Layer 2 War Who will be the ultimate winner?

Battle for the Top The Ultimate Layer 2 Winner

Layer 2 networks are in fierce competition, providing faster, cheaper, and more flexible transactions. Optimism, ZkSync, and Starknet are the three most popular Layer 2 networks, while Celestia is a new data availability project. The competition is intensifying, and only qualified talents can stand firm.

Original title: Layer 2 War: Which network will last?

Original author: andrew.moh

Original source: twitter

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Translation: Kate, Marsbit

Note: This article is from @0xAndrewMoh on Twitter, MarsBit organized as follows:

Layer 2 War: Who will last until the end?

Mass adoption is coming, but who will be the winner?

Following is an in-depth study.

Don’t forget to bookmark the first tweet before reading. It’s worth referring to later!

Let me introduce this research to you in the following aspects:

1️ L2 basic knowledge

2 L2 current status

3️ Recent progress of excellent projects?

4️ Key points

5️ Personal thoughts

Let’s get started!

1️. L2 basic knowledge

Since the emergence of blockchain in 2008, although L1 is still running smoothly, the demand for L2 has been declared a must-do task.

The co-founder of Ethereum, Buletin Vitalik, also stated that blockchain cannot effectively scale while maintaining the security and decentralization of the underlying network.

There must be a trade-off between these functions, as shown in the figure below.

One of the main bottlenecks of blockchain technology is the limited transaction throughput and high costs of the underlying layer networks (also known as Layer 1).

For example, the Bitcoin network can only process about 7 transactions per second (TPS), while Ethereum can process about 15 transactions.

These numbers are far from enough to meet the needs of millions of users and applications that want to use blockchain technology.

Layer 2 is considered the answer to enhance the scalability and performance of blockchain platforms without compromising their security or decentralization.

Layer 2 definition:

Layer 2 is an overlay network built on top of the underlying layer, which leverages the security and data availability of the underlying blockchain when processing off-chain transactions.

There are several methods to scale Layer 2:

> Payment channels

> Sidechains

> Plasma

> Rollup

Rollup is the most popular method for creating Layer 2 networks.

About Rollup:

Rollup uses cryptographic techniques to generate proofs or signatures for validating the validity of off-chain transactions. There are two types of Rollup:

> Zero-Knowledge Rollup (ZKR)

> Optimistic Rollup (OR)

ZKR uses zero-knowledge proofs to verify the correctness of off-chain transactions.

Meanwhile, OR uses fraud proofs to challenge any invalid transactions.

Both types of Rollup significantly improve scalability and reduce costs, but they have different trade-offs.

Notable Rollup projects include Arbitrum, Optimism, zkSync, and Starknet.

All of these are built on Ethereum.

2️. Current Status

In recent years, as more and more projects and users seek to overcome the limitations of Layer 1 networks, Layer 2 solutions have received increasing attention.

According to data from L2Beat, as of November 2023, the TVL value of Layer 2 solutions has exceeded $12.24 billion.

Layer 2 makes transactions cheaper and more easily adopted by users.

For example, as of November 2023, the cost of a simple ETH transfer on zkSync is about $0.01, while on Optimism it’s about $0.05.

In contrast, performing the same transaction on Ethereum Layer 1 costs around $10.

As more projects and applications migrate to Layer 2 solutions or integrate with Layer 2 solutions, the adoption of rollup is expected to increase rapidly.

In addition, L2 solutions are not limited to Ethereum but can also be applied to other L1s, such as BNB Chain, Solana, and more.

3️. Recent Progress of Outstanding Projects?

◢Arbitrum:

The Arbitrum mainnet launched in August 2021.

It is one of the most popular Layer 2 scaling solutions for Ethereum, with a TVL of approximately $1.87 billion.

According to Nansen’s statistics for the past 30 days:

> Average daily active addresses: +146k

> Average number of transactions: +550k

> Daily average gas fees: $77,450

Notable projects that have integrated or migrated to Arbitrum include Uniswap, MakerDAO, Aave, Chainlink, and more.

For end users, the network has been well received due to a large-scale airdrop activity of $ARB to early users and Arbitrum-based DAOs on March 23, 2023.

The total market value of $ARB is approximately $1.27 million.

◢Optimism:

The Optimism network is currently live on its mainnet and launched simultaneously with Arbitrum.

It has a native token called $OP for governance, with a market value of over $1 billion.

30-day operational statistics:

>Average daily active addresses: approximately 52,500 (67% lower than Arbitrum)

>Average number of transactions: 2,842,000

>Average gas fees: $44,400

In the past few months, Optimism has experienced significant growth in transactions, addresses, and TVL.

During its peak, Optimism had daily transaction volume of over 944,000 and TVL exceeding $2 billion.

Currently, its TVL is $665 million.

$OP, the native token of Optimism, has a total market value of $1.24 million.

◢ZkSync:

As a nascent Layer 2, ZkSync launched its mainnet on March 24, 2023. It has already shown its determination not to lag behind Arbitrum and Optimism.

According to Footprint Analytics:

>Average daily active addresses: approximately 883,000

>Average number of transactions: over 800,000 (significantly higher than other L2s)

Dashboard data shows that ZkSync has attracted over 26,000 bridgers since May 1, 2023.

ZkSync has not introduced its native token yet. However, there is a high possibility of its token being listed in early 2024.

Gas fees on ZkSync are decreasing as there is a lot of development happening on the network.

◢Starknet:

Another Zk-rollup Layer 2 that started its journey even earlier than the above three Layer 2s in 2021.

However, the Starknet testnet mainnet only launched in July 2022.

Let’s quickly look at the 30-day performance of Starknet:

>Average daily active addresses: approximately 99,000

>Average number of transactions: over 4.882 million

The total transaction fees in the last 30 days amounted to 1538 ETH (which is decent in the crypto winter).

In addition, Starknet has successfully integrated Quantum Leap into its testnet mainnet, aiming to solve the TPS issue for the entire network.

Similar to ZkSync, Starknet has not launched its native token yet.

However, the team has released some documentation on the $STRK token economics, with plans to launch in April 2024.

$STRK was delayed due to technical issues.

4️. Key Points

Layer 2 is currently in fierce competition because there are too many projects vying for a piece of the same cake.

According to research, the global blockchain penetration rate was only 8.8% in 2023.

It is expected to reach 12.5% by 2027.

This means that all Layer 2 networks must continue to have users use their services, which is more important than attracting new users.

There are some methods to achieve this:

Data Availability

Data availability is an important aspect of Layer 2 networks, as it ensures that transactions on Layer 2 networks can be verified and finalized by Layer 1 networks.

Data availability solutions aim to provide sufficient guarantees to ensure that Layer 2 data is not tampered with or withheld by malicious actors while minimizing the bandwidth and storage requirements of honest participants.

Optimism and ZK Rollup have significant differences in addressing data availability, see: https://ethereum.org/en/developers/docs/data-availability/

Recently launched @CelestiaOrg has just released its token $TIA, one of the outstanding projects addressing data availability.

It is a scalable and interoperable blockchain framework that utilizes Data Availability Sampling (DAS) to achieve high throughput and security.

Celestia’s goal is to enable any application to run on any blockchain while ensuring that anyone can always access and verify the data.

The network is compatible with Rollup and supports cross-chain communication and collaboration.

Some notable data availability projects:

❯ @CelestiaOrg

❯ @eigenlayer

❯ @Syntropynet

❯ @TopiaDA

❯ @EspressoSys

Sequencer

The sequencer enables efficient and secure data availability sampling by allowing the network to check any part of the data on the L2 network through sampling from a small number of shared extensions.

@EspressoSys:

Espresso Sequencer is a decentralized sequencer network for Rollup that provides secure, high-throughput transaction ordering and availability.

It attracts Ethereum validators through the reset mechanism and allows them to participate in staking using ETH LST.

Some noteworthy shared sorting projects:

❯ @EspressoSys

❯ @AstriaOrg

❯ @radius_xyz

Rollup-as-a-service

For Web3, we have Rollup as a service (RaaS).

RaaS is a concept that refers to providing Rollup technology as a service to Web3 applications.

It aims to make it easier for developers to build scalable and secure applications on top of Ethereum without dealing with the technical challenges and complexities of implementing Rollup.

RaaS comes in two types:

> General RaaS: Providing general networks like Arbitrum, Optimism, ZkSync, StarkNet, etc.

> Application-specific RaaS: Custom Rollup platforms for specific types of applications, like dYdX and DeversiFi for DEXes.

@alt_layer: AltLayer is an open and decentralized intermediate layer for Rollups. The protocol consists of a core network called the Beacon Layer, which acts as a bridge between the Rollup and its data availability or settlement layer.

The Rollup instantiated through AltLayer is encapsulated within the Beacon Layer, which has multiple roles including sorting, execution, and verification.

Some noteworthy projects running on RaaS:

❯ @alt_layer

❯ @sovereign_labs

❯ @Calderaxyz

❯ @ArgusLabs_

5️. Personal Thoughts

In my opinion, Layer 2 solutions are an essential part of the blockchain ecosystem. They are not meant to replace L1 networks, but to complement and enhance them.

With data availability, shared sorters, and RaaS now in place, L2 networks can provide users and developers with faster, cheaper, and more flexible transactions.

The demand for Layer 2 is higher than ever before, leading to intense competition among projects.

And only the qualified will stand firm.

I’d like to express my gratitude to @0xsurferboy for providing detailed guidance. Thanks to him, I was able to use ChatGPT’s DALL-E3 to create thumbnails.

Here is the complete guide he provided:

https://twitter.com/0xsurferboy/status/1719741420222005530

Cheers!

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