Stark Second Layer Passes $1 Billion as the L2 Ecosystem Expands

Ethereum second layers assets, Oct 2021

The newly developing ethereum second layer ecosystem is leading to a transition period that in the present makes one’s experience of using a dapp very different depending on whether it uses a second layer at all, and if it does, which one.

We had the privilege of claiming the Shadowy Super Coder NFT for example because our test address qualified as an eth developer as Trustnodes launched a token once in 2019 to show how it can be done and how it can be brought to market permissionlessly.

In this primitive age, just two years ago, there was no such thing as Uniswap with its liquidity pools and all that permissionless wizzing, so we gave it a market on the now largely defunct Etherdelta that wasn’t used much back then at the depth of the bear.

Etherdelta, as dYdX until recently, required an eth transaction for every action. That made it very clunky, back then it wasn’t expensive but you had to wait a lot, and overall gave the feeling that this is what you want to use only if you have no other choice.

Now dYdX has performed some magic of sorts where there is no blockchain at all anymore from a usability perspective once you’re in by depositing as you would to any exchange. All is on the blockchain however, but using it is like any web2 site.

For claiming this Supercoder NFT, we had to go to the blockchain instead. It’s once, so it’s fine. We did have to pay $40, but it was the first time we were claiming an NFT on the blockchain, so it was a novelty.

On Decentraland, there’s loads of pope NFTs but they’re on the xDAI sidechain layer. We’d have to pay about $100 to move one of them to the actual blockchain, so we get some intermediary solution of sorts.

Then there’s loads of wearable NFTs, plenty given out for free during the Metaverse Festival. These cost nothing too for us to receive, but they’re on Polygon, another sidechain of sorts.

Arbitrum is not a sidechain but it is not quite interoperable with the base chain. There’s a sushi on arbitrum and one on the base chain. These are two sushis. There’s different liquidity, there’s different eth units deposited, and you can have different markets.

There’s Optimism. Uniswap is on both Arbitrum and Optimism. Here we have three Uniswaps. And they are three. They have the same name, they look the same, they work the same, but it’s like a McDonalds franchise, different ’employees’ or infrastructure, potentially a different experience.

To a big blocker, this is an angry mess. Just put decentralized checkpoints, archive the rest of history, yes in Datacenters but for current nodes they can run on laptops for what they currently need, preserving immutability and decentralization while facilitating the capabilities that a synergic self-executing global network provides.

Which means the 90s have truly arrived and we’re at the stage of AOL. These second layers are walled gardens where it concerns something like Optimism or Arbitrum. There isn’t a corporation controlling them, but are we sure about that?

Wikipedia, try editing something. Decentraland even now has some committee that can approve what wearables you can publish. Who will really care to volunteer except those whose baseline depends on caring. Reddit has told or better warned us of as much. R/politics is this generation’s publishment of 1984 as the complete takeover of that neutral sub and overtly so by a partisan Democrats PR PAC showed us what now with hindsight sounds obvious. Volunteers can and will be bought or worse.

So dYdX, which is awesome. Fip, fap, it should get an award really in grandpa award stages, but it used to have a spot exchange where you can convert actual tokens for eth or dollar stables. It doesn’t now.

That can be because perpetuals are more in demand, Uniswap can handle swaps. But it is also because token conversion is more difficult on the second layer, although why is not clear as in theory you can just deposit the token as you’d deposit… well currently you can only deposit usdc on the exchange.

The rest then is ‘simple’ for futures. You have an oracle tracking prices and you keep account of dollars within, shifting them between accounts on zk to then eventually settle on-chain once you are done with using the exchange.

To keep accounts between different tokens is presumably a lot more complex and for something like Uniswap you have pool tokens or trading pair tokens for liquidity providers, LP tokens that you can send to some other platform.

If Uni is on starks in the current dYdX design, you couldn’t move such LP tokens out of it. You need a more general Starknet which is in development, at which point we’d get four Unis.

The starknet however is promising, but it still creates effectively two ethereum networks and it does so in a way that you need to maintain both networks operational from a usability perspective because if you’re priced out from entering/transacting on the base layer, then you’re priced out from everything on top of it, you’re priced out of the entire network.

That pricing out begins at a fee of about $50, afterwhich it is too painful to transact any further unless necessary or the potential gains make the cost irrelevant. The ‘pain’ starts at about $20 in the western world, afterwhich you’d rather not transact if you have a choice.

The base layer can not go above $50 and in the extremes not above $100 for a sustained period. In a second layer context, this is a deposit of sorts for the free or almost free transacting in the second layer. Arbitrum costs $5 per transaction, but if we imagine Starknet, at this point one just has to wait and see whether it would work as we haven’t seen the execution yet.

Even if it did work however, the capacity gain would be 10x or 100x at most at the cost of creating effectively two blockchains from a usability perspective.

An exception might be something like a standalone application like dYdX which does not even have an L1 anymore. You go straight to the L2 and from a usability perspective there’s no difference than if it had been L1 except now it’s free and instant to use.

Something like ImmutableX is trying to do the same for NFTs. Standalone, starks, basically just a compression or as we used to call them, smart contract based networks as there is no second layer, there’s only the usage of a certain technology within a smart contract.

For that sort of thing, these are awesome. No AOL, more nginx over appache. As such it isn’t very clear why they are not being used more widley.

While where it concerns something like Arbitrum or Optimism, it may be that in a few years we learn they were just a phase because neither can be quite useful unless everyone is using them at which point you have to wonder why have the base layer at all.

If these second layers are so great at keeping accounts in a scalable way while maintaining decentralization, security, etc., then why are we bothering with the friction of getting to them through a layer that isn’t so great at doing so?

You’re better off putting zk compression at the protocol level, but even that is at best just a band aid because at most you’ll get 10x scalability with current resources, or lets say even 100x. However the problem is that the demand of current resources already means you don’t want a node on your laptop.

In ten years, based on current node resource usage, even without expanding capabilities, you’ll need specialized resources. In one hundred years, you’ll need datacenters.

Gregory Maxwell may have been right seven years ago to suggest that it wasn’t right to increase capacity because we had to have a comprehensive understanding of the tradeoffs and we had to develop compressions.

We should develop compressions, but we also have to bear in mind the warning of the ritual cat that was tied to stay still after annoying the master becoming the way and even the worship or worse, how we should treat cats.

The solution to the trilema is only one: decentralized or trustless checkpoints and pruning. Bitcoin devs have the solution ready to go out when the time is right, and eth devs should consider that is the actual solution.

But there’s no time pressure, we’re not ready for grandma. It’s still just the beautiful 90s when we can hack on dialup and pfff at AOL. The normies will come and September with them. Not now and not perhaps for a decade more.

So all this experimentation is fine. You can’t know what is right without knowing what is wrong, but as a thought experiment let’s go to a world which hopefully we won’t greet.

The dollar has hyperinflated, the monetary system is in a Venezuelan style collapse, the meritless captured bureaucrats appear to some patriots in the civil service of being out of depth, or worse. They persuade the president to convene an emergency meeting. The topic is: can crypto solve this, can it handle it at a technical level.

In such moments of emergency, they go to people they think may actually have the answer rather than to the pleasurably dancing ones during better times. They’re told the network can of course handle it, it’s just code, you just change the code to accept continental or even global level capacity.

Any ostensibly ideological objections would meet the cold reality of being dancers when times demand because ultimately those that do not provide solutions are part of the problem, or sophists as the ancients called them.

So we can have our fun while times permit us and go slow in these complex systems, but it appears self evident that a day when a base layer strikes the right balance will greet us, a base layer that keeps the full synergy as well as facilitates all the capabilities while being decentralized, lively and scalable.

All should prepare for that day. Only fools should assume there has been any effective delay. From government halls to banks at the dawn of disruption, whether in democracy or dictatorship, in poverty or in richness, all should except a base layer ethereum or likewise network with global capacity to permeate every corner.

That’s a leap and we’re happy to give time for adjustment, but it shouldn’t be mistaken for any defeat other than a Phyric one because ultimately, as even the silliest things like Shiba Inu so piercly point out, disrupting the disrupters is in some ways the sweatiest joy in this space.

That’s what a true free market gets you. That’s freedom in one of its purest form. And that is what thankfully we currently enjoy.