The Evolution of Ethereum: The Infinite Potential of Layer 2 Scaling and One-Click Multi-Chain

Author: YBB Capital Researcher Ac - Core

TLDR

• Cross-chain asset transfers are complicated and costly due to the varying architectures and consensus mechanisms of different blockchains, leading to a lack of unified standards and limiting asset liquidity; existing third-party bridges face trust and security challenges, centralized bridges need to maintain liquidity, and costs are passed on to users. One-click chain issuance, akin to solving the triangle problem, is a compromise asset bridging solution.
• Market maturity: OP Stack and Superchain are leading the market, with Base becoming a successful representative; AggLayer is more easily accepted due to its native compatibility with Ethereum, but it needs to ensure the security and reliability of the aggregation process; Elastic Chain must evaluate the development of ZK sSync itself, with OP being favored in the short term and ZK in the long term.
• In the context of insufficient industry innovation, DeFi remains the primary application for Rollups. Currently, DePIN, RWA, and large GameFi have a low probability of appearing on Rollups, while SocialFi and the NFT market may appear on Rollups, but market enthusiasm is unknown. The Matthew effect is generally suitable for blockchain, with the infinite issuance trend of Rollups focusing long-term on the leading projects and short-term on the mid and lower streams.

I. Connecting the Islands Between Chains: The Problem of Bridges

When we conduct cross-chain asset transfers, different blockchains each have unique architectures, consensus mechanisms, state proofs, and state transitions, and the lack of unified standards and interoperability leads to certain complexities in cross-chain communication and data exchange. These verification processes are often too costly to execute on-chain. This limitation has led to a surge in the use of multi-signature committees to certify the state of the other chain. Therefore, there is currently no universal decentralized standard or protocol that can achieve interoperability among all blockchains, which restricts the free flow of assets across different blockchains.

To facilitate cross-chain asset transfers, a large number of third-party bridges have emerged, but these bridges face significant operational "trust issues" and cybersecurity challenges. Even if centralized bridges can fully ensure security, they still need to maintain sufficient liquidity on each integrated chain to operate, and these costs will be passed on to users. Currently, there is a problem of failing to meet the needs of native decentralized asset bridging and difficulty in trusting third-party bridges. ZKsync, Polygon, and Optimism have each launched their own more native Elastic Chain, AggLayer, and Superchain Explainer localized multi-chain expansion solutions.

II. ZKsync 3.0: Elastic Chain

Image source: zksync.mirror

In 2023, Matter Labs, the main development company behind ZK sync, released their ZK Stack, a toolkit that allows developers to build their own blockchains based on ZK sync technology. Essentially, these custom chains will be interconnected through the Elastic Chain, transforming ZK sync 3.0 from a single Ethereum L2 into The Elastic Chain.

The core upgrade of the ZK sync 3.0 protocol was released on June 7, 2024, marking the most complex upgrade of ZK sync to date. It reconfigures the ZK sync L1 bridge into a shared router contract to support the expanding interoperable ZK chain network, enabling local, trustless, low-cost interoperability between chains supported by the ZK Rollup framework ZK Stack.

According to Matter Labs, "Elastic Chain is an infinitely scalable network composed of ZK Chains (rollups, validiums, and volitions) that ensure their security through mathematical verification methods and achieve seamless interoperability under a unified and intuitive user experience, aimed at making interoperability within different ZK sync ecosystems smoother and more fluid."

2.1 Elastic Chain Architecture

The Elastic Chain is not solely reliant on ZK technology and cannot be achieved by simply adding ZK proofs as a "patch" to other non-ZK multi-chain systems. From a high-dimensional perspective, its network consists of three parts: ZK Router, ZK Gateway, and ZK Chains.

1. ZK Router:

• Core routing mechanism: The ZK Router is the main routing component of the ZK Sync 3.0 architecture, responsible for managing and coordinating communication and data transfer between different chains and nodes in the network;
• Cross-chain communication: Through an efficient cross-chain communication protocol, the ZK Router ensures that data can be transmitted quickly and securely between different chains, enhancing the overall interoperability and performance of the network.

1. ZK Gateway:

• Entry and exit nodes: The ZK Gateway acts as the entry and exit node of the ZK Sync 3.0 network, handling interactions between external blockchains (such as the Ethereum main chain) and the ZK Sync network;
• Asset bridging: Responsible for bridging and transferring assets between external blockchains and the ZKSync network, ensuring that assets can flow securely and efficiently between different chains;
• Transaction aggregation: Aggregates user transactions into batches, then generates zero-knowledge proofs and submits them to external blockchains for verification, reducing on-chain data load and transaction costs;
• Middleware: Overall, it can be understood as middleware deployed between Ethereum and ZK Chains to facilitate comprehensive interoperability among ZK Chains.

1. ZK Chains: By generating and verifying zero-knowledge proofs, they ensure the validity and security of transactions and submit the results to the ZK Router for aggregation and coordination. They are interconnected through the ZK Gateway and L1 smart contracts, operating independently and customizable as Rollups, Validiums, or Volitions built using the ZK Stack.

According to ZK sync, the Gateway is a key component of the Elastic Chain to achieve seamless settlement of ZK Chains to Ethereum. By submitting proofs and data to Ethereum through the Gateway, it has the following advantages:

• Cross-batch and cross-chain proof synthesis, reducing L1 verification costs;
• State difference compression compresses small batch data sent to the Gateway and efficiently forwards it to L1 in larger batches;
• Faster final confirmation through verifying the proofs of the chain and preventing contradictions, achieving low-latency cross-chain bridging, reinforced by the staking of numerous validators. ZK Chains do not need to trust other chains;
• Activity: The activity of each ZK Chain is independently managed by its validators, and the Gateway does not affect its activity; chains can freely leave the Gateway;
• Anti-censorship: Cross-chain forced transactions will be cheaper than ordinary L1 anti-censorship transactions, making them more accessible to all users.

ZK Chains do not need to use the ZK Gateway and can settle directly to Ethereum, and can choose to leave the ZK Gateway network at any time without affecting the security of their chain. ZK Chains can freely switch between using the ZK Gateway and settling directly to Ethereum. The ZK Gateway will be operated by a decentralized, trustless cluster of validators to ensure the resilience and reliability of the network. Participation in this decentralized validation process requires ERC20 tokens. The ZK Sync network governance will designate a token for this purpose (which could be a ZK token).

Validators will charge bridging fees as well as fees for publishing state difference data to the ZK Gateway per byte. This provides an incentive for validators to join the ZK Gateway, as their income can multiply with the increasing value of transactions on-chain. Additionally, due to the re-compression services provided by validators, settling data through the ZK Gateway will be cheaper than settling directly on the Ethereum network, which may also be a reason why most ZK Chains might choose to join.

III. Polygon 2.0: Agglayer

Image source: Polygon Agglayer

3.1 Agglayer Design Origins

Similar to OP Stack and ZK Stack, blockchains created using the Polygon CDK can directly connect to Agglayer, utilizing its unified bridging and security services to achieve interoperability with other blockchains, forming the core architecture of Polygon 2.0.

The core idea of Agglayer originates from the Shared Validity Sequencing design proposed by Umbra Research, which aims to achieve atomic cross-chain interoperability among multiple Optimistic Rollups. By using a shared sequencer, the system can uniformly handle transaction ordering and state root publishing for multiple Rollups, ensuring atomicity and conditional execution.

Implementation Logic: Requires the following three components:

1. Shared Sequencer: Receives and processes cross-chain transaction requests;
2. Block Building Algorithm: The shared sequencer is responsible for constructing blocks that include cross-chain operations, ensuring the atomicity of these operations;
3. Shared Fraud Proofs: A shared fraud proof mechanism among related Rollups to enforce cross-chain operations.

Since existing Rollups already have bidirectional messaging capabilities between Layer 1 and Layer 2, Umbra only added a Mint Burn SystemContract (Burn and Mint) to complete the three components.

Workflow:

1. Burn operation on Chain A: Any contract or external account can call it, and upon success, it is recorded in the burnTree;
2. Mint operation on Chain B: The sequencer records it in the mintTree after successful execution.

Invariants and Consistency:

Merkle root consistency: The Merkle roots of the burnTree on Chain A and the mintTree on Chain B must be equal to ensure the consistency and atomicity of cross-chain operations.

System Operation:

The shared sequencer is responsible for publishing the transaction batches and declaring state roots of the two Rollups to Ethereum. It can be centralized or decentralized (like Metis). The sequencer receives transactions and builds blocks for Rollup A and B. For transactions on A, if they successfully interact with the Mint Burn SystemContract, it attempts to execute the corresponding Mint transaction on B. If the Mint transaction is successful, it includes the Burn transaction on A and the Mint transaction on B; if it fails, both transactions are excluded.

3.2 Core Components of Agglayer:

In Polygon 2.0's Agglayer, the Unified Bridge and Pessimistic Proofs are its core components.

1. Unified Bridge

Technical Framework:

• Cross-chain communication: The core of the Unified Bridge is to achieve seamless communication between different chains. It implements data and asset transfers between different Layer 2 solutions and the Ethereum main chain through cross-chain communication protocols.
• Liquidity aggregation: This bridge aggregates the liquidity of different Layer 2 solutions, allowing users to freely move assets between different chains without worrying about liquidity fragmentation.

Implementation Logic:

• Messaging: The Unified Bridge achieves cross-chain communication through a messaging mechanism. Messages contain relevant information about transactions and are transmitted between chains via the bridge protocol;
• Asset locking and releasing: When a user locks assets on one chain, the Unified Bridge will correspondingly release equivalent assets on the target chain. This process requires the use of smart contracts to ensure security and transparency;
• Interoperability Protocol: To ensure interoperability between different chains, the Unified Bridge adopts standardized interoperability protocols. These protocols define how to handle cross-chain transactions, how to verify the validity of transactions, and how to handle potential conflicts.

Image source: Aggregated Blockchains: A New Thesis

2. Pessimistic Proofs

Technical Framework:

• Security: Pessimistic proofs are a security measure designed to prevent fraudulent transactions. They introduce additional verification steps during the transaction validation process to ensure that all transactions are valid;
• Delayed verification: Unlike optimistic proofs, pessimistic proofs assume that transactions may be malicious and conduct thorough verification before confirmation.

Implementation Logic:

• Initial verification: After a transaction is submitted, the system immediately conducts preliminary verification. This includes checking the basic information of the transaction and the validity of the signatures;
• Deep verification: After passing preliminary verification, the transaction enters the deep verification stage. The system calls a series of smart contracts to check the complexity of the transaction and potential risks;
• Dispute resolution: If any issues are found during the verification process, the system triggers a dispute resolution mechanism. This mechanism allows users and validators to submit additional proofs to resolve disputes and ensure the final validity of the transaction.

Through the Unified Bridge and Pessimistic Proofs, Agglayer can provide a highly secure, scalable, and interoperable blockchain environment. These components not only enhance the security of the system but also simplify the operation of cross-chain transactions, making it easier for users to interact across different chains. For further content, see YBB Capital's previous article "From Modularity to Aggregation: Exploring the Core of Polygon 2.0's Agglayer" (1).

IV. Optimism: Superchain Explainer

Optimism took the lead in 2023 by initiating the one-click chain issuance path, with the first task being to establish a unified network standard for OP Stack. OP Stack serves as the launch platform for Ethereum's scaling solution—The Optimism Superchain—and is also the hub for interaction and transactions among all L2s built using OP Stack.

You are likely already familiar with OP Stack. To summarize, the Optimism Superchain will share a common OP Stack development stack, bridging, communication layer, and security to ensure that various chains can communicate coherently and function as a single unit. This structure can be divided into five different layers, each with its specific purpose and function:

• The data availability layer determines that the original input of chains based on the OP stack is primarily obtained through Ethereum DA;
• The ordering layer controls how user transactions are collected and forwarded, typically managed by a single sequencer;
• The derivation layer processes the original data into inputs for the execution layer, primarily using Rollup;
• The execution layer defines the system state structure and transformation functions, with the Ethereum Virtual Machine (EVM) as the central module;
• The settlement layer allows external blockchains to view the valid state of OP stack chains through proof-based fraud proofs.

Compared to Elastic Chain and Agglayer, Optimism Superchain appeared earliest and seized the market, successfully launching Base, which occupies a significant portion of daily Gas expenditures, reflecting the on-chain activity of Base.

Image source: Dune Optimism - Superchain Onchain Data

V. Subjective Thoughts on One-Click Chain Issuance

5.1 Competitive Views on AggLayer, Superchain, and Elastic Chain

(This section represents the author's personal views)

The three expansion solutions mentioned above are all extensions of their respective Rollup scaling narratives. Starting from market maturity, OP Stack and Superchain have taken the lead in seizing the market, with Base being the most successful representative.

AggLayer has a native compatibility advantage, allowing it to run directly on the existing Ethereum network without significant modifications to the underlying protocol, making it more easily accepted by current Ethereum users and developers. The advantage of this solution is its effective utilization of the existing Ethereum network, while its challenge lies in ensuring the security and reliability of the aggregation process.

The preliminary judgment of Elastic Chain at this stage is to evaluate the development of the ZK sync ecosystem and community building. If ZK sync does not develop, attracting developers and maintaining community enthusiasm for Elastic Chain in the later stages may face resistance. From both market and technical perspectives, OP is favored in the short term while ZK is favored in the long term.

Additionally, all three solutions will bring about the inherent issue of Rollups: a relatively centralized degree. With the recent emergence of Based Rollup scaling solutions, this may also become a potential competitor in the future, as it directly hands over the sequencer to L1, i.e., Ethereum itself, eliminating the need for additional sequencers or complex verification steps for L2. This more native scaling approach, while also presenting some potential MEV issues, is still worth monitoring for future developments.

Image source: ZKsync - Introducing the Elastic Chain

5.2 Future Development Trends of Rollups and Innovation in Applications

Overall, with the promotion of "one-click chain issuance," the number of Rollups as the mainstream scaling method for Ethereum will continue to increase. Even the explosive growth of the Bitcoin ecosystem in 2023 has borrowed many scaling logics from Ethereum's expansion. In the context of insufficient market innovation, the application innovation and impact of Rollups may be limited.

For each VM chain, regardless of market changes, TVL remains the primary indicator, so the first applications to emerge will still be various DeFi protocols. Additionally, SocialFi protocols and NFT trading markets may appear.

In other sectors, DePIN is difficult to develop on Rollups and L1, with the leading projects likely emerging on Solana; the RWA concept has a higher probability of developing on L1 but lacks confidence on Rollups; GameFi will also emerge, but large games will only have opportunities on Rollups focused on GameFi. Therefore, the most certain applications at this stage remain DeFi-related.

However, the Matthew effect of blockchain is evident, and with the arrival of the multi-chain era, resources will concentrate on leading projects, with the strong becoming stronger and the weak being eliminated.

Extended Links:
(1) From Modularity to Aggregation: Exploring the Core of Polygon 2.0's Agglayer

https://medium.com/ybbcapital/from-modularity-to-aggregation-exploring-the-core-of-polygon-2-0s-agglayer-e492dd05ceb9

Reference Articles:

【1】 Introducing the Elastic Chain

https://zksync.mirror.xyz/BqdsMuLluf6AlWBgWOKoa587eQcFZq20zTf7dYblxsU

【2】 zkSync Protocol Upgrade v24: New precompiles, more blobs, Validiums, and more. #519

https://github.com/zkSync-Community-Hub/zksync-developers/discussions/519