4/4/22, 7:50 PM Pocket Network: A Decentralized Solution to Access Handling | Messari

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Pocket Network: A Decentralized Solution

to Access Handling
By Hasan Furkan Gök
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Mar 25, 2022 ⋅ Hub

Key Takeaways

The dependence on centralized infrastructure creates single points of

failure and degrades the promise of decentralization.

Pocket Network addresses Web3’s access handling side with a

censorship-resistant node network, zero downtime and no sunk cost to
applications.

Pocket is designed to facilitate a multichain future, integrating with

over 40 blockchains and growing rapidly in average daily relay
servicing (52x YoY) and the number of service nodes (24x YoY).

Despite Pocket’s high inflation, the linear rewarding with serviced relay
volume resulted in a 30% increase in total POKT supply in three
months. Subsequent concerns around stakeholder dilution drove the
DAO to tame inflation.

Pocket’s upcoming massive V1 upgrade is a significant step towards a

highly scalable network equipped with enterprise-grade service quality.

The recent Web3 proliferation has been quite a lure for the intellectually
agile. Both builders and skeptics gathered around its fire and started
participating in the show. With the recent market volatility, the stars guiding
investors dimmed their lights on builders. Once perceived as rockstars,
builders slowly gave the spotlight to skeptics, as if it was their time to shine.
As large as the scope of commentary was, most of the balanced criticisms
converged on specific argument patterns, with the incomplete
decentralization of blockchain networks taking the lead.

On Tradeoffs
Critics often describe the networks as being built around an illusion of
decentralization. They point out that hash rates have been consolidated into
only a few mining pools and that smart contract platforms depend too much
on private infrastructure providers, which could become centralized points of
failure. Although these criticisms on the incomplete trustlessness problem
are intrinsically valid, things tend to get more nuanced on the battlefield.

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When applications optimize for cost efficiency, they often opt for a
centralization trade-off, especially when the costs significantly outweigh the
benefits of decentralization. On top of that, centralized infrastructures
provide high-quality service, making them a superior choice on multiple
fronts.

As a means to an end, decentralization is potentially not a scalable design

choice. To move away from a centralized infrastructure would require
distributed solutions with enterprise-grade service qualities. Quality, cost,
and decentralization are the three heads of the chimera that Web3
infrastructure providers need to execute in order to have a chance of broad
adoption.

Pocket: Information Routing in a Blockchain Transaction

Enter Pocket Network, a full-node coordination engine. Pocket strives to
become a leading decentralized access solution by simultaneously tackling
three fronts: censorship-resistant RPC handling services, zero downtime, and
no sunk costs.

The Pocket Network aims to disrupt a specific step in a regular blockchain

transaction. For instance, in an Ethereum transaction, smart contracts are
filled with logical, Ethereum Virtual Machine (EVM)-compatible directives.
Whenever interacting with these contracts, users first need to submit their
request to an Ethereum full node equipped with EVM. This full node can be a
local or external node. If the user runs a local full node, they can read the
chain data as well as validate the transaction to broadcast to the network
without an external connector. However, running a full node is a costly and
inefficient activity and is limited by performance issues such as downtimes
and high latency. Instead of taking on this operational overhead, applications
refer to node services to acquire chain data and handle their transactions.

Source: BlockChannel

Accessing a server, or in this case accessing a blockchain through an external

node, requires the user to determine a first interaction point. Who will give
the information about the chain state? Who will take the first transaction

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request in case of a write request? Which node will play the role of a customs
and see if the submitted transaction is valid before releasing it to the chain?
This first non-local interaction point is determined using RPC, an API that
allows the application to send their request to a specified full node via a URL.

Every interaction, both state-changing transactions and information requests,

involves this path. When users do a particular action on their wallet, it
triggers a call, resulting in an API request routed to a full node. For example,
Metamask chooses Infura as their default RPC endpoint provider. If a user
wanted to send funds to another address or to check their own wallet's
token balance, Metamask would route their request to the nodes operated
by Infura.

The lack of a well-developed decentralized alternative before Pocket

Network made applications heavily rely upon centralized node providers
such as Infura and Alchemy. The centralization of these gateways makes the
network susceptible to single points of failure with unexpected downtimes
and the threat of censorship. A fresh case of censorship occurred with Infura
and Metamask accidentally blocking transactions originating from Venezuela.

Pocket Network’s decentralized RPC protocol is designed to obviate these

kinds of problems with a distributed full-node network that is designed to be
highly redundant. Contrary to the centralized incumbents who are bound to
operational bottlenecks when expanding, Pocket Network is relieved of the
burden of running their own nodes, operating similarly to prominent
marketplaces like Uber and Airbnb. As a coordination-providing intermediary
network, Pocket can remain chain agnostic, function as an L0 despite being
an L1, and rapidly scale the services into new chains. So far, the network has
been able to attract 34,000 service nodes (and counting) while expanding to
more than 40 networks within a brief amount of time. Thus, Pocket became
one of the fastest-growing decentralized infrastructure providers in the
space.

How Pocket Helps Bridge Multiple Blockchain Worlds

Fundamentally, the design of the Pocket Network V0 is akin to the
mythological tree Yggdrasil, with numerous network integrations reaching to
blockchain worlds like branches, fostering them with essential information.
Meanwhile, the service is grounded in three components like Yggdrasil’s
three roots: application, nodes, and network layer.

In the Pocket ecosystem, applications are the agents operating on smart

contract protocols like Ethereum and Harmony. They seek API request
handling services from Pocket’s distributed node system, constituting the
demand side of the network. On the market’s supply side dwell two types of
nodes ensuring that the information bridging demand of applications is met:
service nodes and validator nodes.

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Anyone who downloads the chain history can run a full node and connect
applications with relay handlers as well as being able to secure the network.
However, Pocket requires nodes to stake at least 15,000 POKT to be eligible
for handling application API requests and thus perform interchain
information dissemination. These relay handlers are the service nodes that sit
between the Pocket Network and the external blockchain, performing the
essential part of the network’s magic by running a Pocket full node and at
least one RelayChain node (a full node on integrated networks) to connect
the applications with the external networks. Among these service nodes, the
top 1000 by staked amount can become the validator nodes. Validators
check if service nodes handle relays and forging blocks with valid
transactions through the Pocket’s implementation of Tendermint PoS.

The third component, the network layer, is a set of rules that lies underneath,
orchestrating critical operations such as application to service node
coordination, reward and punishment mechanisms, and dispute settlements.

Real-world transaction

Although applications are the primary users of the Pocket Network, regular
Web3 wanderers may also experience how the possible TCP/IP of the Web3
node infrastructure works by changing the Metamask RPC route to Pocket’s
public nodes. Applications refer to Pocket’s facilitating website Portal to
demand an RPC endpoint, which is currently the sole access point for
applications. More direct and censorship-resistant integration through
PocketJS will be enabled with permissionless app staking.

In contrast to the subscription-based payment model of the centralized

providers, Pocket Network doesn’t request direct payment from applications
to mint a dedicated RPC endpoint. Instead, it adopts a stake-to-use model
that requires users to stake POKT in order to access services.

Applications can choose between a free tier or stake-based subscription.

Pocket’s free tier option serves the same number of relays as Infura’s
$225/mo subscription plan: 1 million relays/day. Applications can subscribe
to the free tier, or preferentially, they can stake POKT and benefit from
additional relaying services proportional to their staked amount (~130
relay/POKT at the time of writing). Nevertheless, app staking will not become
permissionless until the protocol’s major V1 upgrade to ensure sustainable
scaling and high-quality service. As it will remain capped to an arbitrary
number of app stakes (currently 2,298) with the Portal able to share a stake
between multiple applications, most applications subscribe to the free tier
and let Pocket Foundation cover their entry costs.

Pocket’s access dashboard Portal is equipped with tools to support service

quality. Before matching applications with service nodes, it runs a sync check
and its Cherry Picker to make sure the nodes are synced to the chain’s
current state and operate on low latency. As applications start using their
dedicated URL to send information to a non-native chain (e.g., requesting to

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see the total deposit amount in an Aave lending pool), a Pocket full node
dispatches their relaying request to the network and initiates a session
between them and the service nodes.

Sessions are regularly updated data structures that dictate which service
nodes handle relay requests of the application for a predetermined time
interval. Currently, an application is matched with 24 service nodes in a
session, and the relaying service continues for four Pocket blocks before
getting tumbled. The same 24 nodes typically serve an application for
approximately one hour before a new session starts and the application is
paired with a new set of nodes.

Source: Pocket Network

Service nodes route relay requests to and from the non-native chain and
keep track of the number of relays delivered. After the session is complete,
they bundle them in batches and send them as proof-of-relays to Finality
Storage. Validator nodes check the legitimacy of proofs to see if service
nodes indeed provided the service. Then they forge Pocket blocks with valid
transactions.

At the end of the block production, if the relays are valid and the application
didn’t invoke Challenge Transaction to challenge the proof-of-relay, the
network mints tokens proportional to the volume of relays (currently 0.00843
POKT/relay). The reward pool is distributed among facilitators as such:

Service Nodes: 89% of the minted POKT

Pocket DAO: 10%

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Validator Nodes: 1%

Service nodes take the lion’s share of the rewards. Coupling this form of
generalized mining that leverages POKT as a unit of work with the lucrative
return potential for the service nodes, the network experienced quite the
success in building the supply side. This translated into a ~24 times the YoY
growth, currently sitting at over 34,500.

Add to this zero downtime, no sunk cost, and censorship-resistant service

provision, as well as Pocket’s appealing free tier option. All of these have
helped the network nurture the demand side of the market. Right now, the
protocol handles over 200 million relays a day on average, indicating an
increase of ~52x YoY. The significant uptick in average daily relays followed
Pocket Network’s integration with Harmony in October 2021. As Harmony
users had issues with the default RPC providers and switching to Pocket
alleviate these problems, Pocket captured a substantial amount of the
network traffic right after the integration. As of today, approximately 150
million of the >200 million daily relays originate from the Harmony network.

In 2021, the network served 6.4 billion relays to Harmony, followed by

Ethereum with 3.7 billion. Although these numbers seem somewhat small
compared to Infura’s 12 billion daily calls in 2019 and 2 billion daily eth_calls
in 2020, the growth of the Pocket Network still merits attention. It took ten
months for Pocket to hit the first billion cumulative relays milestone and only
another six months to handle the same number of relays in less than a week.

Tokeneconomics and Reward Mechanism

There is a delicate relationship between a chain’s technical capabilities and
its economic model. Both need to uniquely coincide to permit the desired
coordination game to unfold with success. With community concern
centered around the sustainability of highly inflationary tokeneconomics, the
protocol's economic life cycle is divided into three phases with which the

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POKT incentivization mechanism is calibrated to attain fast growth first and

later switch to a more sustainable economy.

After establishing a solid supply side in the Bootstrapping Phase, the

protocol is currently in its Growth Phase, where the high inflation rates are
intrinsic to its expansion strategy. In the same way Pool 2 attracts liquidity in
DeFi, the Growth Phase of the tokeneconomics model revolves around the
economic flywheel where a high APR on the native token attracts service
liquidity, which in turn accelerates the growth of relay service capabilities and
network integrations.

When the growth of inflation becomes higher than the growth of total
staked POKT supply and when the POKT price appreciates to a sustainable
level, the Pocket DAO will initiate the

Maturity Phase
Overall, the POKT tokeneconomics is designed to attract long-term
participants and diminish unproductive speculation. This vision is
materialized in two instances: covertly banishing non-participant
tokenholders from the network through high inflation rates and separating
the right to governance from token holdership via merit-based vote claim.

However, the truth is there is growing inflationary pressure on staked tokens

with increased network adoption, due to node providers getting paid with
freshly minted tokens for their relaying services. The rapid increase in total
token supply tarnishes Pocket’s low-cost stake-to-use payment model with a
non-negligible dilution cost. Due to the protocol-implemented cap on
staked apps, the discrepancy between the increased actual demand and total
supply causes speculative price appreciation to remain essential for taming
the turbulent difference sustaining the network growth.

To give a concrete example, the total POKT supply increased from 660
million to 960 million in the last six months, considerably diluting any
application stake at the time. Yet, the inflation has been proportional to the
increase in the number of relays. Hence, an increase in average daily relays
combined with a speculative appreciation has offset the dilutive effect with
an increase in overall network value, turning any upfront cost done at the
time to a ~2x accounting profit.

In other words, the market demand allowed a positive ROI for the early
adopters. However, after witnessing exponential growth in the last couple of
months, the discrepancy between demand and supply became more
apparent. The community acted quickly and recently passed two proposals
to implement a more sustainable inflation mechanism. By adopting a
gradually declining inflation, they aim to stabilize network dynamics and
introduce protection to network stakeholders before any token burning
starts.

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As the inflationary pressures of Pocket’s linear token minting punish non-

participant tokenholders during rapid network expansions, POKT speculators
have sought ways to generate income with their tokens. The most popular
solution has been node financing, where POKT holders allocate their tokens
to node runners for a share of the service. This service can only be accessed
through custodial services. Moreover, the amount of staked POKT has no
influence over the selection chances for a session, causing service node
operators to strategically distribute their POKTs to multiple wallets and
maximize the number of eligible wallets they hold.

Both of these phenomenons have a magnifying effect on the supply, thus

affecting assessments on the meaningful supply-side growth. Although
Pocket's ADR / ASN growth indicates that the network experienced a
somewhat balanced adoption last year, a large portion of the relay handling
capacity remains underutilized. Recently, the growth of the supply side
started to significantly outpace the demand side, meaning that the average
node profitability has been declining since its local peak on January 7, 2022.

V1 Upgrade
Until recently, one deal-breaker for apps was the high latency of the network
compared to centralized solutions. However, Pocket managed to tackle this
problem and achieve a competitive latency by increasing the number of
nodes in a session from 5 to 24 and improving its latency filters.

Source: Internal test conducted by the Pocket Network team.

On top of that, the Pocket team is laser-focused on improving service quality

with their massive V1 upgrade. The transition to V1 will comprise

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consequential alterations that will prepare the Pocket Network to scale its
relay services by orders of magnitude. It aims to further lower the latency
and boost the network in many ways with a novel chain architecture. Not
expected to launch until at least the following year, the upgrade will offer
new design mechanisms on four different modules of the chain: utility,
consensus, peer-to-peer, and persistence.

Because Pocket Network must maintain a service quality on par with

centralized competitors, they intend to incorporate massive enhancements
to their incentivization and inspection mechanisms to further optimize the
network for high-quality servicing.

A major change is the addition of a new network agent. The underutilization

of proof-of-relay challenging (Client-side Challenge Feature) and the
inconvenience attached to the fail-first-correct-later approach drove Pocket
to introduce a new agent in V1, fisherman. Disguised as an application, this
new agent will play the role of an inspector and score nodes on availability,
latency, and consistency of their services.

Pocket’s V1 will also incorporate a quality-focused reward mechanism. In V0,

Cherry Picker ranked nodes by their latency and made sure those with high
latency got fewer chances for servicing. Like Cherry Picker’s filtering, this new
mechanism will distribute relay rewards not according to the individual relay
volume but to the test scores provided by fishermen.

Because scaling to handle trillions of relays requires a vastly robust

infrastructure, Pocket’s V1 will focus on ensuring the network is ready to
scale on all fronts. At the moment, Tendermint BFT requires extensive
communication between nodes which causes a bottleneck for scaling the
number of nodes. In V1, the protocol will adopt its own implementation of
HotStuff BFT. This will be assisted with the introduction of task-specialized
communication and an effective message dispersion method**.**
Transitioning from random gossip of Tendermint BFT to structured gossip is
expected to result in lower bandwidth usage and higher network efficiency.

The introduction of the quality-inspecting fishermen will also help network

scale. Using these new agents, the network will be able to tinker with the
protocol design to accommodate more clear-cut roles for nodes. Recently,
the protocol separated tasks between validator nodes and service nodes to
make sure they were less bound by each other’s requirements. V1 aims to
double down on the specialization feature by stripping the responsibility of
keeping track of relay proofs away from service nodes thanks to fishermen.
Thus, the network will make requests handling the sole responsibility of
service nodes and allow them to allocate resources to increase network
efficiency.

V0 allowed developers to access RPC handling services with zero downtime

and without the sunk cost of a subscription-based payment model. V1 will
primarily focus on doubling down on the current value propositions instead
of expanding the scope of operations. Since the permissionless app staking
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and the ultimate design for scalability won’t be unleashed until V1, the
network’s true potential will remain unrevealed until this significant upgrade.

Conclusion
One may argue that the current permissioned state of Pocket's Portal is a
sign of faux decentralization. One could further their argument by saying
that not all nodes are created equal according to Pocket’s proof-of-useful-
work (generalized mining) mechanism. And the current node concentration
might increase even more with professional node providers gaining an edge
with V1 quality measures.

Firstly, it might be counter-productive to get lost in often mismatched

linguistic interfaces while arguing about the definitions and immediately
condemning a practice if it doesn’t exactly fit our ideal. Instead, it might be
more pragmatic to take any endeavor that strives for diminishing the total
censorable points of failure and consider it a cherishable improvement.

Secondly, Pocket aims to thwart these with the eventual transition to

permissionless application access, optimizing efficiency in V1 to lower
technical requirements to run a node, and introducing a more granular
geolocalization to give small nodes a competitive edge. Therefore, its full
decentralization is also subject to a gradual process.

Finally, Web3 needs a more decentralized infrastructure. As such, a

multichain future dependent on seamless integrations between multiple
networks requires decentralized infrastructure even more. As the focus for
the last years primarily rested on enhancing the smart contract ecosystem
with L2s and alternative L1s, the importance of decentralized middleware
remains to be explored. With its distributed node network to tackle one of
the pain points of the space, Pocket might be the missing point in the grand
picture of decentralization as it carries the potential to help the space move
away from centralized incumbents.

Critics might call the current permissioned state of Pocket’s Portal an

example of faux decentralization. They might label Pocket’s proof-of-useful-
work mechanism (generalized mining) an unfair advantage for professional
node providers. But instead of arguing about semantics, the focus of the
conversation should be on Pocket’s endeavor to diminish the total
censorable points of failure, which is a cherishable improvement. Beyond
that, Pocket aims to refute its critics’ claims by gradually transitioning to
permissionless application access, optimizing efficiency in V1 to lower the
technical requirements to run a node, and introducing a more granular
geolocalization to give small nodes a competitive edge.

Pocket’s eventual move to full decentralization will meet Web3’s need for a
more decentralized infrastructure. Because a multichain future depends on
the seamless integration between multiple networks, the focus for the last
several years has been on enhancing the smart contract ecosystem with L2s

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and alternative L1s. With its distributed node network acting as a

decentralized middleware, Pocket Network can become the key to helping
the space move away from centralized incumbents.

This report was commissioned by Pocket Network, a member of Protocol

Services. All content was produced independently by the author(s) and does
not necessarily reflect the opinions of Messari, Inc. or the organization that
requested the report. Paid membership in the Hub does not influence editorial
decision or content. Author(s) may hold cryptocurrencies named in this report
and each author is subject to Messari’s Code of Conduct and Insider Trading
Policy. Additionally, employees are required to disclose their holdings, which is
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independent research through Messari Protocol Services. For more details or to
join the program, contact hub@messari.io. This report is meant for
informational purposes only. It is not meant to serve as investment advice. You
should conduct your own research, and consult an independent financial, tax,
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