Welcome Anon! Today we are taking a look into a layer two solution that is growing silently but rapidly.
While 2021 was the story of the L1s, 2022 seems to be the story of the L2s. Arbitrum made waves first and rightly so. Now it looks like another layer two is about to have a similar effect. Everybody is always looking for the next rotation considering the cyclical nature of capital.
As the blockchain trilemma (scalability, security, decentralization) is a constant thorn, layer 2 solutions will have a big part to play in the trilemma is being solved. Everybody at this stage is aware of Ethereum’s speed and transaction fees(although the fees have been very cheap lately). This can be seen in the growth of layer 2 solutions since a lot capital have rotated into Metis, there is a possibility that this might be the next L2 to pay attention to.
Metis is an optimistic rollup on Ethereum that is a hard fork of Optimism. This means that transactions on the Ethereum mainnet are bundled and then executed on the layer two network. The L1 takes care of the immutable transaction data while the L2 deals with verification and contract execution. Basically working in tandem beautifully. To make it easy, you can view a Layer 2 rollup as a blockchain built on the Layer 1 which is the Ethereum mainnet. Now, let’s take a look into what makes it exciting.
Tokenomics
In comparison to other layer 2 solutions such as Arbitrum, Metis has already released a token. So let’s go through the tokenomics quickly before diving into the fun part. The native token of the Metis ecosystem is $METIS. It is an inflationary token with a capped supply of 10,000,000 tokens and a current total supply of 5,410,001.
(The difference between the max supply and total supply is that the total supply is the max amount that currently exists and the max supply is the amount that can ever be generated or minted.)
The $METIS token is used to pay for gas fees when people interact with the network similar to any L1 blockchain. It is also used to stake it in vaults in case you want to create a DAC (Decentralized Autonomous Corporation) or build up collaboration with other protocols.
Metis have also built in a specific role called Rangers. These Rangers are able to sample a range of blocks and validate transactions assigned to a random DAC. These Rangers are a part of a special DAC called MVM_RANGERS and are set up to reduce the fraud proofing window that is required to ensure transactions takes place smoothly and safely on the Metis Andromeda network.
With all that explained, this is how the initial 52.3% of the $METIS token was distributed:
The remaining 47,7% will be minted over 10 years. Alright, so what makes Metis so interesting then. You might have noticed before that DAC’s were mentioned instead of DAO’s, so what are DAC’s?
DAC’s and not DAO’s?
DAC’s are something that Vitalik Buterin introduced in 2014. They are subclass of the infamous DAO’s we know of. DAC’s are simply a mixture of DAOs and the Web2 world that enables people to form a decentralized business on-chain. DAOs mainly focuses on governance and voting whereas DACs are essentially fully functioning companies that involves all aspect a company covers. Although this is exciting, it is also a lot of hype and buzzwords. Considering both organizational forms are ever evolving there will be space for both. However, at this stage DAOs are ever evolving and already covers most of the things DACs were supposed to cover.
Nonetheless, web3 native firms that will bring in more people to the industry is a net plus for crypto as a whole.
The protocol has been taking action in order to incentivize people to create DACs to start build on the network. This incentive involve staking your METIS. In order to create a DAC you need to stake a minimum of 10 METIS (excluding cheap gas fees) or a maximum of 2000 METIS. Currently there are 499 DACs and 4841 members involved. The staking rewards was very attractive to initially get people onboarded. It started as high as 29000% APY (considering it starts empty) but since this is not sustainable in the long run, it was not meant to last a long time.
How to start a DAC
Acquire the $METIS token on a DEX like Uniswap on Ethereum (or a CEX such as Gate.io)
Bridge your assets from ETH to Metis on a bridge such as Synapse or the official Metis Bridge.
Create an account on Polis (if you don’t want to doxx yourself, use a wallet instead of email.)
Go to the Metis Portal and create your DAC.
Currently the full functionalities of DACs are not released yet, right now only the Finance part is available. This includes issuing tokens, raising funds and managing assets.
Support for Builders
Metis Labs together with Genesi DAC have released a grant that will financially support builders in the industry that builds on Metis Andromeda. This grant is worth $100M and will be beneficial for the long term growth of the network as builders will be incentivized to build on Metis.
Value
The value of a blockchain is always a tricky situation so in this section we will simply compare Metis to the other active L2 with a token, which is the Boba Network. The TVL in the Boba Network at the time of this writing is at $52M with a market cap of $209M. This puts Boba Network at a market cap/TVL ratio of 4.04. In comparison, Metis has a TVL of $675M with an apparent surge amounting to 50% of that in the last two weeks. Considering Metis has a market cap of 442M, it puts it at a market cap/TVL ratio of 0.64. What might be glaring here is that Arbitrum have not been mentioned at all. While it is one of the most smooth experiences out there, it can only be compared in regards to TVL since it is without a token.
Nonetheless, Metis is second only to Arbitrum in the battle of L2s considering Arbitrum has a TVL of 2.2B. Not bad in such a short amount of time.
What’s going on at Metis?
It is clear to see how much value have been flowing into Metis over the past weeks, but which have been the major protocols that have been the cause of this. The first one is quite obvious which can be seen in the picture above due to its dominance, which is Starstream.
Starstream
This protocol is built for the yield hunter that loves to sit comfy in yield farms. Starstream is a yield aggregator that takes opportunities in the market into account and provides them for you. The benefit of using Starstream is that you do not have to compound the yield yourself due to their vaults that works as an auto compounder, thus saves you the headache. The vaults automatically turns APR into APY, which is quite convenient if you normally keep a calendar in order to keep your farming in order to compound your yields.
There are currently some juicy yields to take advantage of on Starstream as the protocol is growing. One of them being a MIM/USDC pool of 18% APY. It is currently sitting on TVL of $226M as capital has been rotated over the past few weeks.
Hermes Protocol
The Hermes Protocol is an automated market maker and is a fork of Solidly that includes features from Uniswap V2. It is a protocol led by Maia DAO (which is a decentralized reserve currency project in similar mold to OHM) and was launched in February 2022. As people are becoming more crypto native, there is less need for centralized exchanges (especially as they require KYC anyway). This is opens up the room for a decentralized exchange on every blockchain to enable swaps between different assets.
Heads up: If you’re not familiar with Solidly and its debacle, The Average Joe’s Crypto has covered it in a great article here.
However, that is not all there is to it. Hermes also allow you to vote on token emissions, adding new gauges, boosting gauges and receiving bribes if you are a liquidity provider. In similar mold to the Curve Wars. Frankly, the team has given the token good usage despite being the native token of a DEX (e.g. see Uniswap). Hermes have been an attractive protocol for people thus far with a TVL of $166M with the majority of that coming in the last two weeks as well. The native token of the protocol is HERMES which can be locked for veHERMES in order to boost gauges.
Important thing to take into consideration here is that Hermes has not been audited, although it is a fork of Solidly some contracts have been changed so proceed with caution.
Netswap
Netswap is another Decentralized Exchange on Metis Andromeda and a direct competitor to Hermes. It was the first Metis native DEX. It also used the same AMM model as Uniswap. However, there are some small differences that true degens might like. Netswap allows you to use up to 5x leverage on swaps and short certain token pairs. This is enabled through the help of WOWswap which is a cross-chain leverage trading and lending protocol.
Netswap have also developed a launchpad built to help new projects to promote their token and make them easily accessible to the Netswap community. While this is going on Netswap currently have amassed a TVL of $106M although it looks like capital have rotated from Netswap to other protocols in the Metis ecosystem in the last weeks.
Nonetheless, if you believe in the long term prospect of Metis, single sided staking of NETT is an attractive prospect that gives you 49% APY in METIS tokens and less of a headache since you don’t have to think about impermanent loss. The protocol expects other DACs in the Metis Andromeda network to leverage the protocol for additional sources of profit and investments.
Agora
Agora is the fastest growing money market on Metis. It is a decentralized lending protocol that is powering the growth of the Metis Andromeda network. Agora is a fork of Compound Finance. Thus allows you to borrow and lend out money on the Metis Andromeda network.
The features that make this protocol stick out is that it will enable you to borrow against your auto-compounding LP positions in the protocol. This will include Netswap and Tethys to begin with. This is a big deal considering you are able to earn both trading fees and autocompounding farming rewards while it unlocks greater capital efficiency as well. Not bad! Additionally, they have also built their own native DEX called AgoraSwap which is a way to internalize fees for additional value accrual.
The native token of the protocol is Agora which will be completely fair launched with no private investors or team allocation. 99% of the tokens will be distributed to the community. It has accumulated a TVL of $75M with an airdrop being imminent as well. Agora is arguably among the more exciting protocols in the Metis ecosystem. One of their great successes is the collateralization of wBTC on their protocol.
Tethys
The last protocol that will be covered in this overview is Tethys. It is an official partner of Metis Labs. It is another Decentralized exchange on the Metis Andromeda network although it offers the lowest fees of the ones available thus far. It is a one stop DEX that offers you the ability to farm and provide liquidity as well. While supporting bridges such as the Metis bridge, oPortal and PolyBridge with their faucet.
There are currently some lucrative yields available on Tethys which have made it a protocol that have amassed a TVL of $62M at this moment in time.
NFT Bridging
Metis enables you to bridge NFTs between the Ethereum mainnet and Metis Andromeda network. It can be bridged back and forth through the use of wrapped NFTs. This will enable you to capitalize on the lower transaction fees on Andromeda. I don’t think I have to remind anyone of gas wars that takes place when popular NFT collections gets minted on the Ethereum mainnet. The NFT bridge is available here.
How to bridge NFTs from Ethereum to Metis:
Mint on Ethereum Mainnet
Bridge your newly minted NFT from Ethereum to Andromeda on the NFT bridge.
Create your “wrapped NFT” on the other side (new chain)
Sell your NFT on a Metis NFT marketplace such as TofuNFT.com or Metacraft.Pro
How to bridge NFTs from Metis to Ethereum:
Mint your NFT on TofuNFT.com or Metacraft.Pro
Bridge your newly minted NFT from Andromeda to Ethereum at the NFT bridge.
Create your “wrapped NFT” on the other side (Ethereum)
You now have an NFT on Ethereum.
Note: It takes roughly 7 days to bridge back from Metis to Ethereum using the official bridge. However, as we have seen with Arbitrum there will be other bridges that will enable faster NFT bridging announced soon.
Ending Thoughts
While Metis Andromeda is an upcoming ecosystem, there is still room for a lot of innovation considering most protocols have a lot of similarities. Nonetheless, it is growing rapidly which is exciting for the future of the network as builders currently have reported a very positive experience with Metis. This is to the detriment of you readers as it is impossible to cover all protocols in this write up. (If you want a deep dive in a specific one, let me know.)
Lastly, veTokens are currently hyped in the crypto industry and while it incentivizes people to get involved in governance and have a long term approach, a lot of protocols have not earned the right to earn that trust yet. Locking up tokens for 4 years is an eternity in this space and most protocols won’t even exist by then. Even though what Curve has done is incredible, protocols should look at different ways to bring novel token usage to bring further adoption to Metis. Nonetheless, at this rate it looks like Metis will be the main competitor to Arbitrum if they can keep this up, which will be exciting to follow.
Author’s Words
I want to clarify that this is not financial advice, and this article is only meant to bring light to the current market situation. I advise everybody to do their own research, I only want to help you to find what you are looking for. If you enjoyed this piece, feel free to share it and subscribe.