Everything Wrong With Blast

Blast, a layer-2 blockchain set to launch in March, has attracted over $568 million in staked ether (stETH) and stablecoins within a week. Despite facing skepticism, it positions itself as the first layer-2 network with native staking, aiming to generate yield through ether staking and real-world assets (RWAs).

  • The pseudonymous @PacmanBlur, a co-founder of the renowned NFT marketplace Blur, leads the protocol.
  • Moreover, backers like the influential crypto fund Paradigm and “eGirl Capital,” a collective of crypto-native investors, bolster the protocol’s appeal.

However, there’s a catch: users cannot withdraw staked assets until the Blast Bridge goes live in February.

  • In the interim, users receive “Blast points,” redeemable in an airdrop scheduled for May.
  • Additional Blast points are attainable by referring other users through unique links.

Currently, the bulk of the $568 million staked in Blast has come from the liquid-staking protocol Lido. This propels Blast to the position of the third-largest staked ether holder, as per Etherscan data.

Community Disapproval And Controversies

However, criticism has arisen within the crypto community due to the nature of restaking on Lido in exchange for relatively obscure Blast points.

  • Some critics liken this dynamic to potential drawbacks, leading to discussions and debates on the validity and fairness of Blast’s reward system.

Many have drawn parallels between Blast points and a pyramid scheme. They contend that early adopters stand to accumulate more points based on the number of users they onboard.

  • Blast’s technical documents reveal an additional 16% point bonus for inviting new users and an extra 8% if the second level recruits more participants.

Furthermore, Dan Robinson, the Head of Research and General Partner at Paradigm, a seed investor in Blast, has openly expressed disapproval of this approach.

  • Paradigm expressed potential adverse effects on the integrity of the crypto sector, citing Blast’s premature bridge introduction and withdrawal restrictions as key concerns.

Besides, discussions have emerged regarding whether the crowded DeFi space genuinely requires additional layer-2 networks.

  • DefiLlama reports 232 blockchains, many of which share functions and users.
  • It raises questions about the necessity and differentiation of new L2 networks like Blast in the competitive landscape.

Founder’s Response to Criticisms

Meanwhile, Tieshun “Pacman” Roquerre, co-founder of Blast and Blur, took to Twitter to address the concerns in response to criticisms.

  • He refuted claims of misunderstandings surrounding Blast, aiming to clarify the perceived issues and offer insights into the platform’s operations.

Source: DefiLlama

Anyhow, despite the Blast blockchain being inactive for another four months, investors continue to pour capital into the platform, as indicated by the rapidly rising TVL figures.

  • This sustained interest prevails despite the lingering ambiguity surrounding Blast points and their redemption system.

Narrative of L2 Scaling for Marketing and Growth

The classification of Blast as an Ethereum Layer-2 protocol is emblematic of a broader trend where “marketing single-node chains as Ethereum L2s” has become prevalent.

  • Steven Goldfeder, co-founder of Arbitrum’s Offchain Labs, attributes this confusion to the relative silence of the Ethereum community.

In numerous instances, many perceive the narrative of Layer-2 scaling as a strategic tool for projects to initiate marketing and growth activities.

  • Critics argue that the emphasis on L2 scaling is often more about promotion than implementing advanced scaling solutions.

Despite debates on its classification, Blast’s developers assert that their product surpasses Optimism and Arbitrum.

  • They claim that dominant Ethereum L2s lack native yield programs and sharing gas initiatives, while Blast introduces these features.
  • The Blast promotional materials stress limitations in incentives for liquidity providers and contributors on other L2s, emphasizing that their product delivers ten times more value.
  • Contrary opinions from analysts and developers suggest that the community should more appropriately consider Blast as a sidechain solution protected by a multi-signature contract.

Airdrop Anticipation and Potential Disappointment

Besides, the calculations surrounding the Blast airdrop are causing concerns about disappointing returns for participants.

  • The imminent unlocking of Blast in February may trigger a liquidity crunch for Ethereum, with depositors facing a three-month withdrawal restriction.
  • It poses a potential dilemma for Blast liquidity providers primarily interested in securing a retroactive airdrop.

DeFi analyst @stacy_muur on Twitter has compared the Blast airdrop and recent campaigns.

  • Assessing the current figures, the projected average airdrop bonus stands at approximately $700 in equivalent value.
  • This evaluation places the yield ratio at a modest 10%, potentially raising concerns among the community expecting more lucrative rewards.

Dual Concerns: Security and ‘Security’ Risks

Despite the risks already discussed, two critical factors continue to cast shadows over the viability of Blast: security and ‘security’ risks.

Fund Safety and Contract Vulnerabilities

The first security risk revolves around the safety of funds within the Blast L2 ‘bridge.’

  • Currently, it operates as an Ethereum mainnet contract owned by a five-person multisig.
  • It means that these five wallet addresses control all deposited funds entirely.
  • Notably, this structure lacks L2 capabilities, potentially raising concerns about the security of assets.

Moreover, Polygon engineer Jarrod Watts highlights that the five signer wallets in Blast’s multi-signature contract are new addresses with unknown identities, exposing users to potential rug pull risks.

Jarrod also points out that the contract is upgradeable, emphasizing specific vulnerabilities in the “enableTransition” function and the “mainnetBridge” contract.

  • Theoretically, attackers could exploit these elements, leading to unrestricted access to all bridged ETH and DAI, posing a substantial risk to investors’ assets.

Regulatory Risks and Compliance Concerns

The second ‘security’ aspect delves into the regulatory landscape, a term that SEC Chairman Mr. Gensler frequently invoked.

In this context, Blast’s current configuration carries substantial regulatory risks.

  • Reflecting on recent developments, the US SEC has been actively pursuing enforcement actions, particularly against projects falling within the scope of securities definitions under an increasingly stringent legal framework.

Blast’s operational model, involving pooling funds and delegating them for yield rewards, introduces centralization and intermediary risks.

  • The ambitious promises of ‘risk-free’ returns in its marketing language make it a potential candidate for violating securities laws.
  • Notably, this regulatory risk may impact the project early on, given that Blast does not restrict US residents from interacting with its platform.

Drawing lessons from recent SEC actions against entities like Kraken engaged in similar offerings, the potential regulatory scrutiny on Blast becomes apparent. It raises confusion about how the project’s venture capitalists and team members seemingly overlooked this potential issue.

Cautionary Approach to Blast Investment

Given these considerations, we are exercising caution and refraining from hasty investments in Blast, at least until the mainnet launch and sufficient decentralization.

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