Approach and Inspiration
Summary
Discover how MethLab connects its core principles with the derived design principles that form the foundation of our methodology.
Inspiration
Cybernetics
Cybernetics, at its core, is the study of systems. They could be mechanical, biological, or social—and how they control, react, and communicate with their environment. This discipline becomes particularly relevant when we consider the world of smart contracts and protocols in blockchains.
A smart contract is essentially a self-executing contract with the terms of the agreement directly written into lines of code. The contracts can automate processes and actions based on predefined conditions without human intervention.
Feedback Loops: In cybernetics, feedback loops are mechanisms through which systems self-regulate. For smart contracts, this translates into autonomous execution based on predefined conditions. For instance, a smart contract for a rental agreement might automatically unlock once the payment is processed, and similarly, lock it when the rental period ends. In lending/borrowing protocols, this could mean flagging of liquidations when the value of the collateral drops.
Adaptability and Learning: Cybernetics also involves systems that can adapt and learn from their environment. In smart contracts, this could be seen in adaptive contracts that evolve based on previous transactions, user interactions, or changing market conditions. This adaptability can enhance the efficiency and relevance of the contracts over time. For example, some protocols have static parameters like LTV and reserve ratios, that are updated by the governance to reflect updated market conditions.
Redundancy and Robustness: Cybernetic systems often incorporate redundancy to ensure reliability. In smart contracts, redundancy can be implemented in the form of multiple validation nodes in the blockchain network, ensuring that the execution of the contract is consistent and reliable, even if one or more nodes fail. For example, some protocols, in case the primary oracle fails, have a privision for fall-back oracles.
Information Theory
Information theory, founded by Claude Shannon, is a mathematical approach to the transmission, processing, and storage of information. It is crucial in the digital world, particularly in the fields of data communication and encryption.
When applied to smart contract protocols, information theory addresses several critical aspects. It ensures the secure and efficient transmission of data. This is vital in maintaining the integrity of the smart contracts, as any error in data transmission can lead to misinterpretation of the contract terms or execution flaws. It also affects:
Entropy and Data Compression: Entropy, a measure of uncertainty or randomness in information theory, can be applied to optimize the efficiency of smart contracts. Data compression techniques derived from information theory help in reducing the size of the contract code and transaction data, making the protocol more efficient.
Error Detection and Correction: Information theory provides frameworks for detecting and correcting errors in data transmission. In the context of smart contracts, this means ensuring that the data encoded in the contract remains accurate and unchanged during its transmission across the blockchain network, preventing hacks or loss of funds.
Signal Processing: Signal processing, a subset of information theory, deals with the analysis, modification, and synthesis of signals. In smart contracts, this can relate to the processing of transaction signals within the blockchain, ensuring they are executed accurately and in a timely manner.
MethLab Approach: Design Heuristics
Based on the foundational inspiration, Methlab established several design heuristics that directed the approach to achieve the vision. These heuristics were essential in forming a clear and structured pathway towards realizing a next-generation lending/borrowing protocol.
A robust architecture that reduces/eliminates redundancies
Adapts to the market without dependencies
Internalises feedback loops into the core architecture
Reduces information entropy to the minimum
Freezes entropy after initialisation
MethLab Approach: Architecture Fundamentals
Drawing from industry insights (Read Why) and design heuristics above, Methlab identified few architecture fundamentals. These concepts served as critical guiding principles to ensure that the architectural strategies adopted were effectively aligned with MethLab's long-term aims and objectives.
Permission-less: No party/group should have the permission to approve/block any asset or user from the protocol. Users should be free to interact and use the protocol as they prefer. This means no admins/multi-sigs or even guardians.
Immutable & Readable Smart Contracts: are smart contracts that, once deployed on a blockchain, cannot be altered or updated i.e. no way exists to change the terms once initialised. To ensure anyone can read and understand immutability of contracts themselves, MethLab incorporated readability of smart contracts into the core Fundamentals.
Abstraction: The architecture should be abstracted to incoporate only the the required information entropy. This means usage of Vaults, Wallets, smart contract modules and so forth. Abstraction also incoporates elements of security by achieving clarity and clear roles. Read more about our Approach to Security.
Decentralised: The feedback loops and mechanism is as decentralised as the weakest link. The architecture should incoporate a higher minimum level of decentralisation at each level. The litmus test being whether a) The protocol is live and usable as long the underlying blockchain is producing blocks and b) Users can always withdraw funds anytime.
MethLab Approach: Architecture Tenets
To enable MethLab with Fundamentals above, MethLab designed a novel architecture that incorporates key concepts from Information Theory, Computer Science, Cybernetics, and our derived heuristics.
Reserve Price Lending: A mechanism to enable protocol native collateral valuation.
Determinism: A protocol financial engineering principle that is characterized with defined payoff functions.
Bucketing: A protocol competition and liquidity bootstrapping feedback loop.
Liquidation-free: A key architecture decision that eliminates liquidations and to enable non-liquidatable leverage.