Dear Frens,

In the ongoing quest for blockchain scalability and efficiency, Layer 2 solutions continue to demonstrate their potential, with notable developments such as Polygon Nightfall, zkSync, Optimistic Rollups, and sidechains like Polygon PoS and XDai/Gnosis. However, these solutions have also introduced new security challenges, which are being addressed through rigorous audits, testnets, adoption of best practices, and transparent governance.

In this week's editorial, we continue from where we left off in the previous issue, shedding more light on Vitalik Buterin's proposed milestones for rollup maturity, which he categorized into three stages: full training wheels, limited training wheels, and no training wheels. This framework serves as a valuable tool for evaluating the decentralization progress of rollups.

As the Layer 2 ecosystem continues to evolve, it's essential to stay informed on the latest developments, proposals, and projects to better understand the future of Ethereum's scalability and efficiency. So read on as we bring to you the latest stats, proposals, project watch, ecosystem updates, and more from around the world of Ethereum’s Layer 2.

Contributors: Lucent1, anointingthompson1.eth, Warrior, jengajojo, Tonytad, Boluwatife, Kornekt, WinVerse

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🗞️ Ecosystem Updates

⛓️ Frax Launches Layer 2 Network Fraxtal With Partner Apps

🆕 Sushi Plans to Launch Decentralized Derivatives Exchange Susa on Layer N

🔀 Layer 2 Startup LightLink Secures 4.5 Million USD in Seed Round

➿ Herodotus, StarkWare Unveil 'Cairo verifier' to Scale Layer 3s on Starknet

⚡ Starknet Foundation Unveils STRK Token Distribution Plan to Nearly 1.3 Million Eligible Wallets

⭕ zkSync Eyes Lower Fees, 'bigger batches’ After Ethereum's Dencun Upgrade

🔒 Polygon Labs Wants to Help Convert EVM Blockchains Into Validiums via 'type 1 prover'

🔥 Hot News

Redbelly Network Forges Strategic Partnership with TProtocol

The acclaimed World’s ONLY Public Purpose-Built Real-World Asset Tokenization Platform — Redbrlly Network — has announced a groundbreaking partnership with TProtocol, a decentralized Real World Asset (RWA) lending protocol.

This strategic collaboration promises to unleash a tsunami of innovation, propelling both platforms to new heights of success and solidifying their positions as trailblazers in the dynamic world of RWA tokenization.

TProtocol's cutting-edge V2 introduces a game-changing TLending mechanism that focuses on permissioned RWA tokens. This revolutionary approach empowers RWA institutions to borrow USDC against their tokens in separate pools, complete with tailored risk parameters, interest rate models, and liquidation methods. Simultaneously, users can lend their USDC in an over-collateralized manner to gain access to safe real yields backed by RWA tokens.

This partnership represents a bold step toward unlocking the full potential of blockchain technology and ushering in a new era of financial innovation. To get more information on this electrifying partnership, check out the thread below👇

🏛 Governance

⭐ Featured Proposals

Arbitrum Foundation Transparency Report 2023

From the proposal: “The Arbitrum Foundation and the ArbitrumDAO are 10 months old and it has been an amazing year for the community. As part of the Arbitrum Foundation’s commitment to transparency and giving the community insight into the Foundation’s operations, today the Foundation is sharing the first annual transparency report.”

The report is structured based on their technical advancement, grants, strategic partnerships, and educational and community initiatives, you might want to check it out.

💬 Proposals in Discussion

Arbitrum

• https://forum.arbitrum.foundation/t/rfc-daos-committees-balancing-decentralization-with-efficiency/21194

• https://forum.arbitrum.foundation/t/aip-arbos-version-20-atlas/20957

• https://forum.arbitrum.foundation/t/aip-batch-poster-manager-and-sequencer-inbox-finality-fix/20995

• https://forum.arbitrum.foundation/t/rfc-create-a-standardized-guideline-for-non-security-council-elections/20915

Optimism

• https://gov.optimism.io/t/operating-manual-v0-3-8-the-token-house-and-citizens-house/7668

Polygon

• https://forum.polygon.technology/t/an-update-on-polygon-labs-polygon-ventures-and-polygon-id/13507

• https://forum.polygon.technology/t/exploring-the-future-with-aggregated-blockchains-dive-into-polygons-latest-thesis/13521

• https://forum.polygon.technology/t/polygon-staking-report-january-2024-by-validator-info/13545

Mantle

• https://forum.mantle.xyz/t/discussion-mantle-zkevm-research-industry-collaboration/4699

Celo

• https://forum.celo.org/t/celo-governance-guidelines-and-public-goods-funding-strategy-h1-2024-revised/7200

A Primer on Rollup Stages

Author: Kornekt

Currently, we have a vibrant ecosystem of L2 solutions, each using different approaches to solve the scalability trilemma. But as we’ve highlighted in our previous L2 review releases, a paradox arises: the very quest for enhanced scalability has introduced unintended centralization. One of the ways this centralization manifests is in the use of centralized sequencers. However, the concerns extend beyond sequencers.

In our previous issue, the author introduced the idea of decentralization or maturity stages of rollups based on a framework inspired by Vitalik's proposed milestones for rollups taking off training wheels. These “training wheels” are the initial form of centralized mechanisms that rollup projects employ. In this article, we’ll be digging a little deeper into these maturity stages.

The Stages Framework

The stages framework is a tiered system that defines rollup maturity levels. According to Vitalik’s forum post, the idea is to clarify the extent to which rollups minimize trust in specific humans versus trust in code. There are three stages in this framework: Stage 0, Stage 1, and Stage 2. The ultimate goal remains to achieve "Stage 2" decentralization, characterized by trustless operation, although the stages framework does not necessarily reflect rollup security.

Attaining a stage designation requires meeting specific criteria, but according to a detailed analysis by L2BEAT,

“The framework includes highly opinionated components, such as the minimum exit window, the Security Council thresholds, and fraud-proof allowlist size. We believe it was necessary to select some starting points, but in the future, we may adjust them based on new scenarios and feedback from the community. We hope that this framework will become a basis of in-depth debate in the coming months.”

Stage 0, Stage 1, and Stage 2

Stage 0: Full Training Wheels

In this stage, essential control of the rollup is in the hands of the operators. According to L2BEAT, some rollups in this category include Optimism, zkSync Era, and Polygon zkEVM. Here’s a quick breakdown of key features of rollups in this stage:

• The project identifies as a rollup, distinguishing itself from other scaling solutions that are currently available

• The rollup posts all its transactions onchain. That is, the L2 state roots are posted on the L1 chain. It is a key characteristic that allows for withdrawals

• The project must provide Data Availability on L1 and there should be an availability of the rollup node software needed to reconstruct the rollup state based on the L1 data. This way, the L2 state can be easily reconstructed, for transparency and auditability.

• Stage 0 projects may lack an active fraud proof or validity proof mechanism

Stage 1: Limited Training Wheels

Some rollups that pass as Stage 1 according to L2BEAT include Arbitrum and zkSync Lite. Key features of Stage 1 rollups include:

• A functional proof system to verify the validity of transaction batches.

• The fraud proof system is a little decentralized such that at least 5 external actors can submit fraud proofs to challenge invalid transactions.

• The project allows for independent user exits. That is, users can withdraw their funds without relying on the rollup operator. Also, users have at least a 7-day window to exit the project in case of unwanted upgrades involving significant changes to the system

• A Security Council exists to address and step in during issues like bugs in the proof system. This council functions through a multisig setup of at least 8 participants, half of which are external to the rollup project. A 50% consensus threshold is required including a minimum of two of the external participants.

Stage 2: No Training Wheels

Key features of this stage include:

• The project allows permissionless fraud proofs. That is, anyone can submit fraud proofs, increasing participation and decentralization.

• Timelocked upgrades of at least a 30-day window to allow users to exit before significant changes to the protocol

• Security council exists with only very limited power and may act only in cases of significant flaws in the system. This enhances decentralization as the trust placed on the security council is reduced.

Why Reaching Stage 2 Is So Important

Reaching Stage 2 for L2 solutions brings several critical advantages related to the core blockchain ethos of trustlessness and decentralization. Layer 2 solutions should aim for a Stage 2 designation for several key reasons:

• Increased Decentralization and Trust: Stage 2 emphasizes self-governance through smart contracts, minimizing reliance on human operators and reducing single points of failure. This fosters trust in the system, as no single entity controls the network.

• Community-Driven Governance: On-chain governance mechanisms empower the community to make decisions, promoting transparency and participation, essential for a truly decentralized system. Decentralized governance fosters community engagement and ownership, potentially leading to more robust support and development of the network in the long run.

• Improved Network Sustainability: A Stage 2 designation signals a higher level of decentralization and maturity, potentially attracting more users and developers, and benefiting the ecosystem overall.

In summary, reaching Stage 2 signifies a leap towards a truly decentralized and trustless L2 ecosystem. It fosters transparency, user autonomy, and security, ultimately contributing to the long-term viability and scalability of blockchain technology. While all these are necessary, L2 projects are still to follow a progressive approach to take off the “training wheels”. This ensures long-term sustainability of the projects and the ecosystem as a whole.

📈 Data

Total Value Locked on L2s moves past $25 billion!

Top Ten Projects by Total Value Locked:

🔭 Project Watch

Arbitrum

Top Projects by TVL

Optimism

Top Projects by TVL

zkSync

Top Projects by TVL

zkEVM

Top Projects by TVL

🔥 L2 Fees and Costs Update

Transaction Fees as of February 14, 2024: