The situation escalates, revealing the current state of the Ethereum L2 war

Author: Ceteris

Compiled by: Luffy, Foresight News

Last year, in the report titled "Annual Infrastructure Outlook," I dedicated a chapter to the "L2 Wars," outlining my views on the Rollup space and the trends for the coming year. The main points are as follows:

• Blast is a hybrid of Rollup architecture and will lead to the end of the "kumbaya" era.

• The L2 ecosystem will become more fragmented and isolated, with each L2 launching its own cross-chain/interoperability standards and SDKs to initiate new chains/L3.

• Rollups need to utilize alternative data availability layers (DA) for scaling.

• DA as a source of value accumulation will disappear. DA will experience disruptive innovation, making it unfeasible to charge a premium for DA.

• The new bull market theme for Ethereum is "global proof verification layers and currency."

• The value accumulation of DA layers will be limited.

• If all value converges on the ordering layer, then the value accumulation of L2 tokens is theoretically positive.

The views expressed in this article are outdated. Ethereum has gone through multiple crises, and the points mentioned above have been repeatedly raised and discussed. In fact, you can see a significant portion of the Ethereum community shifting their focus to how to scale L1, rather than transferring value to Rollups.

https://twitter.com/ChainLinkGod/status/1832198208287863174

However, since everyone is paying attention to and discussing this, it is no longer a true "alpha" or contrarian view. So, what do we see today, and what should we do next?

Current State of Rollups

First, let's talk about revenue. What has changed in Ethereum's revenue after EIP-4844? The chart below from Galaxy provides a clear answer: DA is no longer a significant value driver for the Ethereum economy.

Is this entirely bad? No! Ethereum has no choice. As we emphasized, DA has undergone "disruptive innovation," which means charging a premium has become more challenging. While we are confident that Ethereum can still charge higher fees than other DA layers so that Rollups can inherit Ethereum's full security, it remains unclear to what extent Rollups will achieve this. The main benefit of a shared DA layer is interoperability. By sharing a DA layer, cross-chain interactions become more secure, and economies of scale can be achieved in this way. Similarly, while this is a key benefit, no one really knows how much this benefit is worth. Will Rollups pay 10 times the fees of other DA layers? Or 100 times? There is a definite answer to this question; we just don't know what it is.

Therefore, the decrease in Ethereum's DA fee revenue is natural; it has no choice. Now, some people are starting to question Ethereum's Rollup roadmap, represented by Max Resnick and Doug Colkitt.

https://twitter.com/0x doug/status/1831898285130330367

https://twitter.com/MaxResnick1/status/1831764059664085461

Since everyone now agrees on the impact of disruptive innovation in DA on the Ethereum economy, does that mean it is doomed to fail?

The Path Forward for Ethereum

As we mentioned in the annual outlook report, Ethereum's theme now boils down to "global proof verification layers and currency." What does this really mean?

Well, that's not entirely correct, but we do know what it means. Ethereum is the most decentralized and historically established base layer, giving it a competitive advantage in asset issuance and proof verification over all other blockchains. Even if the economic benefits are not as strong, Ethereum remains a premium asset. However, after all execution work is removed, Ethereum will revert to the economic model prior to EIP-1559, where most ETH is recycled.

https://twitter.com/ceterispar1bus/status/1815855290577031247

This is why we are starting to see many people refocusing on L1 scaling and migrating applications back to Ethereum L1. We know that execution on L1 incurs costs. What we don't know is whether the world will adopt ETH as a currency. If every Rollup uses ETH as a currency, it will become a non-state-backed currency used globally, similar to BTC. For me, this is an optimistic and possible outcome; the challenge is whether Vitalik, Justin Drake, you, or I believe that ETH is a currency is largely irrelevant.

Will ETH Become a Global Currency?

We return to the earlier question: why are people trying to scale L1 again and increase L1 fees? Is this correct? Felipe from Theia believes that if we value L1 tokens solely based on MEV and fees, they will go to zero anyway, so the only thing that can justify their valuation is becoming a "reserve asset for emerging markets," i.e., "currency." I support this view.

https://twitter.com/TheiaResearch/status/1829508309696786700

Finally, Wei Dai believes that for a Rollup-centric roadmap to be economically viable, Ethereum needs to provide network effects for L2, which can be achieved in two ways:

• Providing composability and censorship resistance based on ordering.

• Stronger shared settlement, where assets issued on L2 can also be used on other L2s to eliminate fragmentation.

This is the only way to make Ethereum work in the long term.

https://twitter.com/_weidai/status/1830488020556083533

I believe all of the above points are feasible, but I do not know what the real answer is. There is a viewpoint that if Ethereum refocuses on scaling L1 again, it will only become "a worse Solana," as Ethereum can never compete with Solana in terms of execution on L1. I think no one really knows the outcome; people just believe different things. Ultimately, the market will decide what is valuable.