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This edition of the newsletter dives into Iota - which has evolved from an IoT-focused protocol into a versatile L1 with dual smart contract capabilities (EVM and MoveVM), offering high TPS, staking rewards, and real-world applications across sectors like trade logistics and government partnerships. We'll also share some interesting articles, portfolio updates and market highlights.
a) Mastering AMMs: Exploring Order Books and Intents
• AMMs face significant challenges including impermanent loss for liquidity providers and MEV attacks for users, leading to three major innovations: hybrid CLOB-AMM models (like Vertex Protocol combining orderbooks with AMMs), intent-based systems (growing to 12% of DEX volume through platforms like CoW Swap), and new experimental AMM designs (am-AMM for auction management, pm-AMM for prediction markets, and sr-AMM for sandwich resistance).
• While these innovations aim to improve capital efficiency and user experience while reducing attack vectors, the space still grapples with centralization risks, particularly in block production and intent execution, suggesting the DeFi landscape continues to evolve toward more efficient but complex solutions.
Discover how order books, intents, and hybrid AMMs are reshaping DeFi. Learn about impermanent loss, MEV risks, and new solutions driving decentralized trading.
b) The Battle of the AI Agent Frameworks
• The AI agent framework landscape is divided between Web2 players (like LangChain and AutoGen) focusing on enterprise/productivity and Web3 frameworks (like ElizaOS, Virtuals, and ARC) targeting entertainment and crypto-native use cases, with the sector experiencing significant volatility (70-90% selloffs) despite showing promising technological advances in multi-agent systems and reasoning capabilities.
• The industry appears poised for transformation as AI drives a shift from traditional business models to more decentralized economic structures, though framework companies face challenges around moat development, regulatory uncertainty, and competition from Web2 incumbents.
The AI application bubble has only just begun. RL, distillation, inference time compute: the cat is out of the bag. Even if models were not scaling along four vectors (which they are) and the...
c) Introducing Perplexity Deep Research
• Performs iterative research with reasoning capabilities and scored 20.5% accuracy on Humanity's Last Exam (outperforming several competing models)
• Achieved 93.9% accuracy on the SimpleQA benchmark
https://www.perplexity.ai/hub/blog/introducing-perplexity-deep-research
a) MyShell
• MyShell has announced major updates to their ShellAgent platform, introducing a no-code AI agent framework with 300+ widgets, native Twitter integration for social automation, and on-chain AI capabilities for autonomous DeFi operations.
• The enhancements aim to democratize AI agent development while bridging social media and blockchain technologies, allowing both developers and non-coders to create sophisticated AI agents that can automate tasks across social platforms and execute blockchain transactions.
ShellAgent Protocol—The new open and modular agentic framework IM Integration—Deploy AI agents directly on X On-chain Intelligence—AI-driven DeFi automation &…
b) Polymer Labs
• Polymer has announced its integration with the Ethereum Foundation's Open Intents Framework (OIF), becoming one of the first interoperability solutions to support this initiative that aims to standardize cross-chain and cross-protocol interactions across the Ethereum ecosystem.
• As part of their commitment, Polymer has contributed their intent settlement implementation directly to the OIF codebase, enabling universal compatibility and allowing developers to build ERC7683 intent-powered cross-chain dApps without having to create custom solutions for every bridge, chain, or protocol.
A shared ERC7683 intent implementation for all of Ethereum Interoperability
c) Supra
• Supra's innovations, including MEV resistance and auto-liquidation systems, align with the broader DeFi trend of enhancing transparency and efficiency, as seen in recent advancements like MakerDAO's auction improvements following "Black Thursday" in 2020.
• The project's focus on native automation and high-frequency revenue generation comes as Bitcoin L2 solutions gain traction, with Supra's Bitcoin DeFi Accelerator positioning it to capitalize on the growing integration of DeFi protocols across Bitcoin's ecosystem.
Introduction
It's finally here, Iota now supports smart contracts. Nine years in after its initial announcement, IOTA has transformed from a dedicated IoT-focused protocol into a versatile chain with smart contracts that is also focusing on driving real-world adoption. Their vision was always centred on creating a connected and trusted ecosystem without digital barriers - democratising access to the global digital economy.
The IOTA Foundation, established as a German non-profit organization, has grown into one of the most experienced and academically respected R&D organisations in crypto that is also partnered with various government bodies and associations. The Foundation, led by Dominik Schiener has also been instrumental in advancing both theoretical and practical aspects of blockchain protocols and networks, publishing over 65 research papers and developing entirely new node software architectures.
IOTA's Evolution: From DAG to Move-based Layer 1
The journey of IOTA began in 2015 when it introduced the first Directed Acyclic Graph (DAG)-based distributed ledger technology (DLT), known as the Tangle. This approach promised feeless transactions and IoT optimisation, focusing initially on enabling machine-to-machine communications and micropayments without traditional blockchain limitations. This was ahead of its time, and because there were not smart contracts enabled there were not many dApps that could be showcased.
Since then, Iota has undergone through several upgrades and changes
• Initial phase: DAG-based architecture, demonstrating the potential of feeless transactions in an IoT-optimised environment
• Chrysalis upgrade: marked a significant evolution, enhancing performance, stability, and security while improving dev tooling. This update addressed early limitations and significantly improved the protocol's usability for developers, businesses, and exchanges
• Stardust upgrade (now): this upgrade transformed IOTA into a multi-asset ledger with Layer 2 EVM smart contract capabilities. This development marked IOTA's entry into the programmable blockchain space (smart contracts enabled), enabling non-IOTA token minting and expanding the protocol's functionality beyond just IoT
IOTA Rebased: A Strategic Pivot
November 2024 marked a pivotal moment for the team with the introduction of IOTA Rebased, representing a fundamental shift in the protocol's direction. Following the successful replacement of the Coordinator with a distributed validator committee through the Stardust upgrade in 2023, the team identified the need for a more comprehensive transformation to meet evolving market demands.
The new IOTA Rebased architecture introduces a sophisticated dual smart contract ecosystem (EVM and MoveVM functionality). This unique approach provides flexibility for devs, allowing them to leverage both Ethereum's established ecosystem and Move's advanced safety features, with the latter growing more in popularity. The upgrade also delivers remarkable performance improvements, with transaction speeds reaching 50k TPS and sub-second finality, while introducing staking capabilities offering attractive yields between 10-15% APY.
Technical Innovation and Market Position
IOTA's implementation of dual VM support sets it apart in the L1 competition. The EVM integration ensures seamless compatibility with the vast Ethereum ecosystem, allowing developers to deploy existing dApps without modification and allows existing projects (especially blue-chip DeFi to port over easily). EVM compatibility also solves the cold start problem for users to bridge over, without them having to download new wallets. Meanwhile, the MoveVM integration provides enhanced security features and resource optimization, particularly beneficial for enterprise applications requiring robust safety guarantees.
The technical architecture combines these VM capabilities with IOTA's native DAG structure, enabling parallel transaction processing and efficient data propagation across the network. This hybrid approach allows IOTA to maintain a high performance while offering the programmability devs expect from modern L1s. The perennial chicken and egg problem is L1s need good devs to build interesting dApps for users to bother to bridge funds over, but devs will only come if there are users on the L1.
Real World Adoption and Enterprise Integration
IOTA's impact extends beyond technical innovations into practical applications across various sectors. In Europe, IOTA has established itself as a trusted partner, securing a finalist position in the European Blockchain Service Infrastructure procurement program. This has led them to develop sophisticated digital product passports and cross-border IP management solutions, demonstrating the protocol's ability to meet rigorous EU standards.
The Trade Logistics Information Pipeline (TLIP) stands as one of IOTA's most compelling real-world implementations. Operating in Kenya, TLIP has achieved full integration with the KenTrade national system, enabling real-time data sharing and streamlined product certification processes. This success has attracted attention from international organizations, including the Tony Blair Institute, paving the way for global expansion of the system.
In the Middle East, IOTA has made significant inroads by becoming the first DLT foundation registered with the Abu Dhabi Global Market. Through partnership with Realize, IOTA has facilitated the tokenization of U.S. Treasury initiatives, while securing Shari'a compliance certification opens doors to Islamic finance markets.
We can see that Iota is taking a different approach to most of the other L1s out there by constantly focusing on real-world usage of its technology and partnering with different associations that lends more credibility to their name. They have also shown that they can navigate complex regulatory environments in various jurisdictions.
Tokenomics and Economic Model
The economic structure of IOTA Rebased introduces several innovative elements while maintaining transparency and fairness. Currently, 76% of the total supply circulates in the market, with complete distribution planned over the next three years, representing an annual inflation rate of approximately 12%. It is trading at a $1.3b FDV at current time of writing with a market cap of $800m.
The staking mechanism introduces a balanced approach to network security and participant rewards. With an initial target inflation rate of 6-7% annually, the system provides staking rewards between 10-15% APY across 150 permissionless validator slots. This structure encourages broad participation while maintaining network security through a Delegated Proof of Stake consensus mechanism.
Further Considerations
Despite its promising advances, IOTA faces several significant challenges in its pivot and upgrades. The dual VM approach, while innovative, introduces complexity that could impact both development and adoption as well as being first of its kind. Additionally, IOTA's relatively late entry into the smart contract space means it must compete with well-established L1s (that have a larger and strong community of devs and loyal users) that already command significant developer mindshare and liquidity.
The real-world implementation of IOTA's solutions, while promising, has progressed more slowly than anticipated. Complex regulatory requirements across different jurisdictions and the need for integration with traditional systems present ongoing challenges. The protocol must also address the limited size of its developer ecosystem, which currently focuses primarily on IoT applications rather than the broader DeFi landscape.
Conclusion
IOTA's transformation through the Rebased upgrade represents both an opportunity and a challenge. While the strategic pivot toward mainstream adoption through dual VM support and enhanced functionality positions IOTA uniquely in the blockchain landscape, success will depend on effective execution across multiple fronts. The protocol must balance its ambitious technical goals with practical market realities, while maintaining community cohesion through significant changes.
The combination of established partnerships and focus on real-world applications provides a strong foundation, but IOTA faces significant challenges in developer adoption, market education, and infrastructure development. The project's success will largely depend on its ability to deliver on its technical promises while building a vibrant ecosystem that can compete with established blockchain platforms.
*Disclosure: Signum Capital hold a position in the company mentioned above and the information provided on this newsletter is for general informational purposes only and does not constitute professional nor investment advice.
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