ParaState
Ethereum on Polkadot
Today, the Ethereum protocol is the dominant protocol for DeFi (Decentralized Finance) and Dapps (Decentralized Applications). Almost all Dapps and a significant number of programmable digital assets run on the Ethereum Virtual Machine (EVM). However, the Ethereum network also has many problems, including insecure smart contracts, minimal programming language support, slow performance for certain features, and high gas prices.
We’ve picked four charts that present some of the issues in a visual format. According to Glassnode, the “Mean Transaction Gas Price” (top left) shows a significant increase in total gas price. In some cases in 2019, when the price of gas peaked at around 100 Gwei since mid-2020, the average gas price has been well above 50 Gwei. This translates into high gas rates for interacting with decentralized exchanges, DeFi protocols and other smart contracts.
Looking at the “Total Transaction Fees” on the Ethereum network (top right), we also noticed a significant increase during the summer of 2020. At its peak, the total fees paid during one day went to over 42,000 ETH, worth more than $15,000,000. Not only that, but at the end of February 2021, total fees on the Ethereum network reached close to $50 million in a single day.
According to our analysis, the graph “Number of transactions on Uniswap” (bottom left) shows the reason for these fees. If we compare this graph to the previous one, we notice a strong correlation between the total fees paid and the total number of transactions on Uniswap.
It seems that decentralization comes at a price. In this case, high gas fees. Could Ethereum be at risk of collapsing due to the weight of its own success?
If we dive into the last graph, “Total Liquidity on Uniswap”, we will find our answer. The total liquidity available on Uniswap represented by the total ETH and other ERC20 tokens added to the liquidity pools has actually grown significantly since 2020, north of 2,500%. Therefore, we can say that users have remained in the Ethereum and are choosing to pay high gas fees to remain in the network. Also, increasingly more money is being “locked” in liquidity pools.
Although many new users are joining the Ethereum ecosystem, the market has not yet reached its recent peak. At the same time, while Ethereum is enjoying a significant flow of new users, attention, volume and projects, it is not without issues.
As a result of the high gas fees, coupled with the increasing interest in interoperability, we are seeing a rising trend of Ethereum-compatible solutions running off other networks with far lower gas fees. ParaState is one such project.
Introducing ParaState
ParaState aims to provide a familiar environment for the execution of smart contracts, highly optimized and fully compatible with Ethereum. To that end, ParaState uses Polkadot parachains, which allow it to provide services to other parachains and Polkadot applications, while at the same time taking advantage of the additional parachain blockchain services that live in the Polkadot ecosystem.
ParaState developed the “Second State WebAssembly VM (SSVM)”, a virtual machine created to link Ethereum and Polkadot. SSVM is fully compatible with EWASM, the Web Assembly virtual machine developed for Ethereum.
In this way, ParaState is a bridge between the largest open ecosystems in the world of decentralized applications and smart contracts.
ParaState: Ethereum on Polkadot
The SSVM pallet provides integrated support for EVM and, therefore, all of today’s Ethereum applications. Essentially, a blockchain network that supports EVM is an Ethereum-compatible blockchain. How did ParaState manage to connect the two largest crypto ecosystems?
By making WebAssembly accessible to Ethereum Dapps, programmers will be able to write smart contracts in more than 20 programming languages, in addition to Solidity. ParaState believes that support for multiple programming languages is crucial to attracting new programmers to the blockchain ecosystem.
The more specific Dapps become, the greater the need to use different programming languages to include more features. This is potentially one of Ethereum’s weak points, which ParaState aims to solve by bringing dozens of new languages to the Polkadot environment that can exponentially increase the number of possibilities in creating new smart contracts.
Development
On the ParaState blog, the team wrote it is committed to “bringing the popular Ethereum DeFi applications, such as Uniswap, Balancer, MakerDAO, etc., to Para Chain ParaState.”
The team also plans to work with several teams to develop this Ethereum bridge in Polkadot to bring Ethereum tokens to ParaState. By making these DeFi infrastructure services available, ParaState allows current users to experience the superior performance of Ethereum applications in Polkadot.
Furthermore, since 2020 the team has been working hard on new versions of SSVM and contributing new commits daily.
STATE Token
The Ethereum protocol requires a native token for network security. In ParaState, the native Ethereum protocol token is called STATE. STATE tokens are coined and awarded to node operators, who secure the network and are required as transaction fees (gas) from users.
There is a fixed total supply of STATE tokens. As STATE tokens are paid as gas to the network, a portion of the supply will be burned. This will cause the total supply of STATE to decrease over time. Dapps deployed in ParaState will also receive STATE gas rewards.
Risks
Although research suggests that the market will be receptive to a bridge between Ethereum and Polkadot, and ParaState is prime to take lead on this, some risks must be considered. Of course, many of these risks are inherent in almost all projects currently under construction in the Ethereum and Polkadot ecosystems.
First of all, there must be no errors in the code of the Dapps that will be transported from Ethereum to Polkadot.
Second, high gas costs translate into high fees due to the use of multiple contracts to transfer funds between networks; as with most smart contracts in Ethereum, the more executions each contract does, the more expensive it becomes.
However, there is a possibility that the Ethereum network may experience significant improvements in the short term, which could lead users to opt for Ethereum instead of Polkadot. With the future implementation of EIP-1559, which burns transaction fees in Ethereum and sets a maximum rate, and ETH 2.0, which allows for “staking”, it becomes clear that total gas costs could decrease significantly.
Conclusion
ParaState brings the Ethereum protocol to the Polkadot ecosystem. Through its Web Assembly-based virtual machine, SSVM, ParaState can bridge the gap between Ethereum and Polkadot.
To conclude, ParaState acts as a bridge between the applications developed at EVM and Polkadot. It has all the necessary qualities to become the protocol of choice to create next-generation Web3 applications.
