Infrastructure Interest Remains High, In-Depth Analysis of Paradigm's $9 Million Investment in New Project Shadow

Retail investors in the secondary market are actively investing in investment, while VCs in the primary market still insist on investing in infrastructure.

Recently, an infrastructure project called Shadow publicly announced that it had received a US$9 million seed round of financing led by Paradigm.

Infrastructure is indeed important in the field of encryption, but the current general feeling is that infrastructure is concentrated and applications are lacking.

This also makes us start thinking, why do venture capital tend to invest heavily in infrastructure projects? What problems can these projects solve that are not obvious to most users, but are critical to the crypto industry?

Infrastructure projects often have many technical details in their designs, and there is a certain threshold for understanding them; after reviewing the relevant information about the Shadow project, this feeling becomes even more obvious.

The official website of the project is full of a lot of code and data, and it is difficult for ordinary users to understand what problems it can solve.

Roughly speaking, Shadow is an innovative blockchain infrastructure project dedicated to simplifying and reducing engineering time and costs for on-chain data indexing and analysis.; But there are no more standard answers on how to do it and why it should be done.

As a rising star invested by top VC Pardigim, Shadow naturally has its own merits.

So next, after conducting a certain degree of research, the author tries to interpret the pain points and unique solutions captured by Shadows and deeply explores the core value of Shadows and its potential impact in the encryption field.

On-chain data analysis is important but expensive to use

First of all, the Shadow project is aimed at the field of on-chain data analysis.

On-chain data analysis is crucial in the cryptocurrency space, not only providing in-depth insights into market dynamics but also a key factor in optimizing trading strategies, strengthening security measures, and promoting technological innovation.

But please note that the on-chain data analysis Shadow refers to cannot be equated with the on-chain analysis tools we have in mind such as Dune, Nansen, and Arkham.

On-chain analysis tools actually “process the data before using it for you”, while on-chain analysis is “data processing”.

This is a bit like the difference between dishes and ingredients in a restaurant.

You use on-chain data tools, which are free and fast, because the restaurant has already prepared the dishes for you to eat directly; while in the kitchen, processing the ingredients (original on-chain data) may be a time-consuming and labor-intensive task.

What kind of time-consuming and labor-intensive method? Existing on-chain data analysis faces problems of high cost and technical complexity:

• Smart contract event log generation requires high gas fees
• Real-time tracking and analysis of data requires huge computing resources
• While on-chain data is public and transparent, their structure and format can make parsing and effectively utilizing it a challenge

Therefore, existing data analysis solutions often fail to meet the needs of real-time, cost-effectiveness, and flexibility, which highlights the market’s urgent need for a more efficient and economical data processing method.

This need may not be the need of the end user; as mentioned in the restaurant analogy above, it may be the need of the restaurant to process the raw materials. Therefore, the Shadow project is more for project parties, developers, and professional data analysts, rather than for end users.

Shadow, create a “shadow” for the expensive body

Since the cost of utilizing and organizing data on the chain is high, a feasible solution is:

Copy a “forked” version of the data on the chain, and then analyze and modify it as much as you want in this fork.

This is also what the name of the Shadow project implies. Instead of calling resources directly on the main chain for analysis, an identical “shadow” version is generated for processing.

This approach is very reminiscent of the Fork button on GitHub.

Someone else has a code repository, which I think is pretty good; but I don’t want to move it around in someone else’s repository and make a mess, so the best way is to fork a copy of someone else’s code repository and clone it to my computer. Feel free to modify it.

Similarly, you can compare Shadow’s shadow fork to forking other people’s code repositories in GitHub. On Shadow, you can create a shadow version of the main chain, perform data analysis, and add customized event logs, and these operations will not affect the main chain itself.

As such, shadow forks are off-chain read-only execution environments designed to mirror the state of the public blockchain in real-time and are highly optimized for data access.

Shadow provides a new solution for on-chain data access and indexing through its unique shadow fork technology.

This technology can be compared to creating a perfect simulated environment in the real world. In this virtual environment, users can freely add or modify the event log of smart contracts without paying high gas fees.

It’s like building freely in a sandbox city without the constraints of real-world costs and rules. In this way, Shadow greatly reduces the cost of data processing while increasing flexibility and efficiency.

Not only does it make data indexing faster and richer, but it also makes in-depth data analysis simple and easy. In addition, Shadow’s approach also provides new possibilities for the development and testing of smart contracts, allowing developers to test and optimize their contracts without affecting the main network.

What exactly can be done?

Currently, Shadow’s official materials show four possible use cases using this protocol:

1. Save gas fees and contract size: By placing event logs on shadow forks instead of mainnet, contracts can be significantly optimized and meet different data needs. This approach can reduce gas fees by up to 12% per transaction while increasing contract visibility.
2. Strengthen protocol analysis: Shadow allows users to customize events for any contract, even if the events on the mainnet are missing or incomplete. Users can directly access the main network status data and conduct subsequent data analysis.
3. Build a fast indexer: Speed ​​up the data indexing process by emitting data-rich shadow events, reducing RPC calls, tracing, and complex data merging.
4. Complete logging suite: Shadow allows users to issue private logs in any contract for monitoring, testing, debugging, and analyzing the contract execution of actual mainnet transactions.

These features are too hardcore for the average user, but who else might use them?

Shadow’s main user groups include blockchain developers, data analysts, and researchers, who may need efficient and low-cost on-chain data access and analysis tools.

Using Shadow is fairly simple. Developers can create and test new event logs and smart contracts in their shadow fork with just a few lines of code. This process does not require complicated settings. Users can easily create shadow forks and add custom event logs through the friendly interface provided by Shadow.

This simplicity means users, even if they are not blockchain experts, can quickly start taking advantage of Shadow’s capabilities.

Opportunities and Challenges

As cryptocurrency and Web3 technologies continue to evolve, Shadow faces tremendous opportunities and challenges.

From an opportunity perspective, with the increase in blockchain applications, the participation of more external organizations, and the increase in bull market transaction volume, there is an increasing demand for efficient and low-cost on-chain data processing. Shadow’s above-mentioned technology has the potential to become a leader in this field.

However, challenges also exist, including competition with other technology solutions, keeping the technology advanced and secure (open source), and whether it can be expanded to more blockchain platforms.

Overall, the main problem of this type of project is that it is too far away from the end user, making it difficult to be perceived and generate Fomo emotions.

From the perspective of industry observers and practitioners, more projects like Shadow will provide more tools for in-depth analysis of the industry; but from the perspective of retail investors and users, it may not matter whether there is such a tool. They are more concerned about whether there are airdrops, how to participate and interact, etc. to win rewards.

Amid the concerns and emotions surrounding the separation of primary and secondary markets, the author believes that Paradigm’s investment in Shadow is not only support for a single project, but also a vote of confidence in the development of the cryptocurrency infrastructure field.

VC’s infrastructure belongs to infrastructure, and retail investors’ applications belong to applications. Today’s encryption market is more like an open market, with participants of different sizes focusing on their transactions at different booths.

But in the end, the busier and more prosperous the market is, the better for everyone.

Disclaimer：

1. This article is reprinted from [深潮 TechFlow]. All copyrights belong to the original author [深潮 TechFlow]. If there are objections to this reprint, please contact the Gate Learn team, and they will handle it promptly.
2. Liability Disclaimer: The views and opinions expressed in this article are solely those of the author and do not constitute any investment advice.
3. Translations of the article into other languages are done by the Gate Learn team. Unless mentioned, copying, distributing, or plagiarizing the translated articles is prohibited.