Original author: Christopher Roark
Compiled by: Alvis, Mars Finance
According to L2Beat, six Ethereum Layer 2s have reached Phase 1, while most of the others remain at Phase 0.
Ethereum co-founder Vitalik Buterin said on September 12 that if a network does not reach "Phase 1" by the end of this year, he will no longer consider it a "layer 2."
“The era of rollups glorified as multisig is coming to an end,” he said, adding that the “era of crypto trust is here.”
The question of whether a network is layer 2 is not just a technical question for the Ethereum community.
It determines whether the network relies on the security of Ethereum, and therefore can be trusted to protect users’ funds, or whether it is an entirely separate network that may or may not be secure.
The issue was brought to the forefront on June 2 when decentralized finance protocol Velocore was hacked, resulting in $2.6 million in losses.
Velocore runs on the Linea network, which claims to be an Ethereum layer 2. However, the team quickly stopped block production to prevent the attacker from withdrawing funds to Ethereum.
Critics argue that if the security of the network depends on Ethereum, then this suspension of block production should not happen. After all, authorities cannot suspend Ethereum.
As a result of this incident, many critics claimed that the Ethereum ecosystem was decentralizing too slowly.
Buterin had already commented on the topic a month before the Velocore attack, stating that all Ethereum Layer 2s would need to reach “Phase 1” by the end of 2024. If they don’t, the community should no longer refer to them as “Layer 2s.”
But what exactly is Phase One?
Stages of decentralization
The term “Phase 1 Layer 2” originated from a post Buterin made on the Ethereum Magicians League message board on November 2, 2022.
In the post, Buterin argued that Ethereum Layer 2 is still in the early stages of development and cannot be expected to be fully decentralized right away.
Instead, developers should be given a grace period to fully develop their network components. In the beginning, these networks will be highly centralized. But over time, they will become completely permissionless, guaranteeing censorship-resistant transactions.
The Phase 0 network calls itself Layer 2 or “Rollups,” where compressed versions of all transactions are published to Ethereum.
Additionally, the team provides a “rollup full node” that can independently confirm the state of Layer 2 as long as it has full transaction data from both layers. Users can exit the network without help from the team, as long as the team does not actively try to block users by publishing false state roots on Ethereum.
In the Phase 1 rollup, network smart contracts on Ethereum include “fraud proofs or validity proof schemes” that prevent developers from publishing invalid state roots.
If a developer attempts to fraudulently withdraw funds that do not belong to them or prevent users from making legitimate withdrawals, these transactions will normally fail.
However, developers can overturn the fraud proof through a vote of at least six of the eight members of the Cybersecurity Committee. This vulnerability exists if developers discover a bug in the fraud proof system.
Furthermore, at least three of the eight members of the Security Council must be from outside the development team, so in theory it would be impossible for the development team to overturn these certifications on their own.
Network upgrades would also have to be delayed for at least seven days unless approved by the Security Council.
In the two years since Buterin published that post, most networks claiming to be layer 2 remain stuck at phase 0 or lower, leading to criticism that the entire Ethereum ecosystem has failed to deliver on its promise.
However, six networks have bucked the trend and successfully entered at least the first stage.
A network that has reached stage 1
L2 Phase 1 list, source: L2Beat
Here is a full list of networks that claim to be Layer 2 (L2s) and have reached Phase 1, according to research by blockchain analytics platform L2Beat. This list is sorted by total value locked (TVL), with the networks holding the most assets listed first.
Arbitrum One
Abitrum One has entered Phase 1. The network is run by 14 validators who process withdrawals and deposits using a set of fraud proofs. If a validator attempts to submit fraudulent transactions, the smart contract on Ethereum will reject them unless these proofs are explicitly covered.
Fraud proofs can be overturned by the 12-member Arbitrum Security Council. However, according to Arbitrum’s documents, no single organization may have more than three members on the Security Council. Development teams are not exempt from this restriction.
The Arbitrum DAO can upgrade the network, but this will cause a delay of 12 days and eight hours, while the Security Council can upgrade the network without any delay.
If the Arbitrum sorter stops running, users can withdraw funds directly from the Ethereum network, but withdrawals will be delayed one day after initiation. According to L2Beat, if users disagree with the upgrade initiated by ArbitrumDAO, they have a two-day "exit window." If they exit during this two-day window, ArbitrumDAO will not be able to stop them on its own, even if the DAO is corrupt or taken over by an attacker.
If a user disagrees with an escalation performed by the Security Council, there is no exit window because Security Council escalations are nearly instantaneous.
Optimism
On June 10, Optimism moved to Phase 1 with the implementation of the “Cannon” error-proofing system. On August 17, it returned to Phase 0 after discovering a bug in that system. However, it re-enabled error-proofing on September 11 and is now back to Phase 1.
If Optimism validators attempt to process fraudulent transactions, the error-proofing systems in the Optimism Ethereum smart contract will reject those transactions. These error-proofing mechanisms can be overridden by a Council vote, but no single organization has enough seats to make that happen without the cooperation of others.
According to L2Beat, OptimismDAO was not allowed to implement network upgrades without the consent of the Security Council. The upgrade was implemented without delay.
dYdX v3
DYdX v3 is a first-phase Ethereum L2 that is completely separate from dYdX v4, which is based on Cosmos. It uses zero-knowledge validity proofs to ensure that all valid withdrawals are processed and that invalid withdrawals are not processed.
dYdX validators can block withdrawals for up to 14 days by refusing to include withdrawals in transactions. If this happens, users can initiate a “force exit” on Ethereum after the 14-day period has expired to get their funds back.
Normally, the upgrade is delayed by 9 days, but if the priority controller approves the upgrade as an emergency upgrade, it can be delayed by only 2 days. L2Beat warns that if governance is controlled by a malicious actor, it can prevent withdrawals by blocking withdrawals for 14 days and initiating a contract upgrade that is implemented within 9 days.
Even so, L2Beat still considers dYdX to be in Phase 1 because the upgrade would normally be delayed by 9 days, exceeding the minimum requirement of 7 days.
ZKsync Lite
ZKsync Lite uses zero-knowledge proofs to verify transactions. Under normal circumstances, the team cannot process invalid transactions or prevent the confirmation of valid transactions.
If the team initiates the upgrade, it will take 21 days for the upgrade to take effect. If the ZKsync validator refuses to include the user's withdrawal in the transaction, the user can initiate a forced withdrawal on Ethereum and recover the funds within 14 days. According to the L2Beat report, the upgrade takes 21 days, giving users a 7-day "exit window."
ZKsync Lite has no smart contract functionality; it is designed specifically for crypto payments.
In addition to these networks, L2Beat also lists DeGate v1 and Fuel v1 as networks that have achieved Phase 1. In fact, these networks are considered “Phase 2,” meaning fully decentralized. Their combined TVL is approximately $51 million.
Users who agree with Buterin’s criteria should continue to refer to the aforementioned networks as “Layer 2” after January 1, as long as they do not object to certain analyses by L2Beat.
The four Layer2s that were not selected
The first four networks not currently designated as Phase 1 by L2Beat either do not meet one of the required Phase 1 criteria or are still under evaluation.
All of these networks have reached Phase 0, so it is still possible that they will reach Phase 1 by the end of this year.
Base
Coinbase's Base network does not run fraud proofs. It is part of the Optimism superchain, which has already implemented fraud proofs. Therefore, it would be simple for Base to implement fraud proofs and could enter phase 1 by the end of the year. But so far, it has not done so.
Problems in the first phase of the basic network, source: L2Beat
Blast
L2Beat considers Blast to be a "Phase 0" network. Users can independently run a Blast node to check the validity of deposits and withdrawals. However, the software will only issue a warning if a withdrawal is invalid. Users cannot withdraw funds against the will of Blast management.
Blast may release fraud proofs before the end of this year, in which case it would continue to be labeled “layer 2” in 2025. But it does not currently meet all the criteria for a phase 1 rollup.
ZKsync Era
According to Matter Labs, the network’s developer, ZKsync Era, uses zero-knowledge proofs to verify deposits and withdrawals. L2Beat is currently evaluating how the system works. ZKsync Era may already be in phase 1, or it may reach phase 1 soon.
On September 12, the team announced a new governance system that designates “Guardians” to protect users in the event of a governance attack. In the announcement, the team claimed that it is attempting to achieve full decentralization in the second phase.
Even so, L2Beat currently classifies the ZKsync Era as Phase 0 because it has not yet completed its evaluation of Phase 1 elements of the network.
Starknet
Starknet has implemented zero-knowledge validity proofs in its smart contracts. However, these proofs can be overridden by whitelisted operators and users cannot withdraw funds without permission from Layer 2 validators.
Since Starknet has already implemented proof of validity, it will be relatively simple to apply the other criteria for a Phase 1 network. Therefore, Starknet may enter Phase 1 before December 31st, but it will not meet the criteria yet.
A handful of other networks with TVL below $600 million are still considered Phase 0.
These include Mode, Lisk, Polygon zkEVM, Taiko, Bob, Loopring, Zora, Kroma, Kinto, Paradex, Boba, ZKSpace, etc.
These networks have all reached Phase 0, and some have met at least one of the criteria for Phase 1. However, no network has yet met all of the criteria for reaching Phase 1.
Scroll and Linea are still below Stage 0
According to L2Beat, there are two networks with TVL over $700 million that, while claiming to have reached Layer 2, have not even reached Phase 0.
The first is Scroll, which has more than $1.1 billion in cryptocurrency locked in its contracts. L2Beat said Scroll has “no available node software that can reconstruct state from L1 data,” so users cannot independently verify its transactions.
The second is Linea, whose contracts have over $780 million locked in. Like Scroll, Linea has not developed node software that the public can use to check the validity of its transactions.
These networks both meet and fail to meet the definition of “Layer 2” in 2025 that Buterin advocates.
Ethereum supporters will likely continue to urge teams to make their networks more decentralized, and if they don’t, they’ll increasingly stop calling them layer 2. But some networks will continue to claim they’re working on it, while others will claim it doesn’t matter. Only time will tell which side will win out in the long run.
