In The Weeds #10
Maple launches its new cash management pool
Welcome to Decentral Park’s new research sub-newsletter: In The Weeds.
This weekly instalment will focus solely on key technical developments and themes within Web3, keeping you ahead of the game on upcoming trends.
Let’s get stuck into this week’s key highlights.
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1: Proposer-Builder Separation
What is it? Ethereum has enhanced its decentralisation since inception, with efforts around global node participation and client diversification. However, a major feature contributing to the centralisation of Ethereum can be seen when analysing the way in which blocks are built on the network.
This centralising feature can be seen when analysing MEV, something we’ve touched on in previous editions. For context, once transactions are executed by users they enter a pool of pending transactions, known as the mempool, this has been shortened from ‘memory pool’. Users looking to capitalise on MEV, i.e. block validators, can view this mempool and ultimately capitalise on selling priority access to, and manipulation of block building.
While MEV mitigative measures have been introduced, such as Flashbots’ MEV-Boost, a total of 170k+ ETH ($320m+) has been extracted in the form of MEV since the merge in September 2022.
Proposer-builder separation (PBS) is a solution to this value extraction and block manipulation issue, in which a separation of block proposing and block building is introduced. This would entirely remove a block builder's ability to manipulate individual transactions within each block built. This is true barring explicit collusion, which would prove near impossible given the randomness of proposer and building rights.
Why is it important?
Decentralisation and censorship resistance is crucial for Ethereum, which extends to active members of the network such as block builders. Separating block builders and proposers diminishes the ability of block builders to censor transactions. In this sense, the separated block proposer can take the role of protecting transactions against censoring block builders.
Enhancing censorship resistance enables the Ethereum network to run as a neutrally credible and secure network.
Where does it go from here? PBS is currently in an advanced stage of research within the Ethereum Foundation, although there are still important design questions that need to be resolved before prototyping it in Ethereum clients. As such, there is no finalised specification yet, likely meaning that PBS is a year or more away.
Until then, users and protocols can leverage various technologies to attempt to retain as much MEV as possible. Third-party solutions such as Flashbots will also prove crucial during this period, to mitigate the issues that arise as a result of MEV.
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2: Stateful Precompiles
What is it? Standard precomplies, used today by developers, can be thought of as shortcuts used to execute a function implemented by the EVM itself. What this means in practical terms is that smart contract developers can input precompiles with predefined keywords.
Stateful precompiles build upon this by injecting state access directly into the precompiles, vastly enhancing the functionality and customizability for developers. What this means is that smart contract developers can leverage stateful precompiles for anything that they could build in a smart contract, further reducing the need for repetitive tasks.
By introducing statefulness, use cases that require access to the Ethereum network state are now possible in these predefined shortcuts. Examples include minting the native coin of an EVM instance or restricting access to deploy to a smart contract via allowlists.
Why is it important? Precompiles drastically reduce smart contract development time by leveraging various libraries, as opposed to inputting and implementing the code themselves. This entirely removes the need for repetitive precompiles.
Additionally, given stateful precompiles leverage the same language that implements the EVM, they can be executed in a more cost-effective manner than writing programs in Solidity and executing them within an EVM interpreter.
The result is that development times on EVM chains will decrease materially, which should in turn accelerate use case experimentation and innovation.
It’s worth also noting that stateful precompiles will enable developers to customise rollups without writing a single line of Solidity. This is particularly important with the anticipated rise of L3 deployments, atop super chains such as OPStack and Base.
Where does it go from here? Stateful precompiles are currently available on Caldera, a one-click app-rollup deployment platform. This means rollup developers can experiment with stateful precompiles as of now.
Once implemented EVM-ecosystem-wide and a library of precompiles are developed, EOF the developer experience within the EVM will improve and should increase use case deployment and innovation.
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3: Maple Cash Management Pool
What is it? Maple Finance is an institutional capital market protocol, launched in 2020. To date, they have issued almost $2b in loans, and manage $30m+ in deposits.
Maple’s newest product, its Cash Management Pool is a purpose-built onchain cash management solution. Built for web3 native entities such as DAOs and treasuries, the cash management pool was designed to alleviate cash management strategies for these teams.
The pool itself, in line with Maple’s institutional focus, meets the liquidity, risk and accounting requirements of non-US DAOs, offshore companies, and web3 treasuries. The pool essentially allows these entities to deposit their capital, and outsource the management of their cash. This includes access to offchain options.
The pool will give web3 entities access to the 1-month US Treasury bill rate minus fees. This is made possible by a standalone SPV established by Room40 Capital who will be the sole borrower from the pool.
The pool has no lock-up period, with withdrawals being serviced on the next US working day. Interest accrues immediately. To provide additional comfort to lenders, assets are held in a standalone single-purpose vehicle, custodied by a regulated prime broker.
Why is it important? Sound cash management is crucial, particularly in times of volatility, and can enable entities to extend their runway, hedge inflation and manage cash flows. By outsourcing this function to a purpose-built product, web3 entities can focus on core business activities, a net positive for the innovation and development seen within the web3 industry.
You may be wondering, why can’t these web3 entities just hold 1-month US Treasuries?
The answer is that onchain allocators experience challenges accessing banks and brokerages as a result of chokepoint 2.0, which is playing out in real time. This means they’re unable to participate in offchain markets that may allow them to manage their cash in a way they can’t onchain.
Web3 DAOs and treasuries are generally risk-averse, and onchain offerings haven’t been tested sufficiently enough to provide these entities with peace of mind. This stems from counterparty risk, illiquid assets etc.
Ultimately the pool has the potential to bring stability to web3 companies, provide them with the tools necessary to run sound cash management and focus on core value-add business activities.
Where does it go from here? This cash management pool feels like a stopgap to cash management onchain until operation choke point 2.0 is resolved. However, this could take a considerable amount of time and so it is expected that Maple’s cash management pool and similar solutions will draw attention from the majority of DAOs and treasuries within the web3 space.
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