Linea Pursues Progressive Decentralisation Amidst Surge Volt 2 & Recent $2.6M Exploit: Will Their Complacency Cost Them?

https://discord.com/invite/linea Layer-2 (L2) rollups on Ethereum have seen substantial growth, with over 50% of all Ethereum transactions occurring on L2s in early June 2024.

This milestone underscores the increasing reliance on L2 solutions for efficiency and scalability.

However, the centralisation of sequencers within these rollups presents significant security risks.

An exploit on Linea in early June, a Consensys-backed zkEVM rollup, resulted in the loss of over $2.6 million in ETH, highlighting the vulnerabilities inherent in the centralised sequencer model.

What is Linea & What Does it Do?

Consensys launched Linea in July 2023, successfully onboarding over 150 partners and bridging more than $26 million in Ether just a month later.

It is a Layer 2 zero-knowledge Ethereum Virtual Machine (zkEVM) developed and operated by ConsenSys R&D.

This zkEVM replicates the Ethereum environment as a rollup, allowing developers to deploy any smart contract, use familiar tools, and develop as if on Ethereum mainnet.

For users, Linea provides the same experience and security guarantees as Ethereum, but with significantly lower transaction costs.

EVM equivalence allows for seamless deployment of existing applications on Linea and the creation of new ones that would be cost-prohibitive on the Ethereum Mainnet.

However, a key challenge lies in improving the prover time, as generating proofs for Ethereum blocks can take hours.

In a nutshell, Linea address this issue by utilising ZK proofs to conceal transactions, employs rollup technology to aggregate them, and transmits these bundled transactions to the mainnet via the canonical message service.

What is the Linea Canonical Message Service?

We are familiar with ZK proofs and rollups, but what about Linea’s Canonical Message Service?

This service creates an efficient communication pathway between the Linea network and the Ethereum mainnet, functioning as both a bridge and a messaging stack.

It combines protocols and smart contracts to transmit stage-change information (routine transactions) and arbitrary messages between Linea and other networks.

The service ensures data about the current state of the Ethereum mainnet is communicated to Linea and vice versa.

The main messaging protocol of Linea's Canonical Message Service is called 'Postbots'.

According to the project, Postbots are 'actors' that 'listen' for calls made to specific contracts on either Linea or Ethereum and relay the information to the other network.

While centralised during the testing phase, ConsenSys claims that the Postbot protocol will ultimately become decentralised, allowing anyone on the network to serve as a Postbot.

Linea's Surge Campaign Sees Early Success

Over the recent months, Linea has been hosting a series of challenges known as Voyage LXP, offering rewards in the form of Linea Experience Points (LXP).

All activities under this programme have now been completed.

On 22 April, Linea initiated the Surge programme, a new long-term initiative designed to accumulate Total Value Locked (TVL) within its ecosystem.

The goal is to attract liquidity and new users to the Linea network.

The Surge campaign will continue through six Volts or until the network reaches $3 billion in TVL, whichever occurs first.

Each Volt is scheduled to last for one month; Volt 1 launched on 17 May and ended on 16 June, with enhanced rewards, followed closely by Volt 2 on 17 June which is still underway.

Participants earn new L-LXP (Liquidity LXP) for contributing funds/liquidity and engaging with decentralised applications (DApps) within the Linea ecosystem, such as decentralised exchanges (DEX), trading platforms, bridges, lending protocols, and LRT protocols.

These points will be distributed to liquidity providers on a diminishing scale, with early depositors on Linea-based applications receiving more LXP-L compared to those who join in subsequent months.

The website stated:

“The Linea Voyage: Surge presents DeFi users an incredible opportunity to collect LXP-L for bringing liquidity to Linea and activating it in DeFi protocols…During the Surge, you collect LXP-L by bridging liquidity and managing it in passive or active positions on our network. Liquidity is not locked on Linea, allowing users to participate or exit the Surge freely."

The following tokens have been whitelisted for the Linea Surge:

The campaign to stimulate DeFi activity on Consensys' Linea blockchain has shown early success.

According to Ethereum research site L2BEAT two weeks prior, more than $1.2 billion in cryptocurrency has been bridged to Linea, up from $792 million on 14 May.

This has rapidly positioned Linea as one of the largest layer 2 blockchains on Ethereum, which are essential for the future of Ethereum by providing users with faster and more cost-effective ways to utilize the original smart contract platform.

The campaign also demonstrates the effectiveness of "points," akin to airline mile-style reward programmes in the crypto world, despite user fatigue.

By incentivising users with points, Linea has managed to distinguish itself in an increasingly competitive market where numerous competitors have emerged over the past year.

Despite some complaints, the Surge campaign appears to have been effective.

From 17 May to 12 June, Linea experienced significant growth in both TVL and daily volume.

TVL increased by $416 million, a rise of 52%.

Active TVL saw an even more substantial increase of $383 million, marking a 130% growth.

Additionally, the average daily volume grew by 66.19% compared to the previous month, with the peak daily volume reaching $93 million on 20 May.

Linea's TVL currently stands at $1.29 billion, representing a 6.01% increase since last week.

This is a significant rise from the TVL of around $800 million when Volt 1 was launched.

Volt 2 Updates

From a participation perspective, the process remains largely unchanged; you still need to join via a referral link and monitor your LXP-L accumulation through the OpenBlock Labs dashboard.

However, there are several noteworthy adjustments that users should be aware of:

1) Stablecoin Boost: To enhance the liquidity of stablecoins on Linea, is an increased reward for stablecoin Liquidity Provider (LP) pairs. Stablecoins represent a lower-risk option for LPs, particularly in times of high market volatility. Starting with Volt 2, users can amplify their LXP-L earnings by incorporating stablecoins into their DeFi strategies. This boost is algorithmically determined, adjusts in real-time, and varies based on the Dex objective function for the Surge program. The complete list of supported stablecoins can be found on the OpenBlock Labs dashboard.

2) Reduction in LXP-L: The total LXP-L earned by users will decrease by 10%. As outlined in their documentation, the aim is to reward early ecosystem adopters with the highest LXP-L rates. With each Volt, the total LXP-L generation will diminish by an additional 10%. Volt 1 operated with a 100% modifier, which is now reduced to 90%.

3) Decrease in Early Adopter Modifier: The Early Adopter Modifier boost will decrease from 1.5x to 1.3x. Linea is committed to fostering enduring relationships and mutual benefits with those who initially supported their ecosystem. Those with the Early Adopter Modifier will continue to receive an additional 30% LXP-L from their positions.

4) Veteran Points Stay Active: These points provide a modest boost to DeFi groups that have contributed to the Surge program's success since its inception. To earn Veteran Points, the simplest method is to register as a participant in the Turtle Club.

Users are encouraged to participate in the Surge initiative through the referral system and begin collecting LXP-L promptly to maximise their rewards.

Linea's Response to $2.6M Exploit Revealed Complacency

Velocore, a decentralised exchange (DEX) operating on the zkSync and Linea blockchains, was the target of a hack that resulted in the theft of over $2.6 million worth of Ether.

The exploit, first identified by a threat researcher, focused on Velocore's liquidity provider tokens, which are essential for the exchange's functionality.

Despite undergoing security audits by reputable firms such as Zokyo, Hacken, and Scalebit, Velocore was unable to prevent the attack.

Linea was alerted to the hack by Hexagate, which assisted in tracing the stolen user funds, identifying vulnerable smart contracts, and pinpointing the exploiter's addresses.

Due to the time zone difference, Linea was unable to immediately contact Velocore, as it occurred in the "middle of the night" for the company.

The hacker managed to transfer 700 Ether, valued at over $2.6 million, off Linea using a third-party bridge.

In response, Linea's team made the decision to temporarily halt the sequencer and censor the attacker's addresses to safeguard users and developers, sparking a debate on the importance of decentralisation.

This temporary suspension of block production lasted approximately one hour, between blocks 5081800 and 5081801, to prevent further unauthorised movement of funds.

The decision to pause the sequencer has ignited a discussion within the blockchain industry regarding decentralisation and resistance to censorship.

Critics argue that Linea's unilateral action to stop block production goes against the fundamental principles of a decentralised system.

Matter Labs CEO Alex Gluchowski emphasized:

“Decentralising the sequencer isn't optional. Every serious L2 stack must race to do it first.”

Linea defended its actions, stating that the pause was a "last resort" to protect users and prevent the hacker from liquidating a significant amount of tokens for ETH, which could have led to additional complications.

The blockchain has since resumed normal operations and reaffirmed its commitment to fostering a "permissionless, censorship-resistant environment" moving forward.

Declan Fox, Linea's product lead, acknowledged the importance of decentralisation and emphasized that the network is on a "solid path" to achieving decentralisation more quickly than many of its competitors.

However, some observers have criticised the firm for setting such a target in the wake of the recent hack.

The incident involving Linea has exposed vulnerabilities in the centralised sequencer model and highlighted a concerning complacency within the L2 space regarding sequencer decentralisation.

Linea's senior officials have compared their progress to older rollup frameworks, expressing satisfaction with their current pace.

Yet, this attitude could jeopardise the industry's advancement and extend the risk period for users, investors, and developers.

The "We're better because others are worse" mindset is detrimental to the industry.

It impedes progress and prolongs the risk window for stakeholders.

While L2s are still in a developmental phase and may require additional safeguards, unilateral decisions to shut down the network for hours should not be considered a "last resort."

The rapid technological changes over the past few years now allow for the implementation of basic decentralised sequencers and community incentivisation frameworks.

This shifts the conversation from capability to intent and prioritisation.

Rollups are in a transitional phase and may need special measures, but unilateral shutdowns can no longer be the default response to security challenges.

The focus must now be on how to effectively decentralise and incentivise the community to ensure the security and integrity of the blockchain ecosystem.

Crypto Losses More Than Doubled in Q2 2024 Than Same Period Last Year

In the second quarter of 2024, losses in the cryptocurrency market due to hacks and scams more than doubled when compared to the same period in 2023, according to research conducted by Immunefi, a blockchain security platform.

Immunefi's researchers observed that the entire Web3 ecosystem experienced over $572 million in losses during April, May, and June, in contrast to $265.4 million in the second quarter of 2023.

Source: Immunefi Crypto Losses in @2 2024 Report

Centralised exchange hacks accounted for the majority of the losses in this quarter.

Founder and CEO of Immunefi, Mitchell Amador, stated:

“This quarter highlights how infrastructure compromises can be the most devastating hacks in crypto, as a single compromise can lead to millions in damages. Robust measures to safeguard the entirety of the ecosystem are crucial.”

Prior to the second quarter, there had been a decline in losses from hacks and scams, with Immunefi reporting a 23% reduction in the first quarter of 2024.

This downward trend persisted through April and most of May. However, losses escalated sharply towards the end of May and continued to rise into June.

A handful of Ethereum L2 projects were also targeted multiple times the report noted:

“Arbitrum comes in third with four incidents, representing 5.5% of total losses across chains. Blast and Optimism follow with three incidents each. Remaining chains like Polygon, Solana, Fantom, Linea, Mantle, TON, and others together represent 15% of the total chain incidents, all with single incidents.”

Who is Behind Linea

Linea is a major project led by Ethereum co-founder Joseph Lubin.

Inspired by Satoshi Nakamoto's Bitcoin white paper and the transformative potential of distributed systems, Lubin became a key figure in the early blockchain community.

He played a crucial role in the creation and launch of Ethereum alongside Vitalik Buterin in 2014.

Lubin then focused on building an ecosystem around this emerging technology by founding Consensys, a global blockchain company.

As a co-founder of Ethereum and the founder of Consensys, Lubin has become a significant advocate for decentralized technology and a driving force in the blockchain industry.

His socials: X and LinkedIn

Linea's Socials

Discord

X

Website

Path to Progressive Decentralisation is the Key

Decentralisation, while challenging, presents a multitude of advantages for projects and their communities.

It encourages more profound community involvement through direct participation in network security and governance, while also opening up new avenues for revenue generation, such as sequencer mining.

Moreover, a self-reinforcing model can lead to reduced security expenses and bolstered network security through heightened community involvement.

Decentralised sequencers also serve to align the interests of short-term speculators and long-term contributors, tackling the industry's user retention challenges.

The requisite tools and technologies for decentralised sequencers are already within reach.

Layer-2 rollups must make decentralisation a priority to ensure their longevity within the blockchain ecosystem.

Users have a choice and will gravitate towards networks that prioritise security and decentralisation.

Early adopters of decentralised sequencers are poised to enjoy substantial benefits, yet the industry's true strength lies in collective advancement and the adoption of innovative standards.

Nicolas Liochon, founder of Linea, has indicated that within the next few years, most L2s should have attained Stage 2 of decentralisation.

He stated:

“Rollups prioritized other important upgrades which directly impact the user experience and security. For example, the Dencun upgrade has lowered costs by an order of magnitude for users.”

With recent upgrades in place, the journey towards Stage 2 has commenced.

Liochon has also announced plans to launch a testnet with new decentralisation features in the upcoming months.

The $2.6 million exploit incident serves as a stark reminder of the obstacles faced by protocols in striking a balance between security, decentralisation, and scalability.

It also sheds light on the sluggish progress towards decentralisation in Ethereum layer-2 solutions and the imperative for immediate steps to rectify these persistent vulnerabilities.

Linea has emphasized its commitment to decentralising its network, including its sequencer, which would preclude the firm from halting block production and censoring addresses in the future.

Coinlive believes that despite the complacent comment made by Linea’s senior officials, the project as a whole is promising.

As we progress, the pressing need for rollups to adopt a decentralised approach to fortify security and preserve user confidence will becoming increasingly important.