- As cryptocurrencies and blockchain attract significant real-world adoption, L2 may become even more necessary.
- “Whatever improvements are made to L1 are greatly amplified by L2.”
- 2022 may be the year we determine whether the ZK Aggregate can become functionally complete, viable and competitive.
- “We could see a significant rise in bridges between L2 and centralized exchanges, as well as various L2-to-L2 bridges.”
- “We will see the rise of native L2 applications that are built from the ground up to take advantage of the computational richness of L2.”
- Some data using L2 is also expected to appear in a new third layer running on top of the second layer.
2022 is expected to be the year that EtherChannel (ETH) – the largest smart contract blockchain in terms of total locked-in value – finally moves to a proof-of-stake (PoS) consensus mechanism. If there is no further delay. For some observers, this shift could mean that Layer 2 (L2) solutions built on top of Ether, such as Polygon (MATIC), Loopring (LRC), Arbitrum, Optimism, and StarkWare (to name a few) become more or less redundant as long as Ether can scale on its own.
However, the data working in this sub-sector is unanimous in claiming that L2 platforms will not only remain relevant with the arrival of Ether 2.0 (now renamed "Consensus Layer"), but will also see strong growth in 2022. Demand for such platforms will grow this year along with the use of Ether itself, as smaller transactions and business applications seek the fastest and most cost effective mechanism.
At the same time, specific L2 trends are likely to emerge this year, from the growth of zero-knowledge rollups (ZK rollups) and interoperability between platforms to native L2 applications and even the emergence of "layer 3.
Ether 2.0 = the end of L2?
Few believe that the arrival of Ether 2.0 (expected at some point in the first half of this year) will make L2 solutions unnecessary. Instead, one of the major trends this year may be their continued and growing relevance.
"Even if Ether 2.0 reaches its full potential of providing 64x improvements in scaling, it still may not meet the expected demand," said a Polygon spokesperson.
Cryptocurrency is currently in the early stages of the adoption curve, with game studios, brands, financial institutions and Web 2 players just starting to use Web 3. Enterprises are just beginning to explore the space, and for Polygon's team, demand is already an order of magnitude higher than the expected scaling achieved by Ether 2.0.
In other words, as cryptocurrencies and blockchains attract significant real-world adoption, L2 will only become more necessary.
“The main Ethernet chain will remain the settlement layer, while the extended solution will become the execution layer of the ecosystem. All smaller business transactions will run on the extended solution and submit cryptocurrency proofs back to Ether,” a Polygon spokesperson told 0xzx.com.
For example, the spokesperson noted that in the past few months, the number of Aave (AAVE) users on Polygon has grown to more than double the number on the Ether mainchain. For them, this means that "scaling solutions and higher adoption of the ethereum ecosystem go hand in hand."
Others involved in the L2 space share the same sentiment. According to Tyler Perkins, chief marketing officer at Matter Labs, L2 aggregation has become a "fundamental" element of Ether's future and is "here to stay.
"While we may have radical improvements to the scalability of the underlying chain in the medium to long term, by then it is more likely that Layer 2 will become so supported, stable and secure that developers or users will return to Layer 1," he told 0xzx.com.
Similarly, Uri Kolodny, co-founder and CEO of StarkWare, noted that demand for scale-out solutions is "skyrocketing" and that his organization has witnessed growth in the use of its StarkEx scaling engine and StarkNet platform.
“The shift from proof-of-work to proof-of-stake (the core of Ether 2.0) doesn’t actually help improve scalability. Instead, it changes the consensus mechanism for approving blocks. As a result, the L2 solution will be as relevant as ever,” he told 0xzx.com.
Kolodny added that in the best case scenario where one or the other upgrade does make Ether itself more scalable, L2 is still highly relevant by further emphasizing scalability.
"Whatever improvements are made to L1 will be greatly amplified by L2. It would be nice if the two variables could complement each other to improve efficiency," he adds.
Zero knowledge and optimism summary
Typically, the most popular Layer 2 extension solutions involve aggregation, which in layman's terms is a protocol for executing transactions and then publishing the resulting transaction data to a Layer 1 blockchain (e.g., Ether).
As 2022 progresses, a particular type of aggregation – called ZK-rollups – is expected to become more popular, although the currently dominant kind – called optimistic aggregations – will continue to be used for some time.
“We are ultimately convinced that ZK-rollups, and more specifically Volition designs, will be the ultimate goal for Ether. That said, throughout 2022, we will likely see developers diverge between optimistic aggregation and ZK aggregation,” Tyler Perkins said.
He points out that generic, ZK-based Ethernet virtual machines (EVMs), such as zkSync, are evolving much faster than experts predicted, and he's not alone in seeing zero-knowledge aggregation as the future.
"Optimistic aggregates will grow in popularity, but their growth will be limited by the fact that they are known to have a limited number of final gauge emoji subs available […] ZK-rollups or validity aggregates using our preferred phrases do not have this limitation; they are long-term solutions," said Eli Ben-Sasson, co-founder and president of StarkWare.
According to him, StarkWare's growth through its solution last year was "simply breathtaking," with the platform processing a total of 85 million transactions. As a result, it expects to see significant year-over-year growth this year.
For Polygon, it also expects ZK-rollups to be the dominant technology trend for the second tier this year.
"ZK-rollups run on more complex underlying technology, but have a more straightforward protocol model that offers interesting benefits to network participants in terms of fast transaction termination. That's why we're racing to build support for EVM smart contracts on top of ZK aggregates," said a Polygon spokesperson.
They add that 2022 could be the year we determine whether the ZK aggregation can become functionally complete, viable and competitive, with the organization adopting a multi-solution strategy in case one or the other solution dominates.
Bridges, Native Applications, Layer 3
One of the key L2 developments we may see in 2022 may be the continued development of bridges, which is necessary if solutions are to take advantage of more mobility.
“The vast majority of applications on Ether today will likely migrate to L2 within the next 12 months. In addition to those applications, we will likely see a significant uptick in bridges between L2 and centralized exchanges, as well as various L2-to-L2 bridges,” said Tyler Perkins.
In fact, Polygon also expects bridges and interoperability to be a bigger thing for L2 this year.
"True utility [L2] applications may suffer from liquidity fragmentation and the next step may have to be L2 interoperability, enabling users to transfer their assets between networks and avoid the high costs of L1 withdrawals," its spokesperson said.
Initially, these projects will be more focused on proving their functionality, according to Polygon. Interoperability will come later, and will require some coordination.
Another key trend will be the development of applications that actually reside on the second tier platform and run locally in order to benefit more fully from its scalability.
“We’re going to see the rise of native L2 applications that are built from the ground up to take advantage of the computational richness of L2. We’re at that exciting point where we know great things are coming, but we don’t know exactly what — like the moment when the potential of the Internet is emerging, but we can’t imagine how it will affect the way we organize our lives in so many ways,” Uri Kolodny said.
That's what Polygon expects to happen this year, with its spokesperson predicting that several proofs of concept for existing L1 applications have been and will be deployed on L2 solutions.
"The most popular ones are token exchange services or AMMs. They have a lot of utility and allow users to compare some of the attributes of L2 and L1 networks in addition to transaction fees," they said.
Finally, some of the data using L2 also expects the emergence of a new third layer running on top of the second, thus providing greater scalability for cryptocurrencies. At least, that's Uri Kolodny's prediction.
"We recently announced that we will be introducing L3 – or more accurately, multiple L3s – which will really take scaling to a new level. The introduction of L3 will mean that instead of doing a single compression before reaching L1, you can do two compressions," he said.
Kolodny suggests that we think of L3 as "a cryptocurrency version of the Russian doll," where the entire system is broken down and contained in smaller and smaller components.
Whether such a third layer will materialize this year is debatable, but in a world where Ether 2.0 (or the "consensus layer") could steal some of its luster, it shows that the second layer subsector is not t stagnant. ___ Learn more. – Cryptocurrency Tax Trends in 2022: Increased Reporting, Rule Updates, and the Wealth Tax Debate – Metaverse Trends 2022: Get Ready for More Games and NFT New Virtual Experiences
– Bitcoin and Cryptocurrency Mining in 2022: New Locations, Technologies, and Bigger Players – CBDC in 2022: New Experiments and Competition with Cryptocurrencies
– NFT in 2022: From Word of the Year to Mainstream Adoption and New Use Cases – Bitcoin and ethereum price forecast for 2022
– Cryptocurrency adoption in 2022: what to expect? – Cryptocurrency Regulatory Trends in 2022: Focus on DeFi, Stablecoin, NFT, and More
– DeFi Trends 2022: Growing Interest, Regulation and New Roles in DAO, DEX, NFT and Gaming – Cryptocurrency Security in 2022: Preparing for More DeFi Hacks, Exchange Disruptions, and Novice Mistakes
– How the Global Economy Will Impact Bitcoin, Ether and Cryptocurrencies in 2022 – Cryptocurrency Exchanges in 2022: More Services, More Compliance, and Competition
– Cryptocurrency Investment Trends for 2022: Get Ready for More Institutions and Meme Manias
Find more forecasts for 2022 here.