If you're someone who prefers to HODL their portfolio for the long haul, staking and generating passive yield may be at the top of your agenda. With so many staking protocols to choose from, you'll practically be spoilt for choice, as they potentially bring satisfying rewards and security that reassures you of your staking decision.
Recently, an Ethereum layer-2 (L2) solution that allegedly offers native yield has been making a splash in the decentralized finance (DeFi) scene. Enter Blast: the L2 solution with over $300 million in Total Value Locked (TVL) and 50,000 users as of November 2023. As an ever-growing pool of users are hopping aboard the Blast bandwagon, it begs the question — are these benefits too good to be true?
From explaining Blast as an L2 solution to digging deeper into its smart contract specifics, here's everything to know about Blast and its explosive overnight success as an Ethereum L2 solution.
What is Blast?
As the market's only Ethereum L2 with native yield for ETH and stablecoins, Blast is the result of Blur's founder Tieshun Roquerre recognizing a need for a new L2 optimistic rollup solution with native yield. While Blast is still in early access, it's attracted the attention of yield hunters due to its promises of up to 5% and more. This is thanks to extra Blast rewards in the form of USDB, Blast’s auto-rebasing stablecoin. USDB can then be swapped to USDC once Blast rewards are distributed in May 2024.
How does Blast work?
With rewards of up to 5%, one has to wonder where Blast is getting this yield from. To quell the worries of Blast skeptics, Roquerre has been fully transparent with the way the bridged stablecoins and ETH are being handled. In a public Blast thread on X, the L2 optimistic rollup solution has clearly stated its yield sources. Here's a breakdown of how Blast works and how users will interact with the L2 solution:
Users can deposit ETH, stETH, DAI, USDC or USDT. These deposits are locked until February 2024, when Blast's mainnet and DApps go live.
USDT deposits are swapped into DAI via Curve Finance's 3pool while USDC deposits are converted to DAI via MakerDAO.
These user deposits are then converted into yield bearing assets. Blast natively participates in ETH staking and will stake the deposited ETH on Lido, where it's converted to stETH and staking yields about 4% APY.
ETH deposited and staked with Blast is auto rebasing, meaning it's meant to maintain a stable price and protect holders from potential inflation.
Stablecoins are deposited into on-chain treasury bill protocols like MakerDAO's Dai Savings Rate contract. These claim to yield about 5% APY and will be returned to Blast users via USDB, Blast’s auto-rebasing stablecoin.
Since Blast is in early access for the next couple of months, participation is limited to invite codes. Users get more Blast points based on how much they bridge and who they invite.
Why's Blast so popular? The pull factor of Blast's yield and star power
A minimum of 4% yield on ETH and stablecoin deposits
With the current state of staking on L2s, some crypto natives may feel that the possible yield gained doesn't justify locking up one's digital assets on-chain for staking. As the newest Ethereum L2 on the block, Blast is seeking to offer more lucrative staking for ETH and stablecoin holders than its competitors. Since the baseline interest rate on existing L2s is 0%, assets on L2s are basically depreciating over time thanks to inflation. Armed with native yield, Blast offers a compelling alternative solution by providing at least 4% APY and more in Blast rewards.
Another reason Blast has racked up so much TVL in such a short amount of time is perhaps due to the fear of missing out. As Blast is headed by Blur's founder, crypto natives are undoubtedly going to jump on Blast because of how successful Blur became in taking on NFT marketplaces like OpenSea. Speaking of reputable names, top venture capitalist firms like Paradigm and Standard Crypto have also joined the fray by raising $20 million for Blast. This has undoubtedly created a dilemma where users are tempted to deposit on Blast with the justification that big money is also doing it.
Honesty in how Blast will operate
Finally, Blast has been the talk of the town in the staking space because it has seemingly laid all its cards on the table when it comes to overall transparency. From clearly stating where the deposits will be staked to listing out when the Blast mainnet goes live and when rewards will be distributed, Blast's refreshing honesty is a contrast to what we sometimes see in shady DeFi projects that try to fool users through the door with high and unsustainable yields while minimizing overall communication.
What are the risks of depositing on Blast?
While some may welcome what Blast offers since staking on L2 typically provides 0% yield, some eagle-eyed commentators are saying otherwise by pointing out some red flags.
The safety of user deposits
Right from the getgo, Blast displays some signs of security weakness. Its smart contracts are owned by a 3-of-5 Safe multisig wallet and the active signers of said wallet are funded by an account with ties to degenerate NFT trading activity. According to a thread posted by user harls.eth, the funds are linked to a wallet littered with questionable NFT buys. While some Blast users may brush this off, such ties don't exactly paint Blast in the best light. With the amount of cyberhacks happening in late 2023, all it takes is a smart contract bug to trigger a massive withdrawal of millions of deposits and cause heartbreak for thousands of users.
The Blast rewards framework
A big reason crypto natives are going all out to secure a Blast invite is because of the additional yield gained by depositing their ETH and stablecoins. By promising yields above what typical risk-free rates offer, this definitely checks the boxes of yield hunters looking to maximize their DeFi gains.
Digging deeper into Blast's current reward framework reveals other red flags worth mentioning. In its current early access state, deposits into Blast are one-way with no way of withdrawing until Blast's mainnet goes live. Additionally, Blast is promising rewards as a bonus for users who participate early. While it does sound lucrative, these rewards are points for an L2 solution that's yet to be released. This echoes the critique by Cinneamhain Ventures' Adam Cochran, who claims Blast is a platform with one-way deposits.
Leaderboard and Spins system resembling a pyramid marketing scheme
Additionally, Blast has a Leaderboard and Spins mechanic that should inspire caution. Essentially, it's a recruitment system that encourages existing users to 'recruit' more users to sign up in hopes of forming a Squad of Blast users. By convincing invitees to deposit, users earn bonus luck, which contributes to their overall odds of gaining more Blast points when they play the Spins minigame. Each week, users will get a fixed amount of Spins, which is a card-flipping minigame that grants you extra points based on your luck.
To summarize these mechanics, the more ETH one's overall Squad is worth, the more invites one gets. With more deposits, users can increase their luck when interacting with Super Spins and reap more Blast points. This structure of getting more interested individuals to pile on later in order for the earliest Blast users to benefit has been criticized as a form of Ponzi scheme by some in the crypto community. At a minimum, traders should note that it might be tough for Blast to maintain its current TVL levels without rewarding users to keep them around.
The future of Blast L2: what can users look forward to?
Although there isn't an official roadmap yet for the future of Blast besides dates relating to its mainnet launch and reward distribution, Roquerre's recent thread has declared that Blast is meant to complement the Blur ecosystem. It also aims to help its users avoid asset depreciation, reduce NFT transaction costs, and launch NFT perps. Blast's future ambitions would allow it to be beneficial to all DApps since an L2 with native yield opportunities like Blast will unlock possibilities for the entire on-chain economy. Roquerre then extends the benefits to Perps, DEXes, lending, NFTs, and SocialFi as potential benefactors.
Should you deposit on Blast?
As every individual has their own levels of risk tolerance and trading plans to stick to, there's no hard-and-fast rule that you should or shouldn't consider depositing ETH and stablecoins on Blast. Ultimately, one should weigh both benefits and risks before coming to a personal decision.
For those won over by Roquerre and his ambitions, Blast succeeding as an L2 solution definitely doesn't seem to be far fetched as he might be able to replicate Blur's success with Blast. Those who do so could be rewarded with bonus Blast point yields and the ability to say they were one of the early access depositers.
On the flipside, Blast certainly does display its fair share of risks. From its aggressive recruitment structure to the sustainability of its future rewards, many doubters are claiming that Blast is getting ahead of itself by delivering a marketing narrative without launching an actual L2 product.
Final words and next steps
Can Blast keep its explosive momentum going? That seems to be a question many crypto natives and critics are asking as Blast's TVL numbers beat the odds and increase by the millions each day. As hype and anticipation builds behind the L2's impending launch, it'll certainly be interesting to see how Blast plays out.
Overall, the synergy between Blur and Blast will definitely be interesting as Blur has stated that it plans to test and deploy its L2 apps on Blast. Whether this'll result in a thriving ecosystem that takes the crypto world by storm is another story. As an Ethereum L2 optimistic rollup solution that offers native yield, Blast has hit the ground running in gaining adoption among diehard Blur fans and yield hunting crypto natives. Ultimately, only time will tell if they're able to stick the landing and establish themselves as one of the leaders in the L2 space.
Keen to see how Blast's success impacts Blur prices? Check out the Blur token for information.
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