Rollup Summer: Analysis of Established and Emerging Rollup Projects in the Rollup Ecosystem

Written by: Stanley, Kernel Ventures

Compiled by: 0xxz, Golden Finance

1. Rollup Track Background

1.1 Track Introduction

Rollup is one of the Layer2 solutions, which transfers the computation and storage of transactions on the Ethereum mainnet (i.e., Layer1) to Layer2 for processing and compression, and then uploads the compressed data to the Ethereum mainnet to enhance Ethereum's performance. The emergence of Rollup has made Layer2's gas fees much lower than those of the mainnet, saving gas consumption and providing faster TPS, making transactions and interactions smoother. Some mainstream Rollup chains that have already launched include Arbitrum, Optimism, Base, and ZK Rollups like Starknet and zkSync, which are commonly used in the market.

1.2 Data Overview

Comparison of Rollup chain data, image source: Kernel Ventures

From the data, it can be seen that currently, OP and ARB still dominate among Rollup chains, but emerging players like Manta & ZK Fair can accumulate a certain amount of TVL in a short period. However, in terms of the number of protocols, they still need some time to grow. The mainstream Rollup protocols are well-developed, and the infrastructure is complete, while other emerging chains still need to develop.

2. Rollup Track Analysis

This article will categorize various chains and introduce some recently popular Rollup chains as well as established Rollup chains.

2.1 Established Rollup Chains

• ARB: Arbitrum is an Ethereum Layer2 scaling solution created by the Offchain Labs team based on Optimistic Rollup technology. Although Arbitrum transactions are still settled on Ethereum, Arbitrum only submits the raw transaction data to Ethereum, with execution and contract storage occurring off-chain, resulting in significantly lower gas fees compared to the mainnet.
• OP: Optimism is built on Optimistic Rollup and ensures that the data synchronized to Layer1 is valid through single-round interactive fraud proofs.
• Polygon zkEVM: Polygon zkEVM is a zkEVM scaling solution for Ethereum Layer 2 built on ZK Rollup, which uses ZK proofs to reduce transaction costs and increase throughput while maintaining the security of Ethereum L1.

2.2 Emerging Rollup Chains

ZK Fair

ZK Fair, as a Rollup, has the following main characteristics:

• Built on Polygon CDK, the DA layer will use Celestia (currently maintained by a self-operated data committee), EVM compatible.
• Uses USDC as gas fee.
• Rollup token ZKF is 100% distributed to the community. 75% of the tokens are distributed in four phases within 48 hours to participants in gas consumption activities, essentially allowing participants to participate in the primary market sale of tokens by paying gas to the official sequencer, with a corresponding primary market financing valuation of only 4 million USD.

ZK Fair TVL growth trend, image source: Kernel Ventures

ZK Fair's TVL has rapidly surged in the short term, partly due to its decentralized "no owner" model. From the community, it is understood that the listings on mainstream exchanges like Bitget, Kucoin, and Gate are all initiated by the community and users establishing contact with the exchanges, followed by inviting the official team for technical integration, all of which are community-driven actions. This includes on-chain izumi Finance, which operates in a community-led model with the project team as support, showcasing strong community cohesion.

From the ZK Fair development team Lumoz (formerly Opside), we learned that the team plans to launch different themed Rollup chains in the future, such as the currently hot Bitcoin-based Rollup chains, as well as social and financial derivatives. Future chains may be launched in collaboration with project teams, similar to the currently popular Layer 3 concept, where one Dapp corresponds to one chain. According to the team, some future chains will also adopt a Fair model, distributing a portion of the original tokens to participants on the chain.

Blast

Blast is a second-layer network based on Optimistic Rollups technology, compatible with Ethereum. Within just 6 days, the TVL on the chain has already surpassed 500 million USD, approaching 600 million USD, and has directly doubled the price of the Blur token.

Blast started with founder Pacman's belief that over a hundred million USD in the Blur bid pool was passively lying dormant, failing to earn any returns, and this situation exists across almost every application on every chain, meaning these funds are suffering from passive depreciation due to inflation. Specifically, when users deposit funds into Blast, it will immediately lock the corresponding ETH on the Layer 1 network for native staking, and automatically return the ETH staking rewards to users on Blast. In short, if a user holds 1 ETH in their Blast account, it may automatically grow over time.

Manta

Manta Network is a gateway for modular ZK applications, establishing a new paradigm for L2 smart contract platforms using modular blockchains and zkEVM, building a modular ecosystem for the next generation of dApps. It currently offers two networks:

This article mainly introduces Manta Pacific, a modular L2 ecosystem built on Ethereum, which solves usability issues through modular infrastructure design, allowing seamless integration of modular DA and zkEVM. Since becoming the first Ethereum L2 integrated into Celestia, Manta Pacific has helped users save over 750,000 USD in gas fees.

Metis

Metis has been operational for 2 years, but recently its proposed decentralized sequencer has drawn renewed attention. Metis is a Layer2 based on the Ethereum chain and is the first to innovatively use a decentralized sequencer pool (PoS Sequencer Pool), combining OP and ZK Rollup to enhance the network's security, sustainable operation, and decentralization.

In Metis's design, the initial sequencer nodes are created by whitelisted users, along with a parallel staking mechanism. Users can become new sequencer nodes by staking the native token METIS, while allowing network participants to supervise the sequencer nodes, enhancing the overall transparency and credibility of the system.

3. Technical Core Analysis

3.1 Polygon CDK

Polygon Chain Development Kit (CDK) is a modular open-source software toolkit for blockchain developers to launch new L2 chains on Ethereum.

Polygon CDK utilizes zero-knowledge proofs to compress transactions and enhance scalability. It also prioritizes modularity and facilitates the flexible design of application-specific chains. This allows developers to choose virtual machines, sequencer types, gas tokens, and data availability solutions. Its features include:

• High modularity: Polygon CDK allows developers to customize L2 chains based on specific requirements, catering to the unique needs of various applications.
• Data availability: Chains built using CDK will have a dedicated Data Availability Committee (DAC) to ensure reliable off-chain data access.

3.2 Celestia DA

Celestia first proposed the concept of modular blockchains, decoupling the blockchain into three layers: data, consensus, and execution. In a monolithic blockchain, these three layers are all handled by one network. Celestia focuses on the data and consensus layers, allowing L2 to rely on Celestia for the data availability layer (DA) to reduce interaction gas fees. For example, Manta Pacific has already adopted Celestia as its data availability layer, and according to official news from Manta Pacific, the fees have decreased by 99.81% after migrating from Ethereum to Celestia.

3.3 Comparison of OP and ARB

Optimism is not the only existing Rollup solution. Arbitrum also offers a similar solution. In terms of functionality and popularity, Arbitrum is the closest alternative to Optimism. Arbitrum allows developers to run unmodified EVM contracts and Ethereum transactions on the second-layer protocol while still enjoying the security of Ethereum's first-layer network. In these aspects, it offers features very similar to Optimism.

The main difference between Optimism and Arbitrum is that the former uses single-round fraud proofs, while Arbitrum employs multi-round fraud proofs. Optimism's single-round fraud prevention (FP) relies on L1 to execute all L2 transactions, ensuring that FP verification is conducted instantaneously.

Since its launch, ARB has consistently outperformed OP in various business data on L2, but this began to change gradually after OP started promoting the OP stack. Although OP still cannot reach the scale of ARB, it has shown an upward trend, and the recent surge in OP tokens has been significant, nearly doubling in three months. The OP stack is an open-source L2 technology stack, meaning that other projects wishing to run L2 can use it for free to quickly deploy their own L2, significantly reducing the costs of development and testing. L2s adopting the OP stack can achieve security and efficiency among themselves due to architectural consistency. After the launch of the OP stack, it was first adopted by Coinbase, which built its L2 Base using the OP stack, benefiting from Coinbase's demonstration effect. Subsequently, the OP stack has gained adoption from more projects, such as Binance's opBNB and the NFT project Zora.

4. Future Outlook of the Track

4.1 Fair Launch

The Fair launch model in this round of inscription track has a broad audience, allowing retail investors to directly obtain original tokens, which is also the reason why inscriptions remain popular to this day. ZK Fair embodies the essence of this model, i.e., public launches, and more chains may adopt this model in the future, leading to rapid increases in TVL.

4.2 Rollup Absorbing L1 Market Share

In terms of experience, there is no substantial difference between Rollup and L1; in fact, its efficient transactions and low fees often attract users more, as most users do not pay much attention to technical details but make decisions based on their experience. Some rapidly growing Rollups offer excellent user experiences, fast transaction speeds, and generous incentives for users & developers. With the precedent set by ZK Fair, future chains may adopt this method to further absorb L1.

4.3 Clear Plans & Healthy Ecosystem

In this round of Rollup narrative, chains like ZK Fair & Blast have generously provided incentives, making the ecosystem healthier and reducing many meaningless TVL and "farming" activities. For example, zkSync, which has been online for many years without issuing tokens, relies on high financing and continuously "PUA" participants with technology. While its TVL is very high, there are very few new projects on-chain, especially those with new narratives and themes.

4.4 Public Goods

In the new round of Rollups, many chains have proposed the concept of fee sharing. ZK Fair shares 75% of the fees with all ZKF token stakers, while 25% of the fees go to Dapp deployers. Blast also has fee sharing for Dapp deployers. As a result, many developers are not limited to project income or ecosystem fund grants; with gas income, they can develop more free public goods.

4.5 Decentralized Sequencer

The fee collection of L2 and the cost payment of L1 are executed by the L2 sequencer, and the profits also go to the sequencer. Currently, both OP and ARB's sequencers are operated by the official team, with profits going to the official treasury.

The mechanism of decentralized sequencers is likely to operate on a PoS mechanism, meaning that decentralized sequencers need to stake L2's native tokens like ARB or OP as collateral. If they fail to fulfill their duties, the collateral will be slashed. Ordinary users can stake themselves as sequencers or use staking services provided by platforms like Lido, where users provide collateral tokens, and professional, decentralized sequencer operators execute sorting and uploading services. Staking users can share a large portion of the fees and MEV rewards obtained by the sequencer (under Lido's mechanism, it's 90%). This model can make Rollup more transparent, decentralized, and trustworthy.

4.6 Breaking the Business Model

Almost all Layer2s profit in a "sub-landlord" model. The so-called sub-landlord rents directly from the landlord and then sublets to other tenants. In the blockchain world, Layer2 chains charge users (tenants) gas fees and then pay Layer1 (landlord). Therefore, theoretically, economies of scale are very important; as long as enough people use Layer2, the fees paid to Layer1 will not change significantly (unless the scale is huge, like OP or ARB). Thus, if a chain's transaction volume cannot meet expectations within a certain time, it may be in a long-term loss state. This is also the reason why chains like zkSync are keen on "PUA" users; with enough TVL, they need not worry about users coming to trade.

However, this business model cannot be sustained in the past. Take zkSync, for example; it is a chain with excellent financing, but for smaller chains, relying on PUA users may not be very effective. Therefore, the rise of ZK Fair, as mentioned above, is worth learning from for other chains. While blindly focusing on TVL, it is crucial to consider the long-term sustainability of TVL. As more L2s emerge, the fees of L1 will decrease, thus reducing L2's greatest advantage, which is one of the issues L2 faces: how to attract users not just from a low-cost perspective.

5. Conclusion

The article starts with ZK Fair's TVL reaching 120 million USD in a short time. It explores the Rollup track, including established ones like Arbitrum and Optimism, and new ones like ZK Fair, Blast, Manta, and Metis.

On the technical level, it explains the modular toolkit of Polygon CDK and the modular concept of Celestia DA. It compares the differences between Optimism and Arbitrum, mentioning that decentralized sequencers may adopt a PoS mechanism to make Rollup more transparent and decentralized.

In the future outlook, it emphasizes the broad audience of the fair launch model, the potential for Rollup to absorb L1 market share, and points out that Rollup experiences are not substantially different from L1, with efficient transactions and low fees attracting users. It highlights the importance of public goods and the fee-sharing concept proposed by chains in the new round of Rollups. Finally, it mentions breaking the business model and focusing on the long-term sustainability of TVL.

In short, the characteristics of this new round of Rollups are: new projects, tokens, modularity, and generous incentives, making the initial business and token price flywheel turn faster.