can successfully KYC.

The hassle has always been for non-KYC'd entities and DAOs. @MakerDAO (aka Sky) has in the past used DAO-controlled real-world SPVs to earn treasury yields through intermediaries like BlockTower and Monetalis. But these structures are complicated and less efficient than what's now available for properly KYC'd entities.

They require extensive legal review, customization, and carry risk from less reputable intermediaries. For example, some in MakerDAO were dissatisfied with the less-than-expected yields with the custom structure provided by Monetalis.

BUIDL seems to be the best-in-class RWA at the moment. Its key advantage is its exclusive partnership with @circle , allowing BUIDL to offer 24/7, practically unlimited USDC swap liquidity. Others have slower or size-constrained swaps.

Not to worry, though: BUIDL has submitted proposals to provide stablecoin management for various DeFi protocols, including Sky and @ethena . This suggests BUIDL believes there is a path for DeFi protocols to use SPV structures or other workarounds to access their KYC product.

The legality of such structures is yet to be determined. With these structures, users or entities could generate yield from US treasuries even if they are sanctioned, unqualified, or do not pay applicable taxes.

With the Corporate Transparency Act coming into effect this year and explicitly covering DAOs, regulatory agencies may have something to say in the future about such structures earning yield for unknowable beneficiaries.

Regulations aside, overall we like BUIDL to continue to build their assets and market share moving forward. Projects like Ondo that have shifted to investing their assets into BUIDL begin to look like BUIDL distributors and undoubtedly are working on new products and features to add further value to the RWA space.

We expect BUIDL to be used as collateral for institutional traders and if "permissioned DeFi" becomes a thing, it will be a prime choice as a stablecoin. Though as it is still limited to KYC'd and whitelisted addresses, it won't become an everyday permissionless stablecoin any time soon.

Lastly, as we enter a rate cutting cycle, many believe it is directionally bearish for RWA projects. However, with adoption only in the early stages, we expect large waves of adoption on the horizon, and with RWA still expected to pay 3-4 % long-term, it still beats holding stablecoins paying no yield. Indeed, we are still in the very early stages of RWA.

[SuDo Research @SuDoResearch]

The @MtGox coins will start to be repaid any day now. How many coins could be coming? It depends
#mtgox #bitcoin #btc #crypto

Most of the coins repaid this year will be for those who selected the “Early” lump sum payment. These creditors took a 10% haircut on their claims to be able to get paid earlier. Those who chose the hodl-for-me “Final” option will need to wait longer, perhaps years longer.
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The reason for the delay is the ongoing dispute between creditor CoinLab (CL) and the Gox estate. In order to get to the point where we could have early distributions before the dispute was resolved, an agreement between MGIF (a large creditor fund) and CL was reached.
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CL agreed to subordinate their claim, and MGIF agreed to subordinate their claim behind CL’s. But MGIF would receive significant upside if there were leftover assets (generated from Early repayment 10% haircuts and/or a favorable dispute outcome with CL).
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So the more creditors who chose Early repayment, the higher the surplus to MGIF. Given the CL dispute on their full claim amount is shaky, MGIF also stands to benefit from settlement of this dispute. (Though MGIF did pay $11 million to CL to make this agreement possible.)
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MGIF’s upside is capped; there are thresholds where assets would flow to Final, and then Early creditors. MGIF was also given the Early repayment option if they deposited fiat collateral with the estate to cover possible insufficient funds when the dispute ends.
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However, the collateral was denominated in yen and applied to their crypto distribution at 2018 prices (BTC $5K), meaning the fiat collateral was very little compared to their crypto distribution this year! (MGIF still gets any surplus payment at the end of the dispute)
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Thus, it can be helpful to think about the Gox distributions in two waves: Early and Final, across our known creditor groups: Individuals, credit funds, Bitcoinica, unclaimed “zombie claims” which will end up with the Japanese govt, CL and MGIF.
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For some creditors, we can guess their claim amount and if they’re Early/Final based on news reports, research estimates, and court documents.
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Of the 141,686 #BTC to be distributed, individual claims make up ~65K BTC, other credit funds ~20K, Bitcoinica ~10K BTC, Zombie claims ~12K, Coinlab ~21K, and MGIF’s pre-subordination claim ~19K (has potential downside and upside from subordination risk)
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It was reported that Bitcoinica and MGIF both selected Early payouts, and we know zombie claims and CL are Final. As for individual claims and credit funds, we can only make an assumption of what percent chose Early vs Final.
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We note that the default selection is Final, and if we assume 20% of respondents did not select, and of those that selected, 75% chose Early, then 60% of individual and other credit funds would have chosen Early.
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Final repayments will still have a small “Intermediate” portion paid out this year. A rough estimate of coins hitting the market this year is shown, heavily dependent on the % of individuals and credit funds choosing Early. 70-85K coins could be a rough range.

We also note the possibility that the supply could be distributed gradually from July till the last self-imposed deadline of Oct. 2024, to accommodate for logistical and administrative factors.
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As for if each of these entities will #hodl or dump, we’ll leave that as an exercise for the reader.
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Hit that bookmark button and follow us for more thoughts on the crypto market.

[SuDo Research @SuDoResearch]

Congrats to @GuyZys and the team at @fhenix. Excited to join the journey.

If Ethereum is going to fulfill its mandate as the next iteration of the internet it must provide confidential compute at scale. FHE is the ideal solution, & @Fhenix is making it accessible to app devs on Ethereum.

In addition, the FHE coprocessor architecture with @eigencloud positions @fhenix as a potential FHE computational infrastructure for Ethereum, an L2, or an L3.

[Fhenix @fhenix]

1/ Today marks an important milestone in our mission to bring confidentiality to Ethereum through the first L2 powered by fully homomorphic encryption (#FHE).

We're excited to announce we've raised $15M in Series A funding and released our initial testnet: Helium.

[SuDo Research @SuDoResearch]

/ Navigating Liquid Restaking Tokens: An Overview of Leading Projects /

Following Ethereum's move to a PoS with "the Merge," interests in liquid staking and restaking have significantly increased. This transition has led to advancements that improve liquidity and provide new investment opportunities for degens.
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A key development has been the introduction of EigenLayer, which allows users to deposit ETH or Liquid Staking Tokens (LST) to support various Actively Validated Services (AVS), generating additional rewards. With the advent of EigenLayer, Liquid Restaking Tokens (LRT) have become more prevalent. These projects lock in your LST or ETH and in turn, issue LRTs. This process births liquid restaking protocols that boost the liquidity of your assets, allowing the increased liquidity obtained from LRTs to be leveraged for additional profits on other DeFi platforms.
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The TVL for Liquid Restaking Tokens (LRT) has experienced substantial growth, indicating strong investor interest and suggesting significant future developments in this sector.
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In light of this, an overview of the major projects leading the way in liquid restaking sector, ranked by Total Value Locked (TVL), is provided. The top contenders include https://t.co/x1oYt3ViCK, Renzo, Puffer Finance, Kelp DAO, Eigenpie, Swell Liquid Restaking, Restake Finance, and Vector Reserve.
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1/ EtherFi @ether_fi
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EtherFi allows stakers to fully control their own keys and enhances the system's decentralization through a non-custodial model. Unlike common staking pools such as Rocket Pool or Lido, EtherFi permits node operators to manage all validator keys while maintaining complete autonomy over the staked assets, thereby reducing centralization risks.
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At EtherFi, stakers can choose to directly purchase BNFT to stake 32 ETH or opt for smaller stakes using eETH. Node operators can grant permissions via auctions or direct selections. The platform also offers two types of LRTs: eETH and weETH. The former is a rebasing token, and the latter is a reward-bearing token, allowing users to engage with various DeFi protocols.
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Moreover, EtherFi supports small-scale staking and has specifically designed comprehensive institutional staking services, integrating gamified elements through https://t.co/1wiUULgLaP to enhance retail participation.
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2/ Renzo @renzoai
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Users can deposit LST or ETH into Renzo and simultaneously mint reward-bearing ezETH tokens. The Renzo staking contract efficiently manages these assets, allocating them to various node operators within EigenLayer based on a strategic Risk-Adjusted Reward Ratio. This mechanism aims to balance the distribution of assets in proportion to the calculated risks associated with the different actively validated services (AVS) they support.
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ETH deposits are staked through Ethereum Beacon Chain validator nodes, while Renzo's smart contracts ensure that users reap rewards from both Ethereum validator rewards and EigenLayer's AVS rewards. These activities are coordinated by the Strategy Manager in EigenLayer, who orchestrates the overall asset strategy.

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3/ Puffer Finance @puffer_finance
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Puffer Finance is a liquid restaking protocol that enhances decentralization and economic efficiency by allowing $ETH deposits to mint $pufETH, a reward-bearing token. Puffer's Validator Tickets lower the barrier to validator entry, boosting decentralization and improving capital efficiency.
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The stake mechanism in Puffer Finance includes staking LST (currently supporting stETH and wstETH) to mint pufETH tokens. Subsequently, ETH is deposited for native restaking. Upon the launch of Puffer's mainnet, stETH will be withdrawn from EigenLayer and converted to ETH through Lido, which helps reduce Lido's dominance. The primary function of PufferDepositor is to accept user assets and deposit them into PufferVault, the main contract that holds user assets and serves as the gateway for deposits into EigenLayer. The major controls of the entire protocol are implemented in this smart contract.
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Puffer has also introduced Secure-Signer and RAVe technologies to increase validator security and minimize slashing risks, enabling operation of validators with just 1 ETH deposit.
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Complementing its ecosystem, Puffer Finance has forged a partnership with Curve, enhancing liquidity by facilitating pufETH/wstETH trades. Through Curve and similar platforms, users can provide liquidity and earn rewards.
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4/ Kelp DAO @KelpDAO
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The team behind Kelp DAO is the founders of Stader Labs. Users can deposit LST tokens (currently supporting ETHx, stETH, sfrxETH) or ETH into the protocol and mint rsETH tokens.
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Subsequently, Kelp DAO transfers the deposited LST to a node delegation contract and allocates them to third-party node operators collaborating with Kelp DAO.
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rsETH tokens are reward-bearing tokens. Holders will receive various rewards from participating in the protocol, which are reflected in the price fluctuations of the tokens.
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5/ Eigenpie @Eigenpiexyz_io
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Eigenpie is a sub-DAO within the Magpie ecosystem, providing isolated liquid restaking for Ethereum's LST holders.
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Through this model, LRT holders not only earn returns from LST staking but also participate in AVS launched on EigenLayer, thereby generating additional income.
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To isolate risks and protect investors, Eigenpie users receive an isolated LRT prefixed with 'm' upon depositing LST into Eigenpie. This ensures that each restaked token is only associated with its corresponding original staked asset, enhancing security.
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6/ Swell Liquid Restaking @swellnetworkio
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Swell allows users to stake ETH in exchange for rswETH, a rewards-bearing token.
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Technically, rswETH v1.0 is essentially a fork of the swETH smart contract. It retains the original node operation management, staking, pricing, and reward distribution mechanisms. The primary change involves the integration of EigenLayer contracts. Under this framework, the restaking deposit manager of rswETH acts as the owner of an EigenPod, interacting with the EigenPod manager to create and validate EigenPods, stake 32 ETH on the Beacon Chain, and withdraw rewards back into the restaking pool.
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With the launch of Swell Layer2, they plan to use the Polygon CDK for decentralized ordering, validation services, and faster finality. Here, rswETH will serve as the native Gas token for Layer2, and SWELL will be used as the governance token.
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7/ Vector Reserve @vectorreserve
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Vector Reserve maximizes the returns on liquid staking and restaking through a diversified and risk-adjusted strategy. Utilizing a reserve currency called vETH, it combines the liquidity of wETH, LST, and LRT to provide market-leading yields, enhanced by the concept of Liquidity Position Derivative (LPD).
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vETH is the first token to exist in the form of an LPD in the DeFi sector. It integrates native ETH restaking returns, transaction fees, Eigenlayer credits, and other rewards into a comprehensive yield model.
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Moreover, Vector Reserve's VEC token is not only the governance token of the protocol but also allows holders to earn LST rewards and other incomes through staking. Users can engage by purchasing discounted VEC bonds and staking tokens, enhancing the overall liquidity of the platform.
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8/ Restake Finance @restakefi
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Restake Finance allows users to deposit stETH and exchange it for rstETH, utilizing a DAO-controlled smart contract to manage the allocation of stETH to various node operators. Users' deposits are transferred to EigenLayer, where they earn returns based on the AVS options they select. These rewards can be claimed at any time from the Restake Finance dashboard and are enhanced through a daily restaking mechanism.
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rstETH automatically increases based on daily earnings, reflected in the rstETH/stETH liquidity, initially provided mainly on Curve. Initially, rstETH holders equally receive rewards from the EigenLayer modules; subsequently, they can opt into specific AVS combinations to earn different returns based on their choices.
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Additionally, $RSTK is the governance and utility token of the platform, with a total supply of one hundred million. Functions include governing node operator selection, revenue sharing, and earning liquidity provider fees. $RSTK can be purchased and staked as $sRSTK on Uniswap, granting governance rights and a share of the revenue with a staking period of 45 days. The value of $RSTK is expected to increase with the growth of EigenLayer and greater participation in various AVS.
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/ Liquid Restaking Project Comparison Table/
We've compiled a detailed comparison of those Liquid Restaking Projects, highlighting their key features including mechanism, fees, and Node Yield Allocation. We strive for accuracy in our comparisons, but should there be any discrepancies, we are welcome for any feedback.

[SuDo Research @SuDoResearch]

/ Bitcoin Layer2 - Scaling Solution /

In 2024, Bitcoin Layer2 solutions are popping up like mushrooms after the rain, with new initiatives constantly rolling out to tackle the existing issues. This in-depth article will explore the necessity for Bitcoin scaling solutions, examine the current strategies in place, identify their limitations,and introduce the mainstream solutions.

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🁢 Why do we need Bitcoin scaling solutions?

1. Bitcoin's Layer1 transaction fees are sky-high, hindering widespread adoption
In 2023, with the advent of new features like Ordinals and Brc20, Bitcoin often ran into issues with steep transaction fees and network congestion. These scaling solutions are crucial for tackling problems related to transaction throughput, block confirmation times, and cost.

2. Protocols with proven market fit can't be deployed on Bitcoin's platform since it's not programmable
As it stands, DeFi products like Uniswap and AAVE can't function on Bitcoin. Thus, Bitcoin needs to develop its programmability through scaling solutions, allowing for a richer variety of applications without altering its core principles.

3. Bitcoin's overuse of inscriptions is squandering network resources
Over the past 14 years, Bitcoin has accumulated 87 million UTXOs. Astonishingly, in the short span of eight months from April 2023, this number has rapidly expanded to 160 million. Among these, 55 million are small UTXOs, which is less than 100 satoshis, and will never be spent unless the BTC GAS drops below 7 (not economically viable), causing these so-called "junk UTXOs" to become a permanent burden on the nodes.

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🁢 What solutions do we currently have?

1. Layer2
• This allows the Bitcoin mainnet to verify external ledgers, ensuring the Layer2's authenticity and effectiveness.
• It essentially scales the main network without major compromises on decentralization or security.
• The challenge is that, without changing the BIP infrastructure, the existing Bitcoin framework may not fully replicate the main network's security, involving some level of trust assumption.

2. Sidechains
• They operate on an independent consensus mechanism and have only a token-based bidirectional link with Bitcoin, effectively creating a new, autonomous chain that doesn’t depend on Bitcoin’s security.
• Their link to Bitcoin is via cross-chain bridges or by uploading data to the Bitcoin blockchain.
• The benefit is their rapid development and deployment; basically, with effective marketing, a sidechain can be launched.
• The dilemma is, if it’s essentially a new chain, it's hardly different from Ethereum. Given the existence of Ethereum's mature smart contract ecosystem, the question arises: why opt for a Bitcoin sidechain when WBTC could suffice?

3. State channels
• Think of them as multisig wallets where parties contribute funds, transact within, and eventually settle the final balance through a withdrawal command after mutual agreement.
• Their use case is quite limited, not supporting smart contracts, and thus they mainly function as a payment network, which limits their potential for developing into a financial ecosystem.

4. Interoperability protocols
• These can be seen as even more distant sidechains to Bitcoin, enabling connections beyond Bitcoin, potentially linking a variety of EVM and non-EVM networks, like ZetaChain, ThorChain, MAP, and others.

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🁢 Comparison of various aspects of the solution

▸ Protection level by Bitcoin
State channel ≥ Layer2 > Side chain > Interoperability
(State channel uses the HTLC of the Bitcoin protocol to implement its transactions. If problems occur or the relationship ends, the Lightning Network allows users to withdraw funds from the channel by broadcasting the final channel state and settling in Bitcoin.)

▸ Scaling capacity
Interoperability > Side chain = Layer2 > State channel
(The Interoperability protocol, in theory, solely deals with Wrapped $BTC and isn't bound by Bitcoin's constraints, indicating a minimal connection with Bitcoin. In other words, this also signifies its potential for the greatest freedom and boundless scaling.)

▸ Support for complex applications
Side chain = Interoperability = Layer2 > State channel

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🁢 Appendix: The Definition of Bitcoin Layer2

Synthesizing the views from Bitcoin Magazine and Pantera, a viable Bitcoin Layer2 should include:

1. Using Bitcoin as both the native asset and the gas token for L2 operations.
2. Bitcoin serve as the settlement and data availability layer within the L2 framework.
3. Featuring trustless cross-chain bridges and escape mechanisms specific to Bitcoin L2.
4. Being inherently linked to Bitcoin, such that it ceases to function if Bitcoin were to vanish.

• Pantera Article：https://t.co/vnstw9SGSE
• Bitcoin Magzine：https://t.co/GUAtjeNmf8

Therefore, under a strict definition of Bitcoin Layer2, all existing solutions in the market fall short of the criteria. At most, they could be referred to as "Side chains."

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🁢 Current bottlenecks in Bitcoin's scaling solutions

1. State
• Bottleneck: Bitcoin UTXO can only provide real-time balance, not historical balance or transaction history as fundamental state information.
• Solution: Shift towards off-chain development with EVM or off-chain processing.

2. Computation
• Bottleneck: The computational capability for unlocking UTXO through ScriptPath scripting is very limited, making it hard to execute complex functional logic.
• Solution: Move to off-chain development with EVM, off-chain processing, or implementation of BitVM.

3. Verification
• Bottleneck: Due to the lack of state and computational power, it’s challenging for the BTC network to verify the validity of transactions sent over from Layer2, similar to Ethereum.
• Solution: Shift to off-chain processing, such as incorporating OP mechanisms, off-chain verification, to enhance the validity and security of off-chain transactions, or implementation of BitVM.

4. Centralization
• Bottleneck: Similar to the current situation with Ethereum layer2, most solutions are highly centralized; theoretically, BTC could improve, but no such improvement has been made yet.
• Solution: This issue is still too distant for Bitcoin layer2; currently, there are many areas to be optimized, and no project has yet optimized the Sequencer.

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🁢 Which projects should we keep an eye on?

• Map Protocol | @MapProtocol
- Custody: Light Client + Zero-Knowledge
- Verification: Similar to Sovereign Rollup, it leverages its own PoS to authenticate transactions.
- Consensus: IBFT (PoS)
With its advanced cross-chain bridge, powered by Light Node + Zero-Knowledge Proofs, Map can harness the liquidity of Bitcoin Layer2 and merge various blockchain ecosystems, establishing a comprehensive interoperability platform. Hence, it’s better to refer to it as an interoperability protocol rather than a sidechain, acting as the intermediary layer across the entire blockchain network.

• SatoshiVM | @satoshivm
- Custody: Multi-Party Computation (DHC)
- Verification: Off-chain ZKP + OP challenge
- Consensus: PoS
Drawing inspiration from BitVM, this approach combines ZK and OP for the verification process to enhance security. The development team maintains strong ties with Bool Network and has been deeply engaged in Bitcoin Layer2 research for an extended period, showcasing a robust academic and theoretical background.

• B² Network | @BSquaredNetwork
- Custody: Multisig (may support Schnorr in the future)
- Verification: Off-chain recursive ZKP + OP challenge
- Consensus: DPoS (may support decentralized Sequencer in the future)
B² Network collaborates with Alt Layer on the underlying structure, featuring an innovative verification mechanism that combines ZK Rollup and OP fraud proofs, along with account abstraction technology, etc. The plan is to develop a modular data availability layer for the Bitcoin track in the future, promoting Rollup as a service. Currently, it has nearly 600m in TVL, ranking third in Bitcoin Layer2.

• LumiBit | @LumiBitL2
- Custody: Multisignature (featuring two unique cross-chain types)
- Verification: Off-chain ZKP (Sovereign Rollup model)
- Consensus: PoS
LumiBit integrates Scroll's technology, utilizing Halo2 and FRI for ZK technology in the Type2 zk-EVM, and compresses transaction data with KZG Commitments. There's a possibility of open-sourcing the verification process, making it accessible for public transaction validation. Furthermore, LumiBit aims to enhance the transaction packaging process through partnerships with mining pools. It also provides two types of bridge solutions: a consensus bridge and a UTXO channel bridge, to increase the flexibility and security of cross-chain transactions.

• Bouncebit | @bouncebit
- Custody: CeFi Custody
- Verification: Sovereign Rollup model
- Consensus: PoS
Bouncebit is not merely a Layer2; it's a Layer1 specifically crafted to boost the capital efficiency of $BTC. Its innovative features comprise Restaking (where funds are staked first to nodes and subsequently to the SSC security module), CeFi arbitrage strategies, and Bounceclub's modular Dapp experience. This marks it as a particularly inventive project in its field, with its Total Value Locked (TVL) soaring to $660 million, placing it as the second leading entity in the Bitcoin Layer2 space.

• Rootstock | @rootstock_io
- Custody: Multisig
- Verification: Merge mining verify
- Consensus: PoW (Merge mining)
Introduced in 2018, this proposal stands as a trailblazer in Bitcoin EVM scaling solutions, employing the less common method of merged mining. It leverages Bitcoin's security to an extent, enabling miners to concurrently produce Rootstock blocks while mining Bitcoin. Currently, its practical application boasts a TVL of $200 million.

• BEVM | @BTClayer2
- Custody: Schnorr signature
- Verification: Sovereign Rollup model
- Consensus: PoS
Its predecessor was the Bitcoin Layer2 pioneer, ChainX, which can be seen as an optimized version for BEVM. With past experience, the technology is relatively mature. BEVM utilizes the Schnorr multisignature with PoS mechanism to achieve the highest degree of decentralization and security possible, and it might be one of the best custody cross-chain solutions currently available. In the future, it will develop based on Stark's ZK ultra-light nodes, accelerating the speed of bi-directional anchoring cross-chain.

• Merlin | @MerlinLayer2
- Custody: MPC (cobo solution)
- Verification: Off-chain ZKP (Sovereign Rollup model)
- Consensus: PoS
The currently most favored by capital BTC Layer2 holds the throne of Bitcoin Layer2 with an impressive 3B TVL. There were past successful projects like BRC420 and Bitmap, and the community presence is large. The technology adopted is Lumoz's Polygon zkEVM solution, and there may be an implementation of a decentralized Sequencer in the future. Additionally, there will also be an introduction of the OP Challenge mechanism in the future to ensure the security and validity of data on the Bitcoin mainnet.

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🁢 Comparing Other Layer2 Solutions

We've outlined some of the more prominent Bitcoin Layer2 solutions, complete with detailed information on their cross-chain, verification, and consensus mechanisms. If there are any inaccuracies, we sincerely apologize and invite feedback. Additionally, some protocols not featured on the list deserve attention, including Citrea, Mezo, Hacash, RGB, and RGB++.

[SuDo Research @SuDoResearch]

(30/n)
At this juncture, it's evident that there isn't a definitive leader among these frameworks.

Special thanks to the @fluentxyz and @thezkcross who contributed a lot to this thread.

[SuDo Research @SuDoResearch]

(18/n)
However, depending on the design, users may execute WebAssembly (Wasm) locally and remotely together, an approach that zkCross has adopted.

[SuDo Research @SuDoResearch]

(29/n)
#zkWASM presents a vast new realm of opportunities for programmers not versed in Solidity, although the learning curve associated with new SDKs and the requisite auditing should be taken into account.