Author: @Ice_Frog666666
Recently, Paradigm announced an investment of $20 million in Ithaca to build a Layer2 blockchain called Odyssey; the veteran DeFi project Uniswap launched Unichain; the exchange Kraken, which raised $120 million, is launching its own L2 public chain inkonchain; and the traditional giant Sony has announced the launch of a new L2 network.
As the elimination battle of hundreds of L2s has not yet come to an end, a new wave of L2s with strong backgrounds have joined the already chaotic battlefield, and the fragmented liquidity of Ethereum is facing an even more severe challenge. Whether L2 is parasitic or symbiotic has also led to greater divergence. But from a longer-term perspective, the intensification of divergence often indicates that some kind of transformation and adjustment is taking place. How these new L2 narratives will land and what new changes they will bring will be fully elaborated in this article.
Before sorting out the new entrants of L2, it is necessary to first discuss the pros and cons of L2 and what the fundamental problem is behind them.
I. What is the fundamental problem
Parasitism and symbiosis are not contradictory, but are the dilemma of development.
The Korean film "Parasite" sparked a huge global discussion as soon as it was released, because it revealed the deepest secret of human society, that the boundary of human nature depends on the boundary of wealth distribution. The problem of wealth distribution or interest distribution has been the root cause of all social problems since ancient times, and this holds true in the real world as well as in the blockchain world.
From this perspective, the so-called L2 liquidity fragmentation problem is essentially that the traffic is not enough and not enough to be distributed, and the distribution is uneven; the so-called L2 parasitic problem is essentially that L2 currently has no self-sustaining ability and cannot feed back the mainnet, and chooses to lie flat.
From an economic perspective, the cost side of L2 is mainly the fees paid to the mainnet for settlement operations, and the other is the cost of renting Blob space; the revenue side mainly comes from users paying Gas. In this economic model, Ethereum mainnet essentially outsources the execution of transactions to L2, while the mainnet focuses on security and data availability, and continuously upgrades to reduce costs.
The basis of this virtuous economic model is that L2s can attract more users through their own ecosystem building, thereby forming a larger scale economy, and then feed back to the mainnet. The reality is that except for a few strong L2s, the majority of active users have not only not increased, but have gradually fallen into a dead end.
From the perspective of economic model and interest distribution, it is not difficult to understand why so many L2s have rushed into this track. Any business behavior must have a clear interest demand behind it, whether it is on-chain Margin or the huge traffic built by Ethereum, or the wealth effect after issuing tokens, all of which make this business very attractive. However, how to view the interests divides these L2s into the following types:
Bandwagon Lying Flat Type: Since the entry barrier of L2 is low, and I can get a share, why not participate? The narrative failure is the fault of the mainnet, it's not my business, but I can't lose a penny of the money to be divided. This type is often seen among the tireless PUA users, who directly show their cards after the fake reversal, you can scold as you like, the money is in hand, such as Scroll.
Self-Reliant Type: I am strong enough, I want to get a share of this cup, but the mainnet is not powerful enough, I can't take the big share, I can't compete with you, so I'll do it myself. Such as Optimism, such as Unichain.
Paving a New Path Type: I have my own traffic, I don't necessarily look down on your traffic, but I need to borrow your way. Such as Sony's Soneium.
As we analyzed in the article "L2 in Data: Abrupt Growth, Elimination Battle Begins", L2 itself has not been falsified, the current real dilemma is not only the poor external environment, but also the stagnation of the Ethereum mainnet narrative, and the over-withdrawal of user trust by the lying flat type L2. When these factors are superimposed, especially when the majority of L2s are pure "bandwagon lying flat" without any Build mentality other than sucking the mainnet, then the criticism of parasitism is not excessive. More importantly, these L2s actually occupy the vast majority, which is like the intestinal flora of the human body. When your resistance is strong enough, the imbalanced flora cannot stir up waves, but once you become weak yourself, it becomes the last grain of dust to crush you.
We do not need to deny the current weakness of Ethereum, but we cannot doubt the long-term future of Ethereum as the mainstay of the blockchain world. The dilemma of L2 is just a turning point in the history of development, and from a longer-term perspective, these bandwagon lying flat L2s are most likely to become the ruins of the blockchain, while the Ethereum ecosystem must also go through the baptism of the great waves to be reborn.
Therefore, from the above analysis, we can have a more objective perspective on this divergence: parasitism is just the current situation, while symbiosis is the true future. Viewing the problem with a developmental perspective, the new entrants of L2 may not be a bad thing, but more likely to be a catalyst for accelerating elimination or adjustment and transformation.
II. New Entrants of L2
Each has its own ambition, but the core idea is user experience and applications.
2.1 Unichain
The most topical L2 in recent times is undoubtedly Unichain, which was launched by the DeFi leader Uniswap. There are both criticisms and praises, but as the analysis above, for the native DeFi leader with its own traffic, building its own L2 is completely logical from a business perspective.
As the largest DeFi on the chain, Uniswap currently has over 1 million active daily users, and in terms of trading volume, it accounts for over 40% of the largest DEX on the chain, twice the second place. Its annual trading volume on Ethereum is close to $700 billion. For Uniswap, the development challenges it faces are one is the expansion of market position and share; the other is the rise of protocol revenue and token value, and the basis for solving these two problems lies in how to improve user trading experience, reduce transaction fees, and further strengthen competitiveness.
From the perspective of transaction fee composition, the main variables and corresponding benefits are as follows.
Roughly speaking, traders pay about 60bp on average in costs, so based on an average of $700 billion in trading volume, the annual fee for this item alone is about $4.2 billion.
If you are a UniSwap and Uni token holder, you will naturally have two thoughts: can the $4 billion+ a year be distributed to Uni token holders rather than Ethereum stakers; and can the fees be further reduced and the scale further expanded. Along this line of thinking, Unichain was naturally born, and from the perspective of interest analysis, the choice of many projects will be quite clear. Unichain is specifically built in the following ways to achieve the above goals:
Instant Trading: Overall, it is based on the Op Stack and developed a function called Verifiable Block Building in collaboration with Flashbots. The main idea is to further divide a block into four sub-blocks (Flashblocks), which can accelerate state updates and shorten the effective block time to 0.25 seconds. Unichain also uses a Trusted Execution Environment (TEE) to separate ordering and block building, allowing for prioritized ordering and MEV taxation, internalizing MEV revenue. The combination of TEE and Flashblocks has achieved a relative balance between transaction speed and security, but it also places high demands on the network and technology. Reducing Costs and Decentralization: Unichain's verification network is a decentralized network composed of node operators, where validators must stake UNI tokens to receive rewards based on their staking weight. In other words, Unichain uses the combination of centralized verification and verifiable blocks to further achieve ordering transparency, while the entire transaction execution process on Unichain can significantly reduce transaction costs. Cross-Chain Liquidity: In this aspect, Uniswap is practicing "intent-centric" interaction construction, where the system directly translates user needs into intentions and selects the path to execute, completing the entire cross-chain interaction. Intent-centric truly achieves seamless cross-chain operations, effectively reducing liquidity fragmentation and manual operation risks. Overall, as the industry leader, Uniswap's launch of Unichain not only demonstrates its technical understanding but also highlights its ambition to become the cross-chain DeFi liquidity center, further enhancing its value capture capability and the value of the UNI token.Overall, this is a traditional giant's attempt, and the market's expectations are reflected in the network data, but it is still unclear whether there are plans to issue tokens and a specific roadmap.
III. Summary and Outlook
The cream will rise to the top, and breakthroughs in applications are the future!
As mentioned at the beginning of this article, the current weakness of the Ethereum price, the lack of vitality in the ecosystem narrative, and the fragmentation of liquidity are real issues, especially the persistent sluggishness of the price, which has exacerbated the negative feedback in the market. However, even so, it is clear that the new entrants of L2 still need to rely on the Ethereum mainnet.
From the product layout and intentions of these new L2 entrants, we can roughly see an important trend: while there may be divergence in the revaluation of Ethereum's value, the revolution in value distribution is underway. The new L2 entrants either have disruptive technical capabilities, have their own traffic support, or have high potential in the Web3 scenario, and they have no intention of replacing Ethereum, but rather consider how to obtain a larger share of the cake in the current dilemma through their own strengths.
This may also represent the breakthrough mode of the Ethereum L2 ecosystem, where projects need to have outstanding advantages in technology, traffic, or ecology, otherwise they will not be able to stir up any waves in the market. In addition, from the focus of these projects, a clear trend is that the new projects are more focused on developing more user-friendly application products, rather than simply emphasizing the basic role of infrastructure, which is of great significance in the current oversupply of Ethereum infrastructure.
For the many L2s that are lying flat, are these new entrants catfish or sharks, or just a piece of fish? In the current environment, it is impossible to give a clear answer. If we look at the history of humanity, even the greatest undertakings cannot escape the cycle rule, and the process of rising from the depths to the peak must go through the test of fire and gold. But no one knows whether today's market stars will still have a voice in the next cycle, the only thing we are sure of is that elimination will not stop, and development will not stagnate.
