Accumulate: A new public blockchain that raised 579 bitcoins in funding 8 years ago.

Original Title: "Asset Risk Assessment: Accumulated Finance (stACME)"

Original Author: LLAMARISK

Translated by: Kxp, BlockBeats

Accumulate Ecosystem Introduction 

Project Development History

The development of Accumulate Network has gone through a long process, which began with the creation of Factom Protocol by Paul Snow and David Johnston in 2014. Factom was conceived as an enterprise blockchain aimed at enabling companies and organizations to maintain transparent and highly-integrity data records. It was a funded project of the US Department of Homeland Security and has collaborated with the Bill and Melinda Gates Foundation.

Factom Protocol uses a unique chain structure to link specific data chains, resulting in faster indexing and lower computational costs, improving the verification process of Bitcoin. Factom also introduces more efficient and innovative scaling solutions, such as separating token transactions and computations from the data layer, allowing enterprise clients to protect their data in real-time without interruption. With its strong competitive speed, Factom has established several successful partnerships in both public and private sectors. The birth of Accumulate Protocol aims to preserve Factom's unique features while improving usability, mass appeal, and scalability.

This agreement announced the intention of rebranding and upgrading to Accumulate Network in November 2021, and officially launched its mainnet the following year. The timeline of major events is as follows:

· 2014: Paul Snow and David Johnston founded Factom in Austin, Texas.

· 2015 April: Factom conducted one of its first blockchain token sales, raising 579 bitcoins worth $140,000 at the time.

· Summer 2021: Inveniam Capital Partners acquired 40 blockchain patents and key engineers Paul Snow and Jay Smith from Factom. It also established DeFi Devs as a subsidiary to serve as the development community for its projects.

· November 2021: Factom Authority Node Operators (ANOs) unanimously voted to rebrand and upgrade the Factom blockchain to the Accumulate blockchain.

· 2022 年 4 月：Accumulate whitepaper released.

· 2022 November: Accumulate mainnet officially launches.

Team 

The development of Accumulate is led by Factom's chief engineer Paul Snow and Jay Smith through community development organizations. Dennis Bunfield and Ethan Reesor are team members who have played important roles in the development of the Accumulate Network. There are many organizations that can be considered the core maintainers of the Accumulate ecosystem, with the most important being:

· DeFi Devs is one of the community development organizations of Accumulate Protocol, and they are one of the main contributors to the project. The project is developed through open participation in the developer community.

· De Facto is a company that provides blockchain development and consulting services for startups. Their goal is to help startups quickly and efficiently launch their solutions in the complexity of blockchain technology. De Facto can be seen as the core maintainer of Accumulate Network and the core development team of Accumulated Finance.

Accumulate has showcased many other organizations that have participated in its construction on its website.

Overview of the Ecosystem 

Accumulate Network is a blockchain network based on Accumulate Digital Identifiers (ADI), which are digital identities. Other key features include customizable security settings through the use of a multi-chain architecture with sub-chains, readable addresses, and user-assigned key hierarchies.

ACME is its native asset (similar to ETH). Users can acquire ACME on the open market or obtain it through staking. Usage burns the token and adds it to the token reserve, which can then be reissued as a staking reward. The Accumulate Bridge allows users to cross-chain ACME from Accumulate to Ethereum, where it is represented as the WACME ERC-20 Token.

Accumulated Finance is a DeFi application for staking WACME on Ethereum, allowing users to stake stACME and earn rewards. This enables users to earn staking rewards for ACME without leaving Ethereum. Staking can be made liquid through the stACME/WACME and WACME/frxETH Curve pools, allowing users to enter or exit the Accumulate ecosystem at any time.

The following diagram illustrates the relationship overview between three main components, namely Accumulate Network, Accumulate Bridge, and Accumulated Finance:

Assets

The assets related to this report can be summarized as follows:

· ACME | ACME is the native asset of Accumulate Network. It is used to pay for transactions and services on the network, and can be staked for network security and governance.

· WACME | WACME is an ERC-20 Token that is pegged 1:1 to ACME and can be minted by depositing ACME on the Accumulate Bridge. The Accumulate Bridge is a cross-chain bridge that allows users to transfer ACME and other Accumulate Tokens between Ethereum and Accumulate.

· stACME | stACME is the ERC-20 derivative token of ACME, representing the staked ACME token on the Accumulate Network. It allows users to earn staking rewards while retaining the ability to use their staked tokens as collateral for other DeFi applications.

· ACFI | ACFI is the governance token of Accumulated Finance (currently unreleased), which allows users to participate in liquidity staking and other DeFi services of the Accumulate Protocol.

· FraxETH | Frax Ether is a type of liquidity ETH staking derivative that aims to uniquely leverage the Frax Finance ecosystem to maximize staking rewards and provide a smooth Ethereum staking process for simplified, secure, and DeFi-native earning of ETH interest.

Risk Assessment Scope and Standards

In this report, we divide risks into three risk factors:

Although this report mainly focuses on the proposals for the WACME/frxETH and stACME/WACME pools put forward by Accumulated Finance, the dependency on Accumulate Network requires us to conduct a broader investigation.

We will first cover the risks associated with Accumulate Network, as it forms the basis for the proposed stACME and WACME pools. Secondly, the report will examine the Accumulate Bridge responsible for issuing WACME. Finally, we will take a look at Accumulated Finance, which issues stACME.

Risk Analysis: Accumulate Network

Product Introduction

Accumulate Protocol is an identity-based blockchain designed to solve the trilemma of security, scalability, and decentralization through on-chain sharding architecture. The digital identity, called Accumulate Digital Identifier (ADI), is treated as an independent blockchain, and each identity has a layered key set with different priority levels. The protocol uses a dual-token system to provide predictable fees for enterprise users, and all transactions are anchored to the Layer-1 blockchain for enhanced security. It aims to drive the digital economy through interoperability with Layer-1 blockchain, integration with enterprise technology stacks, and interaction with Web APIs.

Block validation nodes and anchoring 

Accumulate Protocol aims to optimize parallel processing, linear scalability, and state efficiency. To achieve parallel processing, the network is divided into multiple validator networks, called Block Validator Networks (BVNs), which are used to process transactions for a small subset of accounts. Each account is assigned to a specific BVN, and each BVN can process transactions for thousands of accounts. As usage increases, additional BVNs can be added to linearly scale the network.

 

Accumulate uses a chain structure to organize transactions into a hierarchical structure of summary hashes, thereby achieving efficiency in state. This allows users to verify transactions on low-capacity devices such as mobile phones. In traditional blockchains, transactions are hashed using cryptographic algorithms such as SHA-256 and organized into a data structure called a Merkle tree. The Merkle tree is stored in the block and connected to other blocks in the network by including the hash of the previous block in the current block header. This data structure creates a "chain" of blocks that maintains the network's history.

Compared to others, Accumulate Protocol treats each account as an independent chain and manages it as a growing Merkle tree. Blocks are considered synchronization points for all chains in the network. The indexes of these points allow Accumulate to provide 1-second blocks for final processing and 12-hour blocks for syncing historical ledgers.

The Block Validator Node Network (BVNN) verifies transactions of accounts. The root hash of each BVN is input into a larger node network called the Directory Network (DN), which generates a final root hash that can be "anchored" to another blockchain. The DN root hash is periodically anchored to Layer-1 blockchains such as Bitcoin and Ethereum.

In addition, each BVN and DN has a synthetic transaction chain, a root anchor chain, and one or more intermediate anchor chains. Each chain is anchored in the root anchor chain, forming a chain-like structure, and each chain in BVN or DN can be considered as a side chain of its respective BVN/DN root anchor chain.

Account and Key Hierarchy Structure 

Each account has a unique URL and a unique identifier composed of its own signature chain and main chain. Accumulate accounts aim to improve user experience, effectively organize data, and integrate with web applications, mobile devices, and enterprise technology stacks. Accumulate supports several types of accounts, including lightweight token accounts, lightweight data accounts, Accumulate digital identifiers (ADI), keybooks, key pages, ADI token accounts, ADI data accounts, and scratch card accounts.

This protocol has a hierarchical key management structure, where the key book contains key pages, and each key page contains the keys authorized to sign transactions. Each key page specifies m of n, where m is the unique number of authorized signatures required for an approved transaction (i.e. signature threshold), and n is the total number of keys on the page. When created, an account is linked to a main key book and an optional management key book. Only signature keys corresponding to keys on one of the pages in the main key book or management key book (if specified) are authorized for signing.

For more information about the technology stack, please refer to the "Accumulate Whitepaper".

Risk Factor 1: Review and User Asset Security

This section focuses on the security of user funds accumulated on Accumulate. To this end, we determine the degree of decentralization of the network based on measurement standards and evaluate "rug-ability" (i.e. resistance to censorship) according to Consensys' research results.

Consensus Algorithm 

Note: At the time of writing this article, Accumulate has not fully implemented the consensus algorithm specified in the whitepaper. Currently, the network operates in the form of a hybrid proof-of-stake/proof-of-authority chain. Validators on the network are whitelisted, and all 44 validators have equal weight in implementing consensus. There is an early version of staking and staking delegation, but there is no automatic reduction process. Stakers cannot withdraw their stake before the planned upgrade at the end of May.

Accumulate Network is building a delegated proof of stake system. Essentially, this means that token holders delegate their ACME to specific validators who propose new blocks and validate transactions. Each validator runs the Tendermint consensus algorithm. Tendermint is a Byzantine fault-tolerant (BFT) consensus algorithm designed by Jae Kwon in 2014, aimed at providing high security and consistency in decentralized networks. At a high level, the Tendermint algorithm works as follows:

1. Validators are responsible for proposing new blocks and verifying transactions. A group of validators is selected through a Byzantine fault-tolerant consensus algorithm to ensure a certain degree of decentralization and security.

2. One of the validators proposes a new block and must then broadcast the proposal to the other validators.

3. Validators then vote on the proposed block. They can vote in favor, against, or abstain.

4. If more than two-thirds of the validators agree to propose a block, it will be added to the blockchain. Otherwise, the block will be rejected.

5. Once a block is added to the blockchain, validators will enter the proposal and voting process for the next block.

It also supports finality, which means once a block is added to the blockchain, it cannot be revoked. The most popular and original use case is part of the Cosmos SDK. Based on empirical evidence, this demonstrates a certain level of stability and robustness. So far, the network has successfully run a large amount of funds on the corresponding chain, indicating a reliable and efficient consensus algorithm.

Due to the lack of detailed analysis provided by Accumulate Network, the author is unable to evaluate its stability and can only make judgments based on heuristic references to Tendermint.

Client Diversity 

According to the provided information, there is a lack of available information regarding the diversity of Accumulate Network's clients, making it difficult to draw any clear conclusions about the level of client diversity. However, limited information suggests that the network may only have one available client.

Network Usage Rate 

Absolute data is not clear. Although the block time of the network is 1 second, it is not uncommon to have empty blocks.

Another measure of actual usage is the native ACME transaction volume, which can be found on the Token page. As of the time of writing, the ACME Token page shows 23191 transactions associated with it. Considering that Accumulate Network generated its genesis block on October 31, 2022 at 20:11:52 (see Block 1), it has been running for approximately 6 months, with an average monthly transaction volume involving ACME of (23191/6) = 3865 transactions, or 128 transactions per day. Compared to other blockchains, the activity level is significantly lower (compared to this chain's dashboard).

User Attention

Although social indicators are not a good tool for checking the true level of user engagement (as they can be easily manipulated), we will still consider them. Due to the lack of meaningful analysis, we will use this metric as a proxy to analyze the general interests of Accumulate users.

As shown in Coingecko's chart, since its listing on September 10, 2022, the number of Twitter followers has decreased by about 6% (from about 175,000 to 165,000 as of April 6, 2023).

Developer Activities 

The developer activity refers to the contribution and participation of developers in software projects. It can be measured by various metrics such as code commits, pull requests, bug fixes, and code reviews. Developer activity is a key factor for the success and sustainability of software projects as it drives faster development cycles, improves collaboration, and enhances software quality. In open source projects, developer activity is particularly important as it promotes community involvement and collaboration, and helps drive the success of the project. Readers should note that the main development of Accumulate Network is carried out on GitLab, while GitHub serves as a mirror.

On GitHub, the developers of the main code repository have relatively stable activity, indicating that the project is continuously striving and sustainable.

The number of commits to this code repository fluctuates between 5 and 10 times per week. Compared to other projects, Accumulate ranks between 727-1001 on the Artemis developer activity dashboard.

Funding

For Layer 1 blockchain, a substantial ecological fund is the key to success. This provides the resources needed to support growth and development, incentivize participation, and pay fees when adoption is low. Without such a fund, the network may not be able to pay transaction fees or support dApps. In addition, a large ecological fund will attract investors and developers, indicating a commitment to long-term success. It can also incentivize early adoption and provide funding for projects that contribute to ecosystem growth. Therefore, funding is crucial.

Factom raised 579 Bitcoins in 2015. This is insignificant compared to recent major releases. For example, Sui raised $336 million in Series A and B financing, Avalanche raised $248 million in funding rounds, and Solana raised $334 million. Although Accumulate Network allocated a block worth 60M ACME Grant (about $2,400,000) the minimum funding is an issue because launching a Layer 1 protocol is expensive.

Inveniam has purchased all patents and invested millions of dollars in the development of Accumulate. The exact amount is unknown. This amount is unlikely to be compared to the funds of other Layer 1 protocols.

Governance Process

The governance process of Accumulate is focused on the committees that manage key workflows in the ecosystem. The committee members are selected by both stakers and validators. There are four committees, namely the Governance Committee, Core Development Committee, Ecosystem Committee, and Business Committee. Each committee is allocated a certain amount of ACME budget to carry out operations. These committees manage tasks such as code development, coordinating integrations with other communities, negotiating with exchanges, providing liquidity, organizing marketing activities (such as conferences and hackathons).

The funding request process is initiated by the applicant submitting a proposal to the appropriate committee. The committee evaluates the proposal and approves or rejects it. All authorized proposals require shareholder votes, and the committee's decision cannot be appealed. The committee may appoint independent advisors to oversee the implementation of authorized funding. The initial Accumulate Grant Pool was allocated 60 million ACME.

Generally speaking, the standard process can be summarized as follows:

Although the governance is relatively centralized, it is effective and well-documented, and given the growth stage of Accumulate Network, this governance model seems appropriate. Initially, a core committee with technical expertise will make decisions on protocol implementation, but over time, node operators and delegates will have greater say in decision-making. Accumulate plans to move towards a 100% on-chain governance model in the next 2-5 years, with all stakers participating in decision-making. The community will ultimately be able to vote on improvement proposals for Accumulate and funding for application/solution development. The process of full decentralization is expected to be slower than the implementation of Layer 2 funding proposal voting.

Risk Factor 2: Token-based Risk 

ACME Economic Model 

As stated in the whitepaper, Accumulate's ACME Token aims to follow the Burn and Mint Equilibrium (BME) model. The token is used as a means of exchanging value within the Accumulate network, while Credit is used to pay for blockchain services. Credit is pegged to the value of the US dollar, allowing enterprise users to budget their data usage in the long term without worrying about market conditions.

The BME model aims to achieve deflation by incentivizing network usage and staking. Periodically, ACME will be minted and distributed to stakers and validators as a reward for securing the network. At the same time, a portion of the circulating supply of ACME will be burned to create Credits, which are used to pay for blockchain services. The burned ACME will return to the unissued pool to be reissued in future blocks, creating a deflationary model that further incentivizes network usage and staking. Initially, the unissued pool contains 300 million ACME, which represents 60% of the maximum supply.

In addition, every month, 1-2% of the tokens in the unreleased pool will be minted as ACME to burn and create credit. This ensures a stable token supply for stakers and validators while maintaining the deflationary nature of the BME model.

In the first year, all ACME issuance will be distributed as rewards to stakers and validators for network security. In the future, a portion of ACME will be added to the Grant Pool to support partners and development.

The staking process in Accumulate aims to reduce the circulation speed of tokens and increase predictability, with the goal of having 60%-80% of the circulating supply staked. There are two types of staking: non-delegated staking and delegated staking. Non-delegated staking has no penalty or collateral, while delegated staking has higher rewards but requires a warm-up and cool-down period and punishes poor performance. You can choose to stake for a period of 3 to 24 months, with higher rewards for longer staking periods. Short-term and long-term locking will also be implemented, and delegators and operators may be punished for poor performance or malicious behavior. To incentivize stability in the network early on, operators may operate multiple active core validators, but this is only a temporary measure and may be discontinued in the future.

ACME Initial Token Distribution

The initial token distribution of ACME is as follows:

Grant Block will be allocated to community members to improve the protocol.

· Governance | 30M

· Core Development | 15M

· Ecosystem Development | 6M

· Business Development | 9M

Developer Block will be directly or indirectly allocated to shareholders, advisors, protocol contributors, and team members.

· DeFi Developer | 79,200,000

The content translates to: · DeFi Developer | 79,200,000.

· Unpaid job compensation | 3,600,000

· Consultant | 1,800,000

· 区块链 | 2,500,000

· 智能合约 | 1,200,000

· 加密货币 | 3,000,000

· 挖矿 | 1,500,000

· 钱包 | 2,000,000

· 公链 | 1,000,000

· 隐私保护 | 1,500,000

· 分布式存储 | 1,200,000

· 联盟链 | 1,000,000

· 数字资产 | 2,000,000

· 交易所 | 2,500,000

· 智能资产 | 1,000,000

· 共识机制 | 1,500,000

· 去中心化 | 2,000,000

· 加密算法 | 1,800,000

· 区块链浏览器 | 1,200,000

· 智能合约开发 | 1,500,000

· 区块链技术 | 3,500,000

· 区块链应用 | 2,500,000

· 区块链安全 | 1,800,000

· 区块链培训 | 1,000,000

· 区块链咨询 | 1,500,000

· 区块链投资 | 2,000,000

The translation of the above content is:

· Consultant | 1,800,000

· Blockchain | 2,500,000

· Smart Contract | 1,200,000

· Cryptocurrency | 3,000,000

· Mining | 1,500,000

· Wallet | 2,000,000

· Public Chain | 1,000,000

· Privacy Protection | 1,500,000

· Distributed Storage | 1,200,000

· Consortium Chain | 1,000,000

· Digital Assets | 2,000,000

· Exchange | 2,500,000

· Smart Assets | 1,000,000

· Consensus Mechanism | 1,500,000

· Decentralization | 2,000,000

· Cryptographic Algorithm | 1,800,000

· Blockchain Explorer | 1,200,000

· Smart Contract Development | 1,500,000

· Blockchain Technology | 3,500,000

· Blockchain Application | 2,500,000

· Blockchain Security | 1,800,000

· Blockchain Training | 1,000,000

· Blockchain Consulting | 1,500,000

· Blockchain Investment | 2,000,000

· External Contributors | 3,600,000

· Miscellaneous expenses | 1,800,000

We believe that the initial allocation is fairly distributed. In this distribution, DeFi developers and advisors can be considered insiders of the protocol, making the proportion of insider allocation about 41%. Relatively speaking, we believe this is reasonable.

Staking Rewards

Validators are nodes responsible for verifying transactions and adding them to the blockchain. As stated in the whitepaper (page 21), both stakers and validators will receive newly minted ACME as a reward.

"Every year, 16% of the tokens that have not been issued in the token pool will be minted at approximately one-week intervals as rewards for stakers and validators to compensate for the lack of transaction fees."

When a staker entrusts an Accumulate validator, the validator will receive 10% of the entrusted stake as a reward. Therefore, the approximate cost calculation for the security budget of a corresponding validator can be expressed as:

Weekly Validator Reward = (16% * Total Unissued Tokens / 52) * (Validator Stake / Total Staked)

By using the latest data from ACME, which recently self-staked and delegated staked by validators, we can approximate the staking rewards earned by each validator per week. Only 4 validators earn rewards exceeding $1000 per week. In fact, the validators operated by the Accumulated Finance team rank sixth in ACME staking on the network, earning approximately $800 per week.

Although this may seem like a low-security budget, considering that Accumulate is essentially a new project, it may be sufficient to address current network activity. Given that ACME is relatively illiquid, attackers will not be able to monetize attacks at the consensus level. While additional liquidity in the curve funding pool may increase this risk, it is currently limited.

Diversified Pledges and Growth

There are different types of agents in the pledge and validation participants. Their definitions are as follows:

· Core Validator: Responsible for proposing new blocks and verifying transactions on the Accumulate Network. Core validators are selected through consensus algorithms and play an important role in maintaining the security and integrity of the network.

· Pledge Validator: A validation node that participates in the consensus process, verifies transactions, and adds them to the blockchain. Unlike core validators, pledge validators do not participate in block proposals, but they are rewarded for participating in the network.

· Core followers: Nodes that follow core validators in the network. These nodes are responsible for replicating data and participating in the consensus process.

· Represents: individuals who hold tokens and delegate them to validators in exchange for rewards. Delegators do not directly participate in the consensus process, but they play an important role in securing the network by selecting trustworthy validators.

The core followers are 17, the core validators are 24, the representatives are 145, and there are 3 staking validators.

The minimum number of tokens held by core followers is 20,496,467, while the maximum number of tokens held by core validators is 73,088,162. Representatives hold 32,159,501 tokens, while staking validators hold 42,458,526 tokens.

This indicates an almost opposite relationship, which may indicate the relative distribution of tokens between internal personnel and retail users. Internal personnel are likely to be operating validators, while retail users are likely to be representatives.

Due to the limited availability of analytical data from Accumulate Network, detailed insights into node distribution cannot be provided. The author encourages the deployment of infrastructure similar to Etherscan Node Tracker for use by Accumulate Network.

Attention: In the current iteration of Accumulate, all validator types (core validators, staking validators, and core followers) are whitelisted and have equal weight in achieving consensus, with a total of 44 validators. Weighted proportionality to staked tokens will be introduced in future upgrades.

Token Ownership

In Delegated Proof of Stake (DPoS), the delegated tokens play a crucial role in the process of selecting validators. The design of the DPoS network allows token holders to vote for representatives who validate transactions and maintain the blockchain. In DPoS, the voting power of token holders is proportional to the number of tokens they hold or control through delegation. This means that token holders who hold more tokens or control more delegated tokens have a greater say in the election of validators, as well as the order of transactions and the construction of blocks. In addition, validators are rewarded with newly minted tokens and transaction fees for their efforts.

Essentially, in the Tendermint DPoS system, the person who controls over 2/3 of the token share actually controls transaction validation and block construction.

From the chart, it can be seen that in fact, there are two validators and their representatives (1) DeFi Devs team (acc://defidevs.acme) and (2) Accumulate Foundation (acc://accumulate.acme) controlling the network (if the network is DPoS today). Although this is not uncommon for early-stage protocols, it represents a worrying level of centralization that requires wider distribution of tokens.

The pledge mechanism has a positive feedback loop (assuming no punishment for specific validators' technical failures), which increases the balance of large token holders because they are more likely to be selected for block validation and construction. A cycle effect can be foreseen, further consolidating the influence of early insiders, which may suppress future growth.

In order to reduce the influence of decentralized validators, stakers may need to reconsider the current allocation and delegate to a wider group of validators. However, this may not effectively distribute voting power as in both cases, the majority of validators' stakes are self-delegated (56,193,658 ACME and 42,000,000 ACME respectively). As shown below, when excluding delegation, only 3 entities can reach the 2/3 threshold.

We suggest considering possible modifications to the verification mechanism. For example, implementing Quadratic Voting may more effectively balance the power of the Accumulate network. For examples, please refer to Axelar Network.

Attention: Decentralization is always a means, not the goal itself (i.e. the most common use of blockchain systems is to achieve censorship resistance). Therefore, participants should ask themselves whether the degree of decentralization is sufficient in the context of Accumulate Network.

Risk Factor 3: Technical Security Risk

From November 2021 (the time of Accumulate upgrade confirmation) to November 2022 (the time of Accumulate mainnet activation), a total of 9 test network versions have been deployed.

Fairyproof conducted an audit report between July 7, 2022 and September 13, 2022. We will focus on the most important issues raised by Fairyproof.

Consensus mechanism not fully implemented: [FP-1] DPoS algorithm not implemented, [FP-2] no forfeiture of Tendermint validator nodes

Accumulate network has not yet implemented the DPoS algorithm. This changes the security properties of Accumulate and poses a potential risk to the security and integrity of the network. During the audit, it appears that the network has been running on pure PoS.

In addition, the lack of punishment mechanism on the network poses a risk to users. If the verification node behaves improperly, there is currently no way to punish it. However, the Accumulate team has recognized this issue and plans to implement a punishment mechanism in future upgrades to punish such verification nodes. Once implemented, evidence will be recorded on the data chain, and the second-layer staking system will be responsible for discovering evidence and punishing verification nodes that behave improperly.

After consulting with the team, it has been clarified that DPoS and the punishment mechanism will officially launch in May 2023.

Unresolved attack factors: [FP-6] Potential malicious BVN, [FP-15] Improper validator node power

There is a potential security vulnerability in the consensus algorithm of Accumulate Network. When 2/3 of the validators in a single BVN are malicious, the BVN may become malicious and potentially attack normal BVNs. This is particularly concerning when there are fewer validators in the BVN, as it can be easily manipulated and used to attack the entire system.

In order to solve this problem, it is recommended to ensure that each BVN has a certain number of validators and use carefully designed algorithms to randomly assign validators to each BVN. At launch, each BVN will have at least 10 validators distributed among different mainnet participants. The Accumulate team plans to implement even more powerful solutions, including randomization, in version 1.1.

In addition, in the EndBlock function of Accumulate Network, the weight of newly added validators is always set to 1, which may pose a security risk. It is recommended to implement the DPoS algorithm to calculate the actual weight of validators. The Accumulate team has recognized this issue but has not yet provided an update. With the DPoS upgrade in May 2023, the weight of validators is expected to change.

[FP-18] Strengthen Token Security

The potential issue lies in the Token design of Accumulate, which may have some problems. Currently, the Token issuer only stores the metadata of the Token in its own BVN, rather than the balance of the Token holder's account. This implementation can lead to some problems, such as only verifying the sender's balance in the sender's BVN, while the receiver's BVN cannot verify the sender's balance.

It is suggested to consider implementing a logic where the BVN of the token issuer stores the account balance of all token holders, and acts as a relay node and verifies transactions when initiating token transfers.

Accumulate team responded that the status of BVN can only be tampered with by Tendermint authorized agencies and will be automatically shuffled in subsequent updates. In addition, each account can be audited independently without involving the entire blockchain audit, and the simplicity of maintaining proof of password fraud makes the protocol more difficult to threaten. They believe this makes the blockchain more decentralized. They plan to launch through a small number of trusted operators and shuffle BVN allocation and active validator allocation randomly in PoS v2 to increase the difficulty of group control over BVN.

Risk Analysis: Accumulate Bridge 

Product Introduction

Accumulate Bridge is a decentralized cross-chain bridge that allows users to transfer Accumulate Tokens, including ACME, between Ethereum and Accumulate blockchains. It uses renBridge Darknodes technology, where these Darknodes act as gatekeepers between different blockchain networks to facilitate cross-chain transfers. Currently, there are no penalties for cross-chain operators, meaning it is operated by a trusted set of nodes (i.e. PoA). If any malicious behavior is detected from any node, cross-chain transactions can be paused. Each cross-chain node operator has staked over 1.5 million ACME, which is quite significant considering the total token supply is 200 million, although not as significant in terms of USD (about $60,000).

This cross-chain bridge software includes cross-chain bridge nodes, cross-chain bridge front-end, and smart contracts. The cross-chain bridge node is a Golang backend application that integrates with the Accumulate blockchain and Ethereum. The operator of the cross-chain bridge node sets up a multi-signature token account on both sides of the bridge, and each account can only hold one type of token.

Users can initiate Accumulate Token transfers from one blockchain network to another by sending their Tokens to the cross-chain bridge multi-signature Token account. The memo field of the transaction is used to store the destination address of the wrapped Token on the target blockchain network.

Once the transfer request is validated, Accumulate Darknodes verify transactions on both the source and target blockchain networks. If the transaction is valid, Darknodes will sign a multi-signature contract to trigger the minting of wrapped Tokens on the target blockchain network.

On the Ethereum network, cross-chain bridge operators parse user's destruction transactions and release native ACME from the multi-signature token account on the Accumulate blockchain. The cross-chain bridge operator mints wrapped tokens on the Ethereum network by generating and signing multi-signature minting transactions using the Gnosis Safe API.

This cross-chain bridge also includes a fee module that charges a fixed fee without the need for an ACME price oracle. The collected fees accumulate in the Accumulate multi-signature token account.

Users can interact with the cross-chain bridge through the cross-chain bridge frontend, allowing them to initiate the transfer of Accumulate Tokens between Ethereum and Accumulate. The cross-chain bridge node, cross-chain bridge smart contract, and cross-chain bridge frontend are all open source and released under the MIT license.

Accumulate team responded that the status of BVN can only be tampered with by Tendermint authorized agencies and will be automatically shuffled in subsequent updates. In addition, each account can be audited independently without involving the entire blockchain audit. Coupled with the simplicity of maintaining proof of password fraud, this makes the protocol more difficult to be threatened. They believe this makes the blockchain more decentralized. They plan to launch through a small number of trusted operators and randomly shuffle BVN allocation and active validator allocation in PoS v2 to increase the difficulty of group control over BVN.

Risk Factor 1: User Asset Security

Currently, a 2-of-3 multi-signature manages Accumulate Bridge and is required to initiate cross-chain transfers. Although the validator set is small, they are not anonymous and are operated by a company.

The following are node operator addresses:

Cross-chain bridge signer (Ethereum)

· 0xCaD2fddb5009608Fa1ab042d643A61550A7dA63F 

· 0x9aB9c0d6741EaA6d6FDAf44c6EE80A2F9F59A8dB 

· 0x348975426678c0C0fCeD637b7Aa25C2900db986D 

Cross-chain bridge signer (Accumulate)

· MHz125tGb22fZtxjkViSDLmV5xeDmWRDgvZf39qbWMfbnDkYnJ8LLHT 

· MHz126MJiCCPe4XSiS4byx5ydc5dk3aM4JAjU4odXvhpF9pwubvBqnU

· MHz1277ixNm9EZcLbCBpbw8SDYRddWfzHbXmHcEgbAShLY2mWp5N8xw 

Although the companies behind the cross-chain bridge signers have not been publicly announced, the Accumulate team says they can be inferred on-chain. Based on this, the cross-chain bridge operators are DeFacto, HighStakes, and Kompendium.

Risk Vector 2: Token-based Risk

WACME Adoption

This bridge has had limited usage since its release. The holders of WACME seem to be primarily existing ACME holders rather than users who have transferred from Ethereum. As incentives for the WACME/frxETH pool increase, this may change and increase the liquidity of WACME. The number of independent WACME holders has increased since March, but adoption is still very low at present.

Potential WACME Decoupling Risk

Even if users cross-chain their assets, they may still lose funds if the underlying token is stolen. This is because the value of the synthetic ERC-20 WACME is determined by the underlying ACME locked on the Accumulate network. If the underlying ACME is stolen or damaged, the value of WACME will be affected and may become worthless depending on the severity of the damage. Therefore, wrapped ACME is entirely dependent on the integrity of its native network.

Risk Factor 3: Technical Security

Accumulate Bridge infrastructure (i.e. cross-chain bridge front-end and cross-chain bridge contract) has passed the audit by Fairyproof. No significant unresolved security issues were found during the audit.

However, it is worth noting a recommendation mentioned in the report: under the current implementation, cross-chain bridge validators complete cross-chain transactions by using the native private key stored in the configuration file, which is not the best security practice. The leakage of the private key may result in losses for WACME holders and LPs in the related Curve pool.

For improved security, it is recommended to use Clef for signing transactions on EVM chains and Walletd for signing transactions on the Accumulate network. These programs allow for transaction signing without exposing private keys to the internet. Clef and Walletd should be deployed separately from cross-chain bridge nodes and managed by different individuals for access control. This may increase maintenance costs, but greatly enhances overall security by reducing the risk of private key leaks.

Risk Analysis: Accumulated Finance

Product Introduction 

Accumulated Finance is a platform that allows users to participate in the liquidity equity pledge of Accumulate Protocol, similar to Ethereum's Lido. Users can easily pledge any amount without worrying about the challenges and risks of managing equity pledge infrastructure. Pledgers will receive stACME assets, which are a tradable tokenized equity pledge derivative representing their equity in the underlying equity pool and its earnings. This allows users to pledge their ACME tokens on Accumulate Protocol without leaving the Ethereum ecosystem.

Accumulated Finance plans to provide liquidity for WACME using the deep liquidity Curve pool. WACME is the wrapped version of ACME on the Ethereum network. The pool paired with frxETH will bring Ethereum users to WACME, while the pool paired with stACME will provide users with access to ACME staking rewards.

Through multi-signature, node operators are added to Accumulated Finance to be responsible for actual equity pledge, maintaining infrastructure, and ensuring the security of pledged assets. Given that Accumulated Finance plans to launch Token (ACFI), there may be governance voting in the future to change the configuration of node operators, similar to Lido.

Attention: The above figure shows the redemption of ACME. Currently, redemption is not possible. When the Accumulate network supports redemption, Accumulated Finance states that they will support the redemption of stACME.

When users deposit WACME into ACME liquidity equity collateral, the deposit will be transferred to Accumulate Bridge. Then they are transferred to the destruction address. The cross-chain bridge releases ACME on the Accumulate network, which is operated by whitelist node operators for equity collateral, and users receive corresponding stACME. The withdrawal event executes the reverse process, as shown in the figure.

Risk Factor 1: User Asset Security

Release Pledge ACME:

Users should be aware that at the time of this report's release in early May, it was not possible to release pledged ACME (similar to ETH pledge before Shanghai upgrade). The Accumulate team announced their plan on Discord, allowing for withdrawal of pledges by the end of May. The Accumulated Finance team also reported to us that they will allow redemption of stACME after this network upgrade. Currently, the only way for users to exit stACME is through the stACME/WACME Curve pool.

Access Control:

The ACME liquid staking contract is owned by a 2-of-3 multisig wallet controlled by members of the Accumulated Finance/Accumulate network team. Signers include Anton Ilzheev representing Accumulated Finance, Paul Snow, Chief Blockchain Scientist of Accumulate Protocol, and Ethan Reesor, a core developer of Accumulate Protocol. These individuals are responsible for managing the multisig wallet and have specific management permissions, including ownership of the ACME liquid staking contract, setting up the staking accounts for deposits, and minting stACME. All related contracts are non-upgradable and management functions are not time-locked.

Here is an overview of the ACME contract, contract ownership, and privilege functions for Accumulated Finance's liquid collateralization:

ACMELiquidStaking contract - handles the logic of accepting WACME deposits, transferring them to the Accumulate Bridge, and minting stACME tokens for users.

· The owner is Accumulated Finance multi-signature.

· approve_bridge() - Approve the cross-chain address of WACME.

· mint_stACME() - Casts stACME to the specified address.

· renounceOwnership() - Renounce ownership of ACMELiquidStaking.

· renounce_stACME_ownership() - Renounce ownership of stACME.

· set_stakingAccount() - Set Accumulate Staking Account 

· transferOwnership() - Transfer ownership to another address.

· transfer_stACME_ownership() - Transfer ownership of stACME to another address.

stakedACME contract - stACME Token contract

· The owner is the ACMELiquidStaking contract (owned by the Accumulated Finance multisig).

· Call functions through LiquidStaking contracts

· pause() - This function cannot be called because the LiquidStaking contract does not support this function call. To use this function, the LiquidStaking contract needs to be upgraded or the ownership of stakedACME needs to be transferred.

StakingRewards Contract - Users can stake their stACME and receive staking rewards.

The content you provided is:

· The owner is Accumulated Finance: the deployer (EOA).

· setRewardsDuration() - Set the duration of reward payments in seconds. 

notifyRewardAmount() - Set the reward amount for the next reward cycle.  

Fee:

Accumulated Finance charges a fee of 20% from ACME's collateral rewards and 8% from the WACME/frxETH incentive distribution. The details of the fees and their funding sources are as follows:

· Liquidity Staking

——ACME stakes on acc://accumulated.acme/staking and delegates its stake to the acc://defacto.acme validator operated by the Accumulated team, and receives rewards through acc://accumulated.acme/staking-rewards. The fee is deducted from the staking rewards, and the remaining portion is used to increase the benefits of stACME holders.

——4% is allocated to the Accumulated Finance treasury on the Accumulate Network.

——8% is used for veACFI stakers (as the token is not yet listed, this fee is currently directed towards the aforementioned treasury).

——8% is used for Accumulated Finance incentives on the Accumulate Network, which is used to incentivize liquidity providers in the stACME/WACME Curve pool.

· Distribution of WACME/frxETH Incentives

- These incentivized funds come from two Accumulate accounts (acc://defidevs.acme and acc://wacme-lp-incentives.acme), which direct their ACME staking rewards to the Accumulated WACME LP incentive account. An on-chain proposal references this resolution to transfer staking rewards from the Accumulate business committee to other accounts.

- A 4% fee is charged for the allocation of these incentives to pay for related gas fees and transfer them to the Accumulated Finance treasury.

——4% is used for veACFI stakers (as the token is not yet listed, this fee is currently directed to the above-mentioned treasury).

The Accumulated team uses this script to process expense allocation on the Accumulate network. Expense processing is a manual process, so users must trust that the Accumulated team can handle expenses and rewards honestly and responsibly.

Risk Factor 2: Token-based Risk

Currently, the governance of Accumulated Finance does not seem to be clearly defined. However, the fee page indicates that veModel will be used.

According to the information provided on this page, it can be imagined that the potential veTokenomic model of Accumulated Finance may involve using veACFI staking to incentivize users to participate in the platform. Users who stake their ACFI Tokens can receive a portion of the platform's generated fees, including 8% fees in the ACME liquidity staking fee structure and 4% fees in the WACME liquidity provider incentive fee structure. The amount of staking rewards and decision-making power is likely determined by the lock-up period committed by the user.

According to consultations with the team, they are not in a rush to launch a token and will only do so under reasonable circumstances. They have expressed their desire to provide reliable utility for any governance token, rather than simply launching a token for farming purposes.

ACFI's Initial Token Distribution

So far, there is not much information available about this Token, except that (1) ACFI Token holders will have the right to receive 50% of the protocol revenue, and (2) 1% of the total ACFI supply will be distributed to early adopters through several rounds of distribution. Early bird users who deposit ACME or WACME into liquidity staking before 23:59 on March 9, 2023 will be able to participate. The distribution of ACFI will be proportionally allocated based on the amount and duration of the deposit. Later, retrospective distribution will be provided to liquidity providers who provide early stACME/WACME Curve pool.

Risk Factor 3: Technical Security

This code has not yet been audited. They plan to conduct an audit when releasing ACFI. The system consists only of several contracts forked from previously audited projects.

Llama Risk Measurement Standard

1. Can an entity deceive its users?

Yes. There are multiple trust points in the system, including the deployer of Accumulated Finance, the Accumulated Finance 2-of-3 multisig on Ethereum, the Accumulated Finance 4-of-6 multisig, and the 2-of-3 multisig on Accumulate Bridge. In all cases, trust is placed in the core members of the Accumulate team, whose identities are known.

2. If the team disappears, can the project continue?

Cannot. The team needs to stake and process user rewards. Without the team's active efforts, stACME serves no purpose.

3. Does the feasibility of the project depend on additional incentives?

No. Accumulated can be supported by the native staking rewards of Accumulate for this project. Additional CRV issuance only provides additional bootstrap support.

4. If the demand drops to 0 tomorrow, can users get a full refund?

Cannot. Prior to pledging, withdrawing, and activating, users who wish to exit stACME must do so through the Curve pool. If the Curve pool becomes unbalanced, users may experience price slippage.

5. Has the audit revealed any concerning signs?

Accumulated Finance is a small-scale project in its early stages. Although its system is quite simple and uses audited contracts, it has not yet been audited. The team plans to conduct an audit when releasing its ACFI.

Llama Risk Advisory

Like many early-stage DeFi projects, Accumulated Finance requires a lot of trust in the honesty and reliability of its core team. It has gained greater credibility through direct contact with the core developers of Accumulate Network and the identity of its team. Accumulate itself is an early-stage Layer 1 protocol that has not yet implemented its core functionality of consensus algorithm, including true punishment-based proof of stake consensus, performance tracking, and staking withdrawal. The Accumulate cross-chain bridge also provides a single point of failure, and its private key management strategy may pose risks and losses to WACME holders.

Although there are important trust assumptions that need to be treated with caution, the flow of funds on the chain is auditable, and the reward income flow and fees for staking have been clearly defined. Users can always publicly verify the correct operation of the Accumulated Finance staking system. Therefore, we are satisfied with the measurement request for the stACME/WACME and WACME/frxETH pools.

Original article link

Welcome to join the official BlockBeats community:

Telegram Subscription Group: https://t.me/theblockbeats

Telegram Discussion Group: https://t.me/BlockBeats_App

Official Twitter Account: https://twitter.com/BlockBeatsAsia