Expectations for the Airdrop King, Review of the Current Status of Layer2

Original title: "Expectations for the King of Airdrops: Summer of Layer2"

Original source: Huobi Research

Table of Contents

1. Arbitrum airdrop carnival

2. Ethereum second-layer airdrop opportunities

2.1 zkSync era.

2.1.1 Inventory of some projects in the zkSync ecosystem

2.2 Starknet

2.2.1 Inventory of some projects in the Starknet ecosystem

2.3 The rising star of Layer2 Project

3. Development and current status of BTC layer 2 network

4. Conclusion and thinking

References

TL;DR

This hot report mainly reviews the current status of the entire Layer2 ecosystem after Arbitrum one issued tokens, and draws the following conclusions:

Arbitrum's airdrop brought a wealth-making effect and triggered a wave of Layer2 interaction, especially zkSync and StarkNet. ZkSync's gas consumption has increased by 82% in the past week. Goerli ETH test coin price has risen.

Chinese users have a special liking for airdrops, and in the past month, Google Trends ranked first.

Other Layer2 testnet projects, including Scroll, Base, and Linea, will become rising stars.

Due to the popularity of BTC NFTs of the Ordinal protocol, the BTC second-layer ecosystem has begun to attract attention, and second-layer projects led by Stacks have begun to accumulate strength.

The second-layer technology and ecology need to be continuously improved, and the real summer of Layer2 will not come until 2024.

Carnival under Arbitrum airdrop

The most exciting thing in March 2022 is undoubtedly the Arbitrum airdrop, and the $ARB price is in line with everyone's expectations, stabilizing around $1~$1.5. According to the official airdrop rules, 625,143 addresses are eligible for airdrops, the airdrop supply exceeds 1b, and each address receives an average of 1,859 $ARB, worth about $24,167, which undoubtedly brings a large wave of wealth effect, and the interaction cost will not exceed $10. Since the release of the airdrop rules, Arbitrum One's TVL has risen all the way to $2.25b, accounting for 66.86% of the entire layer2 ecosystem, the number of unique addresses has exceeded 4 million, and the number of active users in the week of the airdrop has reached 1.38m. Even after the airdrop and token issuance, Arbitrum's on-chain activity is higher than other public chains and Ethereum mainnet.

Figure 1. Arbitrum's weekly active addresses (Source: dune, @Henrystats)

Arbitrum's airdrop brought some interesting phenomena:

Arbitrum's airdrop rules did not effectively block Sybil addresses. This has led to some individuals and groups gaining huge wealth. 1,007 contract addresses have also received airdrops, totaling about 1 million, and the airdrop rules cannot effectively prevent the following four types of witches:

Witches with fewer than 20 addresses;

Witches who deposit and withdraw through exchanges, cross-chain bridges, and smart contracts;

Witches with obvious NFT or fund collection behavior after snapshots;

Witches with obvious batch processing behavior on other chains, such as OP and Ethereum.

Due to the wealth effect, a large number of users have flocked to other Layer2 projects that have not issued coins to interact, especially zkSync and StarkNet, the remaining four major Layer2 projects. Even the Goerli test network projects have attracted users to get involved, and the Goerli ETH test coin has begun to have a price.

Figure 2. Goerli ETH price curve (Source: Tradingview)

Layer2 interacts frequently, ETH gas burns, and ETH is stably deflated. ZkSync's gas consumption has risen by 82% in the past week, reaching 1,003 ETH.

Figure 3. ETH supply and burning (Mar.1-Mar.30, Source: ultrasound.money)

Chinese users have a special liking for airdrops. From Google trends, China's search volume for zkSync ranked first in the world in the past month.

Figure 4. zkSync hot regional rankings in the past month (Source: Google trends)

After the $ARB token was issued, FDV reached $1.5B, the mainstream ecological market value of Arbitrum declined, and the on-chain activities also returned to the state before the coin issuance this week. At this stage, the industry is still in a bear market. After the good news of coin issuance is exhausted, it may be bad news. The funds on the chain quickly moved to a new narrative.

Table 1. Changes in the market value of the Arbitrum ecosystem after the issuance of coins

 Figure 5. Curve of the number of active addresses of each public chain in March (Source: nansen.ai)  

Ethereum Layer 2 Airdrop Opportunities

Whether the underlying technology of the OP system is truly decentralized and high-performance (such as node downtime and sorter problems), users are still concerned about the wealth effect. Optimism and Arbitrum have gained a good market share in the Layer2 ecosystem through ecological accumulation and airdrops to grab users. Moreover, as the Layer2 ecosystem becomes more mature, and EIP-4844 will significantly reduce Layer2 fees, Layer2 has already occupied a great advantage over other public chains. The bull market in the crypto industry in 2021 is a big explosion of new public chains, and the summer of Layer2 is also the expectation of all users.

On the premise of the success of Optimism and Arbitrum, the remaining two king projects of Layer2, zkSync and StarkNet, need to show more sincerity if they want to seize the market. Competition between projects and the wealth effect brought by users' fomo have made Layer2 Summer imminent. Below, we have sorted out the progress and ecological development of Ethereum Layer2 projects to provide a reference for all airdrop users.

2.1 zkSync era

zkSync, developed by Matter Labs, uses zero-knowledge proofs, especially zk-Rollups, to bundle multiple transactions into a single proof, which can then be verified on the Ethereum blockchain. zkSync is a promising scaling solution in the blockchain ecosystem that aims to address the challenges of high fees and network congestion on Ethereum. By providing a secure, scalable and low-cost alternative, it enables more practical and efficient use of decentralized applications and digital assets.

On March 24, the zkSync development team Matter Labs announced that the zkSync Era mainnet is officially open to users. zkSync Lite is version 1.0, and zkSync Era is essentially version 2.0 of zkSync. By upgrading from an externally owned account (EOA) to a smart contract account (CA), users can build abstract mnemonics, schedule and automate payments, and pay gas fees in any token - even on behalf of other users.

Currently, the zkSync Era network TVL has reached $42.86M, and zkSync Era has risen by 47,000% in the past week. According to Dune Analytics data, the number of single addresses in zkSync Era has reached 241,765, and 58,554 ETH have entered the zkSync Era network across chains. According to Defillama data, there are 9 DeFi projects that have been included, mainly DEX projects. There are 34 projects officially launched, including wallets, cross-chain, NFT, etc., but there are few innovative projects, and there is still a certain gap from the OP ecosystem. User interaction can choose:

(1) Use the official cross-chain bridge; (2) Interact with DEX, exchange tokens or become an LP; (3) Participate in lending projects; (4) Participate in domain name or NFT minting.

Figure 6. Activity of Layer2 projects in the past 7 days (Source: L2beat.com)

Figure 7. zkSync ecological projects (Source: defillama)

2.1.1 Inventory of some zkSync ecological projects

（1）DeFi

（3）Others

2.2 Starknet

StarkNet is an Ethereum layer 2 expansion network that uses zero-knowledge proof, especially zk-STARK technology. It was developed by StarkWare, a company focused on creating cryptographic proof systems to improve the scalability and privacy of various blockchain networks. StarkWare has created two projects, StarkEx and StarkNet, using zk technology. StarkEx provides dedicated Rollup technology services for each application and will be officially launched in 2020. Projects developed based on StarkEX include Sorare, immutableX, dYdX, etc. StarkNet can deploy universal Rollup for any smart contract. The mainnet will be launched in November 2021, and more than 50 ecological projects have been launched.

Given that StarkWare is currently valued at $8 billion, the value of the StarkNet ecosystem project is self-evident. StarkNet has announced on November 16, 2022 that it has deployed its native token $STRK on the Ethereum mainnet for voting, staking, and fee payments, with token distribution still to be determined.

Figure 8. Starknet network activity (Source: L2beat)

2.2.1 Inventory of some projects in the Starknet ecosystem

（1）DeFi

（2）NFT Marketplace & Projects

（3）DID

2.3 Rising Layer2 Projects Among the Layer2 projects that are closely following the Big Four, Scroll is currently second only to zkSync and Starknet. Scroll received $30 million in Series A funding in April 2022 and $50 million in July 2023. Scroll's goal is to build an EVM-compatible zk-Rollup, and the team is mainly composed of Chinese. Currently, the Scroll project is progressing smoothly, and the alpha testnet phase is underway. During the pre-alpha version, 1 million unique addresses and 16 million transactions were achieved, and the total amount of ETH in the testnet has also increased recently. The Scroll ecosystem has not yet been fully formed, and there are few projects that users can participate in, such as Uniswap. Users with strong coding skills can deploy smart contracts, but they all need to obtain Goerli test coins.

Figure 9. Scroll Goerli ETH amount (Source: dune, @subinium)

Another Layer2 project worth noting is the Base network developed by Coinbase, which was announced by Coinbase on February 23. Base is based on OP Stack technology. Currently, Base has opened a test network and is expected to release the main network in two months. In March, the number of Base contract deployments also far exceeded Arbitrum and Optimism. The launch of Base will help Coinbase's own development and deployment of decentralized applications. In the future, combined with the account abstraction technology of Coinbase Wallet and smart contract wallets, Coinbase customers can easily access the financial service protocols carried by Base.

Coinbase announced four major directions supported by the Base Ecosystem Fund: 1. Stablecoins that can track inflation rates (flatcoins); 2. On-chain reputation platform; 3. On-chain limit order book (LOB) trading platform;

4. Safer DeFi, which includes tools that can prevent smart contract code vulnerabilities or protocol logic errors, and ultimately on-chain insurance and insurance agreements, or any other products that can provide critical support to users when smart contracts fail.

Figure 10. Unique Contracts Deployed (Source: Artemis)

Recently, in addition to the high popularity of the Polygon zkEVM mainnet launch, Consensys has also opened the testnet of its zkEVM project Linea. Last week, Linea had a daily inflow of more than 10,000 Goerli ETH, setting a new record. Currently, there are more than 110,000 addresses on the Linea chain, depositing about 115,000 Goerli ETH and completing more than 590,000 transactions. The interaction of Linea is similar to Scroll, and you need to obtain Goerli's test coins. At present, the applications that users can interact with are relatively limited, including cross-chain bridge hop, DEX: Uniswap, MES protocol, NFT: ghostNFT.

Figure 11. Linea Goerli ETH daily inflow (Source: Dune, @subinium)

Figure 12. Linea Goerli daily unique address count (Source: Dune, @subinium)

BTC Development and current status of the second-layer network

With the rise of Ethereum's second-layer solution, many developers have also flocked to the Bitcoin second-layer network. The early well-known one is the Lightning Network. The use cases of the Lightning Network include social platform reward payment, cross-border remittances, merchant payments, transfer transactions, etc., which can meet the needs of diverse payment scenarios. After El Salvador legalized Bitcoin in 2021, the number and amount of payments on the Lightning Network rose rapidly. As of March 27, 2023, the Lightning Network has a total of 18,000 nodes and nearly 80,000 payment channels (data source: bitcoinvisuals).

However, the Lightning Network cannot carry diverse ecological applications like Ethereum. Since the BTC taproot upgrade, developers can embed asset metadata, making BTC possible to become a data platform. The BTC second-layer concept stands out. In February, BTC NFT based on the Ordinal protocol brought the BTC native ecology and ordinal NFT concept to the market, and the BTC ecology once again attracted attention. Here are 3 well-known BTC second-layer projects.

Table 2. Well-known BTC second-layer projects

Conclusion and thinking

Arbtrum’s airdrop triggered a Layer2 craze, and behind the fomo, it also triggered a series of problems:

1. Speculators are too enthusiastic and ignore the development of the project itself. Compared with AI, the technological progress of blockchain itself has too obvious wealth-creating effect, so users do not enjoy the technological advancement brought by the product, which is actually very detrimental to the development of the industry;

2. Although it is a bear market, the game of funds and mutual cutting in the market are becoming more and more intense;

3. Everyone's expectations for Layer2 are much higher than the public chain. The Ethereum ecosystem carries too much funds, but the development of zk technology, especially zkvm, is slow;

4. The airdrop is too volatile and unprofitable. More powerful projects may choose the IDO method, such as the public chain Sui, which may be objective and fair.

Other Ethereum Layer2 projects, such as Starknet, have a much richer ecosystem than zkSync, but it is not in a hurry to issue coins, and the service fees charged by Starkware are fully capable of making it profitable. On the contrary, I am more optimistic about Layer2 projects with zkevm as the core technology, such as Scroll and Linea. However, the interaction of these projects is slightly complicated and requires the purchase of ETH test coins.

The development of BTC's second layer is slow and controversial. The author believes that it may be more practical for BTC to go to the payment track or NFT collection. Other ecological applications will be hindered by gas fees, and congestion on the chain will also reduce user experience, and the Ethereum ecosystem is difficult to transplant.

Will the Layer2 summer happen this year? For the airdrop king, whether there is or not, the cost of on-chain interaction may be negligible, but from the point of view of time, it is still in a bear market. The stablecoins on the entire market chain and exchanges are continuously flowing out, and the liquidity of BTC and ETH is not good, so the summer of 2023 is not conducive to the project party to issue tokens. Maybe what we are welcoming is not the Layer2 summer of 2023. The real Layer2 summer needs to appear in the summer of 2024. Ethereum EIP-4844 has been upgraded, and on-chain applications are flourishing. This may be the beginning of the next bull market.

References

https://mirror.xyz/0x30bF18409211FB048b8Abf44c27052c93cF329F2/DSAO5lW92IWKUNnwoZJwZUpB8M3A8llSdkTN-dmeYyI

https://consensys.net/blog/research-development/consensys-zkevm-is-ready-for-public-testnet/