The Protocol: Hyperliquid Criticism, Starkware Appchains, Arbitrum-a-lotte, Avalanche Upgrade

This article is featured in the latest issue of The Protocol, our weekly newsletter exploring the tech behind crypto, one block at a time.

Welcome to The Protocol, CoinDesk's weekly wrap-up of the most important stories in cryptocurrency tech development. I'm Ben Schiller, CoinDesk’s Opinion and features editor.

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HyperLiquid, a major up-and-comer in the world of decentralized finance, came under fire this week over claims that the network is overly centralized and difficult to work with.

HyperLiquid is best known for its flagship decentralized exchange and it recently launched a layer-1 blockchain — all bids by the startup to, according to its flashy web copy, eventually "house all finance."

Despite earning plaudits for its fast and easy-to-use exchange interface, HyperLiquid has been criticized for, among other things, operating a closed-source codebase. According to a widely-shared X thread from Kam Benbrik, an employee at the validator firm Chorus One, the validators powering HyperLiquid are mostly blind to how the chain works under the hood, making it difficult for them to operate the hardware that's supposed to run the chain.

Benbrik also raised concerns that HyperLiquid's highly concentrated token supply — and its process for admitting validators to its L1 chain — make the chain centralized and vulnerable to failures.

"Hyperliquid must improve transparency, decentralize staking, implement a fair validator selection process, and engage more with external validators," Benbrik wrote.

The complaints come on the heels of a flurry of positive media attention for HyperLiquid following November's massively successful HYPE airdrop. It hasn't all been smooth sailing for the startup, however, with scrutiny arising in December following reports of potential North Korean activity on the network — interpreted by some as a sign that the regime well-known for its crypto-hacking efforts might have HyperLiquid in its crosshairs.

HyperLiquid has batted away the North Korean security concerns, and it recently addressed the centralization and closed-source critiques in an X thread, stating that the criticisms largely stemmed from "misconceptions" about its tech. Read more.

Starknet, the layer-2 blockchain on Ethereum known for its embrace of zero-knowledge (ZK) cryptography, is adding appchains.

StarkWare, the primary developer of Starknet, told CoinDesk that its "SN Stack" will let developers easily build blockchains tailored to specific crypto use cases. Appchains have become a hot topic in the L2 space as a way to scale Ethereum and onboard new users, and Starknet is now joining the likes of Polygon and Scroll in offering the technology.

Starknet launched its mainnet in November 2023 following years of anticipation, and it has quickly become one of the most popular L2s on the market. The network is known for its ZK technology, which allows it to process transactions much faster and cheaper than Ethereum.

With the addition of appchains, Starknet is now positioning itself as a multi-chain platform. Developers will be able to use Starknet's technology to create their own blockchains, which can be customized for specific applications.

For example, a developer could use Starknet to create a blockchain for a decentralized game, a social media platform, or a supply chain management system. Each appchain would have its own unique rules and governance structure, and it would be able to interoperate with other Starknet appchains.

StarkWare said the SN Stack will be released in stages throughout 2024, starting with a closed beta in Q1. The full launch is expected in Q4 2024. Read more

The largest layer-2 network on Ethereum, Arbitrum, is planning to deepen ties with Lotte Group, the multibillion-dollar South Korean conglomerate known for its vast portfolio of shopping malls, media companies and entertainment properties.

Offchain Labs, the developer behind Arbitrum, and the Arbitrum Foundation, the non-profit that stewards the project's development, told CoinDesk a financial deal is in the works that would cement Arbitrum as the main blockchain infrastructure provider for "Caliverse," Lotte's metaverse gaming platform.

The move comes as Arbitrum is preparing to launch its native token, which is expected to generate a windfall for early users of the network. Arbitrum is also facing increasing competition from other L2s, such as Optimism and Starknet.

Lotte, founded in 1948, is one of the largest companies in South Korea and has a presence in a wide range of industries, including retail, food, beverages, chemicals, entertainment and financial services.

The company launched Caliverse in 2022 as a metaverse platform that combines gaming, social networking and e-commerce. Caliverse currently has a native token called CALI, which is used to reward players and purchase items