Cancun Upgrade Descends to These Representative Layer 2 Projects: Do They Possess Corresponding Growth Potential?

On January 11, 2024, the U.S. SEC finally approved a Bitcoin spot ETF, sparking widespread attention and discussion. Concurrently, the Ethereum ecosystem led the gains in the crypto field, indicating a growing market interest in the Ethereum ecosystem as the Cancun upgrade approaches.

During the 178th Ethereum core developers meeting on the evening of January 5, 2024, the timeline for the Cancun upgrade was clearly defined. If all goes well, the Ethereum mainnet is expected to complete the Cancun upgrade by late February or early March.

The timeline for the Cancun upgrade is as follows:

On January 17, it will be conducted on the Goerli test network (12 internal tests have been conducted so far, this will be the first public test);

On January 30, it is planned to be launched on the Sepolia test network (provided that no new bugs appear on the Goerli test network);

On February 7, it will be carried out on the last test network Holesky (provided that no new bugs appear in the Sepolia test network).

If successful, we can anticipate the official completion of the Ethereum mainnet’s Cancun upgrade by late February or early March.

Overview of the Content and Impact of the Cancun Upgrade: Expected to Drive Further Prosperity of the Ethereum Ecosystem

Since its official launch on the mainnet on July 30, 2015, Ethereum has undergone several important technical upgrades, each named after a city to signify its significance. However, over time, Ethereum still faces some key issues that need to be addressed in order to realize its potential for mass adoption.

Currently, the transaction speed on the Ethereum mainnet is still relatively slow, with a capacity to process transactions per second (TPS) ranging from 15 to 20. At the same time, transaction fees (Gas fees) are also high, with a single transaction on the mainnet potentially costing up to $10, and even on Layer 2 networks, each transaction requires a fee of $0.2. This has led to a decline in user experience and limited the development of the Ethereum ecosystem.

The main goal of the Cancun upgrade is to solve these problems and enhance the scalability, security and availability of the Ethereum network by expanding the capacity of the Ethereum main chain, increasing the TPS of the main chain and reducing Gas fees. This upgrade will also promote the development of the Layer 2 ecosystem and provide a better experience for more developers and users.

From a data point of view, the TVL （Total Value Locked）of the Ethereum Layer 2 ecosystem has recently shown rapid growth. The total market value has exceeded US$22 billion, with an increase of nearly 10% in the past seven days. This shows that investors and developers have confidence in Ethereum’s Layer 2 solutions, and the Cancun upgrade is expected to further promote the prosperity of this ecosystem.

The Cancun upgrade includes 6 key Ethereum Improvement Proposals (EIPs):

1. EIP-4844 (Proto-Danksharding): Aims to reduce gas costs on Layer 2 networks without sacrificing decentralization, especially for Rollup solutions. This proposal is expected to reduce Rollup’s gas costs by 90%.

2. ERC-4337 and ERC-6900 (Account Abstraction): Account abstraction will change the way users interact with crypto wallets, make gas-free transactions the standard, and promote secure social login as the new norm, reshaping Ethereum. user experience.

3. EIP-1153 (Instantaneous Storage Opcode): Allows smart contracts to use instant storage, reducing the Gas cost associated with storing data during contract execution, and providing greater flexibility.

4. EIP-4788 (Beacon Block Root Submission): Introducing protocol-level oracles to improve the security and operational efficiency of the liquidity staking protocol.

5. EIP-5656 (MCOPY operation code): Optimize the process of copying data in memory, reduce the Gas costs related to memory operations, and improve the execution speed of smart contracts.

6. EIP-6780 (limiting self-destruction): By limiting self-destruction operations, Ethereum can better manage its state scale, improve the stability and predictability of the blockchain, and pave the way for future upgrades.

These improvement proposals will be implemented in the Cancun upgrade and are expected to significantly improve the performance and functionality of Ethereum and lay a solid foundation for the development of the ecosystem. The Cancun upgrade is of great significance not only to the Ethereum community but to the entire crypto world, and the community generally believes that it will be the engine of this crypto bull market.

Layer 2’s Two Leading Players Directly Benefit from the Cancun Upgrade: An Overview of Arbitrum and Optimism

The Cancun upgrade itself has direct benefits for Ethereum Layer 2, especially the current leaders Arbitrum and Optimism. This benefit is reflected in the rapid decline in their L1 costs, thus creating greater profit margins for Layer 2.

Since its launch, Arbitrum (ARB) has performed well in various L2 business data, especially in terms of the number of active users. The number of active users of Arbitrum has remained within the range of 2 to 3 times that of OP.

However, since OP proposed the Superchain strategy and OpStack technology stack in February last year, OP’s ecosystem has shown stronger potential. The number of developers in OP’s ecosystem has always far exceeded that of Arbitrum.

After the launch of OpStack and Superchain, they were first adopted by Coinbase. The L2 Base, built with OpStack, and the Superchain strategy were announced in February and officially launched on August 10th. With Coinbase’s demonstration effect, more and more projects have chosen OpStack. These include Binance’s opBNB, the NFT project ZORA invested in by Paradigm, the Loot ecosystem project Adventure Gold DAO, the Public Goods Network (PGN) supported by Gitcoin, the leading option project Lyra, the well-known on-chain data dashboard Debank, and even Celo, originally an L1 solution, has chosen OpStack as its L2 solution.

Arbitrum’s response strategy is to introduce the Orbiter L3 technology stack, which competes with OpStack. Project teams have the option to utilize Arbitrum One as their Data Availability Layer (DA layer) and build their own L3 solution using Orbiter. However, this strategy faces one challenge: most project teams are hesitant to categorize themselves as L3. Projects that possess ample industry resources (users, developers, and IP content) tend to prefer building their own L2 solutions, as it offers a higher valuation potential and a larger user base.

Xai is the first L3 blockchain in the Arbitrum ecosystem and has recently been listed on Binance Exchange. The development team behind Xai is Offchain Labs, which suggests that the Arbitrum team aims to create successful projects through the Xai project and strengthen its position in the L2 market.

In general, Arbitrum and Optimism have distinct features in the Ethereum Layer2 competition and have performed well in different areas. Their competition will stimulate the development of the entire Ethereum ecosystem.

A Look At the Cutting-edge Layer 2 Projects: From Blast to Manta Network, to ZKFair and Metis

The Cancun upgrade will attract the attention of the entire crypto market to the Rollup track, bringing more attention and capital inflows to new Rollup projects. For these new projects, they have a clear advantage in attracting users and assets through the airdrop program, rapidly increasing Total Value Locked (TVL) data. Here are some high-profile new Layer 2 projects:

Blast: It has received US$20 million in financing, and TVL has now exceeded US$1.2 billion.

Blast is an Ethereum Layer 2 network launched by Pacman, the founder of Blur, and is built on Optimistic Rollups technology. The project has received $20 million in financing from Paradigm and Standard Crypto. The essence of Blast’s airdrop program is that users deposit funds into Blast, and then Blast uses the user’s Ethereum to pledge on the Ethereum mainnet, and compound interest is automatically carried out. Stable currency assets such as USDC, USDT and DAI are deposited into the MakerDao protocol to earn income.

This mechanism allows users to not only obtain all staking benefits, but also receive additional Blast token airdrop rewards. With the support of the Blast team and investors, users and funds have poured in. Currently, Blast’s TVL has exceeded US$1.2 billion.

Manta Network: It consists of two parts: Manta Pacific and Manta Atlantic, and the TVL of the project is also increasing.

Founded in 2020, Manta Network works on modular blockchain for zero-knowledge (ZK) applications. It consists of two parts, Manta Pacific and Manta Atlantic. Manta Pacific is specifically designed for ZK applications, while Manta Atlantic is a fast ZK Layer1 solution based on Polkadot that focuses on programmable identities and credentials.

Manta Pacific was officially launched in September 2023. It is currently based on OP Stack and is fully compatible with the EVM environment and Solidity development language. Manta Network launched a token airdrop incentive plan in December 2023. This plan distributes its own rollup token rewards based on the amount of cross-chain funds, rapidly increases the amount of funds on the chain, encourages users to interact with existing Dapps after cross-chain, and improves Boost developer confidence. After the launch of this plan, Manta Network’s TVL data began to grow significantly.

ZKFair: 100% fair launch of the governance token ZKF, both TVL and total user volume increased

ZKFair is an Ethereum Layer 2 solution built on Polygon CDK. Its unique feature is the 100% fair launch of the governance token ZKF. There are no investors, reserves or pre-mining strategies.

After the mainnet goes online, 10 billion ZKF tokens will be completely airdropped to the community, and there will be no other way to obtain these tokens. This strategy encourages users to use Dapps on the mainnet and promotes the development of the user and developer ecosystem. Currently, ZKFair’s TVL is also showing a growth trend, with the cumulative number of users exceeding 9,000.

Metis: A decentralized PoS sequencer solution that introduces the Staking mechanism to increase the security and decentralization of Layer 2

On December 18, 2023, Metis launched the ecological development fund Metis EDF. According to the official announcement, Metis plans to allocate 4.6 million METIS tokens to support various ecological development activities, including sequencer mining, retroactive funds, deployment of new projects, etc. These tokens will be issued after the launch of the Metis decentralized sorter mainnet in the first quarter of 2024.

Layer 2 networks have been criticized for the centralization problem of the sequencer, but progress in solving the centralization problem of the sequencer has been slow. According to a research report published by Binance in August this year, all major Ethereum Layer 2 networks rely on centralized orderers, which are officially designated and controlled by the project. While many Layer 2 projects include addressing the decentralization of sequencers as part of their roadmaps, there is no real consensus on how to achieve decentralization.

Metis decided to take a key step in the field of decentralized sequencers and introduced a decentralized PoS sequencer solution with a staking mechanism to ensure the normal operation of the network through token incentives. This innovative approach aims to accelerate the development and implementation of decentralized sequencers and provide higher security and decentralization for Layer 2 networks.

Metis’ move is expected to drive the entire Layer 2 ecosystem in a more decentralized direction, providing users with more secure and trustworthy solutions.

In the Layer 2 Ecosystem, Some Projects That Have Not Yet Issued Tokens Also Deserve Detailed Attention

In the Ethereum Layer 2 ecosystem, there are some important players who, although they do not issue tokens, play a key role in the development of the ecosystem.

Base plans to become a decentralized, permissionless Layer 2 chain. It uses OP Stack technology to connect with other projects using the same technology stack, thereby promoting the development of the Base ecosystem. Since its launch in July last year, Base has achieved impressive results, with a cumulative profit of more than 5.6 million US dollars, surpassing most other Layer 2 projects. The cumulative number of users has exceeded 2.9 million, and daily active users have reached 65,000. Some popular applications have also emerged on Base, such as friend tech, FrenPet, etc., further promoting the growth of the ecosystem.

opBNB is the Layer 2 expansion solution of BNB Chain. Binance is its supporter and has a huge user base and project resources. At the same time, BSC, as a complete decentralized ecosystem, has accumulated a large number of users and transaction volume, providing a solid foundation for opBNB.

Linea is a Layer 2 solution launched by Little Fox (the parent company of ConsenSys), aiming to improve the scalability and efficiency of the Ethereum network. It also has natural advantages in traffic and can be seamlessly integrated with ConsenSys products such as Infura, MetaMask and Truffle, further enhancing its appeal.

Scroll is the EVM equivalent of zkRollup and is designed to scale the Ethereum network. As a project in cooperation with the Ethereum Foundation, it is supported by the Ethereum Foundation. Although the support is relatively weak, it still contributes to the expansion and development of Ethereum.

Although these projects have not issued tokens, they have provided important support for the prosperity and sustainable development of Ethereum Layer 2 through technological innovation and ecosystem construction. Their efforts make the Layer 2 ecosystem more diverse and powerful, providing more choices and opportunities for users and developers. As the Cancun upgrade approaches, we can expect to see more innovation and collaboration to further the development of Ethereum Layer 2.

The Cancun Upgrade is Approaching, But Ethereum’s Underlying Technology and Value Ecosystem Still Face a Series of Significant Challenges

As the Cancun upgrade approaches, the Ethereum Layer 2 ecosystem is experiencing a period of prosperity, but behind this prosperity, we must also recognize that there are a series of challenges.

The token incentive mechanism has gradually shifted from focusing on Total Value Locked (TVL) in the initial stage to broader ecological development considerations, including the increase in the number of active users, the consumption of Gas fees, and the introduction of new projects. The market is gradually shifting from simply observing TVL to paying more attention to the sustainability of the ecosystem. This change has also brought greater challenges, requiring project parties to consider more about how to attract users, maintain the activity of the ecosystem, and provide users with a better experience.

What we cannot ignore is that whether the project can achieve long-term development still depends on the strength of the project itself. Technological innovation, market adaptation, and the birth of user-favored Dapps are all key factors for the success of the project. In this fiercely competitive field, only by continuously improving one’s own strength can we stand out in the fierce competition and truly achieve long-term development.

In short, the prosperity of the Ethereum Layer 2 ecosystem is an exciting sign, but it also requires continuous efforts from the project side to overcome various challenges and contribute more innovation and value to the development of the encryption market. Only in the process of continuous evolution and improvement can we see a better future for the crypto world.

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