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Scaling a $500Bn+ Ecosystem: Layer 2 and Different Ethereum Scalability Options and Their Present Answer Panorama

Written by James Smith


By Andreas Freund, EEA Mainnet Curiosity Group Member

The next is a present state of the Ethereum scalability ecosystem mini report, which is longer and extra in depth than a typical weblog submit.

Many enterprises have deserted personal Blockchain consortia as a result of a number of elements: the absence of significant community results in personal Blockchain implementations – which are inclined to make them dearer and cumbersome to handle inside a consortium of competing entities than a shared database system – in addition to the dearth of accessibility of the DeFi ecosystem with its new and quickly rising, and, due to this fact, very worthwhile asset courses. Ethereum Layer 2 (L2) scalability options provide a chance to suit the sq. peg of Ethereum Mainnet into the spherical gap of enterprise safety, privateness, and compliance necessities since many L2 options are de facto centralized databases with intelligent cryptography. They’ll additionally present entry to the world of DeFi asset courses, permitting Mainnet community results to spill over to enterprise options by these DeFi asset courses. This makes for a brand new, and symbiotic, relationship between enterprise use circumstances on L2 and the Ethereum Mainnet by each asset and person progress.


A Temporary Introduction to Layer 2 and different Scalability Options for Ethereum

The Ethereum Mainnet has develop into a sufferer of its personal success in that it at present serves as a major bottleneck for the expansion of its ecosystem; community points have arisen as a result of excessive transaction charges and the restricted variety of transactions allowed per block, endangering the financial viability of Ethereum-based protocols, start-ups, and others with sound enterprise fashions. Whereas Eth2, the subsequent model of Ethereum, guarantees a 100x improve in transaction scalability and considerably diminished transaction charges, its rollout remains to be 12 months or extra away. Ethereum scalability challenges must be addressed as we speak if Ethereum needs to retain its management place as the preferred, and most used blockchain community on this planet.

Over the past 2 – 3 years a number of sorts of options have emerged that tackle the scaling and transaction price challenges. What they’ve in frequent is that every one carry out the heavy transaction processing off the Ethereum Mainnet (i.e off-chain) in varied types of centralized or decentralized computing environments, whereas Mainnet is used because the safety and information integrity anchor in varied kinds. These options are what’s colloquially referred to as Layer 2 (L2) as a result of they’re options sitting above the Ethereum Mainnet, additionally also known as Layer 1.

Under is a quick overview of the key scalability answer classes adopted by a quick description of the traits of every answer class:

  • State Channels
  • Sidechains
  • Rollups
    • Optimistic Rollups
    • Zero-Data (zk) Rollups
    • Plasma
    • Validium


Determine 1: L2 Categorizations; Supply: Token Terminal


State Channels

State channels scale the Ethereum Mainnet by performing transactions off-chain through safe channels established between events. They require a person to deposit a snapshot of the newest Ethereum state that the person controls right into a multi-signature good contract; that is analogous to person deposits into fee channels on Bitcoin’s Lightning Community. This snapshot will comprise vital information such because the ETH holdings of an Ethereum tackle at a given time.

State Channels enable for (practically) free off-chain transactions with immediate transaction finality and superior privateness as a result of solely the state channel operator and members within the state channel have visibility into the off-chain transactions. Consider a chess sport the place gamers place an ante to start out the sport. This transaction could be recorded on-chain and opens a channel. Particular person strikes could be signed by every participant throughout the channel. The sport would proceed till a participant leaves or the sport ends, at which level one of many gamers or the sport itself would enchantment to Mainnet for a ruling and payout of the winnings.

State channels are more likely to serve in conditions the place there are excessive site visitors peer-to-peer multi-directional transactions amongst moderately trusted events. Particular person state adjustments will happen inside these channels through signed and safe transactions, with the Mainnet or L2 consensus-based contracts serving to deal with periodic and/or “end-game” reconciliation.



Sidechains are blockchains impartial of the Ethereum Mainnet with their very own consensus fashions, e.g., Proof of Authority (PoA), Proof of Stake (PoS), and state machine mechanisms such because the Ethereum Digital Machine or different architectures. Ethereum transactions will be offloaded to such a sequence in a custodial method, lowering the burden on the Ethereum Mainnet. Relying on the community method with respect to chains (impartial multi-chain vs shared chains), transaction privateness can probably be preserved through gated entry to a sequence.

The actual method every community takes should be evaluated by itself to find out suitability with respect to scalability, safety, and health for goal. Some ecosystem members don’t contemplate sidechains to be true L2 options as they neither inherit adequate safety assurances of Ethereum Mainnet as a result of an absence of onchain transaction information nor present the power to arbitrate disputes on the Ethereum Mainnet. Proponents of Eth-connected chain-based networks will argue that their Proof of Stake consensus fashions and validator fashions are as rigorous as Eth2 (which additionally makes use of a Proof of Stake mannequin) and that their operational ties with Ethereum (within the type of community contracts working on Ethereum) present adequate safety and transparency in an Eth-native type.

We are going to define varied chain-based approaches beneath once we survey the scalability panorama.



Rollups are much like superior, non-custodial sidechains that obtain excessive transaction throughput whereas inheriting the safety assurances of the Ethereum Mainnet. Rollups usually fall into certainly one of 4 fundamental classes: Optimistic rollups, zk-Rollups, Plasma, and Validium.

Rollups are options that carry out transaction execution outdoors the primary Ethereum chain, however submit transaction information on Layer 1. As transaction information is on Layer 1, this permits rollups to be secured by Layer 1. Inheriting most safety properties of Layer 1, whereas performing execution outdoors of Layer 1, is a defining attribute of rollups.

Three simplified properties of rollups are

  1. Transaction execution outdoors Layer 1
  2. Information or proof of transactions is on Layer 1
  3. A rollup good contract in Layer 1 that may implement right transaction execution on layer 2 by utilizing the transaction information on Layer 1

Some rollups require “operators” to stake a bond within the rollup contract. This incentivizes operators to confirm and execute transactions appropriately. (Layer 2 Rollups,,

Nevertheless, “Operators” have the facility to censor transactions, if the operator-model is just not sufficiently decentralized as Mainnet is. The determine beneath organizes these classes relying on whether or not they deal with information storage on-chain or off-chain, and whether or not computational correctness is enforced by zero-knowledge validity proofs or user-deposit-slashing fraud proofs.


Determine 2: L2 Rollup Classes; Supply:


One other differentiation between rollup options is with respect to the place computation takes place and when finality happens. For instance, the computation for ZK Validity Proofs takes place through a third-party operator (or validator, or sequencer) whose main operate is to bundle transactions and submit batches of transactions to the Mainnet. These batches comprise minimal however adequate info to show the validity of the transactions. The computation of the transactions is dealt with previous to submission to L1 and finality happens as soon as validated by the L1 (or after the passage of adequate L1 blocks because the rollup would possibly dictate).

Optimistic Rollups additionally compute the transactions off-chain as zk-rollups however not in zero-knowledge and so they depend on a contest process and contest interval inside which to abrogate to the Mainnet the choice as as to if a contested transaction is legitimate or not. As with ZK Validity Proofs, operators of Optimistic Rollups are more likely to stake or be bonded such that if an operator submits a fraudulent transaction to the primary Ethereum chain, their stake is slashed.

Be aware that Rollups generally don’t provide privateness to their customers. Nevertheless, new options are rising, each Optimistic (zk Optimistic) and zk Rollups (zk-zk Rollup), that do protect the privateness of their customers. These options will likely be mentioned within the subsequent part. Additionally, notice that zk-Optimistic Rollups have worse efficiency traits than Optimistic Rollups as a result of every transaction within the rollup block is way bigger than within the case of Optimistic Rollups, and Ethereum blocks are space-constrained by the block gasoline restrict; a trade-off between privateness and efficiency. Then again, zk-zk Rollups have related efficiency traits as zk Rollups due to a intelligent utilization of cryptography that permits the usage of recursive zk proofs which avoids including extra information to a rollup block. Additional optimizations within the utilized cryptography keep away from a rise within the compute efficiency necessities in comparison with zk Rollups.

The above L2 options have particular efficiency, safety, financial, and usefulness attribute that are summarized within the desk beneath:


Determine 3: L2 Answer Traits by L2 and Scalability Answer Class;
Matter Labs


Given the speedy adjustments and optimizations of the employed applied sciences, the above evaluation of the completely different classes is merely a snapshot in time and will – and is predicted to – change considerably over the subsequent 12 to 24 months.


Ethereum Layer 2 and Scalability Options Panorama

As already acknowledged, the Ethereum L2 ecosystem is evolving at warp velocity — from the Plasma Whitepaper in 2017 to Ethereum’s largest decentralized change, Uniswap, going live on an L2 solution in 2021. Therefore, any overview of the ecosystem will likely be each incomplete and rapidly outdated. Nevertheless, a present snapshot remains to be helpful to know the good number of initiatives within the area, and their supposed use circumstances.

We are going to talk about every class and provides a number of examples in additional element and point out extra, notable initiatives in the identical class with hyperlinks to their web sites or Github repositories in the event that they exist.


State Channels

Connext: Connext is a state channels undertaking that has designs on being an L2 answer not just for Ethereum but in addition a cross-chain routing hub for Ethereum’s many L2 options. The undertaking is trying to handle a priority within the Ethereum group that Eth-based L2 initiatives won’t be sufficiently interoperable. Connext’s new cross-L2 switch system might show vital to make sure that interconnectivity between options will likely be available, avoiding community lock-in inside anybody scalability answer.

Different notable initiatives are the Raiden Network, Celer, and Perun.



xDai Chain: xDai Chain is an EVM-based sidechain designed to stably facilitate bigger transaction volumes; at present at about 70 transactions per second (TPS). The undertaking is constructed round its STAKE token, which consensus suppliers stake to economically safe the sidechain. Due to its effectivity, xDai Chain has been just lately rising in recognition.

POA Community: Just like xDai Chain at ~ 70 TPS, the POA Network is an EVM-based sidechain that depends on a set of trusted consensus suppliers to course of transactions rapidly and cheaply. The answer appears to be usable for nearly any use case from blockchain video games to group currencies.

Polygon PoS: Polygon is a expertise framework and protocol that allows builders to deploy and join by a messaging protocol various kinds of networks — EVM-based Proof-of-Stake chains, Plasma chains, and so on. — with one another and Ethereum. Due to this fact, the goal is much like Connext, or non-Ethereum primarily based frameworks akin to Cosmos. Polygon PoS is Polygon’s sidechain answer. The Polygon token is used as a staking token on the completely different networks which might be deployed within the Polygon community of chains to economically safe the consensus suppliers. The method and structure are much like the substrate and parachain method of Polkadot.

Skale: Skale’s Elastic Blockchain Network is an Ethereum appropriate POS sidechain answer that may rapidly spin up application-specific sidechain situations. Validators for every sidechain are chosen as a random, periodically shuffled subset of the whole SKALE validator pool, which is incentivized by staking a token. Validators are managed and shuffled by an utility that runs on Ethereum Mainnet.

One other notable sidechain is the Loom Network.


Optimistic Rollups

Optimism: Optimism is an Optimistic Rollup implementation enabling about 100x discount in gasoline utilization that’s gaining some early traction amongst some large DeFi gamers, akin to Synthetix. Optimism has constructed the OVM, an L2-based EVM such that L1 initiatives can redeploy their Solidity or Vyper good contracts on Optimism.

Notable initiatives migrating to Optimism: Uniswap, Compound, Synthetix

Gas: Fuel was the primary Optimistic Rollup implementation on Ethereum Mainnet, going reside on Dec. thirty first, 2020. Gas guarantees quick and environment friendly token funds, eager to develop into the “Earth’s worth change layer.”

Arbitrum: Just like Optimism, Arbitrum, developed by Offchain Labs is an optimistic rollup community with validators economically staked in Ether, able to processing at about 100x gasoline discount. The primary distinction between Optimism and Arbitrum is that Solidity and Vyper good contracts will be capable of be deployed onto Arbitrum with none modifications as a result of the Arbitrum Digital Machine is identical because the EVM on the bytecode stage.

Notable initiatives migrating to Arbitrum: Reddit, Uniswap

Cartesi Descartes: Cartesi’s Descartes Rollups is a variant of optimistic rollups with interactive dispute decision, much like Truebit. As an alternative of EVM bytecode, Descartes executes the RISC-V instruction set, which permits it to run a Linux VM.

Different notable Optimistic rollup initiatives are OMGX from the OMG Community, and Nightfall V3 from Ernst & Younger, a privacy-preserving Optimistic Rollup the place the rollup transactions are zk-snark proofs to protect transaction privateness, which results in diminished TPS because of the measurement of the proofs.



zkSync: zkSync is a zk-Rollup answer from Matter Labs that makes use of zero-knowledge proofs from zk-snarks to comprehend each excessive throughput (~ 300 – 2,000 tps primarily based on the variety of transactions in a block) and excessive safety (inheriting Ethereum Mainnet safety assurances). Matter Labs can also be engaged on a Validium sort answer referred to as zkPorter.

Notable initiatives on zkSync: Curve, Gitcoin, Balancer, Argent

Loopring: Loopring was the primary zk-rollup deployed to Ethereum Mainnet, and has been working on Ethereum Mainnet for over one yr. Loopring’s zk-Rollup answer is at present targeted on scaling decentralized exchanges with Automated Market Makers and Order books, and funds. The Loopring Alternate and Loopring Pockets are primarily based on Loopring’s expertise. OpenOcean has now additionally migrated to Loopring.

Aztec: Aztec just lately launched, which permits for totally personal Ether/DAI transactions. is a zk-zk Rollup which is the subsequent technology of zk Rollups. The Aztec expertise permits verifying zk proofs of zk-proofs of personal transactions; in different phrases, recursive zk proofs, on the Ethereum Mainnet. Due to the recursive nature of the zk proofs, the identical variety of transactions as common zk Rollups will be positioned on the Ethereum Mainnet.

This type of zk Rollup appears to be probably the most promising method for a lot of enterprise use circumstances given their robust privateness necessities.

Different notable zk Rollups are the Hermez Network (just lately acquired by Polygon) and zkSwap.



StarkEx: StarkEx is much like zk Rollups however makes use of zk-starks as a substitute of zk-snarks, with the primary distinction being that the zk proofs are considerably bigger than the proofs for zk-snarks, and are due to this fact each dearer to deposit and to confirm than for zk-snarks. The system can run both as a Validium-type system or a zk-rollup. This dynamic permits the undertaking to have greater throughput capabilities in comparison with pure zk Rollup methods. Present implementation are utilizing the Validium-type implementation.

Notable initiatives utilizing StarkEx: dYdX, DeversiFi, Paraswap, Immutable X



OMG: The OMG Plasma Network, is much like OMGX however is constructed on the Plasma structure, as a substitute of an Optimistic Rollup.

Polygon: Polygon has additionally launched a model of its Polygon sidechain mentioned above as a Plasma chain which might change messages with different sidechains and rollups as mentioned for the Polygon Proof-of-Stake sidechain.

One other notable Plasma chain is the Leap DAO.


What does this imply for Enterprises?

Enterprises have historically not been involved with public Blockchains as a result of safety, privateness, and compliance necessities of Enterprise Use Circumstances have made public Blockchains not appropriate for implementation. Nevertheless, the outcomes of personal Blockchain networks have been combined to disappointing for a number of causes. Chief amongst them, the absence of significant community results in personal Blockchain implementations, which are inclined to make them dearer and cumbersome to handle inside a consortium of competing entities than a shared database system, and the dearth of accessibility of the DeFi ecosystem with its new and quickly rising, and, due to this fact, very worthwhile asset courses from a personal Blockchain. The L2 scalability options mentioned provide a chance to not solely match the sq. peg of Ethereum Mainnet into the spherical gap of enterprise safety, privateness, and compliance necessities since many L2 options are defacto centralized databases with intelligent cryptography but in addition entry the world of DeFi asset courses permitting Mainnet community results to spill over to enterprise options by these DeFi asset courses. This makes for a brand new, and symbiotic, relationship between enterprise use circumstances on L2 with the Ethereum Mainnet by each asset and person progress.


Within the subsequent installment of this weblog collection, we are going to dive deeper into new and thrilling enterprise use circumstances for L2 options leveraging Ethereum Mainnet’s safety assurances and vibrant ecosystem.


Till then, keep updated on every part EEA by following us on Twitter, LinkedIn, and Facebook.

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James Smith

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