Ethereum News

Scaling a $500Bn+ Ecosystem: Enterprise Use Instances for Ethereum Layer 2 Options

Written by James Smith

 

By Andreas Freund, EEA Mainnet Curiosity Group Member

There are new, thrilling, never-before-possible enterprise use circumstances for L2 options assembly enterprise safety, privateness, and compliance necessities whereas nonetheless leveraging Ethereum Mainnet’s safety assurances, and connecting to the colourful Ethereum ecosystem starting from monetary providers to produce chain to rewards packages. Whereas it’s early within the innovation cycle, the alternatives are actual, massive, and have short-term realizable ROI.

Enterprise Layer 2 and Scalability Options Use Instances

The everyday Blockchain/DLT use circumstances of enterprises fall into one among two classes: monetary providers and provide chain. Many enterprise tasks have applied options in these two areas. Nonetheless, these have been virtually solely on personal blockchains and never Ethereum Mainnet.

The 2 main issues of enterprises in adopting the Ethereum Mainnet have been each transaction scalability and privateness. Each of those can now be addressed with Layer 2 options reminiscent of zk-zk Rollups or zk-Optimistic Rollups or extra interoperable Sidechains as was mentioned intimately within the previous blog post.

This implies the next, high-volume, full privacy-preserving enterprise use circumstances change into now viable:

  • Digital Asset Exchanges
  • Funds or Digital Asset Transfers
  • Digital Asset Funds
  • Digital Rewards Packages
  • World Provide Chain Traceability

We are going to talk about these in additional element under. There are, after all, extra enterprise use circumstances reminiscent of high-volume, ultra-short-term Insurance coverage Merchandise Platforms, Digital Gaming Platforms enabling Play-to-Earn models and stopping on-line gaming fraud, or privacy-preserving federated machine studying (ML) platforms to create unbiased ML fashions.

Digital Asset Exchanges

Unsurprisingly, digital asset exchanges for fungible and non-fungible tokens (NFTs) and their complicated composites are usually not solely the primary use case for public scalability options on Ethereum

Mainnet but additionally enterprises with a deal with:

  • Excessive-Frequency Buying and selling, the present bread-and-butter of conventional exchanges.
  • Secondary asset markets that historically have been very illiquid or onerous to handle, reminiscent of by-product markets of debt devices reminiscent of Credit score Default Swaps or Repurchasing agreements
  • Over-The-Counter buying and selling of illiquid belongings reminiscent of various funding autos, together with Fund of Funds, Oil and Gasoline futures, andReal Property Funding Trusts
  • Actual-time audit reporting for the end-to-end commerce lifecycle from pre-trade to post-trade compliance, for instance, whereas preserving privateness however not compromising the correctness of the audit

Funds or Digital Asset Transfers

Much like Digital Asset Exchanges, funds have been a spotlight for each public and enterprise tasks from the start. The massive benefit of L2 and different scalability options in comparison with conventional fee rails reminiscent of VISA, SWIFT or ACH will not be primarily in conventional funds however moderately in:

  • Micropayments for digital providers reminiscent of streaming or knowledge connectivity providers and Particular person-to-Particular person transactions in rising economies utilizing SMS funds on cell units
  • Machine-to-Machine funds of autonomous brokers reminiscent of autonomous autos which were delegated funds by their proprietor and might management them to make or obtain funds on behalf of the delegatee to pay congestion charges, usage-based insurance coverage, or being issued digital belongings reminiscent of carbon credit for the avoidance of CO2 emissions.

In these purposes, L2 can present the extra advantages of privateness preservation whereas enabling full regulatory compliance with KYC or AML guidelines.

Digital Asset Funds

Conventional asset funds reminiscent of Mutual Funds or Cash Market Funds have important regulatory compliance necessities starting from consumer funding suitability necessities, to fund allocation limits and asset class restrictions to stop-loss necessities based mostly on the respective official funding prospectus. Massive funds have, subsequently, important operational prices to provably adjust to all regulatory necessities whereas preserving buyer privateness. Layer 2 options, particularly zk-zk Rollups with their recursive zk proofs, will help alleviate these points by:

  • Enabling full Fund audits by anybody, anytime, in real-time based mostly on the onchain recursive zk-proofs,
  • Making it unattainable for the Fund to cheat since all zk-proofs have to be validated earlier than being finalized onchain,
  • Enabling traders to maneuver forwards and backwards between conventional and crypto belongings, or crypto representations of conventional belongings by means of representing conventional belongings with their zk-proofs onchain and vice versa.

These might be achieved whereas sustaining full confidentiality by means of the very nature of the zk-proofs.

Digital Rewards Packages

Digital client rewards within the type of loyalty factors or rewards collectibles are steadily rising in recognition, though they’re presently cumbersome to manage for enterprises, and likewise increasingly require interoperability between loyalty packages as enterprises companion with one another and let shoppers switch rewards between packages. The necessities for these packages are sometimes a mix of Digital Asset Exchanges, Digital Asset Transfers, and Digital Asset funds we simply mentioned. Due to this fact, and given the big transaction quantity globally inside and throughout rewards packages along with the stringent privateness necessities arising globally such because the EU’s GDPR, L2, or different scalability options are eminently suited to scale and allow real-time interoperability by means of exchanges of Digital Rewards packages.

Synchronizing Programs of Data between Enterprises at Scale

B2B transactions have historically been fraught with points round knowledge synchronicity between two programs of file as a result of there isn’t a assure that contract phrases are correctly represented in an ERP system — addresses, product numbers, or fee phrases come to thoughts — or that the historical past of business transactions (Orders, Invoices, Credit score Memos, and so on.) are precisely mirrored in each ERP programs — incorrect tax calculations or incorrect software of quantity reductions to pricing are classics. These points result in a whole lot of billions of {dollars} in alternative prices yearly throughout the almost three trillion B2B transactions a 12 months globally. Bigger organizations with 1000’s or tens of 1000’s of enterprise relationships globally not solely have the headache of the chance prices but additionally the problem of sustaining one-to-one integrations between many programs of file, usually with arcane know-how.

By way of design patterns and protocols reminiscent of Baseline, L2, and different scalability options that help each complicated EVM-type good contract logic aligned with the enterprise guidelines round industrial paperwork reminiscent of Orders and Invoices and privateness preservation by means of zk-proofs are:

  • Enabling the synchronization of programs of file by imposing knowledge consistency by means of zk-proofs that may solely be generated appropriately if the submitted industrial paperwork adjust to the related enterprise guidelines and knowledge encoded into its zk prover programs’ program circuits,
  • Enabling full B2B transaction audits by anybody, anytime, in real-time based mostly on onchain recursive zk-proofs,
  • Making it just about unattainable for counterparties to cheat since all zk-proofs have to be validated earlier than being finalized on-chain, whereas
  • Sustaining full confidentiality by means of the very nature of the zk-proofs

World Provide Chain Traceability

Lastly, world provide chains have all the time been a spotlight of blockchain tasks, and a few packages have gone into manufacturing reminiscent of Meals Belief, Marco Polo, Commerce Lens, or the Morpheus Community. But these have primarily been on personal networks, regardless of some notable exceptions reminiscent of Morpheus. Nonetheless, with the problem of the G7 to digitize global supply chains within 18 months, the ever-increasing stream of small bundle imports from overseas by means of on-line retail platforms, and the necessity for customs group to have visibility into provide chains even earlier than a product is ordered, often known as “Intent to Import”, are creating important transformation pressures. On the one hand, there’s a must create transparency, whereas then again not revealing business-sensitive info, not just for particular person transactions however for all provide chains and their intersections. For instance, a shipper importing items right into a harbor in containers involving not solely customs but additionally a number of importers for every merchandise within the containers.

Once more, L2 or different scalability options that help each complicated EVM-type good contract logic and privateness preservation by means of zk-proofs are:

  • Enabling full provide chain audits by anybody, anytime, in real-time based mostly on onchain recursive zk-proofs,
  • Making it very troublesome for the availability chain contributors to cheat since all zk-proofs have to be validated earlier than being finalized onchain and their predicates — a.ok.a. statements of information — are public, whereas

Sustaining full confidentiality by means of the very nature of the zk-proofs.

What does this imply for Enterprises?

Now, for the primary time, enterprises have the chance to mix one of the best of each worlds — purposes that meet enterprise safety, privateness, and compliance necessities whereas additionally having fun with the improved financial safety assurances and digital asset community results of Ethereum Mainnet. Despite the fact that the know-how remains to be quickly evolving, and the underlying cryptography remains to be “younger” by enterprise requirements, enterprises are suggested to get “into the motion” now. Why? To benefit from new DeFi alternatives to drive net-new income reminiscent of constructing enterprise applicable and regulatory compliant merchandise from these new asset courses, or mixing and matching new and current asset courses into new monetary merchandise at scale, or leveraging the scalability of the brand new L2 options with the improvements of decentralized exchanges’ automated market makers to create concentrated liquidity swimming pools alongside value or premium curves. And, lastly, to collaborate with rising L2 distributors to construct the subsequent iteration of L2 options to “enterprise spec.”

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James Smith

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