The Market Landscape of Layer2 After the Cancun Upgrade

Recently, Layer 2 finally broke the silence and gained momentum, with tokens like $OP, $ARB, $METIS shining brightly, reminiscent of the eve of the Cancun upgrade's Show Time moment.

How will the Layer 2 market landscape evolve after the Kovan upgrade？ Crypto researcher Haotian shared his insights.

Ethereum's Cancun Upgrade: EIP-4844 Proto-Danksharding Proposal Set to Elevate Quality for Layer2 Rollup Projects

By introducing the new data structure called Blob Space, it has iterated upon the limitations of relying on calldata to store data, while also enhancing Ethereum's mainnet data availability capabilities.

Compared to the full node storage structure of calldata, Blob is designed as temporary storage for partial nodes. This significant change substantially increases the data limit for Layer 2 submissions to the mainnet, thereby enhancing its transactions per second (TPS). As it's temporary storage, this also boosts data storage efficiency and drastically reduces storage costs. The improvement in Data Availability (DA) is due to the one-month temporary storage, which comfortably accommodates the 7-day fraud proof time window of OP-Rollup.

The consequence is a significant increase in the transaction volume for a single Layer 2 submission to the mainnet, resulting in significantly reduced costs for individual users. Previously, Layer 2 boasted about its TPS before the Kovan upgrade, but much of it was within the testing environment. This resulted in users experiencing poor gas fee wear and a disappointing overall experience, which undermined Layer 2's reputation.

After the Cancun upgrade, Layer 2 participants will no longer face the performance bottleneck of the mainnet, and they cannot use mainnet restrictions as an excuse. TPS and Gas, these tangible metrics, will directly become the test, reshaping the competitive landscape of Layer 2.

Post-Cancun Upgrade: Intensified Infighting in the Layer2 Market, Emerging Challengers Disrupting the Existing Landscape of OP+ZK

Regarding the decentralization issue of Sequencers, it has been a focal point in the market. It has been observed that in the Layer 2 domain, specifically in the strong OP-Rollup track, the decentralized Sequencer has evolved into a social consensus of “soft decentralization” in the form of Stack alliances.

However, despite criticisms directed at Optimism for its inaction in achieving decentralization, its actual market success with OP-Stack seems capable of changing the dynamics. But can we say that OP-Rollup embodies the entirety of Rollups？ Obviously not. The more reasonable trend in market evolution is that the successes of OP-Stack will be further magnified, and where OP-Stack has gaps, other entities will naturally step in.

In recent days, the secondary market performance of the Layer 2 decentralized Sequencer solution provider, MetisDAO, has been remarkable, with a surge of over 100% in the last 7 days. Its Total Value Locked (TVL) has also soared to nearly $540 million, approaching zkSync. Why？

The core business logic is simple: Since OP-Rollup has stagnated in addressing the decentralized Sequencer issue, proposing a rational decentralized Sequencer solution as an alternative makes sense.

Because the issue of decentralized Sequencers is crucial. It involves the credibility of transactions submitted to Layer 2 and also affects the security of Layer 2 transactions interacting with the mainnet. Even if we ignore the foundational aspect, after the Cancun upgrade, TPS and Gas fee rates seem somewhat speculative. While I don't deny Optimism's success in its Stack strategy, there will always be other disruptors addressing the decentralization problem of Sequencers.

Metis operates multiple backup Sequencer nodes via Proof of Stake (POS) staking. These nodes compete for block rewards through an election mechanism, and malicious behavior is penalized through slashing. This POS consensus binds each Sequencer as a stakeholder in a shared interest community. The Metis Foundation incentivizes Sequencer mining and new project deployments using a reward pool of 4.6 million $METIS tokens.

Compared to Optimism, Metis has a relatively lower market valuation and doesn't directly compete with OP head-on. It focuses solely on decentralized Sequencers, yet it has the potential to carve out a vast market.

Gradual Modular Evolution of Layer2, Breaking Conventional Norms as Narrow Layer2 Evolves into a Broader Concept

Layer2's core revolves around Ethereum's Data Availability (DA) capability. If the full nodes of the mainnet do not participate in verifying Layer2 data security, the mainnet essentially becomes a “bulletin board,” rendering Layer2 unable to inherit the mainnet's security. Therefore, strictly speaking, those relying on Ethereum's DA are narrow Layer2, while those escaping Ethereum's DA category fall into the broad Layer2.

However, as the Layer2 market grows to a certain scale, the orthodox status of purely narrow Ethereum Layer2 might eventually be challenged. Just as the battle-tested challenges of OP-Rollup's Fraud proof fraud-proof mechanism can be selectively ignored by the market. Technology is just one part of the business logic; the market and the ecosystem have the final say. Optimism, for instance, always seems to work miracles under the banner of optimism.

This implies that after the Kovan upgrade, third-party DA solutions will intrude into Layer2, including third-party DA solutions such as @CelestiaOrg and shared Sequencer solutions from @EspressoSys. Despite reluctance from everyone, the modular evolution of business logic will gradually break through the defenses Ethereum's mainnet can maintain.

The emphasis of the OP-Stack stack implementation is to achieve a shared Sequencer. The more allies the OP strategy has in the future, the greater the interests it can capture through the Sequencer. Conversely, it will also face larger stakeholder interests. This social consensus will become a new constraint beyond technology, cementing Optimism's position as a big player.

On the other hand, the emphasis of the ZK-Stack stack is to achieve a shared Prover system. Both its inherent DA capability and third-party DA capabilities like Celestia, as well as the limited DA capability of the mainnet, will belong to ZK's strategic circle. Its development focus is on the new multi-chain ZK landscape of Layer3 Hyperchains, and who provides the DA is not the key.

Their interests dictate that they can actually disregard where the DA comes from; only Ethereum's mainnet cares about DA's source. So, faced with Celestia's continued seizure of the DA market, Vitalik cheers for Plasma+ZK. However, OP+ZK, busy with strategic expansion, doesn't care about these matters. They are concerned about how vast their Stack strategy can cover the Layer2 camp, as RaaS is ultimately Layer2's business endgame.

In conclusion, the Layer2 track after the Cancun upgrade will be exceptionally fascinating, whether it's the frequent emergence of newcomers or the expansion of Layer2 strategic boundaries, it will stimulate the Layer2 market towards a “diverse” prosperity.