Delving into Ethereum L2s: A Comparative Study
Happy Weekend and Welcome to the Seventh edition of 'The Blockchain Explorer.
Ethereum is a popular blockchain platform for decentralized applications (dApps). However, Ethereum's Mainnet is facing scalability issues, which can lead to high transaction fees and slow transaction times. Layer 2 (L2) solutions are designed to address these scalability issues by offloading some of the computation and data storage from the Ethereum Mainnet to sidechains or other off-chain networks.
A Comparative Study for Ethereum Rollups
There are a number of different L2 solutions available, each with its own advantages and disadvantages. In this issue, we will focus exclusively on Ethereum Rollups and compare them using "The Blockchain Explorer" Development & Tokenomics Index.
- Arbitrum One
- Optimism
- zkSync Era
Here are some of the advantages of using L2 solutions:
- Lower transaction fees: L2 solutions can significantly reduce transaction fees on Ethereum. This is because L2 solutions offload some of the computation and data storage from the Ethereum Mainnet to sidechains or other off-chain networks.
- Faster transaction times: L2 solutions can also significantly improve transaction times on Ethereum. This is because L2 solutions can process transactions more quickly than the Ethereum Mainnet.
- Increased scalability: L2 solutions can help to increase the scalability of Ethereum. This is because L2 solutions can process more transactions than the Ethereum Mainnet.
Here are some of the disadvantages of using L2 solutions:
- Security: Some L2 solutions may be less secure than the Ethereum Mainnet. This is because L2 solutions are not as decentralized as the Ethereum Mainnet.
- Complexity: L2 solutions can be more complex to use than the Ethereum Mainnet. This is because L2 solutions require users to interact with multiple networks.
- Lack of adoption: Some L2 solutions are not as widely adopted as the Ethereum Mainnet. This can make it difficult to find liquidity and find dApps to use on L2 solutions.
Before we look at the stats, let's get some basics out of the way...
How L2 solutions work
L2 solutions work by taking transactions off the Ethereum mainnet and processing them on a sidechain or other off-chain network. Once the transactions are processed, they are then submitted to the Ethereum mainnet to be recorded on the blockchain. This allows for faster and cheaper transactions while still maintaining the security of the Ethereum network.
Specific L2 solutions
Some of the most popular L2 solutions include:
- Optimistic rollups: Optimistic rollups are a type of L2 solution that uses fraud proofs to verify the validity of transactions off-chain. Optimistic rollups are a popular choice for L2 solutions because they offer a good balance of scalability, security, and decentralization.
- ZK rollups: ZK rollups are a type of L2 solution that uses zero-knowledge proofs to verify the validity of transactions off-chain. ZK rollups are a newer type of L2 solution that offer even faster and cheaper transactions than optimistic rollups.
| Feature | Optimistic Rollups | ZK Rollups |
|---|---|---|
| Efficiency | Can process up to 1,000 transactions per second and have transaction fees that are significantly cheaper than Ethereum mainnet fees. | Can process up to 10,000 transactions per second and have transaction fees that are even cheaper than optimistic rollups fees. |
| Security | Considered to be just as secure as Ethereum mainnet, as they use the same security model. However, there is a risk of fraud, as validators may try to submit invalid transactions. This risk is mitigated by the fact that fraud proofs can be submitted to challenge invalid transactions. | Considered to be even more secure than optimistic rollups, as they use zero-knowledge proofs to verify the validity of transactions. Zero-knowledge proofs are a cryptographic technique that allows for proving the validity of a statement without revealing any information about the statement itself. This makes ZK rollups more resistant to fraud. |
| Adoption | The most widely adopted L2 solution. Some of the most popular dApps that use optimistic rollups include Uniswap, Aave, and SushiSwap. | A newer type of L2 solution, and they are not yet as widely adopted as optimistic rollups. However, they are gaining popularity, and some of the most popular dApps that use ZK rollups include Loopring and zkSync. |
| Ecosystem | Well-developed, with a number of different projects supporting it. Some of the most notable projects include Optimism, Arbitrum, and StarkWare. | Still under development, but it is growing rapidly. Some of the most notable projects include zkSync, Loopring, and Aztec. |
Overall, optimistic rollups and ZK rollups are both promising L2 solutions that offer a way to address the scalability issues facing Ethereum. Optimistic rollups are more widely adopted, while ZK rollups offer even faster and cheaper transactions.
The Blockchain Explorer Tokenomics Index: L2 Comparative Study
The assessment of digital asset indexes incorporates several key elements that drive potential value. These include the circulation to total token supply, where a larger proportion could hint at future price growth. The inflation mechanism is also considered; lower inflation rates typically indicate a slower supply increase, which is generally seen as a favorable attribute. Certain projects employ deflationary or burning mechanisms, which can generate token scarcity and propel value.
Another important criterion is the distribution of tokens. An equitable distribution is preferred to ensure network stability and minimize the risk of market manipulation. Moreover, tokens with multiple uses within their ecosystems, such as utility and governance roles, tend to score higher. Finally, market perception and adoption, encompassing aspects like brand recognition, community support, partnerships, and adoption rates, are taken into account.
Since zkSync Era doesn't have a native token yet, we won't include it in the analysis.
Conclusion
Tokenomics Index: Arbitrum has a higher Tokenomics index than Optimism. This indicates a more favorable economic structure for the token, considering factors such as token distribution, utility, and market perception.
- Circulating Supply: Arbitrum has a lower percentage of circulating supply than Optimism. A larger circulating supply generally benefits long-term sustainability and market stability, allowing for wider distribution and use. In this aspect, Optimism has an advantage.
- Inflation: The inflation rate for Arbitrum is lower than that for Optimism. This slower rate of supply increase can create scarcity, helping maintain or increase the token's value over time.
- Adoption: Arbitrum currently enjoys wider market adoption. Greater adoption can lead to higher demand and potentially higher prices, suggesting a more immediate positive outlook for Arbitrum.
- Token Distribution: Arbitrum's Airdrop for the community demonstrates a commitment to long-term value creation, which can be a positive signal for potential investors and users, enhancing the platform's trustworthiness and stability.
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