Evolution of Ethereum L2 and public chain landscape.

Original Title: "The Evolution of Ethereum L2 and Public Chain Landscape"

Original Author: Blue Fox Notes

You can first take a look at some current data trends and the evolution direction of Ethereum technology.

1. TVL and trading volume of DeFi on different chains

Arbitrum and Optimism's TVL rankings have gradually entered the top ten from outside the top ten.

Arbitrum and Optimism's DeFi daily trading volume rankings have entered the top five.

From the above chart, it can be seen that in terms of TVL in the DeFi industry, Arbitrum ranks fifth, with only Ethereum, BSC, Tron, and Polygon ahead of it, surpassing Avalanche, Solana, and others. Optimism ranks eighth, also surpassing most public chains.

If we look at the 24-hour DeFi trading volume, Arbitrum ranks third and Optimism ranks fifth. Arbitrum is only behind Ethereum and BSC, the two most active public chains, and has surpassed most public chains. Optimism is only behind Ethereum, BSC, and Polygon, the three major public chains, and has also surpassed most public chains. DeFi trading volume reflects the activity of the chain to a certain extent.

2. Development of ecological projects

Basically, DeFi, NFT, and GameFi projects on L2 (Arbitrum and Optimism) are already complete, and some major DeFi protocols on L1, such as Aave, Uniswap, Synthetix, and Perpetual, are also available on L2.

Here, there are also some native L2 projects that are beginning to show their potential. For example, on the Arbitrum network, the gaming ecosystem project Magic Network (TreasureDAO) is trying to build a Nintendo on web3, providing various underlying services for different games, showing the initial prototype of the ecosystem. Currently, some games have received community attention (such as thebeacon, which launched a preliminary prototype less than two weeks ago and has more than 20,000 independent addresses); DeFi projects, as of the time of writing, GMX's total trading volume on Arbitrum has exceeded 70.9 billion US dollars, and the protocol's cumulative total fees have exceeded 93 million US dollars.

According to Orbiter's statistics, as of the time of writing, there are 58 projects on Arbitrum with over 1,000 user addresses, 39 projects with over 10,000 user addresses, 40 projects with over 1,000 monthly active addresses, and 24 projects with over 10,000 monthly active addresses. On Optimism, there are 50 projects with over 1,000 user addresses, 32 projects with over 10,000 user addresses, 33 projects with over 1,000 monthly active addresses, and 20 projects with over 10,000 monthly active addresses.

As of the time of writing, some of the protocols with high monthly active addresses and interactions on Arbitrum include Uniswap, Sushiswap, GMX, Hop, TreasureDAO, Galxe, Stargate, and dopex. Similarly, some of the protocols with high monthly active addresses and interactions on Optimism include Uniswap, Perpetual, synthetix, Velodrome, Rubicon, Pooltogether, and Thales.

Currently, projects in the Arbitrum and Optimism ecosystems have achieved initial scale. As time evolves, the speed of ecosystem development will correspondingly accelerate due to better portability, lower subsequent costs, and increased throughput.

From the current development of ecological projects in L2, it can be seen that L2 has surpassed most public chains.

3. Active Address Count

From the perspective of daily active users, as of the time of writing (not completely accurate, only used for rough comparison of scale), the statistics are as follows:

Data comes from browsers of different chains

From the current daily active address data, the daily active addresses of BSC, Ethereum, and Solana are higher than those of Abitrum and Optimism, while Avalanche is currently at the same level as Aribitrum and Optimism.

From a trend perspective, the daily active users of Ethereum are relatively stable, with a slight upward trend in the past six months; BSC is basically in a relatively stable state; Solana was relatively stable in the early stage, but there has been a downward trend in the past month; Avalanche has a certain downward trend in daily active users in the past six months; compared to this, Optimism's daily active users are in a more obvious upward trend, from less than 10,000 six months ago, to now stable at around 30,000-40,000; Arbitrum's daily active users are also in a more obvious upward trend, from around 15,000 six months ago, to now around 40,000-50,000.

With the evolution of time, especially with the release of EIP-4844, there is still a chance for the daily active addresses of L2 to continue to increase. In the next 2-5 years, there will be significant changes in the ranking of L2 in terms of daily active addresses.

4. Trading Quantity

From the perspective of transaction volume, as of the time of writing, the following statistics are roughly estimated (not completely accurate, only used for rough comparison of scale):

Data is sourced from various blockchain browsers

Data source dune.com

Currently, the daily transaction volume of Ethereum is approximately around 1 million, while Arbitrum and Optimism are around 360,000 and 350,000 respectively. Looking at the past year, the transaction volume of Layer 2 has been on the rise, while the Ethereum mainnet has remained relatively stable. It is expected that the long-term transaction volume of L2 will soon surpass that of Ethereum L1. The internal consensus messages of Solana are also considered as transactions, and its transaction volume is much higher than that of other chains.

Finally, it should be noted that the trading volume metric cannot fully reflect the activity level of the chain. If the fees are low, there may be a large number of low-quality transactions. Therefore, to assess the quality of transaction volume, it is mainly necessary to consider the active dAPPs in the ecosystem, as well as the number of real active users and interactions on these dAPPs.

Therefore, in terms of the overall chain, a certain amount of screening is required for the transaction quantity.

5. Fees

Regarding L2 fees, the cost of sending ETH and exchanging tokens is relatively cheap, ranging from a few cents to a few dimes at present. According to the data at the time of writing, sending ETH on Arbitrum costs about a few cents, while exchanging tokens costs from a few cents to a few dimes. The fees have significantly decreased compared to before, with the cost of sending ETH being more than 10 times lower than on L1.

Currently, compared to other public chains, Solana has the most obvious cost advantage in terms of L2 transaction fees. According to the data at the time of writing, the overall cost for 24 hours was only 99.17 SOL, and the average transaction fee was only 0.0000057 SOL.

Overall, from the perspective of transaction fees, except for Solana, the advantages of other public chains compared to L2 are not significant. According to the comparison of fees between L1 and L2, currently Arbitrum and Optimism are on the same level as Avalanche, and surpass many other public chains.

More importantly, there is still room for a cost reduction of tens of times for Optimistic Rollup and Zk Rollup. This is mainly related to the implementation of subsequent Proto-danksharding (EIP-4844) and danksharding.

If there is a chance in the future, Blue Fox Notes will provide more information on EIP-4844. Simply put, Pro-danksharding (EIP-4844) introduces dedicated space for rollup data. It brings new transaction data types and a fee market specifically for rollup data without using calldata. Transactions carrying blobs are introduced and are independent of EVM execution. Data is pruned after a period of time (such as two weeks) to reduce node overhead.

Blob can carry a large amount of data, and blob transactions can compete with gas usage without competing with current ordinary transactions, avoiding competition for current block space. Compared with calldata, gas costs are cheaper. EIP-4844 and danksharding will turn Ethereum into a unified settlement layer and data availability layer. From Ethereum's current roadmap, it has begun to build a scalable path centered on Rollups.

After the implementation of EIP-4844, the transaction fees for rollups will be greatly reduced. Theoretically, there is a space for fee reduction of up to 100 times, and even if there is only an improvement of several tens or ten times, it still means that the fees for L2 will be greatly reduced on the current basis. This also means that the cost advantage of most single-chain public chains will disappear. At the same time, Rollup has advantages in consensus, security bridges, etc., which will have a substantial impact on the competition of subsequent L2 and other public chains.

When EIP-4844 is implemented, the Optimistic Rollups solution may have an advantage in the early stages, with its costs potentially lower than those of ZK Rollup. Additionally, for ZK Rollup in the early stages, they will need to redesign their rollup to release proofs with new transaction types. Of course, as the cost of validity proofs decreases (currently, technological innovation is underway, with optimization space of up to hundreds of times), and as ZK Rollup technology gradually lands, this situation may gradually change, and when everything is mature, the cost of ZK Rollup is expected to be lower than that of Optimistic Rollup. In addition, data compression technology will also be gradually implemented on rollups, and once implemented, there is theoretically still room for rollup improvement of hundreds of times on the current basis.

If the above-mentioned technologies can be implemented, the daily trading volume of L2 has the opportunity to accommodate a scale of more than tens of millions. This provides sufficient room for defi and early games to develop.

In summary, in terms of cost, once the subsequent proto-danksharding and danksharding are implemented, the cost of Rollup may be lower than that of most other standalone public chains. This means that cost-sensitive groups will migrate to Rollup on a large scale based on security advantages. Previously, the rise of BSC, Solana, and Avalanche was due to the high cost of Ethereum L1. If the cost of L2 can be significantly reduced in the future, users and developers will also have the willingness and motivation to enter the Ethereum network ecosystem.

6.TPS

Most of the self-promoted TPS in the market are suspected of exaggeration, and an external third-party measurement is needed here.

Token The TPS for sending and Token exchange are technically different. The TPS in the test network or developer network environment is also different from the TPS in the actual operating environment.

TPS and decentralization are related. The higher the degree of decentralization, the more secure it is, and TPS often suffers. Therefore, high TPS alone is not always a good thing. Web2 has the highest TPS.

Dragonfly Capital once conducted a benchmark test of tps based on the token exchange (swap eth for tokens) on Uniswap V2, and then calculated the approximate tps through block gas limits and block time. Friends can also test it themselves to draw their own conclusions.

According to the testing conducted by dragonfly under the aforementioned conditions (Token exchange on Uniswap V2), Ethereum's TPS is approximately 9.19. Polygon's TPS is approximately 47.67, Avalanche's TPS is approximately 31.65, BSC's TPS is approximately 194.6, and Solana's TPS is approximately 273.34 (CU has a calculation unit limit, similar to gas, and each block can only contain approximately 48 million CUs). On the Solana block explorer, TPS is displayed at around 3000, with internal consensus messages being treated as transactions, accounting for approximately 80% of the throughput, leaving approximately 600 TPS.

From this benchmark calculation, Solana's tps should be the peak among all single-chain networks currently. Most other chains have tps ranging from several tens to hundreds, which is only a few times to several tens of times larger than Ethereum L1, and still far from reaching the space of hundreds of times.

Ethereum L2's tps, according to Vitalik's calculations, can theoretically reach 1000-4000 tps with rollup. If Pro-danksharding and danksharding can be implemented, Ethereum L2's tps is expected to exceed 100,000 tps.

During the early stages of actual operation, it may not necessarily achieve the expected TPS in theory. However, there is a chance to be comparable to other high-performance single-chain public chains. With the implementation of Pro-danksharding (estimated to take at least 1 year) and danksharding (estimated to take at least 2-3 years) in the future, the TPS of L2 will be greatly improved. Coupled with the security and network effects of Ethereum itself, L2 may end the public chain competition at some point in the future. Of course, there is still a long time to go and everything is evolving dynamically, and there may be other variables. Please continue to pay attention.

In addition, L2 does not need to provide a large amount of subsidy incentives like new public chains (such as Aptos, Sui, etc.) to support its security. It only needs to use subsidies to attract more developers to build products on it, promoting ecological development.

Ethereum L2 and public chain competition is expected to end in 5 to 10 years

Currently, various projects are entering the Arbitrum and Optimism ecosystems, and some projects have already seen higher trading activity on L2 than on L1. For example, Synthetix's trading on Optimism has surpassed its activity on Ethereum L1. Similar phenomena are expected to occur for other DeFi or crypto games in the future.

With the gradual maturity of the L2 ecosystem, the TVL (total locked value), active users, and real trading volume of Arbitrum and Optimism will gradually surpass most public chains. It remains to be seen whether they can surpass a few mainstream non-Ethereum public chain networks, but the trend suggests that there is a high probability of surpassing the overall ecosystem level. There will be new public chains in the future, and they will have certain opportunities due to narrative or technological breakthroughs or differentiation. However, if the new public chain cannot improve by more than ten times in terms of cost, speed, and user experience, it will not be easy to surpass L2.

Of course, in the future, the landscape will be a multi-chain era, and it is impossible for one chain to encompass everything. Ethereum cannot dominate the entire market. Based on the current situation, Ethereum and its L2 have the highest probability of becoming the primary network, while there will be a few larger chains and ecosystems, as well as many more niche chains (currently there are over 100 L1 blockchains), which will be more focused on certain areas, such as gaming chains, and even carbon application chains.

Just based on the current trend, L2 will become an important competitor to other public chains. And if L2 eventually stands out, it will further enhance the network effect of the Ethereum ecosystem (wallets, developer tools, protocols, liquidity, developers, user groups, etc.), thereby consolidating its leading position in the field of blockchain smart contracts (even web3).

To sum up, based on current trends, L2 and some non-Ethereum public chains will form a direct competitive relationship. Due to the security advantages of L2, the possibility of significant cost reduction and large throughput improvement, as well as the ability to leverage Ethereum's traditional network ecological advantages (developers, development tools, wallets, protocols, user base, user usage habits, etc.), L2 will occupy a favorable position in competition with other public chains, and therefore has a greater chance of gaining an advantage.

The potential variables of the pattern competition

In addition, there is also a possible unexpected situation, which is the sudden emergence of a new technological paradigm that thoroughly subverts the current scalability of the blockchain from different paths. Although the probability of this situation is not high, it is worth paying attention to because no one can predict the future.

In this case, various public chain networks are not yet in their final form, and the pattern of blockchain is far from its endgame. The true endgame of blockchain still depends on when web3 truly explodes. (Currently, web3 is still a very niche stage, with a very small user base. Even though Ethereum has hundreds of millions of addresses, the actual user base is not large.)

Risk Warning: All the above analysis is only a one-sided observation of the market and may not be accurate. Please make sure to maintain your own judgment and do proper risk control.

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