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CryptoEconomic Research

Layer 2 Scaling Solutions | January 2022 | Week 2

This report focuses on the growing Ethereum scaling ecosystem. We want to synthesize data-driven analysis, news and background information. The scaling landscape is a rabbit hole. But no worries, we got you covered. We provide you with a comprehensive view of scaling.
by Dominik SchmidJanuary 7, 2022
Layer 2 JAN2022 Week 2

So by now, I guess, the attentive reader has seen Vitalik’s argument why the future will be multi-chain not cross-chain. Basically, having two chains with separate consensus might lead to a 51%-attack on one chain attacking the bridge whereas the other cannot deal with this. Luckily, this doesn’t apply to Layer 2s. Which, if we see this as a valid point, adds even more potential value on Layer 2s.

What happened in the Ecosystem?

  • Do you want to know which projects are already on StarkNet? There is even a Wallet already – Argent X. Community expectations on StarkNet are high, so its nice to see the project growing even if they just started, see here.
  • The Arbitrum Sequencer had a downtime four days ago. Different to blockchains, Layer2s have centralized sequencers that act as servers. When the sequencers are down, the “network” is down, see here. All projects want to decentralize that design in the future.
  • CryptoShine explains zkSync in a nice way. It is technical enough to stay accurate and a good read. So in case you want to know more about this project, see here. It will be important for ConsenSys and MetaMask when zkSync 2.0 will be launched.
  • Bartek – the mastermind behind L2beat.com explains how STARKs work … in a Twitter post. Might be a good way to check your own understanding of this amazing idea – using Polynomials as error codes.
  • And in case you missed it … What is Web3? by our colleague James.

Look at the data

  • Fantom kicked Polygon PoS out of the top5 biggest chains by TVL. That is why, Fantom now also has a scorecard in our framework, see below. The system uses Lechesis an asynchronous BFT protocol and they have a fancy homepage.
  • Polygon PoS still has the most unique addresses after Ethereum.
  • Most Layer 2 protocols have a steep downfall in daily transactions. Even dYdX which by far had the most daily transactions always sees a decline of ~30% compared to last week.
  • Boba Network looses 26% of its TVL and will get replaced by Metis which is another Optimistic Ethereum fork.

Costs to bridge assets

Connext is getting even more expensive. For bridging 0.1 from Arbitrum to Connext, users must pay $261 which is more than 3x the cost of the others.

However, we are waiting for a major upgrade by the Connext team introducing virtual AMMs. Those are supposed to make Connext Routers more cost-effective.

Costs to bridge assets in $
from left to right Connext, Hop, cBridge

Next week

  • We will take a look at Metis – the data, the security and ease of use.
  • We are about to interview thought leaders in the Layer 2 ecosystem about their 2022 predictions
  • We will update our scorecards to the next level.

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