Original title: "Interpreting Binance Research L2 Market Report: L2 Evolution Trends and Analysis of Track Players"

Original source: Binance Research

Recently, the L2 industry has become increasingly competitive with many players vying for market share.

Almost all chains are claiming to have low cost and high efficiency, and various companies are also modularizing to increase scalability and following the trend of building L3.

What kind of L2 do we need, and what are the characteristics of various L2 tracks currently? What actions are being taken? And in the future, what new trends will L2 evolve into?

The Binance Research Institute previously released a research report titled "The L2 Evolution", which provided detailed answers and prospects for the above-mentioned issues. The report focuses on analyzing the complexity of different L2 methods, evaluating their current position in the market, and further studying the new directions that may emerge in the current L2 market landscape.

Given the length of the report, DeepChain has read and organized it to help everyone concentrate, quickly, and systematically understand the situation of various companies in the L2 market and predict future opportunities.

Summary:

L2 has evolved with new trends, including Superchain, L3, and Hyperchain. These advancements are being adopted by various L2s and have the potential to become the cornerstone of the next generation of Ethereum scalability, simplifying development processes, enhancing security, and establishing greater interoperability within the ecosystem.

Optimism's OP stack is moving towards the super chain with high interoperability. The Bedrock upgrade represents the first step towards realizing their vision.

Arbitrum is also at the forefront of Ethereum expansion, developing the L3 network through Arbitrum Orbit, and providing an unlicensed framework for deploying custom chains on Arbitrum L2.

zkSync has proposed Hyperchain, which is a customizable trustless linked blockchain that achieves hyper scalability, improved composability, and enhanced security.

StarkWare is developing a multi-layer solution, exploring L3 for customized scaling and utilizing L2 for general scaling.

Polygon 2.0 aims to create the "value layer of the internet" by unifying its L2 solution suite, which includes Polygon PoS, Supernets, and zkEVM.

Market Background

Scalability is the core challenge that Ethereum is currently facing, and it is difficult for Ethereum itself to achieve the same scale as the Internet.

The current L2 solutions also have limitations and cannot be the best choice for applications. They either sacrifice scalability or increase the risk of dependence on specific ecosystems.

Cross-chain interoperability is still a pain point. Existing cross-chain bridges are fragile and often under attack.

The next stage of L2 development is to simplify the deployment process of Rollup and reduce the threshold for developers. The goal is to achieve a "one-click" deployment of the Rollup chain, just as simple as creating a webpage.

Each Rollup chain now needs to build its own infrastructure, which leads to resource waste and high fragmentation. The new Rollup mode can achieve infrastructure sharing and interoperability, reducing resource redundancy.

New cases such as OP Chains, Arbitrum Orbit, and hyperchains on zkSync.

Key Player 1: Optimism and OP Stack

Optimism is the team behind the OP Mainnet, which is an EVM-compatible optimistic rollup. It was launched in December 2021 and is one of the leading Ethereum L2 solutions. As of June, the total locked value of OP Mainnet exceeds $2.2 billion, making it the second largest market cap among all Ethereum L2 solutions, with a total market share of over 23%.

In October 2022, Optimism launched OP Stack, which is described as a "highly scalable, highly interoperable modular open-source blueprint for various blockchains." This marks Optimism's evolution in the design and vision of Ethereum scalability world, not just running their optimistic rollup solution.

OP Stack has introduced our concept of "Hyperchain", which refers to a highly integrated and unified L2 blockchain network built on OP Stack.

Optimism's latest development in this new phase is their flagship L2 rollup migrating to Bedrock, which is the first official version of the OP Stack, bringing many operational and user improvements to their product.

OP Stack Explanation

OP Stack is a standardized, shared, and open-source development stack that powers the OP Mainnet. It consists of various software components that make up the Optimism L2 rollup and can be used to create a collection of L2 blockchains for network sharing, interoperability, and coordination.

Essentially, OP Stack aims to simplify the creation of L2 blockchains and can be seen as a "L2 construction" supermarket.

The key components are as follows:

Data Availability Layer: This layer defines where the raw input of the OP Stack chain is published. Most OP Stack modules use the Ethereum Data Availability Layer, which is also used by the OP Mainnet rollup.

Governance Layer: This refers to a general set of tools and processes used for managing upgrades, design decisions, and system configurations. Compared to other layers, this is a more abstract layer that can include a variety of mechanisms.

Benefits of OP Stack::

Scalability: The code of OP Stack is designed for other builders who want to use and build on top of it. Therefore, their code is open source and typically modular.

Simplicity: They strive to make their code as simple as possible and tend to reuse existing code that has been tested in practice.

Understandability: Existing Ethereum developers can relatively easily build on OP Stack.

Lower fees: Bedrock has implemented optimized data compression strategies to minimize data costs. The average cost per transaction has now been reduced by over 77%. This also makes Optimism's L2 rollup the cheapest Ethereum L2 solution.

User experience improvement: especially for users who are not familiar with or have less experience with L2 rollups, this is an enhancement to the user experience.

Improved proof modularization: Bedrock abstracts the proof system (for the settlement layer in Figure 2) from the OP Stack, allowing the OP Stack chain to use fault proofs or validity proofs (i.e. ZK-proofs) for transaction verification. It is worth noting that there is already an RFP for building a ZK validity prover for the OP Stack.

Improved Node Performance: Bedrock allows multiple transactions to be executed in a single rollup "block" instead of the previous "one transaction per block" model. With the current transaction volume, this will reduce state growth by approximately 15GB/year.

Summary: OP Stack helps to break down the various components needed to build an L2 chain, with Bedrock being the first implementation of this type of software. Key phrase: modularity.

OP's Superchain Architecture

After upgrading to Bedrock, the next step for Optimism is to upgrade itself to Superchain.

Superchain is envisioned as a decentralized L2 chain network (referred to as OP Chains), which share security, communication layer, and an open-source technology stack (i.e. OP Stack).

These chains will be standardized to be used as interchangeable resources. This standardization will enable developers to create applications for Superchain as a whole, rather than just the underlying chains on which the applications run.

Benefits of Superchain:

Reinforced and secure code foundation: As the number of chains grows, each chain shares and contributes to the modular and standardized code library that supports them, thereby strengthening the system.

Atomic cross-chain composability: Transactions can be seamlessly conducted between different OP chains without the need for bridging or intermediaries.

Universal Ethereum infrastructure: Allows existing Ethereum developers to seamlessly switch to building OP chains.

Joining Op Projects::

Optimism's L2 rollup chain, after the Bedrock upgrade, is the first member of Superchain.

Coinbase's Base L2 will be the second member to go live on the mainnet this year.

Worldcoin also promises to build on OP Stack.

Aevo, a decentralized options exchange, recently partnered with Conduit to launch its rollup based on the OP Stack. Conduit operates the Aevo rollup sequencer.

BNB Chain has also announced the testnet of opBNB, their EVM-compatible L2 chain based on OP Stack.

In the NFT world, the decentralized NFT marketplace Zora recently launched the Zora Network. Based on the OP Stack L2, it aims to make NFTs cheaper and more accessible. Their documentation states that the cost of minting on Zora can be less than $0.50, with transactions confirmed in seconds.

Key Player 2: Arbitrum Orbit

Since its launch in August 2021, Arbitrum has become the largest and most prominent L2 network in the industry, with a total locked value of over $5.9 billion, accounting for more than 60% of the total market share.

Arbitrum Ecosystem Products:

Arbitrum One: Arbitrum's first and core mainnet Rollup in the ecosystem.

Arbitrum Nova: This is the second mainnet Rollup of Arbitrum, aimed at projects that are cost-sensitive and have high transaction volume requirements.

L3 Network, sometimes referred to as Application Chains, is a dedicated network built on top of L2, with each one hosting smart contracts that support specific decentralized applications.

To understand L3, the simplest way is to imagine them as Rollups of L2. Unlike settling on L1, L3 settles on L2.

Through Orbit and Arbitrum, we plan to support protocols for the following use cases in order to launch our own L3 chain:

The 3rd layer Rollup: Launch an L3 Rollup chain similar to Arbitrum One.

Layer 3 AnyTrust: Launch a chain similar to Arbitrum Nova on L3 AnyTrust.

Key Players 3: zkSync and Hyperscaling

zkSync architecture aims to integrate with the Hyperchain network, all of which are anchored on a basechain.

Hyperchain

HyperchainzkSync's vision for L3 is envisioned as a broad, trustless, and customizable linked blockchain ecosystem.

Cost: Due to data availability solutions, data costs have significantly decreased.

Compositionality: The LLVM compiler system supports Solidity and any other modern programming language, increasing accessibility for developers who specialize in languages such as Rust, C++, and Swift.

Hyperscaling

A highly scalable blockchain system involves multiple different ZK chains (or superchains) running in parallel, with block proofs aggregated and settled on L1. In theory, this could even be an infinite number of superchains, representing the entire system.

The entire process is related to a concept called Fractal Extension, which was first introduced by StarkWare. Fractal Extension is based on a multi-layer network concept, where a specific L3 is recursively constructed on L2.

Super Extension further advances this by introducing Super Bridges, which are local bridges that connect each L3 application chain together. This allows for transfers between Super Chains without consuming resources on the third chain, further ensuring that the base chain does not become a central scalability bottleneck, thus maintaining the principle of parallel super scalability.

As shown in the figure, without a super bridge, fractal expansion may cause the base chain to become the main intersection of most transfers over time, which may become a scalability barrier.

With the super bridge, the transfer from one super chain to another becomes as simple and cost-effective as any regular transfer. This reflects how hyperlinks allow seamless navigation from one webpage to another with just one click, eliminating the need for additional navigation through each layer.

Key Players 4: StarkWare and Fractional Scaling

StarkWare has proposed a concept of a multi-layer network, where L2 is used for general scaling and L3 is used for customized scaling.

StarkWare's fractal expansion concept may have inspired other L2 projects to explore Ethereum's scalability.

Slush is developing an SDK for building zkVM L3 on Starknet.

StarkWare has launched Recursive STARKs, a technology that enhances L2 scalability by allowing multiple transaction proofs to be bundled into a single proof.

This technology relies on the Cairo programming language and SHARP, which supports aggregating transactions from multiple applications into a STARK proof.

StarkWare aims to optimize costs, latency, and computational resources to support the development of L3 solutions on the public Starknet network.

Key Players 5: Polygon 2.0

Background:

Polygon 2.0's Core:

As a collection of L2 chains powered by ZK technology, Polygon 2.0 utilizes a unique cross-chain coordination protocol.

Key Points:

Interoperability: Polygon 2.0 aims to achieve smooth movement and interaction across multiple blockchains through ZK proofs.

Scalability: The Polygon team is building Polygon 2.0 to support "virtually infinite number of chains".

Conclusion: Considering the performance of Polygon on its PoS sidechain and the successful deployment of their zkEVM solution, this new vision has considerable prospects and may bring interesting enhancements to the wider L2 ecosystem.

L2 Market Comprehensive Comparison

zkSync: There is some overlap with Optimism, but there are differences in execution strategy compared to Optimism and Arbitrum.

Arbitrum: provides a permissionless platform for creating L3 chains, but still requires DAO approval to use Arbitrum's IP to develop L2s.

Starknet: adopts a multi-layered structure and uses fractal expansion L3s.

These L2 visions, although different from each other, all have customization and application of specific chains at their core.

Transaction fees and sequencer: The sequencer bears important responsibilities for maintaining and operating costs of cloud services, and should receive fair compensation through transaction fees charged to users.

The role of governance tokens: As the trend shifts towards decentralization, the function of L2 governance tokens becomes more important. It is likely that most rollups will require token staking to be included in the shared sequencer network.

The industry is currently discussing the next stage of L2 evolution, which has led to the emergence of various visions and methods. Despite many different opinions, the common goal is to achieve unlimited scalability, hoping that the world of Web3 can seamlessly expand like Web2.

Currently, this field is still in its early stages and specific methods and practices have not yet been fully determined.

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