Another wave of traditional Layer2 new chain narratives: catfish effect or just a flash in the pan?

Author: IceFrog Source: X, @Ice_Frog666666

Some time ago, Paradigm announced an investment of 20 million US dollars in Ithaca to build a Layer2 blockchain called Odyssey; the old DEFI project Uniswap launched Unichain; the exchange Kraken, which raised 120 million US dollars, is launching its own L2 public chain inkonchain; and the traditional giant Sony announced the launch of a new L2 network.

While the elimination war of hundreds of L2s has not yet ended, a new wave of L2s with a strong background have joined the already chaotic battle. Ethereum's broken liquidity faces more severe challenges, and whether L2 is parasitic or symbiotic has also ushered in greater disagreement. But from a longer-term perspective, the intensification of differences often indicates that some kind of change and adjustment is taking place. How these new L2 narratives will land and what new changes will they bring, this article will fully explain.

Before sorting out the new L2, it is necessary to discuss the positive and negative evaluations of L2 and what the fundamental problems behind it are.

1. What is the fundamental problem?

Parasitism and symbiosis are not contradictory, but essentially a dilemma of development.

The Korean movie "Parasite" has sparked huge discussions around the world since its release, because it reveals the deepest mystery of human society, that the boundaries of human nature depend on the boundaries of wealth distribution. The issue of wealth distribution or benefit distribution has been the root of all social problems since ancient times. This is true in the real world, and it is still true in the blockchain world.

From this perspective, the so-called L2 liquidity segmentation problem is essentially that the traffic is not enough, not divided enough, and unevenly distributed. The so-called L2 parasitic problem is essentially that L2 currently has no hematopoietic ability and cannot feed back to the main network and selectively lies flat.

From an economic point of view, the cost side of L2 is mainly the fee paid to the main network for settlement operations, and the other is the fee for renting Blob space; the income side mainly comes from users paying Gas. In this economic model, it is equivalent to the Ethereum main network outsourcing the execution of transactions to L2, and the main network focuses on security and data availability, while reducing costs through continuous upgrades.

The positive cycle of this economic model is based on the fact that L2s can attract more users through their own ecological construction, thereby forming a larger scale economy, which can feed back to the main network. The reality is that except for a few strong L2s, most active users have not only not increased, but have gradually fallen into a stagnant state.

Thinking further from the perspective of economic model and benefit distribution, it is not difficult to understand why so many L2s are rushing into this track. Behind any commercial behavior, there must be clear interests. Whether it is the on-chain Margin or the huge traffic built by Ethereum, or the wealth effect after the issuance of coins, this business has a strong appeal. However, how to view interests divides these L2s into types, mainly as follows:

1. Follow the trend and lie flat: Since the entry threshold of L2 is low and I can still get a share, why don’t I participate? The failure of the narrative is the main network, which is none of my business, but the money that should be divided cannot be less. This type is more common in diligent PUA users. After the cards are revealed and the counter-play is finished, they will directly show their cards. You can scold as much as you want, and the money will be in hand, such as Scroll.

2. Self-reliance and self-improvement type: I am strong enough, I want to share this share, but the main network is not strong. I can’t take the majority of the money I earn. I can’t compete with you, so I will do it myself. For example, Optimism, such as Unichain.

3. Another way: I have my own traffic, I don't necessarily look down on your traffic, but I need to borrow your way. For example, Sony's Soneium.

As we analyzed in the article "L2 in the data: the growth came to an abrupt end, and the curtain of the elimination round opened", L2 itself has not been falsified. The current reality is that the dilemma is not only the poor external environment, the stagnation of the Ethereum mainnet's own narrative, but also the overdraft of user trust by the above-mentioned lying flat type L2. When these factors are superimposed together, especially when most of the L2 is purely "following the trend and lying flat", except for sucking blood from the mainnet, there is no Build mentality, then it is not too much to criticize parasitism. More importantly, such L2 actually occupies the vast majority, just like the intestinal flora of the human body. When your resistance is strong enough, the unbalanced flora cannot make waves, but once you become weak, this will become the last speck of dust that crushes you.

We don't need to deny the current weakness of Ethereum, but we can't doubt the long-term future of Ethereum as the mainstay of the blockchain world. The dilemma of L2 is just a turning point in the history of development. From a longer-term perspective, these L2s that follow the trend will most likely become the ruins of the blockchain, and the Ethereum ecosystem must also be washed by the waves before it can be reborn.

Therefore, from the above analysis, we can have a more objective perspective to look at this disagreement: parasitism is only the status quo, and symbiosis is the real future. Looking at the problem from a development perspective, the newly entered L2 may not be a bad thing, but it is more likely to be a catalyst for accelerated elimination or adjustment of changes.

Second, the newly entered L2

Each has its own ambitions, but the central idea is user experience and application.

2.1 Unichain

In recent times, the most talked-about L2 is undoubtedly Unichain launched by the Defi leader Uniswap, which has both criticism and praise. However, as analyzed above, for the native Defi leader that already has its own traffic, there is nothing wrong with making its own L2 from a business logic perspective.

As the largest Defi on the chain, Uniswap currently has more than 1 million daily active users. In terms of transaction volume, it is the largest DEX on the chain with a share of more than 40%, which is twice that of the second place. The annual transaction volume on Ethereum is close to 700 billion US dollars. For Uniswap, the development challenges it faces are one is the expansion of market position and share; the other is the increase in protocol revenue and token value. The basis for solving these two problems lies in how to improve users' trading experience, save transaction fees, and further strengthen competitiveness.

From the perspective of transaction fee composition, there are mainly the following main variables and corresponding beneficiaries.

Roughly speaking, traders pay an average of about 60bp in costs. Based on an average transaction volume of $700 billion, the annual cost of this item alone is about $4.2 billion.

If you are a UniSwap and Uni token holder, you will naturally have two ideas: instead of distributing more than $4 billion a year to Ethereum stakers, can it be distributed to Uni token holders? In addition, can the fees be reduced and the scale continue to expand? Following this line of thought, Unichain was born naturally. Analyzing the problem from the perspective of interests, the choice of many projects will be quite clear. Unichain is specifically built in the following ways to achieve the above goals:

Instant transactions: It is built on the basis of Op Stack as a whole, and cooperates with Flashbots to develop a function called Verifiable Block Building. It mainly divides a block into these four sub-blocks (Flashblocks), which further accelerates the state update, shortens the effective block time, and shortens the overall block time to 0.25 seconds; at the same time, Unichain uses TEE (Trusted Execution Environment) as a whole to separate sorting and block building. On the one hand, it can prioritize sorting, and on the other hand, it can tax MEV and internalize MEV income. The combination of TEE and Flashblocks actually makes the entire transaction speed and security achieve a relative balance, but it also puts forward relatively high requirements on the network and technology.

Reduce costs and be more decentralized: Unichain's verification network is a decentralized network composed of node operators. To become a validator, you must stake UNI tokens and get rewards according to the staked amount. Each block verification will be selected according to the UNI staked weight. In other words, Unichain mainly uses the combination of centralized verification and verifiable blocks to further achieve sorting transparency, and the entire transaction execution link on Unichain can achieve a significant reduction in transaction costs.

Cross-chain liquidity: At this level, Uniswap is practicing "intention-centric" interaction construction. In other words, the user's needs are directly converted into intentions through the intention model, and the system chooses the path to execute by itself to complete the entire cross-chain interaction. Intention-centric can truly achieve seamless cross-chain operation and effectively reduce liquidity segmentation, manual operation risks and other problems.

In general, UniSwap is the leader. The launch of Unichain not only shows its understanding of technology, but also highlights its ambition to become the center of Defi liquidity for the entire chain, while further enhancing its value capture capabilities and the value of Uni tokens.

2.2 Ithaca

On October 11, Paradigm announced that it had invested $20 million in Ithaca to build a Layer2 blockchain called Odyssey. It has also sent several executives to serve, especially the CEO of Paradigm is the chairman and the CTO is the CEO of the project, which can be said to be quite important.

Odyssey is built by Reth, OP Stack and Conduit. Reth is the Ethereum execution node client launched by Paradigm. Its main feature is that it is written in Rust language, with good memory safety and concurrency performance. Odyssey is built with Reth SDK. In other words, the use of this library will make Odyssey have high throughput and low write latency, and higher scalability. In addition, another relatively eye-catching feature is that the EIPs of Ethereum's next two upgrades, Pectra and Fusaka, are directly introduced into Odyssey, mainly to achieve account abstraction, improve operation efficiency, reduce Gas costs and other functions.

On the basis of the above, in terms of user experience, you can directly create a wallet with the existing Google or Apple key tools; you can log in and use the test network directly without a wallet, without owning Gas tokens, without bridge interaction and RPC.

As Ithaca claims, Odyssey does have a taste of L2 from the future. It not only incorporates many functions of the Ethereum roadmap in advance, but also finally realizes the early experience of a series of functions such as account abstraction. From this perspective, it reflects Paradigm's ambition to accelerate the development of the entire Ethereum ecosystem. By advancing this function, it attracts the participation of the ecosystem and users, especially developers.

2.3 Sonic

In August of this year, Fantom announced its official name change to Sonic Labs and enabled the S token. The token will be used for airdrops, staking, incentive plans, etc.

As an old public chain, Fantom's main technical foundation is based on the advanced aBFT (asynchronous Byzantine fault tolerance) consensus mechanism Lachesis driven by an improved version of DAG (directed acyclic graph). It was originally used to solve the blockchain triangle dilemma. Due to the use of this mechanism, the main feature of Fantom is its high speed and cost advantages. In 2019, the EVM-compatible Opera mainnet was launched. In the subsequent Defi craze, it was precisely because of this feature that Fantom became a hot spot, especially the leader in the Defi field, Andre Cronje, joined the foundation, which made the entire Fantom reach its peak. However, things did not go as planned. With the withdrawal of Andre Cronje, not only did the token price plummet, but the rising stars such as Solana also came up with more outstanding technologies, which further suppressed the development of Fantom.

Fantom's overall major technical upgrade this time has attracted the attention of the market. On the one hand, there is the drainage effect brought by the return of Andre Cronje (AC). After all, as a leader in the Defi era, he has extraordinary influence; on the other hand, Ethereum's scalability and performance do have a lot of room for improvement. AC claims that Sonic will become a presence that surpasses parallel EVM. Specifically, there are the following upgrades

Introducing a new Fantom virtual machine (FVM): mainly by converting EVM bytecode into FVM format, and compressing the data volume through parallel processing, thereby greatly reducing the execution time.

Carmen data storage solution: In the previous state, the smart contract state data on Fantom was stored in StateDB, and EVM executed these contracts and updated them in the database; this upgrade has a completely new design of the database, adding an index system, and also does not use RPL encoding and MPT pruning, which greatly saves time and space. The change in storage solution is similar to the virtual memory of the operating system, and the overall RPC storage cost has dropped by nearly 90%.

Consensus mechanism upgrade: further optimization has been made on the basis of the original Lachesis, further reducing redundant information, further improving decision-making efficiency, and further reducing transaction confirmation time.

According to the test data given by Michael Kong in his speech, an average of 4,500 transactions can be processed per second, an increase of 8 times, and the block space occupied has been reduced by 98%. In theory, 400 million transactions can be processed every day, which is about 4 times the current number of VISA transactions.

If the Sonic upgrade is really like the experimental data, from the perspective of Ethereum ecology, it will become a L2 with high concurrency and top TPS, surpassing most L2 projects. In addition, the foundation will also set up an incubator through Sonic Lab and invest huge amounts of funds to support ecological projects. There are currently more than 300 projects. If the subsequent operations are proper, the overall development momentum is worth looking forward to.

2.4 Soneium

Soneium is the Ethereum L2 launched by the technology giant Sony. The project is mainly built on the Op Stack and will also join the Superchain network of Optimism.

From the limited information, the overall architecture is expected to be not much different from Optimism. DA mainly relies on the Ethereum mainnet, but the index may be mainly controlled by the project team. Details such as execution and settlement are still unclear. After more than half a month of development, the ecological project has taken shape, with more than 60+ projects. The cooperative applications will focus on entertainment, Web3 games and NFT services. In addition, due to the early cooperation between Sony and Astar Networ, it is expected that Astar zkEVM will be transitioned to Soneium in the future, and the tokens will also be migrated accordingly.

From the perspective of the project's long-term vision, the main goal is to leverage Sony's global distribution channels and capabilities in We2 to achieve the bridge between Web2 and Web3. At the same time, it is relatively clear that Soneium plans to develop functions similar to Story Protocol to protect the intellectual property rights of creators. Considering that Sony itself is a big name in the gaming field, such a strategic plan is not surprising, but the key to the market's excitement is that traditional giant technology companies like Sony are involved in the encryption industry, which makes the market full of expectations.

At present, the data of the test network is growing rapidly. At present, the cumulative wallet addresses have exceeded 2.2 million, and 14 million transactions have been processed. The overall data growth is still considerable.

In general, this is an attempt by a traditional giant. The data of the test network reflects the expectations of the market, but it is not clear whether there is a subsequent plan to issue tokens and a specific roadmap.

III. Summary and Outlook

True gold emerges from the sands, and application breakthroughs are the future!

As mentioned at the beginning of this article, the current weak Ethereum price, weak ecological narrative, and liquidity segmentation are real. In particular, the continued sluggishness of the price has exacerbated the negative feedback of the market. However, even so, it can be clearly seen that the newly entered L2 still needs to rely on the big tree of Ethereum.

From the product layout and intentions of these newly entered L2s, we can roughly see an important trend: there may be differences in the revaluation of Ethereum's value, but changes around value distribution are taking place. Newly entered L2 either have disruptive technical strength, or have their own traffic, or have high potential in the scenario of linking We2. They have no intention of replacing Ethereum, but are more concerned about how to get a bigger share of the pie through their own strength in the current predicament.

This may also represent the way to break through the Ethereum L2 ecosystem. Projects need to have particularly outstanding advantages in one aspect of technology, traffic, and ecology, otherwise they will basically not be able to stir up any waves in the market. In addition, from the focus of these projects, an obvious trend is that new projects focus more on developing application products with better user experience, rather than simply emphasizing the basic role of infrastructure, which has important guiding significance under the current situation of Ethereum's oversupply of infrastructure.

For many lying L2s, whether these new entrants are catfish or sharks, or just a piece of fish, in the current environment, there is no clear answer. If we look at human history from a longer perspective, no matter how great a cause is, it cannot escape the law of cycles. The process of reaching the peak again after a long trough must go through the test of alchemy in the fire. But no one knows whether the top stars in the market today will still have a voice in the next cycle. The only thing we are sure of is that elimination will not stop and development will not stagnate.