Ethereum's Layer-2 Solutions Surpass Layer-1 Transactions: Rising Need for Decentralization
Summary:
In June 2024, Ethereum's layer-2 solutions (L2s) handled over half of all Ethereum-based transactions for the first time, benefiting from the Dencun (EIP-4844) upgrade. Despite this, there's an increasing demand for resolving inherent problems related to sequencer decentralization. The criticism followed the loss of over $2.6 million in ETH due to an exploit on Linea, a rollup backed by Consensys. Many argue that Layer 2s need to step up security measures by reducing their reliance on centralized models, driving holistic progress for the entire ecosystem and leading to a more decentralized future.
In the first two weeks of June 2024, Ethereum's second-layer solutions (Layer 2 or L2s) were responsible for more than half of all transactions, marking the first instance of L2s surpassing first-layer transactions (Layer 1 or L1s). This growth was primarily attributed to the rollup-focused Dencun (EIP-4844) upgrade. Following implementation of this upgrade, Layer 2's Total Value Locked (TVL) reached a peak of $48.2 billion, with over 90% of the value originating from rollups.
Despite the additional data availability Dencun provided for rollups, the upgrade did not tackle inherent issues such as the usage of centralized sequencers meant to boost throughput and output. This practice undermines the fundamentally decentralized aspect of the blockchain and exposes users to censorship risks, significant security concerns and the possibility of a single entity controlling all network value.
As the number of transactions on Ethereum's L2s continues to grow, there is urgent demand for resolving challenges related to sequencer decentralization. On June 2, Linea, a rollup backed by Consensys known as zkEVM, experienced an exploit on a decentralized exchange (DEX), resulting in over $2.6 million in ETH being lost by users. In response, the Linea team decided to halt the sequencer and block the attackers' address to protect their userbase.
Alex Gluchowski, CEO of Matter Labs, responded to this event by emphasizing the need for sequencer decentralization across all Layer 2 stacks to be a priority. The situation suggested potential complacency in the response to Layer 2 vulnerabilities. Linea defended their stance by comparing their rate of progress to older roll-up frameworks, indicating they were content with their pace of advancement despite potential dangers for industry progress.
Today, it is increasingly crucial for Layer 2s to step up security measures and reduce reliance on centralized models. Though centralization might be an easier execution route, it primarily benefits operators and not the wider community. On the other hand, decentralization presents challenges but comes with rewards for both the firm/project and its community. Higher community participation leads to more security, attracting more innovative dApps.
One of the main arguments for keeping centralized models is latency issues and their effect on User Experience (UX). While it is true that users want swift transactions, we need to enlighten them about decentralization's merits and change their mindset from a slight delay in transactions. Revenue sharing models such as sequencer mining could encourage users to stay in the community long-term.
Now that the primitive tools and real-world examples are available, Bitcoin's Layer 2 may also begin offering mining rewards through decentralized sequencers. Pioneers in the space must keep pace or risk being overshadowed by newer solutions. Token holders now have alternatives and will choose accordingly.
Holistic progress for the entire ecosystem is preferable to fragmentation, necessitating all players in this space to move together and adopt newer standards. Short-term advantages need to be replaced with sustainable, innovative long-term solutions leading us towards a more decentralized future.
The author, Tom Ngo, is the executive lead at Ethereum Layer-2 blockchain, Metis. Prior to that, he served as the CFO at Eon Advisory and as a partner at Katana Tomi Group.
Published At
6/23/2024 7:35:43 PM
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