Another wave of traditional giants Layer2 new chain narrative: catfish effect or fleeting moment?

1. What is the Fundamental Issue

Parasitism and symbiosis are not contradictory; the essence is the dilemma of development.

The South Korean film "Parasite" sparked a huge global discussion upon its release because it revealed one of the deepest mysteries of human society: the boundaries of human nature depend on the boundaries of wealth distribution. The issue of wealth distribution or benefit distribution has been the root of all social problems since ancient times; this holds true in the real world and remains so in the blockchain world.

From this perspective, the so-called L2 liquidity fragmentation issue is essentially about insufficient traffic and uneven distribution. The so-called parasitic problem of L2s is fundamentally that L2s currently lack the ability to generate value and cannot feed back into the mainnet while selectively lying flat.

From an economic perspective, the cost side of L2s mainly consists of fees paid to the mainnet for settlement operations, and the other is the cost of renting Blob space; the revenue side mainly comes from users paying Gas. In this economic model, it is equivalent to the Ethereum mainnet outsourcing the execution of transactions to L2s, while the mainnet focuses on security and data availability, continuously upgrading to reduce costs.

The positive cycle of this economic model is based on L2s being able to attract more users through their own ecological construction, thereby forming a larger scale economy to feed back into the mainnet. The reality is that, apart from a few strong L2s, most active users have not only failed to increase but have gradually fallen into stagnation.

Further contemplating from the perspective of economic models and benefit distribution, it is not difficult to understand why so many L2s are rushing into this track. Behind any commercial behavior, there must be clear profit demands, whether it is on-chain margin or the huge traffic built by Ethereum, or the wealth effect after issuing tokens, all of which make this business highly attractive. However, how to view profits divides these L2s into different types, mainly as follows:

Follow-the-Trend and Lie Flat Type: Since the entry threshold for L2s is low and I can share a piece of the pie, why not participate? If the narrative fails, it’s the mainnet's fault, not mine, but I must get my share of the money. This type is often seen among tireless PUA users, who after taking advantage, directly reveal their cards, and you can scold them as much as you want; the money is in hand, like Scroll.
Self-Reliant Type: I am strong enough; I want to share this pie, but the mainnet is not strong enough. The money I earn, I cannot take a large share; if I cannot compete with you, then I will do it myself. For example, Optimism and Unichain.
Finding a New Path Type: I bring my own traffic; I do not necessarily care about your traffic, but I need to borrow your road. For example, Sony's Soneium.

As we analyzed in the article "L2 in Data: The Sudden Halt of Growth, the Elimination Race Begins," L2s themselves have not been disproven. The current real dilemma they face is due to the unfavorable external environment, the stagnation of the Ethereum mainnet narrative, and the overdrawn trust from users by the aforementioned follow-the-trend L2s. When these factors are combined, especially when the majority of L2s are purely "following the trend and lying flat," only sucking blood from the mainnet without any building mentality, then criticizing parasitism is not an exaggeration. More critically, such L2s occupy the vast majority, just like the gut microbiome in the human body; when your immunity is strong enough, an imbalanced microbiome cannot stir up waves, but once you become weak, it becomes the last grain of dust that crushes you.

We need not deny Ethereum's current weakness, but we cannot doubt Ethereum's long-term future as a pillar of the blockchain world. The dilemma of L2s is merely a turning point in the history of development. From a longer-term perspective, these follow-the-trend L2s are likely to become the ruins of blockchain, while the Ethereum ecosystem must undergo a process of sifting through the sand to be reborn.

Therefore, from the above analysis, we can have a more objective perspective to view this divergence: parasitism is just the status quo, while symbiosis is the true future. Looking at the problem from a developmental perspective, the newly entered L2s may not be a bad thing; they are more likely to be catalysts for accelerating elimination or adjustment and transformation.

2. Newly Entered L2s

Each has its own ambitions, but the central idea is user experience and applications.

2.1 Unichain

Recently, the most talked-about L2 is undoubtedly Unichain, launched by the DeFi leader Uniswap, which has received both criticism and praise. However, as analyzed above, for a native DeFi leader that already brings its own traffic, creating its own L2 makes complete commercial sense.

As the largest DeFi on-chain, Uniswap currently has over 1 million daily active users. In terms of trading volume, it accounts for over 40% of the largest DEX on-chain, which is twice that of the second place, with an annual trading volume close to $700 billion on Ethereum. For Uniswap, the development challenges it faces are expanding market position and share, and increasing protocol revenue and token value. The solution to these two issues lies in how to enhance the user trading experience, save trading costs, and further strengthen competitiveness.

From the composition of trading fees, there are several main variables and corresponding beneficiaries.

Roughly speaking, traders pay an average cost of about 60 basis points. Based on an average trading volume of $700 billion, the fees alone amount to approximately $4.2 billion annually.

If you are a UniSwap and UNI token holder, naturally, two thoughts will arise: can the $4 billion a year be shared with UNI token holders instead of Ethereum stakers? Additionally, can the fees be lowered further to continue expanding the scale? Following this line of thought, Unichain was naturally born. Analyzing the problem from the perspective of interests, many projects will see this quite clearly. Unichain specifically achieves the above goals through the following methods:

Instant Trading: Overall built on the Op Stack, and developed a feature called Verifiable Block Building in collaboration with Flashbots. This mainly divides a block into four sub-blocks (Flashblocks), further accelerating state updates and shortening effective block time, reducing overall block time to 0.25 seconds. At the same time, Unichain uses TEE (Trusted Execution Environment) to separate sorting and block building, allowing for prioritized sorting while taxing MEV and internalizing MEV revenue. The combination of TEE and Flashblocks effectively balances transaction speed and security, but it also places higher demands on the network and technology.
Reducing Costs and Greater Decentralization: Unichain's verification network is composed of a decentralized network of node operators. To become a validator, one must stake UNI tokens and receive rewards based on the amount staked. Each block verification will be selected based on UNI staking weight. In other words, Unichain mainly utilizes the combination of centralized verification and verifiable blocks to further achieve sorting transparency, while executing transactions on Unichain can significantly reduce transaction costs.
Cross-Chain Liquidity: At this level, Uniswap is practicing "intention-centered" interaction construction. In other words, through the intention model, user needs are directly converted into intentions, and the system autonomously selects paths to execute, completing the entire cross-chain interaction. Intention-centered truly enables seamless cross-chain operations, effectively reducing liquidity fragmentation and risks associated with manual operations.

In summary, as a leader, Uniswap's launch of Unichain not only demonstrates its understanding of technology but also highlights its ambition to become the liquidity center of the entire chain DeFi, while further enhancing its value capture ability and the value of UNI tokens.

2.2 Ithaca

On October 11, Paradigm announced a $20 million investment in Ithaca, dedicated to building a Layer 2 blockchain called Odyssey. They have sent several executives to take positions, particularly with Paradigm's CEO serving as chairman and CTO as CEO, indicating significant attention to the project.

Odyssey is built on Reth, OP Stack, and Conduit. Reth is an Ethereum execution node client launched by Paradigm, characterized by being written in Rust, which offers good memory safety and concurrency performance. Odyssey is built using the Reth SDK, meaning that the use of this library will give Odyssey high throughput and low write latency, along with greater scalability. Additionally, another relatively notable feature is that it directly incorporates Ethereum's upcoming upgrades, Pectra and Fusaka, into Odyssey, mainly to achieve account abstraction, improved operational efficiency, and reduced Gas costs.

On this basis, in terms of user experience, users can directly create wallets using existing Google or Apple key tools; they can log in to use the testnet without needing a wallet, Gas tokens, bridges, or RPC prerequisites.

As Ithaca claims, Odyssey indeed has a flavor of a future L2, not only incorporating many features from Ethereum's roadmap in advance but also allowing users to experience a series of functionalities like account abstraction ahead of time. From this perspective, it reflects Paradigm's ambition to accelerate the development of the entire Ethereum ecosystem, attracting participation from the ecosystem and users, especially early involvement from developers.

2.3 Sonic

In August of this year, Fantom officially announced its rebranding to Sonic Labs and introduced the S token. The token will be used for airdrops, staking, incentive programs, and more.

Fantom, as an established public chain, is primarily based on an advanced aBFT (asynchronous Byzantine Fault Tolerance) consensus mechanism called Lachesis, which is an improved version of DAG (Directed Acyclic Graph) designed to solve the blockchain trilemma. Due to this mechanism, Fantom is characterized by high speed and cost advantages. In 2019, it launched the EVM-compatible Opera mainnet, and due to this feature, Fantom became a hotspot during the subsequent DeFi frenzy, especially with the involvement of DeFi leader Andre Cronje, which brought Fantom to its peak. However, with Andre Cronje's exit, not only did the token price plummet, but the emergence of newer competitors like Solana with more impressive technology further suppressed Fantom's development.

This major technological upgrade of Fantom has attracted market attention, partly due to the traffic effect brought by Andre Cronje's return, as he is a significant figure in the DeFi era; on the other hand, there is indeed considerable room for improvement in Ethereum's scalability and performance. AC claims that Sonic will surpass parallel EVMs. Specifically, the upgrades include:

Introducing a New Fantom Virtual Machine (FVM): This mainly involves converting EVM bytecode into FVM format while compressing data through parallel processing, significantly reducing execution time.
Carmen Data Storage Solution: Previously, smart contract state data on Fantom was stored in StateDB, with EVM executing these contracts and updating the database. This upgrade has redesigned the database, adding an indexing system, and it no longer uses RPL encoding and MPT pruning, saving both time and space. The change in the storage solution is akin to the virtual memory of an operating system, resulting in an overall RPC storage cost reduction of nearly 90%.
Consensus Mechanism Upgrade: Further optimizations have been made on the original Lachesis, reducing redundant information, improving decision-making efficiency, and further shortening transaction confirmation times.

According to the test data provided by Michael Kong during his speech, it can handle an average of 4,500 transactions per second, an 8-fold increase, with block space usage reduced by 98%. Theoretically, it can process 400 million transactions daily, about four times the current transaction volume of VISA.

If the Sonic upgrade truly reflects the experimental data, from the perspective of the Ethereum ecosystem, it will become an L2 with high concurrency and top TPS, surpassing most L2 projects. Additionally, the foundation will establish an incubator through Sonic Lab, investing heavily to support ecological projects, with over 300 projects currently in the pipeline. If subsequent operations are handled well, the overall development momentum is worth looking forward to.

2.4 Soneium

Soneium is the Ethereum L2 launched by tech giant Sony, primarily built on the Op Stack and will also join Optimism's Superchain network.

From the limited information available, the overall architecture is expected to be similar to Optimism, with DA mainly relying on the Ethereum mainnet, but indexing may be primarily controlled by the project team, while execution and settlement details remain unclear. After more than half a month of development, the ecological projects have already taken shape, with over 60 projects, and the cooperating applications will focus on entertainment, Web3 gaming, and NFT services. Additionally, due to Sony's prior collaboration with Astar Network, it is expected that Astar zkEVM will transition to Soneium, and the token will also be migrated accordingly.

From the project's long-term vision, it aims to leverage Sony's global distribution channels and capabilities in Web2 to bridge Web2 and Web3. It is also relatively clear that Soneium plans to develop functionalities similar to Story Protocol to protect creators' intellectual property. Considering Sony's significant presence in the gaming industry, such a strategic plan is not surprising, but the market is excited about traditional tech giants like Sony entering the crypto industry, which has generated high expectations.

Currently, the testnet data is growing rapidly, with the cumulative wallet addresses exceeding 2.2 million and a total of 14 million transactions processed, indicating a considerable overall data growth.

Overall, this is an attempt by a traditional giant, and the testnet data reflects market expectations, but it remains unclear whether there are plans for token issuance and a specific roadmap in the future.

3. Summary and Outlook

The real gold is seen in the sand; application breakthroughs are the future!

As mentioned at the beginning of this article, the current Ethereum price is weak, the ecological narrative is lacking, and issues like liquidity fragmentation do exist, especially the continuous decline in price exacerbates negative feedback in the market. However, even so, it is evident that the newly entered L2s still need to rely on Ethereum as a big tree.

From the product layout and intentions of these newly entered L2s, we can roughly see an important trend: while there may be divergence in the re-evaluation of Ethereum's value, changes surrounding value distribution are indeed occurring. The new L2s either possess disruptive technological strength, have their own traffic support, or have high potential in linking Web2 scenarios. They do not intend to replace Ethereum but rather consider how to gain a larger share of the pie through their own strengths in the current existing dilemma.

This may also represent a breakthrough method for the Ethereum L2 ecosystem. Projects need to have particularly outstanding advantages in technology, traffic, or ecology; otherwise, they will hardly stir up any waves in the market. Additionally, from the focus of these projects, a clear trend is that new projects are more inclined to develop application products with better user experiences rather than simply emphasizing the foundational role of infrastructure. This is significant given the current overabundance of infrastructure in Ethereum.

For many lying flat L2s, whether these newcomers are catfish or sharks, or merely a piece of fish meat, remains unclear in the current environment. Looking at the longer history of humanity, no great undertaking escapes the cyclical laws; the process of rising from a long trough to the peak must undergo the test of refining through fire. However, no one knows whether today's market stars will still have a voice in the next cycle. What we can be certain of is that elimination will not stop, and development will not stagnate.

Related tags

Layer2 Odyssey Unichain Ethereum

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