If Base is a rising star, then Morph and others are like potential stocks, bringing new variables to L2.
(Background: Why did the upgrade of Kankan reduce the gas fee of Ethereum L2 network Starknet by 99%?)
Table of Contents
The Crowded L2 Battlefield
New Development Paths for L2 Racetracks
The “Horse Racing Mechanism” behind Decentralized Sorters
The Long-term Development Framework of Combining OP and ZK
Low-cost and Maintenance Thresholds of Modular Design
Can Morph Bring a Turning Point for L2?
Conclusion
What is the main battlefield for Ethereum L2?
The Ethereum ecosystem has always been at the center of the crypto narrative, whether it was the ICO craze in 2017, the DeFi summer in 2020, the subsequent NFT wave, or the current crowded L2 battlefield.
However, although there are many L2 projects in the market, the Ethereum ecosystem is becoming increasingly fragmented, so what problem does Ethereum L2 actually need to solve? It seems to be a difficult question for many people, and it has become a necessary question for L2 projects to compete in the second half of the game.
As the most fiercely competitive track of Ethereum, the competition in Ethereum L2 has always been intense.
From a data perspective, the L2 track in the past year can be divided into two phases based on the statistics of L2BEAT:
Before October 2023, the overall TVL of the L2 track remained around $1 billion for a long time.
After October 2023, the TVL rapidly increased from $1 billion and reached $4 billion in just half a year, an increase of 300%.
Even when calculated in ETH, the growth of L2 TVL has also accelerated since October 2023—breaking through the bottleneck of 70,000 ETH and reaching a historical high of 12.5 million ETH, an increase of 80% in the past six months.
In terms of types, L2 projects are mainly based on the two mainstream scaling solutions: Optimistic Rollup (OP) and ZK Rollup, with OP projects occupying the majority:
There are a total of 10 L2 projects with TVL over $500 million, with OP projects accounting for more than 85% of the market share, far exceeding the less than 15% market share of ZK projects.
Among them, the top 5 are all occupied by OP projects, and the leading OP project Arbitrum (nearly $17 billion TVL) is 17 times larger than the leading ZK project (about $1 billion TVL). Therefore, the competition in the L2 track is currently dominated by OP projects, while ZK projects are still playing catch-up.
Let’s take a look at the situation of new projects and established players in the past year.
First, on March 23, 2023, Arbitrum officially launched its token, directly helping the TVL of the L2 track surpass the $10 billion mark, but it was difficult to break through this volume bottleneck until the end of 2023.
At the same time, the wave of Ordinals and the booming narrative of the Bitcoin ecosystem made the Ethereum L2 lose its heat, and with the resurgence of heterogeneous chains represented by Solana, the development bottleneck of L2 itself caused the industry to once again discuss Ethereum and L2.
Especially among the L2 projects that have been continuously introduced based on the scaling concept, liquidity fragmentation and incompatibility have caused new problems, leading to a sluggish Ethereum narrative.
Finally, Blast, the biggest disruptor in the race, was launched in November 2023. With pledge interest, airdrop expectations, and an invitation system, Blast’s TVL exceeded $500 million in just five days, surpassing established L2 projects such as zkSync and Starknet. Its growth speed can be described as crazy.
As of now, its TVL has reached $2.6 billion in less than half a year, ranking fourth in the L2 track, after Arbitrum ($17 billion), Optimism ($6.7 billion), and Base ($5.72 billion).
In addition, Optimism’s OP Stack superchain narrative has also given birth to representative projects like Base, and has accelerated the trend of “one-click deployment + modularity”. According to incomplete statistics from Coin98 Analytics, as of the end of last year, the OP Stack ecosystem already had more than 20 L2 sub-projects (including testnets).
At the same time, various L2 projects have also accelerated their own superchain ecosystem programs:
Arbitrum has deployed Arbitrum Nova, a new network designed for games, social applications, and high-throughput DApps, as well as Arbitrum Orbit, an open-source toolkit for building L3 networks to support developers in deploying and establishing their own chains.
zkSync has launched ZK Stack, a modular open-source framework for building customized ZK Rollups.
Eli Ben-Sasson, co-founder of StarkWare, announced at the EthCC conference in Paris that Starknet will soon launch Starknet Appchains, which can be launched by applications built on the Starknet stack, with features such as customization and decentralization.
It is also worth noting that the Dencun upgrade activated on the Ethereum mainnet on March 15 significantly reduced the gas fees for transactions and transfers on L2. According to OKLink statistics, after the Dencun upgrade, L2 transaction fees have generally decreased by more than 80%, and actual fees have basically dropped to $0.1 or even below $0.05.
In this context, in 2024, the expansion of the modular narrative + DA concept, and the increasingly fragmented L2 will undoubtedly become a new trend, and many projects have begun to consider issuing their own L2/L3, which means that the Ethereum L2 track will become more crowded, and the problem of homogenization will become more prominent.
Finding a differentiated competitive direction has become a key point for L2 to break through in the second half of the game.
From this perspective, the Dencun upgrade is by no means the end of the L2 battlefield. The market is calling for new solutions for Ethereum L2.
In this context, some new variables about L2 are also emerging, including the attention that Ethereum L2 newcomers like Morph have been receiving in the market since the end of last year. Many Web3 investors have sensed the huge opportunities hidden in them:
In November 2023, Blast completed a $20 million financing round with participation from Paradigm and Standard Crypto.
On March 3, 2024, Taiko, an Ethereum Layer 2 network based on zkRollup, completed a $15 million Series A financing round led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital, with participation from Wintermute, Amber Group, OKX Ventures, GSR, and others.
On March 20, 2024, Ethereum L2 Morph completed a $20 million financing round (including a $1 million seed round) with participation from Dragonfly Capital, Pantera Capital, Foresight Ventures, The Spartan Group, MEXC Ventures, and other top VC players in the industry.
On March 26, 2024, modular L2 project Reya Network completed a $10 million financing round with participation from Coinbase Ventures, Wintermute, Fabric Ventures, and other well-known VCs.
On April 9, HashKey Group announced the launch of Ethereum L2 network HashKey Chain, using ZK Proof zero-knowledge proof technology to provide users with low-cost, efficient, and developer-friendly on-chain solutions.
With the intense competition in the market, the focus has further shifted to the Ethereum L2 track, and discussions about Ethereum technology have increased, especially the construction of a prosperous on-chain application layer on L2, which has become the mainstream long-term narrative.
This article will take Morph as an example to analyze the new development path brought by these new players to the L2 track and the variables they can bring to the Ethereum ecosystem and L2.
As we all know, sorters are responsible for controlling the order in which transactions are submitted to L1 on L2, and currently, most L2 projects operate sorters in a centralized manner to provide users with faster transaction confirmation speeds.
However, this solution also has significant risks—if a few centralized nodes go offline, it will cause the L2 network to be down for a long time. Additionally, these centralized sorters may also prioritize transaction sorting based on personal interests to maximize their arbitrage opportunities, which can delay user transactions or even censor and reject them.
Therefore, the advantages of decentralized sorters are self-evident—they can eliminate single points of failure, ensure the decentralization of the network, and maintain network security and stability. At the same time, they can share the profits of the sorter, which is the main source of income for L2 networks, with the builders of the entire network.
Morph, as the first L2 network on Ethereum to achieve decentralized sorter design from the ground up, has emphasized the importance of establishing decentralized sorters from the beginning. It has designed feasible solutions based on principles such as high efficiency, low cost, scalability, and ease of maintenance:
In the execution mechanism of Morph, a decentralized sequencer network allows multiple nodes (sorters) to participate in transaction packaging and sorting on L2, instead of being controlled by a single node.
In addition, the design of Morph’s decentralized sorter mechanism has also given birth to another huge potential vision: redistributing the profits of sorters to project owners/DApp developers on the chain, providing more diverse and subjectively active on-chain products and user experiences.
In other words, in the future, after Morph’s sorters collect gas fees from users, they can completely redistribute the profits according to established distribution mechanisms to project owners/DApps on the chain. This can create a new incentive mechanism. For example, project owners can receive rewards based on their contributions, fairly and transparently. This can create a competition mechanism similar to “community horse racing”. By leveraging the decentralized sorter mechanism, Morph can use the profit distribution of the entire network’s sorter fees as a baton to reward DApps that contribute to the Morph ecosystem in a self-sustaining manner.
This way, the advantages of different project owners can be fully utilized, achieving a highly market-oriented competition among DApps in terms of Morph’s marketing and innovative services, motivating these contributors to jointly achieve the sustainable development of the Morph ecosystem.
The simplest example is that if Morph chooses to link the incentive measures with the gas consumption of DApp smart contracts and the number of active users, developers will indirectly receive incentives, encouraging them to spend as much gas fees as possible on their contracts and maximize the number of active users of their projects, thereby achieving the breakthrough from “0 to 1” and large-scale adoption.
Theoretically, this design concept can achieve “letting a hundred flowers bloom and a hundred schools of thought contend”. By helping Morph quickly start promotion and implementation from “0 to 1” at a low cost, it can also provide users with efficient and diverse on-chain scene services in a differentiated manner.
Finally, the project owners/DApps that receive sorter fee income can also distribute this additional profit to different types of individual users as incentives to meet their operational needs. This provides multiple DApps with another means of incentivizing users, allowing Morph to achieve its own promotion and large-scale adoption goals, resulting in a win-win situation.
According to official disclosures, Morph plans to launch its mainnet in mid-2024 and open up decentralized sorter functionality. Based on the progress of the current L2 battlefield, this may be the first L2 network that developers or users can experience with the actual use of a decentralized sorter.
As mentioned earlier, almost all mainstream L2 solutions are derivatives of OP Rollup or ZK Rollup. When DApps or project owners decide whether to adopt OP or ZK, the core consideration is still the trade-off between low cost and security.
Directly speaking, although Optimistic Rollup lacks security, it is easier to achieve Ethereum compatibility. Due to its optimistic challenge feature, it does not need to bear the cost of L2 state verification most of the time, so the cost is relatively low.
On the other hand, ZK Rollups, although they provide higher security, require a high cost for L2 state verification, which limits their scalability to a certain extent.
However, these options are not black and white. Morph, for example, plans to combine the advantages of OP and ZK in its long-term development framework to achieve the best of both worlds.
According to the official Morph whitepaper, Morph’s long-term development framework is divided into three stages:
Phase 1: Morph starts with a hybrid model that combines OP and ZK. It uses OP Rollup as the main chain and uses ZK Rollup for specific use cases that require higher security. This ensures the compatibility and scalability of Morph while providing enhanced security for specific applications.
Phase 2: Morph gradually transitions to a fully ZK-based architecture. This phase focuses on improving the security and privacy of the network by using ZK Rollup as the main chain. The goal is to provide a high-security L2 network that is compatible with the Ethereum mainnet.
Phase 3: Morph aims to achieve full interoperability with other L2 networks and L1 through a unified standard. This phase focuses on establishing a network that can seamlessly connect with other L2 networks and the Ethereum mainnet, enabling efficient and secure cross-chain interactions.
By combining the advantages of OP and ZK, Morph aims to create a long-term development framework that addresses the trade-offs between low cost and security. This framework allows Morph to adapt to different use cases and provide a flexible and scalable solution for the Ethereum L2 track.
In conclusion, with the expansion of the Ethereum L2 track, new players like Morph are bringing new variables and development paths to the L2 battlefield. By emphasizing the importance of decentralized sorters and combining the advantages of OP and ZK, Morph aims to differentiate itself and bring a turning point to the Ethereum L2 track. The future of Ethereum L2 will become more crowded and competitive, and finding differentiated competitive directions will be the key to success.High security but lacking efficiency – it relies entirely on mathematics to bring higher security objectively without the need for a dispute period to ensure network security. However, implementing ZK Rollups in the short term is challenging, as proof generation is slow and it is difficult to make it compatible with EVM.
Therefore, although the majority of OPRs in the OP system have not implemented an interactive fraud-proof system, which means that users cannot respond when they discover that an OPR has submitted incorrect L2 state and cannot monitor malicious behavior of OPR operators, at least in the current and coming years, ZK Rollup is not economically advantageous for high-volume DApps.
Faced with this situation, many DApps may prioritize cost advantages over enhanced security, which is also a reality factor for the dominance of the OP system. So, in the L2 world, there is a recognized judgment similar to prophecy, that is, the OP system is the current L2, but ZK is the ultimate destination for Rollup and Ethereum L2.
The key question is, with the development of ZK Rollup, what will happen to DApps that have deployed the OP system if ZK achieves a good balance between economics and security in the future? How will the technical and time costs of migration be resolved?
Therefore, Optimistic Rollup and ZK Rollup fusion are also seen as the future of Ethereum scalability, and Morph has innovatively proposed the Responsive Validity Proof (RVP) that combines the advantages of both:
As a state verification method, RVP combines Optimistic Rollup with Validity Proof and uses ZK-Proof to verify the correctness of the state. After the L2 accepts state changes, if a challenge is initiated, the sequencer must generate and submit a ZK-proof to L1 for verification within the challenge period. This design reduces the complexity of verification and theoretically achieves a reduction of the challenge period from 7 days to 1-2 days, to achieve fast, secure, and low-cost transaction processing.
In traditional Optimistic Rollup, malicious sequencers have the motivation to launch DoS attacks on L1 to refuse the challenge process. Since RVP is generated by the sequencer, this motivation does not exist in RVP, completely eliminating this problem and greatly reducing the challenge period.
This can also be understood as providing an integrated solution – allowing DApps to start with a more economical configuration (OP), while maintaining the flexibility to gradually enhance security measures (ZK Proof), without making major changes to the existing infrastructure.
This also highlights the flexibility of the Morph architecture. Comparatively counterintuitively, just as alloys often have better performance than pure metals, the current hybrid solution of Morph has achieved the best balance between scalability, low cost, and high efficiency – lower cost than ZKR while having higher security than most OPRs without fraud-proof.
In addition, from the perspective of attracting project owners/DApps, migration thresholds and usage costs are the core considerations for competition between different L2s.
The modularity is undoubtedly a key factor among them. Morph is divided into three important modules: the Sequencer Network responsible for consensus and execution, the Optimistic zkEVM responsible for settlement, and the Rollup responsible for data availability.
Among them, Morph adopts a design mechanism similar to Ethereum 2.0, separating the consensus client and the execution client, in order to eliminate invalid transactions from being included in the block and avoid causing losses to users’ transaction fees.
The Rollup strategy also maximizes efficiency by allowing one transaction to include multiple batches, and one batch to include multiple blocks. In addition, using the ZK Proof feature, the content of the blocks is compressed to effectively manage the cost of L1 data availability.
At the same time, the design of multiple batch submitters allows each sequencer to take turns submitting batches to Ethereum, thereby solving the single point of failure problem of individual submitters, ensuring the liveness of batch submission, and combining incentive mechanisms to ensure no transaction conflicts.
This modular collaboration architecture provides developers with attractive deployment options and enables them to quickly adapt to new standards, reduce trial and error costs, and maintain consistency with Ethereum as much as possible.
For example, when conducting major Ethereum upgrades like DenCun, Morph can efficiently integrate EIP-4844 and join new features in a timely manner, achieving compatibility with the development path of Ethereum. In contrast, ordinary Rollups require mainnet hard forks or contract proxy upgrades and extensive testing stages to achieve seamless interaction with existing systems.
Overall, in the current Ethereum L2 ecosystem, the competition for underlying performance may not be the mainstream narrative that the public is concerned about. Compared to improvements in scalability and performance, the key consideration is how to attract more developers, project owners, communities, and markets to achieve an explosion of various use cases in AI, DeFi applications, NFTs, GameFi, etc., and avoid the awkward situation of “overvaluation” but stagnant on-chain development.
After all, time seems to be cyclical. In 2021, we marveled at Axie Infinity sweeping Southeast Asia, bringing a wave of new incremental users to Web3. But now, in 2024, we seem to have returned to the starting point. With the acceleration of wild expansion, the Web3 world is facing its unique traffic dilemma – Web3’s existing user base has reached its peak, but the entry of incremental users is difficult.
In this dimension, Morph’s unique positioning as a “consumer-grade L2” fits well with this incremental demand – on the one hand, consumer-grade scenarios are rich enough, and there are enough ecological points that can be leveraged. From meeting the spiritual needs of entertainment to satisfying the material needs of on-chain assets, Morph can cover them one by one through continuous ecological construction.
On the other hand, the consumer-grade user market is also extensive. In the current search for breakthrough development in the blockchain, by providing a low-threshold and seamless experience, Morph can become the gateway for mass Web2 users to enter the Web3 world.
In particular, the long-term development framework of integrating OP and ZK, the “horse racing mechanism” behind the decentralized sequencer, and the low cost and maintenance threshold of modular design, essentially speaking, this combination is a solution that uses different resources, talents, technologies, etc., to achieve internally driven transparent and fair distribution of L2 development.
First, the long-term development framework of integrating OP and ZK, and the low cost and maintenance threshold of modular design can effectively reduce the migration and development thresholds for developers and project owners/DApps, providing them with attractive deployment options and enabling them to quickly adapt to new standards, reducing trial and error costs, and maintaining consistency with Ethereum as much as possible.
On this basis, developers can basically not change a line of code and maintain a high degree of compatibility with Ethereum’s execution client, thereby minimizing the usage threshold for developers on Morph. This means that different chain projects, especially top-level protocols, can quickly join and enter the virtuous cycle.
Second, the “horse racing mechanism” behind the decentralized sequencer fully leverages the advantages of different project owners, which means that in terms of ecosystem construction, market promotion, and user services on Morph, it achieves a highly market-oriented competition among these community builders, jointly achieving sustainable development of the Morph ecosystem.
Because it is currently in the early stage of ecosystem construction, Morph has launched a series of ecological activities and long-term plans in recent months:
– On March 25th, Morph announced the launch of the Sparkloom Builder Program, which will last for 4 months and includes online hackathons and incubator programs. The hackathon has a prize pool of $20,000, and the winners will be invited to join the Morph Incubator Program. The final winner of the incubator program has the opportunity to receive up to $100,000 in funding and share 30% of the initial airdrop of Morph. The full sorting fee profit will be returned on a quarterly basis.
– On April 9th, Morph jointly organized the Hack.Summit Hackathon with BeraChain, Solana, and The Graph. It provided different workshops and lectures around various application scenarios of Web3 technology and set up rewards to promote the development and implementation of Web3 technology.
– On April 13th, Morph jointly organized the offline Meetup & Mini-HackerHouse event in Shanghai with OpenBuild, Chainlink, SNZ, EthPlanet, and MaskSolidity, helping developers interested in blockchain to enter the Ethereum ecosystem and build.
– In addition, Morph has launched the Sparkloom Incubator Program, which will last from April 29th to June 30th, mainly targeting AI, DeFi, GameFi, Infrastructure, NFT, middleware/tools, and other types of projects. The winners will receive mentorship guidance from institutions such as Dragonfly, Pantera, LayerZero, The Block, Nansen, Pyth, etc., up to $100,000 in grants for individual projects, and 30% of the initial airdrop of Morph, as well as full quarterly refunds of the sequencer fee profit.
This not only helps Morph quickly start promotion and implementation with the help of the existing user base of the crypto industry but also provides a “C2E” (Contribution-To-Earn) channel from the perspective of ordinary users:
By including different types of user groups from different chain protocols, it provides diversified reward opportunities for on-chain users. Contributing leads to rewards, and ordinary users can earn rewards by contributing to the services provided on different B-side platforms (using protocols, holding positions, conducting lending, etc.). This allows for a transparent and fair distribution of rewards.
This provides more operating methods and income choices for different institutions and avoids the problem of a single operating entity. Ordinary users have the opportunity to share the rewards of the Morph network’s sequencer fee profit, and Morph achieves its own construction, promotion, and large-scale adoption goals, achieving a win-win situation. If it can steadily advance, it may be a good path from the self-loop to positive feedback.
If we say that “2022’s Web3 is 2002’s Web2,” then now may be a good time to take action, with the focus on how to tap into consumer-grade scenarios and attract more and more incremental new users. Whoever captures the future billions of users in the Web3 world will win this war.
Of course, new L2 solutions like Morph and Taiko are still in the very early stages and the core teams are currently focused on developing and improving the underlying infrastructure. However, with the rapid development of the L2 track and the entry of crypto giants like Coinbase and ConsenSys into L2, the second half of the L2 competition may have already begun.
What happened in the past is just the prologue. From a macro perspective, if everything goes well, whether it’s potential stocks like Morph and Taiko or emerging newcomers like Base and Linea, they will lay the foundation for the growth of new waves of DApps, new users, and ultimately the TVL of the Ethereum ecosystem. This may have a completely different pace from the previous L2/mainnet boom.
In particular, solutions like Morph are stirring up the waters. By combining the long-term development framework of integrating OP and ZK, the “horse racing mechanism” behind the decentralized sequencer, and the low cost and maintenance threshold of modular design, if it can steadily advance, it may be a good path from the self-loop to positive feedback. This is highly imaginative and challenging.
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