Original title: "Bankless’ gains at EthCC 2023: The cost of the protocol layer has dropped, and consumer applications are ushering in an explosion."

Original author: David Hoffman

Original compilation: TechFlow Shenchao

So... we're halfway through 2023, where do we stand now?

We took some time to reflect on the numerous conversations we had during EthCC 2023 and summarized some of the key reflections and takeaways.

Agreements are becoming commodities

With the Dencun upgrade coming soon, the Ethereum community is preparing for a hard fork that will eventually introduce a massive scalability upgrade in EIP4844 (also known as Protodanksharding), giving Ethereum’s Rollup a first on L1. A cheaper form of block space called "blobspace". This long-awaited upgrade makes these L2 versions finally the most scalable.

This upgrade marks a moment in the evolution of cryptocurrencies where we are approaching a theoretical minimum in the cost of cryptoeconomic resources. It’s not just Ethereum, many different protocols seem to be approaching a final state where they have minimized the cost of accessing the resources they are optimizing for.

“Data availability” is the main category, the type of resource that EIP4844 and other data availability solutions address. Ethereum block space is cheap for the first time! But Ethereum is not the only protocol optimizing for data availability. Celestia, Avail, and EigenDA are all data availability protocols outside of Ethereum that are increasing the ability of blockchains to scale to levels we never thought possible a few years ago!

This doesn’t stop at data availability. Espresso Systems was a big hit at the largest EthCC side event, the Modularity Summit. Through their shared ordering testnet and in partnership with Eigenlayer, Espresso is not waiting for L2s to each build their own shared ordering systems, but is instead focusing on one thing: optimizing shared ordering.

In the zkRollup space, "provers" are the key component that enables end users to verify zk-proofs that scale zk-rollups. zkSync released their "Boojum" upgrade, touting proofs that can run on mid- to high-end gaming graphics cards. The significance here is that provers are now able to run on consumer-grade hardware, rather than highly specialized enterprise-grade machines, which means zk-proofs can more meaningfully decentralize these networks.

Protocol Convergence and Verticalization

Aave, as a money market, now has a decentralized stablecoin GHO. MakerDAO, as a decentralized stablecoin, now also has a money market "Spark". Frax has been developing its own stablecoin-money market-LSD ecological vertical for more than a year. These three protocols are evolving towards the same basin and are now competing in the same areas: TVL, stablecoin supply, and most importantly, fees.

Just look at the launch of UniswapX, an order execution protocol based on free market competition that aims to facilitate optimal decentralized order execution while also serving as a cross-chain abstraction layer that allows the free market to choose its own solution for performing cross-chain DEX swaps - that is, I have token A on chain 1 and want to get token B on chain 2, so who can give me the fastest and best exchange rate?

UniswapX is a complement to the Uniswap automated market maker (AMM).

Each version of Uniswap has added complexity; with the introduction of Hooks in v4, the homogeneity of Uniswap AMM pools is increasingly not guaranteed. As the number of chains hosting potential Uniswap deployments also increases, the order routing optimization problem becomes too complex to be controlled by a rigid on-chain smart contract system. UniswapX has built a new vertical that addresses any complexity that Uniswap v1-v4 may bring by allowing order execution and fulfillment to be done off-chain and ensuring correctness through minimum viable proofs.

Even after all of this, the L2 ecosystem continues to succeed with a rapid convergence of similar design patterns.

We have the OP Stack from Optimism;

Then there’s Orbit from Arbitrum;

zkSync released ZK Stack.

Finally, with the launch of Polygon 2.0, we now have Supernets.

Like L2 itself, they are all different. They each have their own strategy. But they are all effectively pursuing the same vision, which is that eventually there will be as many chains spawned from Ethereum as there are web pages spawned from HTTPS.

So, which standards will promote the Cambrian explosion of production chains?

Optimism is undoubtedly in the lead here, with three large chains and a number of smaller ones. Polygon has ImmutableX. Arbitrum has Nova (albeit an internally produced one), and while ZK Stack is still looking for its first mass adopter, there are already quite a few startups reporting choosing ZK Stack to build their custom ZK chains.

This news, coupled with the Base mainnet launch expected in early August, sets Ethereum up for the L2 Summer we’ve been looking forward to since 2021.

Consumer-centric

If you've read this far, hopefully you've realized how far we've come in terms of protocol and infrastructure progress. I declare that the protocol and infrastructure problem for cryptocurrency is solved. There's certainly a lot of work to be done on this front, but exploring and pioneering this space has become a science. The frontier of cryptocurrency protocol development, for the first time in cryptocurrency history, has reached a sufficient level of maturity that allows us to see the end goal.

So now that we've solved all of these big problems... wouldn't anyone want to build some apps?

L2 already provides more blockspace than ever before! Data costs are near rock bottom! Latency and responsiveness are better than ever! It’s time to build applications again! Who’s going to consume all that L2 blockspace? Now that we have plenty of cheap and secure blockspace, let’s start utilizing it. But we shouldn’t stop with blockchain applications! Let’s take it a step further and start productizing these systems! Has no one thought about the consumer?

Let’s build consumer facing applications. Let’s hire those incredibly talented UX/UI designers whose job it is to serve people who don’t have private keys or only have funds stored on Coinbase or Kraken. Let’s build applications for users who have never touched a blockchain before.

Our protocols become cheap enough that their usage can be subsidized through user acquisition. As block space gets cheaper, new revenue models can start to subsidize user transactions on our increasingly cheap L2.

A small number of people have realized the meta phase we are in, and I hope this post will highlight that and make others realize that our protocol is ready. Let's start doing the hard work of user research, clever abstractions, and consumer-facing applications.

Want some examples of this? Check out Gnosis — they launched Gnosis Pay and Gnosis Card on EthCC.

In the Gnosis ecosystem, there are now:

Gnosis Safe (your high-security encrypted vault);

Gnosis Chain (a high-speed L2 zkEVM chain based on the Polygon Supernet);

Gnosis Pay (a payment chain built on the Gnosis Chain);

Gnosis Card (fintech payments built on Gnosis Pay).

With Gnosis, we now have a world where the front end is traditional payments and the back end is crypto protocols. This is actually something that has been discussed since the birth of Bitcoin. Gnosis needs to turn this into something that is uniquely competitive with traditional payments, but it is worth noting that our infrastructure is now able to cross the Web3/TradFi gap.

While Ethereum is entering the consumer age, cryptocurrencies are battling some of the biggest regulatory battles we’ve ever seen.

Once we get through all of these regulatory trials... Once we finally beat Gary Gensler, change the SEC, win the right to a fair token launch, and get quality legislation through Congress, crypto will be in the most regulatory-friendly state it has ever been. Right now, crypto is "doing the hard thing" with regulation. Until we go head-to-head with regulators and lawmakers and gain acceptance, we will never be accepted by the larger players.

Modular Summit Vs EthCC

The Modularity Summit, which took place the Friday and Saturday after EthCC, was large enough and knowledge-rich enough that it wouldn’t be a good description to describe it as an “EthCC side event.”

EthCC has been a welcoming place for the Cosmos ecosystem and the developers it attracts. The same energy has evolved into the modular aspect of cryptocurrency, which Ethereum is both a part of and different from.

I call this corner of the cryptocurrency ecosystem the “barely Ethereum aligned” crypto space, where modular infrastructure naturally finds a useful place in the context of Ethereum, but many of these platforms would be perfectly happy to sit on the money throne (Celestia, Cosmos) if Ethereum didn’t fully occupy that spot.

It’s interesting to see different archetypes finding homes in the modular community and resonating more strongly with it than with the 100% pure Ethereum crowd. It’s also interesting to see these communities naturally come together because the technical shapes fit so well. Eventually, Ethereum will absorb all the useful modules produced by the modular community - the essence of the system is to aggregate all the useful open source code into a single superstructure.

There is no doubt that the modular ecosystem has been moving into new technological frontiers faster than any other area in the crypto space. This makes sense - modularity means focusing resources on a single problem rather than spreading yourself out and trying to solve problems in multiple areas at once. The intellectual rigor expressed in this area of ​​crypto has attracted all of the brightest minds in the field. I think you can expect great things to come from this corner of modularity.

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