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For Ethereum, this is a war that cannot be lost.
Original Title: “The Crossroads of Layer 2, the New Public Chain War”
Written by: Deep Wave TechFlow
Is there a definite opportunity for cryptocurrency investment in 2021?
If the answer to this question is yes, then I will give two answers, Layer 2, derivative DEX .
Regarding the logic of investing in Layer 2 and the specific technical solutions, we previously wrote in the article ” Fengqi OMG, who is the king of Layer 2?” There is a special discussion in “, so I won’t repeat it here.
Expansion on the Ethereum chain is not a new issue. After discussing it for many years, it is now time to face the challenge : BSC and Heco and other exchange public chains are in full swing; Polkadot, Solana, Near and other new public chains are ambitious; to L2 The pace of migration is still “thunder and rain are small”…
At the crossroads of Layer 2, we are about to usher in a new public chain war, a war that Ethereum cannot afford to lose.
Layer 2 duo
For a long time, God V has a soft spot for Rollup , ZK Rollup and Optimistic Rollup have become the most watched Layer 2 duo.
Optimistic Rollup, like its name, tends to believe that honest people will submit honest data and will be punished if they are dishonest.
In the design of the architecture, Optimistic Rollup has borrowed heavily from Plasma and ZK Rollup. The overall idea is a modest idea. It does not pursue extreme scalability, but weighs compatibility and allows fully universal smart contracts to be run in Layer 2. .
This is the biggest advantage of Optimistic Rollup, which can be seamlessly compatible with smart contracts on Ethereum, which greatly reduces the workload of developers.
The corresponding disadvantage is that the TPS increase is limited, the withdrawal from the network may be calculated in units of days, and data security is doubtful.
Another Rollup is the ZK Rollup currently preferred by God V.
The advantages and disadvantages of ZK Rollup are exactly the opposite of Optimistic Rollup.
The biggest advantage of ZK Rollup is that it is fast. ZK Rollup uses zero-knowledge proof to achieve data security. When Layer 1 interacts with Layer 2, Layer 1 can easily trust the data from zk Rollup and verify it directly in Layer 1. Quickly complete the transfer.
Correspondingly, the disadvantage of ZK Rollup is that it is difficult to support universal smart contracts. Therefore, it is not friendly to developers. ZK Rollup developers need to independently develop smart contract modules, which is not only difficult, heavy workload, and difficult to replicate and migrate, but This also brings a benefit, when a team actually develops and uses zk Rollup, it proves that they have real technology.
To sum up, the comparison of the two solutions, zk Rollup is fast and safe, but not compatible with smart contracts, which is not friendly to developers; Optimistic Rollup is compatible with smart contracts, which is good for developers, but the TPS is low and efficiency is not high.
Which of the two solutions is better?
In the short term, Optimistic Rollup has a lower threshold, and the universal EVM allows developers to get started quickly, so it is more suitable for current development and use; ZK Rollup has a higher development threshold and is more suitable for areas that require fast payment. In the long run, With the development of ZK-SNARK technology, ZK Rollup has more application scenarios and more stamina.
However, the answer to this question needs to be written by the project team. It is not that whoever has the best technology will win. Layer 2 itself is fragmented. When there are more and more L2 ecological projects, it will also be caused by network effects. The strong are stronger.
At present, all projects have begun to move in teams.
For example, Synthetix and Uniswap decided to use Optimistic Rollup.
In order to incentivize users to migrate to Layer 2, Synthetix has launched an incentive scheme. Users who pledge to Synthetix L2 can receive SNX token rewards.
The much-watched version of Uniswap V3 may also be migrated to Layer 2. Uniswap founder Hayden Adams said on Twitter that V3 will “solve all problems.”
As early as October 2019, Uniswap released a demo (example) of Uniswap + Layer 2. According to the description of the demo, Unipig with Optimistic Rollup solution can achieve basically no gas handling fee, and the throughput has expanded to 200 tx/s, which is equivalent 10 times the efficiency of the main network.
Tether is considering migrating USDT of ERC-20 to Layer 2 of ZK Rollup; derivatives trading platform dYdX uses Starkware’s solution…
A key question, will the development teams of Optimistic and ZK systems issue coins?
Of course, it is only a matter of time. Matter Labs founder Alex Gluchowski has made it clear that he will release the governance token based on ZK Rollup’s two-tier expansion plan zkSync, and Offchain labs and Starkware will follow up.
The latest news is that crypto venture capital fund Andreessen Horowitz (a16z) announced that it will lead a US$25 million Series A financing of Optimism and will launch a public-facing mainnet in March.
There is no doubt that these ace projects have been reserved by the head organization, and the opportunities for ordinary people still lie in the secondary market.
The new public chain war
The concept of Layer 2 is not new , but from the perspective of token performance, the L2 concept of tokens has not been able to have a sustained big market, mostly short-lived. The main reason is that most of L2 still stays in the concept, followed by L2 itself has too many drawbacks, the most criticized is that it will form islands and split the Ethereum ecosystem.
The power of the Ethereum ecosystem is that it has accumulated enough assets. Through the interaction between contracts, various types of DeFi products can be put together like building blocks to stimulate innovation.
The emergence of Layer 2 breaks the composability of Ethereum. Developers are faced with the problem of choosing sides. When different projects are deployed in different Layer 2 projects according to their needs and network, their interaction costs will be greatly increased. In fact, it splits the Ethereum ecology and forms an isolated island.
In the short-term after the project party’s L2 migration, isolated islands are inevitable , but if a certain solution receives widespread support, it will intensify the pace of L2 migration and make users inseparable from L2.
From this perspective, Layer 2 is similar to relying on Ethereum to recreate a public chain ecology. The war of Layer 2 is essentially a public chain war. In general, it presents a three-way melee.
The first is the war within Layer 2. The Optimistic Rollup and ZK Rollup we mentioned earlier, as well as Offchain labs and Starkware will become the protagonists, and grab projects and encourage migration will become the focus.
In order to encourage migration, “liquidity incentive + L2 airdrop” may be the focus of the next stage.
The other camp is the exchange public chain camp headed by Binance Smart Chain (BSC) and Huobi Ecological Chain (Heco). Both benefited from Ethereum’s congestion, undertook Ethereum’s traffic overflow, and compatible with Ethereum EVM. It is developer-friendly, and has exchange listing resources and traffic support… Today, BSC and Heco have become a network ecosystem that cannot be underestimated, and can even be said to be second only to Ethereum.
The current public chain of exchanges can be understood as a new Layer 2.
Finally, there is the new public chain camp, led by Polkadot, Avalanche, Near, Algorand, and Solana. The logic of benefit is the same. Ethereum is no longer the dominant one, and the market needs a new public chain. At the same time, these projects are also Compatible with EVM, it is also grabbing developers and users.
The three forces have internal struggles and external fights. At present, the Layer 2 camp is not as strong as BSC and Heco. Compared to migrating to L2, the migration of projects and users to BSC is now a more obvious trend.
Then, BSC and Heco have traffic, funds, and wealth effects; new public chains such as Polkadot have technology and ecology… Why do you think that Layer 2 is the most certain opportunity this year?
The answer to this question is to trust Ethereum.
Recently, the founder of Polygon (Matic) refuted the claim that Ethereum killers took the opportunity to replace Ethereum in an interview:
Ethereum is the most tested and secure programmable blockchain in the world. As the final settlement layer and source of security, no matter how much money you have, it is difficult to replicate the success of Ethereum, just like the entire digital country. , Are all formed around Ethereum.
EVM has become a global standard virtual machine, and for any competitor, it will take years to achieve this. In addition to technical things, communities and cultures are also uniquely competitive. This is something that is deeply rooted but hard to describe.
For example, some traders on The Defiant’s Discord channel stated that they are using BSC, but when Ethereum’s Layer 2 solution is more widely adopted in DeFi dapps, they plan to return to Ethereum as soon as possible.
At the same time, whether it is BSC or Heco, it is not only a kind of competition, but also a user education for investors to conduct Layer 2 migration.
For Ethereum, this is a war that cannot be lost.
In the years when ETH2.0 is still gestating and Ethereum is congested, Layer 2 is a life-saving straw and is related to the future development of the Ethereum ecosystem.
If L2 succeeds, then the valuation of the Ethereum ecological project will be improved, the story of the exchange public chain and the new public chain and the high valuation logic will be questioned, ETH TO THE MOON, L2 TO THE MOON.
If L2 fails, the public chain dynasty dominated by Ethereum for a long time will collapse, and it will return to the Warring States era-the multi-chain world, and the blockchain world will usher in a new wealth distribution pattern.
Some people expect the former, and some expect the latter, but in 2021, you have to pay attention to Layer 2.