Layer 2 and Scaling Solutions | March 2022 | Week 1

Hello scaling afficionados,

This week is about fees, burning bridges and the game of life. One could construct a story out of those keywords as we were used to in primary school. But in our context of scaling, the community tries to lower the fees in their solutions to allow for more complex computations – as in Conway’s Game of Life. Cheaper rollups lead to more usage and more need for better bridges, which might not necessarily be the case with multisig bridges as of today. 

Let’s look at what happened in the ecosystem:

• Arbitrum introduced the idea of AnyTrust a cheaper but less secure version of the Arbitrum Rollup. The idea is that not all the transaction data will be stored on Ethereum but off-chain by a data committee. That way, AnyTrust saves gas which results in lower fees. As long as 2 out of 20 members of the committee are honest, the solution works. One could position AnyTrust as a hybrid of a sidechain and a rollup. Sounds familiar? It is the same idea as validiums for validity rollups. The difference between zkPorter (a Validium) and AnyTrust would be, that in the case of AnyTrust assets can be stolen not only frozen. However, the team promised to first ship Arbitrum Nitro – their Optimistic rollup – before they start shipping AnyTrust.
• Optimism explains how they further reduce the fees to sub-dollar. As of today, in fact, it is only 0.32$ (in 30-day average 0.78$ see data below) for a normal transfer. That has several reasons but one reason is a new way of data compression. Optimism – like other rollups – puts the data that leads to a state transition into the calldata field of a transaction. That means Ethereum stores the data but does not execute it. The team experiments with algorithms to compress the necessary data to pay less gas on layer 1. On the other hand, they need to ensure that users and watchers are able to uncompress that data to verify or reconstruct the state. It’s a bit nerdy to read but cool to see how it works under the hood.
• StarkNet now has the famous Game of Life on its platform. The game consists only of very few rules to simulate cells and how they react to their neighbours. Surprisingly complex structures evolve and collapse over time. Some scientists believed in the 70ties that in a similar way human consciousness might have emerged. However, the game is computation heavy and therefore a perfect showcase for StarkNet’s layer 2 and the potential future of blockchain games. You need the Argent X wallet to play.
  

• Arjun from Connext and some experts talked about the problem of multisig bridges in their Burning Bridges Series. Two problems that they discuss are worth emphasizing. First, there is always an economic attack against the often small group of unknown validators of that multisig. It is almost impossible to validate that the group of validators is distinct and even if, how much would it cost to corrupt a subset? Secondly, they discuss the problem of asset fragmentation on bridges. That means every bridge could define on its own what the canonical USDT or DAI contract is for a certain chain. So for a user, it is hard to understand why she might not be able to use the DAI she got from bridge A as DAI in a DeFi contract.

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.

• Terra manages to increase its TVL by about 50% to 23.4b$. That is almost double the TVL of BSC which makes the second place. No other L1 sees such an increase. It is worth mentioning that also the Terra Coin increased over 7 days by about 41%. 
• It is surprising that Terra manages to be in that position with only ~3.6m unique addresses which are 3% of what Polygon PoS or BSC have.
• Daily transactions are quite volatile. dYdX recently had over 1m of daily transactions and as of yesterday has only 250k. It is still by far the most “used” L2 in that metric.
• Fees for the optimistic rollups are quite low in the 30d average.

Fees for selected bridges

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