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CryptoEconomic Research

Layer 2 and Scaling Solutions | February 2022 | Week 4

by Dominik SchmidFebruary 25, 2022
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Hello scaling afficionados,

Matter Labs released their zkSync 2.0 (zkEVM) to the Ethereum testnet for us to check out. As also shortly described below, rollups and especially validity rollups tend to be decentralised due to the requirements of the prover. The Polygon team tries to tackle those tendencies with a novel consensus algorithm Proof of Efficiency.

Let’s look at what happened in the ecosystem

  • In Denver, there was a super interesting Panel about Validity and Optimistic rollups. Angela Lu (Matter Labs) and Zac Williamson (Aztec Protocol) took the validity rollup’s side and discussed with Ed Felten (Arbitrum) and Ben Jones (Optimism) the pros and cons of their approaches. Points that stood out were their discussions about centralisation (“Arbitrum runs on centralized training wheels”) and composability. All rollups are centralized so far, but for Optimistic rollups, it might be easier to move towards decentralization, because they don’t have the need for such resource-intensive proof constructors. In terms of composability, it looks like the validity rollups will have it easier due to their faster finality on L1. However, as Ben points out very often, a lot of terms would need to be defined properly to avoid overstating or misinformation. Philosophically interesting is the asynchronicity of rollups and at which time delays you can speak of such. Whatever just watch its only 30 min …
  • Adding to that, Polynya enlightens us again about why Optimistic Rollups are brilliant. He starts with ranting about monolithic L1s with a nice summary of reasons thereof, mainly their crippling inefficiency. The future will be modular. But using which modules? In the particular case of Optimistic rollups, which are still more expensive to use than alternative L1s, he argues that those systems are not gas optimized yet. In theory, Optimistic rollups can even be cheaper than their validity proof-based counterparts simply because calldata will have neglectable gas costs but the SNARK and STARK proofs will. Still, he argues that in the medium-term future, all rollups might have a validity proof approach.
  • Let’s talk cross-chain for a second. Li.finance interviewed the Celer team. Li.finance aims to build a bridge aggregator that abstracts bridges and dexes away from the user. In particular, in a cross-chain route where a user would have to call multiple smart contracts (and approve its tokens), the li.finance contracts allows the user to submit one transaction to facilitate quite complicated swap and bridge transactions. In the interview, the Celer team explains their Interchain message format which allows cross-chain smart contract calls.
  • The Matter Labs team releases zkSync 2.0 to the public Ethereum testnet. Go and deploy your favourite Solidity Smart Contract there – Solidity 0.8.x support. There is already a hardhat plugin. The documentation can be found here.

Let’s look at the data

Comparing blockchains, especially rollups to monolithic chains, on the below indicators might be questionable. Every indicator can be discussed, whether it is useful to track unique addresses or TPS. We believe that all indicators together and especially looking at a 7d change can be used to build hypotheses about the current state of scaling.

  • Optimism and Arbitrum are both close to sub 1$ payments – in a 30d average. Seems still a long way to go, when they want to compete on costs with alternative L1s.
  • Terra is able to raise its TVL by over 30% and increase daily transactions by 15%. This is quite remarkable given the fact that most alternative L1s lose in TVL.
  • dYdX has a TVL of 1b$ for the first time which is a third of what Arbitrum has.
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