Rollups everywhere

I was looking for information about Ethereum scaling, when I realized the problem was already solved.

  1. Execution layer :

Polynya website explains how and why Rollups are the solution to the scaling of the execution layer.

StarkWare head of Engineering also explains how recursive rollups would enable to reach hyper-scalability, with a fractal structure : “Fractal Scaling: From L2 to L3

L2 Rollups already succeeded to reduce fees by 90 % - 95 %.

In my opinion, L3 Rollups are very important because they will be able to process mass micro-transactions with zero fee.

This is exactly what is needed because it means any influencer will be able to develop a micro-economy around him / her, by creating, giving or selling a fan token.

Fans will be able to transfer token for free between each others, without having to purchase any Ether and even without being aware the fan token is secured by L1 Ethereum.

The L3 Rollup may just ask the fan to fill a captcha or to watch an ad from time to time, to pay for the service.

Rollups are such a good solution that many other blockchains could become Ethereum Rollups.

  1. Data layer :

As explained once again on Polynya, data shards will provide scaling for the data layer.

  1. Conclusion :

As a result, since scaling is no more an issue, L1 Ethereum can focus on decentralization and security / consistency.

Ethereum could also focus on making things easier for Rollups to interact with L1 Ethereum and other Rollups.

2 Likes

A popular Reddit post commented by Cointelegraph comes to the same conclusion :

At it’s core, scaling is a technology narrative. It’s the story of new technology (rollups) and a newer technology (zero knowledge proofs.)

We’re at a turning point now with a transition from multi-chain L1 to multi-chain L2 narratives. The alt-L1 bubble was a perfect storm that is now ending. For many months alt-L1’s enjoyed a period of near-0 competiton. Ethereum L2’s weren’t ready yet, and as such any technology that didn’t sacrifice on decentralization could not compete. While competition was still building their first product, alt-L1’s were first to market. By bootstrapping something cheap (but functional!), they soaked up excess demand unwilling to pay Ethereum fees, and the alt-L1 multi chain hypothese arrived.

Scaling, and any argument of “my blockchain is better because it’s fast and cheap,” is going to become a commodity. And fast. Going forward, you have the rise of an army of highly talented, well funded, competition in L2s that are, right out of the gate, more secure and decentralized than alt-L1s and are built to use sound money on a credibly neutral platform. Some of these will be popular and mainstream tradFi L2’s like Visa and Mastercard.

L2 adoption is happening now, even if it is slow and in bursts. Behind the scenes L2’s are improving reliability, decreasing fees, and increasing accessibility. L2’s are still building and improving, and that’s fantastic.

L2’s are inherently collaborative and a bridge economy is emerging. Ethereum has an upper hand in the L1 competition because L2’s will compete directly with L1’s. The future is filled with much more competition for alt-L1 chains than the past. However, it’s more than just increased competition. L2 bridges allow the L2s to be inherently collaborative. Where funds can bridge from L2 to L2 without security sacrifices, funds bridging to alt-L1’s lose significant security. As the funds involved increase in size, this starts to matter more and more, increasing L2 network effects to the exclusion of alt-L1’s.

The argument that L2 bridges are fundamentally more secure at size than cross-chain L1 bridges adds significant drag to alt-L1 competition. If there are limits to borrowing network effects from other chains unless you’re an ETH L2, then ETH L2s can feed off of each other’s growth while alt-L1’s are limited in their ability to do the same. Each L1 must provide the full suite of products on its own, whereas L2 users can just bridge to wherever they want if products aren’t ready yet on their L2 of choice.

The narrative so far has been “alt-L1s have a huge lead because of strategic sacrifices in decentralization.” But honestly, alt-L1’s have not solved their scaling issues quite yet. This isn’t to say they can’t be solved - it’s just to point out that in competition with an army of L2s, they aren’t as leaps and bounds ahead as marketing would make it seem.

Were alt-L1’s ever even sticky? Alt-L1’s cost nearly nothing to use, so they make nearly zero in fees. While that’s been great for users, it remains to be seen if alt-L1’s have a value prop to users outside of low fees. On the other hand, Ethereum users were willing to pay $9 billion in fees last year for the product. They were willing to pay 380x more for Ethereum blockspace than Solana blockspace. If Ethereum gets cheaper, there’s every reason to think Solana users might want in on Ethereum blockspace. I don’t see any reason why Ethereum users will suddenly want Solana blockspace.

The Ethereum ecosystem being built this way - a value proposition built on decentralization and security - sucked for a long time. However, the economy we’re left with is also much more comfortably forecastable. Alt-L1 users were never really forced to anchor themselves into the blockchain and community in the first place, so the network effect that remains should be much more fragile. While it is possible there is some network effect entrenchment for them, they must trust and hope the users will stick around for the long run. For Ethereum it’s verified and is observable with fees paid by users for a product they prove they love with their behaviour, over and over again.

Ethereum has no competition in security or decentralisation. Proof of stake will increase security by orders of magnitude and as the triple havling plays out, Ethereum will emerge as the only blockchain with geopolitical grade security and decentralisation. Ethereum is and will be the only credibly neutral blockchain in existence.

The L3 and L4 narrative is also rising. Recursive rollups. fractal hyper-scaling, app-specific requirements, and privacy built on top of the L2. Multiple scaling layers, all maintaining the security of L1. A while new avenue of possiblities previously thought impossible that can only be enabled L2. There are tasks that only L2’s can perform. The rise of L2-native dapps will be another competitive advantage of the L2 ecosystem.

L2 onramps are here. CEXs won’t just bridge to any random alt-L1. There are real security concerns when it comes to managing money. However, when it comes to L2s with the full security guarantees of Ethereum…all CEXs have an incentive to integrate with the full network of L2s (and even just 1 unlocks the rest via L2 bridges).

The Optimism airdrop marks the launch of L2 season. The wait till now has given time for L2’s to build product, bridges, onramps and applications. So now when the L2 airdrops attract major attention the L2 experience is better than ever before, and the people that the attention brings to the ecosystem will stay.

An immense amount of funding has entered the L2 space and a lot of this funding is going to result in product launches in the next 1-3 years.

After L2 adoption and the merge, there will be a major narrative shift to sharding and the data-availability layer. This will widely benefit every L2 and provide a scaling advantage relative to alt-L1’s. Alt-L1’s can’t just use rollups and sharding. Ethereum is so decentralized it can support 64 shards today (perhaps more in the future). Alt-L1’s don’t have enough validators to do the same.

Sharding isn’t a prerequisite for increasing data availability on Ethereum. But when it does get here Ethereum is massively advantaged in how many shards it can have and it will be the only ecosystem capable of this degree of organic scaling.

The success of L2s built on Ethereum will cement Ethereum’s kingship in the background. There are no other blockchains that have a roadmap like this. Ethereum has a scaling roadmap without tradeoffs on security or decentralization, and in this respect it has no competition.

  • TLDR

  • We’re at a turning point in the scaling narrative:

  • ZK tech is innovating fast

  • Alt-L1 bubble has burst

  • L2 adoption is happening now

  • L2’s are still building and improving

  • L2’s are inherently collaborative

  • Alt-L1’s aren’t finished products either

  • Alt-L1’s may not have been sticky

  • ETH has no competition in security/decentralisation

  • L3/4 is an upcoming narrative

  • L2 onramps are here

  • L2 token airdrops are here

  • More funding is coming

  • Sharding and data availability is next in line on the roadmap

Interesting thesis, I too am very pro-ZKtech in general. A few pointers I wanted to add that you might find interesting.

  • EVM is at the centre of the current DeFi situation. L1s such as Cardano and Solana all have alt-L1s that support EVM (Milkomeda and Neon respectively). Fundamentally strong L1 competitors such as Cosmos and Polkadot also have L2s that support EVM (such as EVMOS and Moonriver).

  • There is a sizeable market that supports L1<>L1 exchange within EVM implementations - case in point: Nomad.xyz - this is great because liquidity then truly becomes liquid instead of being chain-siloed. I’m personally huge on IBCs.

  • Solidity is the COBOL of DeFi - it has it’s shortcomings, but it is the language of transactions. There are threads that accuse Solidity of being lazy, but they truly don’t appreciate the difficulty a general purpose language would bring into smart contract writing. Solidity breeds creativity, it also brings developers as the language I personally consider to be easy to learn, hard to master. For this reason, EVM compatible ZKs will be winners (ZK Sync v2 for example). Alt-L2s and general L3s will bring scalability to Ethereum and Crypto space in general. Either that, or ZK-L2s that provide Solidity → Native Language compilers (StarkNet for example). These need to be high quality compilers too.

Overall, I am very biased towards EVM and ZK and want to spend the next few months studying these in depth. Thanks for your write-up, was an interesting read.

Cheers,
Abhinav.

4 Likes