What happened to the “Layer 2” of Ethereum that saw TVL increase 110 times during the year?

From last year to this year, Layer 2 was one of the hottest topics in the encryption field. As far as 2021 is concerned, it is still the most noteworthy trend. In many previous articles, we have introduced the concept and overview of Layer2. Layer2 is an off-chain expansion solution to increase throughput, reduce transaction costs, and improve network operating efficiency. As we all know, the scalability problem has always been a huge challenge in the development of blockchain. As early as 2017, the expansion of Ethereum and Bitcoin attracted attention. Developers have successively proposed state channels, side chains, Plasma, Different off-chain expansion solutions such as Rollup, Validium, Hybrid solutions have different technologies and methods, but some of them have exposed obvious problems in the previous attempts to implement and the bull-bear cycle transition, and gradually fade out of investment. The vision of the reader, such as the previous Plasma, side chain and other programs have been basically eliminated.

Starting in the first half of 2020, with the popularity of DeFi and liquidity mining, the Gas price once soared to 700Gwei, and the expansion of the Ethereum network became even more urgent. However, ETH2.0 is still unable to land in the short term. Therefore, Layer 2 has high hopes. Even the founder of Ethereum, V God, has repeatedly emphasized that Layer 2 is the future of Ethereum expansion. Many people even think that Layer 2 will be the future yuan. The cornerstone of the development of the universe.

Leaving aside the future, looking at the present, we see that in the past two years, with the persistence and efforts of some development teams, many projects based on representative L2 technology have gradually landed, and the overall development direction of Layer 2 is improving, and The development trend has also exceeded everyone’s expectations. According to data from L2BEAT, as of November 17, the total locked-up volume of Ethereum Layer 2 reached 5.36 billion US dollars, a record high.

So, what is the current development status of mainstream Layer 2 solutions and platforms, and what major progress has been made? This article will take you in-depth understanding of the current development status of Ethereum’s main Layer 2 technical solutions, as well as the progress of related platforms and projects based on these technologies.

Rollup technology overview

Although Layer 2 solutions are all based on the purpose of capacity expansion, each solution is different in technology and method. Therefore, in terms of subdivision, Layer 2 technical solutions are numerous and relatively scattered. However, as of the current development situation, among all the Layer 2 solutions of Ethereum, Rollup’s development results are the most significant, and it is also the most concerned and the only feasible scalability solution for Ethereum. According to data from L2beat, currently 70% of the top 10 projects and agreements with locked positions are based on (based on) Rollup technology.

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

Source of lock-up value of L2 network and protocol: l2beat.com

Rollup translates to “roll stack”. The principle of this technology is actually to pack a large number of transactions together and send them to the main chain of Ethereum. This packaging process takes place on Layer 2. It can Reduce the burden of Ethereum’s capacity, and quickly confirm transactions. At present, the Rollup technical solutions are mainly divided into two key technologies, Optimistic Rollup and ZK Rollup, referred to as OR and ZR, each of which has advantages. The characteristics of these two technologies are introduced below.

Optimistic Rollup uses OVM (Optimistic Virtual Machine, similar to EVM) to run smart contracts in Layer 2 and is protected by the L1 chain. It relies on an aggregator that deploys smart contracts, accumulates a large number of transactions in the “rollup block”, and bundles them to the L1 chain. Optimistic means “optimistic”. It treats all participants as good people by default and tends to believe that nodes will not do evil. Therefore, the trust cost of Optimistic Rollup technology is high.

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

Optimistic-rollup vs ZK-rollup operation comparison

ZK-Rollup uses zero-knowledge proof to ensure the security of node verification (ZK stands for Zero-Knowledge abbreviation), runs off-chain calculations, and bundles transactions in “rollup blocks”, and generates a SNARK encryption certificate, called “valid” Proof of Sexuality”, and then released to the L1 chain.

The difference between ZK-Rollup and Optimistic Rollup lies in their advantages and disadvantages. Optimistic Rollup is more flexible and can be compatible with most DeFi applications. The disadvantage is that the transaction packaging time is longer. It takes 2 weeks for assets to return from Layer 2 to Layer 1. (ZK Rollup only takes a few minutes). The security of ZK-Rollup is very high. The intermediate operators not only act as the transporter, but also act as the supervisor. They will check and verify the data packaged by other operators. If an operator is found to be evil, he It will be reported and the transactions during this period will be rolled back. The disadvantage is that it has poor compatibility with the existing smart contract system of Layer 1, so DeFi application developers using ZK Rollup technology need to develop special smart contracts to match Layer 1, and ZK Rollup smart contracts developed by different DeFi teams It is not universal, so there are certain technical difficulties and barriers.

Progress of the Rollup project

At present, based on the two key technologies of ZK Rollup and Optimistic Rollup, different development teams have implemented and launched different solutions, which have also been favored by various DeFi projects. For example, well-known DeFi applications such as Uniswap , Synthetix, Bancor, and MCDEX choose Optimistic Rollup technology, while projects such as Curve, dydx, Balancer, and Immutable choose ZK Rollup technology as the main expansion solution.

The teams currently dedicated to Optimistic Rollup include Optimism, Fuel Labs, Off-Chain Labs, etc., and have launched famous projects such as Optimism, Fuel Network, Arbitrum, etc.; the more well-known projects dedicated to ZK-Rollup technology are Matter Labs and Starkware The zkSync and StarkNet solutions adopted by the team respectively.

So, what is the current development or progress of these projects? What kind of answers have been submitted in terms of ecological development?

First look at the more well-known Optimism and Arbitrum.

Optimism has made significant progress this year, including the opening and upgrading of functions and ecological financing. On January 16 this year, the Optimism mainnet launched a soft start, and the SNX pledge service on Synthetix was launched. On February 24, Optimism announced that it had received a US$25 million financing led by A16Z. On July 14, Uniswap V3 was also officially launched on the Optimism mainnet. On August 27th, Optimism announced the launch of a new gateway interface that allows users to transfer any token from the Ethereum mainnet to Optimism. On October 6, Optimism launched an experiment called retroPGF (traceable public welfare fund). As of November 3, a total of $1 million in ETH was allocated to 58 projects to reward these projects for the development of Optimism and the Ethereum ecosystem. Excellent work done. On November 11, Optimism has completed the deployment of OVM2.0 version, and then on November 12, Optimism announced the completion of EVM Equivalence (EVM Equivalence) upgrade. It is said that the EVM equivalence will be fully consistent with the EVM specification rather than just compatible, which can simplify the developer’s development process and reduce transaction costs.

Relatively speaking, in terms of development progress, Arbitrum went online late, but the ecological development trend quickly surpassed Optimism. On August 31 this year, Arbitrum announced that the public beta version of the mainnet, Arbitrum One, was officially launched, and launched its browser Arabiscan in cooperation with the blockchain browser Etherscan. Subsequently, Uniswap V3, Balancer, SushiSWePiggy, DODO and many other applications have been launched on the Arbitrum One mainnet. However, it should be noted that both Optimism and Arbitrum have not yet issued tokens, and investors need to beware of being deceived.

From the perspective of usage and ecological performance, Arbitrum seems to be more popular with the community, and its growth momentum far exceeds Optimism. According to data from L2BEAT, Arbitrum network has locked up digital assets worth more than 2.6 billion U.S. dollars, accounting for 48.42% of the entire Layer 2 ecological lock-up volume, ranking first in the L2 network. The Optimism network currently has a lock-up volume of US$453 million, accounting for 8.45% of the total lock-up volume, and ranks fourth in the L2 network in terms of lock-up volume.

According to data from Arbitrum’s official browser, as of November 17, the number of unique addresses on the Arbitrum network has exceeded 266,000, a 40-fold increase from the initial launch (6409). The number of transactions on the day was 24,849, which fell back from the beginning of the line, and the recent changes have been relatively small.

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

The changing trend of the number of unique addresses on the Arbitrum network Source: arbiscan.io

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

Changes in the number of daily transactions on the Arbitrum network Source: arbiscan.io

The Optimism network currently has (November 17) the number of unique addresses surpassed 25,800, showing a rapid growth trend only in the past week. The number of transactions on the day was 45,959, an increase of 73 times in the past week.

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

Source of the change trend of the number of unique addresses on the Optimism network: optimistic.etherscan.io

What happened to the "Layer 2" of Ethereum that saw TVL increase 110 times during the year?

Changes in the number of daily transactions on the Optimism network Source: optimistic.etherscan.io

Concluding remarks

On the whole, Arbitrum came from behind and developed rapidly in terms of ecological projects and volume growth, while Optimism grew relatively slowly. At present, it mainly relies on the ecological contribution of Synthetix and Uniswap V3. Of course, in addition to Arbitrum and Optimism, other Layer 2 expansion projects such as ZkSync, Loopring (LRC), Immutable X (IMX), Aztec, StarkWare, ZKS wap, etc. have also made some important progress.

For example, the L2 expansion solution zkSync launched the first testnet version of zkSync 2.0 in June this year, and zkEVM has achieved full compatibility with Solidity, which means that Ethereum applications can seamlessly migrate to the zksync 2.0 Layer 2 network, November 11 Its development team Matter Labs announced that it has reached a partnership with OKEx. The goal is that OKEx will support the withdrawal and recharge functions of legal currency directly to the zkSync second-tier network; the Ethereum Layer 2 solution initiated by the Twitter big V “antiprosynthesis.et” on November 13 In the voting, zkSync won 54% of the votes among the four major Rollup technical solutions. In addition, StarkWare’s StarkEx 3.0 version has also been launched on the mainnet, enabling new functions such as DeFi Pooling and dAMM. Due to space limitations, other projects will not be elaborated in this article. Readers can join the official community of Ouyi to get more benefits and courses.

Although the current branch schemes of Rollup technology are relatively scattered and developed independently, the composability and interoperability are still not strong enough. However, it is foreseeable that with the development of Metaverse, DeFi, GameFi and other fields, as well as the increasing demand for transactions on Ethereum, the demand for Layer 2 in the entire blockchain ecology will only become stronger, and Layer 2 has the potential to emerge. Large-scale project. Regardless of whether they can completely solve the “Impossible Triangle” problem, the Ethereum “Layer 2” still have a lot of room and opportunities for development. Of course, the differences between different technical solutions will also have a significant impact on their future. Perhaps in the future, only one or two projects will dominate. Then for investors, analyze and understand the technical differences of each project. And the development situation is also one of the references for investment.

Posted by:CoinYuppie,Reprinted with attribution to:https://coinyuppie.com/what-happened-to-the-layer-2-of-ethereum-that-saw-tvl-increase-110-times-during-the-year/
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