The Future of DeFi: Who Will Win the Infrastructure Race? — Part II
Several platforms are emerging to challenge Ethereum’s dominant position.
In part II, we’ll look at one of the new kids on the block: The Casper Network. Casper has futureproof architecture and has strong commercial backers who are bringing some exciting use cases to life.
Introduction to the Casper Network
In part I, we touched on how Ethereum hopes to solve many of its technical limitations when it eventually upgrades to Ethereum 3.0. Well, it turns out the Casper Network is quite similar to what Ethereum 3.0 will be when it’s finally complete!
Casper was built based on a technical paper written by Vlad Zamfir, one of the most senior developers working on the Ethereum network [1]. He wrote a paper about a “Correct-By-Construction” (“CBC”) architecture that formed the foundation for the Casper Network. Vlad actually worked with the founders of Casper Labs in the leadup to the mainnet launch in 2021 [2]. Like Ethereum 2.0, Casper is a Proof of Stake (“PoS”) network but has several key advantages over Ethereum.
Predicable Gas Fees: made possible by the ability to lock in prices with gas futures. [3]
Rust and WASM Compatible: makes development on the network easier for non-Web3 developers who are unfamiliar with Solidity. [4]
Upgradable Smart Contracts: enable developers to make changes when user needs or contractual terms change. [5]
Casper Labs and the Casper Association: Casper-evangelizing organizations driving adoption of the network, particularly in the enterprise space.
Sustainable Approach to Solving the Trilemma
Casper has avoided falling into the trap of promising high transactions per second (“TPS”) and focused on sustainably growing security, scalability, and decentralization. Many of the high TPS DLTs have a few, ~10–100, validators running with high hardware specs, e.g., Solana [6]. Casper nodes are a lot lighter to run, making future decentralization of the network easier since the barrier to setting up a validator is relatively low. For comparison, a Casper node should have 32 GB of RAM versus +128GB for a Solana node[7]. Casper can get away with this because they intend to minimize the volume of transactions happening on the main chain.
Casper has included sharding as a part of the scalability strategy from the beginning. Sharding means transactions can occur outside of the main chain and can then be broadcast to the main chain in a lighter form [8]. For example, if a musician wants to earn royalties from customers sharing their music NFT, instead of every transaction taking place on the main Casper chain, they can occur on a shard and then broadcast compressed batches of the transactions to the main Casper Network chain at the end of every day. Security can be ensured through a Zero Knowledge (“ZK”) rollup, a smart contract maintained on chain. The ZK Rollup presents cryptographic proof up-front, allowing data compression of the transactions to be done securely. This process distributes computing resources and relieves pressure on the main chain [9].
Casper Labs and the Casper Association are Driving Adoption
Casper Labs was founded by Mrinal Manohar and Medha Parlikar in 2018 with the purpose of providing organizations with bespoke software, dedicated services, and customer support to help them build on the Casper Network [10]. They employ ~100 employees around the world with their headquarters in Zug, Switzerland.
The Casper Association was founded at the same time as Casper Labs and is a non-profit organization supporting network development as Casper evolves and decentralizes [11]. It does this by supporting open-source resources around the Casper Network, accepting new validators which become involved in Association governance, and participating in hackathons, events, & research.
Google Partnership with Casper Labs shows Big Tech Buy-In
Casper Labs and Google Cloud recently announced their partnership. Google Cloud will now take over part of the Casper Network’s infrastructure. Google Cloud will also provide storage and hosting space to developers building on the Casper Network. Casper joins a list of more established blockchains associated with Google including Ethereum, Tezos, Aptos, and BNB Chain [12]. This is in addition to partnerships with IBM and AWS.
Casper Has Several Exciting Use Cases in the Pipeline
NFT Patents with IPwe [13]
Casper Labs has partnered with IPwe to tokenize 25 million patents on the Casper blockchain. Intellectual property markets are notoriously opaque and illiquid. On the Casper Network, buyers and sellers will be able to trace the ownership history of patents and have greater confidence when making transactions. The transparency and openness of a blockchain will also bring more liquidity and market participants into the patent marketplace.
Fine Whisky Casks on the Blockchain [14]
Casper has brought transparency and liquidity to the high-end whisky cask industry in partnership with MetaCask. MetaCask has gone beyond basic NFTs, implementing auctioning and track-and-trace capability for whisky casks. Upgradable smart contracts enable MetaCask to update NFT metadata when the condition of a cask changes. This use of NFTs lowers the go-to-market costs for a marketplace provider such as MetaCask and brings new digitally native customers into the market. Customers can register their account, complete verification, fund their wallet, and begin transacting all on the same day. Users own and transfer digital deeds with no intermediaries. Having title deeds on the blockchain prevents administrative errors by having “a single source of truth.”
Casper as a Preferred Blockchain for the Public Sector
Casper Labs has secured agreements with the city of Chengdu in China, making Casper the official network for governmental development on the blockchain. Potential use cases include cross-border trade, financial services, manufacturing, agriculture, intellectual property, and many more. NFTs that create trust between trading partners, participants of a supply chain, or parties trading in patents could benefit from Casper’s technology to reduce friction, fraudulent activity, and increase transparency [15].
Casper Labs secured a similar agreement with the Indian State of Telangana. Casper Labs will partner with Telangana’s Department of Information Technology, Electronics, and Communications (“ITEC”) to set up a permissioned blockchain [16].
Music NFTs with DMusic
DMusic, a collaboration between Casper Labs and Megalodon, is making all types of content and digital experiences monetizable for musicians. Musicians will be able to mint limited edition music NFTs, allowing them to share their IP in a more secure and monetizable manner [17].
Casper is Still in the Early Days of Building Liquidity
The Casper mainnet was launched at the tail end of the last bull run in 2021 [18]. As a result, CSPR, the native token of the Casper Network, has never benefitted from the dramatic price surges afforded by a booming crypto market.
Thanks to the hype surrounding the project, CSPR launched at a very high price point of ~$1.33, however, the price went on to crash and settled around the 2–4 cent range [19]. The current market capitalization is ~$400mn [20]. This is well below other Ethereum challengers such as Hedera Hashgraph (~$1,905mn), Polygon (~$9,977mn), Solana (~$8,571mn), Avalanche (~$5,739mn), and TRON (~$5,815mn) [21].
With the exception of KuCoin, BitGet, and OKX, CSPR isn’t listed on any of the top ten most liquid crypto exchanges according to CoinMarketCap [22],[23]. Getting on more crypto exchanges is critical to building out a DLT’s ecosystem. Without deep liquidity, there will be challenges for stakers and validators to enter the market. This is an important challenge to overcome because as the liquidity for the native token of a PoS network increases so should it’s security. As liquidity deepens it becomes more difficult for a bad actor to corner the market for the native token and take control of the network. A larger market means there will be more credible validators able to earn staking rewards and more staking participants contributing to a growing variety of validators. However, this type of development is difficult without heavy hitting exchanges supporting your native token.
Casper has some way to improve in this area. For example, an everyday consumer would need to buy ETH on a big exchange such as Coinbase and then convert that ETH into CSPR on KuCoin before transferring to a private wallet and then finally staking to a validator of their choice. These extra steps incur more exchange fees and make the user experience much more cumbersome. For example, users could lose their funds if they enter the wrong address when moving CSPR between an exchange and their private wallet. Users also need to redo KYC requirements each time they set up an account with an exchange. Novice users might not even know how to stake the network and wouldn’t even try to take their tokens off an exchange and interact with their own crypto wallet.
As a result of these barriers, many consumers let exchanges stake their tokens on their behalf and payout rewards into the centrally controlled account they have with that exchange. It is this convenience that has led to major exchanges controlling so much of Ethereum’s staking power: ~25% of staked ETH is controlled by Coinbase, Kraken, and Binance — the top three exchanges in terms of spot liquidity[24]. As previously mentioned, none of these exchanges are offering CSPR trading yet. The outsourced staking model makes getting on big exchanges even more important for new PoS networks like Casper.
Casper Promises to Shake Up the Web 3 World
Casper has a futureproof architecture because of its intelligent use of sharding and rollups, flexible gas fees, upgradable smart contracts, and the adoption of open programming languages. However, what really sets it apart is the strong commercialization effort behind the blockchain. Casper Labs already has several impressive use cases in the works and are planning to announce a partnership with a Fortune 100 firm soon [25]. Most networks don’t have such a professional and structured commercialization effort behind them. I wouldn’t be surprised to see Casper at the front of the pack in the next few years.
[9] Scaling Layer 1: ZK Rollups and Sharding, Michael Alliegro
