What are some of the projects working on Optimistic rollups and ZK rollups?
What are my thoughts on the future of rollups?
What are some of the challenges?
Let’s roll!
In Part 1 of this article, we have explored how rollups can effectively scale the Ethereum network, hence saving users tons of time and money while transacting on Ethereum; we have also discussed what Optimistic rollups and ZK rollups are and their differences. As promised, I am going to cover the topics above in this Part 2 of the article today.
If you want to know more about what rollups are, what problems they’re solving, what kinds of rollups there are and their differences, you can check out Part 1 of this article:
Optimistic Rollups
There are 2 main competitors in the Optimistic Rollups space- Optimism and Arbitrum.
In general, these 2 popular projects are actually pretty similar with the main differences lying in how they generate fraud proofs and their compatibility with the EVM (Ethereum Virtual Machine). Let’s explore further, shall we?
1. Optimism
Optimism is the Optimistic Rollups protocol that first started to gain traction. It was also supposed to be the first mainnet launch which was planned to be in March 2021, however because of a delay in launching further to July 2021, another protocol Arbitrum has made it first in May 2021.
Despite so, Optimism has continued to draw a lot of attention and interest. The project has raised a total of $28.5M in funding over 2 rounds, with one of those from the stage-agnostic venture capital firm Andreessen Horowitz. Before the official full launch, in order to ensure the technology works as well as expected, it has been partially rolled out to the Ethereum mainnet with partners such as Uniswap and Synthenix.
Optimism relays transaction data from the Ethereum main chain to Layer 2 network by using smart contracts. In the process, with the help of sequencer, multiple transactions can be bundled into one big batch, that can be submitted back to the Ethereum main chain through one single transaction. Based on the characteristic of Optimistic Rollup, these sequencers perform the processes by assuming all the transactions are valid optimistically.
Optimism allows a one-week window for any transaction discrepancies to be found. A Dispute Resolution mechanism is implemented to be able to verify fraud proofs, detecting fraudulent transactions as well as disincentivizing bad actors from submitting invalid transactions or false fraud proofs.
In order to have the fraud-proof generated, the whole Layer 2 transaction is executed on Layer 1, which allows a very efficient proof generation. On March 2021, Optimism has partnered with MakerDAO to create the Optimism DAI Bridge, which allows fast withdrawals of DAI and other tokens back to Layer 1.
Talking about Optimism’s compatibility with the EVM, it is trying to stay as similar as possible to the Ethereum ecosystem. It has a Solidity compiler (Solidity is however the only EVM language Optimism supports) and uses a modified GETH for the Layer 2 node. GETH (Go Ethereum — check this article on how to deploy a Geth node) is a command-line interface for running Ethereum node implemented in Go Language. For transactions, Optimism uses ETH as it doesn’t have a native token yet.
There are a few projects working on Optimistic Rollups, like Fuel, OMG team with Boba (formerly OMGX), and Cartesi, to name a few. Most of them also try to work on an EVM-compatible version of their rollups.
2. Arbitrum
Arbitrum was officially launched by Offchain Labs on the Ethereum mainnet in May 2021, becoming the first Optimistic Rollups to be launched. Arbitrum has raised $120 million in funding led by Lightspeed Venture Partners.
As mentioned, Arbitrum and Optimism are very similar to each other with the main difference lying in the way they generate fraud proofs. While Optimism does it by executing the whole Layer 2 transaction, Arbitrum executes small pieces of the Layer 2 transaction until it finds a discrepancy. Such multi-round approach allows narrowing down the scope of the dispute, and potentially only needed to execute a few instructions on Layer 1 to check if a suspicious transaction is valid. This largely enhances the capacity of each transaction. It can however take up to 2 weeks in generating fraud-proof, which is way longer than the single-round approach used by Optimism.
Some of the notable projects launching on Arbitrum include Uniswap, Sushiswap, Chainlink, etc. In July 2021, Arbitrum has also partnered with Reddit to work on launching a separate rollup chain to scale Reddit’s reward system, known as Community Points.
Regarding the EVM-compatibility, Arbitrum supports all EVM languages including Solidity, YUL, Vyper, etc. Unlike Optimism, it uses a custom Layer 2 node. For transactions, it uses ETH, the same as Optimism.
Even though it seems like the Ethereum community is having its attention mainly on Optimistic Rollups, projects developing on ZK Rollups are progressing rapidly at the same time. Let’s explore a couple of the promising ZK Rollups projects including ZKSync and Hermez today.
1. ZKSync
ZKSync is a zkSNARK-based project. Zk-SNARK is an acronym that stands for “Zero-Knowledge Succinct Non-Interactive Argument of Knowledge.” It is a cryptographic proof that allows one party to prove that it possesses certain information without needing to reveal the information.
Matter Labs, which is the team behind ZKSync, has described the project as “a scaling and privacy engine, which enables transfers with low gas fees of ETH and other ERC-20 tokens in the Ethereum network.”
With only one single validator processing transaction batches as well as generating validity proofs, hence the motto of ZKSync — “Rely on math, not validators”.
ZKPorter serves an important role in the vision for ZKSync 2.0. It is an off-chain data availability solution that complements the rollup component of ZKSync 2.0, which means the contracts and accounts will be able to interact with those of ZKPorter. “Guardians” is the group of people who stake ZKSync tokens and sign blocks to confirm data availability in ZKPorter accounts. With their own tokens being staked, they are being incentivized to ensure there are no data availability failures.
It is claimed that the Proof of Stake (PoS) mechanism in ZKSync is more secure than the PoS in alternative scaling solutions such as sidechains, as guardians are not able to steal funds.
On the other hand, ZKSync supports NFT minting as well as token swaps. To address the EVM-compatibility issue, the first version of the testnet of EVM-compatible ZK rollup “zkSync 2.0” was live in June 2021, powered by zkEVM. zkEVM is a virtual machine that can execute smart contracts in a way that is compatible with the Zero-Knowledge Proof computation.
2. Hermez
Just like ZKSync, Hermez is a zkSNARK-based project developed by Iden3. According to the team, Hermez will be able to scale Ethereum up to 2,000 transactions per second.
“Coordinators” of Hermez processes transaction batches to the Hermez rollup and generate validity proofs for the batches. These coordinators are picked from an auction process that allows registered network nodes to place bids to become the next coordinator. The winning bidder can then get to process as many batches as they could, during one single timeslot which lasts 40 Ethereum blocks (around 10 mins).
In August 2021, Hermez announced its merge with Polygon network. The deal was worth $250 million. According to the announcement, “Polygon reached out to Hermez as they were exploring the option to become the L2 powerhouse. After some initial and fruitful discussions, Hermez realized that the best way to expand the platform was integrating with Polygon, which will allow the Hermez team to be focused on the technical solution.”
The merging indicates that the arguably most popular Ethereum-scaling project Polygon is getting ZK Rollups capabilities, which is quite a big deal if you ask me.
Initially, the auction process to pick coordinators are paid in HEZ, which is the proprietary token of Hermez. After the big merge with Polygon, the HEZ token has been indexed to MATIC token. Polygon’s native token MATIC will become the utility token of the Polygon Hermez zkRollup.
Holders can now exchange HEZ to MATIC here.
After the launch of Hermez 1.0 in March 2021, which was designed to support Ethereum token transfers, the team is currently working on the development of Hermez 2.0, the zkEVM or Ethereum complete emulation in a zero-knowledge virtual machine. According to Hermez, “This is a challenging design decision but the objective is to minimize the user friction to use this scalability solution and boost the utility of the Ethereum network.”
You can read the initial Polygon Heremz 2.0 zkEVM documentation here.
Challenges
As you see, there are quite a lot of exciting projects and developments going on in both Optimistic Rollups and ZK Rollups. It will sure be interesting to see their competition carrying onwards. There are however some challenges that I would like to briefly explore.
Composability
To successfully compose a transaction that uses multiple different protocols, all of them would need to be deployed on the same rollup. The interoperability of components within the design system is certainly one of the challenges that need to be addressed.
Fractured Liquidity
To maintain healthy liquidity in the Ethereum ecosystem means new money needs to keep coming in. With low liquidity, the existing liquidity presented on Layer 1 in protocols like UniSwap will then be shared between Layer 1 and multiple rollup implementations. It can also potentially leads to higher slippage and slow trade executions.
Competition
The Ethereum ecosystem is currently not big enough to be able to make use of all the scaling solutions existing at the moment. With such huge competition among all the solutions, there will naturally be winners and losers. It will be really interesting to see how rollups will evolve and try to win among all the other strong competitors.
In my opinion, rollups may trigger another huge growth for DeFi (Decentralized Finance), as users who were previously unable to afford the high gas fees are now able to transact on the Ethereum network even during times of high demand. A new breed of applications that require cheaper and faster transactions will also be enabled.
In the future, it is possible to see users become active entirely within one rollup ecosystem and not interacting with the main Ethereum chain or other Ethereum scaling solutions. This could be possible if there are more and more centralized exchanges enabling direct transactions like withdrawals and deposits in rollups.
In the announcement of Andreessen Horowitz’s $25 million investment in Optimism, it says, “While there is little debate that scaling Ethereum is necessary to continue supporting the rapid growth of the network, this issue is sometimes framed as a competition between Ethereum 2.0, Layer 2 services, and “Ethereum killer” Layer 1s.” “One lesson from internet history is that when you give developers a powerful new computing platform, they create applications at such a rapid rate that demand consistently outpaces supply. We believe the same will be true for Ethereum, and therefore that the answer to scaling is “all of the above,” including Ethereum 2.0, bridged Layer 1s, and Layer 2 solutions.”
When it comes to Layer 2 solutions, rollups are in my opinion the best of them. The founder of Ethereum, Vitalik Buterin also sees rollups as a great fit for Proof of Stake and Sharding, which are the two important components of the Ethereum 2.0 upgrade. To know more about how Vitalik thinks about rollups, this read “An Incomplete Guide to Rollups” is highly recommended.
So, what are your thoughts on rollups? Do you think it can be the winner among all the Ethereum scaling solutions? Which rollup projects are your favorites? Share your thoughts with me!
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