Xiaohan Zhu talks about Meter’s hybrid consensus mechanism, Meter-Ethereum bridge, sidechains and Ethereum gas fees.
Disclosure: This article was sponsored by Meter.
Hello! What’s your background, and what are you working on?
Hi! I’m Xiaohan Zhu, and I’m the co-founder and CEO of Meter. My background is a mix of engineering and finance. The first 15 years of my career were in R&D and engineering with companies like Huawei, Microsoft, Sony, and Motorola. After I got my MBA from Wharton, I started moving into strategy and investments.
Back in 2016 I formed a VC fund called ZMT Capital, and one of the investment focuses was fintech and blockchain. In 2017 many of the companies in our portfolio, like Brave and Aion, launched their own crypto tokens. We started directly investing in cryptocurrencies as well.
In 2018 after the fund was fully deployed, I decided that I enjoyed BUIDLing more and started working on Meter. Meter is DeFi infrastructure with a built-in, crypto-native, metastable currency. Meter functions as a highly-decentralized, high-performance sidechain for Ethereum and other public chains.
The Meter system uses Proof-of-Work to create a fully-decentralized, low-volatility coin MTR for fees and payments, and HotStuff-based Proof-of-Stake with the MTRG governance coin to validate transactions.
This hybrid consensus mechanism makes Meter fast (the system can process thousands of transactions per second, reaching finality almost instantly) and super secure without sacrificing decentralization. We have more than 100 validators on the testnet, and the algorithm itself could support 1000s of nodes.
DeFi app developers can use our HotStuff-consensus PoS chain as an Ethereum layer-2 sidechain to increase the speed and scalability of decentralized exchanges, derivative trading platforms, yield farming programs, and other apps.
On the interoperability side, we have already implemented a two-way bridge for MTRG and MTR to go back and forth between Meter’s mainnet and Ethereum. We are also building solutions to allow Ethereum users to interact with Meter without even changing their wallets.
We recently partnered with Chads.vc to build a decentralized exchange on our DeFi infrastructure called ChadSwap. This DEX will feature a new smart AMM engine that leverages both Chainlink and Uniswap price and depth oracles to guide its price target and bonding curve. It’s aimed to reduce slippage for traders and increase the profiltibility for liquidity providers. It will launch on Ethereum and later gradually migrate to Meter and become a cross-chain AMM.
Here’s a video that provides a high-level overview of Meter:
What is Meter’s backstory?
We came up with the idea for Meter in 2018 after talking to hundreds of DApp developers working on decentralized financial applications (“DeFi” wasn’t really popular back then!). We noticed a couple of issues:
- These developers lacked a key requirement to be successful: a stable, decentralized unit of account representing an established value for their DApps. Basically, native cryptos were too volatile to be used for frequent transactions, and stablecoins were either centralized, have limited capacity, or depend on oracles.
- We also saw the importance of a high-performance blockchain that was EVM compatible but interoperable between other blockchains to help scale and move value between them.
We therefore designed and built Meter to solve these problems. We believe that we are the right team to build this. Our team has tons of experience in distributed systems, cryptography, and finance with companies like Google, Huawei, Cisco, and more. Pantera, GBIC, and DHVC helped us with seed funding so we can start building Meter, and we’ve appreciated their support along the way.
What went into building Meter?
Due to all of the innovations that we’ve built into the Meter network, it took about two years to go from ideation to mainnet launch, which happened on July 4, 2020 (Independence Day in the US!).
We started Meter a little bit after the ICO craze of 2017, so we had to deal with a long bear market while building the network. We raised a small $1.3M seed round and had to make that last for more than two years. It wasn’t easy, but we were scrappy and efficient and made it work.
One of the unique concepts of Meter is the separation of economic consensus and record-keeping consensus. Meter uses a hybrid dual chain (PoW chain + PoS chain) structure, where we leverage Proof of Work to link value between the physical and crypto worlds, and HotStuff-based Proof of Stake consensus for record keeping. The PoW chain only solves the crypto puzzles for creating the metastable MTR coin, while all the accounts and transactions are kept on the HotStuff based PoS Chain. The two chains synchronize with each other at the end of every epoch. This hybrid approach makes Meter fast, secure, and highly decentralized.
It also provides the Meter network with multiple layers of security and random sources. We’ve been successfully audited by Slowmist. Meter’s source code and security report are all in our GitHub and open for feedback and bug bounties.
One of the key developments for DeFi recently was the rise of Ethereum-compatible chains, including xDai and exchange-operated DeFi chains like Binance Smart Chain. Unfortunately almost all of them are variants of Proof of Authority (PoA) implementations, where there is no real consensus in the system and the users have to completely trust the elected supernodes. Meter is fully compatible with Ethereum but powered by the high performance and highly decentralized HotStuff consensus. We believe it will be an excellent complimentary Ethereum scaling solution to ETH 2.0 without losing composability and decentralization. One interesting data point is that in Meter the performance bottleneck is no longer consensus but the sequential processing model of EVM, which saturates at around 2000 tps on 3.1GHz Xeon vCPU on AWS. In the future Meter will also stamp its state merkle on the Ethereum making it similar to an optimistic rollup (ORU) chain or another shard on ETH 2.0.
Since launching our mainnet, we’ve released the Meter-Ethereum bridge, which allows you to map our mainnet coins MTR and MTRG to their ERC-20 wraps eMTR and eMTRG. A general purpose ERC-20 bridge is in the making as well. Our upcoming ChadSwap collaboration with chads.vc started liquidity mining on Oct. 31st and will launch later in November. There’s much more to come.
What’s your business model?
There will be a couple of ways we’ll accrue revenue.
First, our on-chain auctions, where users bid MTR to acquire MTRG, will go live in a couple of months. 40% of the proceeds goes to the validators as block rewards, and 60% will be retained in the system so MTRG holders can borrow against it in the future. The block rewards serve as the revenue while the system reserve is the net asset of the Meter DAO. In fact, you could even build traditional financial models for MTRG tokens similar to those built on the scarcity model of Bitcoin. See below for how the auction works.
We’ll also bring in revenue from the DEX that we’re building, as well as other DeFi applications like lending and synthetic asset platforms built on Meter.
What’s your position on the regulatory landscape today?
Regulation in crypto will always be a concern. Each country approaches regulation in a different way, and the rules are constantly in flux, so we are always monitoring this situation.
Earlier this year, the Financial Stability Board released a study where they recommended that central banks should heavily regulate and maybe even ban stablecoins. We obviously don’t agree with this. Regardless, we’ve designed Meter in a way that largely avoids regulatory scrutiny.
Because MTR is mined via Proof-of-Work and thus fully decentralized (like Bitcoin), it likely will avoid all the regulations that fiat-backed stablecoins face.
What are your goals for the future?
We have many products in the pipeline that will help us pursue our mission of bringing a more stable DeFi environment to the masses.
We are working on enhancing compatibility with Ethereum so developers can more easily integrate Meter as a sidechain to help scale their DeFi apps built on Ethereum.
We’re working on the aforementioned DEX with improved AMM capabilities to help minimize impermanent loss and simplify asset management for liquidity providers.
In a couple of months, mainnet staking and on-chain auctions will go live, which will significantly ramp up activity on the Meter network. We’ve partnered with Ankr for one-click node deployment, which will certainly help onboard many validators and further decentralize the network.
What are your future thoughts for the DeFi market?
The recent growth of DeFi has been amazing, and we truly believe that this space is going to significantly change the world. DeFi apps have given citizens access to financial products and services that they normally would not have. And that’s why we’re all here, right?
But DeFi is in a weird place right now, and we believe it can be significantly improved. There are a lot of unaudited projects taking advantage of the surge of interest and just waiting to pull the rug out from under users. And the space is primarily geared towards whales and speculators who can afford the high Ethereum gas fees, making it tough for people with less funds to participate. So Meter will provide a fully-compatible, highly-decentralized, stable payment sidechain for Ethereum to improve DeFi.
The long term growth of the crypto and DeFi space requires more everyday users. Meter’s goal is to achieve Satoshi’s original vision and to create an open financial network for the entire world in a fundamentally sound, stable way. We’re well on our way to achieving our goal and excited to help grow the DeFi industry.
Where can we go to learn more?
Hope to see you around!