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 or benefit distribution has been the root of all social problems since ancient times, and this holds true in the real world as well as in the blockchain world.

From this perspective, the so-called L2 liquidity segmentation issue is essentially about insufficient traffic and uneven distribution. The so-called L2 parasitism issue is fundamentally about L2's current lack of blood production capacity and its inability to feed back to the mainnet while selectively lying flat.

From an economic perspective, the cost side of L2 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 L2, while the mainnet focuses on security and data availability, continuously upgrading to reduce costs.

The positive cycle of this economic model relies on L2s being able to attract more users through their own ecosystem construction, thereby forming a larger scale economy to feed back to 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 considering the economic model and the distribution of benefits, 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 L2 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 the money must be divided. This type is often seen among tireless PUA users, who after taking advantage directly lay their cards on the table, regardless of criticism, as long as the money is in hand, such as Scroll.
Self-reliant and strong 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 the lion's 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 may not necessarily value your traffic, but I need to borrow your road. For example, Sony's Soneium.

As analyzed in our article "L2 in Data: Stalled Growth, Elimination Race Begins," L2 itself has not been disproven. The current real dilemma is due to the poor external environment, the stagnation of the Ethereum mainnet narrative, and the overdraft of user trust by the aforementioned lying-flat L2s. When these factors are combined, especially when the majority of L2s are purely "following the trend and lying flat," merely sucking blood from the mainnet without any build mentality, then criticizing parasitism is not an overstatement. 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 make 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 the cornerstone of the blockchain world. The dilemma of L2 is merely a turning point in the history of development. From a longer-term perspective, these follow-the-trend and lie-flat 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 merely 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 on-chain DEX market, twice that of the second place, with an annual trading volume close to $700 billion on Ethereum. The development challenges Uniswap faces are expanding market position and share, and increasing protocol revenue and token value. The solution to these two problems lies in how to enhance user trading experience, save trading costs, and further strengthen competitiveness.

From the composition of trading costs, the main variables and corresponding beneficiaries are as follows.

Roughly speaking, traders pay an average cost of about 60 basis points. Based on an average trading volume of $700 billion, the annual cost from this alone is about $4.2 billion.

If you are a UniSwap and UNI token holder, naturally, you would have two thoughts: 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 project choices become quite clear. Unichain specifically aims to achieve the above goals through the following methods:

Instant Transactions: Overall built on the Op Stack, and in collaboration with Flashbots, a feature called Verifiable Block Building has been developed. This mainly involves further dividing a block into four sub-blocks (Flashblocks), thereby accelerating state updates and shortening effective block time, with the overall block time reduced 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.
Lower Costs and More 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 validation 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 the entire transaction execution process is placed on Unichain, significantly reducing transaction costs.
Cross-chain Liquidity: At this level, Uniswap is practicing "intention-centered" interaction construction. In other words, through an 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 allows for seamless cross-chain operations, effectively reducing liquidity segmentation and risks associated with manual operations.

Overall, as the leader, Uniswap's launch of Unichain not only demonstrates its understanding of technology but also highlights its ambition to become the liquidity center of DeFi across the chain, 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 also sent several executives to take positions, especially with Paradigm's CEO serving as chairman and CTO as CEO, indicating significant attention.

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 the upcoming Ethereum upgrades, Pectra and Fusaka, into Odyssey, mainly to achieve account abstraction, improved operational efficiency, and reduced Gas costs.

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

As Ithaca claims, Odyssey indeed has a taste of a future L2, not only incorporating many functions from Ethereum's roadmap in advance but also allowing for early experiences of a series of functions like account abstraction. 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.

As an established public chain, Fantom's main technical foundation is based on an improved version of DAG (Directed Acyclic Graph) and the advanced aBFT (Asynchronous Byzantine Fault Tolerance) consensus mechanism Lachesis, originally used to solve the blockchain trilemma. Due to this mechanism, Fantom's main characteristics are high speed and cost advantages. In 2019, it launched the EVM-compatible Opera mainnet, and due to these characteristics, Fantom became a hot topic during the subsequent DeFi frenzy, especially with the involvement of DeFi leader Andre Cronje, which brought Fantom to its peak. However, things did not go as planned. 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 an influential figure in the DeFi era; on the other hand, Ethereum's scalability and performance indeed have significant room for improvement. AC claims that Sonic will become a presence that surpasses parallel EVMs. Specifically, the main upgrades include:

Introduction of 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 storage solution change is akin to the virtual memory of an operating system, with overall RPC storage costs decreasing by nearly 90%.
Consensus Mechanism Upgrade: Further optimizations have been made based 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 already 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. Currently, after more than half a month of development, the ecological projects have begun to take 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 migrate accordingly.

From the project's vision, it mainly 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 functions similar to Story Protocol to protect creators' intellectual property. Considering Sony's strong presence in the gaming sector, such a strategic plan is not surprising, but the market's excitement lies in traditional tech giants like Sony venturing into the crypto industry, which fills the market with anticipation.

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 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 true gold is revealed through the sifting of sand; application breakthroughs are the future!

As mentioned at the beginning of this article, the current Ethereum coin price is weak, the ecological narrative is lacking, and liquidity segmentation is a real issue, especially with the continued sluggishness of the coin price, which exacerbates negative feedback in the market. However, even so, it is clear that the newly entered L2s still need to rely on Ethereum, this 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, a transformation around value distribution is indeed taking place. The newly entered 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 are more focused on how to carve out a larger piece of the pie amid the current existing dilemmas.

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

For many lying-flat L2s, whether these new entrants are catfish or sharks, or merely a piece of fish meat, remains unclear in the current environment. If we look at the longer history of humanity, no great endeavor escapes the cyclical laws. The process of rising again from a long trough must undergo the test of refining through fire, but no one knows whether today's market stars will still have a voice in the next cycle. What we can be sure of is that elimination will not stop, and development will not stagnate.

Related tags

Layer2 Odyssey Unichain Ethereum

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