The Five Paths of Layer 2 Evolution: Why They Converge on Superchains and L3

The Five Paths to Superchains and L3 Evolution

Author: Binance Research; Translation: Blockingcryptonaitive

1. Key Takeaways

• The new trend of blockchain scalability is the evolution towards Layer 3 networks, Superchains, which is adopted by several Layer 2s and is expected to become the basis for the next generation of Ethereum scalability, simplifying the development process, enhancing security, and promoting greater interoperability within the ecosystem.

• Optimism’s OP Stack is the vanguard towards highly interoperable blockchain networks such as Superchain, and the recent Bedrock upgrade represents one of the first steps towards realizing their vision.

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• Arbitrum is also at the forefront of Ethereum scalability, developing a Layer 3 network through Arbitrum Orbit, providing an unlicensed framework for deploying custom chains on top of the Arbitrum L2.

• zkSync introduces the concept of hyperchains, a customizable and trustless chained blockchain network, achieving ultra-high scalability, improved composability, and enhanced security.

• StarkWare, leading the innovation of fractal scalability, is developing a multilayer solution exploring L3 for customizable scalability and utilizing L2 for general scalability.

• Polygon 2.0 aims to unify its set of L2 solutions, including Polygon PoS, Supernets, and zkEVM, through cross-chain coordination protocols, creating a “value layer of the internet.”

2. Introduction

In the past few years, Ethereum co-founder Vitalik Buterin’s rollup-centric vision of the future has gradually come true. In fact, Layer 2 rollup technology has laid the foundation for solving the Layer 1 scalability problem. Successful projects such as Optimism and Arbitrum have effectively utilized optimistic rollup technology to provide reliable services to users for nearly two years. At the same time, zero zkrollup technology represented by Starknet, zkSync Era, and Polygon zkEVM has also gained recognition recently after successfully launching the mainnet in the last few months. With a considerable degree of market validation, the focus of L2 has now shifted to the new theme of blockchain scalability to accommodate potentially hundreds, thousands, or even millions of rollups in the future. With this shift, we may finally achieve blockchain scalability and attract a large number of developers who can work together to attract millions (or even billions) of users to cryptocurrencies.

As the L2 market moves into the next phase of development, rollups are beginning to define a vision of dominating the future that is led by rollups. In this report, we explore the rapidly evolving field of blockchain scalability. Our focus is on dissecting the complexities of different L2 approaches, evaluating their current positions in the market, and delving into new themes that are defining the landscape.

III. Background

The challenges facing the current scalability paradigm

Ethereum, as an L1 network, must be able to scale to the same extent as the internet, but currently no single L2 chain can achieve this goal. The reality is that as the expanding applications and ecosystems seek blockchains to deploy to, their choices are extremely limited and far from ideal. They can choose to deploy on Ethereum, but sacrifice scalability; or choose to use L2 solutions, but there is a risk of dependency on that ecosystem; or decide to deploy and maintain their own chain, leading to fragmentation of liquidity and abandoning the potential of network effects. In addition, interoperability has always been a key challenge, and our solution to this challenge, cross-chain bridges, is vulnerable and often a target of malicious attackers.

What are the new themes?

The vision for the next stage of L2 evolution is to simplify the deployment of various types and modes of rollups for developers, whether application-specific or general-purpose. Leaders in the current L2 space are seeking to achieve this new stage by reducing technical complexity, increasing resource availability, and providing platforms that allow developers to share existing overhead.

In our current system, each rollup has its own infrastructure overhead (bridges, sequencers, node providers), common standards, and design structures. This is unsustainable, resulting in continued fragmentation and resource waste. Many teams do not want to consider running infrastructure, but want to focus on building applications. The ultimate goal is that deploying new rollup chains should be more or less like creating new web pages; expecting to achieve as close to “one-click deployment” as possible.

These second-generation rollup chains on Optimism’s OP chain, Arbitrum Orbit’s L3 chain, or zkSync’s hyperchains will allow different entities with different intentions to build their own custom environments while reusing the existing and battle-tested infrastructure of their parent L2. By doing so, they hope to create a seamless, secure, and highly interoperable environment that truly achieves the next level of scalability.

4. Key Participants

Optimism and the OP Stack

Optimism is the collective behind the OP Mainnet, an Ethereum Virtual Machine (EVM) equivalent solution based on optimistic rollups that started running in December 2021 and is one of the leading Ethereum Layer 2 (L2) solutions. As of the writing of this report, the total value locked (TVL) in OP Mainnet exceeds $2.2 billion, making it the second largest market cap and accounting for over 23% of the market share in all Ethereum L2 solutions. In October 2022, Optimism launched the OP Stack, which they describe as a “modular, open-source blueprint for highly scalable, highly interoperable various blockchains.” This marks their move beyond simply running optimistic rollup solutions in terms of design and vision. It also introduces the concept of a Superchain, referring to a highly integrated and unified L2 blockchain combination built on the OP Stack. The latest development from Optimism in this new phase is the migration of their flagship L2 rollup to Bedrock, the first formal version of the OP Stack, which brings many operational and user improvements to its product.

Figure 1: A brief timeline of Optimism to date.

What is the OP Stack?

The OP Stack is a standardized, shared, and open-source development stack (a set of software) that drives the OP Mainnet. It consists of various software components (modules or code libraries) that together make up Optimism’s L2 rollup and can be used to create a set of shared, interoperable, and coordinated L2 blockchain networks. It is worth noting that the OP Stack is a constantly evolving concept that grows with Optimism itself. Basically, the OP Stack aims to simplify the process of creating L2 blockchains and can be seen as a supermarket for “building an L2.”

Figure 2: Different conceptual layers of the OP Stack.

• Data Availability (DA) Layer: This layer defines where the raw inputs published based on OP Stack chains are located. The most commonly used DA module in OP Stack is the Ethereum DA layer, which is used by OP Mainnet Rollup. It is worth noting that we recently saw the launch of the Taro testnet, which is the first OP Stack Rollup chain to use Celestia as the DA layer instead of Ethereum.

• Sequencer Layer: This layer determines how transactions on the OP Stack chain are collected and published to the DA layer. In the current state, OP Stack’s sequencer module is a single sequencer setting. Future proposed modifications will include multiple sequencers to enhance the platform’s decentralization. Economically, sequencers generate protocol revenue from transaction fees paid by OP Mainnet users, which is primarily used for traceability public goods funding. In the future, there are also plans to distribute some of the revenue to token OP holders when the sequencer becomes more decentralized.

• Derivation Layer: This layer defines how to process the raw data of the DA layer to form inputs sent to the execution layer. It is closely related to the DA layer because it must know how to parse the raw data of the DA layer.

• Execution Layer: This layer defines the state in the OP Stack chain and how it changes after receiving input from the derivation layer. The current execution layer module uses a slightly modified version of the EVM in OP Stack, but can be modified to include Move virtual machines, among others.

• Settlement Layer: Traditionally, this layer processes the operation of extracting assets from the blockchain by first proving the state of the target blockchain and then based on that state. From the broader perspective of OP Stack, the settlement layer allows third-party blockchains to understand and establish a view of the OP Stack chain state. OP Stack currently includes modules built around proof-of-stake fault tolerance to establish this view. However, Optimism is also researching their minimal trust Cannon proof system and has added the feature of ZK validity proof to the recent Bedrock upgrade.

• Governance Layer: This refers to general tools and processes used to manage upgrades, design decisions, and system configurations. Relative to other layers, this is a more abstract layer that can contain a variety of mechanisms. The two modules shown in OP Stack are multi-sig contracts and governance tokens. A multi-sig contract is a smart contract that executes a given operation after the predefined signature threshold of participants is reached. This is currently the mechanism used to manage upgrades to the OP Mainnet bridge contract. Governance tokens are typically used for decentralized decision-making, with their exact function varying by situation.

It’s important to remember that builders can easily modify existing modules or create new ones to suit the needs of any application they are focusing on. For example, as mentioned in the DA layer section, Taro is a Rollup that uses Celestia instead of Ethereum as the DA. The OP Stack essentially deconstructs the various components required to build an L2 chain and packages them as separate modules. Builders can then combine the most appropriate modules to create their own L2. Ultimately, Optimism envisions a large number of highly compatible L2 and L3 chains, which they call OP Chains. They believe that these chains will eventually lead to a superchain. The first step in realizing this future is their recent Bedrock upgrade.

Advantages of the OP Stack

Optimism has always focused on aligning with Ethereum, so the OP Stack is an equivalent Rollup development toolkit to the Ethereum Virtual Machine (EVM). This brings some key advantages that are crucial in helping them achieve a potential superchain future.

• Scalability: The design goal of the OP Stack code is for other builders to want to use and build on top of it. As a result, their code is open source and typically modularized for other developers to easily build on top of it. This means that Ethereum Improvement Proposals (EIPs) and future upgrades should be relatively easy to implement.

• Simplicity: Optimism’s philosophy is that complex code doesn’t scale. They strive to make the code as simple as possible and tend to reuse existing battle-tested code. That’s why they chose to use the Geth fork as the default execution engine for the OP Stack (tested on Ethereum over many years). Generally, the simpler the code, the less susceptible it is to potential errors and attacks.

• Familiarity: Existing Ethereum developers should find it relatively easy to build on OP Stack as it remains aligned with Ethereum and its code.

• Client diversity: OP Stack can have multiple client implementations. This diversity brings benefits of vitality and security. We have already seen the release of OP-Erigon to the mainnet, which is another execution client for the OP Stack, as well as the announcement of Magi, an alternative OP Stack Rollup client.

Bedrock Upgrade

Bedrock Upgrade was released on June 6th, 2023 and is the first official version of OP Stack, representing a complete modular rewrite of the core components of the OP Mainnet Rollup architecture. Optimism’s flagship Rollup now uses the modular OP Stack. Bedrock not only represents an upgrade to the OP Mainnet Rollup, but also provides the tools needed to launch a production-quality optimistic L2 Rollup blockchain.

Main Improvements

• Lower Fees: Bedrock implements an optimized data compression strategy to minimize data costs. This significantly reduces transaction fees, with the average cost per transaction now reduced by over 77%. This also makes Optimism’s L2 Rollup one of the cheapest Ethereum L2 Rollup solutions.

Figure 3: After the Bedrock upgrade, the average gas fee on the OP mainnet decreased by approximately 77%.

Figure 4: The OP mainnet is now the cheapest option for token exchange on the Ethereum L2 Rollup.

Shorter Deposit Time: Bedrock introduces support for L1 reorganization in node software, reducing deposit waiting times. Deposit times have been reduced by about 70%, from about 10 minutes to approximately 3 minutes. This is an important improvement for users who are new or less experienced with L2 Rollup, improving the user experience.

Improved Proof Modularity: Bedrock abstracts the proof system from the OP Stack (settlement layer in Figure 2), allowing the OP Stack chain to use either error-proof or validity-proof (i.e., ZK-proof) for transaction verification. It is worth noting that there is already an RFP (Request for Proposals) to build the ZK validity proof program for the OP Stack.

Improved Node Performance: Bedrock makes it possible to execute multiple transactions in a Rollup “block” instead of the previous “one block, one transaction” model. At current transaction volumes, this will reduce state growth by approximately 15GB/year.

As we have discussed before, OP Stack helps break down the various components required to build an L2 chain, and Bedrock is the first implementation of this software. The key here is modularity. Builders can now use standardized modules similar to Bedrock to build their own L2 chains or create custom L2 chains by recombining various components. Overall, the Bedrock upgrade brings many important improvements to Optimism’s L2 Rollup and brings Optimism one step closer to its Superchain vision.

Super Chain Theme

After the Bedrock upgrade, Optimism’s next step is to upgrade itself to a Super Chain. The Super Chain is envisioned as a decentralized L2 chain network (called the OP Chain) where these chains share security, communication layer, and open-source technology stack (OP Stack). These chains will be standardized and intended to be used as interchangeable resources. This standardization will enable developers to create applications that target the entire Super Chain, not just the underlying chain on which the application runs. It should be noted that the Super Chain is currently only a concept and is still in development. In fact, the Optimism team sees it as a “multi-year (even decade-long) journey.”

Figure 5: Visualization of the Super Chain

What will the Super Chain bring?

• Strengthened and secure codebase: As chains grow, each chain shares and contributes to the modular and standardized codebase upon which it is built, thereby strengthening the system. More iterations and development on the same standardized code will help simplify it, making it more resilient against attacks and errors. Given the widespread existence of hacks and security vulnerabilities in the system, this will be a key advantage of a structure like the Super Chain.

• Cross-chain atomic composability: This refers to the seamless transaction between different OP chains without the need for bridging or intermediaries. Although the Super Chain is composed of multiple chains, end-users can get an experience using a single, unified chain. In practice, this can bring improvements such as a universal block explorer (instead of each chain using a different explorer) and no network switching when using applications (e.g. no dropdown menu for MetaMask).

• Sharing Ethereum infrastructure: This makes it easier for developers and allows existing Ethereum developers to seamlessly transition to building on the OP Chain.

Hacks

Chains that replace standardized modules with experimental alternatives are known as “Hacks” in the OP world. These chains created by Hacks are not fully compliant with the OP Stack, may result in security vulnerabilities, and cannot be part of the Super Chain. However, they provide a useful platform for developers to experiment and create novel applications. OPCraft is one such example, which runs a modified EVM on the execution layer, creating a whole-chain 3D voxel-based gaming platform. Optimistic Game Boy is another example, where developers use a Game Boy emulator in the execution engine.

What’s next?

Optimism’s L2 Rollup chain became the first member of the superchain after the Bedrock upgrade. Coinbase’s upcoming Base L2 will become the second member and is expected to be officially launched later this year. Worldcoin has also promised to build on the OP Stack. Conduit is another interesting project aimed at helping developers easily launch their own OP Stack Rollup and eventually become part of the superchain. Aevo is a decentralized options exchange that recently launched a Rollup based on OP Stack in collaboration with Conduit, with Conduit running the Aevo Rollup Sequencer. Interestingly, BNB Chain also announced the testnet of opBNB, an EVM-compatible L2 chain based on OP Stack. In the NFT field, the decentralized NFT marketplace Zora recently launched the Zora Network. Zora Network is an L2 chain based on OP Stack designed to make NFTs cheaper and more accessible. According to their documentation, the cost of minting on Zora can be less than $0.50 and transactions can be confirmed in seconds.

As we have seen, development around OP Stack is wide-ranging in the crypto ecosystem. It will be interesting to see how their solution performs compared to competitors Arbitrum, zkSync, and Polygon, and the progress over the next few months.

Arbitrum Orbit

Arbitrum Orbit is another popular EVM-equivalent optimistic Rollup in the L2 track developed by Offchain Labs, which went live in August 2021. In fact, Arbitrum is currently the largest and most dominant L2 network in terms of total locked value (TVL), with a value of over $5.9 billion accumulated. Against this backdrop, the Arbitrum ecosystem includes several products, including Arbitrum One, Arbitrum Nova, Arbitrum Nitro, and the upcoming Arbitrum Orbit.

• Arbitrum One: The first core mainnet Rollup of the Arbitrum ecosystem. It is fully trustless and inherits the security guarantees of Ethereum L1 without introducing additional trust assumptions.

• Arbitrum Nova: An AnyTrust solution, the second mainnet Rollup of Arbitrum, suitable for cost-sensitive, high-volume projects.

• Arbitrum Nitro: A technical software stack driving Arbitrum L2, making Rollup faster, cheaper, and more EVM-compatible. Nitro introduces interactive proofs running on WebAssembly (“WASM”) code used in Arbitrum.

• Arbitrum Orbit: A development framework for creating and deploying L3 chains on the Arbitrum mainnet.

Figure 6: A brief timeline of Arbitrum to date.

What is Arbitrum’s vision?

Similar to Optimism, Arbitrum has a development path from relatively uniform methods towards more modular and component-based frameworks. Arbitrum’s core strategy is to attract various applications to its general-purpose chains (Arbitrum One and Arbitrum Nova), and an important component related to this strategic vision is the L3 Rollup, which settles transactions to the Arbitrum chain. L3 is the next stage in Arbitrum’s expansion journey and a solution to realize its vision, which Arbitrum calls Arbitrum Orbit.

What is Layer 3?

L3 networks are sometimes called application chains, although their scope goes beyond this term. They are dedicated networks built on top of L2 that host smart contracts supporting specific decentralized applications. They leverage the security of L2 networks, while L2 networks borrow the security guarantees of underlying L1 networks (such as Ethereum). Ultimately, L2 is used for general scalability, while L3 is envisioned for applications tailored to specific purposes.

The easiest way to understand L3 is to think of it as a Rollup on top of L2. L3 does not settle on L1, but on L2. More importantly, they provide a significant increase in scalability, making them an ideal solution for high-throughput applications, especially in certain use cases in the DeFi or crypto gaming fields. One notable example is dYdX, one of the earliest dApps in the DeFi space to move from L1 to its own application chain on L2 to better scale its product.

For example, if L3 increases throughput by 10 times compared to L2, and L2 increases throughput by 10 times compared to L1, then L3 increases throughput by 100 times compared to L1. More importantly, L3 networks improve interoperability and communication between protocols by connecting different aspects of the blockchain and Web3 ecosystems.

Figure 7: Arbitrum Orbit is an example of an L3 solution.

What is the purpose of Arbitrum Orbit?

Arbitrum Orbit, launched in March 2023, provides a new permissionless frontier for developers to build chains on Arbitrum One or Arbitrum Nova, called L3 chains. In short, Orbit is a permissionless development framework that allows anyone to deploy L3 chains on top of the Arbitrum L2 chain. Permissionlessness is a key feature because it enables developers to create new L3 chains on the Arbitrum L2 chain without permission or formal approval.

Arbitrum sees Orbit as a highly accessible product and an important part of Arbitrum’s public infrastructure. Offchain Labs CEO Steven Goldfeder stated that the team is committed to further developing and improving the solution, with the aim of positioning Orbit as the easiest and most convenient platform for introducing dApps to L3. This is undoubtedly beneficial for application teams, as it gives them the opportunity to test and personally experience L3 before committing to their deployment.

With Orbit, Arbitrum aims to support the following protocol-oriented use cases, which want to launch their own L3 chain:

L3 Rollup: Launch an L3 Rollup chain similar to Arbitrum One.

L3 AnyTrust: Launch an L3 AnyTrust chain similar to Arbitrum Nova.

Customizable L3: Deploy a customized L3 chain built on Arbitrum Nitro to meet specific application needs. Includes components such as privacy, permission, fee tokens, and governance.

Through this solution, Arbitrum aims to attract developers who want more control and seek customization, allowing them to fork and freely adjust Arbitrum’s source code to their specific needs. Arbitrum places great emphasis on customizability, even referring to their solution as “tailored chains”. Orbit will be compatible with the upcoming Arbitrum Stylus upgrade and provide developers with the possibility to build decentralized applications using standard programming languages such as C, C++, and Rust, thus expanding Arbitrum’s diversity and influence. In addition, transaction fees on these L3 Rollups will be paid with ETH to Arbitrum’s sequencer.

Orbit will transform Arbitrum into a settlement layer similar to Ethereum, adding more value to its core chain and enhancing the long-term scalability of the entire Arbitrum ecosystem. While the Arbitrum team acknowledges that the optimal L3 structure has not yet been found, this upgrade will allow dApps to enjoy the benefits of increased throughput and secure bridging provided by L3, as well as the network effects already present in the Arbitrum ecosystem. Projects have already expressed interest in this development, with decentralized gaming network Xai becoming the first representative of L3 on the Arbitrum platform.

zkSync and Hyperscaling

zkSync is an Ethereum L2 scaling solution developed by Matter Labs that utilizes zk-rollup technology. The second version of zkSync, known as zkSync Era, was launched earlier this year and is Matter Labs’ zkEVM Rollup version. Since its deployment on the mainnet, zkSync Era has become one of the most widely used L2 and zkEVM solutions, with a total locked value (TVL) of over $625 million.

For more information on zkSync Era, be sure to check out our previous report “zkEVM World: Overview of zkSync”.

zkSync Era is the second iteration of the zkSync product suite, with hyperscaling representing its ultimate goal: processing an infinite number of transactions without compromising security or decentralization. To accommodate the ever-growing demands of Web3, zkSync has designed the ultimate solution revolving around the concept of hyperchains. The zkSync architecture aims to connect a network of hyperchains with a central base chain.

What are Hyperchains?

Hyperchains are zkSync’s vision of L3, conceptualized as a trustless and customizable chain-based blockchain ecosystem. They are parallel-running, fractal-like zkEVM instances and can be created or deployed by any entity in a permissionless manner. The implementation of zkSync hyperchains takes a modular approach, providing developers with the hyperchains software development kit (SDK) framework, allowing them to choose various components to build their blockchain or develop their own components.

Figure 8: Hyperchains are sovereign ZK chains on Ethereum, connected by customizable and fully trustless superbridges.

The zkEVM engine plays a critical role in maintaining the network’s uniformity. To maintain trust and interoperability within this ecosystem, each hyperchain must be supported by the zkEVM engine, which is the same engine that supports the main zkSync L2 platform. This enables hyperchains to inherit their security directly, regardless of who deploys them.

What is a Basechain?

The basechain is similar to zkSync Era. It can be viewed as the primary hyperchain instance of zkSync Era, with the ability to settle its blocks directly on Ethereum L1. It serves not only as the primary computation layer for general smart contracts but also as the settlement layer for all other hyperchains, including L3 and higher.

zkSync hyperchains aim to provide infinite scalability, covering the following aspects:

• Security: Hyperchains are able to overcome typical vulnerabilities associated with non-native bridging, which often leads to hacks. Interactions between fractal hyperchains in zkSync L3 are done through native bridging, further enhancing security.

• Performance: Performance of L3 is improved through implementing the hyperchain architecture and hyperscaling.

• Cost: Data costs are significantly reduced due to data availability solutions.

• Ease of use: zkSync is expected to significantly improve its SDK, including introducing low-code and no-code solutions, making application development more straightforward.

• Composability: The system’s LLVM compiler supports Solidity and other modern programming languages, improving accessibility for developers using Rust, C++, Swift, and others.

Additionally, the privacy, token economics, and data availability features of the super chain itself can be customized according to specific needs. zkSync’s permissionless solution provides developers with three different data availability options, allowing developers to choose between price, performance, and security trade-offs.

• ZK Rollups: designed for applications that require Ethereum’s full security features, primarily used for DeFi applications.

• zkPorter: this option is suitable for applications that want to strike a balance between on-chain and off-chain data, and pursue economy, speed, and security, making it ideal for game developers.

• Validium: designed for applications seeking slightly lower security compared to Ethereum but with the best performance.

Hyper-scaling theme

We all know that scalability refers to the ability to handle a large number of transactions without compromising security or decentralization. While the current scalability framework is relatively sufficient, it does not take into account the constantly growing needs of Web3, eventually even infinite needs. This is where the concept of hyper-scaling comes into play. Hyper-scaling refers to the ability to handle an unlimited number of transactions without compromising security or decentralization. Remember the blockchain trilemma? That is, the network can only choose two of scalability, security, and decentralization. Hyper-scaling aims to eliminate this trade-off.

A hyper-scaling blockchain system involves multiple different ZK chains (or super chains) running in parallel, with block proofs collected and settled on L1. In theory, this can even be an infinite number of super chains, representing the entire system. The whole process is related to an idea called fractal scaling, which was first introduced by StarkWare. Fractal scaling is based on the concept of a multi-layer network, where applications are built recursively on L2 with a specific L3.

However, hyper-scaling takes it a step further by introducing a super bridge, a native bridge that connects each L3 application chain to each other, making transfers between super chains not consume resources on third-party chains, and further ensuring that the underlying chain does not become a centralized and scalable bottleneck, thus maintaining the principle of parallel hyper-scalability. Figures 9 and 10 respectively show the comparison between fractal scaling and the hyper-scaling vision of zkSync.

Figure 9: Without a super bridge, fractal scaling may cause the base chain to become the primary intersection of most transfers over time, potentially posing scalability barriers.

Figure 10: With a super bridge, transfers between superchains become as simple and efficient as regular transfers, much like hyperlinks allow seamless navigation from one webpage to another with just one click, without the need for extra navigation through each layer.

StarkWare and Fractal Scaling

StarkWare, the company behind the general-purpose Ethereum L2 ZK Rollup project Starknet, can be considered the first important organization to begin discussing fractal scaling and multilayer architecture. In their December 2021 blog post “Fractal Scaling: From L2 to L3,” StarkWare published their views on L3, including use cases and potential benefits it could provide.

In short, StarkWare’s multilayer network argument holds that while L2’s functionality is generalized scaling, L3 should be used for customized scaling. This argument is not dissimilar to what we previously discussed in some L2 projects. In fact, StarkWare’s initial concepts likely inspired other L2 projects to begin exploring the next stage of Ethereum scaling evolution.

Figure 11: Visual representation of StarkWare’s initial multilayer architecture framework.

Although no further announcement has been made by StarkWare following the initial publication of the aforementioned argument, we still see some developments occurring within their ecosystem. Slush has further advanced the concept of fractal scaling and is working to build an SDK for zkVM L3 on top of Starknet. While the specifics of this project are highly technical and beyond the scope of this report, it is worth keeping a close eye on Slush’s progress on their roadmap and who they are able to attract into their zkVM L3 world.

In addition, in August of last year, StarkWare announced the launch of Recursive STARKs, an innovative solution that offers new scalability for blockchain systems. These STARKs are capable of bundling multiple transaction proofs into a single proof, enhancing the capabilities of L2 scaling. The technology relies on Cairo, a proof generation programming language that supports complex computational tasks, and SHARP, which is capable of aggregating transactions from multiple applications into a single STARK proof. This development not only greatly increases the number of transactions that can be written to Ethereum via a single proof, but also opens up new vistas for super scaling and advanced applications.

The implementation of recursive STARKs aims to optimize costs, latency, and computational resources to facilitate the development of L3 solutions on the public Starknet network. As StarkWare continues to refine the recursive validator, we can expect further improvements in performance and cost-effectiveness. There is no doubt that recursive STARKs represent an important step forward for Starknet in the L3 network space.

Based on these noteworthy developments, it will be interesting to observe the continued progress of Starknet and their regularly updated strategic approach to advancing Ethereum’s scalability.

Polygon 2.0

Polygon 2.0 is the latest announcement from Polygon regarding its L2 developments, released in early June. The vision of Polygon 2.0 is to create a “value layer for the internet.”

Before we dive deeper, let’s first have some background on Polygon. Polygon is a platform dedicated to enhancing Ethereum’s scalability, achieving this goal through various solutions. Their flagship product is the Polygon PoS sidechain, which is compatible with the Ethereum EVM. Polygon’s L2 solution processes approximately 2-3 million transactions per day, coming from 30-40K active addresses. Polygon has also ventured into the application chains space, launching their own solution, Supernets, which allows developers to build customizable application chains. Several companies, including gaming giant Nexon, have announced adoption of Supernets, including Nexon’s new game in MapleStory Universe. Additionally, Polygon zkEVM is their equivalent ZK-rollup solution, which went live on the mainnet in late March last year and currently has over 177K unique addresses, processing 200-500K transactions per day.

Polygon 2.0 is the latest addition to their suite of L2 products, aiming to unify these platforms and create a seamless interface for users. Polygon 2.0 conceptually consists of a group of ZK tech-driven L2 chains, utilizing a unique cross-chain coordination protocol. The solution aims to achieve seamless interoperability upgrades between Polygon zkEVM, PoS, and Supernets. The network is capable of accommodating almost an infinite number of chains, ensuring secure and instant cross-chain interaction with no additional security or trust requirements. The Polygon team hopes that this solution will provide unlimited scalability and a unified liquidity pool, akin to the vastness and accessibility of the internet.

Key Points

• Interoperability: Through the use of a breakthrough cross-chain coordination protocol (specific details have not been disclosed), Polygon 2.0 aims to achieve convenience in the flow and interaction between multiple blockchains. By using cost-effective and fast ZK proofs, these interactions should feel like interacting with a unified large chain. This theoretically enables unprecedented levels of collaboration and cooperation between different Polygon chains.

• Security: Polygon aims to improve security and privacy by adopting zero-knowledge technology and combining it with existing PoS mechanisms. They hope to combine the advantages of both technologies in the upcoming Polygon 2.0. They recently announced the transition of Polygon PoS to zkEVM validium as proof of this.

• Scalability: The Polygon team is designing Polygon 2.0 to support “practically infinite chains” to achieve unprecedented levels of capacity and scalability. Polygon co-founder Sandeep Nailwal even expressed a vision for “infinite and ever-growing block space.” The application of zero-knowledge technology will be crucial to achieving this vision, as ZK has the potential to significantly improve scalability.

Latest Updates and Timeline

Governance will be an important part of the transition to Polygon 2.0. Polygon Labs President Ryan Wyatt emphasized that sustainable decentralized governance is the cornerstone of Polygon 2.0’s strategy. To this end, the latest update planned for Polygon 2.0 is to upgrade Polygon PoS to zkEVM validium through an initial governance proposal, which is described as the “first decentralized L2 protected by ZK proofs.”

The Polygon PoS sidechain is currently protected by its own set of validation nodes, rather than by ZK proofs, but the vision for Polygon 2.0 is for each Polygon chain to be a ZK L2. The solution proposed by the Polygon team is to upgrade the PoS sidechain to zkEVM validium. Validium is an extended solution that uses ZK proofs to ensure transaction validity but stores transaction data off-chain. This is in contrast to the approach of rollup solutions like Polygon zkEVM, which store data on-chain. Publishing transaction data is expensive and may limit throughput. In this case, validium can be seen as a low-cost, high-throughput cousin of rollups. The main tradeoff is that validium must ensure the availability of transaction data outside of Ethereum, while the Polygon PoS can support data availability through their set of over 100 validation nodes.

The user and developer experience will not change as a result, Polygon PoS will continue to operate in the same manner as before, only with increased security due to the addition of ZK proofs. After the upgrade, Polygon PoS and Polygon zkEVM will still exist as two public networks within the Polygon ecosystem. In addition, both networks will use zkEVM technology, one as a rollup and the other as a validium.

The Polygon team believes that these two networks will complement each other. Specifically:

• Polygon zkEVM: Offers the highest level of security, but with slightly higher costs and limited throughput. Most suitable for high-value applications with the highest security priorities, such as DeFi.

• Upgraded Polygon PoS (zkEVM validium): Offers very high scalability and low costs, but with slightly limited security compared to Polygon zkEVM. Most suitable for applications that require high transaction volume and very low transaction fees, such as gaming and social applications.

If the preliminary proposal receives support, it will become a formal governance proposal and will then be discussed in governance meetings and other forums. If consensus is reached, the Polygon team plans to launch the zkEVM validium mainnet by the end of the first quarter of 2024. The Polygon team also released a timeline for more details on Polygon 2.0. There will be a series of announcements.

Figure 12: Polygon 2.0 announcement timeline.

Given Polygon’s performance in the PoS sidechain space and the successful deployment of their zkEVM solution, this new vision has significant potential and may offer interesting enhancements for the wider L2 ecosystem. We look forward to monitoring its development as more details about Polygon 2.0 are released.

V. Market Comparison

The L2 space is known for its vibrancy and competitiveness, providing us with a fascinating area of analysis. Each network brings unique perspectives in its own way, with notable similarities and significant differences. Building on our previous discussions of L2 and their evolving visions, Figure 13 offers a preliminary understanding of this emerging market.

Although all protocols have a grand narrative of the ultimate goal shared with an Ethereum co-founder to some extent, Optimism stands out with its Superchain theory. zkSync has some overlap with Optimism, considering its proposed open-source zkEVM rollup SDK, which provides developers with the ability to flexibly swap modules, similar to OP Stack Hacks. However, Optimism contrasts heavily with zkSync and Arbitrum, which present somewhat consistent visions in L3 despite differences in execution strategy.

Figure 13: Visualization of the relationship between the next generation of Layer 2 rollups and the Ethereum mainnet. Note that this diagram does not include Polygon and Starknet as we await further developments from these projects.

So far, Starknet and Polygon have each adopted unique strategies in shaping their respective extension theory approach. Starknet, to some extent, echoes the approach of zkSync and Arbitrum by betting on a multi-layer structure of fractal expansion L3. On the other hand, Polygon has opted for a more comprehensive model, fusing its suite of L2 products together, including the ability for dApps to establish their own chains within the scope of a super network.

These distinct L2 visions are all centered around custom and application-oriented chains. However, the specific details are still evolving, particularly for Polygon, and we are eagerly awaiting more information about their Polygon 2.0 concept in the coming days and weeks. To further conceptualize these comparative highlights, Figure 14 captures some of the subtle differences between the networks.

Figure 14: Snapshot of Layer 2 comparisons and their positioning in the next stage of Ethereum expansion.

From the table above, an interesting difference is the separation between licensed L2 development and permissionless L3 development on Arbitrum. Arbitrum Orbit provides a permissionless platform for creating L3 chains, but still requires DAO approval to use Arbitrum’s IP for L2 development. This semi-closed structure, while potentially limiting interoperability between the Arbitrum Orbit chain and other L2 chains on Ethereum, effectively reduces the risk of diluting Arbitrum L2 user activity with competing chains. This is in contrast to some other L2 designs. For example, Optimism and their OP Stack adopt the fully open-source framework in the Optimism code, enabling developers to freely deploy L2s that use a shared sequencer set. While Optimism’s model does indeed provide greater flexibility, it may inadvertently pave the way for generic Rollups developed using the OP Stack to cannibalize Optimism’s liquidity and users.

However, the reality is that the growing network of chains on the superchain corresponds directly to the increase in revenue for Optimism, a significant portion of which is expected to flow into the wider Optimism ecosystem. This revenue increase is mainly attributed to Optimism’s role as a sequencer and fees from other OP chains. In comparison, Arbitrum Orbit displays a unique value accrual approach that requires L3s built on Arbitrum to pay fees to its sequencer.

Regardless of the underlying technology, for L2s aimed at scaling and unlocking network effects, ensuring the creation of an essentially sustainable system is key. In addition to the complexity of open-source or closed-source, licensed or unlicensed L2s and L3s, several aspects should also be considered to determine how a project accumulates value in their respective ecosystems.

• Software Customizability: The convenience of copying code and building on top of an L2 will be a key differentiating factor. Projects built on top of L2s may seek specific modifications and may invest resources to fund these customizations.

• Transaction Fees and Sorters: Sorters play a critical role in maintenance and operational costs of cloud services and should be fairly compensated through transaction fees charged to users.

• Role of Governance Tokens: As the trend moves towards decentralization, the role of governance tokens in L2s becomes more important. Most Rollups may require token staking to join the shared sorter network.

Sixth, Conclusion

In terms of scalability, efficiency, and usability, the L2 ecosystem has made significant progress. Discussions on the “next stage” of L2 evolution are now taking place, leading to different visions, each with its own vision of the future path. Vitalik Buterin himself has expressed his views on this discussion, pondering potential paths, but also pointing out the many possibilities of moving forward.

The value of L3s, Superchains, and hyperscalability is obvious, but standing at the threshold of these advances, there is clearly no single, clear vision or answer. Despite differences in opinions, they share something in common on the fundamental goal: infinite scalability. The ultimate goal is to create a Web3 world that scales seamlessly, just like Web2, providing the best playground for developers and users.

In fact, for this topic, it is still in its early stages, and projects have not yet rigorously formulated and executed their methods. Therefore, the views and definitions presented today are just a snapshot of a dynamic evolving space. We look forward to witnessing how the next stage of Ethereum expansion unfolds and impacts both L2s and the broader blockchain ecosystem.

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