The composable ephemeral stack – Polymath: Blockchains in the ether

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This is a guest post for the Computer Weekly Developer Network written by Adam Dossa in his role as chief technology officer at Polymath — the company is known for its technology that provides a route to create, issue and manage digital securities on blockchain.

Token Studio from Polymath is a self-service application that allows users to create, issue and manage security tokens through a simple interface.

Dossa writes as follows…

Blockchains in many ways present the ultimate ‘serverless infrastructure’ – whilst first-generation blockchains (i.e. Bitcoin) focused primarily on securing a limited state (i.e. the ledger which holds each wallets Bitcoin balance), subsequent generations have shifted focus into securing both generalised state and business logic (i.e. smart contracts).

New-generation blockchain 

In these newer generations of blockchain (i.e. Ethereum, Polymesh), the blockchain acts like a global trusted computer (or virtual machine) that allows arbitrary code storage and execution within some computational bounds.

Whilst these computational bounds mean that smart contracts on blockchains are not technically Turing complete, in practice for developers used to working within other similar bounds (i.e. hardware or computational time/storage space limitations) this presents a low barrier to entry for new development.

By presenting a unified execution layer it brings with it composability guarantees at the base layer, which is a novel situation for the technology section. Protocols such as ICP take this to the next level by incorporating containerisation (or as they call it, canisters).

Deploying on-chain

Taking Ethereum as an example, smart contracts (effectively small bundles of code and state) deployed on-chain provide both a guaranteed interface and behaviour that is both transparent (anyone can view the code which is being executed and inspect the corresponding state) and censorship free (anyone can interact with the smart contract).

Polymath’s Dossa: Blockchains present the ultimate ‘serverless infrastructure’ for the composable ephemeral stack.

This has led to an explosion in innovation and experimentation in primarily financial protocols on blockchains. By shifting financial infrastructure from heavily siloed and permissioned infrastructure, typically run by large institutions, towards a distributed and permissionless public good, companies and organisations have been able to leverage and build upon financial primitives deployed by other parties.

Blockchains again allow novel and innovative approaches here, for example with liquidity pools rewarding liquidity providers (LPs), regardless of whether those LPs are injected via another protocol, or directly. 

With individual protocols providing differentiated DeFi ‘Lego blocks’ (e.g. stable coins, lending protocols, liquidity, flash loans) there is lots of room to rapidly get to market by re-using existing components, and their attendant adoption (e.g. liquidity), rather than each protocol needing to build from scratch.

It should be noted that this degree of composability doesn’t come without its own problems. An alternative view of smart contracts and public financial primitives as Lego building blocks would be a house of cards, with each protocol only being as secure and bug-free as the sum of its underlying components that it has leveraged. 

We’ve seen this exploited many times in the blockchain ecosystem, with new protocols failing to account for all of the possible permutations of both their own logic, as well as the third-party ‘lego’ blocks they’ve built upon.

Protocol popularity

Another concern that should be noted by new protocols deploying on this type of novel blockchain-based architecture is that, whilst new products can be brought to the market and gain traction rapidly, the corollary is that a protocol can fall out of favour and see both its users, assets and liquidity quickly migrate away to newer protocols that either offer better functionality or reward users more richly for their participation.

The term ‘vampire attack’ has been coined to describe the process whereby one protocol incentives users of another protocol to migrate their assets and liquidity to them, often providing limited additional functionality and instead relying on short-term out-sized reward schemes. This can have a crippling effect on innovation with the innovator potentially being out-competed by protocols with larger marketing budgets, or that manage to go viral through one means or another.