On the eve of the Cancun upgrade, will Metis be the dark horse of this narrative cycle?

01 Introduction to Hybrid Rollups

MetisDAO is an Ethereum Virtual Machine (EVM) compatible Layer 2 scaling solution, like other Layer 2 solutions, it alleviates the pressure on the Ethereum blockchain by packaging L2 transactions and sending them to the L1 network.

But unlike other L2 solutions, Metis employs an innovative Hybrid Rollups technology, combining two mainstream blockchain scaling solutions: Optimistic Rollup (OP Rollup) and Zero-Knowledge Proofs Rollup (ZKPs Rollup).

OP Rollup handles potential dishonest transactions through its fraud proof mechanism, while ZKPs provide a more secure verification method to ensure only valid transactions are confirmed. Therefore, Metis’ Hybrid Rollup effectively reduces the risks of fraud and erroneous transactions.

Metis’ Hybrid Rollup enables efficient and secure processing of large volumes of transactions while ensuring the scalability of the entire system is not limited, and any EVM-compatible DAPP can seamlessly integrate with Metis. Thus, Metis not only provides users with an efficient, secure trading environment but also offers a convenient access platform for DAPP developers.

In the implementation of Hybrid Rollup, Metis incubated the zkMIPS project to assist the implementation of Hybrid Rollup: ZKM. ZKM achieves zero-knowledge proof (ZKP) security for all virtual machines (VMs) and applications from the CPU level, supporting multiple blockchain smart contract engines, enabling developers to easily apply ZKP for development.

ZKM can verify all blockchain and non-blockchain transactions, reduce gas fees, and shorten withdrawal waiting times. The introduction of ZKM is one of Metis’ technological advantages compared to other L2 solutions.

In addition to its Hybrid Rollup technology, the most impressive aspect of Metis’ current development direction is the upcoming decentralized sequencer.

02 Decentralized Sequencer

The sequencer plays a crucial role in Layer 2 (L2) by sequencing, organizing, packaging, and submitting transactions to the L1 network. Currently, most L2 projects (including Optimism and Arbitrum) rely on a single sequencer to perform these tasks, posing three potential risks:

1. Single Point of Failure: If the sequencer encounters issues due to attacks or technical failures, the entire network may come to a standstill.
2. Scalability Issues: A single sequencer may struggle to cope with the growing volume of transactions.
3. Limited Resistance to Censorship: Centralized sequencers restrict the community and on-chain users to passive participants in the network, unable to share sequencer revenue with the public chain.

To address these challenges, MetisDAO plans to introduce a Decentralized Sequencer Pool to mitigate the risks associated with centralized sequencers, enhance network scalability, and establish a sustainable and community-centered Layer 2 solution.

Advantages of Metis’ implementation of decentralized sequencers:

1. In the decentralized sequencer pool, multiple sequencers collaborate, with each staked sequencer having the right to view and process transactions in the transaction pool. This prevents malicious manipulation by a single sequencer, improving transaction processing speed and enhancing network fault tolerance (even if one sequencer encounters issues, the network can continue to operate).
2. Users can become new sequencer nodes by staking the native token METIS, allowing network participants to supervise sequencer nodes, thereby increasing the transparency and credibility of the entire system.
3. From the perspective of sustainable community development, node staking helps reduce the circulating supply of METIS, potentially positively impacting the long-term value of the token.
4. The introduction of the sequencer pool also means that liquidity staking/re-staking will be introduced into the Metis ecosystem. Liquidity staking has been one of the most critical components of the DeFi field since last year, occupying the largest share of Total Value Locked (TVL) in DeFi. The introduction of liquidity staking into the Metis ecosystem can bring more possibilities and use cases for the $Metis token.

As shown in the above figure, the transaction process of Metis’ Sequencer is as follows:

1. Initiation: Users initiate transactions.
2. Sequencer Node: Transactions are forwarded to the network’s sequencer nodes.
3. Block Generation: The sequencer receives transactions and creates blocks when transactions are valid.
4. Final Confirmation: Multi-Party Computation (MPC) nodes merge these blocks and forward them to the Ethereum mainnet.

To encourage community participation, Metis also provides staking rewards for sequencer nodes. In addition to gas income (currently the main source of income for sequencing), these nodes can receive additional METIS rewards.

This design will incentivize more members to stake sequencer nodes, ensuring that power is not overly centralized while reinforcing the decentralized ideology.

Before the decentralized sequencer goes live, Metis will conduct three phases of community testing. The Metis sequencer pool has already undergone two rounds of community testing, with the first round starting from January 1, lasting 27 days, and attracting nearly 200,000 users who generated 4 million on-chain transactions. In the second round of testing, participants exceeded 300,000 users, and the network executed over 11 million on-chain transactions. For those who missed the first two rounds of testing, stay tuned for the release of the third round of community testing and participate promptly.

03 Ecosystem Incentive Flywheel

On December 18th last year, Metis officially launched the Metis Ecosystem Fund (EDF) development plan, aiming to allocate 4.6 million METIS to further drive the development and innovation of the Metis system.

At the current price of $106 for Metis, the ecosystem fund totals nearly $500 million, making it the largest ecosystem incentive fund among all L1/L2 solutions in the past two years.

The allocation of this fund is as follows:

• Sequencer Mining: 65.4% (3 million $METIS, which is used to incentivize sequencer nodes for mining rewards, promoting community participation)
• Ecosystem Grants: 34.6% (1.6 million $METIS, which is used to provide funding to projects for development, protocol deployment, liquidity provision, user incentives, and other measures contributing to ecosystem development)

On February 8th, Metis officially announced the launch of the Liquid Stake Blitz plan, which aims to leverage the Metis Ecosystem Development Fund, totaling up to 4.6 million METIS, to accelerate the growth of LSD protocol and LSD-focused products on the Metis network.

According to the Liquid Stake Blitz plan, from February 8th to the end of February, the LSD protocol in the Metis ecosystem will be able to propose initiatives within the Metis community governance system, with formal voting to take place in March.

After the voting concludes, a limited number of winning protocols can win the right to be paired with decentralized sequencer nodes (whitelist seats), thereby gaining stable node participation eligibility and receiving a 20% MRR (Mining Reward Rate) as mining incentive for the first year.

It is noteworthy that the development of the LSD protocol in the Metis ecosystem significantly helps to lower the staking threshold on the network.

Unlike the LSD protocol on Ethereum that lowers the staking threshold for POS nodes, the staking protocol in the Metis ecosystem, such as ENKI, reduces the staking threshold for sequencer nodes.

This provides more earning opportunities for ordinary users:

1) At least 20% guaranteed mining income provided by the ecological fund;

2) Airdrop rewards of corresponding LSD future tokens;

3) Increase the demand for METIS so that the METIS ecosystem can achieve a flywheel effect of positive development.

Take Enki as an example, the protocol initiated the Genesis Airdrop Plan named Fantasy in early February, distributing 1 million ENKI tokens to community users as rewards, accounting for 10% of the token supply.

Additionally, Enki announced that the team will not reserve any tokens, and the remaining 90% of ENKI tokens will be released over time in various forms, allowing Enki users to continue earning ENKI through various protocol interaction activities such as re-staking eMETIS for seMETIS or participating in METIS/eMETIS LP pairing.

For large institutional entities, they can stake 20k-100k Metis tokens to become sequencer nodes.

For individual users, they can stake Metis on different LSD platforms to receive corresponding node rewards, while staking certificates can also circulate and be used within the ecosystem.

The emergence of decentralized sequencers, income-sharing models, and the development of LSD distinguish $METIS from other L2 tokens fundamentally.

For other L2 native tokens, they only have governance functions and cannot share income with holders.

Therefore, we can see that as Metis is empowered with income-sharing capabilities, more people are willing to participate in becoming nodes, driving more tokens to be staked, further promoting scarcity in the supply of Metis tokens, and driving further price growth.

As price growth attracts more participants, the ecosystem becomes more prosperous. The prosperity of the ecosystem strengthens the incentives for sequencer nodes, leading more people to participate in staking. The entire development process gradually forms a positive feedback loop.

04 Current State and Key Projects in Ecosystem Development

Metis currently has a TVL of $82.82 million. From the changes in Metis TVL since 2023, we can see a significant increase in on-chain TVL since the introduction of decentralized sequencer design by Metis in 2024, demonstrating the community and market’s optimism towards this direction.

The key projects in the current Metis ecosystem are as follows:

1. ENKI: The first LSD project in the Metis ecosystem aimed at simplifying and democratizing participation in the Metis sequencer node ecosystem. It allows ordinary investors to earn rewards by staking Metis sequencer nodes and is currently in the testnet phase, yet to be formally launched.
2. Hera Finance: An AI-driven DEX aggregator that helps users find the best trading prices.
3. Ethena: A recent hot stablecoin protocol on Ethereum aimed at providing censorship-resistant, scalable native cryptocurrency solutions through USDe. It announced its collaboration with the Metis ecosystem on February 28th.
4. Aave: The largest protocol in terms of TVL on Metis and also the largest lending protocol across the chain.
5. Hermes Protocol: Allows users to conduct slippage-free DEX trades.
6. Net Swap: The first DEX in the Metis ecosystem, allowing users to perform fast, low-cost token transactions on the Metis network.
7. Tethys Finance: The first perpetual trading protocol in the Metis ecosystem, allowing users to trade major tokens and METIS with leverage of up to 50x.
8. Stargate: An asset cross-chain bridge developed by the cross-chain interoperability protocol standard LayerZero Labs. Through Stargate, users and Dapps can transfer assets across multiple chains.
9. Artemis Finance: A liquidity staking protocol designed for the Metis decentralized sequencer pool, also one of the two LSDs officially announced by Metis. Users can stake their $METIS tokens on Artemis and receive liquidity tokens $artMETIS, automatically accumulating earnings while using $artMETIS for Metis on-chain interactions.
10. WAGMI: A comprehensive DeFi solution whose liquidity pool can automatically rebalance dynamically allocated funds to maximize user profits during transactions. It received a 2 million grant from the Metis ecosystem fund and announced a collaboration with DWF.

With the launch of the Metis ecosystem incentives, there are alpha opportunities worth keeping an eye on.

05 Conclusion

As the first Ethereum Rollup to adopt decentralized sequencers, Metis provides users and DAPP developers with an efficient, secure trading environment, and a convenient access platform with its unique Hybrid Rollups technology and upcoming decentralized sequencer.

With the continuous growth of the Metis ecosystem, the progress of multiple key projects, and the formal launch of subsequent decentralized sequencers under the positive incentives of its ecosystem fund, we have reason to believe that the Metis ecosystem is poised to carve out a place in the competition of L2, bringing more value and opportunities to users and developers.

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