The Path to Layer 2 Decentralization | Layer 2 Review
Quick Reads and Hot Links Covering the People and Projects Who Are Scaling Ethereum
Dear Frens,
It’s another week in web3 and one where we get to share the recent happenings in the Layer 2 ecosystem.
L2s are a continuously growing solution to Ethereum’s scalability issues while inheriting its security. However, inheriting security means that on rollups, it is possible to use confirmation rules that have around the same security as Ethereum’s confirmation rules. To properly track these rules and the security they provide, L2BEAT introduced finality.
Layer 2s are solving the scalability issues of the base layer, however, they developed issues of their own which still take their root from the blockchain trilemma — security, scalability, and decentralization. In this week’s editorial, we do a mini dive into decentralization, evaluating the landscape.
All this boils down to the fact that we are still early, but we will keep moving towards the future we hope to create. Read on for the latest stats, proposals, and ecosystem updates from around Ethereum’s Layer 2.
Contributors: Warrior, Tonytad, jengajojo, Boluwatife, Paulito, Kornekt, WinVerse
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🗞️ Ecosystem Updates
⛓️ Polymer Labs Raises $23M to Build Ethereum’s Interoperability Hub
🆕 OKX Ventures Leads Strategic Investment in Cross-Layer 2 Protocol Orbiter Finance
🔀 Animoca Brands Plugs Into LightLink Delivering Web3 Gaming UX to Web2 Users
➿ Immutable zkEVM Mainnet Early Access is Live
⚡ Gitcoin-backed Layer 2 network PGN is winding down
💱 Orbiter Finance Transitions from Bridge to Rollup
🔥 Hot News
BAF X ARB
The Blockchain Acceleration Foundation (BAF) has announced a new partnership with Arbitrum, a leading Layer 2 scaling solution for Ethereum. 🎉
The partnership aims to drive global adoption of web3, explore cutting-edge projects, provide educational initiatives, and empower the community.
As part of the collaboration, blockchain enthusiasts are encouraged to join Arbitrum's Ambassador Program. 🧑🏼🤝🧑🏽Ambassadors will represent Arbitrum globally, contribute to web3 evolution, and enjoy networking benefits.
This alliance combines Arbitrum's groundbreaking technology with BAF's mission to empower the blockchain community. It has the potential to significantly advance Ethereum scalability and accessibility.
The organizations promise more updates as they progress on this collaborative journey. Check for more information in the thread below. 🔥
🏛 Governance
💬 Proposals in Discussion
Arbitrum
Optimism
https://gov.optimism.io/t/s5-grants-council-lead-appointment/7563
https://gov.optimism.io/t/retropgf-3-conflicts-of-interest-season-5-citizens/7506
https://gov.optimism.io/t/final-proposal-to-reclassify-grant-misusage-enforcement/7384
Polygon
The Path to Layer 2 Decentralization
Author: Boluwatife
In our previous newsletter issue, the editorial author spoke about some of the issues currently facing the Layer 2 ecosystem, chief among them being centralization. The editorial also touched on some of the efforts being put out by these L2 projects to achieve decentralization. In this editorial, we'll be doing a mini introduction to some of these decentralization efforts.
Most L2 projects aim to remove central points of control over time. This shift involves:
Transitioning governance from central teams to community DAOs
Replacing centralized sequencers with decentralized node operators
Opening fraud-proof roles to permissionless public participants
Removing keys/ceremonies requiring trust in deployer teams
Expanding bridges to avoid single withdrawal methods
Decentralization Stages
The "stages" framework created by L2BEAT provides milestones to evaluate this decentralization progress. According to the platform, projects are categorized into three maturity stages:
Stage 0 - Full Training Wheels: Rollup run centrally by the core team with users able to withdraw via a bridge. Several rollup projects including Optimism fall in this category.
Stage 1 - Limited Training Wheels: Proof system operational, but override mechanisms like security council remain in case of bugs. Some rollups in this category are Arbitrum and zkZync Lite.
Stage 2 - No Training Wheels: The rollups are fully decentralized with permissionless fraud proofs and restricted emergency abilities. Only very few rollups fall into this category, one of which is DeGate V1
The stages clarify the extent to which rollups minimize trust in specific humans versus trust in code. However, this does not imply haste. Teams should decentralize at their own pace based on technical readiness.
Vitalik’s proposed milestones for rollups inspired this framework. You can read more about it here.
An Example From Arbitrum — The Way Forward?
A sample Constitutional AIP from Arbitrum proposes changes to their security council to maintain a Stage 1 designation.
Arbitrum has two multi-signature contracts, a 9/12 instant upgrade, and a 7/12 time-locked upgrade. The lower 7/12 threshold falls below Stage 1 requirements.
Since both multisigs share members, the 7/12 can override the 9/12. So effective security is 7/12, risking a Stage 0 categorization.
The AIP suggests either:
Removing the lower multi-sig entirely
Increasing lower threshold from 7/12 to 9/12
Leaving 7/12 but extending L2 timelock from 3 to 8 days for better user exit time.
These changes would ensure Arbitrum stays decentralized but with safeguards against bugs. The AIP showcases rollups balancing decentralization with practical security tradeoffs.
Evaluating the Landscape
As solutions mature at different paces, the framework of the stages empowers users to assess projects based on their priorities. Some may favor convenience and favor more centralized networks initially, while others might strictly desire full decentralization.
Over time, the aim is for rollups to approach the user experience of today's centralized services while strongly upholding key web3 ethos.
No single rating system can satisfy all perspectives on this complex landscape. However, the idea of stages encourages constructive discussion on decentralization efforts. Rather than a simplistic ranking, projects can communicate nuances around their particular roadmap and risk factors. This will allow users to decide their comfort level with the tradeoffs.
📈 Data
Total Value Locked on L2s still holding just above $21 billion!
Top Ten Projects by Total Value Locked:
🔭 Project Watch
Arbitrum
Top Projects by TVL
Optimism
Top Projects by TVL
zkSync
Top Projects by TVL
zkEVM
Top Projects by TVL
🔥 L2 Fees and Costs Update
Transaction Fees as of February 1, 2024:
