LD Capital Cryptocurrency exchanges are frequently deploying Layer2 solutions, carrying ambitious visions for the future market.LD Capital Cryptocurrency exchanges deploy Layer2 solutions with ambitious visions for the future market.
Layer2 has become one of the most important tracks this year. Its development will enable the Web3 network to serve users with higher efficiency and lower costs while maintaining advantages such as new production relations and smart contracts, influencing the speed of future industry development as underlying infrastructure. Recently, in addition to projects focusing specifically on the L2 track, exchanges have also been active in the L2 track. Mantle, Base, and opBNB have successively launched or announced L2 mainnet timelines, attracting market attention. In this article, we will take stock of the latest situation of exchanges in L2 and what it means.
Supported by Coinbase, Base is an Ethereum L2 network that provides a secure, low-cost, developer-friendly way to build decentralized applications or on-chain “dapps,” aiming to bring the next billion users into Web3 and the crypto economy.
1. Technical Overview
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Base is the first to collaborate with the OP Stack team and become a core developer of OP Stack. It adopts Optimistic rollup and OP Stack’s modular technology stack, and the two maintain synergy in the 2023 technical roadmap. It can be said that all the advantages of OP Stack will be inherited in Base, such as shared Ethereum security, EVM equivalence, the lowest fees and excellent scalability in the current L2, and OP Stack’s modular structure. For further technical details about OP Stack, you can refer to our previous report “Looking ahead to the Cancun upgrade, is OP worth being “optimistic”.”
2. Current Progress
(1) Timeline: Base testnet launched on February 23, 2023, promoting cooperation with optimism and the superchain concept. Open to builders on July 13, 2023. It was announced that the mainnet will be open to the entire network on August 9, 2023, and the Onchain Summer event will be launched for a month.
(2) Meme frenzy at the end of July:
Shortly after the mainnet opened on July 13, there was not much capital on-chain. On July 28, the official promoted the link for early builders to mint NFTs. The minting condition was to deploy smart contracts on the Base mainnet. After July 30, the TVL on Base began to grow rapidly, with TVL exceeding $8 million in just two days.
Source: Base official
Since there weren’t many applications launched on-chain, the deployed smart contracts were mainly meme coins without practical use. With capital operations, meme coins represented by “bald” skyrocketed by thousands of times within a day and then collapsed to zero. Although most memes had a quick appearance and rapid rug pull, the exaggerated data attracted more capital into Base. Due to the temporary absence of an official cross-chain bridge, a large amount of capital remained on-chain for speculation. This wave brought high market enthusiasm before the official launch of the Base mainnet to the public.
Source: Dexscreener, July 31, 2023
(3) On-chain data:
Since the announcement of the mainnet going live on August 3rd, the current TVL on the chain has exceeded $120 million.
Total transactions: 5.75 million, total users: 340,000+, total contracts created: 53,000, average gas fee: $0.36.
The main application on the chain is Dex, with baseswap ranking first, accounting for 50% of the TVL of the top ten Dex.
3. Future Plans
(1) Vision for building a web3 gateway:
Since its inception, Coinbase has had a four-phase plan to create an open financial system and increase global economic freedom. In the past decade, the first three phases have been completed: protocols (*Bitcoin, Ethereum), establishing an exchange (*Coinbase Exchange) as a bridge for digital currencies, and creating a mass-market interface for decentralized applications or “dapps” (*Coinbase and Coinbase Wallet). Currently, we are in the fourth phase, where Coinbase’s main services have been built on Web2 technology. In this phase, we will build a chain written in smart contracts as an environment for various native crypto dapps, bringing 1 billion users into the crypto economy in the future.
(2) Technical roadmap:
The goal for 2023 is to collaborate with OP Labs and the Optimism Collective to advance Base and Op Mainnet from Phase 0 Roll up (*defined by Vitalik) to Phase 1 Roll up, achieving a high level of decentralization and trustlessness.
A. Launch Fault Proofs: Start at least one fault proof for the OP stack by utilizing a set of validators to identify and challenge faults, thereby protecting the security of Base and Op Mainnet.
B. Advance Decentralization: Decentralize the upgrade capability of Base and Op Mainnet smart contracts, initially entrusting it to a security council whose decentralized quorum is not under the control of any single entity.
C. Start implementing the Superchain: Launch the initial version of the Superchain, which can order transactions aggregated from Base, Op Mainnet, and any OP Stack, protecting the rights of anyone participating in these ecosystems.
The goal for 2024 is to push Base and Optimism Mainnet to Phase 2, achieving a level of decentralization and security comparable to Ethereum.
4. Project Features
(1) No Token Plan: Base has explicitly stated through official channels that there is currently no plan to issue a network token. (*This is mainly due to compliance regulations in the United States, and there may be new changes in the future under the regulatory game between Coinbase and the SEC.)
(2) Building an open chain: Base hopes to build a bridge, not an island. It will provide access to the Ethereum L1, other L2s, and other L1 ecosystems such as Solana. In addition to enabling Base to interoperate with other chains, it will also support as many chains as possible in Coinbase products.
(3) Coinbase’s ecological linkage: With nearly 100 million users and $130 billion in assets, Coinbase’s development and interoperability with Base will bring these users to the world of blockchain. It also hopes to attract more new users to Coinbase through Base’s blockchain entrance.
Supported by Bitdao and Bybit, the Mantle network is an Ethereum L2 that uses Optimistic rollup. It has a large Mantle treasury and its product and roadmap are governed by token holders.
1. Technical overview
(1) Modular architecture and data availability: Like OP Stack, Mantle also uses a modular architecture, where the core functions of modular blockchains, such as execution, consensus, settlement, and data availability, are performed on specialized layers. The benefit of this approach is that it can alleviate the blockchain trilemma to some extent. In terms of scalability, resource separation can improve network efficiency because each layer is responsible for specific tasks. In terms of security, all users operate at the same security level. In terms of decentralization, technologies such as fraud proofs and zk proofs running on different layers reduce the overall execution and verification load on nodes, eliminating the need to execute all transactions to check their validity.
Based on the modular architecture, Mantle has a separate data availability layer (DA), which means Mantle can increase throughput without compromising security or burdening validation nodes. Mantle DA is supported by EigenDA technology.
(2) Threshold signature scheme: Optimistic rollup has a limitation that imposes a long waiting time for withdrawals in the form of challenges. To address the uncertainty of transaction verification during the challenge period, Mantle implements a distributed signature scheme to verify block data. This paradigm, which combines distributed key generation with digital signatures, is more commonly known as a threshold signature scheme (TSS). It allows every party in the client network to generate valid signatures and ensures the verifiability of distributed signature data (*as long as there are enough honest signatures). Since each TSS client holds only a part of the private key, the private key is no longer a single point of failure.
By using the threshold signature scheme (TSS) technology, dedicated nodes contribute to multi-party signatures to improve the correctness of off-chain transactions. This shortens the challenge period for withdrawals. However, the current TSS nodes are authorized by Mantle core contributors, which is centralized.
(3) Improved fraud proofs
In the current popular fraud proof model, the contract that resolves disputes, the on-chain validators, can only execute instructions in lower-level virtual machines such as MIPS or WASM. This forces Ethereum Virtual Machine (EVM) clients to recompile their fraud proofs into lower-level languages so that on-chain validators can interpret them, meaning the contents of the fraud proof are generated outside the scope of the EVM.
Mantle Network uses an interactive fraud-proof mechanism to establish transaction validity, and compiles and verifies fraud proofs using EVM-level instructions (i.e. no need for low-level translation to avoid ambiguity).
Source: Mantle Overall Architecture
2. Current Progress
(1) Timeline: January 10, 2023, Mantle Network, a modular Ethereum Layer 2 network of BitDAO, announced the launch of its testnet — May 19, 2023, the BitDAO community approved the proposal on “branding, tokens, and token economics optimization” with a 100% approval rate. BitDAO, Mantle, and the BIT ecosystem will be unified under the name Mantle, and the BIT token will also be converted to Mantle — July 17, 2023, Mantle Network announced the launch of its mainnet Alpha version at EthCC.
(2) Token economics and token swap:
Mantle officially opened token swap at 6:00 AM UTC on July 17, 2023, allowing a 1:1 exchange of BIT to MNT.
The current total supply of MNT is 6,219,316,794, with 52% in circulation, 47.4% held in the treasury, and 0.6% allocated to the core team budget. The MNT token plays a dual role of governance and utility token in the Mantle ecosystem, providing holders with voting rights and utility functions (*Mantle’s token economics may change in the future due to exchange and governance proposal approval, among other factors).
(3) On-chain data:
TVL 92 million, mainly due to the large number of tokens on MNT’s launch. The current circulating supply of MNT is around 320 million, with a current price of $0.505 and a market cap of $1.6 billion.
Recent daily transactions exceed 100,000, with over 160,000 wallet addresses and a total of 1.1 million transactions.
The native Dex, Agni Finance, ranks first in on-chain TVL and accounts for over 63% of the top ten TVL with the ve(3,3) mechanism.
3. Future Plans
(1) Technical roadmap:
The official release of the further plans mainly focuses on the technical aspects. At the L1 level, the fraud-proof mechanism will be optimized, including changing the current authorized node model by core contributors to a permissionless fraud-proof mechanism. At the L2-L1 level, the focus is on optimizing EIP-4844. At the L2 level, the current version is EVM-compatible and will enhance the EVM environment. The centralized sequencer will be upgraded to a decentralized sequencer.
4. Project Features
(1) Strong Financial Strength: BitDAO is currently one of the largest DAO organizations and has one of the largest treasuries, with $3.8 billion in reserve assets. These assets are contributed by Bybit, which has donated over $600 million in USDC/USDT and 177,000 ETH to the BitDAO treasury.
Through the merger of BitDao and Mantle, Mantle Network has inherited nearly $300 million in stablecoin reserves and nearly 270,000 ETH (*$489 million) from BitDAO, which will be a core competitive advantage for promoting the development of the entire on-chain ecosystem.
(2) Layout in LSD: The Mantle community has proposed to introduce Mantle LSD and mntETH. Users, including Mantle Treasury, can deposit ETH and receive income-generating mntETH receipts. Validation services are outsourced to external node operators.
The current Mantle treasury holds nearly 270,000 ETH. In the LSD track, Frax ranks fourth with a pledge of 245,000 ETH, and StakeWise ranks fifth with a pledge of 94,000 ETH. This indicates that if Mantle wants to develop LSD vigorously, it will quickly gain a foothold.
III. BNB Chain-L2
Supported by BNB Chain and Binance, two L2 solutions, opBNB and zkBNB, have been deployed based on the BSC to expand the performance of the BSC chain. Currently, opBNB is developing faster and also adopts OP Stack technology.
BNB Chain consists of two blockchains – BNB Beacon Chain (*BC) and BNB Smart Chain (*BSC). BNB Beacon Chain is a blockchain component responsible for governance and management of staking and voting on the BNB chain. BNB Smart Chain is a blockchain component that is EVM-compatible, has a consensus layer, and a multi-chain hub.
Source: BNB Chain
zkBNB and opBNB are Layer 2 scaling solutions for BSC. Unlike other L2 solutions mentioned in this article, zkBNB and opBNB are designed based on BSC as Layer 1, rather than Ethereum. Although BSC is much faster than Ethereum, it is still important to enhance scalability through L2 for a chain that hosts a large number of games.
zkBNB – zkBNB is an infrastructure built by developers based on the zk-Rollup architecture, which can help them build large-scale BSC-based applications with higher throughput and lower or even zero transaction fees in the future. It is currently in the testnet stage. Arnaud Bauer, the Senior Solutions Architect of BNB Chain, mentioned in an interview with The Block earlier this year that zkBNB is not yet compatible with EVM, so opBNB was prioritized for release.
opBNB – opBNB Network is the Layer 2 scalability solution for BNB Smart Chain, supported by OP Stack, which inherits the security and EVM compatibility of BSC while achieving scalability. (*The details of OP Stack are not explained here.)
2. Current Progress
(1) Timeline: On February 14, 2023, BNBChain announced the 2023 technical roadmap, setting scalability as a long-term goal. On June 19, 2023, opBNB testnet was announced. On August 2, 2023, the launch of opBNB mainnet was announced, which will first be open to infrastructure providers and then to the public by the end of August or early September. (*zkBNB was originally the focus of scalability this year, but there has been no further progress for now.)
(2) On-chain data:
The TVL of ETH is seven times that of BSC, and the trading volume of BSC is three times that of ETH. The total fees on BSC are 7.7% of ETH. On L1, BSC has lower cost consumption compared to ETH, while ETH has the largest amount of funds.
On L2, the opBNB testnet has an average daily processing volume of around 100,000 to 150,000, with an average block time of 1 second. There are about 6,000 to 20,000 daily active accounts, and the fee for each transaction is approximately $0.005.
3. Future Plans
BNBChain’s 2023 technical roadmap will advance in five areas:
(1) Enhancing the overall performance of the blockchain network: Mainly through increasing the gas limit, implementing parallel EVM, upgrading BSC nodes and clients, etc.
(2) Improving scalability: Achieving BSC scalability through multi-chain strategies, with zkBNB and opBNB as the main rollup solutions. Currently, opBNB is progressing faster, and zkBNB was also planned to be launched this year.
(3) Building new infrastructure: Adopting more infrastructure, with a focus on decentralized storage. BNB Greenfield was launched this year, where users and dApps can create, store, and exchange data with full ownership, forming a new data economy. Storage is also a key element in further improving network performance.
(4) Increasing decentralization: By the end of 2023, the number of active validators will be increased from 29 to 100, and more consensus mechanisms and on-chain governance will be introduced.
(5) Enhancing BNB security: Introducing new security services, security and risk management frameworks, and improving the security of cross-chain components.
Source: BNB Chain
4. Project Features
(1) Built on BSC L2: BSC outperforms ETH in terms of processing speed and cost consumption. Through opBNB’s technology, performance will be further enhanced on L2.
(2) The BNB Chain ecosystem is complete and mature: Binance is currently the largest cryptocurrency exchange with the most users and funds. BNB Chain has built various infrastructure and applications in its own ecosystem, which can adapt to opBNB flexibly and efficiently, fully realizing the value of the ecosystem and tokens.
In the second half of this year, there will be more and more voices advocating for L2, and perhaps L2 Summer will come. From a technical perspective, mainstream L2 technologies have converged to some extent, choosing more scalable modular structures. Optimistic rollup has been adopted by more due to its practicality, and OP Stack has gained more external collaborations.
Exchanges are deploying their own L2 solutions, mainly because they can leverage their existing CEX funds and user base to build Web3-native blockchain networks, attract more new users and dapps, and create a more diverse business structure and incremental space. In the future, we will wait and see who can further consolidate their position or change their development ranking through L2.
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