The upgrade in Cancun has been reduced to these representative Layer 2 projects. Do they have corresponding growth potential?
From Blast to Base, an overview of Layer 2 projects with and without tokens before the Cancun upgrade.Author: Arkady childe
On January 11, 2024, the U.S. SEC finally approved the Bitcoin spot ETF, sparking widespread attention and discussion. Meanwhile, the Ethereum ecosystem led the surge in the crypto space, indicating that as the Cancun upgrade approaches, market interest in the Ethereum ecosystem is beginning to increase.
During the 178th Ethereum core developer execution meeting on the evening of January 5, 2024, the timeline for the Cancun upgrade was clearly defined. If all goes well, the Ethereum mainnet will complete the Cancun upgrade by the end of February or early March.
The timeline for the Cancun upgrade is as follows:
- January 17: A public test will be conducted on the Goerli testnet (this will be the first public test after 12 internal tests);
- January 30: A test is planned on the Sepolia testnet (provided no new bugs arise on the Goerli testnet);
- February 7: The final test will be conducted on the last testnet, Holesky (provided no new bugs arise on the Sepolia testnet).
If everything goes smoothly, we can expect the Cancun upgrade on the Ethereum mainnet to be officially completed by the end of February or early March.
Overview of the Cancun Upgrade's Content and Impact: Expected to Drive Further Prosperity in the Ethereum Ecosystem
Since the Ethereum mainnet officially launched on July 30, 2015, it has undergone several significant technical upgrades, each named after a city to signify its importance. However, over time, Ethereum still faces some key issues that need to be resolved to realize its potential for mass adoption.
Currently, the transaction speed on the Ethereum mainnet remains relatively slow, with a transaction processing capability (TPS) of about 15 to 20 per second. Meanwhile, transaction fees (Gas fees) are also relatively high, with a single transaction on the mainnet potentially costing up to $10, and even on Layer 2 networks, each transaction incurs a fee of $0.2. This has led to a decline in user experience and limited the development of the Ethereum ecosystem.
The primary goal of the Cancun upgrade is to address these issues by scaling the Ethereum main chain, increasing the TPS of the main chain, and reducing Gas fees, thereby enhancing the scalability, security, and usability of the Ethereum network. This upgrade will also promote the development of the Layer 2 ecosystem, providing a better experience for more developers and users.
From a data perspective, the Total Value Locked (TVL) in the Ethereum Layer 2 ecosystem has recently shown rapid growth, with a total market value exceeding $22 billion and an increase of nearly 10% over the past seven days. This indicates that investors and developers are confident in Ethereum's Layer 2 solutions, and the Cancun upgrade is expected to further drive the prosperity of this ecosystem.
The Cancun upgrade includes six key Ethereum Improvement Proposals (EIPs):
EIP-4844 (Proto-Danksharding): Aims to reduce Gas fees on Layer 2 networks without sacrificing decentralization, especially for Rollup solutions. This proposal is expected to reduce Rollup Gas fees by 90%.
ERC-4337 and ERC-6900 (Account Abstraction): Account abstraction will change the way users interact with crypto wallets, making gasless transactions the norm and promoting secure social logins as a new standard, reshaping the user experience on Ethereum.
EIP-1153 (Instant Storage Opcode): Allows smart contracts to use instant storage, reducing Gas costs associated with storing data during contract execution and providing greater flexibility.
EIP-4788 (Beacon Block Root Submission): Introduces protocol-level oracles, enhancing the security and operational efficiency of liquid staking protocols.
EIP-5656 (MCOPY Opcode): Optimizes the process of copying data in memory, reducing Gas fees associated with memory operations and improving the execution speed of smart contracts.
EIP-6780 (Limit Self-Destruct): By limiting self-destruct operations, Ethereum can better manage its state size, improving the stability and predictability of the blockchain and paving the way for future upgrades.
These improvement proposals will be implemented in the Cancun upgrade and are expected to significantly enhance Ethereum's performance and functionality, laying a solid foundation for the ecosystem's development. The Cancun upgrade is of great significance not only to the Ethereum community but also to the entire crypto world, with the community widely believing it will be the engine of this crypto bull market.
Two Leading Layer 2 Projects Directly Benefit from the Cancun Upgrade: An Overview of Arbitrum and Optimism
The Cancun upgrade itself brings direct benefits to Ethereum Layer 2, especially to the current leaders, Arbitrum and Optimism. This benefit is reflected in their rapidly decreasing L1 costs, creating a larger profit margin for Layer 2.
Since its launch, Arbitrum (ARB) has consistently performed well in various business metrics on Layer 2, particularly in terms of active user numbers. The number of active users on Arbitrum has consistently maintained a range of 2 to 3 times that of OP.
However, since OP proposed the Superchain strategy and OpStack technology stack last February, the OP ecosystem has demonstrated greater potential. The number of developers in the OP ecosystem has consistently far exceeded that of Arbitrum.
After the launch of OpStack and Superchain, it first gained adoption from Coinbase, which announced its L2 Base built on OpStack along with the Superchain strategy on February 10, officially launching on August 10. With Coinbase's demonstration effect, more projects have chosen OpStack, including Binance's opBNB, NFT project ZORA backed by Paradigm, Loot ecosystem project Adventure Gold DAO, public goods service project Public Goods Network (PGN) supported by Gitcoin, leading options project Lyra, and even Celo, originally an L1, has chosen OpStack as its L2 solution.
Arbitrum's response strategy is to launch the Orbiter L3 technology stack to compete with OpStack, allowing project teams to use Arbitrum One as their Data Availability Layer (DA layer) and build their own L3 solutions through Orbiter. However, this strategy has a problem: most project teams are reluctant to define themselves as L3. For those with rich industry resources (users, developers, IP content), they prefer to build their own L2 solutions, as this means a higher valuation ceiling and broader user positioning.
Xai is the first L3 blockchain in the Arbitrum ecosystem, recently launched on Binance. The development team behind Xai is Offchain Labs of Arbitrum, indicating that the Arbitrum team hopes to create a star project through Xai to solidify its position in the L2 market.
Overall, Arbitrum and Optimism each have their unique characteristics in the competition for Ethereum Layer 2, excelling in different aspects, and their competition will drive the development of the entire Ethereum ecosystem.
Overview of Emerging Layer 2 Projects: From Blast to Manta Network, ZKFair, and Metis
The Cancun upgrade will attract the entire crypto market's attention to the Rollup track, bringing more attention and funding to new Rollup projects. These new projects have a clear advantage in attracting users and assets through airdrop programs, rapidly increasing their Total Value Locked (TVL). Here are some notable new Layer 2 projects:
Blast: Raised $20 million, currently TVL exceeds $1.2 billion
Blast is an Ethereum Layer 2 network launched by Pacman, the founder of Blur, built on Optimistic Rollups technology. The project has raised $20 million in funding from investors including Paradigm and Standard Crypto. The essence of Blast's airdrop plan is that users deposit funds into Blast, which then stakes the users' Ethereum on the Ethereum mainnet and automatically compounds the returns. Stablecoin assets like USDC, USDT, and DAI are deposited into the MakerDao protocol to earn yields.
This mechanism allows users to not only receive all staking rewards but also earn additional Blast token airdrop rewards. With the backing of the Blast team and investors, users and funds have flocked in, and Blast's TVL has now exceeded $1.2 billion.
Manta Network: Composed of Manta Pacific and Manta Atlantic, with continuously increasing project TVL
Manta Network was established in 2020, focusing on modular blockchains for zero-knowledge (ZK) applications. It consists of Manta Pacific and Manta Atlantic, with Manta Pacific specifically designed for ZK applications, while Manta Atlantic is a fast ZK Layer 1 solution based on Polkadot, focusing on programmable identity and credentials.
Manta Pacific officially launched in September 2023, currently based on OP Stack, fully compatible with the EVM environment and Solidity development language. In December 2023, Manta Network launched a token airdrop incentive program, distributing its rollup token rewards based on the amount of cross-chain funds, rapidly increasing on-chain capital and encouraging users to interact with existing Dapps after cross-chain transfers, boosting developer confidence. Following this program's launch, Manta Network's TVL data began to grow significantly.
ZKFair: 100% fair launch of governance token ZKF, with both TVL and total users increasing
ZKFair is an Ethereum Layer 2 solution built on Polygon CDK, notable for the 100% fair launch of its governance token ZKF. There are no investors, reserves, or pre-mining strategies.
After the mainnet launch, 10 billion ZKF tokens will be fully airdropped to the community, with no other means to obtain these tokens. This strategy incentivizes users to utilize Dapps on the mainnet, promoting the development of the user and developer ecosystem. Currently, ZKFair's TVL is also showing an upward trend, with a cumulative user count exceeding 9,000.
Metis: A decentralized PoS sequencer solution with a Staking mechanism, increasing Layer 2 security and decentralization
On December 18, 2023, Metis launched the Metis EDF (Ecosystem Development Fund). According to the official announcement, Metis plans to allocate 4.6 million METIS tokens to support various ecosystem development activities, including sequencer mining, retrospective funding, and the deployment of new projects. These tokens will be distributed after the launch of the Metis decentralized sequencer mainnet in the first quarter of 2024.
Layer 2 networks have long been criticized for the centralization of sequencers, but progress in addressing this issue has been slow. According to a research report released by Binance in August this year, all major Ethereum Layer 2 networks rely on centralized sequencers, which are designated and controlled by the project teams. Although many Layer 2 projects list solving the decentralization of sequencers as part of their roadmap, there has yet to be a genuine consensus on how to achieve decentralization.
Metis has decided to take a key step in the field of decentralized sequencers by introducing a decentralized PoS sequencer solution with a Staking mechanism, ensuring the normal operation of the network through token incentives. This innovative approach aims to accelerate the research and development of decentralized sequencers and provide higher security and decentralization for Layer 2 networks.
Metis's initiative is expected to drive the entire Layer 2 ecosystem towards a more decentralized direction, providing users with safer and more reliable solutions.
In the Layer 2 ecosystem, some projects without issued tokens are also worth detailed attention
In the Ethereum Layer 2 ecosystem, there are some important participants that, despite not having issued tokens, play a key role in the development of the ecosystem.
Base aims to become a decentralized, permissionless Layer 2 chain. It uses OP Stack technology, allowing it to connect with other projects that adopt the same technology stack, thereby promoting the development of the Base ecosystem. Since its launch in July last year, Base has achieved remarkable results, with cumulative profits exceeding $5.6 million, surpassing most other Layer 2 projects, and a cumulative user count exceeding 2.9 million, with daily active users reaching 65,000. Some popular applications have also emerged on Base, such as friend tech and FrenPet, further driving the growth of the ecosystem.
opBNB is the Layer 2 scaling solution for BNB Chain, supported by Binance, which has a large user base and project resources. Meanwhile, BSC, as a complete decentralized ecosystem, has accumulated a large number of users and transaction volumes, providing a solid foundation for opBNB.
Linea is a Layer 2 solution launched by ConsenSys (the parent company of MetaMask), aimed at improving the scalability and efficiency of the Ethereum network. It also has a natural advantage in traffic, allowing seamless integration with ConsenSys products such as Infura, MetaMask, and Truffle, further enhancing its appeal.
Scroll is an EVM-equivalent solution based on zkRollup, aimed at scaling the Ethereum network. As a project in collaboration with the Ethereum Foundation, it has received support from the Foundation, albeit relatively weak, but still contributes to the expansion and development of Ethereum.
These projects, although not issuing tokens, provide important support for the prosperity and sustainable development of Ethereum Layer 2 through technological innovation and ecosystem building. Their efforts make the Layer 2 ecosystem more diverse and robust, offering users and developers more choices and opportunities. As the Cancun upgrade approaches, we can expect to see more innovations and collaborations that further drive the development of Ethereum Layer 2.
The Cancun Upgrade is Approaching, but Ethereum's Underlying Technology and Value Ecosystem Still Face a Series of Important Challenges
As the Cancun upgrade approaches, the Ethereum Layer 2 ecosystem is experiencing a prosperous period, but behind this prosperity, we must also recognize that there are a series of challenges.
The token incentive mechanism has gradually shifted from the initial focus on Total Value Locked (TVL) to broader ecological development considerations, including the increase in active user numbers, Gas fee consumption, and the introduction of new projects. The market is gradually shifting from merely observing TVL to paying more attention to the sustainability of the ecosystem. This shift also brings greater challenges, requiring project teams to consider more how to attract users, maintain ecosystem activity, and provide better experiences for users.
We cannot overlook the fact that whether a project can achieve long-term development still depends on its own strength. Technological innovation, market adaptation, and the emergence of Dapps that align with user preferences are all key factors for a project's success. In this fiercely competitive field, only by continuously improving one's own strength can one stand out in the intense competition and truly achieve long-term development.
In summary, the prosperity of the Ethereum Layer 2 ecosystem is an exciting sign, but it also requires project teams to continuously strive to overcome various challenges and contribute more innovations and value to the development of the crypto market. Only through continuous evolution and improvement can we see a brighter future for the crypto world.
