Original Author: Grapefruit

With the approaching of the upgrade of Cancun, Layer 2 networks have become the hottest narrative track in the second half of 2023. Since July, the Layer 2 TVL has often maintained above 10 billion US dollars.

Recently, many established public chains have announced their shift to Layer 2, and some have even secured substantial financing.

On July 17th, cLabs, the development organization of Celo, proposed transforming Celo from an independent EVM-compatible Layer 1 blockchain to an Ethereum Layer 2 based on the OP Stack.

On July 12th, Manta Network, a ZK-based Layer 1 public chain, announced the launch of the Layer 2 network Manta Pacific, designed specifically for zero-knowledge proof (ZK) applications based on the OP Stack. Then on July 19th, its developer, p0x labs, completed a Series A financing with a valuation of 500 million US dollars and raised 25 million US dollars, jointly led by Polychain Capital and Sequoia Capital China.

In addition to the transition of established Layer 1 networks to Layer 2, native Layer 2 networks are also making frequent moves and announcements.

Among them, Rollup-based networks such as Arbitrum, zkSync, and StarkNet have announced the release of open-source toolkits, such as Stack, for building corresponding Layer 3 networks. The Optimistic Rollup fork project, MetisDAO Foundation, has announced its incubated Hybrid Rollup project, ZKM. The Loopring protocol has announced the construction of its Layer 3 based on the zkEVM Layer 2 network, Taiko, and so on.

Clearly, the Layer 2 market has entered a highly competitive stage. According to the data platform Rootdata, there are already 77 recorded Layer 2-related network infrastructures, including modular blockchains, zkRollup, Optimistic Rollup, and application chains.

Currently, the Layer 2 market is mainly dominated by two mainstream scaling solutions: Optimistic Rollup and zkRollup. So, what are the representative networks of the Optimistic Rollup system and the zkRollup system? How are they progressing? What opportunities are there for user participation?

I. Optimistic Rollup System: 5 Networks - Arbitrum, Optimism, Metis, Boba, Mantle

Arbitrum's on-chain TVL has surpassed $6 billion, ranking first in the Layer 2 track

As of July 20th, the value of crypto assets locked on the Arbitrum chain is approximately $6.09 billion, ranking first in terms of TVL among many Layer 2 projects, with a market share of 59.78%. The native token ARB was officially launched for trading in March this year, with a current price of $1.26 and a market capitalization of $1.6 billion, ranking 36th among crypto assets.

In addition, Arbitrum's deployed ecosystem applications, prosperity, and activity are far ahead of other Layer 2 networks.

According to the official ecosystem portal Arbitrum Portal, it has included 559 Arbitrum ecosystem projects, covering applications in multiple sectors such as wallets, cross-chain bridges, DEXs, lending, gaming, and NFTs. Among them, the main representatives include mainstream well-known applications migrated from external sources like Uniswap, Aave, Curve, and 1inch, as well as native decentralized perpetual contract GMX, full-chain lending Radiant, native DEX Camelot, and the metaverse gaming ecosystem Treasure, among others.

Arbitrum is a Layer 2 scaling solution built on Arbitrum Rollup (an improved version of Optimistic Rollup) technology, which launched its mainnet in August 2021.

Currently, there are 3 main networks in the Arbitrum ecosystem, including Arbitrum One, Arbitrum Nova, and Arbitrum Orbit.

Arbitrum One: It is the core Rollup chain of the current Arbitrum ecosystem, and all transaction data is stored on the Ethereum mainnet. The L2 and on-chain ecosystem applications we often mention run on this mainnet. It should be noted that Arbitrum Nitro is an upgraded version of Arbitrum One, and the name of the mainnet Arbitrum One has not changed after the upgrade.

Arbitrum Nova is a new network designed for gaming, social applications, and high throughput DApp use cases, built on AnyTrust technology. The transaction data of this network is stored off-chain and managed by a data committee (DAC). Compared to Arbitrum One, which is secured by Ethereum, Arbitrum Nova has lower security but 90% lower gas fees than Arbitrum One. It is particularly suitable for gaming, social, and other applications with high-frequency transactions and low fees. The Reddit community points system (such as MOON) is built on this network and supports developers to build games, social, and other applications using Reddit tokens. Opensea and TreasureDAO have also launched their NFT markets on Arbitrum Nova.

Arbitrum Orbit: It is an open-source toolkit for building L3 networks, supporting developers to deploy and create their own chains. Developers can use the Orbit toolkit to build their own Rollup and AnyTrust chains (L3) and choose either Arbitrum One or Arbitrum Nova as the settlement layer to achieve scalability. Choosing between Rollup and AnyTrust represents a choice between decentralization and performance.

Currently, there are multiple applications collaborating with Arbitrum Orbit to create their L3 networks. AltLayer, an Ethereum scaling service platform, has already supported Arbitrum Orbit, allowing users to launch Arbitrum's L3 application chain within minutes using no-code tools. In June, Xai Network, designed for gaming, announced the launch of a customized L3 blockchain for the gaming industry using Arbitrum Orbit technology. The DeFi derivative trading platform, Syndr, announced the launch of Syndr Chain based on Arbitrum Orbit. The testnet is already online and is currently in the beta testing phase, requiring application for access. Recommended reading: "Layer 2 upgrades, is it necessary for Arbitrum and zkSync to promote Layer 3?"

About Arbitrum ecosystem incentives, on July 20th, the Arbitrum Foundation announced that it will provide grants to eligible dApps and infrastructure on Arbitrum Nova and Arbitrum One to promote ecosystem development.

Optimism Heading towards the Kingdom of Layer 2 Chains

Optimism is a Layer 2 scaling solution built on Optimistic Rollup. Currently, the total value of locked crypto assets on the chain is $2.42 billion, with a market share of 24.2%, making it the second-largest Layer 2 network. Its native token, OP, is currently priced at $1.48 with a market capitalization of $950 million, ranking 45th among crypto assets.

Compared to Arbitrum, the ecosystem vitality on Optimism is slightly less prominent. According to DeFiLlama data, there are currently 153 Optimism-based applications.

However, with the introduction of OP Stack components, Optimism has started its journey towards the kingdom of Layer chains and has carved out its own path in the Layer race.

OP Stack is an open-source modular toolkit launched by Optimism, covering data availability layer, execution layer, settlement layer, governance layer, etc. Developers can assemble a custom Layer 2 network using the OP Stack toolkit based on their specific needs and scenarios.

For this reason, OP Stack introduces the concept of a "kingdom of Layer chains" for Optimism, which refers to a group of Layer 2 blockchains (also known as OP chains) built on top of OP Stack.

However, the "kingdom of Layer chains" is different from a multi-chain structure. Current multi-chain architectures, such as Cosmos, actually introduce new consensus algorithms on each chain. Whenever a new chain is enabled, a new set of validators must be launched, and security and information cannot be shared between chains. In contrast, the "kingdom of Layer chains" is standardized, with consistent consensus algorithms and security ensured by the Layer 1 blockchain (Ethereum mainnet). Due to the standardized architecture, resources and information can be shared between chains.

For example, in the "kingdom of Layer chains," if A Layer 2 and B Layer 2 networks are built with the same standards, the wallets, applications, and tokens on both chains can directly communicate and interoperate. In this case, users no longer need to focus on the concepts of A or B chains and can consider them as a single unit, the "kingdom of Layer chains." This allows developers to build applications that target the entire "kingdom of Layer chains."

On June 24th, Optimism Blockchain announced its renaming to OP Mainnet, in order to differentiate OP Mainnet from the Optimism ecosystem built on OP Stack. OP Mainnet is just one of the base chains among many Layer 2 superchain networks. This can be understood as, in the Optimism ecosystem, OP Mainnet and multiple L2 networks built on OP Stack together form the Optimism superchain kingdom.

Currently, there are dozens of Layer networks built on OP Stack.

Among them, in the first half of July, 3 projects announced the launch of relevant Layer 2 networks based on OP Stack.

On July 16th, Layer 1 public chain Celo's development organization cLabs proposed to transform Celo into a Layer 2 based on OP Stack;

On July 12th, Layer 1 public chain Manta Network based on ZK launched the Layer 2 network EVM native modular execution layer Manta Pacific, designed for zero-knowledge proof (ZK) applications, and renamed its Layer 1 network Manta as Manta Atlantic. In the future, the Manta ecosystem will consist of Manta Atlantic and Manta Pacific;

On July 7th, Public Goods Network (PGN), supported by Gitcoin, was also built on OP Stack.

Prior to this, several well-known Web3 companies have deployed Layer 2 networks using OP Stack.

• Base—Coinbase announced the launch of the Layer 2 network Base based on OP Stack, which has now opened the mainnet to developers and supports the deployment of applications. It is expected to be open to the public in early August;

• opBNB—BNB Chain launched the OP Stack-based Layer 2 test network opBNB, with the mainnet expected to launch in Q3 2023;

• Magi—a16z announced in April the launch of Magi, a Rollup client solution based on OP Stack;

• Worldcoin ID—Worldcoin ID announced its application chain built on OP Stack, focusing on the construction of the on-chain identity system-related ecosystem.

There are also many games and NFT projects choosing to build their own networks based on OP Stack.

Zora Network—NFT trading market Zora announced the launch of Layer 2 network Zora Network based on OP Stack.

Loot Chain—Loot ecosystem project Adventure Gold DAO builds Layer 2 network Loot Chain using OP Stack and uses its native token AGLD as Gas Token;

OPCraft—Chain game developer Lattice's dedicated chain for the online virtual world game made with OP Stack.

In terms of network performance, Optimism has been continuously optimizing and improving. In June this year, Optimism announced the completion of the mainnet upgrade Bedrock, further reducing transaction costs, shortening deposit confirmation times, and improving performance. According to Dune Data, since completing the Bedrock upgrade, Optimism has reduced the average transaction gas cost by about 75%, with the Optimism mainnet becoming the cheapest Ethereum L2 network for token exchange, with a gas fee of approximately $0.1 per transaction.

Optimistic Rollup Fork Project Metis Network

Metis Network (referred to as Metis) was originally built as a Layer 2 scaling network based on Optimistic Rollup technology. Due to adjustments and improvements made to Optimistic Rollup, the delay in withdrawing assets from Layer 2 to Layer 1 has been reduced to just a few hours or minutes. Therefore, Metis is also considered a fork project of Optimistic Rollup, and its mainnet is called Andromeda.

On July 13th, the MetisDAO Foundation announced the official release of its incubated project ZKM (formerly known as Project M), and upgraded the existing Optimistic Rollup to Hybrid Rollup. ZKM will launch the testnet before the end of the year.

ZKM is a Layer 2 scaling solution that uses the Hybrid Rollup mechanism. Hybrid Rollup combines the advantages of Optimistic Rollups and ZK Rollup to form a single Rollup protocol. The ORU architecture provides developers with an easy-to-code environment and users with the finality, security, and decentralization provided by ZKRU, ensuring timely withdrawals while maintaining security.

In fact, as early as March, MetisDAO stated on their blog that they were developing a Hybrid Rollup that combines Optimistic Rollup (OPR) and ZK Rollup, combining the scalability of Optimistic Rollups with the security of ZK Rollup. This will be an important task in Metis Mainnet Andromeda's 2023 roadmap.

The current TVL on the Metis chain is 88.97 million USD, ranking 8th among many Layer 2 networks. The mainnet Andromeda uses the METIS token as the payment method for on-chain gas fees, with a transaction gas fee of 0.0064 USD. METIS is currently priced at 17 USD with a market cap of 74.3 million USD.

According to DeFiLlama data, there are 40 DeFi applications in the Metis on-chain ecosystem, including mainstream applications such as Aave, SushiSwap, and Stargate.

Boba Network - Multi-chain Layer 2 scaling solution

Boba Network is also an Ethereum Layer 2 scaling solution built on Optimistic Rollup technology, created by Enya, a core contributor to the OMG Foundation. In April last year, Boba Network raised 45 million USD in Series A funding with a valuation of 1.5 billion USD, with over 400 participants in this round, including well-known cryptocurrency exchanges such as Crypto.com, Huobi, and BitMart.

Unlike other Layer 2 solutions, Boba Network is a multi-chain Layer 2 scaling solution that not only supports scaling Ethereum but also can scale any EVM-compatible Layer 1 blockchain, becoming their Layer 2 network. Currently, Boba L2 has been deployed on networks such as Moonbeam, Fantom, Avalanche, and BNBchain.

Currently, Boba Network has a TVL of only $9.75 million and 24 ecosystem applications, including SushiSwap, OolongSwap, and the lending application Bodh Finance.

Mantle Network, a Layer 2 solution backed by Bybit

Mantle Network is a modular Layer 2 scaling solution incubated by BitDAO, based on the Optimistic Rollup protocol. It launched its testnet in January of this year. As BitDAO is a decentralized autonomous organization initiated by the centralized exchange Bybit, Mantle Network is also considered a Layer 2 network supported by Bybit.

At the EthCC Paris conference on July 17th, Mantle Network announced the launch of its mainnet Alpha version.

Unlike Arbitrum and Optimism, Mantle adopts a modular architecture, which means that core blockchain operations such as execution, consensus, settlement, and data availability can be split and executed on dedicated layers to achieve higher network efficiency. In Mantle, Optimistic Rollup is combined with a data availability solution to ensure it inherits the security of Ethereum while providing cheaper and easier access to data availability.

In Mantle, the mainnet provides the execution layer, while consensus and settlement are handled by L1 Ethereum. Data availability (data storage and data publishing) is managed by a specialized service provider called Eigenlayer, which improves on-chain formation and provides new possibilities for scalability.

In June, BitDAO announced the merger of BitDAO, Mantle, and the BIT ecosystem into Mantle, with the MNT token serving as the unified token for its ecosystem, and BIT tokens can be converted 1:1 to MNT.

Currently, Mantle Network has deployed 89 DApp applications on-chain, covering DeFi, infrastructure, and gaming products, but without any Ethereum mainstream application migration deployment.

2: zkRollup series of 6 networks: ZkSync, Starknet, Polygon zkEVM, Linea, Scroll, Taiko

Currently, the zkRollup series of networks mainly focus on compatibility with Ethereum EVM. According to Vitalik Buterin's blog post "The different types of ZK-EVMs", the compatibility can be divided into four categories: fully equivalent to Ethereum, fully equivalent to EVM, almost equivalent to EVM, and advanced programmable language equivalence.

Among them, Taiko zkEVM belongs to the first category (Type-1), which is fully equivalent to Ethereum without changing the Ethereum system design. ZK proofs take a long time (several hours) to generate; Polygon, Linea, and Scroll belong to the third category (Type-3), which is nearly equivalent to EVM. They have made some concessions in terms of equivalence, shortened the proof time, and simplified EVM development. Their goal is to become the second category of fully equivalent EVM; zkSync Era and StarkNet belong to Type-4, adopting their own high-level programming languages, with short verification time but poor compatibility.

Compatibility here means whether it can provide developers with the same development experience as on Ethereum and the difficulty of deploying applications. The proof verification time refers to the time it takes for user funds to be bridged from L2 back to L1. If proof generation takes several hours, it means that users cannot bridge their funds back to L1 during those hours.

ZkSync introduces zkStack as a development component for building L2 or L3

ZkSync is a zkRollup scalability solution developed by the MatterLabs team based on zkSNARK (non-interactive zero-knowledge proof). In February last year, ZkSync announced that its zkSync 2.0 network was renamed zkSync Era, and zkSync 1.0 was renamed zkSync Lite. The former, zkSync Era, is a ZK Rollup project based on zkEVM, which is compatible with EVM; the latter is not compatible with EVM and mainly focuses on the payment field.

Currently, zkSync Era has a TVL (Total Value Locked) of $524 million, ranking third among many Layer 2 networks. It is the leading project in the zkRollup network.

In June, zkSync announced the launch of ZK Stack, a modular open-source component for building custom zkRollup networks. Developers can use this toolkit to build custom L2 and L3 (also known as HyperChain) zkRollup networks.

On July 16th, zkSync Era announced the airdrop of LIBERTAS OMNIBUS series NFTs to randomly-selected 10,000 users from their active community of around 180,000 members. However, later some users discovered that the so-called random selection was actually based on sorting the addresses of 180,000 users and airdropping NFTs to the top 10,000 users. The official later acknowledged the inaccuracy of the initial NFT distribution addresses and promised to restart the LIBERTAS OMNIBUS NFT issuance in the coming weeks.

In addition, on July 17th, zkSync Era announced an upgrade to the Boojum proof system, transitioning from zkSNARK to the zkSTARK-supported proof system.

Starknet Introduces Application Chains

StarkNet is a zkRollup scalability network developed by StarkWare based on zkSTARK. Among them, the StarkWare scalability solutions mainly consist of two landing modules: StarkNet (Layer 2 scalability network) and StarkEx (scalability technology). The former is mainly a user-oriented Layer 2 network, while the latter is a scalability solution service specifically designed for Ethereum applications, with projects like dYdX, DeversiFi, and Immutable X based on StarkEx.

Currently, StarkNet is the most frequently used and mentioned network, with a TVL of $112 million, ranking second among zkRollup networks. However, StarkNet is not compatible with the Ethereum EVM.

In terms of Ethereum EVM compatibility, StarkNet plans to achieve this through two projects in its ecosystem: kakarot and Warp. Among them, Kakarot is a zkEVM implemented on Starknet using the Cairo language and belongs to Type-2.5. In June of this year, kakarot just obtained Pre-seed funding from StarkWare and Vitalik Buterin, and is expected to soon launch a test network; Warp is a transpiler that converts Solidity code into Cairo code to achieve compatibility with Ethereum EVM, and belongs to Type-4.

From this perspective, Warp provides compatibility at the high-level language level, while kakarot provides compatibility at the EVM level.

On July 19th, Eli Ben-Sasson, co-founder of StarkWare, announced at the EthCC conference in Paris that Starknet will soon launch Starknet Appchains. The StarkNet stack allows applications to launch custom StarkNet Appchains. On July 21st, Paradigm, a crypto liquidity platform, incubated a Layer 2 Appchain called Paradex on Starknet.

Polygon zkEVM joins the many ZK-based networks in Polygon 2.0

Polygon zkEVM is an Ethereum Layer 2 zkEVM scalability solution built on ZK Rollup technology, and the test mainnet was launched on March 27th. Polygon zkEVM is now almost fully compatible with EVM and is striving to become a fully compatible version of EVM.

In June, Polygon announced the release of Polygon 2.0 upgrade, where Polygon PoS will be upgraded to zkEVM Validium to make it compatible with ZK technology. Polygon 2.0 is a multi-chain network ecosystem driven by ZK technology, including zkEVM, PoS, and Supernets subnetworks. In fact, as early as March of this year, Immutable X, a Layer 2 network focused on gaming scenarios, announced a partnership with Polygon to launch a new zkRollup scalability solution called Immutable zkEVM; zkMeta, a developer of Web3 gaming infrastructure, stated that they are collaborating with Polygon to create a game-specific zkRollup.

In July, the Polygon 2.0 official proposal upgraded the original MATIC token to POL and released a new token whitepaper for POL. The POL token will operate within the Polygon ecosystem, with an initial supply of 10 billion tokens and an annual inflation rate of 2%. The Polygon PoS chain will use POL as a means of paying for gas fees, while other chains can choose to use POL or issue their own native tokens. Additionally, Matic is currently priced at $0.76, with a market cap of $7.15 billion and ranked 12th.

On July 13th, the Polygon team announced plans to create a new governance framework for Polygon 2.0. The new governance model will consist of three pillars, including the Polygon Improvement Proposal (PIP) framework extension, the introduction of an ecosystem committee for smart contract upgrades, and community treasury governance to provide funding for promising ecosystem projects.

Currently, the TVL on the Polygon zkEVM chain is $54.49 million, with a total of 19 deployed DApps, including 9 data infrastructure and cross-chain bridges. Other applications include the stablecoin QiDao, DEXs Quickswap and Leetswap, lending protocol 0 vix, NFT trading platform Zionic, and farming pool AntFarm.

ConsenSys-owned Ethereum Layer 2 solution Linea

Linea is a Zk-rollup based Layer 2 scaling solution compatible with EVM developed by MetaMask parent company ConsenSys.

On July 18th, at the EthCC conference, ConsenSys announced the official public launch of the Linea zkEVM mainnet alpha and airdropped relevant NFTs to participants in the Linea Voyage event.

According to Rootdata, the Linea ecosystem project has a total of 71, including deployed lending application LineaBank, DEX platform FWDEX, cross-chain exchange aggregator XY Finance, cross Rollup chain Owlto Finance, NFT marketplace Zoni, and mainstream DeFi applications such as Aave, Airswap, Sushiswap, Pancakeswap, which are currently being migrated and deployed.

Currently, Linea's on-chain TVL is $11.99 million.

Regarding whether Linea network has token issues, the official response is that Linea network currently uses Ethereum bridged directly from the Ethereum mainnet as its ecosystem token. However, many users still hope that Linea network will issue new governance tokens and airdrop them to users, similar to Arbitrum and OLayer 2 networks.

Scroll

Scroll is also based on zkEVM zkRollup to scale Ethereum. The Scroll Alpha testnet was launched on Goerli in February this year and is still in the testnet phase.

Scroll has the same EVM compatibility as Polygon zkEVM and is also striving to achieve full EVM compatibility.

In April, Scroll co-founder Sandy Peng stated at a conference that the mainnet will go live in the next three to four months. However, as of July 21st, there is no public information about the progress of the Scroll mainnet.

Taiko developed by Loopring Protocol

Taiko is a zkRollup-based scalability solution (zkEVM is Type-1) created by members of the Loopring Protocol team. Later, Taiko separated from Loopring and developed independently.

According to crypto data platform RootData, on June 8th, Taiko completed a total of $22 million in two rounds of seed funding, with $10 million in the first round, led by Sequoia China, ending in Q3 2022. The recent second round of funding raised $12 million, led by Generative Ventures.

On July 18th, Taiko announced the launch of Alpha-4 testnet (Eldfell L3), which aims to test the performance of deploying the L3 network based on Taiko and make Taiko the settlement layer of the L3 network. In fact, in early July, the well-established zkRollup scaling solution Loopring announced the official launch of its L3 network on the Taiko zkEVM Alpha-3 testnet, an application-specific layer tailored for DeFi and NFT applications.

During the same period, Taiko announced the launch of a community funding program aimed at discovering and supporting innovative projects built and developed on the Taiko ecosystem, providing them with economic incentives and developer resources. All grants will be awarded in the form of Taiko's native token TTKO in the future.

According to the data from Taiko's official website, the current amount of ETH deposited is approximately 730,000, worth about 130 million US dollars.