The Protocol: Kraken Awakens – as Ethereum L2 Candidate

Everybody's doing it – launching new layer-2 blockchains atop Ethereum to provide a venue for cheap and easy transactions. This week brought the news (thanks to this scoop from our Margaux Nijkerk) that the crypto exchange Kraken may be considering its own layer-2 network, just months after rival Coinbase launched a layer-2, Base. Details below.

We're also covering more job cuts in the blockchain industry as crypto winter drags on and token issuance slumps, even as digital-asset markets start to price in signs of green shoots. PLUS: Postscript on Celestia's TIA airdrop, $37 million of fundraisings and a Q&A with Tegan Kline, CEO of Edge & Node, the primary developer behind the dominant blockchain-indexing protocol, The Graph, sometimes referred to as the "Google of Web3."

You're reading The Protocol, CoinDesk’s weekly newsletter that explores the tech behind crypto, one block at a time. Subscribe here to get it every week.

LAYER 2'S LAYER ON: One of this year's dominant blockchain trends has been the rush by technologists to launch new "layer 2" networks that can process transactions cheaper and faster than the primary (and sometimes congested) Ethereum network. And many of the developer teams behind the projects are competing to land new companies and clients who might use their technology to spin up even more layer-2 networks, including several projects that surfaced just this week. CoinDesk reported, citing people familiar with the matter, that the crypto exchange Kraken is in talks with Polygon, Matter Labs and Nil Foundation about possibly using their technology to create a new layer-2 network – and has even posted a job description for a "senior cryptography engineer" who might work on the effort. Such a push would follow rival crypto exchange Coinbase's move a few months ago to launch its own layer-2 network, Base. Another new arrival is Nil Foundation's own rollup, which would combine zero-knowledge cryptography with another scaling technique known as sharding.

CELESTIA POSTSCRIPT: Rarely are blockchain projects alone in the pursuit of hot new ideas. That's true of the au courant rush by various efforts to provide "modular" solutions for handling the various tasks of a blockchain, including the job of "data availability," which involves managing growing reams of data and efficiently providing it to users or applications when requested. The data-availability network Celestia dominated the headlines last week, especially with the buzzy airdrop of TIA tokens garnering interest from crypto traders. This week, a rival project, Avail, announced a new incentive program on a test network to encourage early adopters to "battle-test our code base." And Near Foundation, hosting an annual conference this week in Lisbon for the layer-1 blockchain NEAR Protocol, announced its own plans to offer a data-availability network for the Ethereum ecosystem. Despite the interest from solutions providers, early usage of Celestia appears to be modest so far. Galaxy Research's Christine Kim wrote in a newsletter on Nov. 3: "Now that Celestia has launched, the true value of the protocol will come from the rollup ecosystem that is created over the next few months and years on top of Celestia. The adoption of the rollups built on top of Celestia will dictate the revenue and long-term success of the protocol, and ultimately, prove (or disprove) the blockchain modularity thesis. "

MAWR JOB CUTS, PART 2: Crypto markets may have turned up recently, but many blockchains startups are still struggling, with more job cuts piling up in addition to those previously announced. Over the past week, grim news came from the NFT trading platform OpenSea, used to trade collections including Bored Apes and Pudgy Penguins. CEO Devin Finzer announced that the company was "saying goodbye" to teammates in an effort to "build a new foundation." (Decrypt reported that the move may have affected as much as 50% of staff.) Separately, Emin Gün Sirer, CEO of Ava Labs, the primary developer behind the Avalanche blockchain, posted on X that the company had made a "reduction in force" amounting to 12% of the company, part of a move to "capture the speed and energy of a small, nimble team."

ALSO:

Highlighting blockchain tech upgrades and developments.

1. Render Network, a decentralized GPU rendering platform for 3D content creation, will officially move from Ethereum to Solana, becoming one of the chain's largest projects, according to the team. "Render has allocated 1.14M RNDR, which equates to $2.6 million at current token prices, in grants to subsidize user fees during the upgrade and is leveraging Wormhole to facilitate the transfer of assets between chains.

2. Evmos, the Cosmos blockchain built to support Ethereum-compatible smart contracts, will stop supporting Cosmos transactions by the end of this year, according to a blog post.

3. Nym Technologies, a privacy infrastructure project backed by Binance Labs and the venture capital firm Andreessen Horowitz (a16z), said its "decentralized VPN" called NymVPN would launch in the first quarter of 2024.

4. Scroll, a recently launched zkEVM atop Ethereum, said Tuesday that Chainlink Data Feeds are now available.

5. Railgun, a smart-contract system that enables zero-knowledge privacy for on-chain apps, makes real-world compliance compatible with on-chain privacy through its newest tool, Private Proofs of Innocence, according to a message from the team.

See the entire Protocol Village list from this past week here.

Funraisings

Deals and grants

Data and tokens

Regulatory, Policy, and Legal

Just as green shoots are appearing in crypto markets, a new data set has emerged showing just how dramatically the pace of blockchain development slowed recently.

The amount of new token creation dropped during the third quarter to the lowest since at least the start of 2021, according to blockchain smart-contract auditor CertiK. The company created the data set by using the list of tokens added each quarter to the tracking website CoinMarketCap, and then stripping out so-called memecoins that serve no ostensible purpose but to provide yuks and a vessel for speculation.

The dropoff in new tokens might be explained by the deepening of crypto winter during the last quarter: "No one wants to list a token when there there is a lack of risk-taking," said Sean Farrell, a crypto analyst at the independent investment-research firm FundStrat. Another explanation could be that the crypto industry is getting more mature. "There are more legitimate projects out there now, so the battle for that incremental liquidity is tougher," Farrell said. "The bar for launching a token is higher."