introduction
After sorting out the technical solutions, token value and ecology of CP and Layer 2 Stacks in the previous article, we provide developers and project parties with corresponding selection ideas based on their technical characteristics and the current ecological token empowerment. All parties can choose the solution that suits them according to their actual needs.
So, from a subjective point of view, what is the current community's attitude towards Layer 2, a new force? How should major L2s develop their own hyperchain networks? In this article, the author will focus on these two questions.
1. Industry perspective
In order to have a more comprehensive understanding of the current market voice, we collected different opinions on the Layer 2 Stacks solution in the industry and summarized them into three categories: Bull, Bear, and Observers.
1.Bulls:
Public chains: opBNB, ZORA, Base, Mantle, etc. have announced that they will be deployed in OP Stack. Among them, BNB announced its support for OP Stack and created its own opBNB as early as February this year. 1.5 months after the test network was released, there have been more than 7M transactions, 435,972 addresses, and more than 40 Dapp deployments, including well-known projects such as iZUMi Finance, Math Wallet, BaBYGODE, etc., which shows that the community and developers have a high acceptance of opBNB.
Project Party: Take Worldcoin as an example. In May this year, it expressed its intention to deploy Worldcoin and World App on the OP mainnet, and began to implement it on the OP hyperchain in July. Worldcoin itself wants to create a global identity and DID system. Combining with the OP hyperchain allows any user to freely manage their own identity ID, and can also assist the OP Collective in on-chain governance. And Debank announced on August 11 that it would deploy and launch its exclusive asset social L2 chain on OP Stack. As an old brand of data asset services that has been developed for more than 5 years, regardless of whether it is successful or not, we can already see the enthusiasm of the project party for deploying L2, and the positive impact of using OP Stack as the preferred solution on OP.
Community: The community has a high degree of recognition/consensus on Ethereum, and Ethereum itself is a financial hyperchain with rich application scenarios. Therefore, launching L2 on Ethereum will have more community recognition than the independently developed Cosmos Polkadot ecosystem; and it is believed that Layer 2, because of its complete consensus layer, will develop much faster than CP and will complete the construction of the superchain ecosystem faster.
2.Bears:
Developers: Some developers believe that it is too risky to rely on a single Ethereum for the consensus layer of all hyperchains. If Ethereum as a single infrastructure fails or is attacked, all hyperchain networks will be affected; in comparison, CP is more thoughtful in security considerations. Cosmos allows each chain to customize validators to verify security. Even if a failure occurs, it is only a single chain-related chain, and it will not affect the entire ecosystem. Polkadot, on the other hand, provides more options. It can share security with the relay chain or customize the security layer like Cosmos. Maintaining the security of the chain by itself will greatly reduce the risk. So no matter what, the current Layer 2 Stacks should develop more solutions in terms of security.
Project: The hyperchain network of Layer 2 Stacks is slightly oversupplied. Without considering the technical differences, it is not strongly perceived by ordinary projects because it is still Ethereum in essence. And some project parties believe that this industry needs L1 (such as CP), and not all chains are suitable for L2.
Community: As an expansion solution for Ethereum, Layer 2 is unlikely to exist independently from Ethereum in the short term, so how to deal with the economic model of ETH and native tokens is a difficult point. Compared with Cosmos, which has been connected to 246 chains, and Polkadot, which has a market value of 6.5 billion, it is a bit weak to compete with CP without a complete community drive.
3.Observers:
Some developers believe that Layer 2 Stacks are all designed to attract more developers to create an ecosystem. After OP, Arb and other leading L2 announced the idea of hyperchain, taking proactive measures can be seen as catering to the market's enthusiasm, which is understandable. And because L2 itself only processes and packages transactions (execution layer), when the hyperchain L3 packages the transaction to L2, L2 will package the package again... forming a recursive compression, greatly expanding the throughput may not be a bad thing. It's just that in order not to fall behind, without examining the current on-chain ecology and economic incentives, it is a bit too hasty.
The author believes that the current situation shows that the Stack solution, especially OP Stack, is a positive direction. BNB, Base, ZORA, Mantle, Worldcoin, Debank, etc. are backed by top exchanges and well-known Web2 giants. These capital additions make OP Stack at the forefront of Layer 2 and are likely to become the first choice for big-name projects to launch chains with one click in the future. It also shows that the market and industry recognize the logic of L2 Stacks and that it can be put into practice.
However, in the long run, the Ethereum ecosystem jointly built by ETH and Layer 2 will become more and more prosperous, but there are also some problems within the ecosystem. For example, how Layer 2 handles the relationship with Ethereum, how to capture value from the multi-chain system it has built, how to establish core competitive barriers, or how to jointly create an L2 hyperchain network with other Layer 2s, these will be the situations that Layer 2 will face next, and every step taken afterwards will greatly affect the future direction of Layer 2.
2. How to develop
1. Technical optimization
In the development history of traditional public chains, there is an impossible triangle problem: scalability, security, and decentralization. The emergence of L2 has alleviated the scalability problem, and the Stacks launched by each chain are mainly aimed at the hyperchain network, solving the scalability of most of the underlying facilities. So in addition to this, what kind of problems will arise in the development of Layer 2 Stacks?
1) Structural safety:
The emergence of the hyperchain structure has undoubtedly increased the complexity of Layer 2. So can the Stacks framework of L2 support the concurrency of a wide variety of application chains? We have collected the published Stack frameworks of Optimism, zksync, and Arbitrum to do a structural analysis.
OP Stack uses a shared cross-chain bridge to transfer assets. All OP Chains (1-n) created with the Stack solution are on par with OP Mainnet. ZK Stack Arbitrum has a similar underlying structure, but supports additional issuance of L3 and L4 to form an extensible hyperchain network; Polygon 2.0 (not listed in the table as a sidechain) uses Ethereum as the staking layer. The existing Polygon zkEVM public chain operates in parallel with the hyperchain and shares the interoperability layer.
Their structural frameworks are similar, and they all face the same type of problems, namely: all hyperchains rely on the underlying Ethereum as a security consensus, so if Ethereum is attacked, are the hyperchains safe? The mutual coordination of hyperchains, Layer 2 is basically through a shared communication bridge, so how to solve the problem when the bridge has problems? For this type of single undertaking solution, Layer 2 should adopt multiple alternative solutions or directly optimize the framework to solve it.
2) Risk Assessment
There is no doubt that Ethereum is highly secure, but whether Layer 2 can fully inherit the security of L1 is a question. As a Layer 2 with Rollup as the mainstream, its most important function is to transfer the "execution" operation to the original chain. However, when users initiate transactions on the L2 chain, although the cost is greatly reduced, can the security be guaranteed? Is there a corresponding escape hatch mechanism to protect user assets in time?
In this regard, we have sorted out several important indicators from the l 2b eat website to evaluate the risk defects of the current Layer 2:
State Validation: State validation refers to the mechanism used by Layer 2 to verify the correctness of transactions. From the table, we can see that the Optimism network, which was the first to use OP Rollup, has not yet fully developed its verification mechanism. In contrast, Arbitrum already has a fraud proof mechanism for verification, and its Rollup Stage development progress is also higher than Optimism. It can be said that Arbitum has an advantage in terms of transaction security/correctness.
In addition, zkSync and StarkNe t both use ZK Proofs, and the Rollup Stage is at the same stage.
DA: Data availability. There are slightly different definitions of this in the market. We will analyze it based on the interpretation of l 2b eat. l 2b eat believes that the "data availability" in data availability means that the correctness of the state transformation can be announced to the public. There is no need to broadcast the complete transaction data, which actually violates user privacy. And this data must be put on the chain, so that people who are able to verify the "state transformation" can verify it on the chain.
From the table, we can see that the current L2 data are all On-Chain. The OP Rollup chain uploads all transaction-related data to L1. In contrast, the ZK Rollup chain only sends "state variables" to the chain, greatly reducing transaction fees and block congestion.
Proposer Failure: Proposer failure means that a node/proposer cannot complete the task for some reason, which will not only cause network errors or interruptions, but also may cause transaction failures and node data loss. In this way, users cannot withdraw their assets from L2 to L1, also known as the escape hatch mechanism.
In fact, all L2s on the market have not fully implemented the escape hatch mechanism. As can be seen from the table, all L2s are Whitelist Proposers, and only they have the right to submit the state root of L2 to L1. Therefore, once they are attacked, users are helpless and their assets can only be frozen.
Arbitrum is slightly better in that it allows anyone to apply to become a Proposer about a week after discovering that a node/proposer is inactive/failed. Such a mechanism does provide a certain degree of protection, but a mechanism like Whitelist Proposer is essentially a closed system, which violates the decentralized and open nature of blockchain.
Although users can apply to become Proposers, this process still has a high technical threshold. To become a node/proposer, users may need to have basic equipment. In addition, such solutions are not actively used in the market, and there is no corresponding incentive mechanism for these Proposers.
So overall, the current Layer 2 asset emergency measures are not perfect enough.
Rollup Stage: Stage 2 is the end point of all L2 inherited security, but at present, among all L2s, only Arbitrum is the most secure and has the most complete risk mechanism.
And given its upcoming BOLD mechanism, a new permissionless verification scheme that hardens its dispute protocol to defend against a form of denial-of-service attack called a “delay attack,” it may be able to further accelerate its pace towards greater decentralization.
3) Interchain security:
Take OP Stack as an example. Its goal is to provide a unified modular development stack that allows hyperchains to communicate seamlessly with each other. The modular architecture allows any developer to use the framework to develop their own blockchain, but it also means that anyone can develop and request messages. And OP Stack allows developers to easily abstract different components of the blockchain and insert different modules to modify it.
In simple terms, if you want to replace your fraud proof with a validity proof, or want to replace the data availability layer with something else, OP Stack allows it to be implemented. Then you will face a problem: when diffusion becomes division, when the OP Stack module is no longer a system, and OP is used as an underlying chain-issuing tool, how to manage the security between different chains?
4) Cross-chain coordination:
As Gavin Wood, founder of Polkadot, said, the shared chain/bridge as a communication is actually fragmented in nature. Although chains can communicate with each other, it is actually a single chain + bridge model, except that Polkadot transmits the communication between parallel chains through the relay chain. Then corresponding to Layer 2 Stacks, OP, ZK, and Polygon are all shared cross-chain bridges.
So how can we achieve seamless communication and interaction between chains? Although the current communication framework of Layer 2 Stacks has some drawbacks, is it also an opportunity for the development of some cross-chain protocols or even public chains? Here, we list several possibilities:
Public chains that lack growth drivers: For example, Celo and Pantom, whose market value is only 1/10 of the current EVM L2, have low ecological activity. If their ecology can be integrated into the Stack, relying on the underlying super financial chain ETH and a wealth of parallel hyperchains, whether it is ecological cooperation or the interaction needs between Dapps, it will undoubtedly bring it a new growth. And some public chains are already deploying:
Celo initiated a vote in July this year, and the proposal to transform from the original EVM L1 to the L2 of the OP Stack solution has been passed;
Pontem Network plans to develop a new L2 for Move VM using OP Stack
DApps with high cohesion and low external coupling: For example, derivatives exchanges, GameFi, Socialfi, etc., the types of transactions that occur internally are complex and diverse, the frequency is high, and there is less dependence on external assets or projects. For these applications that do not have high cross-chain requirements but have high internal transaction processing efficiency, Stack may be their best place to develop.
Cross-chain protocols: For example, Owlto Finance, which has been very popular recently, is a Defi protocol for cross-chain interaction with L2 Rollups public chains. It currently supports cross-chain interaction with all ETH Layer 2 chains. In addition, there is Socket Protocol (better known as its subsidiary Bungee), which is committed to developing a cross-chain protocol Stack. If it can be deployed in OP Stack, it will undoubtedly play a vital role in the asset and information communication between hyperchains.
2. Ecosystem Incentives
In addition to attracting the support of developers and users in terms of technology, Layer 2 can also quickly build an ecosystem through the most direct incentive method. Taking the current Optimism Polygon as an example, let’s take a look at the ways that Layer 2 may use to build an ecosystem.
OP Grants: As Optimism's ongoing developer incentive program, it funds developers and guides them to build Dapps and tools on Optimism. It has now been tried out for multiple rounds and invested more than $ 30M.
RetroPGF(Retroactive Public Goods Funding):
In March 2023, RetroPGF Round 2 provided 10 million $OP to incentivize ecological projects. The incentives were mainly aimed at three types of projects: Tools, Infrastructure, and Education. A total of 195 projects/developers received rewards.
In June 2023, RetroPGF Round 3 will provide 30 million $OP to incentivize contributors to OP Stack, Collective Governance, Developer Ecosystem, End User Experience Adoption, etc.
OP Warriors Season: Users can obtain NFT rewards by participating in community activities (eco-projects)
Bridging Summer: On August 3, 2023, OP officially funded the Socket cross-chain protocol with 400,000 $OP. Any cross-chain on any Bridging Summer project will be returned a certain amount of $OP. For example, if you cross-chain from Polygon to OP with a value of $100 U, if you need to pay $2.5, you will receive $2.25 worth of $OP at the same time, and you can claim it every month.
It can be seen that Optimism has been continuously launching various activities to enrich the ecosystem and attract more users. Not only that, OP already has a relatively mature incentive mechanism. In the early Grants, many project parties disappeared after receiving sponsorship and did not fulfill their commitment to the development of the OP ecosystem. OP has learned from these experiences and lessons and gradually improved the rules in the recent Grants to ensure that "everything is used to its full potential."
OP's governance mechanism is becoming more and more perfect, and the incentive projects are becoming more and more abundant. These can be used for the future development of Stack, except that the original Dapp will be replaced by Hyperchain L2.
In addition, the way Polygon promotes ecological development through business cooperation is also remarkable:
Countries: Partnered with India to issue “caste” certificates on Polygon to prevent fraudulent claims for government benefits by vulnerable groups; partnered with Singapore to facilitate cross-trading of digital yen and Singapore dollar using Polygon and Aave.
Finance: Partnered with payment giant MasterCard to launch the MasterCard Artist Accelerator to help music artists learn how to expand their brands by minting NFTs and building online communities; WorldPay (payment giant), as a subsidiary of FIS Group, WorldPay added support for Polygon USDC.
Technology: Partnered with software giants such as Adobe and PS developers to integrate NFTs into their social platform Behance; Google's big data analysis service BigQuery added support for Polygon blockchain data; Samsung issued wearable NFTs in the metaverse platform Decentraland through Polygon.
Social: Facebook and Instagram, both owned by Meta, plan to develop an NFT market based on Polygon and integrate it into the two platforms, allowing users to create and sell their own NFTs; Reddit launched the NFT series "Collectible Avatars" on Polygon.
Life: Starbucks launches loyalty program "Odyssey" through the Polygon network; becomes one of the 6 companies selected for the "2022 Disney Accelerator Program"; collaborates with Coca-Cola artists to launch 136 NFTs to pay tribute to the brand's 136-year history.
Games, Music, Entertainment, Fashion & Beauty, Sports, Cars, Celebrities...
This business model can actually be applied to its Polygon 2.0 solution. Adapt its hyperchain network to enterprises, invite traditional commercial organizations to deploy, and connect blockchain with the business world. These collaborations can also bring more high-quality projects to Polygon 2.0, promote its ecological development, and form a positive cycle.
Overall, the impact and breadth of cooperation between Polygon and traditional Web2 industry giants is likely to make it the preferred blockchain network for web2 users and global enterprises in the next 10 years. If these resources can be effectively utilized, this is likely to be a potential project party for the future Polygon 2.0 hyperchain network.
3. Token Empowerment
How should ZK and OP, which use Rollup as their main technology, design economic models to improve the value empowerment of their tokens when launching Stack solutions? Compared with L2 Stacks, CP's token empowerment does not have so many obstacles.
For example, in Cosmos, although each chain has its own ecosystem and tokens in the initial version, $ATOM is difficult to play a role. However, in the Cosmos 2.0 conference, the team decided to use $ATOM as the Hub's Gas fee standard, allowing custom chains to share security with the Hub. In Polkadot, the current $DOT supports network governance, Treasury, and slot auctions. In the upcoming 2.0 version, the original auction will be turned into a Coretime market.
This is also the biggest difference from CP, because ZK and OP are both L2 of Ethereum, and their value is to solve the expansion problem of L1. All transactions need to be verified by smart contracts deployed on L1. Only confirmed assets are considered real money, and users will trust L2, so Gas is ETH.
In other words, L2 is a complement to L1. It not only helps L1 to expand, but also enhances the credit and value of L1 tokens with every transaction processed. Moreover, L2 can never be truly separated from L1. This is why, under the vision of Hyperchain, how L2 can achieve the distribution of tokens is particularly important.
Although there is no detailed solution at present, the EVM L2 mentioned above does not yet explain how the native token of this chain will get driving force from the hyperchain network. However, the following points can be considered to design the economic model:
Governance of L2 network (refer to Polkadot):
Although it is impossible to get rid of the use of ETH as the underlying token of the ecosystem, the native token using L2 is more accepted at the network governance level.
To participate in the Stack ecosystem, Hyperchain must hold a certain amount of native tokens;
Token holders can participate in network governance, voting, parameter adjustment and other governance activities to empower tokens.
Establish a governance center/treasury: As the governance body of the ecosystem, it will retain L2 autonomy while conducting unified value management;
In this way, both developers and users can fully participate in the ecosystem and enhance their sense of identity and participation in the ecosystem. For L2, it also increases the use scenarios of tokens and mobilizes network participants more efficiently.
Hyperchain fee distribution (reference Cosmos):
When building a cross-chain network, Layer 2 can learn from Cosmos’s practice of using native tokens to participate in cross-chain fee distribution. Although running smart contracts on Layer 2 still requires the use of ETH to pay for gas fees, the fees incurred by cross-chain interoperability between hyperchains can be paid with L2’s native tokens.
For example, in Cosmos, $ATOM is used to pay IBC cross-chain fees, and tokens are also given to cross-chain validators who participate in verification. So in L2 Stacks, when assets are transferred across hyperchains, a certain cross-chain fee can be set, which must be paid with native tokens; a certain proportion of cross-chain revenue can also be drawn and distributed to token mortgagors; in addition, the development and verification of some cross-chain functional modules can also be incentivized through their tokens.
This not only maintains the core role of ETH in the Ethereum ecosystem, but also enables the $OP token to play a governance and value transfer role in the cross-chain network. If designed properly, it can form a positive incentive mechanism to promote the development of the Optimism cross-chain network.
Rent collection model (refer to Ethereum):
On August 25, Base launched an economic cooperation agreement with OP: Base will provide OP with two modes of income, 2.5% of the sorter income or 15% of the profit (the higher of the two); and OP will give Base 2.75% of $OP.
The release of this plan immediately triggered widespread discussion. According to the $OP issuance price, the total value of the tokens OP gave to Base was about 177 million US dollars. At the same time, according to the valuation of the Base chain, the 15% profit was inferred to be about 1.1 billion US dollars, which is equivalent to OP's 15% stake in Base. Not only that, even if the 2.5% sorter procedure is adopted, it can essentially be understood as OP collecting rent.
In the past, the Ethereum network, as a ToB underlying chain, outsourced other interactive actions to L2, and a portion of each fee generated on L2 was allocated to L2 as execution fees, and the remaining portion was given to L1 as a security settlement, as a source of Ethereum income. Then the move by OP and Base can be regarded as the creation of an alternative rental model for L2.
Although it is unlikely to use L2 native tokens as the gas unit of the hyperchain, ETH is a consensus token after all. However, if L2 is regarded as a contractor of the Stack, responsible for contracting network construction, introducing investment, and helping to build the ecosystem, and the hyperchain needs to deliver a part of the profit, such a profit model is indeed very attractive in view of the resources backed by super L2 such as OP.
Mutual empowerment with project parties:
Taking OP Stack as an example, opBNB, ZORA, Base, Mantle, Worldcoin, and Debank have successively joined OP Stack, which has a great impact on the price of OP. However, due to timeline limitations, it is impossible to intuitively see the growth trend of a single day. Therefore, we temporarily select the price change of $OP on the day when Base announced its deployment:
It can be seen that on February 23, the price of $OP once rose to $3.01. This is probably because Base released the cooperative NFT on the OP mainnet around 10:30 pm, and then the price began to soar to the highest value around 11 pm, and then fell back.
Since Binance announced the concept of opBNB, and with the addition of high-quality projects such as Base Protocol, ZORA, Mantle, Debank, etc. to OP Stack, it is undeniable that the popularity and aura these projects have brought to OP will attract more project parties to become interested in OP Stack.
When a project decides to deploy on OP Stack, buying and holding $OP tokens is a very reasonable choice, not only to participate in the ecosystem, but also a value investment.
$OP will definitely be useful in the hyperchain ecosystem in the future, and holding $OP can give the project owner more rights in the future. In addition, because the project owner and OP are essentially a community of interests, when more and more projects are deployed on OP Stack, the value of $OP tokens will rise, which will directly benefit the project owner. OP Stack will also actively support/promote the project owner to develop the ecosystem, bringing positive exposure and growth to the project owner. This win-win situation will encourage more projects to join and form a positive cycle. In this regard, OP seems to have made a good start.
3. Summary
This concludes the CP V.S. Layer 2 Stacks series of articles. Next, we will summarize the entire series of articles.
The battle between CP and Layer 2 hyperchain networks is essentially about improving the infrastructure of blockchain. For a blockchain team, implementing all network and consensus codes, including security, cryptography, etc., is very time-consuming, not to mention wanting to optimize their own business logic in a targeted manner.
If a complete open source code framework appears at this time, which prepares the network, consensus, communication and other elements for you, you only need to deploy it according to your business logic, which will greatly realize the specialization of the network, and the interoperability it supports will also pave the way for the prosperity of the entire ecosystem.
However, at present, CP technology is more mature than Layer 2, but L2's ecological community is more prosperous. However, if L2 wants to develop a hyperchain network based on this, it should focus on how to solve the technical risks of the chain.
In addition, there is another interesting phenomenon, that is, the Ethereum Foundation's definition of L2 is very vague, and the Ethereum official website also states that there is currently no officially certified L2. We can predict the impact of Ethereum's attitude on L2. From the perspective of L1, it must hope to only outsource "execution" to L2 and enjoy the "rent" itself. The definition of L2 must definitely be in line with its own interests.
If one day L2's hyperchain network abandons ETH and uses its own tokens to build portals, what will Ethereum do?
But whether it is the L0-L1 multi-chain ecosystem such as CP, or the L2-L3 multi-chain ecosystem brought by Layer 2 Stacks, each has its own unique advantages and applicable scenarios. In addition to the possibility of gradually dying out due to its own operational problems, these different multi-chain solutions are more likely to survive and, through different connection methods, eventually realize a full-chain ecosystem in which all different public chains and multi-chain ecosystems are connected. As for who can capture more market share in such a full-chain future, it depends on how each project will operate in the future.
References:
https://medium.com/@eternal1 997 L
https://medium.com/polkadot-network/a-brief-summary-of-everything-substrate-and-polkadot-f1f21071499d
https://tokeneconomy.co/the-state-of-crypto-interoperability-explained-in-pictures-654cfe4cc167
https://research.web3.foundation/Polkadot/overview
https://foresightnews.pro/article/detail/16271
https://v1.cosmos.network/
https://polkadot.network/
https://messari.io/report/ibc-outside-of-cosmos-the-transport-layer?referrer=all-research
https://stack.optimism.io/docs/understand/explainer/#glossary
https://www.techflowpost.com/article/detail_12231.html
https://gov.optimism.io/t/retroactive-delegate-rewards-season-3/5871
https://wiki.polygon.technology/docs/supernets/get-started/what-are-supernets/
https://polygon.technology/blog/introducing-polygon-2-0-the-value-layer-of-the-internet
https://era.zksync.io/docs/reference/concepts/hyperscaling.html#what-are-hyperchains
https://medium.com/offchainlabs
Disclaimer: This report is the original work of @sldhdhs 3 , a fellow at @GryphsisAcademy, under the guidance of @Zou_Block and @artoriatech. The authors are solely responsible for all content, which does not necessarily reflect the views of Gryphsis Academy, nor the views of the organizations that commissioned the report. Editorial content and decisions are not influenced by readers. Please be advised that the authors may own cryptocurrencies mentioned in this report. This document is for informational purposes only and should not be relied upon in making investment decisions. You are strongly advised to conduct your own research and consult with a neutral financial, tax or legal advisor before making an investment decision. Remember that the past performance of any asset does not guarantee future returns.
