Current Status and Development Trends of Layer2 Track

Author: Metis Chinese Community

Ethereum Scalability Challenges

Ethereum, as the largest decentralized application platform in the world, has played a crucial role in the cryptocurrency and blockchain technology space. However, as its user base and application scenarios continue to expand, the Ethereum network faces severe scalability challenges, such as transaction congestion and high fees. To address these issues, Layer 2 scaling solutions have begun to emerge. Layer 2 aims to enhance transaction processing speed and reduce costs by building a second-layer network on top of the Ethereum main chain, while maximizing decentralization and security.

The emergence of Layer 2 solutions not only helps improve the scalability of the Ethereum network but also provides developers and users with more diverse options. In this article, we will explore several major Layer 2 technologies and projects, analyze their technical characteristics, advantages, and limitations, and discuss potential future developments for Layer 2.

Overview of Layer 2 Technologies

Layer 2 technologies are designed as key solutions to address Ethereum's scalability issues by building additional network layers on top of the Ethereum main chain. This approach allows for the processing of more transactions while maintaining the security and decentralization features of the main chain. The main Layer 2 solutions include Rollups, state channels, and sidechains, each with its own characteristics and applicable scenarios.

1. Rollups

Rollups are a method that processes transactions off-chain and then "packages" the transaction data into the main chain. Depending on their data validity verification methods, Rollups can be further divided into Optimistic Rollups and ZK Rollups.

• Optimistic Rollups rely on an "optimistic" assumption that most transactions are valid and allow for challenges and rollbacks when fraudulent behavior is detected.

• ZK Rollups use zero-knowledge proof technology to ensure that off-chain processed transactions are valid and correct, providing higher security and efficiency.

• Hybrid Rollups are a new Rollup solution proposed by Metis, which combines the technical architecture of OP Rollup and ZKPs Rollup, maintaining the efficient transaction processing of OP Rollup while using ZKP technology to reduce the risks of fraud and erroneous transactions.

2. State Channels

State channels allow participants to conduct multiple transactions off-chain, interacting with the main chain only at the beginning and end. This reduces the number of transactions and thus lowers fees.

3. Sidechains

Sidechains are blockchains that operate independently of the main chain and are connected to the main chain through specific bridging mechanisms. Sidechains can have their own consensus mechanisms and block creation rules, achieving higher transaction throughput.

4. Validium

Validium also uses zero-knowledge proofs, but unlike ZK Rollups, it only uploads the state root and zero-knowledge proofs to the mainnet, while transaction data is stored in Layer 2, thus achieving higher throughput at the expense of some security.

These Layer 2 solutions play a key role in improving transaction speed and reducing costs, while also providing more choices and flexibility for different application scenarios. Among the various Layer 2 solutions, Rollups have received particular attention and have become one of the most widely used technical solutions today. This is mainly driven by the following reasons:

1. Efficiency and Scalability

Rollups significantly improve transaction processing speed by handling transactions off-chain. This method allows for the simultaneous processing of a large number of transactions, with only the accumulated results submitted to the main chain, thereby increasing the overall network throughput.

2. Security and Consistency with the Main Chain

Although most operations of Rollups are conducted off-chain, they still leverage the security mechanisms of the main chain to ensure data integrity and security. This means that even transactions conducted on the second layer can achieve the same level of security as the Ethereum main chain.

3. Smart Contract Compatibility

Rollups typically provide a smart contract environment similar to that of the Ethereum main chain. This is a significant advantage for developers, as they can continue to use familiar tools and languages for development without needing to rewrite code to adapt to a new environment.

It is worth noting Metis's Hybrid Rollup solution, which can significantly reduce user withdrawal times from 7 days to 4 hours while maintaining low fees. From the perspective of user experience, the Hybrid Rollup solution is superior to other Rollup solutions, and this efficient and secure solution may become one of the upgrade directions for Rollups in the future.

Analysis and Comparison of Mainstream Layer 2 Projects

Introduction

Optimism

Optimism is the first Ethereum Layer 2 protocol to develop an Optimistic Rollup solution compatible with the Ethereum Virtual Machine. Optimism runs in parallel with Ethereum, capable of processing transactions on a large scale while inheriting Ethereum's security.

Arbitrum

Arbitrum is built by the Offchain Labs team and is fundamentally aligned with the Optimistic Rollup technology route. Arbitrum uses fraud proofs and has on-chain data availability, meaning that all data for each transaction is fully ordered, bundled, and submitted to the mainnet. The withdrawal period for Arbitrum is similar to that of Optimism, approximately 7 days.

Metis

Metis improves upon the technical foundation of Optimistic Rollups, using its unique Hybrid Rollup technology, which offers shorter withdrawal times and lower transaction fees compared to other Rollup solutions while remaining EVM compatible.

StarkNet

StarkNet is a ZK Rollup protocol released by StarkWare Ltd on the Ethereum testnet in November 2021. StarkNet can deploy general-purpose Rollups for any smart contract.

zkSync

Developed by Matter Labs, zkSync utilizes zero-knowledge proof technology to bundle multiple transactions into a single proof, which is then verified on the Ethereum blockchain. The transaction confirmation time is better than that of OP Rollup solutions, but the network fees are relatively high.

Comprehensive Comparison

In comparison, the two major OP Rollup solutions, Optimism and Arbitrum, account for nearly 80% of the market share, indicating that OP Rollup remains the mainstream choice in the current market. However, there are issues such as long withdrawal times, centralization, and high fees. The overall development of ZKPs Rollup, as the second major technical solution, is relatively stable; meanwhile, new narratives like Metis's Hybrid Rollup and decentralized sequencers are gradually gaining market recognition, highlighting their advantages in decentralization, withdrawal times, and fees. The Total Value Locked (TVL) has already surged to third place, completing a significant leap and becoming a new leader in Layer 2.

Existing Challenges and Response Strategies

We have briefly mentioned some shortcomings of current Layer 2 projects. Now, we can summarize them as several important challenges facing the Layer 2 field.

1. Poor User Experience

Networks using Optimistic Rollup require users to wait up to a week to withdraw funds from Layer 2 to Layer 1, which negatively impacts user experience. Although zero-knowledge proof networks allow for faster withdrawals, they are still in the early stages, relatively unstable, and costly.

2. Centralization Issues

While Layer 2 solutions improve efficiency, they sometimes sacrifice decentralization, especially when centralized sequencer nodes are used in transaction execution, raising concerns about potential censorship and intervention.

3. Scalability Challenges

As user demand for improved efficiency and scalability in DeFi continues to grow, the Layer 2 ecosystem is rapidly expanding, reflecting the market's urgent need for more powerful and efficient Layer 2 solutions. This also poses challenges for network stability and processing capacity.

To address these challenges, various projects are actively innovating and improving. However, in this regard, some "small but beautiful" projects clearly have advantages compared to the "giants" that are "interconnected."

For example, regarding the issue of centralization, as a significant source of revenue for project teams, Optimism and Arbitrum have claimed to promote shared sequencers, but actual progress has been less than satisfactory. In contrast, Metis has boldly launched a PoS sequencer pool plan and is expected to become the first fully decentralized Layer 2 project.

In Metis's sequencer pool, multiple sequencers work together to sort, organize, and package transactions. This not only speeds up transaction processing but also ensures that the network can continue to operate normally even if one sequencer encounters issues, increasing the network's fault tolerance.

Moreover, Metis allows users to become new sequencer nodes by staking the native token METIS. These nodes share the profits generated by the sequencer, enjoying the dividends brought by ecological development. At the same time, network participants can supervise sequencer nodes, enhancing the overall system's transparency and credibility.

This design not only avoids various centralization issues caused by excessive power concentration but also allows ordinary users to become sequencer nodes, sharing the dividends from project development, thus making the entire ecosystem's development more sustainable.

Conclusion

In the future, the Layer 2 field may face more challenges, including further technological development, improvements in user experience, and the maintenance of decentralization principles. For developers and users, understanding and adapting to these changes will be key to successfully leveraging Layer 2 technologies.

In summary, Layer 2 technology provides powerful momentum for the healthy development of the Ethereum ecosystem and is expected to continue being a key area for blockchain technology innovation. As DeFi, NFTs, and other decentralized applications continue to grow, the importance of Layer 2 will become even more pronounced.