L2 is coming, is Solana going to become what it once hated?

Author: Alex Liu, Foresight News

The Solana community has always been a strong critic of the flaws in Layer 2 solutions. But now some Solana ecosystem projects are also looking to build L2, leading some to jokingly say that this puts Solana supporters in a dilemma—should they continue to criticize or flexibly adjust their views? Is Solana becoming what it once despised?

Before making a judgment, I think it’s important to understand whether Solana's Layer 2 is just a rehash of Ethereum's L2 and what the differences are between the two.

What do they think?

Regarding Solana's Layer 2, Solana co-founder Toly said, "L1 cannot stop anyone from building L2 on Solana. As an engineer, I will fully support them if any technical issues arise. Although the L2 execution environment is competitive with L1. The main difference between ETH and Solana is that the ordinary tx bytes on Solana L1 are already as cheap as blobs. Solana's fees are driven by hotpots, which L2 does not help with. Therefore, the fees charged to users by Solana L2 and Solana L1 will be roughly the same."

Kyle, a partner at Multicoin, one of Solana's main investors, expressed his skepticism about Solana L2: "I think people will build L2 on Solana, and it's permissionless. Go ahead, no one will stop you. But I don't think they will achieve meaningful adoption. I could be wrong; let's wait and see!"

With user fees not much different and doubts about achieving meaningful adoption… could Solana's Layer 2 be more of a burden than Ethereum's? Let's take a look at what these projects are actually building.

Zeta Markets

Zeta Markets is developing a Layer 2 solution called ZX. ZX is an optimistic Rollup based on Solana, designed to enhance the speed and scalability of decentralized trading through trustless on-chain settlement using zero-knowledge proofs (zk-proofs).

Features of ZX

1. High throughput: ZX can handle 10,000 transactions per second (TPS), significantly improving transaction performance.

2. Low latency: Transaction confirmation time is under 10 milliseconds, approaching the performance of centralized exchanges.

3. Seamless trading experience: Offers one-click trading functionality to simplify user operations.

4. High leverage options: Supports 50x leverage and provides various collateral options.

5. Zero-knowledge proofs: Uses zk-proofs for trustless on-chain settlement, ensuring transaction transparency and security.

6. $Z token: The native token $Z of ZX will serve as the gas fee for transactions and incentivize participants.

Architecture diagram of ZX

Why build L2 on Solana to achieve these features?

According to Zeta Markets' litepaper, the reasons for building Solana Layer 2 mainly include the following points:

• Improving transaction performance: Although Solana's Layer 1 already has high throughput and low latency, ZX adopts optimistic Rollup and zero-knowledge proof (zk-proofs) technology to further enhance the performance of decentralized trading. These technologies can achieve performance close to centralized exchanges while maintaining decentralization and security (e.g., achieving 10,000 TPS transaction throughput, while the actual TPS on Solana L1 is 1000 to 2000).

• Addressing congestion issues: Solana may encounter network congestion during periods of high transaction volume. By moving some transaction processing to Layer 2, ZX can alleviate the burden on Layer 1, thereby improving the overall efficiency and stability of the network.

• Reducing transaction costs: Although Solana's transaction fees are already relatively low, ZX can further lower user transaction costs through Layer 2 solutions, especially in high-frequency trading and large-scale trading scenarios.

• Enhancing user experience: ZX aims to provide a seamless trading experience, including one-click trading and transaction confirmation times below 10 milliseconds. In Solana L1, the block interval is 400 milliseconds. These improvements will make the user experience closer to that of centralized exchanges while retaining the advantages of decentralized trading, such as self-custody and transparency.

• Ecosystem integration: Solana's DeFi ecosystem is rapidly growing, and the introduction of ZX will further enhance the liquidity and interoperability of this ecosystem. ZX plans to leverage Solana's low transaction fees and fast block times to accelerate the finalization of Rollup blocks, thereby improving user experience.

In summary, Zeta's construction of the Solana Layer 2 solution ZX aims to enhance the performance of decentralized trading, reduce transaction costs, improve user experience, and address network congestion issues. These improvements are necessary to meet the growing demand for DeFi and enhance the overall competitiveness of the Solana ecosystem.

marginfi

marginfi is the second-largest lending protocol by TVL on Solana, but is its newly launched liquidity layer what people consider L2?

Not at all! Despite having "layer" in its name, marginfi's liquidity layer is not a conventional L2; rather, it is an integrated "liquidity layer" protocol designed to provide liquidity support for DeFi applications on Solana.

Features of the liquidity layer

• Integrated liquidity layer: As Solana's first liquidity layer, marginfi allows traders to access liquidity without cross-chain bridging.

• Risk management system: marginfi's risk management system manages risks for the marginfi liquidity layer, allowing each bank to define its own risk parameters.

• Multi-asset support: Users can borrow and lend 16 different assets simultaneously, providing greater flexibility in liquidity management.

• High yields: Through native staking and native token yields, users can earn integrated local returns.

• Decentralized application support: Provides the necessary infrastructure for decentralized applications such as trading, indexing, and payments.

As a liquidity layer focused on providing liquidity support and risk management for DeFi applications on Solana, the liquidity layer is not a conventional Layer 2 solution—it does not have its own execution environment, does not require sequencers, full nodes, etc. However, this unconventional, Solana-specific L2 may be a more valuable layer for the L1 network.

Which would you choose: a layer that provides access to liquidity without cross-chain bridging or Ethereum L2 with fragmented liquidity?

Core differences with Ethereum L2

Due to various differences in architecture and design, Solana L2 and Ethereum L2 also have the following significant distinctions:

• Transaction fee volatility:

Although Ethereum L2's transaction fees have significantly decreased, they still exhibit volatility, especially during high network load. In contrast, Solana's L2 solutions continue to maintain low transaction fees, typically below $0.01, and the fees remain stable, not significantly fluctuating with changes in network load.

• Transaction speed:

While Ethereum L2's transaction speed has improved, it still does not match Solana's native network. Solana's transaction confirmation time is very short, usually around 400 milliseconds, while Ethereum L2's transaction confirmation time can range from 5 to 10 seconds. Solana's L2 solutions like ZX can handle 10,000 transactions per second (TPS), with transaction confirmation times under 10 milliseconds, significantly improving transaction speed.

• Interaction complexity:

Solutions like marginfi's liquidity layer integrate seamlessly with the native network, allowing access to liquidity without cross-chain bridging, simplifying the user experience.

Conclusion

In fact, Solana's L2 solutions were designed with common criticisms of Ethereum L2 in mind, providing a good user experience, low transaction fees, high security, and fast transaction speeds. Compared to Solana L1, they can also supplement functionalities to meet more needs. How Solana L2 will develop in the future remains to be seen, and we will wait and see with Kyle.