"MASSIVE FLARE NETWORK POTENTIAL - WHAT ARE WE WAITING FOR?"
Autor: Andrzej Mackowiak 09.09.2023r.
A few weeks ago, a storm broke out in the Polish community regarding the audit of the Flare Network conducted by a Polish startup (link in the references). As you might have guessed, the audit results were not very positive. However, this was not due to the limited potential of the Flare Network, but rather to the authors of the audit’s lack of understanding of the project’s assumptions. The entire audit situation and the debate that followed in the Polish community clearly shows how little this project is understood by the wider crypto community.
Despite the fact that our community is constantly provided with information about the project through the communication channels of our Focus TSO team, such as Telegram, Twitter, YouTube, and, recently, blog articles, the vision of the project and what the creators of the Flare Network want to build may not be easy for everyone to understand. This is especially true for those who do not want to understand or new crypto investors who are just starting out.
Several years of observing human behavior in the crypto world have led me to believe that, ultimately, during a bull market, people will be attracted by the rising price of a given asset, not the superior technology behind the project or its real usability. Therefore, the question arises whether a project with such revolutionary goals as Flare Network should focus its messaging on that group of investors? Or should the team focus on building and attracting developers, whose work will make the project more recognizable to the retail market in due time anyway?
The answer to this question is difficult, especially when we see a flood of projects that reach sky-high valuations without bringing about any technological change. On the one hand, it is clear that it is worth taking care to ensure that the project is well understood by a wider community. This way, you can increase its potential and chances of success. On the other hand, it is also important not to focus on what is popular. It is more important to strive to achieve the goals of the project, especially if it aims to solve a real problem. Once these goals are met, investor capital will naturally find its place, increasing the value of the project.
The Flare project did not fit neatly into the rigid frameworks of the audit mentioned earlier. In fact, the scale of the project was difficult to measure with the universal tool proposed by the auditor. While the allegation of lack of up-to-date information about tokenomics could have been justified, on the other hand, does the extensive and carefully prepared technical documentation not compensate for this?
The project is currently targeting the developer community. Their task is to build new utilities using the protocols provided by the Flare team. After all, if we want to invest, we should pay more attention to the project’s development. This is what the detailed and solid documentation enables developers to do more easily. Thanks to it, the project attracts new projects that undoubtedly add value to the entire ecosystem. This can give the impression that the retail market is not currently a priority target for the Flare team.
Despite the fact that it is 2023, from the perspective of a retail investor, projects should not be analyzed based on the appearance of the website, the availability of the roadmap or the whitepaper. After all, that’s how analyses looked in 2018, when the message and “marketing” were strictly aimed at retail investors. In those years, projects sold promises, and one could even dare say that they sold dreams that were rarely fulfilled.
The Flare Network’s approach is different. Looking at what we see so far, it must be admitted that its team is actually fulfilling its promises. Of course, one could have complaints that it is all taking too long. However, is it easy to implement the concept that they have set for themselves? Is the small steps approach that the team is using not the right one? Can we perceive caution in bringing products to market for security reasons and conducting additional legal analyses in fear of regulators as a negative?
So maybe everyone can answer the question for themselves based on their own experience.
The Flare Network project is setting new standards for both current Oracle systems and the way interoperability between blockchains works, by introducing full decentralization and eliminating the need for trust in the other party. All this in a safe, fast, and cheap way.
We at the FocusTSO team have been following the Flare Network project since the first information about it appeared in mid-2020. Since then, a lot has changed in the project, including:
The original concept has evolved significantly. A Canary Network was added without prior announcement, where developers can test their new products in the real market.
The token distribution method was changed to be more decentralized, so that they have a chance to reach a wider community, not just the XRP community. This change also allowed for independence from centralized exchanges, which often succumb to the temptation of manipulation. (I will remind you of the lessons from the SGB distribution, where some exchanges did not distribute tokens to the community.)
The idea of giving EVM smart contract functionality to tokens that do not have it (XRP, BTC, LTC, or DOGE) has been transformed into something much larger: full crypto interoperability that does not require trust of the other party, is safe, fast, and cheap.
The Flare team’s approach to building the network is completely different from other projects on the market:
The project did not finance the development of the network through the sale of tokens. In fact, the network was already functional at the time of the token distribution.
Thanks to the unique approach to the distribution of the $FLR token, the project has avoided being held hostage by centralized exchanges. This is because un-wrapped tokens do not participate in the snapshot for the next monthly airdrop.
Perhaps due to the team’s different approach, some people find it difficult to understand the concept that Flare presents. It is undoubtedly necessary to have such an understanding in order to conduct a fair and reliable analysis or audit of this project, taking into account the future use cases of the implemented protocols or possible changes in tokenomics.
What do we have on the Flare Network today?
Flare Time Series Oracle
After months of testing on its canary network, the Flare Network launched with its Flare Time Series Oracle (FTSO) protocol, which is a native oracle for time-series data, such as asset prices. This protocol provides highly accurate and decentralized data to applications on the Flare network. The data delivery process is not controlled by a single entity, but by a group of independent Signal Providers, who collect data from various sources, such as decentralized or centralized exchanges.
Source: Flare Time Series Oracle
Although FTSO is fully functional, it is still in its early development stage. We could even say that it is still in the testing phase, and that the final shape of the protocol will likely change over time. Ultimately, the protocol is designed to support a wide range of assets, whose prices will be provided on the blockchain. Currently, 18 currencies are available, whose prices are expressed in US dollars: ADA, ALGO, BTC, DOGE, ETH, FIL, LTC, SGB, XLM, XRP, ARB, AVAX, BNB, MATIC, SOL, USDC, USDT, and XDC. In the future, there will likely be many more currency pairs and types of assets. The time it takes to produce forecasts will also be shortened in the future, and the types of data provided will likely be expanded.
At the moment, the FTSO protocol provides data on the blockchain in three-minute intervals. The data provided in the FTSO system is called a “public good” by the Flare team, as it is available to the end user for free. The network of decentralized signal providers is rewarded from the inflation built into the protocol. Thanks to the use of a native protocol, the FTSO system can be highly scalable, while retaining its “public good” feature, which will likely help it in wider adoption, when data provided on the blockchain will play a major role in the future.
The decentralization of Signal Providers in the FTSO system is extremely important. The goal is that these entities would be completely independent of each other and, in addition to improving the price forecasting algorithm (which gives income to both them and network users), would also actively participate in building the ecosystem by providing valuable tools, solutions, or supporting infrastructure. Thanks to this solution, the FTSO protocol and the data delivery system on the Flare Network do not have a single weak point that could be attacked, making the entire solution extremely resistant to attacks.
* More about the FTSO protocol in this article: https://flr.globalfcx.com/is-flare-a-solution-for-oracle/
The data provided by FTSO is literally free and serves as a public good. It can be used in various applications, such as:
Stock market: FTSO can be used to provide real-time data on stock prices, which can be used by traders to make more informed decisions.
Real estate prices: FTSO can be used to provide real-time data on real estate prices, which can be used by homeowners, renters, and real estate agents. This can help to stabilize the real estate market and make it more accessible to people of all income levels. Accurate real estate prices are essential for tokenizing this market segment.
Weather forecasting: FTSO can be used to provide real-time data on weather conditions, which can then be used by farmers, businesses, and individuals. This can help to reduce the risk of damage from natural disasters and improve agricultural productivity. For example, a farmer could use FTSO data to determine when to plant and harvest crops. They could also use the data to predict the likelihood of a drought or flood. Data from FTSO can help them to protect their crops and avoid financial losses.
Sports betting: FTSO can be used by bookmakers to provide real-time data on sports results and odds. This can help to make the sports betting industry more transparent.
DAO voting: FTSO can be used to provide real-time data on voting results in Decentralized Autonomous Organizations (DAOs). This can help to improve the accountability and transparency of DAOs. For example, a DAO participant could use FTSO data to determine whether to vote for or against a specific proposal. They could also use the data to see how other DAO participants are voting. This will help them to make an informed decision and ensure that their vote is counted.
These are just some of the potential applications of the data provided by FTSO. As FTSO matures and its capabilities improve, it is likely to be used in even more innovative ways.
The next protocol in the Flare network is State Connector. Unlike FTSO, which provides probabilistic data, the State Connector protocol provides deterministic data from other blockchains and off-chain data sources.
State Connector offers improved security, flexibility, and faster processing compared to other Oracle systems on the market. It makes it possible to transfer state data from one blockchain to another.
This protocol is a key element of the Flare network because it allows integration with other platforms and the creation of new applications. State Connector is integrated with the Flare Time Series Oracle (FTSO) protocol, which provides reliable and decentralized data. This allows State Connector to provide a consistent state between different blockchains.
The key strength of State Connector is its ability to verify the validity and history of transactions, while also reducing the risk of reorg attacks on connected blockchains.
This level of interoperability is achieved without the need for a central third party, resulting in a highly secure and decentralized protocol.
State Connector uses data obtained from independent providers called Attestation Providers and essentially performs consensus over data that relates to a single source of truth. This mechanism allows it to determine whether a transaction has been executed on another blockchain.
Developers can use this potential to create dApps on the Flare network that will have access to value from multiple connected blockchains.
Source: Flare – State Connector
Due to the State Connector protocol, the Flare Network has a number of advantages, including:
Increased interoperability: State Connector allows the Flare network to be integrated with other platforms.
Increased consistency: State Connector provides a consistent state between different blockchains, which prevents errors and conflicts.
Increased security: State Connector is integrated with FTSO, which provides reliable and decentralized data. As a result, State Connector provides a higher level of security than other protocols.
State Connector is a powerful tool that can revolutionize the way we build and use blockchain. With State Connector, blockchain networks can easily and securely interact with each other, which will enable the creation of new utilities and applications.
Here are some specific examples of State Connector applications:
The ability to create decentralized exchanges that connect different blockchains.
The ability to create decentralized financial applications that offer services on multiple platforms.
The ability to create decentralized gaming applications that connect different platforms.
The ability to create decentralized government applications that provide services to citizens on multiple platforms.
What are we waiting for?
The next protocol being developed on the Flare network is Layercake. It is being built by Flare Labs, an independent entity from the Flare Network Foundation. The Layercake protocol enables the transfer of assets between blockchains in a new and innovative way. The advantages of the protocol are its speed, performance, scalability, and security.
Source: Flare Labs
Each transfer using the Layercake protocol is insured in transit with a 1:1 coverage in the form of a real asset. Using security in this way allows for the lowest delays in bridge-building that does not require trust from the other side, while providing insurance in case of its improper behavior. Such a solution also protects against blockchain reorganization.
More details about the LayerCake protocol can be found here:
After the exchange is completed and the wrapped asset is on the user’s account, the security is unlocked after a short time, ready to be used in another cross-chain exchange. For this reason, this security is called “Bandwidth” because it determines how much value can flow through the bridge at a given time. Its existence makes LayerCake a solution that does not require multisig, any management role, or any trusted party in the system.
Source: LayerCake by Flare Labs
Bandwidth Providers secure the bridge with their bandwidth. They charge a small fee for each transaction. These providers cannot secure the bridged asset for a value greater than the value of the collateral that they have locked.
The total bandwidth that the bridge possesses determines the value that can flow through the bridge at any given time. Like physical bridges, LayerCake bridges can handle any amount of “traffic” flowing through them over time. They only limit the amount of traffic that can flow simultaneously.
To avoid liquidity fragmentation, a situation in which we have limited access to liquidity, which can lead to increased costs and risk, the LayerCake protocol is multi-directional. This means that you can transfer a token, such as wrapped ETH, from multiple source chains to a single destination chain and receive the same representation of the token, regardless of where it came from.
Here are some specific examples of how the LayerCake protocol can be used:
Transferring assets between different DeFi protocols: With the LayerCake protocol, users can transfer assets between different DeFi protocols, such as Uniswap, Compound, and Aave. This allows users to access a wider range of DeFi services and products.
Transferring assets between different blockchains: The LayerCake protocol can be used to transfer assets between different blockchains, such as Ethereum and Solana. This allows users to take advantage of the benefits of different blockchains, such as speed, scalability, and security.
Creating cross-chain swaps: The LayerCake protocol can be used to create cross-chain swaps, which are easy and efficient exchanges of assets between different blockchains.
Providing liquidity for decentralized exchanges: The LayerCake protocol can be used to provide liquidity for decentralized exchanges. This will allow exchanges to offer a wider range of assets and better prices for users.
Enabling cross-chain gaming: The LayerCake protocol could be used to enable cross-chain gaming by allowing gamers to use their assets in games on different blockchains.
Allowing cross-chain payments: The LayerCake protocol could be used to allow cross-chain payments by allowing users to make payments in different digital currencies on different blockchains.
Advantages of the LayerCake protocol:
Source: LayerCake by Flare Labs
Current smart contract bridge projects suffer from a variety of problems, such as centralization, weak security guarantees, liquidity fragmentation, delays, and chain reorganization risk. The LayerCake protocol has the potential to revolutionize the way we transfer assets between blockchains. It is a secure, efficient, and scalable solution that can be used by anyone, regardless of which network they operate on.
LayerCake is designed to be a faster, safer, and more decentralized way to bridge between networks, mitigating the risk of chain reorganization and enabling developers to create automated actions that are executed in the same step as the bridge.
Using all available protocols, developers can build solutions such as delta-neutral synthetic assets (F-Assets). These are a type of derivative instrument that reflects the value of the underlying asset. This means that the price of the synthetic asset will not differ from the price of the underlying asset.
F-Assets are not a native layer 1 protocol, but a smart contract used to create assets on the Flare (or Songbird) network. The system is designed to support different blockchains and is designed to give smart contracts functionality to projects that do not have this ability. Initially, the F-Asset system will support assets XRP, BTC, DOGE, and LTC. It is possible to add new assets through community voting. To enable unbiased minting of 1:1 representations of currencies supported by the system, the following protocols are used:
FTSO — to provide decentralized price data for supported tokens
State Connector — to transfer the actual state from any connected blockchain
The F-Asset system will use the decentralized prices provided by FTSO to enable unbiased minting of 1:1 representations of cryptocurrencies that do not have smart contract functionality (initially XRP, BTC, DOGE, and LTC). These assets on the Flare network will be called FXRP, FBTC, FDOGE, and FLTC.
Minted F-Assets in the form of ERC20 tokens in the Flare/Songbird chain will require collateral by native tokens (FLR/SGB) in the amount of at least 150% of the value of the minted asset and by stablecoins in a 1:1 ratio. This combination provides greater security by reducing exposure to the change in the price of native tokens (FLR/SGB) and underlying asset. This collateral is locked in contracts that guarantee that the issued tokens can always be compensated for the underlying assets or by collateral.
Here are some advantages of using F-Assets:
Security: F-Assets are secured by the network’s native token (FLR/SGB) and stablecoins, making them less susceptible to fraud or theft.
Liquidity: F-Assets can be traded on decentralized exchanges, making them liquid and easy to exchange for other assets.
Interoperability: F-Assets can be transferred between different blockchains, making them interoperable and accessible to a wider range of users.
Scalability: F-Assets are designed to be scalable, meaning that they can be used to represent a large number of assets.
Affordability: F-Assets are relatively inexpensive to use.
What are the benefits of minting F-Assets beyond the obvious ones of enabling EVM for tokens that do not have this functionality?
Additional rewards in the form of $FLR tokens. F-asset holders will receive $FLR tokens from the network’s rewards pool. (Cross-Chain Incentives Pool)
The ability to participate in DeFi. Holders can simultaneously participate in DeFi, earning additional yield. (e.g., by adding F-asset to a DEX liquidity pool or on a lending platform.)
The ability to earn on underlying assets. The received $FLR tokens can then be delegated to FTSO or provided to the system as collateral for F-Assets to earn fees on underlying assets (e.g., XRP, BTC, Doge, LTC).
Increase in the value of $FLR tokens. The greater the demand for minting FAssets, the more collateral in the form of $FLR/SGB will be required by the system, which will ultimately lead to an increase in the value of $FLR.
F-Assets is a promising new system for representing assets on blockchains. Two-thirds of the total value of the blockchain market is currently locked in networks that do not have smart contract functionality. As a result, they cannot participate in the DeFi or NFT market, or even have the ability to host dApps. The F-Assets system will give smart contract functionality to networks connected to the system. This will give the community of these networks the ability to participate in the decentralized economy in a safe, secured, cheap, and scalable way.
What changes are currently in progress?
Flare Network’s migration to Proof of Stake
The next expected and fundamental change on the Flare Network is the migration to the Proof of Stakeconsensus algorithm. The entire process takes place in three phases. We are currently in the first phase.
Source: Flare Staking Phase 1
The new infrastructure will be similar to that of Avalanche, consisting of two independent blockchains:
P-chain – the network that will manage operations such as staking.
C-chain – on which all transactions and smart contracts on EVM will operate.
The transition to Proof of Stake will have a significant impact on the availability of tokens. Each future validator will need to lock a minimum of 1 million FLR tokens for a minimum of 2 months. To prevent too much centralization of validation units, a limit has been introduced on the maximum amount that a given validator can stake. It is 200 million $FLR.
Validators will agree on the state of the network using the Snowman++ consensus algorithm from Avalanche. In each round, a validator is randomly selected to play the role of leader and propose new blocks to be added to the network. These blocks are then validated by the remaining nodes. To provide resistance to the Sybil attack, the probability that a node is selected as a leader is proportional to its stake, which effectively implements proof-of-stake consensus.
Many people underestimate the potential of the Flare Network. Analyzing only what is available now, namely the use case of providing data on the blockchain in a decentralized way, can give the impression that the Flare Network has little room to grow. However, taking into account F-Assets alone, it can be stated that the projecthas huge potential for demand for native tokens FLR/SGB.
F-Assets are tokens that are tied to the value of assets from other blockchains. Thanks to F-Assets system, users can use assets from other blockchains in the Flare Network. This could lead to a significant increase in demand for FLR/SGB tokens, as users will need them to secure the system.
It is currently difficult to say how much of the supported F-Assets will actually end up on the Flare Network. However, the temptation to participate in the DeFi market and generate additional income from tokens held by users might be quite large.
Objectively speaking, the Flare Time Series Oracle (FTSO) protocol, which has been operating for several months, has not had a positive impact on the token price. However, the features that are currently being introduced to the network, such as staking, cross-chain bridges or F-Assets, may have a positive impact on the token price in the future.
Simple math is enough to calculate how many $FLR tokens can be locked through staking alone when the network has at least 100 validators. The required security in native tokens for F-assets will also have a similar, if not greater, effect.
People who want to understand the potential of the Flare Network should familiarize themselves with these four concepts:
decentralization, trustless, security, safety, and interoperability.