Massive Flare Network Potential — What Are We Waiting For?

In this blog post, we explore the potential of the Flare network, its use cases, and the functionality of its native protocols, both currently working and in development. To fully grasp this potential, understanding the creators’ vision of “Connecting Everything” is crucial.

Updated 30/04/2024

1. Introduction

A few weeks ago, a storm erupted in the Polish crypto community concerning an audit of the Flare Network conducted by a Polish startup (link in references). As you might expect, the audit’s findings were not particularly favorable. However, this negativity stemmed not from any inherent limitations of the Flare Network itself, but rather from a misunderstanding of the project’s core assumptions by the audit authors. This entire situation, including the subsequent debate within the Polish community, highlights the limited understanding of the Flare Network within the broader crypto space.

Even though our Focus team consistently provides project information through various channels like Telegram, Twitter, YouTube, and recently, blog articles, grasping the full vision of the Flare Network and its creators’ goals might not be easy for everyone. This is particularly true for those new to crypto or those simply uninterested in the details.

Several years of observing human behavior in the crypto space have led me to believe that during bull markets, people tend to gravitate towards rising prices, often prioritizing short-term gains over the underlying technology or long-term usability of a project. This begs the question: should a project with such revolutionary aspirations like Flare Network tailor its messaging to attract these short-term investors? Perhaps a stronger focus on building the project and attracting developers would be more effective. After all, their work will ultimately lead to a more recognizable product for the retail market anyway.

This question is particularly vexing in today’s market, where projects can reach sky-high valuations despite minimal technological innovation. There’s a clear benefit to fostering broad community understanding, which can significantly increase a project’s potential and chances of success. However, blindly chasing popularity is ultimately unproductive. The true focus should be on achieving the project’s core goals, especially if they address a real need. When these goals are met, investor capital will naturally follow, leading to increased project value.

The Flare project didn’t neatly fit into the rigid frameworks of the aforementioned audit. Its scale proved difficult to measure with the universal tool proposed by the auditors. While the allegation of lacking up-to-date tokenomics information might have been justified, does the project’s extensive and carefully prepared technical documentation not compensate for this shortcoming?

The Flare project currently targets developers. By providing clear documentation and protocols, they aim to empower developers to build new utilities on the Flare network. This focus on developer adoption is crucial for attracting new projects that will contribute to the overall ecosystem’s value. As a result, the retail market might not be a primary target at this stage.

Even though we’re well past 2018, retail investors shouldn’t judge projects solely on website design, roadmaps, or whitepapers. Back then, these elements were heavily marketed to attract retail investors, often with promises (or maybe even dreams) that rarely came true.

The Flare Network takes a different approach. While some might find the progress slow, the team has demonstrably delivered on its promises so far. However, is their ambitious concept truly easy to implement? Is the cautious, step-by-step approach the right one? Should we view their focus on security and regulatory compliance (which often involves delays) as a negative?

Ultimately, everyone can form their own opinion based on their experiences.

The Flare Network project aims to revolutionize both Oracle systems and blockchain interoperability by introducing full decentralization, eliminating the need for trust between parties. This approach promises to be secure, fast, and cost-effective.

The Flare Network has come a long way since we at Focus team first started following it in mid-2020. Here are some of the key developments:

• The original concept has undergone significant evolution. Notably, a Canary Network was added, providing developers with a real-world testing ground for their new products. This addition wasn’t pre-announced.
• Token distribution has also been revamped to be more decentralized. This ensures wider community reach beyond just the XRP community. Additionally, it fosters independence from centralized exchanges, which can be susceptible to manipulation (as evidenced by the SGB distribution, where some exchanges withheld tokens from the community).
• Finally, the initial idea of granting EVM smart contract functionality to non-EVM tokens (XRP, BTC, LTC, DOGE) has blossomed into something far grander: trustless, secure, fast, and cheap full crypto interoperability (thanks to FAsset system and LayerCake protocol)

The Flare team’s approach to building the network stands out from the crowd. Unlike many projects, they opted not to fund development through token sales. In fact, the network was already operational by the time they distributed their token, $FLR.

This unique distribution strategy also safeguards the project from dependence on centralized exchanges. Unwrapped tokens are excluded from the snapshot for the next monthly airdrop, which helps to reduce the project’s vulnerability to manipulation by these exchanges.

The Flare team’s unique approach might make the project’s concept more challenging to grasp. A thorough understanding of Flare’s concept is crucial for a fair and reliable analysis or audit. This includes considering the potential future applications of the implemented protocols and any adjustments to tokenomics that may occur.

2. What do we have on the Flare Network today?

Flare Time Series Oracle

After months of testing on its canary network, the Flare Network launched with a key innovation: the Flare Time Series Oracle (FTSO) protocol. This native oracle is specifically designed to handle time-series data, such as asset prices, delivering highly accurate and decentralized information to applications on the network. Unlike traditional oracles, the data delivery process isn’t controlled by a single entity. Instead, a group of independent Signal Providers work together, collecting data from various sources like decentralized and centralized exchanges.

While fully functional, the Flare Time Series Oracle (FTSO) remains under early development. Think of it as being in a “testing phase” where the protocol’s final form will likely evolve over time. Ultimately, FTSO is designed to be a comprehensive asset oracle, providing on-chain price data for a vast array of assets. Currently, it supports 18 currencies priced in US dollars, including ADA, ALGO, BTC, DOGE, ETH, FIL, LTC, SGB, XLM, XRP, ARB, AVAX, BNB, MATIC, SOL, USDC, USDT, and XDC. The future promises an expansion to include many more currency pairs and asset types. The upcoming FTSOv2 upgrade aims to significantly improve FTSO’s capabilities. It will shorten data delivery time to just 90 seconds and potentially expand the range of data provided to encompass thousands of data prices.

Currently, the FTSO protocol delivers data onto the blockchain in three-minute intervals. The Flare team considers this data a “public good” because it’s freely available to end users. The network of decentralized signal providers, responsible for data collection, is incentivized through the protocol’s built-in inflation mechanism. This reliance on a native protocol allows FTSO to be highly scalable while maintaining its “public good” nature. This characteristic is likely to be crucial for wider adoption in the future, as on-chain data becomes increasingly important.

The decentralization of Signal Providers is paramount to the FTSO system. Ideally, these independent entities will not only contribute to refining the price forecasting algorithm (which benefits both the providers and network users), but also actively participate in building the ecosystem through valuable tools, solutions, and supporting infrastructure. This distributed approach eliminates single points of failure within the FTSO protocol and the Flare Network’s data delivery system, making them highly resistant to attacks.

FTSO offers a game-changer: free, verifiable data accessible to everyone. This “public good” unlocks a vast array of potential applications, including:

• Stock Market: Traders can leverage real-time FTSO price feeds to make informed investment decisions.
• Real Estate: Homeowners, renters, and agents can utilize FTSO for accurate pricing data, potentially stabilizing the market and increasing accessibility. This data is crucial for tokenizing real estate assets.
• Weather Forecasting: Farmers, businesses, and individuals can benefit from FTSO’s real-time weather data, enabling them to minimize natural disaster risks and optimize agricultural production. Imagine a farmer using FTSO to plan planting and harvest schedules or predict droughts and floods, ultimately protecting crops and finances.
• Sports Betting: Bookmakers can integrate FTSO for real-time sports results and odds, fostering transparency within the industry.
• DAO Voting: Decentralized Autonomous Organizations (DAOs) can leverage FTSO for verifiable voting data, enhancing accountability and transparency. DAO participants can access real-time results, voting trends, and cast informed votes with confidence.

These are merely a glimpse of FTSO’s potential. As the system matures, its capabilities will undoubtedly lead to even more groundbreaking applications.

State Connector

Following FTSO’s focus on price predictions, the next protocol in the Flare network, State Connector, deals with deterministic data. Deterministic data, in simpler terms, is confirmed information from other blockchains and external sources.

Through its two integrated base layer protocols, FTSO and State Connector, the Flare Network tackles the Oracle problem across two data categories: probabilistic and deterministic data.

Probabilistic data refers to data that is uncertain or has a degree of randomness associated with it. This means that the data cannot be predicted with complete accuracy but rather with a certain degree of probability. Examples of probabilistic data include weather forecasts, stock market predictions, and medical diagnoses based on symptoms.

Deterministic data refers to data that is certain and predictable. This means that the data can be precisely predicted and calculated without any degree of randomness. Examples of deterministic data include mathematical equations, physical laws, and computer algorithms.

In summary, probabilistic data is uncertain and has a degree of randomness, while deterministic data is certain and predictable. When we ask a binary question of yes or no or one or zero, deterministic data allows for a precise answer.

The Flare network’s State Connector protocol stands out from other oracle systems. It offers improved security, flexibility, and faster processing for transferring state data between blockchains. This capability acts as a key element, enabling integration with other platforms and fostering the creation of innovative applications on the Flare network.

State Connector seamlessly integrates with the Flare Time Series Oracle (FTSO), leveraging its reliable and decentralized data. This combined power ensures consistent state information across different blockchains.

The protocol’s core strength lies in its ability to verify transaction validity and history, while simultaneously mitigating the risk of reorg attacks (reorganizations) on connected blockchains. This level of interoperability is achieved without relying on a central authority, solidifying its position as a highly secure and decentralized solution.

State Connector relies on independent providers known as Attestation Providers. They essentially work together to reach a consensus on data tied to a single source of truth. This mechanism empowers the protocol to verify if a transaction has been executed on another blockchain.

Developers can harness this potential to create dApps (decentralized applications) on the Flare network. These dApps will have the advantage of accessing value from a multitude of connected blockchains.

The State Connector protocol equips the Flare Network with a powerful arsenal of advantages:

• Enhanced Interoperability: State Connector shatters blockchain isolation. It seamlessly integrates Flare with other platforms, fostering a more interconnected ecosystem.
• Unwavering Consistency: State Connector ensures consistent state information across different blockchains, eliminating errors and conflicts that can arise from data discrepancies.
• Fortified Security: By leveraging FTSO’s reliable and decentralized data, State Connector elevates security to new heights compared to traditional protocols.

These advancements position State Connector as a revolutionary tool. It ushers in an era of seamless and secure interaction between blockchain networks. This paves the way for the creation of groundbreaking utilities and applications that were previously limited by incompatible systems.

State Connector’s transformative power unlocks a vast array of possibilities:

• Cross-chain Decentralized Exchanges (DEXs): Imagine seamlessly trading assets across different blockchains on a secure and decentralized exchange. State Connector makes this a reality.
• Multi-platform DeFi Applications: State Connector empowers the creation of innovative DeFi applications that can offer services across multiple blockchain platforms, expanding their reach and functionality.
• Interconnected Gaming Experiences: Break down the barriers between blockchain games. State Connector allows for the development of immersive gaming applications that connect players across different platforms.
• Decentralized Governance Reimagined: State Connector paves the way for efficient and secure decentralized government applications that can deliver services to citizens seamlessly across multiple platforms.

3. What are we waiting for?

LayerCake Protocol

Developed by Flare Labs, an independent entity from the Flare Network Foundation, Layercake is poised to revolutionize cross-chain asset transfers. This innovative protocol boasts significant advantages in terms of speed, performance, scalability, and security.

Layercake sets itself apart with its secure and high-speed asset transfers between blockchains. Each transfer leverages a unique insurance mechanism: a real asset is held in reserve, providing 1:1 coverage in case of any issues. This security approach minimizes delays associated with trustless bridge construction, while simultaneously offering protection against malicious behavior or blockchain reorganizations.

More details about the LayerCake protocol can be found here:

layercake/docs/yellow-paper.md at main · flare-labs-ltd/layercake · GitHub

Once the cross-chain exchange is complete and the wrapped asset reaches the user’s account, the reserved security is unlocked shortly after. This “bandwidth” essentially determines the total value that can flow through the bridge at any given time. By utilizing bandwidth instead of multisig wallets, management roles, or trusted parties, Layercake eliminates the need for centralized control, fostering a truly trustless system.

Layercake bridges are secured by Bandwidth Providers who leverage their collateral to ensure the system’s integrity. These providers collect a minimal fee for each transaction, but their ability to secure bridged assets is capped by the value of their collateral.

The total bandwidth available determines the overall value that can flow through the bridge at any given moment. Similar to physical bridges, Layercake bridges can handle any amount of traffic over time, but they limit the amount that can flow simultaneously.

To prevent liquidity fragmentation (limited access to liquidity leading to higher costs and risks), Layercake utilizes a multi-directional protocol. This allows you to transfer a token, like wrapped ETH, from various source chains to a single destination chain and receive the same representation regardless of its origin.

Layercake empowers users with a powerful toolkit for seamless cross-chain interactions:

• Effortless DeFi Swapping: Transfer assets effortlessly between leading DeFi protocols like Uniswap, Compound, and Aave. Layercake unlocks a universe of DeFi services and products for users to explore and maximize their returns.
• Blockchain Interoperability: Move assets freely between blockchains like Ethereum and Solana. Layercake allows users to leverage the unique strengths of each blockchain, whether it’s speed, scalability, or security.
• Streamlined Cross-Chain Swaps: Conduct efficient and secure cross-chain swaps directly through Layercake. Eliminate the need for complex workarounds and trade assets seamlessly across different blockchain ecosystems.
• Enhanced DEX Liquidity: Layercake empowers users to provide liquidity for decentralized exchanges (DEXs). This fuels a wider range of assets and tighter spreads for all users on the DEX platform.
• Revolutionizing Cross-Chain Gaming: Imagine using your in-game assets across different blockchain games. Layercake paves the way for a truly interconnected gaming experience where assets transcend limitations.
• Borderless Payments: Layercake facilitates seamless cross-chain payments. Imagine sending and receiving payments in various digital currencies across different blockchains, all within a secure and user-friendly environment.

Advantages of the LayerCake protocol:

Current cross-chain bridge projects are plagued by limitations: centralization, weak security, fragmented liquidity, delays, and the ever-present risk of chain reorganization. Layercake emerges as a revolutionary solution, poised to transform how we transfer assets between blockchains. This secure, efficient, and scalable protocol empowers users from any network to participate in a seamless and borderless digital asset experience.

Layercake is architected to be faster, safer, and more decentralized than existing bridges. It mitigates the threat of chain reorganization, allowing developers to create automated actions that execute simultaneously with the bridge transaction. This streamlined approach unlocks a new era of interoperable blockchain applications.

F-Assets

The Flare network, through its suite of protocols, empowers developers to build groundbreaking solutions like delta-neutral synthetic assets, also known as F-Assets. These innovative financial instruments mirror the value of real-world assets, ensuring their price remains closely tied to the underlying asset.

While not a native Layer 1 protocol, F-Assets leverage smart contracts to create synthetic assets on the Flare (or Songbird) network. This versatile system is designed to work with various blockchains, granting smart contract functionality to projects that previously lacked it. Initially, F-Assets will support XRP, BTC, DOGE, and LTC, with the potential to expand this list through community voting.

To ensure unbiased minting of these 1:1 asset representations, F-Assets rely on two key protocols:

• FTSO: Provides reliable and decentralized price data for supported tokens.
• State Connector: Facilitates the secure transfer of the actual state information from any connected blockchain.

The F-Asset system utilizes FTSO’s decentralized price feeds to enable the unbiased creation (minting) of 1:1 representations of cryptocurrencies that lack built-in smart contract functionality (initially XRP, BTC, and DOGE). These F-Assets will reside on the Flare network and be called FXRP, FBTC, and FDOGE.

Minting F-Assets, which will be ERC20 tokens on the Flare/Songbird chain, requires collateral. This collateral comes in two parts:

• Native token collateral (FLR/SGB): At least 150% of the minted F-Asset’s value must be locked in FLR/SGB tokens (native to the Flare/Songbird network). This mitigates the impact of price fluctuations in FLR/SGB.
• Stablecoin collateral (1:1 ratio): An additional 1:1 value needs to be collateralized in a stablecoin. This double layer of collateral enhances security by reducing the system’s dependence on the price movements of both the native token (FLR/SGB) and the underlying asset (XRP, BTC, DOGE).

These collateralized funds are locked in smart contracts, guaranteeing that holders of F-Assets can always redeem them for the equivalent value in the underlying asset or the collateral itself.

GitHub — flare-labs-ltd/fassets: A repo for f-asset protocol.

F-Assets offer a compelling set of advantages for users:

• Enhanced Security: Backed by the network’s native token (FLR/SGB) and stablecoins, F-Assets boast increased resistance to fraud and theft.
• Improved Liquidity: F-Assets can be readily traded on decentralized exchanges (DEXs), ensuring easy exchange for other assets.
• Seamless Interoperability: Designed to move across different blockchains, F-Assets offer wider accessibility and interoperability for users.
• Scalable Design: F-Assets are built to scale, allowing them to represent a vast number of assets efficiently.
• Cost-Effective Solution: Using F-Assets is relatively affordable.

Beyond Enabling Smart Contracts

While enabling EVM functionality for previously incompatible tokens is a significant benefit, minting F-Assets unlocks even greater rewards:

• Earning $FLR Tokens: F-Asset holders receive additional rewards in the form of $FLR tokens distributed from the network’s Cross-Chain Incentives Pool.
• Participation in DeFi: Holders can leverage F-Assets to participate in DeFi opportunities, potentially generating additional yield. This could involve adding F-Assets to liquidity pools on DEXs or lending platforms.
• Earning on Underlying Assets: Earned $FLR tokens can be further utilized for delegation on FTSO or provided as collateral for minting additional F-Assets. This allows users to earn returns on the underlying assets (XRP, BTC, Doge).
• Potential Rise in $FLR Value: Increased demand for F-Asset minting translates to a higher requirement for $FLR/SGB collateral within the system. This could ultimately lead to a rise in the value of $FLR tokens.

F-Assets presents a groundbreaking solution for asset representation on blockchains. A staggering two-thirds of the blockchain market’s total value is currently trapped in networks lacking smart contract functionality. This exclusion prevents them from participating in the booming DeFi (Decentralized Finance) and NFT (Non-Fungible Token) markets, or even hosting decentralized applications (dApps).

The F-Assets system acts as a bridge, empowering connected networks with smart contract functionality. This unlocks a world of possibilities for these communities, enabling them to:

• Thrive in the Decentralized Economy: Participate in DeFi and NFT markets, previously inaccessible due to limitations.
• Embrace Innovation: Host and develop dApps, fostering a vibrant ecosystem of decentralized applications.
• Experience Security and Scalability: Benefit from the secure and scalable foundation of the Flare network.
• Minimize Costs: Enjoy participation in the decentralized economy without incurring excessive fees.

4. What changes are currently in progress?

Flare Network’s migration to Proof of Stake

The Flare Network is undergoing a significant upgrade! The transition to Proof of Stake will occur in three phases. We’re currently in phase two, actively implementing the initial steps.

The Flare Network is gearing up for a major shift — transitioning to a Proof of Stake (PoS) consensus mechanism. This upgrade, similar to Avalanche’s infrastructure, involves three distinct blockchains:

• C-Chain (Current Chain): This is where the Ethereum Virtual Machine (EVM) operates, and where most users interact today.
• P-Chain (Participation Chain): This chain is dedicated for staking FLR tokens to participate in network validation.
• X-Chain (Exchange Chain): Designed for fast and simple transactions, this chain is not yet active but will be integrated in the future.

Securing the Network through Staking

The transition to PoS significantly impacts token availability. Validators, who secure the network, will need to lock up a minimum of 1 million FLR tokens for at least 60 days. To prevent excessive centralization, a maximum staking limit of 200 million FLR per validator is enforced.

Validators will rely on the Snowman++ consensus algorithm, borrowed from Avalanche, to agree on the network’s state. In each round, a validator is randomly chosen as the leader to propose new blocks for the network. The remaining validators then verify these blocks. To defend against Sybil attacks (where one entity controls multiple nodes), the chance of being chosen as a leader is proportional to a validator’s stake, effectively implementing a PoS system.

5. Summary

The Flare Network’s potential extends far beyond its current capabilities. While its initial use case of decentralized data provision is valuable, a closer look reveals a project brimming with possibilities. F-Assets alone represent a significant driver for future demand of FLR/SGB tokens.

F-Assets are innovative tokens tethered to the value of assets from other blockchains. This system allows users to seamlessly leverage these external assets within the Flare Network. As a result, the demand for FLR/SGB tokens is poised to surge, as they are crucial for system security.

While predicting the exact adoption rate of F-Assets on Flare is challenging, the allure of participating in the DeFi market and generating additional income from held tokens is undeniable.

Objectively, the established Flare Time Series Oracle (FTSO) protocol hasn’t yet significantly impacted the token price. However, future network features like staking, cross-chain bridges, and F-Assets have the potential to drive token value upwards. Consider this: a simple calculation reveals the substantial amount of FLR tokens that could be locked through staking with just 100 validators. The security requirements for F-Assets in native tokens will likely have a similar, if not greater, effect.

To truly grasp the Flare Network’s potential, consider these five fundamental concepts:

• Decentralization: Power distributed across a network, eliminating reliance on centralized authorities.
• Trustless: Interactions occur without requiring trust in any single entity.
• Security: Robust mechanisms safeguarding the network and user assets.
• Safety: Measures taken to minimize risks and vulnerabilities.
• Interoperability: Seamless communication and exchange of value between different blockchains.

By understanding these core principles and the transformative power of F-Assets, a clearer picture of the Flare Network’s potential emerges.

Resources:

Flare Network Audit
Our response to the Audit on TT
Our response to the Audit on YT
Flare Time Series Oracle
Czy Flare jest rozwiązaniem dla Oracle? EN — Flare Focus (globalfcx.com)
Flare — State Connector
LayerCake by Flare Labs
layercake/docs/yellow-paper.md at main · flare-labs-ltd/layercake · GitHub
GitHub — flare-labs-ltd/fassets: A repo for f-asset protocol.
Delta Neutral: Definition, Use With a Portfolio, and Example (investopedia.com)
What Are Crypto Synths? Synthetic Assets Explained (shrimpy.io)
Uttam Singh & Filip Koprivec — DeFi NFTs on Ethereum with real-time — YouTube
Flare Staking Phase 1