[This is an extended transcript of Harmony’s annual overview and roadmap in Palo Alto.]

Good afternoon, everyone. My name is Stephen, the founder of Harmony. Today, I’m going to dive deeply into two topics — uniform scaling and economic games.

Part 1 — Uniform Scaling on our Shard 1

Today in Silicon Valley, we have gathered a room full of infrastructure builders, application founders, and researchers. Though the adoption of existing Web3 products is only at 1%, there is a growing market to drive users in the future.

Harmony has taken the last few years to build sharding for uniform scaling. Harmony will continue to support the need for scalability in the coming decades. Currently, DeFi and NFT products only serve about 10 million users. However, no single infrastructure can satisfy billions of users. Technology improvements are needed to achieve scaling and sharding. Our goal is to integrate technology and functionality to enable broad user adoption.

1. Layer 2 (Arbitrum)

The first aspect of Harmony’s journey to uniform scaling is Layer 2s. Layer 2 networks like Arbitrum and Optimism were launched in 2022 after more than three years of building. Starting from side chains and now moving to Layer 2s, putting anything on a chain and verifying it on Ethereum is the most effective approach.

The process of scaling Layer 2s is only one year old and has helped many DeFi projects run without a Layer 1 protocol. Despite that, there are still Layer 1 base protocols launching monthly.

To illustrate how different projects will work together to achieve uniform scaling, Harmony has created triangular frameworks:

Three years ago, we called our story uniform scaling. Harmony has launched thousands of nodes across multiple shards on the mainnet. Today, Harmony’s execution has stronger security than Ethereum’s Layer 2s.

1a. Single Sequencer (Optimism)

The next topic is Optimism, which struggles using a single sequencer. Layer 2s are very cheap compared to base protocols; however, they have not adequately solved the single sequencer bottleneck. One of the biggest challenges in the Ethereum ecosystem is having low latency and high throughput under tight resource constraints — such as compute, memory and disk space. The sequencer verifies transactions, compresses the data into a block, and submits the batch to Ethereum as a single transaction. In order to address Ethereum’s scalability issues, Layer 2s such as Optimism and Arbitrum must find ways to decentralize and parallelize the sequencer in a single sequencer approach.

In contrast, Harmony has built a high performance protocol that can run on low-resource hardware by using uniform scaling. Harmony’s mainnet with 1000 nodes among 4 shards has been live since June 2019, and can grow linearly and boundlessly with transaction demands.

1b. Fraud Proofs and Data Availability (Rainbow)

In a powerful node, no one can guarantee that the sequencer is not cheating by withholding the data and watching the transactions. Additionally, no node can reconstruct the state if 1% of the data is unavailable. Thus, nobody can submit fraud proofs within a given time, making the block valid. One needs to continually watch the transitions, but even then, they may still be rolled back if someone challenges a fraud. This approach becomes problematic in large-value transactions and makes the user experience frustrating.

How do we design a product to resolve this pain point? After four years of work, Harmony has achieved a 2-second block time on our mainnet and 2-second finality on transactions. We tried to attain 1-second finality, but achieving this was more challenging than expected.

Sharding has allowed us to run a view-change protocol that provides liveness to tolerate Byzantine faults. This sharding approach works for both blockchain systems and distributed system databases. I’m happy to say that sharding has become a robust approach to resolving production issues over the last few years.

1c. Account Abstractions (Near)

Account abstraction is currently only available within Layer 2s. Since account abstraction is part of the Ethereum base protocol, it’s evolved from proof-of-work to proof-of-stake. As a base protocol, we need to continue progress on sharding, proof-of-stake, and, most importantly, on adding new features to support smart contract wallets, gas fees, etc. Currently, one of the top protocols is NEAR, and Harmony is learning from them to continue innovating in the Web3 space.

2. App Chains (Cosmos)

App chains are another excellent solution to scalability problems. Cosmos has the best ecosystem and has been building for the last five years. Connecting Inter-Blockchain Communication Protocol (IBC) will be one of the biggest ecosystems and potentially more significant than Ethereum. When people run the App chains, they have their own validators and token economy. The analogy is that users are getting many servers and bringing them back to their garage — they are loading up another Linux with a cluster configuration. App chains are great because it uses an elastic cloud computing approach so that users don’t need more validators or another token to secure their sidechain or app chains.

2a. Data Shards (Celestia)

Celestia and Cosmos use data to prove that the Tendermint Consensus works. Open staking on Harmony has been live since May 2020 and has achieved 500 transactions per second (TPS) in production with state sharding and Beacon chain synchronization.

2b. State Prune (Ethereum)

Currently, Harmony is in the process of innovating a solution for state explosion, another pressing issue for app chains and data. By state pruning, we can compress not only the complete archival node but also any node validating the transaction. This technology enables light clients on mobile to compress data without the need for downloading.

2c. Stateless Clients (Mina)

Harmony’s validator delegation and reward compounding are fully on-chain. It supports 162 pools, 25.3k delegators, and can be scalable to hundreds of thousands of validators and delegators. At peak time, Harmony can serve 800 million requests per day with DeFi products. The stateless clients (Mina) not only enable blockchain confirming transition but also are able to serve the API level, database level, and the node synchronization level. In 2023, we hope the stateless client approach can be extended to mobile and Chrome extensions, and applied on embedded marketplace platforms so that people can fully confirm transactions quickly.

3. ZK Proofs (0xPARC)

Zero-knowledge proofs are everyone’s favorite topic, and it’s what we have achieved with our zkDAO initiatives.

3a. Keyless Wallets (Argent)

One of the adoptions for zero-knowledge proofs is keyless wallets. The keyless wallet is a cryptocurrency wallet where money is spent using a password alone without private key requirements. The keyless wallet requires a smart contract on the blockchain, and it uses a one time password (OTP) authenticator seed to generate a long series of time-based OTPs. These OTPs are then encrypted and organized in a Markle tree whose root is stored in a smart contract.

Keyless wallets are a significant example of the adoption of zero-knowledge proof concepts; it prevents hackers on centralized exchanges. How can you have self-custody without having to worry about the passwords or seed phrases and make a social recovery? Our upcoming keyless SMS wallet will help that be resolved. Harmony’s ResearchDAO researched smart-contract wallets with one-time passwords, SmartOTP via Google authenticator.

3b. Trustless Bridges (Succinct Labs)

Harmony has published research papers to talk not only about the Ethereum bridge, but also about Trustless bridging architecture that brings different chains together. Having security measures with multi-signatures and locked servers to host are not enough. We also have on-chain security and use light clients on both sides of the bridge to verify the transactions. Harmony’s research paper on gas-efficient bridges with FlyClient & Merkle Mountain Range achieves logarithmic inclusion proofs — along with our Bitcoin bridge.

3c. Strategy Games (Dark Forest)

Within Zero Knowledge proof technology are strategy games, where we can fork and play with different incentives and different ways of incorporating the gamification element of incentives. Harmony’s zkDAO explores non-biasable randomness as Harmony’s virtual machine extensions — for game tournament escrows and verifiable fairness as fog of war.

Harmony built ZKProof Games called Blue Forest is a play-to-earn version of Dark Forest, which is gas-expensive even on Gnosis Chain. Blue Forest is the world’s first decentralized real-time strategy game and built on Ethereum with zkSNARKs. Blue Forest allows tournament betting for cash prizes as well for no-loss options.

Part 2: Economic Games

Economics Games in Web3 are about sustaining an economy of millions of people rather than issuing a currency for a new country. The new economic term called radical markets from Eric Posner and Glen Weyl states that only by radically expanding the scope of markets can we reduce inequality, restore robustness of economic growth and resolve political conflicts. We truly believe that Web3 replaces the centralized finance world with truly free and open competition in radical markets.

1. Internet Domains (.country)

Harmony developed a top-level domain name in Web2 called NAMES.country. This project is not only limited to crypto-native features but also enables mobile browsers to interact. At this point, we focus not only on bringing DeFi to mobile crypto wallets but also on connecting Web2 to Web3. We introduce users to Web3 products by encouraging them to install extensions in Web2, which redirect them to Web3 with a new wallet address.

1a. Custodial Auctions (GoDaddy)

For the last two decades, GoDaddy has been a $10 billion business for domain names. GoDaddy reached $4.1 billion annual revenue with 10% auction commissions in a custodian auction business for domain names. It has 60 million monthly active visits, 21 million total customers. Additionally, it has 84 million domain names and 6.61k employees.

We are working on adding domains into the Web3 stack to attract more potential for the total value of all assets locked into DeFi protocols. Total value locked includes all the tokens deposited in all the functions DeFi protocols offer including staking, lending, and liquidity pools.

Similar to trading crypto tokens on UniSwap and auctioning NFTs on OpenSea, we try to allow the trading of domain names similar to auctions in the GoDaddy marketplace. The business opportunity is like GoDaddy’s way of holding the escrow for auctions of domain names. The GoDaddy business is excellent not only because it has 60 million potential users in the market but more so due to its innovation on the Internet over the last two decades.

1b. Identity Profiles (Linktree)

In 2023, Harmony recognizes an opportunity to develop identity profile products using data schema in Web3. For reference, a Web2 product Harmony is observing is Linktree, a platform that gives users a centralized page to publicly list all links relevant to their identity. Linktree currently serves 30 million users and garners 296 million monthly visits. During peak time, Linktree reaches 1.2 billion annual clicks, with 88% of the traffic coming from Instagram or Twitter. The platform charges users a $24 monthly fee. They have raised $166 million in venture funding and are currently valued at $1.3 billion. The platform serves millions of users in Web2 spaces, so we can forecast a promising market for Web3 identity profile pages.

1c. Talent Reputation (LinkedIn)

LinkedIn creates digital identities in Web2 by creating professional profiles showcasing an individual’s name, work history, and relevant skills. LinkedIn’s current revenue is $13.8 billion, and their advertising revenue reaches $4.4 billion. They have 875 million digital identities and were acquired by Microsoft for $26.2 billion, at $60.70 per user at the time. Similar to Linktree, blockchains can make digital identity match-making in Web3 in an interchangeable but not-fungible marketplace. Much like trading tokens through Uniswap and selling NFTs on OpenSea, blockchains can create new marketplaces that are radical markets with digital identities for humans.

2. Crypto Names (.1)

2a. Social Governance (Ethereum Name Service)

Crypto domain names are an exciting way to connect individuals’ identities with their personal assets. Ethereum Name Service is a naming protocol operated by a decentralized autonomous organization (DAO) built on the Ethereum blockchain, replacing cumbersome crypto addresses with easy, human-readable domains such as NAMES.eth. Additionally, they provide users with a decentralized infrastructure to interact with their crypto wallet address. Currently, there are 2.79 million ENS names with 508 integrations and 609k owners. Additionally, ENS charges their 3.97k registrar users $640 for each 3-character length name; earning them $9.21 million in revenue by May 2022. In their Q4 treasury report, they were valued at $1.41 billion.

Harmony has created a Web2 domain name, NAMES.country, to act as a bridge to our Web3 domain name, NAMES.1. Since Web2 and Web3 domain names are disconnected, Harmony has developed a new way to synchronize the data between the Web2 registry and Web3 blockchain, enabling both systems to function as one. Harmony connects Web2 and Web3 domain names by building a redirect extension, NAMES.1.country. Using the redirect extension, the individual profile exists in the Web2 space and is accessible as a Web3 domain. Web3 domain names can be auctioned off, allowing individuals to bid on specific domain names. Since Web3 domain names also exist in the Web2 space, the auctions can be marketed on social media platforms.

2b. On-Chain Incentives (Unstoppable Domains)

Direct ownership and control over one’s identity is the core thesis of Web3. Unstoppable Domains is unlocking this feature by providing NFT domain names and a Web3 decentralized identifiers platform to create user-owned digital identities. Unstoppable Domains has 2.90 million registered users, 1.74 million mints, 240k active customers, and total sales of $80 million dollars. Moreover, they’ve raised $65 million dollars and have 640 integrations.

Unstoppable Domains started as a small domain name project and grew to achieve $80 million in sales and a $1 billion dollar valuation. This project gives us a clear sense that the adoption of crypto domain names has potential in markets beyond just DeFi trading and Web3 games.

2c. Interoperable Memes (Soulbound Society)

The last aspect to address about crypto names is Soulbound NFTs, which we call “Interoperable Memes.” In the paper “Decentralized Society: Finding Web3’s Soul,” Soulbound NFTs exist in a Decentralized Society centered around wallet accounts holding non-transferable “soulbound” tokens representing commitments and credentials. Additionally, affiliations of “soul” can encode trust networks of the real economy to establish provenance and reputations. The blockchain is disrupting social networking platforms by building a trustable network and aiming to bring users from Web2 to Web3.

Currently, Web2 social networking platforms like TikTok and Reddit outperform the blockchain. Annually, TikTok earns $10 billion in advertisement revenue with an average of 96 million daily searches. Reddit is just as successful with 1.7 billion monthly visits, 333 user posts per second, 100k concurrent users at peak, and 2.83 million Avatar NFTs. The devoted online communities surrounding Tiktok and Reddit largely drive this success, signaling the importance of incorporating exciting and interactive online ecosystems into social networking projects. Take Reddit’s r/Place, for example. r/Place was a 72-hour project that allowed users to add one colored pixel on an endless canvas every 5–20 minutes. Over 1 million Redditors edited 16 million pixels onto the canvas to collectively create a mural of digital art.

Part 3: Radical Market

In our upcoming campaign, NAMES.one, we will focus on creating viral and intimate communities like those of r/Place. Not only will we consider how to launch a product and create an economy, but we will also focus on how to sustain the economy. Over the years, the crypto industry has created trillions of dollars economically; however, the task of sustaining that growth is difficult. The greatest question to ask ourselves is: “Why can’t the blockchain industry sustain the growing economy?”. Harmony believes the economic theory, “radical market” may be helpful in answering that question.

There are three prominent examples I want to mention in the Web3 radical market. Firstly, in sustainable rent, all zoning laws are replaced by a property tax floating between zero and five percent based on approval rates by residents in real time. Secondly, quadratic funding creates cooperation for global communities and scales their digital economies. For instance, Gitcoin clusters people in consensus in crowdfunding. Lastly, Web3 creates a fair price for every token to exchange such as Uniswap, and it scales trust and creates a radically fair economy.

Our mission is to enable every ONE of 10 billion people to create wealth in the Harmony ONE community. We encourage all developers to build radical markets on Harmony blockchain.