Aleksandr Everscale:
Welcome to our AMA session with Sergey Shashev, Aleksandr Alekseev, and Sergey Dzhurinsky. Today, we'll summarize the year, dive into our technical and product roadmap, and outline our plans for 2024. Join us as we discuss Everscale's achievements, challenges, and future strategies.
Sergey Shashev:
Entering this year was a challenge. Since last December, we've faced some tough times, particularly with our exchange rate dropping to just over two cents. Liquidity was a major concern as we stepped into the new year. Our survival strategy revolved around a significant shift - making Everscale a parachute to Venom, thereby launching Venom as a regulated blockchain. This move was aimed at elevating the prestige of our technology and attracting projects that required a more flexible regulatory environment. In this paradigm, we would focus on identifying our niches and fostering growth within them.
We entered the year armed with several hypotheses. We believed that integrating SMFT and REMP and working towards a scalable Workchain would make our network technically robust for a wide array of applications and transactions.
As the year unfolded, we experienced shifts in our strategies, particularly with the Venom launch, which got delayed multiple times.
We started with a testnet. This phase brought to light the limitations of our network under real user loads, a revelation that led to significant technical strategy adjustments. We realized that our existing approach with SMFT and REMP wasn't sufficient to scale the network and support business applications effectively.
From an economic standpoint, we anticipated further delays in our projects. This realization prompted us to explore new directions and strategies. Our trip to Korea was a turning point, where we secured significant projects and potential partnerships. Then a potential “great” partner with liquidity appeared, we will talk about it separately, and everything ended with the well-known scenario, when the price plunged downwards and we had to replace our old token with a new one, a process now nearing completion.
Venom's launch is still on the horizon. As we approach the end of the year, we’ve solved the finality issue, that’s one of our major milestones, including the development of new partnerships and the refinement of our product strategy. I believe this short recap encapsulates the main hypotheses that have guided our journey this year. For a deeper insight into our technical strategy and future directions, I'll leave it to Aleksandr Alekseev to elaborate.
Aleksandr Alekseev:
"At the start of this year, REMP, our key component, was nearly complete and had been in this state for a few months. We were all set to launch REMP right at the year's onset. Meanwhile, SMFT had a beta release in a separate network, and we were deep into R&D on Workchains, though that was still a work in progress. We had developers proposing ideas for Workchain-to-Workchain communication, which led to vigorous development. From January to April, you can trace our progress in our release history: gradual rollouts of new functionalities in Workchain, Slashing, and Tri-Elect instruction under various modules. Notably, around March 16th, REMP was launched in Devnet, and shortly after, SMFT followed in a separate network."
"We launched REMP believing that it was ready for its final test and to go live. However, by late April and early May, two significant events shifted our development priorities. Firstly, the network experienced a few days of heavy load when a contract exploited cheap gas and Non-Billable operations. Secondly, the Venom testnet launch imposed a persistent, substantial load, unveiling various issues in our node. Our focus then turned to stabilization, as the constant load revealed weaknesses in our infrastructure, including Explorers and APIs like EverCloud, which struggled under the pressure. Additionally, increased load highlighted issues with Cache and De-Caching, leading to nodes crashing due to out-of-memory errors."
"To tackle these challenges, we released a series of updates, enhancing cell caching at the node level and managing the Persistent State issue. Persistent state is crucial for network health, and we had to ensure nodes could efficiently download and apply this state. We also worked on optimizing areas affected by the Everscale halt in April and the constant load from the Venom network."
"Our next big focus was Fast Finality, critical for user experience, especially in complex operations like Cross-swap. We gathered teams in Belgrade for a hackathon, where we developed a prototype solution for Fast Finality. This prototype allowed us to test network stability in Proof-of-Authority mode, bypassing traditional chain organization. We made numerous optimizations, including fixing Collator on Thread for session duration and adding referential integrity checking logic to Master. These were all tested and refined on the Venom testnet and later incorporated into Everscale."
"By October, we revisited our main plan, with REMP ready for release. We synchronized our summer work with REMP changes and began to roll it out, targeting post-New Year's for network inclusion. We also focused on SMFT, launching it in Shadow SMFT mode for testing and data collection to understand its performance in larger node networks."
"We are currently working on wrapping up REMP for production. As for future priorities, Fast Finality remains at the forefront. We're exploring two main directions: leveraging REMP for validator-level consensus on External messages, and using the SMFT-protocol as a BFT-consensus substitute in shards. These developments aim to significantly enhance network performance and scalability, essential for effective inter-shard interactions."
"As we continue, let's delve into our second major priority: MESH. Just yesterday, I shared a document authored by our node team and other contributors. This document presents our vision for evolving the node and protocol, aiming to enable networks to communicate directly without bridges. Essentially, the goal is for contracts in network A to be callable from network B without intermediary bridges. These proposals are now public, and I'm anticipating vibrant discussions around them. This initiative is a crucial step for Everscale's evolution, allowing us to deploy and interconnect networks more seamlessly. There are other tasks on the horizon, but I've omitted specific timelines as they are still in the draft stage. These include stopping issuance, enabling libraries, and updating the Elector, especially in light of the Fast Finality implementation.
Libraries are a significant focus for us, particularly since developers have been requesting them for a long time. Finalizing this feature is essential as it holds great importance for our developer community. Regarding stopping the emission, this was a commitment made in one of the EverDAO proposals, and we intend to fulfill it promptly.
Another key aspect we're focusing on is transparency and open communication with our community. I've been discussing with Alexander the idea of holding separate quarterly AMA sessions focused on the node. While the node is a technical subject and may not interest everyone, I believe our quarterly reports should be publicly accessible, detailing our accomplishments, methodologies, and addressing questions. We've already begun publishing articles on the Everscale blog and plan to continue providing monthly updates.
A major shift we've undertaken this year is moving our development to a more public format. Until now, node development was conducted in a private repository, which had its pros and cons. However, the need for transparency and community engagement has led us to reconfigure our CICD process to a public repository. You might have noticed recent changes, like the appearance of CICD checkboxes and the publication of some tests. We are progressively transitioning all our code to this public space and anticipate that soon, development in the private repository will cease completely, marking a full shift to public development.
In summary, these updates and plans, while still evolving, are not merely drafts but concrete steps towards advancing our network. They reflect our commitment to continuous improvement and community engagement."
Sergey Shashev on Product and Business Strategy:
"Let me provide a brief overview of our product and business strategies. What Aleksandr mentioned about MESH is a significant breakthrough. This concept is slowly emerging in EVM networks as well. Bridging has been useful for asset transfers between networks, but for real ecosystem interaction, it's quite slow and inconvenient. There's a lack of interactivity, where you can't seamlessly call an application on another network and have it function efficiently. This led us to the MESH ideology, which evolved from our extensive business development this year, especially on the Venom side. In all our discussions with major customers in various countries, a common theme was the desire for network control.
However, this desire didn't align well with our previous Workchain ideology, where applications ran on a Workchain separate from the Masterchain to balance the load. The issue with this approach was the inability to manage the economics and a dependency on the Masterchain. So, we realized that MESH fits perfectly, enabling TVM-to-TVM communication across networks like Everscale, Ton, Venom, and GOSH. Venom and Everscale, in particular, are well-suited for interconnectivity.
The second key realization was about FastFinality. It's not just about the number of transactions a network can handle. A few years ago, Everscale had a similar situation with many Shards and transactions, but this approach is far from what users actually need for real dApp interactions. So, our focus next year includes launching cross-chain interactions, optimizing gas economy, and integrating tokens from different networks. Alexander has detailed these mechanics extensively in his documents.
Regarding our product story, we've been in a challenging cycle for a couple of years, struggling with liquidity, user applications, and attracting new users. To break free from this, we've been rethinking our approach, particularly in comparison to EVM networks. Not every EVM network has substantial liquidity, but by leveraging liquidity from other networks, we can create effective routing mechanisms. This strategy will enable us to launch robust lending protocols and revitalize platforms like FlatQube and Gravix. For instance, using bridge techniques with EVM networks, we can mitigate issues like slippage in asset exchanges by mirroring transactions in EVM networks.
The main economic restart of the network will be through Lending protocols. We're collaborating with partners from Israel, experienced in both C-Fi and De-Fi, to introduce two Lending protocols that will significantly boost liquidity. Even a modest amount of initial liquidity can lead to substantial growth in TVL, revitalizing our core DeFi ecosystem.
Regarding the Korean incident, it was a significant setback, but we've almost completely resolved it in a couple of months, nearly returning to our pre-incident status. It's crucial to emphasize that the Everscale product system isn't just the effort of a few developers; it's a collaborative ecosystem. The introduction of new applications can invigorate the entire community. Hence, we're open to experimenting with new directions like Inscriptions, which, while technically challenging, could attract fresh streams of developer interest. It's about being proactive and creative in our approach, just as we have been."
Sergey Dzhurinskiy on Partnership and Crisis Management in Korea
"In mid-year, around June, we began our collaboration with Korean partners. Our goal was to find a partner capable of bringing liquidity to the network and supporting the development and financing of various products. We identified a reputed company, backed by positive references in Korea. It's a group of companies, and our deal was structured around a loan, using a large volume of tokens as collateral. Understandably, the DeFi Alliance had concerns about this arrangement, as misuse of these tokens could jeopardize the entire network. Thus, we proceeded cautiously, in stages.
The initial phase involved our Korean partners purchasing tokens worth about half a million dollars, demonstrating their commitment. We continued structuring the transaction in phases, with each stage reinforcing their reliability. However, during the structuring of the main loan, we sought additional safeguards against potential fraud. This led us to conduct the transaction in Wrapped EVER (ERC-20), which allowed the alliance more control since all native tokens are on the multisig bridge. In case of any adverse events, we could differentiate the wrapped EVER from the native tokens for damage control. The legal contract was structured to enable us to retrieve all tokens and terminate the agreement if specific terms were not met.
The plan was to fund network operations, including the core team, business development, and marketing, through tranches. We would provide collateral for the loan and then receive the funds. Unfortunately, the situation didn't unfold as expected. Our partner, as we later discovered through additional investigations and Korean police involvement, was significantly overcredited and had used some of the tokens to repay loans to other clients, constituting unreliable and risky behavior.
Upon realizing the unfolding crisis, we immediately reported what was happening to the police, requested the return of all tokens, and reached out to all affiliated exchanges. Although we couldn't halt trading on a number platforms, as some exchanges generally prohibit this, we managed to stop all deposits and withdrawals, effectively limiting the liquidity of the stolen tokens quickly.
Of the total wrapped tokens on Ethereum, about 300 million were involved, 212 million of which were the stolen portion. The approved loan on EVER DAO was 312 million, but thankfully, one of the tranches wasn't sent due to the partner's unreliable actions being detected early. After halting all deposits, we also stopped flows through the native EVER to the Ethereum bridge and launched a new ERC-20 token. This crisis led us to shut down the bridge temporarily and start negotiations with all exchanges. Interestingly, this situation has, in a way, improved our relationships with exchanges due to more direct and closer contact."
"Regarding our efforts to manage the crisis with our Korean partners, we've seen a positive response from several exchanges. Programs like the one on Gate.io have been initiated, and we're discussing the other motivational programs on EVER with several exchanges. Our relationships with most exchanges have normalized, and we’ve initiated a thorough analysis of WEVER movements and their clients. With the help of AML Crypto's analysis, a cluster of addresses linked to the fraudsters was identified and we promptly reported them to the police. The police response was slower than we hoped, but we managed to maintain control by blocking all deposits and withdrawals, which helped prevent the situation from escalating.
As to the analysis results, a major part of the stolen tokens ended up on BitHumb, while other exchanges primarily served as platforms for mixing these tokens. The Everscale DeFi Alliance (acting on behalf of EverDAO approved proposal #110) decided to swap old tokens for new ones with all exchanges except BitHumb, which made it easier for most Everscale users as they didn't have to swap individually. Negotiations with BitHumb were challenging, and we couldn't facilitate a swap at their exchange level. The only solution was to release withdrawals and initiate separate trades on the new token. We're now preparing documents for a new listing on BitHumb and have agreed to initiate the delisting of the old token, as it has no utility value and only harms users who unknowingly buy stolen tokens.
Following BitHumb's reopening of withdrawals, we observed a significant market impact. Some traders, probably from the fraudulent group, attempted to short EVER on Gate.io, causing a notable price drop. These short positions are still open, and we anticipate difficulties for these traders when the exchange rate recovers, especially since the swap for Korean users who bought tokens at the very last moment won't be straightforward - there is a need to thoroughly analyze the absence of connection of such users to bad actors. Bithumb users will need to provide proof of ownership and source of funds, which will be scrutinized under AML procedures. We've already started this process, swapping tokens for clear cases and requesting additional information where needed. Our goal is to prevent the exchange of stolen tokens and support users who inadvertently bought from fraudsters, directing them to the Korean police for assistance.
As we began resolving issues with the exchanges and the EVER exchange rate started recovering, we saw a resurgence of activity, including a return to pre-incident values, thanks to our long-term holders. This situation also spurred our development in the Chinese market, where we've met business partners and initiated new programs on Everscale. We hope the recent short incident on Gate.io will soon be resolved, allowing us to start the new year with robust growth and competitive advancement as a Layer-1 network.
Regarding investor relations, our long-term holders, especially those in the Crystal Hands program, remain positive. They are well-informed about our technical roadmap and business development, and their support continues unabated. We've received substantial backing from Asian investors, anticipating several project launches soon, which should further energize Everscale. Concerning Alpha Transform Holdings, they differ from long-term venture capital funds, being more of a liquid asset fund with strong crypto business partnerships in the United States, Canada, and Europe. Our partnership with them is focused on accessing development opportunities in these markets, although their shorter-term investment strategy means we won't collaborate as extensively as initially planned.
Q&A
Aleksandr Everscale: During the last AMA session, it was mentioned that a partner was interested in capitalization growth and had plans to launch projects on the network. Will these projects still be launched?
Sergey Shashev: Yes, I can provide updates on that. We view our work as part of a larger conglomerate. The failure of one part doesn't necessarily derail the entire plan. Regarding the Oceania project, it's challenging to proceed without funding. We've sent people there, and we plan to return once the political situation stabilizes, potentially seeking a new investor. In South Korea, one project, Game Union, has become the primary focus. It's a development and fork of Everplay for the South Korean market. We're also returning with two additional projects in January. The initial plan was more ambitious, but we're adapting to work with available resources, focusing on smaller projects.
Aleksandr Everscale: That's interesting. Will there be any accountability for these partners?
Sergey c: An investigation is underway. Personally, I had no prior experience with South Korean law enforcement and expected a swift, efficient process. However, it's proven to be slow, partly due to language barriers and the investigator's workload. Our local partners are assisting, but progress is gradual. I anticipate the investigation will gain momentum as more cases of affected investors are added.
Sergey Dzhurinskiy: Additionally, there are legal and business aspects to this situation. We've learned that some tokens were loaned out by the fraudsters and now they are worthless. They're likely to face numerous lawsuits and possibly criminal charges. This will undoubtedly complicate matters for them, and we intend to ensure they face the full extent of their actions.
Aleksandr Everscale: Can they be compelled to buy back tokens from the market?
Sergey Shashev: That's not within the realm of legal enforcement. Considering their financial situation, expecting them to buy back tokens from the market is unrealistic and something we need to move past.
Aleksandr Everscale: Next question, why weren’t decentralized mechanics like escrow or multisig used for the credit deal?
Sergey Dzhurinkskiy: We debated this extensively and finally reached a compromise after tough negotiations. We maintained control over multisig for native tokens, which was crucial. Control over wrapped tokens was with our Korean partner. This arrangement, in hindsight, saved us from a worse scenario. Had we not maintained control over the native tokens, we would have faced a network hard fork, causing far more reputational damage
Aleksandr Everscale: How did the incident affect the relationship with Venom?
Sergey Shashev: Regarding Venom, the investments that were meant for the network didn't fully materialize; we received a bit less than half of the expected amount for now. That's the first point. However, on a more optimistic note, our experience with Venom's testnet demonstrated the successful implementation of the MESH network ideology and the resolution of Fast Finality issues. We observed thousands of users performing complex actions without suffering from Finality problems. Initially, I had hoped SMFT and REMP would resolve these issues, but it turns out they address different aspects, not finality.
With the MESH ideology, we see a clear vision of the network's potential. Imagine a financial organization in Central Asia wanting to create a financial ecosystem with its own asset tokenization, inter-network asset mutualization, unique routing rules, treasury management, blockchain regulations, and AML compliance.
The challenge here is significant. One could fork Ethereum hundreds of times or search for open-source solutions, but these paths lead to complex, lengthy projects due to the vast scope of development required. Our alternative proposition is the MESH network, which offers a complete, ready-made infrastructure. The Venom testnet has shown the viability of this approach, allowing for quick implementation. This includes solutions like Octus for working across different networks, derivative exchange mechanisms on Gravix, communication systems like Qamon and Chums, and various NFT tools for tokenization.
Thus, the core strategy for Everscale involves developing liquidity within our network and promoting the MESH B2B network. This network can now sustain itself independently, a possibility I was skeptical about at the end of last year. But with new data and insights, my perspective has changed.
Aleksandr Everscale: Regarding the tokens affected by the incident, how many were saved and what's planned for them? Will they be returned to the Treasury?
Sergey Shashev: As of now, all tokens have been effectively saved. We have a significant volume of tokens on the Multisig Bridge, and there's an ongoing assessment of the potential commitments and the actual tokens wrapped. We have set an end date for the Swap process, which is in April. By then, we'll have a clear understanding of the actual token loss (if any) and the amount to be returned to the Treasury.
Sergey Dzhurinskiy: We anticipate that the volume of lost tokens will be much lower than what was stolen. While we can't ignore the possibility of losing some tokens due to various reasons, the actual number is likely to be significantly less, maybe around 5% of the total. So, the loss in terms of Treasury tokens will be minimal in quantity, though there was an impact on price.
Aleksandr Everscale: What are the key lessons learned from this entire incident?
Sergey Shashev: The first lesson is about contractual security in jurisdictions we consider reliable, like Korea and Singapore. The law doesn't always function as effectively as we assume. The second lesson is the limitation of transitive reputation. The assumption that if A trusts B and B trusts C, then A should trust C doesn't hold up well in today's world. This incident has taught us that trust should be evaluated more cautiously and individually.
Sergey Dzhurinskiy: From my perspective, the importance of having a backup plan and considering worst-case scenarios in any deal is crucial. We had a defense plan and fortunately only had to implement the first scenario. Lessons learned include being more diligent with KYC procedures and understanding that even in crises, there are opportunities for growth and partnership. This incident, despite its challenges, led us to collaborate with a strong team from Israel, who have significantly contributed to the network's development and helped manage the situation with the exchanges. If not for this crisis, we might not have achieved these partnerships and developments.
Sergey Shashev: Yeah, the crisis tested our network's resilience. Initially, the survival of the network wasn't guaranteed, with some recommendations even suggesting scenarios like a network hard fork. But overcoming this crisis has strengthened us. Two months ago, our chance of survival wasn't certain, but now we see new avenues of development reemerging.
Aleksandr Everscale: What would you say are the top three accomplishments to celebrate in 2023?
Sergey Shashev: The first significant achievement is our enhanced understanding of market and business needs, particularly the necessity of Fast Finality and the technical solutions to achieve it. The second accomplishment is the reduction of illusions about technology. We've started to boldly experiment with new consensus types, closely examining other networks to learn from their best practices and experiences. The third is the valuable international experience we gained, particularly in the Emirates and Africa, providing us with a real understanding of how state-level systems are constructed, marketed, and operated. This experience has been instrumental in leading us to the MESH concept, which is a new vision compared to where we were a year ago.
Aleksandr Everscale: Can we now clearly define what we are offering to the market and investors?
Sergey Shashev: Certainly. For the B2B sector, like a hypothetical organization in Central Asia, we offer a compelling alternative to forking Ethereum. They can partner with us to build financial circuits with our technology. As for investors, the pitch is quite straightforward. We present Everscale as a network with a challenging past but a rich ecosystem of products. Despite some nuances in their operation, these products are supported by experienced and evolving teams. The idea we sell to investors is that Everscale, a network that is currently undervalued, can become highly valuable with the right investments and partnerships. The goal is to grow the network's capitalization by addressing our current weaknesses and leveraging our strengths.
Aleksandr Everscale: Does Everscale have enough finances for the next year and a half to two years?
Sergey Dzhurinskiy: Regarding our financial situation, I'll give you a brief overview. One significant achievement was a funding round in January 2023, which, despite budget optimizations, has allowed us to continue our technical and business development roadmaps without major cutbacks. During the Crypto-winter, we did scale back non-core activities, thankfully saving funds, including on EverPoint.
Currently, we have an undersubscribed commitment from Venom. We're either waiting for Venom to reinvest or, concurrently, we're in talks with three groups of investors about their potential entry. We hope to finalize these negotiations soon, which should secure our runway for a year and a half to two years.
Our approach now is to raise funds for a shorter lifecycle, about six months, then plan another funding round under more favorable market conditions. We anticipate this will be easier once we launch at least some of the projects we've been preparing, like the credit protocol, and start attracting liquidity to the network. This should enable us to sell Treasury tokens at higher price levels.
There's a balance to strike between seizing funding opportunities and raising capital under strenuous conditions. Currently, we're managing to fundraise effectively, even though it is challenging. The plan is to secure a six-month runway with the current round and then, hopefully, extend it to another year and a half with a subsequent round on better terms.
As for the Crystal Hands tokens and programs, not all are sold, giving us a reserve. We can propose additional decisions on token sales through EverDAO. So, in this respect, we're in a relatively good position with our treasury tokens.
Aleksandr Everscale: Could you share something optimistic, perhaps in light of the new year?
Sergey Dzhurinskiy: Absolutely. We have ambitious business development plans and high hopes. In just a few months, we've built a robust pipeline of investors, business partners, integrations, and new exchanges. I'm very optimistic about 2024 because we've laid a strong foundation. There's a restructuring underway in how projects interact, focusing on liquidity, user interface, and more. I hope that by the first or second quarter of next year, we'll reformat major projects, strengthen with a lending protocol, and secure investments for a substantial network development runway. The network is vibrant, and I'm hopeful that at least half of our initiatives will yield positive results.
Aleksandr Alekseev: I've noticed a sense of the development process being closed off within the community. We aim to make this more open and understandable, encouraging community feedback to enhance clarity and understanding of our technology stack and direction. The Venom testnet has demonstrated the network's capability under heavy loads, and with the completion of FastFinality, things will be truly impressive.
Sergey Shashev: Everscale could have faced its demise several times over the years, but it didn't, thanks to the core community, developers, and investors. The combination of Fast Finality and MESH is our goal, offering a protocol that can handle loads, perform transactions quickly, and infinitely scale through MESH technology. This vision only became clear after our experience with Venom, and it positions us attractively for governments and businesses. Increasing community engagement and introducing new members remain key objectives. We're entering the new year with a solid technical roadmap, the most robust in our network's history. With the Israeli cluster's strong potential and the transition to a new token behind us, I'm hopeful that the upcoming year will be our best year yet.
