Recently, L2 players have emerged, and market competition has become increasingly fierce.
Almost all chains claim that they are low-cost and high-efficiency, and each of them also has a trend of modularization, increasing scalability and building L3.
What kind of L2 do we need? What are the characteristics of each player on the current L2 track? What are the ongoing actions? In the future, what new trends will L2 evolve?
Binance Research previously released a research report called The L2 Evolution, which provided detailed answers and prospects for the above questions. The report focuses on analyzing the complexities of different L2 approaches, assessing their current position in the market, and delving deeper into the new directions that may emerge from the current L2 market landscape.
In view of the long report, Shenchao has interpreted and organized the report to help everyone understand the situation of each player in the L2 market in a centralized, rapid and systematic manner, and to predict future opportunities.
Key summary:
L2 has evolved into new trends, including Superchain, L3 and Hyperchain. These advancements are being adopted by multiple L2s and are expected to become the cornerstone of the next generation of Ethereum scaling, simplifying the development process, enhancing security, and establishing greater interoperability in the ecosystem.
Optimisms OP stack is moving toward a hyperchain with a high degree of interoperability, and the Bedrock upgrade represents an initial step toward realizing their vision.
Arbitrum is also at the forefront of Ethereum scaling, developing the L3 network through Arbitrum Orbit, which provides a permissionless framework for deploying custom chains on Arbitrum L2.
zkSync proposes Hyperchain, a set of customizable trustless linked blockchains that enable hyperscalability, improved composability, and enhanced security.
StarkWare is developing a multi-tiered solution, exploring L3 for custom extensions and leveraging L2 for general purpose extensions.
Polygon 2.0 aims to create the Internets value layer by unifying its suite of L2 solutions, which includes Polygon PoS, Supernets and zkEVM.
market background
Scalability is the core challenge currently faced by Ethereum, and it is difficult for Ethereum itself to reach a scale comparable to that of the Internet.
Current L2 solutions also have limitations that prevent them from being the best choice for the application. They either sacrifice scalability or increase the risk of dependence on a specific ecosystem.
Cross-chain interoperability remains a pain point. Existing cross-chain bridges are fragile and often attacked.
The next stage of L2 development is to simplify the Rollup deployment process and lower the threshold for developers. The goal is to achieve one-click deployment of Rollup chains, which is as simple as creating a web page.
Each Rollup chain now needs to build its own infrastructure, which leads to waste of resources and high fragmentation. The new Rollup model can realize the sharing and interoperability of infrastructure and reduce resource redundancy.
New cases include OP Chains, Arbitrum Orbit, and hyperchains on zkSync.
Key Player 1: Optimism and OP Stack
Optimism is the team behind OP Mainnet, an EVM-compatible optimistic rollup that went live in December 2021 and is one of the leading Ethereum L2 solutions. As of June, OP Mainnets total locked-up value exceeded US$2.2 billion, occupying the second largest market capitalization among all Ethereum L2 solutions, with a total market share of more than 23%.
In October 2022, Optimism launched the OP Stack, which is described as a highly scalable, highly interoperable modular open source blueprint for various blockchains. This marks an evolution of Optimism’s design and vision in the world of Ethereum scalability, beyond just running their optimistic rollup solution.
OP Stack introduces our concept of so-called Hyperchain, which refers to a highly integrated and unified L2 blockchain network built on OP Stack.
Optimisms latest development in this new phase is the migration of their flagship L2 rollup to Bedrock, the first official release of the OP Stack, bringing many operational and user improvements to their product.
Detailed OP Stack
OP Stack is a standardized, shared and open source development stack that powers OP Mainnet. It consists of various software components that make up an Optimism L2 rollup and can be used to create a collection of network-shared, interoperable and coordinated L2 blockchains.
In essence, OP Stack aims to simplify the creation of L2 blockchain and can be regarded as a supermarket for building L2.
The key components are as follows:
Data Availability Layer: This layer defines where the raw input of the OP Stack chain is published. Most OP Stack modules use the Ethereum data availability layer, and OP Mainnet rollup uses this module.
Ordering layer: This layer determines how transactions on the OP Stack chain are collected and published to the data availability layer. In its current state, OP Stacks sequencer module is a single sequencer setup. Future proposed modifications will include multiple orderers to enhance the decentralization of the platform.
Derivation layer: This layer defines how raw data from the data-available layer is processed to form the input sent to the execution layer. Its very closely tied to the data availability layer, because it has to understand how to parse the raw data coming from there.
Execution layer: This layer defines the state in the OP Stack chain and how the state changes after receiving input from the derived layer. The execution layer module currently used in OP Stack is a slightly modified version of the EVM.
Settlement Layer: This layer traditionally handles retrieving assets from the blockchain by first proving the state of the target blockchain and then processing the retrieval based on that state. More broadly, for OP Stack, the settlement layer allows third-party blockchain awareness and builds a view into the state of the OP Stack chain.
Governance layer: This refers to the general set of tools and processes used to manage upgrades, design decisions, and system configuration. Compared to other layers, this is a more abstract layer and can contain a wide variety of mechanisms.
Benefits of OP Stacks:
Extensibility: OP Stack’s code is designed so that other builders will want to use and build on top of it. Therefore, their code is open source and often modular.
Simplicity: They strive to make their code as simple as possible and tend to reuse existing code that is battle-tested.
Understandability: Existing Ethereum developers can build on the OP Stack with relative ease.
Client Diversity: Multiple client implementations are possible across the OP Stack.
Benefits of Bedrock Upgrade
Lower costs: Bedrock implements optimized data compression strategies to minimize data costs. The average fee per transaction is now more than 77% lower. This also makes Optimisms L2 rollup now the cheapest Ethereum L2.
User experience improvements: This is an enhancement to the user experience, especially for those users who are less familiar or less experienced with L2 rollups.
Improved proof modularity: Bedrock abstracts the proof system from OP Stack (for the settlement layer in Figure 2), so the OP Stack chain can use failure proof or validity proof (i.e. ZK-proof) for transaction verification. Notably, there is already an RFP for building a ZK validity prover for the OP Stack.
Improved node performance: Bedrock allows multiple transactions to be executed in a single rollup block instead of the previous one transaction per block model. At current transaction volumes, this would reduce state growth by about 15 GB/year.
Summary: OP Stack helps disassemble the various components required to build an L2 chain, and Bedrock is the first implementation of such software. Keywords: modularity.
OP’s Superchain architecture
After the Bedrock upgrade, the next step for Optimism is to start upgrading itself to Superchain.
Superchain is envisioned as a decentralized network of L2 chains (known as OP Chains) that share security, communication layers, and an open source technology stack (known as the OP Stack).
These chains will be standardized and intended to be used as interchangeable resources. This standardization will enable developers to create applications that target the Superchain as a whole, not just the underlying chain on which the application runs.
Benefits of Superchain:
Hardened and secure code base: As the number of chains grows, each chain shares and contributes to the modular and standardized code base that underpins them, hardening the system.
Atomic level cross-chain composability: Seamless simultaneous transactions between different OP chains without bridges or intermediaries.
Common Ethereum infrastructure: Allows existing Ethereum developers to seamlessly switch to building OP chains.
Projects joining Op:
Optimisms L2 rollup chain, after the Bedrock upgrade, is the first member of the Superchain
Coinbases Base L2 will be the second member, launching the mainnet this year.
Worldcoin has also committed to building on the OP Stack.
Conduit aims to make it easier for developers to start their own OP Stack rollups, which will eventually become part of Superchain.
Aevo, a decentralized options exchange, recently partnered with Conduit to launch its rollup based on the OP Stack, with Conduit operating the Aevo rollup sequencer.
BNB Chain also announced the testnet of opBNB, their EVM-compatible L2 chain based on OP Stack.
In the NFT world, decentralized NFT marketplace Zora recently launched the Zora Network. L2 based on OP Stack aims to make NFTs cheaper and more accessible. Their documentation states that minting coins on Zora can cost less than $0.50, with transactions confirmed within seconds.
Key Player 2: Arbitrum Orbit
Since its launch in August 2021, Arbitrum is currently the largest and most important L2 network, with a total locked value of more than $5.9 billion. Accounting for more than 60% of the total market share.
Arbitrum Ecosystem Products:
Arbitrum One: The first and core mainnet Rollup of the Arbitrum ecosystem.
Arbitrum Nova: This is Arbitrum’s second mainnet rollup, targeting projects that are cost-sensitive and require high transaction volume.
Arbitrum Nitro: This is the technology software stack that powers Arbitrum L2, making Rollup faster, cheaper and more EVM compatible.
Arbitrum Orbit: A development framework for creating and deploying L3 on the Arbitrum mainnet.
What is Layer-3?
L3 networks, sometimes called application chains, are private networks built on top of L2, each hosting smart contracts that support specific decentralized applications.
The easiest way to understand L3 is to think of them as Rollups for L2. They are different from settling on L1, L3 is settling with L2.
Where Arbitrum Orbit Comes in
Orbit is a permissionless development framework that allows anyone to deploy an L3 chain on top of the Arbitrum L2 chain, no permission required
Through Orbit, Arbitrum intends to support the protocol for the following use cases to launch its own L3 chain:
Layer 3 Rollup: Launches an Arbitrum One-like L3 Rollup chain.
Layer 3 AnyTrust: Launches an Arbitrum Nova-like L3 AnyTrust chain.
Customizable Layer 3: Deploy a custom L3 chain for specific application needs based on the Arbitrum L2 chain based on Arbitrum Nitro. This includes components such as privacy, permissions, fee tokens, governance, etc.
Summary: With this solution, Arbitrum aims to appeal to developers who want more control and seek customizability, allowing them to fork and freely adapt the Arbitrum source code to their specific requirements. Even branding their solution as a custom chain.
Key Player 3: zkSync and Hyperscaling
zkSync Era, Matter Labs rollup version of zkEVM. Since being deployed on its mainnet, zkSync Era has become one of the most widely used L2 and zkEVM solutions, exceeding $625 million in TVL.
Hyperscalability became its ultimate ambition: manage an unlimited number of transactions without compromising security or decentralization.
In order to meet the growing demands of Web3, zkSync designed its ultimate solution around the concept of Hyperchain.
The zkSync architecture is designed to integrate the Hyperchain network, all anchored on one basechain.
Hyperchain
HyperchainzkSync’s vision for L3 is envisioned as an extensive trustless and customizable linked blockchain ecosystem.
A modular approach to implementation provides developers with a Hyperchain Software Development Kit (“SDK”) framework, allowing them to select various components for their blockchain or develop their own.
benefit:
Security: Hyperchain will overcome the typical vulnerabilities associated with non-native bridging that often lead to hacker attacks. In zkSyncs L3, interactions between fractal hyperchains will occur through local bridges, further enhancing security.
Performance: L3 performance has been improved by implementing the Hyperchain architecture and enabling hyper-scalability.
Cost: Data charges are significantly reduced thanks to data availability solutions.
Ease of use: zkSync foresees significant enhancements to the SDK, including the introduction of low-code and no-code solutions to make application development easier.
Composability: The systems LLVM compiler supports Solidity and any other modern programming language, increasing accessibility for developers specializing in languages like Rust, C++, and Swift.
Hyperscaling theory (Hyperscaling)
A super scalable blockchain system involves multiple different ZK chains (or super chains) running in parallel, with block proofs being aggregated and settled on L1. In theory, this could even be an infinite number of superchains, representing the entire system.
The whole process has to do with a concept first introduced by StarkWare called fractal scaling. Fractal extensions are based on a multi-layer network concept where application-specific L3 is built recursively on L2
Hyper Extensions takes this a step further by introducing Hyper Bridges, which are local bridges that connect each L3 application chain together. This allows transfers between super chains to not consume resources on the third chain and further ensures that the base chain does not become a central scalability bottleneck, thus maintaining the principle of parallel super scalability.
As shown in the figure, without a super bridge, fractal scaling may cause the base chain to become the main intersection point for most transfers over time, which may become an obstacle to scalability.
With HyperBridge, transfers from one hyperlink to another become as simple and cost-effective as any regular transfer, reflecting how hyperlinks allow seamless navigation from one webpage to another with just a single click , thus eliminating the need for additional navigation through each layer.
Key Player 4: StarkWare and Fractional Scaling
StarkWare proposed the concept of a multi-layer network, where L2 is used for general extensions and L3 is used for customized extensions.
StarkWares fractal scaling concept may have inspired other L2 projects to explore scaling Ethereum.
Slush is developing an SDK for building zkVM L3 on Starknet.
StarkWare has introduced Recursive STARKs, a technology that enhances L2 scaling capabilities by allowing multiple transaction proofs to be bundled into a single proof.
The technology relies on the Cairo programming language and SHARP, which enables aggregation of transactions from multiple applications into a single STARK proof.
StarkWares goal is to optimize cost, latency and computing resources to support the development of L3 solutions on the public Starknet network.
Key Player 5: Polygon 2.0
background:
Polygons L2 solution handles approximately 2-3 M transactions per day and has 300-400 K continuously active addresses.
Polygon also launched its own app-chain solution called Supernets, which allows developers to create custom app-chains.
The core of Polygon 2.0:
Designed to unify Polygons various platforms and provide users with a seamless interface.
As a collection of L2 chains powered by ZK technology, Polygon 2.0 uses a unique cross-chain coordination protocol.
The network can accommodate an unlimited number of chains, ensuring secure and instant cross-chain interactions.
key point:
Interoperability: Polygon 2.0 aims to enable fluid movement and interaction across multiple blockchains through ZK proofs.
Security: By using zero-knowledge technology and existing PoS mechanisms, Polygon aims to enhance security and privacy.
Scalability: The Polygon team is building Polygon 2.0 to support a “virtually unlimited number of chains.”
Latest updates and schedule:
The Polygon PoS sidechain is currently secured by its own set of validators rather than by ZK proofs, but the vision for Polygon 2.0 is that every Polygon chain should be a ZK L2.
The user and developer experience will not change as a result of this transition, and Polygon PoS will continue to operate as usual, just with greater security thanks to the addition of ZK proofs.
If the initial proposal is supported, the Polygon team expects to launch the zkEVM validium mainnet by Q1 2024.
Conclusion: Considering Polygon’s performance on their PoS sidechain and the successful deployment of their zkEVM solution, this new vision holds considerable promise and could lead to interesting enhancements to the broader L2 ecosystem.
Comprehensive comparison of L2 market
Characterized by their dynamic and competitive nature, each network brings its unique perspective, and while there are commonalities, there are also significant differences.
Main project features:
Optimism: differentiates itself with its Superchain thesis. It provides a fully open-source framework, but this could lead to other rollups using the OP Stack, fragmenting Optimisms liquidity and users.
zkSync: has some overlap with Optimism, but differs from Optimism and Arbitrum in execution strategy.
Arbitrum: Provides a permissionless platform for creating L3 chains, but still requires DAO approval to develop L2s using Arbitrums IP.
Starknet: Adopts a multi-layer structure and uses fractal extensions to L3s.
Polygon: chose a more integrated model, bringing its L2 products together.
These L2 visions, although different, all have customized and application-specific chains at their core.
The subtle differences between different L2s can be shown in the table below:
Finally, regardless of the similarities and differences of technical solutions, L2s also need to consider the following elements to determine how projects can accumulate value in their respective ecosystems.
Software customizability: The ease of copying code and building on L2 will be a key differentiator. Its likely that projects built on L2 will seek specific modifications and likely devote resources to funding those customizations. The best L2 software stack that can adapt to these situations will undoubtedly have a competitive advantage.
Transaction Fees and Sequencers: Sequencers, which bear significant responsibility for maintenance and cloud service fees and operating expenses, should be fairly compensated through transaction fees levied on users.
The role of governance tokens: As the trend shifts toward decentralization, the functionality of L2’s governance tokens becomes even more important. It is likely that most rollups will require token staking to be included in the shared sequencer network.
Conclusion thoughts
The L2 ecosystem has already made significant progress in enhancing the scalability, efficiency, and usability of the industry.
The next stage of L2 evolution is being discussed within the industry, leading to a variety of different visions and approaches. Although there are many different viewpoints, the common goal is to achieve unlimited scalability and hope that the Web3 world can scale as seamlessly as Web2.
Currently, this field is still in its infancy, and specific methods and practices have not yet been fully defined.
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