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Publish Date 2021-07-27 13:34:54

Layer-2 Solutions to Pave The Way for Ethereum Adoption?

Layer-2 Solutions to Pave The Way for Ethereum Adoption?

Blockchain scalability is a hotly-debated topic since the early days of crypto, but in 2021 we are finally seeing some real moves towards infrastructure supporting the new wave of crypto adoption, thanks to layer-two solutions. 

Layer-twos come in a variety of shapes, purposes and architectures. We’ll focus on the Ethereum-centric platforms, which thanks to the proliferation of the EVM can be used on many other blockchains like Binance Smart Chain, Polkadot, Avalanche and others.

Ethereum currently has three main architectures for scaling smart contracts: sidechains, Optimistic Rollups and zkRollups. Each has its own benefits in terms of simplicity and availability, and some drawbacks in terms of decentralization and technological complexity.

The sidechain is the simplest and most practical, while at the same time it’s also the most centralized solution. Sidechains use their own validator sets, which are usually very small, and they generally connect to Ethereum through quite centralized bridges, which hold custody of the funds. But still, they are the leading solution today due to how simple they are to implement, with the market being too tired of Ethereum’s enormous gas fees to care about decentralization.

One of the leading sidechains on Ethereum is Polygon, formerly Matic. The platform succeeded in attracting considerable attention and support from leading DeFi, NFT and crypto protocols. It’s almost like the next Binance Smart Chain as many protocols are launching new farms and the MATIC token is recording huge gains.

Unfortunately, Polygon is for now only really connected to Ethereum. It’s segregated from other L2s or other blockchains and cannot tap into the same reservoir of liquidity as BSC, though there are a few experimental bridges deployed.

Polygon promises to bring an interoperable ecosystem of L2s to connect sidechains with every other kind of L2 solution. That’s going to be released with the Polygon SDK later on, but in the meantime people need to transact with other chains now. This is why Polygon is working to bring new partnerships that would boost cross-chain liquidity on its platform.


While Polygon claws back Ethereum’s dominance, teams are working to bring the next best thing in L2s: optimistic rollups. These are a fair bit more decentralized than sidechains, but it’s mostly because they use Ethereum for security. Nobody can steal money or do other nasty things as long as Ethereum itself is safe.

Unfortunately optimistic rollups are not ideal and suffer from two main issues: really long withdrawal times and the centralization of the sequencer.

These two issues are somewhat related and come from the optimistic mechanism of confirming transactions. Essentially, transactions are not all checked for validity, but simply assumed to be so. Obviously that would be terrible for security, so instead the system allows others to challenge some transactions and firmly prove that they’re invalid. To account for uncertainty, the challenge period is one whole week, which means that you have to wait that long for your withdrawals to be confirmed.

The other issue is the centralization of transaction ordering. While optimistic rollups are technically more decentralized, the transactions are ordered by just one entity, usually the operator of the rollup, or the sequencer. This means that they can rearrange them as they see fit and front-run their users’ trades or do other nasty things.

This is usually called Miner Extractable Value, and it’s a very serious issue in transparent blockchains of any type. Optimism, for example, decided to make MEV their business model by auctioning it off.

This is where decentralized sequencing can really help. Today there are other promising projects like MetisDAO, which seeks to create a decentralized network of sequencers, backed by Decentralized Autonomous Companies (DAC). The DAC is a blockchain-native company, which can set its own rules and permissions. The architecture can be made more decentralized and thus accommodate a much shorter fraud proof window, while also reducing the issue of MEV.

The last type of L2, the zkRollup, is almost like the holy grail of scalability. These platforms use zero knowledge proofs to validate each transaction and send a highly compressed batch of them to the blockchain. Once one block is confirmed, the transaction is final and the funds can be withdrawn immediately.

Through proposals like zkPorter by Matter Labs, the zkRollup can almost become a sharded decentralized blockchain of its own, remaining always tethered to Ethereum. The issue of the zkRollup is that it’s just really complex. Though there is good progress on porting smart contracts over there, zkRollups will probably come in full strength a bit later than others. Unfortunately the technology is very nascent there, but extremely promising. In the meantime, it’s important to use both sidechains and optimistic rollups so that congestion on Ethereum can be avoided entirely.


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