A Deep Dive Into SKALE: The Elastic Blockchain Network

Markets Feb 10, 2021

Ethereum's ecosystem is remarkable. No other platform has directly driven as much innovation in crypto as Ethereum, not by a long shot. This week, we had the privilege to learn about one of the most exciting projects in the Ethereum ecosystem — the SKALE Network. SKALE’s Co-Founder and CEO Jack O'Holleran sat down with us to discuss what they are building, how it drastically improves usability and mass adoption of decentralized applications, and Ethereum trends for 2021. Let’s dive in.

1. To begin, what is SKALE and what problem does it solve?

SKALE Network was built to power Web 3. It is an open-source, decentralized "elastic" blockchain network also known as the Web 3 Cloud. SKALE chains are configurable, application-specific blockchains (often called "dynamic shards") that exist one layer above the Ethereum blockchain. Blockchain applications can rent SKALE chains that each act as a private Ethereum-compatible smart contract platform with faster block times and the ability to process more transactions per second. SKALE chains can run full-state smart contracts, support decentralized storage, execute rollup contracts (a layer-2 scaling solution), and run machine learning algorithms using the EVM (Ethereum Virtual Machine).

Ethereum is experiencing explosive growth, which is resulting in network congestion, massive spikes in gas prices and slow confirmation times. All of these scaling issues are creating poor user experience and high fees for even the simplest of transactions, which ultimately are inhibiting growth and adoption of the network. By working alongside Ethereum, SKALE Network aims to bring down costs and dramatically improve transaction speed by offering developers their own Dapp specific SKALE blockchains. This will allow Web3 apps to compete with traditional apps on a cost and performance basis, giving Ethereum the ability to scale to the levels needed for true mass adoption.

2. Who do you view as your competitors and what unique advantages do “elastic” blockchains offer to crypto developers?

SKALE is intrinsically connected to Ethereum, and because of that, we view SKALE + Ethereum as competitive to the alternative “layer 1” or “ETH killer” solutions.  That said, many of those solutions have also recognized the dominance of Ethereum in the market and have created bridges connecting the two.  Ultimately while there will be multiple layer 1 solutions, many will be purpose built to solve one or two niche problems. Ethereum stands alone as the “unstoppable bulldozer”, and SKALE is built to bring Web3 and DeFi to 100s of millions of new users in the near future.

SKALE network is a decentralized network of nodes. It uses random assignments of nodes, rotation of nodes, and stakes on nodes to create a pooled security model, which is similar to the idea of sharding. In this way you can think of each SKALE chain as a dynamic shard or an elastic blockchain. Ultimately, you can imagine SKALE will create an Internet of blockchains, where developers have their own Dapp specific blockchain, with each SKALE chain having the ability to seamlessly talk to each other, and also to the Ethereum mainnet.

One huge benefit is that SKALE chains can be used in the same manner as a sidechain, which means great user experience, no issues with data availability, good capital efficiency, and high performance, i.e. fast speed, low cost, fast finality. This model was chosen over other models because at the end of the day it is still a blockchain with blockchain security. Other techniques require software to run on a centralized server with human workflow constraints and requirements on them to watch their balances. This impacts user experience and decentralization, which is a major impediment to growth. It may be good for many use cases, but given how SKALE is targeting the largest category of growth, amazing UX and true decentralization are of utmost importance.

3. Can you elaborate on the different participants in the SKALE network and how these different roles interact with each other?

The SKALE network is composed of Validators, Delegators, Token holders and Developers.

  • Validators are independent operators of SKALE Nodes that validate the transactions on SKALE’s Proof of Stake Network, offering the security guarantees of a Layer 1 blockchain network but utilizing resources in a more efficient, performant, and versatile manner.  Validators earn rewards through a combination of inflation and fees charged to Dapp developers for renting SKALE chains so that developers have their own Dapp specific blockchain.  Each validator can choose to either self-bond (stake all of the amount needed per node) or accept delegations from other token holders. Each validator is free to decide on how much commission to charge for the service.
  • Delegators are any token holders that have decided to help secure the network by delegating their tokens to SKALE Validators.  In exchange for delegating/staking their tokens to a given validator, they receive a portion of the rewards that are earned by validators for their work.
  • Developers can interact with SKALE in two ways. Since SKALE is open source, they can choose to contribute to the SKALE network by writing code or documentation, or they can “rent” SKALE chains for use by Dapps they have created.
  • Token holders may also participate in Governance voting. On-chain voting will control all economic parameters of the SKALE Network. The network will gradually evolve to a point where voting is required to change the core economic functions of the network such as issuance and fees. In general, SKALE governance follows a Delegated Stake Model. A stakeholder can either participate in governance directly by voting with its stake or delegate the voting power to other stakeholders. The default voting model used by SKALE is a simple majority vote of stakes that participate in the vote. Additional information surrounding governance and the N.O.D.E Foundation can be found here.

4. Large players in DeFi are increasingly agitated with scaling issues and high fees on Ethereum. Some projects are choosing to sidestep Ethereum from the get-go and instead work with platforms built by Solana, Algorand, NEAR, and others. In 2020, for example, Compound moved to create its own chain and FTX chose Solana for Serum. How do you see this trend playing out in 2021, and what impact with ETH 2.0 have on addressing some of these issues?

We are strong believers in Ethereum and it’s first to market advantage.  Many so-called ETH killers have little developer traction and onchain activity even though they have great awareness. That said, most developers use Ethereum and are actively looking for a solution to help them with the issues around congestion and gas fees. That’s why SKALE has such a great product market fit. By combining SKALE and Ethereum, developers can quickly launch ETH applications using their own dapp specific SKALE Chain, instantly lowering gas fees by an order of magnitude while gaining fast finality. SKALE is built to power Web3 with a next generation internet of blockchains.

ETH2 overall is a net positive for decentralized business models in general. While there will be some lost functionality due to sharding, the positive impact over time will significantly outweigh any technical issues like composability loss and change management as dApps move to the new network. This will take some time so patience during the process is required. Short-term gains from ETH 2 are overstated while the long-term gains are severely underestimated, especially when combined with Ethereum scaling efforts like SKALE and Layer 2 techniques.

This is because ETH2 is not designed to single handedly solve all of the scaling issues of the Ethereum Ecosystem. It is designed to ensure the backbone of Ethereum is in a strategically optimized position to work with Layer 2 and other scaling techniques to handle the volume of hundreds of millions and eventually 1 billion plus users.

If there was only linear growth, ETH2 would suffice, but for non-linear exponential growth, ETH2 can only fulfill its purpose and role in conjunction with other scaling techniques such as the SKALE Network.

5. Can you tell us a bit about the SKALE Innovator Program? What type of projects are best suited to apply?

The SKALE Innovator Program is a white-glove onboarding experience for SKALE Dapp Partners.  For those accepted into the program, SKALE’s core engineering and product teams will help them design, implement, test, and launch their first SKALE chains. SKALE has always felt that a developer first approach is a critical component to the long term success of the project. Getting developers’ Dapps up and running faster and in the most optimized way possible, means SKALE will prove it’s worth that much faster, creating an overall multiplier effect as other developers hear about the successes.

Many dApps are already running smart contracts on SKALE. Dapp categories include defi, games, content streaming services, marketplaces, NFTs, and more. Any Dapp looking for cost reduction, fast finality and the independence of having their own Dapp specific blockchain should apply.

6. SKALE has quite a few integration partners and Dapps already running smart contracts on its elastic sidechains. Can you share any notable examples?

There are currently over 135 Dapps that have been accepted into the innovator program and dozens of integration partners. As Dapps are subject to their own timelines, not always aligned with ours, but there are several interesting use cases that are public. Areas represented by Dapps in the program are: DeFi, healthcare, NFTs, streaming media, games, marketplaces, and talent networks.

  • Announced Dapps include: BrainTrust, Solve.Care, Musicoin, Bondly, Collab.land, Peeps Democracy-Pool.Party, CryptoCrusades and Guer.
  • Some of the announced partners include: Chainlink, the Graph, Arweave, Torus, Portis, Covalent, Razor Oracle Network, and Threefold.

7. What is the inherent value and use case for SKALE’s native token, SKL? What was the rationale behind using the ERC-777 token standard rather than ERC-20?

The SKALE Network token ($SKL), is a hybrid use token which represents the right to work in the network as a validator, stake as a delegator, or access a share of its resources by deploying and renting an Elastic Sidechain or Elastic Blockchain for a period of time as a developer.

It serves as the built-in instrument of transfer for facilitating four main functions:

  1. Security of and staking in the network: SKL token holders (delegators) stake their SKL tokens to validators who run nodes that make the SKALE network function by validating blocks, executing smart contracts, and securing the network. They are rewarded with SKL tokens for their efforts.
  2. Payment method for SKALE Chain subscription fees: Developers purchase their subscription access to elastic blockchains (S-chains) using SKL tokens.
  3. Rewards for validators and delegators staking their tokens: Rewards are accumulated monthly based on fees paid by developers for chains and a monthly inflation of tokens into the network.
  4. Governance and voting: SKL tokens will be used for on-chain voting, which will control all economic parameters of the SKALE Network. Additional information surrounding governance and the N.O.D.E Anstalt can be found here.

SKALE is built on an innovative ERC-777 token standard which supports delegation on the token level. ERC-777 is fully backwards compatible with ERC-20, which means that it is supported by all participants of the Ethereum ecosystem with ERC-20 support.

One of the important functions of the SKL token in the SKALE Network is its ability to contribute to network security via delegation and staking. Unlike with ERC-20, with ERC-777, a delegator no longer needs to send the token to the delegation smart contract, but instead shares the secure delegation key with the staking provider while storing the tokens in the cold or hot wallet of their choice.

8. What do you think have been the biggest roadblocks to Dapps achieving mass adoptions?

Probably the single biggest roadblock to mass adoption of Dapps at this point is usability. The first generation of use cases are there and they’re very similar to those in the traditional mobile app world. There will be new ones, but at this point giving the masses similar usability to what they have now is critical.

What’s important to understand is usability is more than just a great, easy-to-use interface. Consumers expect speed, reliability, low cost, security, seamless interoperability with their other apps and a host of other things. Many of these capabilities come from the front end, but some of the most important ones require a scalable infrastructure, which is where SKALE comes in.

9. What are some unique attributes of the SKALE community that set it apart from the broader Ethereum community?

SKALE has fully embraced the Ethereum ethos of and goal of bringing web 3 and DeFi to the world. We see the SKALE Community as a part of the Ethereum community while also having an identity of its own. The backgrounds of founding team members and executives on the core team reflect many years of experience at top Silicon Valley companies. This experience and style of execution brings value to the Ethereum community and we hope will be a signal to more builders and entrepreneurs from more traditional backgrounds to join the effort.

Though the idea of smart contracts may be over a decade in the making, Defi legos and Dapps like Uniswap have shown their immense utility. The number of use cases for smart contracts will grow tenfold and we'll see them permeate almost every single business category. All of this will result in 2021 being the year of the Smart Contract.

DeFi liquidity, lending and derivatives have also seen significant maturity over the last year, but they are no longer the only forms of monetization. We’re seeing a rise in new vehicles, namely security pooling (systems like SKALE), and other Dapp categories that will drive usage exponentially. As of the time of this writing there is already $33.6B locked in DeFi alone: https://defipulse.com/ and we will likely see a 5-8X rise in the current TVL in the Ethereum Mainnet.

Lastly, every day, we see more opportunities that didn’t exist the previous day as developers think of ways to revolutionize web2 by creating new business models that effectively democratize business and pave the way for the decentralized economy and Web3. The result is that over the next year we’re very likely to see the number of devs building on Ethereum growing by as much as 5X.

Learn more at https://skale.network/ and stay tuned for more exciting news from SKALE!

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