11 Killer Plasma Use Cases
How Plasma Enhances Enterprise Apps, Exchanges, Stablecoins, and More
In late 2017, decentralized applications first exposed the throughput limitations of the Ethereum blockchain. At approximately 20,000 daily active users Ethereum clogged — skyrocketing transaction fees to upwards of 16x their usual rate.
Going forward, it is abundantly clear that if we want to build “adoptable” blockchain applications, we are going to need better, more scalable infrastructure to build on.
With 11 days remaining in 2018, we want to take some time to share 11 use cases for how Plasma can be used to enhance blockchain networks in 2019 — discussing applications across everything from decentralized applications to enterprise blockchain.
If any of these use cases spur thought, or if you’d like to learn more about building on Plasma with FourthState Labs, please give us a shout at team@fourthstate.network or @wesatbab/@allam_hamdi.
Plasma Intro
For those still unfamiliar on the basics of Plasma, I would highly recommend first reading this article written by Hamdi Allam and I last month.
In short, Plasma allows application developers to support the transactional throughput of centralized infrastructure while still leveraging the security and tamper-resistance of decentralized systems. This is accomplished through the use of “Plasma sidechains,” which move transactions off of the Ethereum blockchain onto trustless, independently managed infrastructure. These Plasma sidechains provide operators with customizable control over block production, node management, transaction fees, and more.
Plasma Use Cases
Peer to Peer Transactions 💸
1. PayPal
Presently, Paypal generates ~5M transactions a day (or ~57 transactions/second). With the present state of the Ethereum network, this simple P2P payment infrastructure would permanently clog the entire Ethereum blockchain (10–15 transactions/second).
Using Plasma (1000+ transactions/second), these issues are solved, as individuals will have the means to send cryptocurrency to others at low costs with high throughput. Plasma infrastructure can even be coupled with tools like Cred and Dharma to provide new, unique financial infrastructure to end users (including P2P loans and more).
Enterprise Blockchain 🗃
The core innovation of Plasma in Enterprise comes from enabling secure, connected, decentralized databases that can interoperate with one another. These databases can be connected through the public Ethereum network or a private Ethereum fork, depending on data visibility and value transfer preferences.
2. Trade Finance
$9T globally is presently tied up in outstanding accounts receivable. This is especially crippling for small businesses and startups, who can be destroyed by delayed payments. The Trade Finance industry is made to address this issue, however it demands tight integration with every industry’s supply/value chains.
Using Plasma, enterprises have the ability to scalably and transparently trace the ownership of their assets throughout their entire supply chain — enhancing visibility and integration.
Additionally, rather than dealing with their own internal accounting infrastructure on these sidechains, businesses can bootstrap value transfer through the use of digital currencies like stablecoins, which provide them with a unit of currency backed by real dollars.
The transactors on this Plasma infrastructure can be permissioned to any subset of users through the Plasma smart contract (think “supply chain stakeholders or trade finance participants”), and governance can be controlled modularly — i.e validators can be legislators/standards agencies, and only approve transactions which are compliant in each business’ operating jurisdiction.
3. Royalties
Royalty payments are found in almost any IP-heavy industry. One of the core issues facing Royalties are their difficulty of enforcement, due to the nature of supply chain obscurity and difficulties associated with cross border payment.
Using Plasma and other digital infrastructure, enterprises have the ability to digitize almost any industry’s royalty payments and transact them across stakeholders at low cost. Rather than delegating arbitration to miners (who are unfamiliar with the industry and its regulations), sidechain operators could include enforcement agencies, artists, production agencies, and more — and could approve transactions with far more compliance rigour than any Ethereum validator.
4. Energy Trading
One of the great inefficiencies of today’s utility companies are their inability to predict which communities need what exact amounts of energy at which specific times. Massive amounts of data, which can be used to provide these insights, is currently being generated by smart meter devices, but is not shared amongst utilities or made readily accessible to third parties. This is due to a lack of database connectivity and provisioning issues.
Using Plasma, enterprises have the ability to transact energy data amongst one another in exchange for low-fee compensation of any structure. This includes micropayments associated with daily streaming, and batch payments associated with large scale usage. In the future, Enterprises will be able to spin up Plasma chains that connect and interoperate across each relevant jurisdiction, and allow for cross-jurisdiction data transfer to be arbitrated through the Ethereum network.
Stablecoins & Financial Markets 📈
5. Compliant Securities Trading
Over the last year we have seen a meteoric rise in the development of digital securities (“security tokens”). These tokens demand full compliance with SEC regulations, and are permissioned to include only accredited investors.
Using Plasma-based permissioning, securities owners have the ability to build fully compliant, high throughput security token exchanges. KYC approval can be baked in to each address on the network, and transaction fees can be abstracted away by validating parties.
6. Multi-Collateral Stablecoins
Nearly every one of today’s decentralized stablecoin implementations are backed by a single digital currency. This poses risks in the case of a “collateral crash,” wherein the value of the collateral underpinning each stablecoin depreciates significantly in value.
Using Plasma, stablecoin projects have the ability to interact and pool liquidity from tokens across blockchain networks — diversifying their collateral portfolio to any supported asset of their choosing. This comes without sacrificing speed or ease of transaction for end users.
Decentralized Exchanges ⚖️
7. High Throughput Exchanges
Centralized exchanges currently account for nearly $1.22T in annual transaction volume. Decentralized exchanges provide transactors much of the same functionality as centralized exchanges (with added custody benefits), however are presently facilitating only ~$8B. This is largely resultant of a lack of scalability.
As proxy assets and synthetic tokens, which allow assets like BTC to appear as ERC20’s on the Ethereum blockchain, begin to enter the Ethereum ecosystem, the need for scalable infrastructure that supports high-throughput decentralized exchanges will become ever more acute.
Using Plasma sidechains, Decentralized exchanges can scale their settlement by orders of magnitude (we presently estimate a 50x increase over the Ethereum network with full security preservation), as well as cut fees associated with transaction validation by Ethereum miners. This creates an exchange ecosystem that is much more attractive for industrial-scale usage.
8. Liquidity Pools
Plasma offers exchanges the ability to pool liquidity onto a single, decentralized sidechain. This allows DEX’s to operate with less on-chain overhead and potential revenue/governance benefits. Additionally, using FourthState’s Plasma implementation, exchanges can decentralize their sidechains — distributing governance across all stakeholders in the pool sidechain.
*Author’s note — For those tools which offer continuous liquidity (i.e — Bancor) Plasma is especially applicable.
9. Interoperable Order Book
Because Plasma chains are deployed through Solidity smart contracts, Plasma chains can theoretically be made replicable/interoperable across and EVM supporting platforms. In the long term, we see Plasma as the infrastructure that will facilitate cross-chain DEX interoperability. This will enable new trading pair offerings and forms of decentralized business models.
10. Dark Pool Exchanges
With SNARK/STARK integration, DEX operators have the ability to support “Dark Pool Exchanges”, or exchanges in which transactors have no knowledge of the order book makeup (This prevents arbitrage and other front-running attacks in the context of the Ethereum ecosystem).
In this use case, DEX’s can collect fees for supporting this service and can control governance (i.e what the throughput/trade limit is) by hosting this on a Plasma sidechain.
11. Collision Resistant Exchange
The Ethereum blockchain presently publishes blocks every ~5–10 seconds. This is a problem if two individuals decide to fill the same specific order within that 5–10 second frame.
Using Plasma, DEX’s have the ability to speed up block publishing and production, reducing the 5–10 second time frame significantly. This decreases collisions, and enhances user experience for transactors.
Conclusion
One of the core innovations of Plasma is its ability to provide creators with secure, connected, scalable databasing infrastructure. We see Plasma creating value across the domains of DEX’s, Enterprise Databasing, Stablecoins, and more — and believe strongly that Plasma can be the infrastructure that powers the next wave of blockchain adoption.
If you are looking for more outlook from the perspectives of Plasma implementers or wanted to learn more about how Plasma can be used in your business check out Wesley and Hamdi’s medium blogs or reach out to us at team@fourthstate.network — and, as always, if you like what you read, be sure to clap it below :)
*Special thanks to Eric Hou and others for conversations that influenced use case selection in this article.
