Ethereum is currently the second-largest blockchain in terms of market capitalization and is known for its active engagement with developers. It is the most preferred infrastructure for global Web3 open applications. However, due to unique trade-offs in governance, development, and roadmap decisions, Ethereum’s network transaction costs are high, and confirmation times are longer during periods of high demand. To address this issue, the Ethereum community has proposed a multi-layered design architecture that includes layered blockchains. This approach aims to increase Ethereum’s throughput without sacrificing its decentralization.
The State of L2s Development
Layer2 is a solution built on top of Ethereum Layer1 that compresses off-chain data to reduce network congestion on the main chain. It inherits Ethereum’s security and finality, providing users with almost real-time, low-fee token storage, transactions, swaps, staking, and more. Currently, there are many L2 solutions available, and new L2 projects and integrations are emerging daily. Over the past year, the L2s ecosystem has expanded rapidly, with more than $13 billion locked in Ethereum’s L2 ecosystem at the time of writing.
Two types of L2 Rollups are commonly mentioned in the space --- ZK Rollup and Optimistic Rollup. ZK Rollup is a solution that bundles hundreds of off-chain transactions and creates a validity proof called SNARK (Succinct Non-Interactive Argument of Knowledge). This proof is then submitted to the Ethereum mainnet. zkSync is another well-known project that uses the ZK Rollup solution.
Optimistic Rollup functions differently from Zk-rollup. With Optimistic Rollup, it is assumed that the compressed data proof published to the Ethereum mainnet is correct. In case of any suspicion of fraudulent activity, any member of the network can issue a challenge within a specified timeframe to verify the data. This guarantees that the data published on the Ethereum mainnet is correct and valid. Arbitrum and Optimism are some of the projects that use Optimistic Rollup.
In addition to data verification and compression, L2 architectures have their own unique characteristics. Popular solutions like Arbitrum, Optimism, and Scroll primarily focus on the EVM rollup ecosystem. Other teams building sidechains, such as Polygon and Horizen, are also incorporating Rollup. Some Layer1 projects like Celo are trending toward L2 ecosystems that have verifiable data. New Rollup projects like Linea, Zeth, and Espresso are constantly emerging.
Token Economics Driving L2 Sustainable Growth
Successful attempts at implementing token economics by Layer 2 (L2) projects, along with the active pursuit of multi-layer scaling of the Ethereum community, provide a clear path for more L2 projects to accumulate value through tokens. For instance, Rollup projects can benefit from network transaction fees and MEV fees, which contribute directly to generating value for project tokens and fostering network effects. The governance mechanisms can then allocate funds to development teams, which indirectly helps to accumulate value.
Furthermore, Layer 2 projects can potentially increase the value of their tokens by decentralizing their sequencers and developing Staking functionality. This will enable Layer 2 tokens to improve demands and create additional use cases. The token economics of Layer 2 is similar to that of the Ethereum mainnet. After the merge, ETH can be utilized in a Proof of Stake (PoS) mechanism, which allows validators to earn fees in the form of GAS fees and MEV (Miner Extractable Value).
Although L2 tokens may not have deflationary burning mechanisms like ETH, nor the same level of liquidity and monetary premium, they are still valuable within their L2 ecosystem and can be used and traded on a smaller scale. This provides enough exposure for capital and allows L2 projects to continue evolving according to their respective roadmaps.
L2&L3 Definition by Vitalik
As L2 technology and ecosystem develop rapidly, Vitalik’s definition of L2 is becoming clearer. According to him, for a project to be considered L2, it must possess three attributes: scalability improvement, transaction processing ability, internal state handling capability, following the “Blockchain within a Blockchain” pattern, and inheriting Ethereum mainnet security.
According to Vitalik, Optimistic Rollup and ZK Rollup are both considered L2, while validity proofs, aggregation proofs, ERC 4337, and on-chain privacy are categorized under other groups, some of which can be classified as L3. Vitalik also points out that the current discussion on the classification of these new technologies is still largely theoretical and that clear definitions for each category are yet to be established. Nevertheless, it is important to note that L2 and L3 have distinct differences.
When it comes to scaling, L2 is generally used in a more general sense, whereas L3 is used for more specific functionalities. L3 doesn’t aim to provide additional Rollup on top of Rollup; instead, it helps certain applications scale horizontally, with subsequent layers created for specific use cases or scenarios. L2 is ideal for general scalability, while L3 is used for more customized scalability, where data and proofs are separated in Rollup and SNARK is used as a solution for verification computation.
In summary, L2 uses Rollup for trustless decentralized scalability, while L3 uses Validums for weak-trust enterprise-level blockchain customized scalability. In the current development stage, solving practical problems and continually exploring development are more important than technical architecture debates.
Layered Modular Design of L2, L3, and Anychain
Anychain SDK has been integrated as Layer 2 and L3 modules to cater to the decentralized needs of Web3 users and enterprise-level customization demands. The Cregis team has released Anychain’s open-source multi-chain signature structure components, which its core service has been providing uninterrupted services to 861 enterprise-level users worldwide for the past six years. As a result, the Cregis team has a deep understanding of the needs of enterprise users.
Anychain is a vital component of Cregis’ decentralized strategy, serving to fulfill the specific requirements of its users. It is developed entirely using the RUST language, with the ultimate goal of achieving fully decentralized WaaS/SaaS services by integrating Layer 2 and L3 modules into the Anychain SDK. This will enable a vast number of Web3 users, including traditional enterprise users, to opt for the cryptographic asset custody solution that best suits their needs, thus bringing a massive user base to Web3.
Anychain has developed modular components that are similar to L3 and offer impressive technical features. These components are adaptable to multiple chains and are built with elegant Rust code. The binary version of these components is less than 1 Mb and has been further refined to less than 80 Kb. Anychain’s SDK currently supports over 30 mainstream public chains, including BTC, LTC, ETH, BNB, and many others.
Empowering Mass Adoption of Web3
Over the last 12 months, Cregis, positioning itself as an asset clearing and settlement infrastructure, has provided services to around 3,200 active customers. Cregis platform has managed a daily average transaction volume of $30 million and has seen its peak daily transaction volume reach as high as $900 million. The product features of Cregis are well suited to the current state of L2 landscape development, and its enterprise-level users are the target customer base for L3 in the future. These users are expected to play a crucial role in the mass adoption of Web3.
Before the release of Anychain, Cregis had already provided a private deployment function tailored to the enterprise users’ specific needs. This function allowed customers to experience the security of hardware wallets by deploying all source codes from the client to the algorithm library to financial cooperation management and finally into their own servers. However, this deployment was off-chain and not a general solution. With Anychain’s L2 network and L3 modular design, it is now possible to have on-chain trustless, universal, and large-scale WaaS solutions.
Whether it’s the current L2 market, L2 token economics, the development path of L2, or the exploration of L3, Anychain, as released by Cregis, has the potential to play a crucial role in the next wave of a billion users in the market. It remains to be seen how it will unfold, but it’s worth keeping an eye on.
