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Settlement

Overview​

In the context of Appchains, settlement refers to finalizing transactions on a secure blockchain. Settled transactions are verified and their integrity is guaranteed by the blockchain where settlement happens.

Because settlement happens on another blockchain, outside the Appchain itself, this blockchain is referred to as the settlement layer.

Settling transactions​

Appchains typically inherit security from the settlement layer blockchain. For Madara, this blockchain is either Ethereum or Starknet.

For Starknet, the underlying blockchain is Ethereum. In this setting, Starknet is called a Layer 2 (L2) blockchain, while Ethereum is Layer 1 (L1). It's also possible to create an Appchain on top of Starknet - then your new layer becomes a L3 and your transactions are settled on Starknet L2, which again settles transactions on Ethereum L1.

Provided security​

Settlement layer provides security for the Appchain. This means that even if the Appchain becomes unavailable or malicious, users can retrieve their funds using the state diff and ZK proof stored on the settlement layer.

Without a settlement layer, if the Appchain becomes unavailable, users may lose access to their assets.

Madara flow​

With Madara, the settlement layer is utilized directly by the prover and the orchestrator.

  1. The used prover sends a validity proof to the settlement layer
  2. The settlement layer's verifier program verifies the proof. If valid, the verifier program records it in an on-chain proof registry.
  3. The orchestrator monitors for new verifications. Once it sees one, it asks settlement layer's core contracts to update their network state.

Cost tradeoffs​

A very secure settlement layer blockchain makes fraud very difficult. One would either need to infiltrate the settlement layer or to break the underlying cryptography. If the settlement layer is Ethereum, disrupting finality would require controlling at least 33% of the total staked ETH, making fraud prohibitively expensive. And breaking the cryptographic principles may not be possible even in theory.

On the other hand, very secure chains are usually expensive to use.

Alternatives​

An alternative approach is to use a specialized network for settlement. Such networks are for example Celestia and Avail.

Using specialized networks makes settlement a lot cheaper, but requires custom implementation. Madara is built to allow the developers to choose their preferred settlement layer.

Settlement layer requirements​

The settlement layer requires a few key components to serve Madara appchains. The components are:

  • A Zero Knowledge proof verifier contract that ensures that only valid state updates are accepted on the settlement layer.
  • A Starknet core contract that manages state updates. The contract should be either on Ethereum or on Starknet, depending on which is the used settlement layer.

While Madara and Starknet rely on validity proofs (with ZK), some other appchains settle via fraud proofs, where incorrect state updates can be challenged within a dispute period. Fraud proofs rely on completely different technologies and are not related to Madara directly.

Requirements for a good Settlement Layer​

Requirements for a good settlement layer network are:

  • Secure. The used network has to be financially secure and trusted by all involved parties.
  • Availability. The used network must remain operational and available.
  • Programmability. The used network has to be able to run the settlement logic.
  • Finality guarantees. The used network must provide strong finality guarantees to prevent state rollbacks.

For convenience, the settlement layer is often a multipurpose blockchain. But, as noted earlier, it can also be a specialized network.

Local Ethereum settlement​

As mentioned earlier, the settlement layer can be an Ethereum-based blockchain. It can either be the Ethereum L1, or a new Ethereum chain on another layer.

If you choose to settle your Appchain on a new Ethereum chain, the tooling launches the chain with Anvil, a lightweight and high-performance Ethereum blockchain node.

Anvil is a fully functional blockchain that is easy to customize, making it ideal for local development and testing.

Read more​