Since the launch of Bitcoin, the search for how to adapt blockchain to Internet levels has been the focus of researchers. There were a lot of dead ends (Plasma, state chains, sharding), but the industry ultimately coalesced around rollups as the best scaling solution. Rollups have since moved from theoretical discussion to practical development. This month, Dennis develops its analysis of modular blockchains from last Novemberand examines how major deployment projects aim to move beyond proof of concept – and, ultimately, build sustainable systems that could support a new Internet.
-Chris
Rollups have become the main solution to solve the blockchain scalability dilemma. For Ethereum, that of Vitalik vision of a future centered on rollup gradually materializes.
To recap, rollup technology provides improved speed and throughput by functioning as an independent, high-performance blockchain that stores compressed archives of transactions on an L1 network. Optimistic rollup technology has been successfully deployed in the form of projects such as Arbitrum and Optimism, which have been reliably serving users for almost two years. Meanwhile, zero-knowledge (ZK) stacks like Starkware, zkSync, and Polygon zkEVM have finally been fully opened to the public in recent months.
The fact that these rollups have proven viable means that attention can now turn to the practicalities of launching and maintaining hundreds (thousands?) of rollups. And with that, finally achieving blockchain scalability. To win the next phase, existing rollup projects must have a technical architecture that limits deployment costs and allows for some composability within the rollup ecosystem. This would make it easy to move from one rollup to another without interacting directly with Ethereum. These projects – which we’ll discuss in more detail below – should also include methods of capturing sustainable value to attract users and developers.
If these multivariate accumulation ecosystems succeed in scaling Ethereum, this means that Cosmos (and Solana, or even Polkadot) could be “swallowed by Eth-flavored variants of ideas from Cosmos like roll apps and Eigenlayer”, in the words of Cosmos OG Zaki Manian. And if rollup ecosystems become core blockchain infrastructure, they will have to deal with the thorny issues of decentralization and MEV.
Arbitrum launched the first optimistic rollup of Ethereum in September 2021 (Arbitrum One), followed by a cheaper but less secure optimistic rollup (Abritrum Nova) in July 2022.
In March this year, he announced Arbitral orbit, a vision of chains built on Arbitrum One or Arbitrum Nova. He calls them “L3 channels” and hopes to attract developers looking for customization. Anyone can branch off and “modify the Arbitrum source code as they see fit.” These L3 rollups will pay ETH to Arbitrum sequencers for transaction fees.
There is another way Arbitrum captures value. Although creating a new L3 is permissionless, launching an L2 similar to One/Nova is permitted. To create a new L2 chain, approval from the Arbitrum DAO is required. This can be reached through the governance proposal mechanism. Such a proposal requires holding 5 million tokens in a portfolio to submit. Projects interested in launching L2 based on the Arbitrum stack will drive demand for ARB tokens. Interestingly, this process is somewhat similar to Polkadot's approach, where chains must stake DOT tokens to secure a “slot” and share Polkadot's security.
Optimism launched its Optimistic Rollup shortly after Arbitrum in December 2021. Earlier this year, Optimism revealed the OP battery and the SuperchainIt is vision to “merge Optimism Mainnet and other channels into a single unified network of OP channels”. The Superchain shares the same sequencer network and eliminates the need for a separate bridge for each chain.
Any project could launch an OP rollup on the Superchain; it runs on open source software MIT License. It is possible to modify Optimism Stack's code to suit a project's needs, but this would require establishing its own security measures, as it would not be compatible with Superchain.
The first member of Superchain is Coinbase Foundation; Driven will join the network later. Opclave And Reprise.wtf There are other platforms that will use this specific model. Opclave is an enhancement to OP Stack that allows users to create and use non-custodial wallets, using touch/face ID authentication on Apple devices, without the need for seed phrases. On the other hand, Resttaking.wtf provides the ability to use any ERC20 token to validate multiple on-chain trust networks simultaneously. This platform will play an essential role in the decentralization of Optimism's sequencer.
In the future, Optimism will use a sequencer network where to become a sequencer one must deposit OP tokens, which drives demand. Overall, Optimism's “OP chains” are very similar to “app chains” on Cosmos as they allow the development of various decentralized applications on dedicated chains. Cosmos-SDK is equivalent to Optimism Stack.
Optimistic rollups came to market first, but ZK rollups are considered technically superior because they use validity proofs rather than fraud proofs, which significantly reduces the time required for L1 finality (side note: the difference between ZK rollups and optimistic rollups is a great ChatGPT prompt). The three most promising ZK projects with defined launch plans are zkSync, Starkware, and Polygon's zkEVM.
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zkSync will have a Hyperchains ecosystem which are all linked to Basic chain. The Basechain is no different from any other Hyperchain, but directly settles its blocks on the Ethereum L1 and functions as the default computation layer for general purpose smart contracts, and also acts as the settlement layer for all other Hyperchains (L3 and beyond). Hyperchains can be developed and deployed by anyone in a without authorization manner. However, to ensure trust and seamless interoperability, each Hyperchain must be powered by the exact same zkEVM engine as the main zkSync L2 instance.
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StarkNet built by StarkWare is another ZK solution. It launched an alpha version on Mainnet in November 2021, but was not made public until March. According to his last announcement, its code will also be open source, but not to launch forks of StarkNet, but just for the sake of transparency and to have more eyes to review the code. Starkware has not revealed technical plans or tools to facilitate the launch of a Starknet or make them interoperable. Unlike Optimism and Arbitrum, StarkNet's token will be used to pay transaction fees (instead of ETH) and also to participate in the network's consensus mechanism, and as governance token (the formal governance structure has not yet been decided).
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Polygon is also working on a zkEVM solution, Polygon zkEVM. Interestingly, it will be settled directly on Ethereum, not the existing Polygon PoS chain. You could say that the Polygon team used to scale Ethereum with a sidechain and is now also scaling it with a zkEVM. However, it seems like they are not building a hyperchain ecosystem; they probably don't see a market opportunity for a multi-rollup ecosystem and want projects to be launched as smart contracts in an “old-fashioned” way.
Regardless of the technology, projects will need to have a sustainable system in place in order to be able to fully scale and achieve the network effect of a large ecosystem. In all the complexity of open/closed, L2 and L3 licenses with and without permission, we identify three key value capture methods among cumulative projects that will foster a sustainable ecosystem.
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First, in cases where it is possible to copy software code, free support and warranties are only given if the code is exactly replicated. However, when personalization code to meet specific project requirements, the rollup developer either waives warranties (“Hacks” based on OP Stack), or requires the project to pay for the code in some form.
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Second, rollups pass on transaction fees paid by users sequencers. These sequencers perform vital tasks and bear operational costs such as maintenance costs and cloud provider fees. It is reasonable to capture value in this system module. This has been implemented in different ways, at the L2 level as in Optimism Superchain, or at the L3 level as in zkSync Hyperchain or in the Arbitrum Orbit case.
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The third method of capturing value involves project governance tokens. It is very likely that the majority of rollups are moving towards decentralization, requiring their tokens to be staked in order to join the shared sequencer network. Some rollups already have announcement such plansand we expect others to follow suit.
The MEV dominates everything. Until now, rollups worked with a single sequencer that refused (gracefully) to extract MEV. Arbitrum and Optimism have diametrically opposed views on MEV. Arbitrum still maintains that it can be eliminated or significantly reduced through a fair order, while Optimism advocates for auctioning the MEV and returning it to token holders.
More and more, shared sequencers are considered the solution to the concerns of decentralization and MEV. A fair ranking system, like the one favored by Arbtirum, requires an honest majority assumption and only works within a decentralized network. Alternatively, if the MEV is to be democratized and distributed, as optimism favors, a shared sequencer unlocks more MEV potential for a transaction because it can be executed atomically across multiple rollups.
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That's it! Comments appreciated. Just hit reply. Written in Nashville in the midst of potty training. Happy Memorial Day!
The dose of DeFi is written by Chris Powerswith the help of Denis Suslov And Financial Content Lab. All content is for informational purposes and does not constitute investment advice.