Mastering Ethereum's Scaling Solutions: A Comprehensive Guide on Prominent Layer-2s
Photo by Bastian Riccardi from Pexels
Ethereum, as one of the leading blockchain platforms, has garnered significant attention over the years for its potential to revolutionize various industries. However, its scalability issues have been a persistent challenge, leading to congestion and soaring gas fees. In response to this, the Ethereum community has been diligently working on implementing scaling solutions to improve transaction throughput, reduce costs, and enhance overall network efficiency.
Furthermore, towards the end of 2023, Ethereum will most likely implement EIP-4844, sometimes called Proto-Danksharding. This upgrade will massively increase data availability for rollup solutions, allowing layer-2s to offer cheaper transactions for end users. This is why, this update is generally expected to be bullish for Ethereum’s scaling solutions (and for Ethereum as well).
In this blog post, we'll explore the most prominent Ethereum scaling solutions and provide insights on how to start utilizing them effectively.
OP Mainnet (Optimistic Rollups)
OP Mainnet, also known as Optimistic Rollups, is a Layer-2 scaling solution that addresses Ethereum's scalability concerns by processing transactions off-chain and posting their aggregated results back to the mainnet. This approach significantly reduces congestion and lowers gas fees. To start utilizing OP Mainnet, users need to interact with dApps or platforms that have integrated this solution. Look for well-established projects and decentralized exchanges (DEXs) that have integrated OP Mainnet for a seamless experience.
The OP Stack, an open-source technology stack derived from OP Mainnet, is used to build the planned network of Layer-2 chains known as the Optimism Superchain. The Superchain is a permissionless system that supports the introduction of new chains to a shared network, opening the door to vast scale, creative applications, and a new reward-based revenue model.
Today, companies are building on the OP Stack to develop Ethereum L2s, including OP Mainnet, Base, Zora Network, and Public Goods Network. On February 2023, Optimism released the concept for the Superchain, which “seeks to integrate otherwise siloed L2s into a single interoperable and composable system.” These four chains earned 4.4k ETH in transaction fees overall in August, which translated into 2.2k ETH in net on-chain revenue (fees less L1 data costs).
Polygon (previously Matic)
Polygon, formerly known as Matic, is another robust scaling solution for Ethereum. It achieves scalability by utilizing a network of interconnected sidechains to process transactions. Polygon offers fast and low-cost transactions, making it ideal for DeFi applications and gaming platforms. To utilize Polygon, users can bridge their Ethereum assets to the Polygon network and interact with dApps deployed on Polygon. Look for bridges and wallets that support Polygon to transfer assets effortlessly.
Building the Internet's Value Layer is Polygon's clear mission. As such, the Value Layer is considered to be the underlying protocol that allows anybody to produce, exchange, and program value, much the same way the Internet permits anyone to communicate text. The Value Layer is constructed according to the design laid out in Polygon 2.0. It is a series of suggested improvements that completely reinvent practically every aspect of Polygon, from protocol design to tokenomics to governance.
Read more here.
Arbitrum is a Layer-2 scaling solution that employs Optimistic Rollups to enhance Ethereum's scalability and efficiency. By enabling smart contracts to process off-chain, Arbitrum significantly reduces gas fees and speeds up transactions. To utilize Arbitrum, users need to connect to the Arbitrum network using supported wallets or platforms. Keep an eye on updates from popular DeFi protocols as they integrate Arbitrum for improved user experiences.
The scaling solution for Ethereum known as Arbitrum has two chains: Arbitrum One, an optimistic roll-up, and Arbitrum Nova, a general-purpose AnyTrust solution. The Nitro technology stack powers both offerings. As of right now, Arbitrum One holds 54.31% of the roll-up market and leads in both DEX trade volume and the number of bridged ETH.
Arbitrum is still the biggest layer-2 in terms of Total Value Locked (TVL) that currently stands at $5 billion. See here.
Starkware employs zk-Rollups, a Zero-Knowledge Proof technology, to scale Ethereum by bundling multiple transactions into a single proof. This approach ensures that the blockchain only processes the validity of the proof, not each transaction, significantly reducing computation and improving scalability. To leverage Starkware, users can interact with applications and protocols that have integrated this technology. Look for gaming platforms, decentralized exchanges, and other DeFi projects utilizing Starkware for enhanced scalability.
August marked the first month when Starknet exceeded 11.8 million monthly transactions. In addition, compared to 2022, the average growth of bridged funds entering Starknet grew thrice.
zkSync is another compelling Zero-Knowledge Rollup solution that scales Ethereum while providing increased privacy for users. By aggregating multiple transactions into a single proof, zkSync ensures a high throughput and lower gas fees. To start using zkSync, users can transact on supported dApps and platforms that are integrated with zkSync. As more projects adopt this solution, expect further improvements in transaction speed and efficiency.
Over the last three months, zkSync has seen a growth in DEX volume of 15% week-over-week. This increase has been caused by the Maverick protocol, whose volumes are shown in the graph below in red. The total DEX volume during the zkSync Era exceeds $5.5 billion. On June 15, the protocol claimed reaching a record-high TPS of 434 and surpassing the milestone of 100 million completed transactions.
opBNB (based on BNB)
opBNB, an Optimistic Rollup developed by Binance Smart Chain, aims to bring Ethereum compatibility to BSC by allowing Ethereum assets to be transferred seamlessly between the two networks. This enables BSC to leverage Ethereum's vast ecosystem and scaling solutions. To utilize opBNB, users can transfer assets between Ethereum and BSC using the provided bridge or compatible wallets.
On top of opBNB, CUBISwap emerges as a decentralized autonomous organization (DAO). CUBISwap encourages users and partners to explore and participate with DeFi opportunities in a way that is secure, transparent, and accessible from anywhere in the world by providing a full range of capabilities via its DeFi Hub.
Mantle is an emerging Layer-2 aggregator that aims to provide a unified and seamless experience for Ethereum scaling solutions. By integrating different scaling technologies under one roof, Mantle aims to offer users and developers the flexibility to choose the most suitable solution for their specific needs. Keep an eye on Mantle's development and integration progress, as it has the potential to be a game-changer in the Ethereum scaling landscape.
Mantle is well-funded. This is because the world's largest DAO by treasury size, BitDAO, has joined forces with Mantle. Even if their own token is discounted, the project’s liquid treasury is still one of the biggest in the crypto space.
After being online on August 9, 2023, Base has amassed a TVL of more than $400 million, with the decentralized exchange Aerodrome playing a large part. The US cryptocurrency exchange Coinbase created the Ethereum Layer-2 network called Base. With a current TVL of $172 million, Aerodrome's recent token airdrop and heavily incentivized farms are mainly responsible for its high TVL.
Another important and popular app is Friend.tech. The platform allows users to buy proto-shares ("keys") of personalities, granting them access to exclusive content and the ability to monetize their social media presence. Furthermore, there are already protocols on Base like Uniswap, Curve, Aave, and 1Inch.
One week after its public launch, Base overtook the two most influential Ethereum Layer-2 Optimistic Rollup networks, Arbitrum and Optimism, in terms of average daily transaction volume. In terms of new daily unique addresses and revenue created, Base is also competing with the pair, while Arbitrum and Optimism continue to lead in terms of total value locked. Read more here.
Built on Ethereum and in collaboration with the Ethereum Foundation, Scroll is an EVM-equivalent ZK-Rollup. Scroll is made to scale without compromising security or developer experience. The Beta Testnet for Scroll just went live on Sepolia, and the mainnet will follow soon. 450K active wallet addresses and 2M transactions have already occurred on the beta testnet. More significantly, this yields a consistent average of 4–6 transactions per address; if all three measures rise, this is a positive sign of user involvement.
The goal of Scroll is to offer a user-friendly scaling solution while upholding Ethereum's core values of open source, security, and little reliance on third parties. Like a scroll, our tale is always changing as we work to safeguard Ethereum's future and simplify the developer experience.
In June 2023, the NFT marketplace Zora launched the Zora Network. The quick, affordable, and scalable Layer-2 blockchain that is EVM-compatible describes itself as being “built to help bring media onchain.” Currently, many L2s are DeFi-centric, however The Zora Network is an environment that prioritizes NFTs.
Zora provides a platform for NFT minting by makers and collectors. Zora has approximately 1 million collectors and tens of thousands of producers. Recently, Zora introduced a Layer-2 for the OP Stack. Zora's Network has been used by more than 40k creators, who increased by 97.51% month over month (MoM) in August. Transaction growth on Zora has tripled month over month since June, topping 7M total transactions.
Understanding Layer-2 Scaling
Layer-2 scaling solutions are designed to alleviate the strain on the Ethereum mainnet by moving a significant portion of transactions off-chain, while still maintaining the security and trustlessness that Ethereum is known for. These solutions achieve this by handling transactions and computation on secondary layers, which are then periodically settled on the Ethereum mainnet.
Advantages of Layer-2 Scaling Solutions
Scalability: The most evident advantage of Layer-2 scaling solutions is their ability to drastically increase the transaction throughput and overall capacity of the Ethereum network. This allows for a smoother user experience and lower transaction fees.
Reduced Fees: With transactions occurring off-chain, Layer-2 solutions can significantly reduce transaction fees, making Ethereum more accessible to a broader range of users and use cases.
Faster Confirmation Times: Layer-2 solutions can process transactions more quickly than the Ethereum mainnet, resulting in faster confirmation times for users.
Enhanced User Experience: The improved scalability and lower fees contribute to an enhanced user experience, promoting wider adoption of Ethereum-based applications.
Disadvantages of Layer-2 Scaling Solutions
Centralization Concerns: Some Layer-2 solutions require the presence of validators or operators who facilitate the off-chain transactions. This can raise concerns about centralization, especially if a small number of entities control the validation process.
Security Considerations: While Layer-2 solutions maintain a connection to the Ethereum mainnet, their security relies on this connection. If there are vulnerabilities in the L2 protocols, it could potentially affect the security of the entire ecosystem.
Complexity: Integrating Layer-2 solutions can be complex, requiring developers to adapt their smart contracts and DApps to function within the L2 environment. This can increase the learning curve for developers and hinder rapid adoption.
Interoperability Challenges: Different Layer-2 solutions might not be directly compatible with one another, leading to potential fragmentation within the Ethereum ecosystem. This could result in separate islands of liquidity and user bases.
Ethereum's scalability solutions are continually evolving, offering a promising future for the blockchain ecosystem. As the industry embraces these innovations, users can enjoy improved transaction speeds, reduced fees, and enhanced user experiences. To start utilizing these scaling solutions effectively, stay informed about updates from popular dApps, DeFi protocols, and wallets that integrate these technologies. By joining the scaling revolution, you can contribute to Ethereum's growth and prosperity while benefiting from a more efficient and scalable blockchain network.
What are the scaling issues with Ethereum?
Ethereum's scalability issues are a significant challenge for the network, and there are multiple solutions being researched, tested, and implemented that take different approaches to achieve similar goals. The Ethereum 2.0 upgrade, sharding, and layer-2 solutions are some of the proposed solutions to address Ethereum's scalability issue.
What is the best scaling solution for Ethereum?
To address Ethereum's scalability difficulties, numerous Layer-2 scaling methods are being investigated, tested, and put into practice. The requirements and specific use case will determine the optimal solution. Since they are all in competition with one another and each takes a different strategy with different trade-offs, there is no best scaling method.
How does Ethereum solve scalability?
Ethereum scaling solutions are specifically designed to improve the scalability of the Ethereum blockchain. Ethereum scaling solutions are broadly divided into layer-one and layer-two scaling solutions. The main goal of scalability is to increase transaction speed (faster finality) and transaction throughput (high transactions per second) without sacrificing decentralization or security.
Is scalability an issue for Ethereum?
Ethereum's scalability issue is a significant challenge that needs to be addressed to improve its performance and enable its mass adoption. However, Ethereum has implemented several solutions to address its scalability issues, including layer-one and layer-two scaling solutions, PoS, and off-chain scaling solutions. hese solutions aim to increase transaction speed and throughput without compromising on security or decentralization. Nevertheless, the only update that can truly address Ethereum’s scalability issue is the Ethereum 2.0 upgrade, otherwise known as the shift from proof-of-work (PoW) to proof-of-stake (PoS).
Will Ethereum ever be scalable?
Not from the beginning but probably in the future yes. The network's inability to handle more than 15 transactions per second has made scaling Ethereum a considerable difficulty. However, there are several strategies that are being investigated, examined, and put into practice in order to accomplish comparable objectives. Reaching scalability is a continuous progress. Layer-2 solutions are an important step in the right direction. Proto-Danksharding is another.