Prospects for the Three Major Narratives of Layer 2 in 2024: Decentralized Sequencers, Rising of Parallel EVM and ZK Rollups Going Live with Token Issuance

Ethereum founder Vitalik Buterin once outlined the future Ethereum 2.0 upgrade roadmap with six concise stages: The Merge, The Surge, The Scourge, The Verge, The Purge, and The Splurge. The Dencun upgrade is a significant technical upgrade in The Surge stage, with EIP-4844 being the most crucial among several EIPs. From the results, EIP-4844 has the most direct impact on Layer 2, making Layer 2 likely to be the most noteworthy track in the cryptocurrency industry in 2024. Recently, many leading projects in the Layer 2 track have begun to make moves. This article believes that there will be three major narratives centered around Layer 2 in the future.

Narrative 1: Sequencer for Layer 2 begins to decentralize

The significance of Layer2 lies in increasing ETH throughput and reducing transaction fees, with sequencers largely contributing to achieving this goal. In Layer2, the role of sequencers is to organize, sequence, and compress hundreds or thousands of transactions into one, which is then submitted for confirmation to Layer1. In this process, sequencers charge fees, serving as one of the main sources of income for Layer2.

Currently, Layer2 sequencers are centralized, mostly operated by project parties such as the OP Foundation and Arbitrum Foundation. From a security perspective, centralized sequencers, if they fail or are attacked, can pose a threat to the entire Layer2. Decentralizing sequencers is crucial, and simultaneously, this will give rise to a significant market for L2Fi (Decentralized Finance on Layer2).

According to the official plan, OP Chain has sequencing options such as self-sequencing, using Optimism Collective’s sequencer, and adopting decentralized sequencer aggregation services. Self-sequencing introduces a new revenue model, where developers can earn fees and MEV from the chains they deploy. Decentralized sequencers will serve multiple rollups simultaneously, using cryptographic economic incentives to hold operators accountable. Shared sequencers can achieve atomic and trust-minimized cross-chain rollup communication as nodes generate blocks on various chains simultaneously. The early model of the super-chain sequencing model involves auctions, where potential sequencers pay for sequencing rights and earn their share of fees and MEV. Sequencers may also need to share part of the fee income with Retrospective Public Goods Funding (RPGF).

The planning for OP Chain’s sequencers has not yet been finalized, but Metis’s sequencer is already emerging and is expected to accelerate the implementation of major Layer2 sequencer plans.

Metis is a Layer2 developed on the Optimistic Rollup and went live on the mainnet in 2021, being one of the earliest second-layer networks to go live on Rollup. In 2024, it upgraded to a Hybrid Rollup, combining the Optimistic Rollup architecture with zero-knowledge proof (zk).

Metis’s decentralized PoS sequencer is now operational on the Holesky testnet, divided into three rounds, including simulating the behavior of real nodes, increasing the number of nodes, and staking tests. Starting on January 3, 2024, community testing will be open, allowing users to interact with new ecosystem dApps on the Holesky testnet and earn rewards for a month. Each sequencer node requires a stake of 20,000 Metis, and mining rewards will be substantial, with 50% of Metis used for node rewards. For users who do not have enough funds to operate nodes, Metis will soon launch a liquidity staking Dapp called Enki, enabling these community users to participate in node staking and receive corresponding returns.

Narrative 2: Learn from Each Other, the Rise of Parallel EVM

Former Polygon co-founder JD recently expressed on social media his anticipation that every Layer2 in 2024 will rebrand itself with the “Parallel EVM” label. Georgios, CTO of Paradigm, also believes that 2024 will be the “year of Parallel EVM” and mentioned that Paradigm is internally exploring and designing related technologies. Why is everyone so optimistic about Parallel EVM?

Ethereum Virtual Machine (EVM) is the core of Ethereum, responsible for running smart contracts and processing transactions with a transaction logic that is executed sequentially. This design prioritizes security and reduces the potential complexity and vulnerabilities associated with parallel execution. However, under high loads, it may lead to network congestion and delays. Parallel EVM (Ethereum Virtual Machine) is a concept aimed at improving the performance and efficiency of the existing EVM, much like expanding a single-lane road into a multi-lane highway, allowing multiple vehicles to travel simultaneously.

Several projects in the market have begun exploring the design of Parallel EVM. In the Layer2 space, representative projects that combine the capabilities of other chains with EVM include Neon, Eclipse, and Lumio. Apart from Layer2 projects, some prominent Layer1 projects with Parallel EVM capabilities are Monad and Sei.

Narrative 3: ZK Rollups Launching Soon, Unleashing Layer2 Wealth Effect

Compared to ZK Rollup solutions, Optimistic Rollup is more likely to land in the short term, mainly due to its stronger portability. However, ZK Rollup is fundamentally more favored by the market. According to L2Beat data, among 65 Rollup projects, 26 are ZK-Rollup solutions, while, in comparison, there are only 21 OP-Rollup projects. In the ZK-Rollup category, projects like Scroll and Taiko aim for extreme EVM equivalence to enhance compatibility with the Ethereum mainnet. zkSync and Starknet pursue comprehensive scalability to increase incremental users for the mainnet by improving transaction processing speed and throughput. Aztec focuses on solving transaction privacy issues using ZK.

With the Ethereum Cancun upgrade, the ZK ecosystem has been making continuous efforts recently, and a new round of wealth creation stories in the ZK ecosystem is likely to unfold in the next bull market.

Due to the greater technical difficulty of the ZK ecosystem, its development has been relatively slower. However, from various indications, some projects are expected to go live successively in this round of the bull market. For instance, leading ZK ecosystem projects such as Starknet and zkSync are anticipated to launch, and accompanying airdrops are likely to generate wealth once again. Starknet is expected to distribute STRK to DApp developers to incentivize them to build projects. It will also distribute STRK to early ECMP community contributors (contents, meetups, workshops, etc.) and allocate 9 billion STRK for future user rebates.

In addition to the traditional narratives of the ZK ecosystem, ZKFair is conducting another interesting ZK L2 network experiment. It proposes to build a fair-launched, community-driven, and community-governed ZK L2 network where users can contribute to the network’s development and receive generous rewards based on their contributions. This innovative L2 network narrative has the potential to rival the trend of inscriptions. ZKFair advocates for a community-driven Layer2 ethos with the following key points: 100% of tokens will be fairly launched with an initially set valuation range relatively low to ensure everyone can participate. Gas fee revenue will be returned to all community contributors and L2 network users. ZKFair encourages more creative projects to join, allowing anyone to propose ideas and suggestions for community development and initiate proposals. ZKFair utilizes ZK technology with the following core highlights: It uses USDC as the Gas token for L2, providing users with a stable and transparent fee structure. Based on Polygon CDK and Celestia DA’s ZK-Rollup, it supports atomic cross-Rollup communication, enabling users to interact directly with Dapps on Ethereum L1. It supports a decentralized prover network for L2, providing a more stable and reliable zero-knowledge proof computation.

Summary

The EIP-4844 upgrade in Dencun is set to significantly reduce transaction fees on Layer2, enhancing its competitiveness with improved performance. Additionally, the decentralization of sequencers in Layer2 is crucial, and the introduction of decentralized sequencers is likely to give rise to a new staking track. While the Dencun upgrade will boost Layer2 performance, there remains a substantial gap compared to Solana. However, the emergence of parallel EVM will further enhance Layer2’s competitiveness. Moreover, the introduction of ZK-based Layer2 might become a major focal point in the market.

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