The competition between Ethereum’s Layer 2 blockchains will soon become a full-blown contest for supremacy in scaling the No. 1 smart chain network. The L2 wars have begun, and escalation is imminent.
The top combatants, Arbitrum and Optimism will soon be joined by new entrants. They will all be competing for the users and devs even as the founders spar over which blockchain is the top performer and the most secure.
Last Thursday, Coinbase elbowed its way into the arena with plans to build a new Layer 2 blockchain using Optimism’s codebase. With 110M potential users, the deal was a shot in the arm for the Layer 2, which has been trailing industry leader Arbitrum but now is poised to partner with one of the industry’s biggest U.S.-based companies.
Arbitrum isn’t standing still. The two-year-old market leader briefly vaulted past Ethereum last week in terms of daily transactions. But Optimism, a distant second, says it would like to see a future with less competition, and more collaboration: a business model it dubs the “superchain.”
When it comes to DeFi, collaboration and community have been the watchwords for years. But the contest to scale Ethereum highlights the unique nature of business in an industry where the notion of trade secrets can be frowned upon, and developers often make their code public for competitors to view and potentially copy.
Networks of Chains
It also brings the nascency of businesses in this sub-field into sharp focus. It’s a market, where companies are valued in the billions even though the number of daily customers is measured in the tens of thousands.
“Building out these networks of chains is like a new, incredibly f**king exciting concept that we’re introducing here,” Optimism co-founder Ben Jones told The Defiant. “It’s not at all, from our perspective, a matter of competition.”
The end goal would mark a radical change in the Layer 2 ecosystem, one in which rollups leave their silos for a shared ecosystem and use a shared standard to order transactions posted to Ethereum.
Layer 2 blockchains, also known as “rollups,” batch and compress user transactions before appending them to the Ethereum blockchain. Doing so makes it possible to use Ethereum while avoiding its notoriously high fees and sluggish execution.
Proponents say rollups are central to the future of Ethereum because they are the technology that will make the network fast and cheap enough to accommodate billions of users.
This won’t happen unless the various companies building rollups set aside their differences, according to Jones and Jesse Pollak, Coinbase’s head of protocols.
Pollak said it would be a mistake to think of Optimism and the new Coinbase rollup, Base, as competitors.
”What we’re gonna be able to build over the next few years is a world where Optimism and Base increasingly feel like one chain, the super-chain, and there’s actually a bunch of other chains that are interconnected with them,” Pollak said.
The L2 wars are poised to intensify this year with the long-awaited debut of rollups using zero-knowledge technology. Some experts believe that rollups powered by ZK cryptography are the most promising method of scaling Ethereum, due to their potential to improve on existing Later 2 blockchains in terms of speed and security.
Scroll, Polygon, Matter Labs and Consensus are working on zero-knowledge rollups. U.K.-based company Aztec has already built a privacy-focused rollup it likens to the “VPN of Ethereum.”
Like Optimism, Arbitrum is built on “optimistic” rollup technology, which assumes that transactions are legitimate but allows for a specified window during which they can be disputed.
Last Tuesday, Arbitrum processed 1.1M transactions, about 20,000 more than Ethereum. It was the first time a Layer 2 blockchain has surpassed Ethereum in daily transaction count. On Wednesday it repeated that feat, processing about 10,000 more transactions than Ethereum.
Arbitrum has more than half of the rollup market, according to L2BEAT. Optimism has 30%. No other rollup cracks double digits.
Arbitrum co-founder and CEO Steven Goldfeder says he doesn’t buy into the notion of a “superchain.”
“Considering all the many excellent teams in the space, I don’t think that we’re at the point where a ‘standard to rule them all’ should be developed,” he said, especially if that would mean abandoning part of Arbitrum’s technology for Optimism’s.
According to Goldfeder, Optimism won’t derive its security from Ethereum until it too introduces “fraud proofs,” technology that makes it possible for Ethereum to adjudicate disputed transactions that occur on “optimistic” rollups. Without that technology, he says, users have to trust Optimism to act in good faith. Although there’s no indication it has ever done otherwise, he continued, “trustlessness” is the name of the game in crypto.
“The notion that we’re going to sort of coalesce on one particular technology stack, a technology stack that’s not even built out today, that doesn’t have the core features that make it a Layer 2, or make it a rollup — the notion that that we do that is, I think, a bit presumptuous,” he said.
But Optimism and Coinbase say that users of crypto applications shouldn’t have to think about which rollup they use..
“The last five years have been very chain-centric,” Pollak said. “But as we think about bringing a billion people into crypto, you know, most people aren’t like, ‘Oh, I want to run this application on [Amazon Web Services],’ or, ‘I want to run this application on Google Cloud’ — they just want the [application] that they care about.”
Even if other chains were to buy into the notion of a super-chain, building one will be exceedingly difficult, Jones acknowledged.
“It would be crazy to try to build a system to take a bunch of L2s that were all written as different code bases and different architectures and make different trade-offs and turn that into one decentralized network right away,” he said.