skip to content

Top Stories of the Week - 2/9

Weekly Top Stories 2-9-24 - Galaxy Research

This week in the newsletter, we write about the release of a zk-rollup for Bitcoin, firmness on timing for Ethereum’s next upgrade, and the first Solana network outage in about a year.

Subscribe here and receive Galaxy's Weekly Top Stories, and more, directly to your inbox.

Zero-Knowledge Rollups on Bitcoin are Here

Citrea, a highly anticipated project incubated by Chainway Labs, is launching the first zero-knowledge rollup on Bitcoin that does not require any consensus changes to the network. Bitcoin users and applications will soon be able to process transactions on an off-chain ZK-Rollup for cheaper and faster settlement. Citrea deploys an Ethereum Virtual Machine (EVM) equivalent VM (read this Galaxy research report to learn about zkEVMs) and makes use of new Bitcoin technologies including inscriptions and BitVM to operate and integrate with Bitcoin. For background, BitVM is a new off-chain virtual machine that enables Bitcoin applications to compute smart contract functionality (to read more on BitVM check out our report). Here is a brief summary on how Citrea's ZK-Rollup uses inscriptions and BitVM:

  • Inscriptions: ZK proofs and their outputs are inscribed into Bitcoin blocks

  • BitVM: Verifies the ZK proofs on Bitcoin's base layer and maintains the peg between BTC assets flowing in and out of Citrea's ZK-Rollup

On the backbone of BitVM and inscription technology, Citrea provides validity with a trustless and scalable computation method; ZK-STARKs. We cover ZK-STARKs in depth in this Galaxy Research report. Citrea proofs are succinct and complete, meaning a single proof proves the full rollup. The complete ZK proofs, which live on Bitcoin’s base layer, allow anyone running a Bitcoin node to verify the proofs in every block and access the proof’s full state. As a result, anyone in the Bitcoin network running a node can build the latest state of the rollup. Citrea’s emphasis on using Bitcoin as a data availability layer underscores their view on the importance of inheriting Bitcoin L1 security and finality.

Citrea’s ZK-EVM client is not open to the public and is still in testnet. The team also stated that the bridge function between Bitcoin’s base layer and the ZK-Rollup is still in heavy development to become a fully trustless bridge, but will be a trust minimized bridged until then.


Citrea's achievement in successfully developing a type-2 ZK-Rollup on Bitcoin's base layer marks a pivotal moment in the unfolding narrative of "Bitcoin as a platform." This breakthrough signifies a new wave of innovation poised to broaden Bitcoin's scope of applications. Notably, Citrea's success hinges on incorporating two new technological advancements on Bitcoin - BitVM and inscriptions. The integration of these two innovations highlights their robustness and significance, especially for developers seeking to expand Bitcoin's use cases. Citrea's strategic use of inscription technology may also challenge those who are against inscriptions by expanding the topography of their use cases dramatically. Since January 2023, inscriptions and recursive inscriptions technology have only been used by Ordinals and BRC-20 collections. Citrea's groundbreaking ZK development now reshapes the landscape, showcasing inscription technology as a versatile tool with broader implications beyond its initial confines.

One minor drawback with Citrea's ZK-Rollup that goes against Bitcoin's emphasis on decentralization is their centralized sequencer, a characteristic that all ZK-Rollups have today. The sequencer is responsible for ordering transactions and producing blocks using their own local mempool. As a result, a sequencer can technically censor transactions or reorder transactions to produce MEV However, Citrea's ZK-rollup has a force transaction mechanism that falls back to Bitcoin and guarantees that transactions will be included in the next batch, meaning that a user's BTC will never be stuck on the rollup. Additionally, the forced transaction mechanism coupled with the ZK-proofs posted every 10 minutes ensures that the sequencer cannot steal or freeze funds. Nonetheless, to align with Bitcoin's ethos of censorship resistance and decentralization, Citrea is working towards a solution that significantly reduces risks by allowing multiple sequencers to produce and finalize blocks with sub-second timing.

Chainway spearheads this growing Bitcoin L2 movement with Citrea, but they are not alone. Kasar Labs and Taproot Wizards are reportedly building a ZK-Rollup for Bitcoin as well. After years of experimenting with state channels, side chains, and other scaling technologies, the Ethereum community has coalesced around rollups, particularly the ZK variety, as the superior L2 design to balance security, scaling, and functionality. While ZK-Rollup development on Bitcoin is still in its nascent stage, it could challenge Bitcoin’s Lightning Network, which while successful and growing nonetheless is confronted by certain technical limitations. Overall, the rise of new powerful scaling solutions will expand Bitcoin's use cases, grow the investable landscape, and attract new developer talent to the ecosystem. - Gabe Parker

Ethereum Devs Set Date for Mainnet Dencun Hard Fork

The Dencun hard fork will be activated on Ethereum on March 13, 2024. Developers agreed on scheduling the upgrade roughly five weeks from today to allow sufficient time for client teams to prepare their final client releases (2 weeks) and for Ethereum node operators to upgrade their machines to the latest software versions (3 weeks). Dencun will be the first upgrade activated on Ethereum since the Shanghai upgrade, which enabled staked ETH withdrawals, in April 2023. Excluding Dencun, Ethereum has undergone 14 hard forks upgrades since the genesis of the network in July 2015. Dencun is by no means the last hard fork that developers plan on executing. Already, developers are tentatively planning the next upgrade after Dencun, dubbed Pectra, for activation before the end of this year. For more information on the main code change being implemented in Dencun, EIP 4844, read this Galaxy Research report.


As expected, developers will be activating the Dencun upgrade on Ethereum mainnet next month. While every upgrade implemented on Ethereum presents positive changes to the core protocol, the Dencun upgrade is the first that will explicitly support the migration of users away from Ethereum to Layer-2 rollups. The primary code change going in to Dencun, EIP 4844, does not enhance Ethereum’s security, efficiency, or scalability. EIP 4844 increases Ethereum block size and primarily reduces the costs for rollup operators to post transaction data to Ethereum. EIP 4844 directly benefits rollups, not Ethereum. As discussed in this Galaxy Research report, rollups are likely to act as headwind, not a boon, to Ethereum’s fee-derived protocol revenue in the short-term. At present, transactions submitted by rollups account for only roughly 15% of Ethereum fee revenue. This is because rollups remain a nascent technology that faces challenges related to scalability, decentralization, and interoperability. Until these challenges can be overcome and the technology matures, rollups are unlikely to gain higher levels of adoption and value than Ethereum. In the meanwhile, upgrades like Dencun will only further decrease the cost of transactions for rollups, which in lieu of significant adoption for rollups will not benefit Ethereum protocol revenue. Therefore, while the Dencun upgrade is a necessary upgrade, one of likely many needed to evolve the Ethereum protocol into a performant data availability layer for rollups, it is unlikely to present Ethereum stakeholders with immediate benefits or improvements to the end-user experience once activated. - Christine Kim

Solana Network Halts...Again

On Tuesday morning, the Solana network halted for the first time since February 2023, falling just short of reaching one full year with no downtime. This is Solana’s first outage since February 25, 2023 and the 19th time it has experienced network degradation since launching in 2021.

No official post-mortem detailing the cause of outage and future mitigations has yet been released by Solana Foundation, but initial indications point toward an issue beginning at ~4:53 am with the Berkeley Packet Filter, a part of the Solana runtime used for upgrading and executing programs. Solana onchain programs are compiled using the LLVM compiler infrastructure. This turns them into an Executable and Linkable Format (ELF) that contains BPF bytecode which can be interpreted and executed by the Solana runtime. An error in that process led to a halt in block production.

There are some indications that this specific bug had previously been identified by the Solana Labs team and a solution was being worked on. Less than an hour before the halt, developers merged a new commit for the Solana Labs validator client that addressed the BPF issue. Due to the way in which new features are activated on Solana, however, the update did not go into effect immediately and could have taken a week or more. In the interim, an adversarial actor may have noticed the new update had not been implemented and triggered the bug it was meant to fix. To be clear, this has not been confirmed to be the case. Once validators decided to restart the chain the fix was included as part of the validator client released at 6:47 am.

Solana requires validators with 80% of staked SOL to restart before the network resumes producing blocks. At 9:54 AM EST, 80% of the stake had updated to the new client and the chain resumed block production. This was the fastest recovery for a Solana liveness failure to date. There have been no further issues since the network restarted.


The outage is a short-term headwind for Solana. Network performance improvements have been a driving force behind Solana’s resurgence. New users are less concerned with downtime and impressed by the user experience relative to existing alternatives, making them more willing to conduct meaningful on-chain transactions. Another downtime incident is a setback for the chain’s credibility at a time when it was beginning to regain the broader ecosystem’s confidence and DeFi activity (which is especially sensitive to liveness) is picking up.

At the time of writing, the outage appears to be unrelated to major protocol upgrades made over the past year to improve performance (QUIC, Stake-Weighted QoS, local fee markets). This is an important distinction that indicates an issue with implementing upgrades/identifying bugs rather than anything having to with the network’s ability to handle congestion, though it does not make the downtime any less serious.

The downtime appears to have had a relatively limited impact on the network’s perception compared to previous incidents. Reasons for this could include: (1) holders having more confidence in the network’s long-term trajectory due to successful updates implemented over the past year and growing onchain activity and (2) several L2s (including Arbitrum, Optimism, and Base) experiencing network degradation over the past year, making it less of a Solana-specific issue. At this point many validators are also more familiar with the restart process.

The incident is a reminder that in practice Solana still only has one validator client. The Jito client, the only other live Solana client, just modifies a small percentage of the Solana Labs’ client code. This means that a bug in the client is likely to affect the whole network. Several other clients are currently in development to be released later this year to, including Firedancer by Jump Crypto; Agave by Anza (a group of former Solana Labs engineers); and Sig by Syndica.

The Labs team has also been working on the v1.18 validator client update which is scheduled for release in early April. This update features important changes to the Solana scheduler that improve the efficacy of priority fees and reduce spam. Today’s outage may slow down that progress as teams take a more cautious approach to prevent another incident.

Solana continues to demonstrate impressive growth at both the network and ecosystem levels. As long as the outage remains an isolated incident, it is unlikely to impact the network’s long-term trajectory. Overall, the ecosystem’s focus remains on several additional high-profile airdrops, the decentralization of the governance process and integration of additional Solana validator clients, and the development of a robust application ecosystem that leverages Solana’s high throughput and low transaction fees to drive adoption. - Lucas Tcheyan

Charts of the Week

Maker’s DAI stablecoin has seen a 373m reduction in its circulating supply over the last 10 days. This is the largest 10-day reduction in DAI’s supply since the USDC de-peg during the banking meltdown in March 2023. The change represents a 7% decline in circulating DAI.

DAI Circulating Market Cap - Chart

The decline was triggered by an increase in stability fees, or the cost to mint DAI, for crypto-backed vaults that occurred on January 29. Over this period, DAI issued through crypto-backed loans declined by 309m, representing 86% of the DAI erased from circulation. DAI issued through the stETH low fee vault experienced a 201m DAI reduction and the stETH balanced vault saw a 147m reduction. On the contrary, DAI issued through Spark increased by 48m.

DAI Issued Through Crypto-Backed Loans

Other News

  • SEC adopts rule to have stricter oversight over dealers, looping in crypto and DeFi

  • Judge approves BlockFi and 3AC settlement deal but details remain confidential

  • Consensys's MetaMask incorporates features Robinhood to facilitate easier crypto purchases

  • Polygon releases 'Type 1 Prover,'

  • Developers are mashing ERC-20 tokens and NFTs together

  • MicroStrategy acquired 850 bitcoin for $37.2 million in January

  • Dymension goes live, airdrops $390 Million in $DYM to Solana, Ethereum users and more