OKG Research: Dilemmas and Breakthroughs in the Current State of Ethereum L2 and the Rise of New L1

Author: Samuel QIN, OKG Research

"What happened to Ethereum?" This topic has been frequently mentioned in recent industry events, and there are many voices shorting the market. From being a hotbed of innovative applications in the crypto industry to a barren land, Ethereum seems to be disconnecting from industry trends and past values. From the glory of DeFi Summer, the issue of Ethereum's scalability has always shadowed it, with high transaction fees and congestion becoming increasingly apparent, raising urgent demands for public chain scalability.

*OKG Research, Data source: Ethereum Gas Consumption from 200101～241024 from https://www.oklink.com/data/ Since the emergence of the two major scalability factions, OP and ZK, around Ethereum, leveraging the Ethereum main chain to ensure their own security, the data from several major Layer 2 public chains shows a significant improvement in TPS and a notable decrease in L2 transaction costs.

*OKG Research, Data Source: https://l2beat.com/scaling/activity *OKG Research, Graph Source: https://www.growthepie.xyz/fundamentals/transaction-costs However, the two mainstream scalability routes have not truly driven a large-scale increase in Ethereum users, with daily active users stabilizing from 2021 to 2024. Conversely, reliance on L2 has further fragmented liquidity, leading to a greater separation of users within the Ethereum ecosystem. Some L2s, supported by specific tracks, have absorbed more ecosystem users, and competition with the main chain has become increasingly evident.

*OKG Research, Data Source: https://tokenterminal.com/ Active Users from 240101~241031 This competition has also intensified the disconnection of interests between L2 and the mainnet. Before the deployment of EIP 4844, L2s needed to send transaction data to the main chain in the form of call data for permanent storage, which required paying high gas fees to Ethereum, accounting for about 70-80% of the total L2 payment fees. After the launch of EIP 4844, transaction data only needs to be stored in blobs carried by blocks and can be automatically deleted after a verification period, significantly reducing storage costs.

*OKG Research, Graph from https://hackmd.io/@luozhu/SyleCcpti From the chart of Rent Paid to L1, it is evident that the fees L2 needs to pay to Ethereum show a clear downward trend, and since L2 takes on the role of transaction execution, the MEV portion of the revenue cannot be transmitted to the main chain, which clearly weakens the rights of PoS stakers on the main chain due to the reduced fees. *OKG Research, Data Source: http://growthepie.xyz Rent Paid to L1 Moreover, in terms of transaction finality, interoperability among different types of L2s is very weak, and interactions often need to be realized through the Ethereum main chain, which keeps the friction costs of user inter-chain interactions high and limits user experience. This seems to have lost the original vision of using L2 for Ethereum expansion, instead exacerbating the separation among L2s. Although there have been significant improvements in scalability and transaction costs, the liquidity of L2 networks is fragmented across multiple sub-networks, resulting in high friction costs for users transferring funds between various L2s. Various L2s need to replicate and paste existing narratives and applications of Ethereum, lacking truly "breakthrough" new tracks that can attract entirely new user groups.

New public chains can avoid this situation through their own technical architecture design. Compared to existing L2 solutions, new L1 public chains can better address the performance bottlenecks currently faced by public chains through new consensus mechanisms, modular designs, and optimizations for user experience, such as Aptos and Sui.

These Layer 1 public chains enhance not only their scalability capabilities but also reduce on-chain interaction costs through unique consensus algorithms and high-performance node networks. They also attempt to attract users from different public chain ecosystems with high cross-chain compatibility, supporting more application scenarios. Especially for consumer-grade applications, they aim to integrate more diverse consumer application scenarios rather than just focusing on financial scenarios. These new features will help promote the popularization of blockchain technology and drive more industry participation.

However, new L1s need to quickly establish their own developer communities and user bases, which often requires substantial marketing and incentive measures, increasing initial costs. They also face pressure to build developer ecosystems and user communities, needing to balance on-chain performance, decentralization levels, and security levels, as issues like downtime and block halting are also engineering tests that need to be faced.

With the competing development of L2s and new L1 public chains accelerating the expansion of the public chain ecosystem, users urgently need an aggregated "portal" to quickly access the Web3 network. However, as previously mentioned, the different technical architectures adopted by various chains require strong technical backgrounds to provide technical analysis and access services for different chains.

In the future, cross-chain migration and aggregation will become the norm in the blockchain industry, allowing users to obtain better interaction experiences and transaction security among more choices.

As a data-driven on-chain world, multi-chain browsers are essential tools for industry participants to gain insights into the on-chain world, which need to encompass different dimensions of industry participants such as project parties, developers, and end users. However, the monetization methods of general ecological browsers are limited and somewhat dependent on the support of ecological foundations, and the positioning of the ecosystem also determines that ordinary ecological browsers are often single-chain in form. Ecological browsers can help users explore vertically to a certain extent, but with the increasing number of public chains, the lack of platforms that can horizontally aggregate multi-chain data clearly fails to meet current user needs.

Looking at the current multi-chain browsers, their presentation forms tend to focus on individual displays, and users cannot intelligently locate which public chain they are on through simple address searches. This leads to the separation of on-chain data presentation, making it impossible to aggregate relevant information through a unified platform. The friction costs of switching also require users to manage account information distributed across various platforms, making it difficult to accurately aggregate discrete on-chain information.

At the same time, there is an urgent need for highly modular technical architectures tailored to mainstream public chain ecosystems (EVM-compatible chains, Cosmos ecosystem chains, UTXO, etc.); combining user needs and market hotspots, more customized heterogeneous linkages are also urgently needed. However, considering the technical costs of public chain access, there is a certain hierarchy of importance among different on-chain data.

The OKX Web3 Explorer, as a representative of aggregated multi-chain browsers, is attempting to aggregate multi-chain information. By combining its positioning with the joint development of various industry ecosystems, it provides open and equal access to various public chains, allowing users to access data from over 50 public chains through a single account and portal, significantly reducing the burden on users in aggregating multi-chain information.

The integrated entry is also the best way to broadly reach active users. By providing users with basic information about each chain, it can stimulate users' curiosity to some extent, encouraging them to try switching between diverse public chain ecosystems and promoting the integration of liquidity and ecological applications across different ecosystems.

In the long run, the trend of multi-chain integration will promote technological advancement and application expansion in the blockchain industry, fostering the development of an open and collaborative ecosystem. This will not only facilitate users' exploration in Web3 but also lay a solid foundation for a more open and inclusive on-chain world overall.