How will the Layer 2 market evolve after the upgrade in Cancun?

Recently, layer2 finally broke the silence and raised its eyebrows, and Tokens such as $OP, $ARB, and $METIS shone brightly, like the Show Time moment on the eve of the Cancun upgrade.

Why did the “competitive involution” of Layer2 after the upgrade of Cancun really kick off, and how will the market pattern of Layer2 evolve after the upgrade of Cancun? Next, let me talk about my opinion:

1) Ethereum the implementation of the Cancun upgrade EIP4844 Proto-Danksharding proposal will bring a “qualitative” boost to the layer2 rollup project.

By introducing a new data structure in blob space, it iterates the limitations of relying on calldata to store data in the past, and improves the data availability capability of EthereumMainnet.

Compared with the full node storage structure of calldata, Blob is designed as temporary storage for some nodes, which can greatly increase the upper limit of data submitted by layer2 to the mainnet at a time, expand its TPS, and because it is only temporary storage, the data storage efficiency will be improved, and the data storage cost will also plummet. The improvement of DA capability is due to the temporary storage of 1 month, which is more than enough to deal with the OP-Rollup 7-day fraud proof time window.

As a result, the volume of transactions submitted to the Mainnet by layer 2 per transaction will increase significantly, and the average fee allocated to a single user will also decrease significantly. Before the upgrade of Cancun, layer2 boasted about how big its TPS was, but most of it was a test environment, but the poor experience of gas fee wear and tear that users intuitively felt would make everyone feel that layer2 was not worthy of the name.

After the upgrade of Cancun, the layer2 players have no performance bottleneck on the Mainnet, and can no longer use the Mainnet restriction as an excuse, and the hard indicators such as TPS and Gas will directly become a test, which is also a key to the layer2 reshaping the competitive landscape.

That’s why I’ve repeatedly emphasized that after the upgrade in Cancun, the Layer 2 competition really kicked off;

2) After the upgrade of Cancun, the involution war in the layer2 market intensified, and rookies frequently challenged the existing pattern of OP + ZK.

The Decentralization of Sequencer has always been the focus of market attention, and as a result, it was found that in the layer2 track, the strong OP-Rollup, Decentralization Sequencer has become a social Consensus “soft Decentralization” in the nature of the Stack Alliance.

Whatsoever, despite criticizing Optimism’s inaction in decentralization, it seems that Optimism’s actual market success with OP-Stack can also turn things around. But, can you say that OP-Rollup is all Rollup? Obviously not, the more reasonable market evolution trend is that the success of OP-Stack will be further amplified, and the gap of OP-Stack will naturally have other relays.

In the past two days, the layer2 Decentralization Sequencer solution provider @MetisDAOSecondary Market has performed extraordinarily, with a 7D increase of over 100%, and its TVL Lock-up Position data has also soared to $540 million, which is close to zkSync, Why?

The core business logic is very simple, since the OP-Rollup has stopped on the issue of sequencer decentralization, as a relay, proposing a reasonable set of Decentralization Sequencer solutions is its market space.

Because the Decentralization of Sequencer is related to the credibility of layer2 submitted transactions, and also to the Mainnet interaction security of layer2 transactions, if you put aside the “foundation” issue, Cancun’s upgraded TPS and Gas rates seem to have become “castles in the sky”, I do not deny the success of Optimism in the Stack strategy, but the Decentralization problem of Sequencer will always be solved by other game-breakers.

Metis runs multiple Sequencer Nodes in the form of POS staking, and the Nodes compete for block rewards through the election mechanism, and evil is also punished by Slash. This kind of POS Consensus bundles each Sequencer as a stakeholder into a community of interests, and the Metis Foundation uses token incentives to spend 4.6 million $METISToken to incentivize Sequencer Mining, new project deployment, and other subsequent ecosystems.

Compared with Optimism, Metis’ Market Cap is still low, and it does not fight with OP head-to-head, and Decentralization Sequencer alone can open up a vast market. Metis is just a typical example of the recent eye-catching, in my opinion, after the upgrade of Cancun, the market size of layer2 will be further expanded, the cutting-edge layer2 supplier, to grab meat from the mouths of the two giant crocodiles of OP and ZK, will also do their best to roll the layer2 track out of the new sky, of course, more opportunities will also be on the cutting-edge layer2.

3) Layer2 will gradually evolve modularly, the legitimacy will be broken, and the chivalrous layer2 will be replaced by the generalized layer2.

I have mentioned in many articles before that the core of layer 2 is the DA capability of Ethereum, and if the full node of the Mainnet does not participate in the verification of layer 2 data security, the Mainnet actually becomes a “bulletin board”, and layer 2 cannot inherit the security of the Mainnet. Therefore, those who rely on Ethereum DA are chivalrous layer 2, and those who escape the category of Ethereum DA are generalized layer 2. (Radical points can also disagree with it as Layer 2)

But when the layer2 market grows to a certain size, the pure chivalrous Ethereum layer2 legitimacy may be broken. The same is true of OP-Rollup’s fraud proof, which can be selectively ignored by the market without actual battle-tested challenges. Technology is only a part of business logic, and the market and ecology have the final say, just like Optimism can always work miracles in the name of optimism.

This means that after the Cancun upgrade, third-party DA solutions will invade layer 2, including @CelestiaOrg’s third-party DA solutions, @EspressoSys’s shared Sequencer solutions, etc. Despite everyone’s reluctance, the business logic of modular evolution will gradually break down the defenses that EthereumMainnet can hold.

The focus of the OP-Stack stack implementation is to achieve shared Sequencer, the more OP strategic alliances in the future, the greater the benefits it can grasp through Sequencer, on the contrary, it will be affected by multiple interests will also become larger, this social consensus will become a new constraint outside the technology, and stabilize Optimism in a big brother position; The focus of the ZK-Stack stack is to implement the shared Prover system, its own DA capabilities and third-party DA capabilities such as Celestia, of course, the limited DA capabilities of the Mainnet, will belong to the strategic enclosure of ZK, and its development focus is on the new multi-chain ZK layout interface of layer3 Hyperchains, and who provides DA is not critical.

Their interest orientation has decided, in fact, they can not care about where the DA is, and only the Ethereum deity cares about the DA. Therefore, in the face of Celestia’s continuous grabbing of the DA market, Vitalik is shouting for Plasma+ZK, but OP+ZK, which is busy with strategic expansion, does not care about this, they only care about how big the layer2 camp covered by their Stack strategy will be, after all, RaaS is the commercial endgame of layer2.

All in all, the upgraded Layer2 track in Cancun will be extremely exciting, whether it is the frequent appearance of cutting-edge swords or the expansion of Layer2 strategic boundaries, it will stimulate the Layer2 market to “diversify” and prosper.

The layer2 track will eventually become a highly modular market that integrates ZK technology + OP framework + various DA solutions + various Sequencer services + various gas fee models.