Ape-tizers:
- Fuel is a layer-2 focused blockchain infrastructure protocol that leverages a modular design to enhance scalability and execution.
- The FuelVM, a virtual machine built from the ground up, is optimized for high-performance execution.
- Fuel’s optimized technology makes it the perfect venue for teams building high-performance applications like on-chain orderbooks.
Since the launch of Ethereum ten years ago, the smart contract blockchain landscape has evolved significantly.
From alternative L1s to data availability chains to modular blockchain to optimistic rollups to ZK rollups to layer-3s to whatever other new buzzword chain you would like to include. Through all this innovation, can you confidently say that the industry has found the ideal solution?
I would tend towards no.
Every new solution that comes to market often comes with a tradeoff.
One solution may be decentralized, but it compromises on scalability. Other solutions might be scalable and secure, but decentralization is sacrificed. Different solutions may lack in the security department, leaving them open to network-level attacks.
Even if there are networks that reach sufficient thresholds on all three metrics, they face major performance issues at scale.
High-performance execution is in demand right now, and Hyperliquid is the living and breathing exhibit.
As the networks grow, so does state size (the total amount of data required to represent the current state of the blockchain). This, in turn, increases the burden on node operators, which then causes issues like network outages and slow transaction execution.
So, ten years on, we’ve had a lot of build-up but no proper end product. As the industry transitions its focus from infrastructure to applications, we’re yet to see the perfect blockchain network that can support high-performance applications like on-chain orderbooks while maintaining decentralization.
Creating killer apps requires a killer network behind them that’s optimized for execution.
In today’s article, we’re going to delve into Fuel and explain how their register-based virtual machine (VM) could be the game-changing solution that the smart contract landscape has been waiting for, positioning the protocol as the epicenter of high-performance finance.
What is Fuel?
Fuel is a layer-2 focused blockchain infrastructure protocol that leverages a modular design to enhance scalability and execution. It creates a base layer upon which developers can create next-gen on-chain applications and layer-2 networks.
Now I know this is a mouthful, so allow me to break it down step by step.
Fuel V1 launched in 2020 as the first optimistic rollup on Ethereum. After years of observing and reiterating, the team identified key issues such as inefficient execution, centralized sequencers, performance bottlenecks, etc.
Therefore, the team opted for a modular model to solve the core infrastructural issues with rollups.
The model uses the Ethereum layer-1 as the consensus and data-availability layer, while Fuel operates as the execution layer powering the next generation of dApps.
How Fuel works?
There are five key features that make up the Fuel network:
- FuelVM
- Transaction parallelization
- Native assets
- Sway language and developer tooling
- Decentralized sequencers
FuelVM
The FuelVM (Fuel Virtual Machine) is at the core of the Fuel stack and employs a register-based architecture to offer better speed and scalability than all of the other virtual machines commonly used in the industry.
Register-based systems are often used in modern computing systems due to their enhancement of efficiency and performance. They’re a perfect system for supporting complex operations, which is why it makes sense for a network like Fuel, which is looking to be the hub of the next generation of killer apps, to adopt them.
The register-based architecture operates like a smart storage room with storage spots called registers. These registers have a name assigned to them (for example, R1, R2, R3).
If the values in R3 are required, they can be accessed directly by referring to the name of the register. You don’t have to go through the first two to get access.
So what does this achieve?
One of the biggest benefits is a significant jump in performance. Reduced errors, reduced time lags, reduction in total data stored, and direct access to registers ensure this.
In addition, the gas required for complex operations is reduced, making it cheaper for developers. Writing and deploying code is also much easier, but we will get to that later in the article.
The FuelVM has been built from the ground up with performance optimization in mind. Imagine building an application that’s as good as Hyperliquid but with additional features and no performance hiccups. The FuelVM is designed to support such applications.
So that covers FuelVM's basic architecture. However, when it comes to how it operates in practice, the surrounding elements of transaction parallelization, the Sway language, and native asset implementation really allow this architecture to shine.
Transaction parallelization
Transaction parallelization is the concept of blockchains being able to execute multiple transactions on the network simultaneously rather than sequentially. It’s a method to significantly enhance the network's efficiency.
Think about it this way.
Sequential transaction processing is like a massive multilane highway that merges into one toll booth. Lots of transactions are coming in, but there’s ultimately a bottleneck when it comes to processing.
Parallel transactions are like multilane highways, with each lane having its own toll booth. Despite a large number of transactions coming in, they are processed at the same time, causing no bottlenecks or traffic jams, just smooth sailing all the way home.
Transaction parallelization on Fuel is made possible because it employs a UTXO (unspent transaction output) model rather than an account-based model.
Those of you who’ve done your research on Bitcoin will probably be familiar with the UTXO model.
In a UTXO model, each UTXO is a record of a specific amount of value (or asset) that has not yet been spent and is associated with one particular account or condition.
Transactions then consume existing UTXOs as inputs and create new UTXOs as outputs.
For example, if Bob has 15 FUEL and would like to send 10 FUEL to Alice, Bob's UTXO (15 FUEL) is taken as an input, 10 FUEL is sent to Alice, and Bob's new UTXO (5 FUEL) is generated as an output.
This means UTXO transactions are independent, so implementing this model allows for parallel transaction execution, making the Fuel network more efficient and scalable.
With high performance now in demand among users and developers, implementing transaction parallelization and a UTXO model presents a refreshing step forward for smart contract networks. Whether it's orderbooks or consumer applications, Fuel will be the answer.
But the UTXO model has another role in Fuel, and that’s native assets.
Native assets
Native assets refer to all assets on the Fuel network being enshrined at the protocol level rather than requiring separate smart contracts to create new assets, as is the norm on other chains.
Networks like Ethereum or Solana only focus on one asset at the protocol level: the native asset (ETH or SOL).
With Fuel, it’s all assets. So, when developers create protocols with affiliated assets, they don’t need to create separate smart contracts for basic things like transfers and balance checks; it’s all enshrined at the protocol level.
This significantly reduces the complexity, time, and cost of building applications on-chain. This opens up room for more innovation while minimizing potential security risks for the applications.
Here’s a comparison of how creating an asset on Fuel works in comparison to other chains.
On Ethereum, you have to first make an ERC-20 contract, ensure the code has no vulnerabilities, deploy the contract, and then maintain the logic.
On Fuel, you deploy a Sway contract to create an asset. The asset is assigned an asset ID and deployed on-chain, ready for everyone to use.
Each asset on Fuel is represented as a UTXO, so when using native assets to interact with apps, the transfers happen in line with the UTXO model described above. The transaction parallelization element gives Fuel a huge edge over the competition in terms of user experience.
Imagine creating an AMM or perp DEX through a single smart contract with most of the token logic taken care of. Security concerns are reduced, and the applications will also be able to compete with some of the top CEXes in the industry.
Sway language and developer tooling
Smart contracts on Fuel must be written in the Sway programming language.
Sway is a programming language specifically created for the FuelVM. It combines the best elements of Rust and Solidity to create a programming language fit for the modern blockchain landscape—a way to write secure smart contracts easily.
Its syntax, grammar, and design ideology are similar to Rust, but Rust as a language is not optimized for the intricate requirements of blockchain development. Solidity is used as inspiration for implementing the blockchain elements, but Solidity also lacks in many other departments.
The primary reason for a different language is that the FuelVM is being built from the ground up to be the most scalable and efficient chain.
The use of a UTXO model makes it difficult to implement Solidity and be EVM-compatible; however, the performance enhancements, security improvements, and overall developer experience improvements seen on the FuelVM should be worth it.
However, as we know, the EVM has deep penetration within this industry. With so many important elements of the industry tied to the EVM, along with the time developers spend learning a new language, it’s normal to be skeptical about implementing a new language.
But Fuel has this covered. The developer toolkits ensure that the developer experience is smooth and seamless.
Here are a few of their most essential tools:
- Forc: The backbone of Fuel, responsible for everything, from compiling Sway smart contracts to deploying applications. Forc makes the entire development process as simple as possible.
- Fuel Rust SDK: Allows developers to interact with the Fuel network using Rust.
- Fuel Wallet SDK: Allows developers to create secure, user-friendly wallets that integrate directly into their applications.
- Fuel Typescript SDK: Simplifies the process of integrating Fuel into web applications. Front-end developers can easily build decentralized applications leveraging Fuel’s infrastructure.
Decentralized sequencers
Sequencers are the party responsible for ordering and batching transactions made on a rollup and publishing them to the base chain (layer-1). The issue is that most rollups often have one sequencer, which is usually run by the company that built the rollup.
This presents a significant issue of centralization as the sequencer presents a single point of failure.
Fuel is flipping the script by distributing the ordering and batching responsibilities across multiple validators to create a decentralised sequencer set up. The protocol is leveraging the battle-tested Cosmos SDK framework for this modular approach.
There are four key components to the decentralized sequencer setup:
- Validator nodes: The nodes responsible for processing and batching transactions and producing blocks. The hardware requirements are modest, which means more users can take part, thereby increasing decentralization.
- Ethereum contracts: The contracts that interact with the nodes to handle settlement on the base layer, and also the contracts responsible for secure asset bridging between Fuel and the Ethereum L1.
- Monitoring system: A system that tracks Ethereum events like deposits or messages to coordinate actions between Ethereum and Fuel.
- FuelStreamX: A temporary and centralized solution responsible for settlement back to Ethereum. This will eventually transition to a zero-knowledge base system to enhance security and decentralization.
This covers the crux of the Fuel network, the FuelVM, and the over-infrastructural architecture for this next-gen scaling solution. Now let’s look at the first rollup that leverages Fuel’s infrastructure.
Fuel Ignition
Fuel Ignition is the first rollup to go live, leveraging the Fuel V2 network. It’s a high-performance scaling solution that surpasses most of the existing layer-2 solutions when it comes to execution and scalability.
Similar to the FuelStreamX feature mentioned above, Fuel Ignition will also operate in a more trustworthy manner in the initial phases, as Fuel is taking the approach of progressive decentralization.
Once the entire feature set is built out, Fuel Ignition will integrate it and turn it into a fully Ethereum-secured rollup with fraud proving, decentralized sequencing, and all the other good stuff.
Fuel Ignition is already doing pretty well. The total value secured currently stands at $51.2 million (per L2BEAT). It already has a pretty strong ecosystem featuring the likes of:
- Bako Safe - Multi-sig wallet
- Mira Exchange - AMM and Liquidity hub of Fuel
- LayerSwap - Cross-chain protocol
- SwayLend - Lending protocol
- The Rig - Liquid staking
- Fuelet - User-friendly wallet
- FuelUp fun - Memecoin launchpad
These are just a few examples, but I think you get the idea. Fuel Ignition's future looks exciting.
Real-life applications on Fuel
Now that you understand the technology behind Fuel, you also know that the tech is only one aspect of it. You can have the best tech, and it could mean nothing if it’s not used in practice.
So, what are some of the applications we are likely to see on Fuel?
Orderbook engine
Imagine being able to deploy an application like Hyperliquid, but just as one smart contract. The FuelVM enables that.
Orderbook engines will be one of the applications that will benefit significantly from Fuel’s infrastructure because it doesn’t have to be implemented as an orderbook that just has a few more elements of transparency over a CEX. That’s basically a transparent CEX.
Fuel allows orderbooks to scale to heights never before seen on-chain while remaining fully decentralized.
In fact, there are already murmurs in Twitterverse about Fuel building an O2 order book in-house. It’s said to feature privacy pools, yield loops, and strategy vaults, among other things.
It’s essentially like the endgame for on-chain orderbooks. You can check this tweet by Rishabh for more info.
Intents-based exchange
The intents narrative has been picking up steam for quite some time now.
The concept of intents is simple: a user expresses an intent to achieve a desired outcome, such as “I want to buy BTC using USDC every time the price drops 10%.” The system is then designed to take this intent and execute it.
Intent-based AMMs and perp DEXes have been picking up steam but have yet to reach their full potential. The UTXO and parallel transaction model on Fuel could prove to be the perfect breeding ground for a successful intent-based protocol.
Prediction market
We’re all aware of how popular Polymarket is as a product. People love to gamble in this digital age, and you can’t really blame them.
The thing is, Polymarket just leverages elements of crypto infrastructure; it is not a truly on-chain predictions market.
Fuel’s infrastructure provides the perfect backdrop to build a prediction market fully on-chain without sacrificing low costs and fast transaction speeds.
You may think it sounds difficult, but you can probably do the whole thing in one smart contract due to how intuitive Sway is as a language and how efficient Fuel’s network design is.
Fuel Forge
The ideas I just mentioned are just three basic ideas. The Fuel team is already three steps ahead.
They have been on a mission to fully revamp their ecosystem with their ‘Ecosystem 2.0’ project. A part of this project is Fuel Forge.
Fuel Forge is a 3-week boot camp of sorts for handpicked builders who are creating applications on Fuel.
The idea is to spend three weeks together to make the trip a sort of launchpad for real-time, high-quality, next-gen on-chain applications that can thrive on the Fuel network.
These builders will have access to Fuel’s core team to work in tandem with them to not only deploy their products but also get support in terms of a go-to-market strategy, product maintenance, and execution going into the future.
If you’re a builder and this is something that interests you, I recommend checking out the Build On Fuel account for more information.
The FUEL token
Last but not least, we have the FUEL token.
At a high level, FUEL operates as more of a staking token, but staking plays a pivotal role in how the Fuel network functions. It serves three purposes:
- Securing the network
- Paying for chain resources
- Application-specific sequencing
The sequencer decentralization feature is bold and important, and FUEL staking will play an unimportant role in its functioning.
Users can delegate their FUEL to validators, similar to any other proof-of-stake system, and earn rewards in the form of yield from the validators for participating in securing the network.
On top of this, this decentralized sequencing system will also involve costs for the resources used to ensure that the system continues to operate smoothly. These costs will be paid for using FUEL.
Outside of the sequencer, FUEL also plays a major role when it comes to applications and users.
Those who stake their FUEL tokens can bond them with a specific application. This can unlock different things, like user rewards, no transaction fees, and any other sort of user experience improvement.
Tokenomics
The tokenomics for the FUEL token is as follows.
Total supply: 10,000,000,000
Inflation rate: 3% annually
The distribution is as follows.
- Community expansion: 2 billion (20%) - Used for incentive programs, campaigns, and community expansions, among other things.
- Ecosystem & R&D: 1.55 billion (15.4%) - Used for the sequencing network, ecosystem expansion, and Fuel technology R&D.
- Ecosystem & R&D 24: 1.55 billion (15.4%) - These tokens can be staked during the 24-month linear release. All staking rewards will be used for the same purposes as above.
- Contributors 24: 0.6 billion (6.2%) - Allocation for past and present Fuel contributors.
- Contributors 48: 0.98 billion (9.8%) - Allocation for core project contributors.
- Purchasers: 3.31 billion (33.1%) - Token purchasers from 2020 to 2022.
The unlock and emission schedule looks like this:
- Community expansion: Immediate vesting
- Ecosystem & R&D: Immediate vesting
- Ecosystem & R&D 24: 24-month linear release
- Contributors 24: 24-month linear release
- Contributors 48: 48-month linear release
- Purchasers: 24-month linear release
For those interested in staking the FUEL token, here’s a guide showing you how to do so on Ethereum and Fuel.
Concluding thoughts on Fuel
At blocmates, we've long advocated for putting consumers ahead of the tech. We believe Fuel embodies this approach while sticking to the core ethos of crypto.
They have designed their network with decentralization in mind, but at the same time, they have not sacrificed scalability and performance.
They have put intentional thought into a design that makes it easy for developers to make next-gen applications, and seamless for users to interact with them.
Fuel is the perfect iteration of a modern blockchain designed to bring the next wave of consumers on-chain. Anyone can leverage the technology to create applications that operate on par with any off-chain or web2 application.
As the product goes through its phases of iteration towards total decentralization and enhanced scalability, we will also see an influx of top-notch applications.
In our opinion, it would be wise to keep close tabs on Fuel. They are the definition of an OG team in space that has received plaudits from the likes of Vitalik, so we can best believe they know what they’re cooking.
Time to fuel your engines (*wink*), because this one is going full throttle to the top.
Thanks to the Fuel team for unlocking this article. All of our research and references are based on public information available in documents, etc., and are presented by blocmates for constructive discussion and analysis. To read more about our editorial policy and disclosures at blocmates, head here.
