Andrew Levine

The Ethereum community has been raving about &#8220;layer-2&#8221; or &#8220;L2&#8221; solutions for quite some time now. These solutions are marketed as a way to make Ethereum faster, cheaper and more scalable.&nbsp;



But if you look at what is actually being built and why, you will see that the generally accepted L2 narrative isn’t telling the whole story. What layer-2 technology is actually doing is putting a Band-Aid over some specific issues on Ethereum — but not actually creating solutions that will solve any of Ethereum’s real problems.



If there’s one belief at the core of crypto, it’s that incentives matter; the motivations, often financial or reputational, that drive individuals or entities to promote or criticize a certain narrative.



What are the incentives motivating the people behind L2s?&nbsp;



They stand to benefit from L2s being perceived as a feature rather than a bug.



If layer-2s were widely understood to be a Band-Aid, rather than a fix, this would negatively impact anyone even tangentially involved in the Ethereum space —&nbsp;and certainly anyone behind these solutions, or anyone who intends to leverage these solutions.&nbsp;



A shift in perception that identifies L2s as an insufficient stopgap measure would likely encourage the community to prioritize finding and developing long-term solutions to Ethereum&#8217;s challenges, potentially leading to the emergence of more innovative and sustainable technologies.



<h2 class="wp-block-heading">What Ethereum is doing wrong</h2>



The main problem with Ethereum is that it can be simply too expensive for people to use. Vitalik Buterin has freely <a href="https://vitalik.ca/general/2023/02/28/ux.html">admitted</a> this.



We can actually keep this discussion fairly non-technical. L2s are a solution to a PROBLEM. Something is wrong with Ethereum, and that needs to be fixed. That’s just reality and it is FINE.&nbsp;



The reason why it is too expensive to use Ethereum is because the network charges gas (essentially, ETH) to use its resources. The more people use the network’s resources, the scarcer those resources become and the higher the cost of those resources in ETH. Of course, the price of ETH can go up as this happens, which obviously creates certain financial incentives. Simply put, high usage and high ETH fees benefit people who already hold ETH.&nbsp;



The problem then with Ethereum is less about the fact that gas fees exist, but instead that gas fees are TOO high. They’re so high that they are limiting the upside for the people who control the chain.&nbsp;



If gas fees are high because of limited network resources, then the solution is obvious; Increase network resources. <a href="https://blockworks.co/tag/layer-2-2">L2s</a> accomplish this by giving users a place to send their transactions instead of the main network (main net) where they can be processed. The results of those transactions can then be broadcast down into the main network, Ethereum.&nbsp;



Simply put —&nbsp;L2s are a way of NOT using Ethereum. Why, then, is the L2 narrative one of the successful solving of Ethereum’s problems, rather than a critical look at this solution’s temporary nature?



The dominant approach in the crypto space has been to avoid speaking honestly about both the benefits and the limitations of the technologies we are developing.&nbsp;



Instead, we act as though our existing solutions are perfect. Even though we can acknowledge when they need small improvements, it’s normal to see anyone who says anything more intensely critical as an enemy, someone uninformed who doesn’t know what they are talking about, someone just trying to pump their own bag.



<h2 class="wp-block-heading">Incentives matter</h2>



Whenever you see a very one-sided narrative being put forward, especially when there is a lot of money on the line, this is an indication that something isn’t right. There’s almost always two sides to every story, especially when that story is about a solution to a problem. It&#8217;s crucial to approach such narratives with a discerning eye and critically evaluate the motivations behind each side of any argument to develop a well-rounded understanding of the issue at hand.



In the context of <a href="https://blockworks.co/tag/ethereum">Ethereum</a> and layer-2 solutions, it&#8217;s important to keep in mind that different parties have their own incentives to either promote or criticize these technologies.&nbsp;



On the one hand, there are those who have a vested interest in promoting layer-2s as the ultimate solution to Ethereum&#8217;s scalability issues; these individuals are likely to be Ethereum proponents or developers involved in creating and maintaining L2 projects. On the other hand, there are those who stand to gain from criticizing Ethereum and its <a href="https://blockworks.co/tag/scaling">scaling</a> solutions, such as competitors in the blockchain space or individuals who have invested in rival platforms.



If L2 solutions were seen as temporary workarounds rather than real solutions, users, developers, and investors might become less inclined to participate in or support layer-2 projects.&nbsp;



And while this would obviously hinder the growth and development of L2s, this lack of confidence in the real L2 narrative could actually prompt individuals to seek out alternative solutions, including new blockchain platforms, that offer genuine fixes to scalability and other issues faced by the Ethereum network. In other words, acknowledging the truth would be more beneficial long term to Ethereum than denying it.&nbsp;



The point here is not that L2s and going off of Ethereum to do your transactions are bad ideas. But if no one talks about what L2s do accurately (and that’s obviously because there are no incentives to do so), then real solutions to Ethereum’s issues will not be found — because no one will even be looking for them.



<hr class="wp-block-separator has-alpha-channel-opacity"/>


<div class="wp-block-post-author-biography">Andrew Levine is the CEO of Koinos Group, a team of industry veterans accelerating decentralization through accessible blockchain technology. Their foundational product is Koinos, a fee-less and infinitely upgradeable blockchain with universal language support.</div>


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Ethereum L2s Are a Bug Masquerading as a Feature

Sebastian Sinclair

Hopeful signs are emerging for the crypto industry mid-term as on-chain metrics for bitcoin suggest the world&#8217;s largest digital asset by market value may have hit its bottom in late 2022.



Those include the Market Value to Realized Value Ratio (MVRV) and the Net Unrealized Profit and Loss metric (NUPL), both of which flashed a trend reversal following FTX’s collapse in November.



The rally in digital assets, represented by the price increase in bitcoin (<a href="https://blockworks.co/price/btc">BTC</a>), as well as ether (<a href="https://blockworks.co/price/eth">ETH</a>) this year, is reinforcing that play. Both assets are up 35% and 30% on a year-to-date basis trading at $22,450 and $1,550 respectively, <a href="https://www.blockworksresearch.com/">Blockworks Research</a> data shows.



Data provided by <a href="https://cryptoquant.com/analytics/dashboard/63c8250eeb627670dae2c573" target="_blank" rel="noreferrer noopener">CryptoQuant</a> shows MVRV hit its lowest point on Nov. 9, right around the time revelations came to light that FTX had allegedly misappropriated user funds, at a reading of 0.75.



The MVRV ratio is a metric used to determine whether an asset, in this case, bitcoin, is undervalued or overvalued.&nbsp;



When the ratio is above 3.7, bitcoin is said to be overvalued and may be at a market top. Conversely, when the reading is below 1, the asset is considered undervalued and may be at a market bottom.&nbsp;



The last time the MVRV ratio was around as its November print was way back on Dec. 15, 2018, when the price of one bitcoin traded at $3,200. Despite a relatively uneventful year for price action in 2019, bitcoin never dipped below its 2018 lows.



NUPL, a metric used to measure the average profit margin of all bitcoin holders, began to flash similar signs around the same time.



Like the MVRV ratio, the NUPL can indicate whether bitcoin is undervalued or overvalued. Historically, NUPL levels above 0.7 (70% average profit margin) have signaled market tops, while levels below -0.4 (-40% profit margin) have signaled market bottoms.



The NUPL reading for bitcoin reached a low of -0.3 in November at a price of $15,800 and has held a positive reading since the middle of January. The NUPL is currently trending at 0.1 after crossing a 365-day moving average threshold, signaling bitcoin may have commenced a new upward cycle.



It’s important to note that although there are indications of a potential “crypto spring,” <a href="https://blockworks.co/news/despite-signs-of-crypto-spring-analysts-say-too-early-to-call">analysts cautioned</a> at the end of February that it is still premature to declare at this point.



They warned against the lingering presence of ongoing inflation, the possibility of future rate hikes and wider macroeconomic uncertainty which may cause further downward momentum.



Previous price history is also telling. While it&#8217;s entirely plausible a mean reversion following the November drawdown is well underway, a daily close below about $21,400 — the most recent nadir on Feb. 13, could hint at further pain.



Cryptoassets can fall considerably further and still maintain the current uptrend on macro timeframes, even if the late November low holds. But the total drawdown in the bitcoin price from its November 2021 peak to November 2022 trough, of about 77% is broadly similar to prior cycles in Bitcoin’s history.



<h3 class="wp-block-heading">L2’s a better indicator than the majors?</h3>



Some like Rich Falk-Wallace, CEO of crypto data analytics platform Arcana suggest that on-chain activity is a better indicator of price for <a href="https://www.linkedin.com/posts/rich-falk-wallace_bitcoin-and-ethereum-active-address-growth-activity-7016746416387555328-sd70/" target="_blank" rel="noreferrer noopener">less utilized blockchains</a> than for those fully utilized like bitcoin and ether.



“For alternative coins and layer-2s, we&#8217;ve seen 90%+ mid-term correlations between daily active users and prices,” he said. “But for bitcoin and ether, both chains hit full capacity around 2018, which means user numbers have essentially been static since that time.”



Hitting capacity for bitcoin and ether refers to the point where they reached their effective block capacity limits, beyond which the fees grow exponentially to restrict further demand for block space.&nbsp;



This results in a gradual increase in daily active addresses since there are restrictions on address growth. Falk-Wallace further explained that the incremental increase in value for these chains must come from a rise in value per active address instead of an increase in users.



That means there exists a “strong relationship” between daily active users and prices for alternative coins and layer-2s, where an increase in daily active users on those chains is highly correlated with an increase in bitcoin’s price, over a medium-term period.



“If you look at dollar value transferred on-chain, the metric is well correlated to BTC’s price historically. And that bottomed — and has languished — since November,” Falk-Wallace said.



That means, even if the bottom is in, investors may be in for a period of relative boredom.



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Did Bitcoin Bottom in November? These Metrics Suggest So.

The native token of Bitcoin layer-2 protocol Stacks (STX) has seen its value soar this year with its performance continuing to carry over into March, edging it to a top spot this week.



Following the buzz generated by the <a href="https://blockworks.co/news/play-doom-bitcoin">Ordinals on Bitcoin</a>, which opened the floodgates for non-fungible token use cases on the world’s oldest blockchain, STX is riding shotgun.



Stacks and Ordinals are different and separate protocols, both utilizing the Bitcoin blockchain. Stacks allows for the creation of complex dApps, while Ordinals provide a simple way to inscribe data in Bitcoin blocks.&nbsp;



STX is changing hands for $0.83, up 2.7% in the past 7 days, despite a lackluster performance in the broader digital asset market (BTC itself is down -6.5%) over the same period. In year-to-date terms, STX has climbed about 300% — most of that coming in late February — alongside a $900 million injection in its total market cap over the same period.



Perhaps most notably, it&#8217;s up about 200% against BTC in the past month.



As the bitcoin halving steadily approaches, investors like Hal Press, founder of crypto investment firm North Rock Digital, believe there exists a “relatively untapped” market opportunity for the project.



“The team is very strong, ecosystem is growing and tokenomics are favorable,” Press said in a <a href="https://twitter.com/NorthRockLP/status/1629490053692149760?s=20" target="_blank" rel="noreferrer noopener">tweet</a>, last week. “Relatively few active funds own the token but many more will as we approach the halving.”



STX has the potential to play a similar role for the halving as the Ethereum liquid staking solution Lido DAO did for the Merge, Press said in an accompanying <a href="https://medium.com/@halp1120/stacks-thesis-62ce0599c77f" target="_blank" rel="noreferrer noopener">blog post</a>. Lido’s stETH, <a href="https://blockworks.co/news/liquid-staking-derivatives-shanghai-upgrade">and other liquid staking derivatives</a>, let users engage in the operation of Ethereum&#8217;s proof-of-stake chain and earn daily rewards in return.



During the lead-up to the <a href="https://blockworks.co/tag/ethereum-merge">Ethereum Merge</a> in July and August of last year, LDO saw a 600% boost in its token price over a six-week period.



Andrew Kang, founder of crypto investment firm Mechanism Capital, agrees with Press’ assessment. Stacks appeals to long-term investors, including bitcoin holders and venture funds, from an allocation perspective, he said.



Since lightning does not have its own token, Stacks has emerged as the primary focus for capital flows that are tied to the halving and the BTC economy, Kang said in a <a href="https://twitter.com/Rewkang/status/1630031466858967040?s=20" target="_blank" rel="noreferrer noopener">tweet</a> responding to Press’ statements.



While Ordinals and STX have no connection to each other, the bitcoin community has developed a growing interest in NFTs and DeFi, <a href="https://www.blockworksresearch.com/">Blockworks Research</a> analyst <a href="https://twitter.com/swmartin19" target="_blank" rel="noreferrer noopener">Sam Martin</a> said.



NFTs (Ordinals) on the Bitcoin blockchain may also bring more financial use cases to the network and drive more demand for block space, Ho Chan Chung, head of marketing at on-chain analysis platform CryptoQuant told Blockworks.



“As a result, this will increase miners&#8217; fees and bolster their long-term sustainable growth.” That could also drive other projects seeking to piggyback on whatever the current narrative might be surrounding bitcoin’s ecosystem.



On the other hand, inscribing non-fungible characteristics to satoshis could negatively affect privacy and fungibility, Chung said.



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STX Price Stacks Up Well, Outperforming Bitcoin

A handful of Ethereum-based layer-2 projects have been on a tear in the past week, with some of the sector’s associated token prices now up considerably in year-to-date (YTD) terms.



Traders are now speculating on a March launch of the next major Ethereum upgrade, dubbed Shanghai, <a href="https://blockworks.co/news/ethereum-devs-opt-for-withdrawals-in-march-and-nothing-else">which would enable the withdrawal of staked ether from validators</a>, a planned change that has been anticipated move from industry participants since <a href="https://blockworks.co/tag/ethereum-merge">the Merge</a>.



&#8220;Volatility has been at its lowest in the crypto market in the past weeks,&#8221; David Cicoria, head of quantitative development at crypto custodian Hex Trust, told Blockworks. “This coupled with the announcement of lower interest rates, Ethereum&#8217;s upcoming Shanghai upgrade, and FOMO from some investors has pushed prices up for layer-2 tokens.”



As such, several projects built around Ethereum are posting double-digit gains including the open protocol — aimed at decentralized exchange order books — Loopring whose token, <a href="https://blockworks.co/price/lrc">LRC</a>, is up more than 18% YTD.



Optimism, an EVM-compatible optimistic <a href="https://www.blockworksresearch.com/glossary#roll-ups" target="_blank" rel="noreferrer noopener">rollup</a> chain that batch transactions before settling to Ethereum’s mainnet, has seen its <a href="https://blockworks.co/price/op">OP token</a> rise more than 25% over the same period. Daily transactions for the network hit an all-time high on Monday, etching just below <a href="https://twitter.com/Dynamo_Patrick/status/1612214474978754560" target="_blank" rel="noreferrer noopener">700,000</a>.



Rival optimistic rollup Arbitrum&#8217;s daily transaction count has been ranging between 200,000 and 400,000, per <a href="https://pro.nansen.ai/multichain/eth-vs-arbitrum" target="_blank" rel="noreferrer noopener">data from Nansen</a>.



Ethereum liquid staking solution Lido DAO’s token, <a href="https://blockworks.co/price/ldo">LDO</a>, is also up an eye-watering 80% since the new year and has continued to post considerable gains in the past week, clocking a 65% gain when viewed over a seven-day period. The project now stands as a top contender for total value locked at $6.5 billion, <a href="https://defillama.com/" target="_blank" rel="noreferrer noopener">DeFiLlama data show</a>.



And layer-2 scaling solution designed for NFTs using zero-knowledge rollup (zk-rollup) technology, <a href="https://www.blockworksresearch.com/glossary#immutable-x" target="_blank" rel="noreferrer noopener">Immutable X</a>, is flashing 23% gains on its token since the new year began. 



The sector seeks to increase the value of Ethereum and related networks by reducing fees, improving scalability and bolstering transaction throughput — often a gripe levied at blockchain infrastructure that optimizes for security and decentralization.



It comes as digital assets have continued to struggle under the weight of an industry-wide blowout courtesy of FTX in the fourth quarter of 2022, as well as recent questions <a href="https://blockworks.co/news/gbtc-takeover-attempts-explained">hanging over Digital Currency Group</a> and its <a href="https://blockworks.co/news/gemini-takes-spat-with-dcg-public-in-open-letter">subsidiaries</a>.



The spot market for most digital assets also experienced a brief reprieve on Monday, sending the price of <a href="https://blockworks.co/news/bitcoin-price-breaks-17k-as-equities-jump-on-us-fed-speculation">bitcoin higher</a> on the day, establishing itself above the pivotal $17,000 level.



None of this impresses Bitcoin maximalists like Samson Mow, Founder and CEO of Pixelmatic, who instead anticipate a market rebound to finally take shape courtesy of <a href="https://blockworks.co/news/bitcoin-halvings-bull-market">bitcoin’s next halving event</a>.



&#8220;Ethereum and its layer two tokens are created and tweaked to bring hype and price movement to satiate high-time preference speculators,&#8221; Mow told Blockworks. “None of it is very interesting to Bitcoiners.”



Cicoria also remains skeptical of the latest upturn: “The crypto market remains fragile, with a lot of unknowns still to consider.”



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Ethereum Layer-2 Token Prices Up Double Digits This Year

Macauley Peterson

Good software development takes money and time. Despite the present crypto winter — generally regarded as having started in late May but turned blizzard by <a href="https://cms.blockworks.co/?s=ftx" target="_blank" rel="noreferrer noopener">FTX going bust</a> — venture capital has <a href="https://cms.blockworks.co/tag/funding/" target="_blank" rel="noreferrer noopener">continued to flow</a> into blockchain startups.



That may change now, as the full extent of the FTX contagion is just starting to emerge. But if it does, then Matter Labs, developers of Ethereum layer-2 zkSync, may have gotten in under the wire.



The company announced a $200 million Series C, Wednesday, co-led by Blockchain Capital and Dragonfly, with participation from LightSpeed Venture Partners, Variant, plus Andreessen Horowitz and other prior venture partners.



Read More: <a href="https://blockworks.co/news/zk-rollups-future-of-smart-contract-blockchains">What Are ZK Rollups? The Future of Smart Contract Blockchains</a>



Throw in Matter Labs’ $58 million in venture funding from its Series B and earlier rounds, and a previously announced — though not yet delivered — $200 million ecosystem fund <a href="https://discourse.bitdao.io/t/passed-bip-7-zkdao-accelerating-the-mass-adoption-of-crypto-for-financial-sovereignty/1546" target="_blank" rel="noreferrer noopener">from BitDAO</a>, and the company claims $458 million in total funding lined up.



That should see the project through even the darkest winter days, according to chief product officer Steve Newcomb.&nbsp;



<blockquote class="wp-block-quote">“No matter how bad this bear market gets, we are well positioned to grow our team, ship our protocol, and ship our mission,” he said.</blockquote>



The stated mission is “to accelerate the mass adoption of crypto for personal sovereignty,” according to a statement, one which Newcomb said is simpatico with Ethereum itself.



In an interview with Blockworks, Newcomb embraced the concept of the “network state” featured in Balaji Srinivasan’s book of the same name. Ethereum co-founder Vitalik Buterin <a href="https://vitalik.ca/general/2022/07/13/networkstates.html" target="_blank" rel="noreferrer noopener">has called it</a> “an ideological successor to libertarianism,” and “an attempt to sketch out a possible broader political narrative for the crypto space.”



Newcomb describes Matter Labs’ approach as the “Mission to Citizen model,” which prioritizes the overall development of Ethereum above “any normal competitive advantage that you could go after.”



<h3 class="wp-block-heading">The battle to out-open-source the competition</h3>



In blockchain software stacks, <a href="https://www.techtarget.com/whatis/definition/security-through-obscurity" target="_blank" rel="noreferrer noopener">security through obscurity</a> is a losing strategy. Open source software went from “a cancer” <a href="https://www.theregister.com/2001/06/02/ballmer_linux_is_a_cancer/" target="_blank" rel="noreferrer noopener">derided by</a> Microsoft’s CEO in 2001 to <a href="https://www.linkedin.com/pulse/20131003190011-29380071-the-cloudera-model/" target="_blank" rel="noreferrer noopener">becoming the norm</a> in little more than a decade. It’s been <a href="https://www.coincenter.org/education/advanced-topics/open-source/" target="_blank" rel="noreferrer noopener">a key part</a> of the crypto ethos since the beginning.



The “ZK” in zkSync refers to zero knowledge proofs. <a href="https://cms.blockworks.co/news/defi-is-betting-big-on-zero-knowledge-is-the-technology-ready/" target="_blank" rel="noreferrer noopener">Rollups using the technique</a> bundle transactions, drastically reducing the amount of data needed to be passed to mainnet Ethereum while preserving a high level of security, proponents say.



The intended end result is an ecosystem that can reliably handle more transactions, faster.



Matter Labs is one of several teams vying to build ZK-rollup-based scaling solutions compatible with the Ethereum Virtual Machine (EVM). ZkSync 2.0 went live on mainnet on Oct. 28. Others include <a href="https://cms.blockworks.co/?s=polygon">Po</a><a href="https://cms.blockworks.co/?s=polygon" target="_blank" rel="noreferrer noopener">l</a><a href="https://cms.blockworks.co/?s=polygon">ygon</a> with its <a href="https://cms.blockworks.co/news/polygon-unveils-zkevm-the-holy-grail-of-scaling/" target="_blank" rel="noreferrer noopener">zkEVM</a>, unveiled in July, Scroll and new entrant Taiko which are still early in their development.



<a href="https://cms.blockworks.co/tag/starkware/" target="_blank" rel="noreferrer noopener">StarkWare</a> doesn’t support dapps written for the EVM and instead has pursued its own approach to an execution layer which is theoretically more scalable. Loopring, which <a href="https://medium.loopring.io/loopring-launches-zkrollup-exchange-loopring-io-d6a85beeed21" target="_blank" rel="noreferrer noopener">launched</a> a ZK-rollup exchange way back in February 2020 also falls into this category.



A key component of all <a href="https://blockworks.co/news/zk-rollups-future-of-smart-contract-blockchains">ZK-rollups</a> is the “prover,” which essentially guarantees correctness in the system as transactions are processed. Part of today’s announcement from zkSync is that it will apply an MIT Open Source license to the whole technology stack — including the prover — sometime before the end of 2022.



<blockquote class="wp-block-quote">“It will be the first time that a general-purpose ZK-rollup’s technology is released that offers developers the freedom to 1) view the code 2) modify the code and 3) fork the code,” Matter Labs said in a statement.</blockquote>



StarkWare is only partly open source and uses <a href="https://starkware.co/starkware-polaris-prover-license/">a more restrictive license</a>.



Building a prover is “a Herculean task in terms of math, engineering and software,” StarkWare president Eli Ben-Sasson, <a href="https://cms.blockworks.co/news/defi-is-betting-big-on-zero-knowledge-is-the-technology-ready/" target="_blank" rel="noreferrer noopener">previously told</a> Blockworks. “We have a team of 100 and have been at it for four years.”



Polygon told Blockworks by email that its prover “does not currently have an open source license as it undergoes audits,” but added, “it will be freely licensed in the future.”



The Polygon team also said “the best way to verify that a team has a working prover is to examine source code,” noting that it has already published its zkEVM in full.



Having a fully open source prover increases the chances that an Ethereum rollup ecosystem will form around one shared prover, Newcomb said, which would bring benefits such as obviating the need for <a href="https://cms.blockworks.co/?s=bridge" target="_blank" rel="noreferrer noopener">bridges</a>.



What if Polygon or StarkWare opt to adopt MIT open source standards too?



“It would be huge!” Newcomb said. Such a development “guarantees that a mission driven prover is the prover that wins.”



<h3 class="wp-block-heading">Dapps and decentralization</h3>



Both Polygon and zkSync have major DeFi projects planning to deploy on their respective zkEVMs, such as Uniswap, Aave, Curve and Chainlink.



In fact, Matter Labs says it has received commitments from more than 150 projects for its “Full Alpha Launch,” planned to coincide with the February 2023 ETH Denver conference, making it the “largest in history” for any layer-2 blockchain.



The company is incorporated in the Cayman Islands, <a href="https://www.crunchbase.com/organization/matter-labs" target="_blank" rel="noreferrer noopener">per Crunchbase</a>, with co-founders <a href="https://www.linkedin.com/in/gluchowski/" target="_blank" rel="noreferrer noopener">Alex Gluchowski</a> and <a href="https://www.linkedin.com/in/alexandr-vlasov-4863404a/" target="_blank" rel="noreferrer noopener">Alexandr Vlasov</a> located in Dubai, UAE, and Montreal, Canada, respectively.



While some rollup projects have issued a token as part of their rollout — such as <a href="https://cms.blockworks.co/tag/optimism/" target="_blank" rel="noreferrer noopener">Optimism</a> (OP) and, most recently, <a href="https://medium.com/starkware/starknet-token-is-deployed-on-ethereum-f27f0000b00c" target="_blank" rel="noreferrer noopener">StarkWare&#8217;s Starknet (STRK)</a> — zkSync does not, and Newcomb said that among all Ethereum L-2s they will likely be the last to have a token.



“Decentralization” is on the team’s <a href="https://blog.matter-labs.io/baby-alpha-has-arrived-5b10798bc623" target="_blank" rel="noreferrer noopener">roadmap</a> for 2023, but they have no plans to follow others’ approach by launching a DAO or foundation, he said.



EVM-compatibility in a ZK-rollup is seen as a breakthrough technology thanks to the network effects of Ethereum — things like dapps, wallets, developer tooling, infrastructure — and one that was expected to take years to develop. Optimistic rollups, led by Arbitrum and Optimism have been <a href="https://medium.com/cortexlabs/wtf-is-zk-rollup-b7b8c7224700">viewed</a> by developers as a stepping stone. But <a href="https://cms.blockworks.co/news/polygon-and-matter-labs-compete-on-zkevm-rollups/" target="_blank" rel="noreferrer noopener">competing teams</a> and years of research have accelerated the timeline to the point that we now have two ZK-based EVM implementations just months away from being live and ready for ordinary users.



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ZkSync Sharpens Role in Future of Ethereum With $200M Funding

Arbitrum, a layer-2 rollup for Ethereum, has seen its network activity spike to new heights as anticipation mounts for an airdrop.



The buzz has boosted the total value of digital assets <a href="https://defillama.com/chains" target="_blank" rel="noreferrer noopener">locked</a> on the network (TVL) by more than 13% over the past month. Arbitrum’s TVL is $1.05 billion as of press time, eclipsing Ethereum rival Solana and even direct competitor Optimism.



Not to mention, transactions have shot up more than 550% since the launch of its <a href="https://cms.blockworks.co/arbitrum-upgrades-to-nitro-ahead-of-ethereum-merge/" target="_blank" rel="noreferrer noopener">Nitro</a> network upgrade in August, now representing 62% as many weekly transactions as the Ethereum blockchain, research firm <a href="https://members.delphidigital.io/reports/arbitrum-activity-accelerates-after-the-nitro-upgrade?utm_campaign=Delphi%20Daily&amp;utm_medium=email&amp;_hsmi=232144614&amp;_hsenc=p2ANqtz--LGURJ-CGaB1NEozwzZarcrJ7o4CQ32PdJMTWGG8aJjiXnysmw0oe6cnL7qUwsR9SkU7kar3RmW0fmzGLJyOgB0VSkag&amp;utm_content=232144614&amp;utm_source=hs_email" target="_blank" rel="noreferrer noopener">Delphi Digital</a> reported earlier this week. Before the surge, Arbitrum handled just 9% of Ethereum activity.



That has coincided with a spike in unique wallet addresses, which <a href="https://arbiscan.io/chart/address" target="_blank" rel="noreferrer noopener">topped out</a> at over 1.66 million for the first time on Monday. It should be noted that figure counts multiple addresses owned by individuals.



“Much of the activity is likely from speculators trying to boost their on-chain activity in the hopes of receiving a larger airdrop,” Delphi said.



Arbitrum hosts many of DeFi’s popular decentralized applications including exchange liquidity pool <a href="https://cms.blockworks.co/tag/curve-finance/" target="_blank" rel="noreferrer noopener">Curve Finance</a>, decentralized exchange Uniswap and lending protocol Aave.



<figure class="wp-block-image size-large"><img decoding="async" loading="lazy" width="1024" height="514" src="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png" alt="" class="wp-image-36544" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=1024 1024w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=300 300w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=768 768w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=1536 1536w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=2048 2048w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=428 428w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=470 470w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=389 389w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=80 80w, https://blockworks-co.imgix.net/wp-content/uploads/2022/11/Screen-Shot-2022-11-02-at-10.02.42-1024x514.png?w=50 50w" sizes="(max-width: 1024px) 100vw, 1024px" /><figcaption>Arbitrum activity chart | Source: <a href="https://members.delphidigital.io/reports/arbitrum-activity-accelerates-after-the-nitro-upgrade" target="_blank" rel="noreferrer noopener">Delphi Digital</a></figcaption></figure>



The protocol is yet to launch its own native token, but Steven Goldfeder, co-founder of Arbitrum developer Offchain Labs, has cryptically <a href="https://twitter.com/sgoldfed/status/1516896690019647488" target="_blank" rel="noreferrer noopener">hinted</a> that an airdrop could eventually occur, <a href="https://cms.blockworks.co/podcast-optimisms-airdrop-is-the-future-of-governance-weekly-roundup/" target="_blank" rel="noreferrer noopener">following</a> in Optimism&#8217;s footsteps.



Arbitrum’s growth can be partly attributed the Nitro upgrade, which introduced lower fees, increased capacity and smoother development, Goldfeder told Blockworks in an email.



“At the same time, the Arbitrum ecosystem has been steadily growing, and this increase in adoption is largely a reflection of this continued organic growth,” Goldfeder said.



<h3 class="wp-block-heading">Arbitrum scales Ethereum to defy bear market</h3>



Australia-based blockchain infrastructure provider Mycelium debuted its <a href="https://cms.blockworks.co/bitmexs-arthur-hayes-advises-myceliums-perpetuals-launch/" target="_blank" rel="noreferrer noopener">perpetual swaps</a> on Arbitrum in August under the guidance of former BitMEX executive Arthur Hayes.



“When Mycelium first deployed derivative smart contracts in September 2021, Arbitrum was a natural choice,” Mycelium co-founder Patrick McNab told Blockworks. “Their growth since then is a success story that has defied the bear market odds.”



McNab added the network effects of access to liquidity, as well as protocols expanding synergistically, have led to large growth and innovation in Ethereum protocols over the past two years. “That is now playing out on layer-2s like Arbitrum.”



Offchain Labs has raised some $147 million in funding from the likes of Lightspeed Ventures, Coinbase Ventures, Pantera Capital and billionaire Mark Cuban, among others, <a href="https://my.pitchbook.com/profile/266539-15/company/profile#deal-history/205501-33T" target="_blank" rel="noreferrer noopener">data from Pitchbook</a> shows. Offchain’s post-money valuation is more than $1.2 billion.



Article and headline were updated at 3:40 am, Nov. 3, to clarify transaction count statistic.



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Arbitrum Transaction Count Rises to 62% of Ethereum Transactions

<div id="highlights-block_626c24657504e" class="highlights">
 <ul>
 <li>Governance will eventually be split between two co-equal branches, according to a constitution</li>
 <li>An initial retroactive airdrop will be the first of many seeking to coordinate network participants</li>
 </ul>
 
</div>



Optimism — an Ethereum layer-2 solution featuring optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">rollups</a> — is planning to decentralize its governance through the release of a token.



The network detailed the token launch, OP, in <a href="https://optimism.mirror.xyz/gQWKlrDqHzdKPsB1iUnI-cVN3v0NvsWnazK7ajlt1fI" target="_blank" rel="noreferrer noopener">a blog post</a> this week. While not the first layer-2 to launch a token, the mechanism of distributing it and the overall governance structure is novel in that it envisions a bicameral system of co-equal “houses”: a “Citizens’ House” and a “Token House.”



“If we just had tokens, then governance rights would be buyable on the open market,” Karl Floersch, chief technology officer, said on the <a href="https://youtu.be/bKVIfJIhS1o" target="_blank" rel="noreferrer noopener">Bankless podcast</a>.



The plan calls for an “Optimism Collective,” which explicitly aims to prevent the centralization of governance power in the hands of moneyed interests. “It’s more equal,” Floersch said.



Rather than follow a one-token-one-vote structure, the system’s architects at Optimism PBC, a public-benefit corporation rebranded as <a href="https://www.linkedin.com/company/oplabs-pbc/" target="_blank" rel="noreferrer noopener">OP Labs</a>, sought to create a “balanced, decentralized, bottom-up governance system by the people for the people.”



<figure class="wp-block-image"><img decoding="async" src="https://lh6.googleusercontent.com/zlPgxN-dVJuNTJVGkWd0KXLuHeXpYPIlIETDCPQxX8MX0rqb2H9VQzrgq0weu_noPb8ZKK_-B5J2Hx5m7rFIe2704-wG50po3a5a0xKkAD4o9kMEdQPKCDea0G2clrf-g_K9R1C8agTq6eZK9w" alt=""/><figcaption>An illustration of the proposed Optimism governance scheme</figcaption></figure>



Layer-2 implementations, built on top of Ethereum’s mainnet, inherit Ethereum’s security but allow transaction throughput to scale, while reducing gas fees — the cost of block space on the network. Optimism is currently the third largest layer-2 by total value locked, at $670 million, behind Arbitrum and dYdX, according to <a href="https://l2beat.com/">L2beat</a>.



Tokens have typically been used to bootstrap liquidity on new protocols, but Optimism received an early boost by being the first layer-2 on which <a href="https://uniswap.org/blog/uniswap-optimism-alpha" target="_blank" rel="noreferrer noopener">Uniswap announced</a> it would deploy its leading dex protocol. Synthetix, another decentralized finance (DeFi) blue chip, <a href="https://blog.synthetix.io/why-optimism/" target="_blank" rel="noreferrer noopener">embraced the network</a> as its rollup solution of choice.



<h3 class="wp-block-heading">A new kind of airdrop</h3>



Jinglan Wang, Optimism’s co-founder and CEO, and Ben Jones, formerly the chief scientist, will move to a new Optimism Foundation, which will fund external teams to build out the OP ecosystem.



The OP token is not yet claimable, let alone tradeable on the secondary market, but the team sought to de-emphasize its role.



<blockquote class="wp-block-quote">“The token is missing the point of this thing. This is about building a new system of governance and funding mechanisms for public goods,” Jones said.</blockquote>



The problem with Web2 is plutocracy, Wang said. The Optimism team are trying to avoid a “sneaky plutocracy,” enabling Optimism network participants to coordinate without falling prey to the “pressures of centralization.”



To do that, governance power will reside with “citizens” — holders of NFTs that will be distributed by projects built on Optimism. But unlike most NFTs (non-fungible tokens) today, these will be “soul bound,” that is, fixed to a specific address — a single person. They will not be able to be transferred or sold.



While the details remain scant, the team envision a grassroots network, seeding a “web of trust” on-chain that will grow over time. Independent projects will decide which of their community members will best represent their community’s interests in Optimism governance.



The idea has been received favorably among the broader Ethereum community, with co-founder Vitalik Buterin calling it “possibly the biggest attempt at non-token-holder-centric DAO governance so far.”



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">Possibly the biggest attempt at non-token-holder-centric DAO governance so far. Excited to see where this goes. 👀 <a href="https://t.co/9vreC7QsXa">https://t.co/9vreC7QsXa</a>&mdash; vitalik.eth (@VitalikButerin) <a href="https://twitter.com/VitalikButerin/status/1519012381581463552?ref_src=twsrc%5Etfw">April 26, 2022</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



The initial airdrop was aimed to be “super fair,” with a wide distribution and built-in <a href="https://en.wikipedia.org/wiki/Sybil_attack" target="_blank" rel="noreferrer noopener">Sybil-resistance</a>, by rewarding a set of behaviors that would be difficult to game. But it will only be the first of a string of airdrops used to incentivize activity that helps Optimism, and Ethereum more broadly, grow, by distributing public goods funding to recipients from across Ethereum development.



The team see its governance experiment as a test bed for the future evolution of the entire internet.



<blockquote class="wp-block-quote">“Right now we sit at an inflection point…this is a moment where the internet is most sorely in need of human representation, identity, and fixing these problems that we have,” Floersch said.</blockquote>



“Humanity is important, we need to capture and fight for our rights as people and individuals to make sure our networks reflect our values.”



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Blazing an Optimistic Trail on Ethereum

Jacquelyn Melinek

<div id="highlights-block_61c372a161075" class="highlights">
 <ul>
 <li>Newcomers are coming through EVM chains, like Fantom, Avalanche, or other layer-1 protocols like Solana, which have spent hundreds of millions of dollars to attract developers and users</li>
 <li>In order to succeed, there needs to be greater incentives and smoother migration for users to onboard to layer-2 centralized exchanges and applications through initiatives</li>
 </ul>
 
</div>



Earlier this week, the Uniswap community approved a governance proposal to deploy Uniswap v3 contracts on to Polygon’s proof-of-stake chain.&nbsp;



The approval arrived through an on-chain vote of over 72.6 million for the proposal and only 503,009 against it, Uniswap <a href="https://twitter.com/Uniswap/status/1472200289919053826?ref_src=twsrc%5Etfw%7Ctwcamp%5Etweetembed%7Ctwterm%5E1472200289919053826%7Ctwgr%5E%7Ctwcon%5Es1_&amp;ref_url=https%3A%2F%2Fcointelegraph.com%2Fnews%2Funiswap-v3-contracts-deployment-on-polygon-approved-with-99-3-consensus" target="_blank" rel="noreferrer noopener">tweeted</a>. Since then, Polygon’s <a href="https://www.coinbase.com/price/polygon#:~:text=The%20current%20price%20is%20%242.5787,circulating%20supply%20is%207%2C086%2C960%2C741.27%20MATIC." target="_blank" rel="noreferrer noopener">MATIC</a> token has spiked near all-time highs to $2.65 at 9:50 am ET on Wednesday.&nbsp;



“Uniswap is going to launch on Polygon with yield farming and on there the farming governance tokens will be MATIC,” a source familiar with the matter, who’s not authorized to comment publicly said. “So they’ll pay for the liquidity mining when it launches, but you won’t get UNI tokens, you’ll get MATIC,” the source added.&nbsp;



While this proposal succeeded, other ones are awaiting a chance for success.&nbsp;



Uniswap is a decentralized exchange — a protocol for trading and automated liquidity provision on Ethereum. And as Ethereum gas fees remain <a href="https://etherscan.io/gastracker" target="_blank" rel="noreferrer noopener">high</a>, Uniswap users are considering alternative ways for applications to onboard to faster and cheaper layer-2s like Optimism or Arbitrum.&nbsp;



In early November, a Uniswap user who goes by the name litocoen, proposed an initial temperature check <a href="https://gov.uniswap.org/t/temperature-check-should-uniswap-incentivize-liquidity-on-optimism-and-arbitrum/14804" target="_blank" rel="noreferrer noopener">post</a> on the Uniswap Governance forum page for Uniswap to consider launching a liquidity mining campaign on <a href="https://cms.blockworks.co/?s=layer-2" target="_blank" rel="noreferrer noopener">layer-2</a> through its <a href="https://openorgs.info/" target="_blank" rel="noreferrer noopener">$6.7 billion</a> treasury.&nbsp;



<blockquote class="wp-block-quote">“Uniswap governance should start incentivizing liquidity on its Arbitrum and Optimism deployments to kickstart adoption of Ethereum Layer-2 and prove that its decision to bet on Optimistic Rollups was the right one,” litocoen wrote.</blockquote>



The Ethereum mainnet has become unusable for normal users, who can start with $200 but lose half of their portfolio on a day when gas fees are high, he added.&nbsp;



As a result, newcomers to crypto are not being onboarded through Ethereum, but through chains running compatible Ethereum virtual machines, or EVM, like Fantom, Avalanche, Binance Smart Chain or other layer-1 protocols, which have spent hundreds of millions of dollars to attract developers and users.&nbsp;



In order to succeed, there needs to be greater incentives and smoother migration for users to onboard to layer-2 centralized exchanges and applications through initiatives like the liquidity mining campaign previously mentioned, litocoen noted.&nbsp;



“Users are waiting for subsidies and more applications to use, centralized exchanges and application developers on the other hand are waiting to see user adoption first to justify the integration efforts,” he wrote. But as both wait for the other to make the move, layer-2 applications are slowly competing for a space in the market.



If it happens, it would be the first time Uniswap taps into its treasury to provide liquidity mining since the initial program that accompanied <a href="https://uniswap.org/blog/uni" target="_blank" rel="noreferrer noopener">the launch</a> of its UNI token.



“The real problem that Arbitrum and Optimism have in attracting any sort of any material activity, is because they don’t have tokens themselves,” the source close to the matter said. “They don’t do what Polygon is doing with MATIC tokens, so it’s really on Uniswap if they really want to scale through Arbitrum and Optimism, the work is on Uniswap to do it themselves,” the source commented.



<blockquote class="wp-block-quote">“It’s all about incentives, that’s where capital and liquidity will go.”&nbsp;</blockquote>



<div class="wp-block-image"><figure class="alignright size-medium is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png" alt="The Snapshot vote" class="wp-image-13074" width="248" height="403" srcset="https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=185 185w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=632 632w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=159 159w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=161 161w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=135 135w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=49 49w, https://blockworks-co.imgix.net/wp-content/uploads/2021/12/Screen-Shot-2021-12-22-at-2.34.54-PM-185x300.png?w=668 668w" sizes="(max-width: 248px) 100vw, 248px" /><figcaption>Snapshot vote results</figcaption></figure></div>



After the post was validated by over 25,000 UNI participants, it reached the next stage for a <a href="https://gov.uniswap.org/t/consensus-check-should-uniswap-incentivize-liquidity-on-optimism-and-arbitrum/15288">Consensus Check</a> at the end of November. UNI is Uniswap’s token, which users can delegate to others (or self-delegate) to vote on the protocol’s governance. To date, the circulating supply consists of about 628 million UNI, which is about 63% of total supply, <a href="https://coinmarketcap.com/currencies/uniswap/" target="_blank" rel="noreferrer noopener">according to CoinMarketCap</a>.



Among token holders, 98.92%, or 19.71 million UNI, voted yes, while 1.08%, or 215,040 UNI, voted no for the consensus check on whether or not Uniswap should incentivize liquidity on Optimism and Arbitrum. The <a href="https://snapshot.org/#/uniswap/proposal/0xc1aec11c9ac5698920072a5de807284a56becbadfb7bef68b2618ad00e61547c" target="_blank" rel="noreferrer noopener">poll</a> took place from Nov. 30 to Dec. 3, 2021.&nbsp;



While the majority of votes were in favor of the proposal, some found the idea to be a waste of funds.&nbsp;



“Liquidity mining is a great way to bootstrap liquidity onto a freshly launched project, but it proves to be quite parasitic in the long run,” user Buckerino <a href="https://gov.uniswap.org/t/temperature-check-should-uniswap-incentivize-liquidity-on-optimism-and-arbitrum/14804/5">wrote</a>.



<blockquote class="wp-block-quote">“Liquidity is loyal only to the person who pays. Why should UNI token holders bear this burden? What do they get in return besides the fact that they will get utterly diluted?” the user commented.&nbsp;</blockquote>



The ultimate goal of the proposal is to make participation in a liquidity mining program as easy as possible, litocoen wrote. It would also aid in further decentralizing the protocol, as UNI tokens would be distributed to as many people as possible, he added.&nbsp;



“In other words, to give users who weren’t able to participate in earlier liquidity mining schemes on Ethereum mainnet a chance to do it on L2. We should not only optimize for liquidity but also fairness,” he added.



The Uniswap protocol (of which there are three generations, version 3 being <a href="https://uniswap.org/blog/launch-uniswap-v3" target="_blank" rel="noreferrer noopener">most recent</a>) is autonomous, immutable on Ethereum and not registered in any jurisdiction.



Uniswap Labs, the company responsible for the protocol’s development, was not available for additional immediate comment when requested by Blockworks.



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Uniswap Delegates Consider Liquidity Mining to Kickstart Ethereum Layer-2 Adoption

<div id="highlights-block_6193fdb0c2f5f" class="highlights">
 <ul>
 <li>This funding round comes just seven months after the layer-2 developer protocol raised $75 million in a Series B round</li>
 <li>“The more that blockchain technology is available, to everyone from a lone farmer in the developing world to a businessperson in New York, the more we’ll discover its transformative potential,” Eli Ben-Sasson said to Blockworks</li>
 </ul>
 
</div>



Ethereum-based Starkware has raised $50 million in a Series C round led by Sequoia Capital, bringing its valuation to $2 billion. 



This funding round comes just seven months after the layer-2 developer protocol raised $75 million in a Series B round. Existing investors also participated in the round, including Paradigm, Alameda Research, Three Arrows Capital and Founders Fund.&nbsp;



Starkware is a four-year-old <a href="https://cms.blockworks.co/the-rise-of-dexs-begins-move-to-l-2s-like-starkware/" target="_blank" rel="noreferrer noopener">startup</a>, created by four co-<a href="https://starkware.co/about-us/" target="_blank" rel="noreferrer noopener">founders</a> Eli Ben-Sasson, Alessandro Chiesa, Uri Kolodny, and Michael Riabzev, that offers services for blockchains to scale through ‘STARK’ proofs, which are Ethereum-based products using rollups technology that were invented by Ben-Sasson and Riabzev. 



“The truth is, we didn’t need the money. Our StarkEx scaling engine is profitable and is thriving, powering such crypto success stories as dYdX and Sorare. You get a sense of the size of the operation when you consider that we’re minting all the NFTs for the new Immutable X NFT platform,” said Kolodny in an interview with Blockworks.&nbsp;



“But the funds help us to grow our operation even more quickly than we have until now and enable us to give the best mainnet launch imaginable to our new platform StarkNet. This will be fully deployed on mainnet in the coming weeks, and it will be a game-changer, starting a building boom on blockchain,” Kolodny added.&nbsp;



The Stark-based solutions include its two products StarkEx, a permissioned validity-rollup, and StarkNet, a permissionless decentralized ZK-rollup, which aim to increase speed and reduce the cost of Ethereum gas fees.&nbsp;



<blockquote class="wp-block-quote">“The more that blockchain technology is available, to everyone from a lone farmer in the developing world to a businessperson in New York, the more we’ll discover its transformative potential,” Ben-Sasson said to Blockworks. “And the more we advance our scaling technology and make it more efficient, the lower the carbon footprint of each blockchain transaction will become. Given that blockchain use will inevitably rise, this is important for future generations,” Ben-Sasson added.&nbsp;</blockquote>



Prior to this funding, Starkware’s technology was only available to clients through its scaling Engine StarkEx. But the new capital raised will support the deployment of its StarkNet layer-2 platform, which will allow anyone to build blockchain applications with its technology, the company said.



“Via StarkNet, it will open up a brave new world where all the dApps that people have dreamed about but which weren’t viable because of high gas fees will start to be built,” Ben-Sasson said.&nbsp;



“Our plans for the future focus on scaling more, and more efficiently, and really seeing our technology making a difference. We want to see it helping companies to succeed, also helping the general public and the environment,” Ben-Sasson added.



<hr class="wp-block-separator"/>



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<hr class="wp-block-separator"/>

Starkware Valuation Hits $2B After $50M Series C Round

Sam Reynolds

<div id="highlights-block_61571038f6627" class="highlights">
 <ul>
 <li>Layer-2’s resolve a massive pain point with Ethereum, but with that comes a centralization trade-off</li>
 <li>Are the savings on gas fees compared with mainnet Ethereum a sufficient Faustian bargain?</li>
 </ul>
 
</div>



The decentralized spot and futures trading app dYdX once required prospective traders to deposit $10,000 to get started. This was just to cover the gas fees involved in trading on the decentralized exchange. Unlike a centralized exchange (CEX), DEXs don’t live on servers. Instead, they exist as a series of smart contracts on a blockchain.&nbsp;



While this means that there’s not the same overhead as a centralized exchange (consider that Coinbase employes close to 1000 people) for most of the past year each transaction comes at a higher cost given the complexity of the contract execution on Ethereum and the demand for blockspace.&nbsp;



DEXs have been around for about three and a half years since the launch of the Bancor Network in April 2018, followed by the original version of Uniswap on November 2, 2018. In crypto-land that’s comparable to a decade. The launch of dYdX — which is typically written in like this, inspired by the derivative function in calculus — changed the adoption equation by providing trading infrastructure that’s quite usable and similar to a CEX, explains Dragonfly Capital’s Haseeb Qureshi. 



“We always believed it was a matter of time until decentralized perpetuals took off, and dYdX has really shown that the big thing standing in the way was an incentive for traders to onboard (to solve the cold-start liquidity problem) and just having a good enough fully-fledged trading experience that mimics CeFi,” Qureshi told Blockworks by email, explaining his firm’s investment thesis.&nbsp;



But this is also a double-edged sword. The market enthusiasm for dYdX made it prohibitively expensive, with Ethereum gas fees shooting up into the stratosphere as the market crowded in to trade on its crowded pipes.&nbsp;



<figure class="wp-block-embed is-type-rich is-provider-twitter wp-block-embed-twitter"><div class="wp-block-embed__wrapper">
<blockquote class="twitter-tweet" data-width="550" data-dnt="true">And today, dYdX is doing more trade volume than every other DEX combined 🤯 <a href="https://t.co/7XDc7D7D0E">pic.twitter.com/7XDc7D7D0E</a>&mdash; Antonio | dYdX 🦔 (@AntonioMJuliano) <a href="https://twitter.com/AntonioMJuliano/status/1442470476534583304?ref_src=twsrc%5Etfw">September 27, 2021</a></blockquote><script async src="https://platform.twitter.com/widgets.js" charset="utf-8"></script>
</div></figure>



Part of the problem comes from how congested the <a href="https://cms.blockworks.co/bloombergs-mike-mcglone-on-ethereum-trends-and-the-digitalization-of-finance/" target="_blank" rel="noreferrer noopener">Ethereum network</a> has become. The <a href="https://cms.blockworks.co/ethereum-steps-up-as-rails-for-new-capital-markets/" target="_blank" rel="noreferrer noopener">future of finance may well be on Ethereum</a>, but as a result, its rails are currently a congested hot mess.&nbsp;



<h3 class="wp-block-heading">Layering and Scaling</h3>



The market has been evolving to fix this problem with scaling solutions that move transactions and computation off of the mainnet. Alternative layer-1 protocols tend to take a more centralized approach to boost transaction speed or accommodate more users and data thus bringing down costs. Examples of this are protocols like Polygon or Solana.



Another layer-1 method is sharding where the blockchain database is broken into smaller pieces, and thus makes it easier to process — the approach that Ethereum will take with its forthcoming 2.0 version next year. 



In contrast, layer-2 solutions are apps or technology that operate on-top, or separately, from the blockchain allowing for transactions to occur in a sandbox before being placed back on-chain. One example of a layer-2 solution are sidechains, like Liquid, which allow peer-to-peer transactions on a separate chain before synchronizing them with the main blockchain. Optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">Rollups</a> debuted in recent months with the launch of Uniswap V3 on both <a href="https://offchainlabs.com/" target="_blank" rel="noreferrer noopener">Arbitrum</a> and <a href="https://www.optimism.io/" target="_blank" rel="noreferrer noopener">Optimism</a>. The latest method is Zero-Knowledge Rollups (shortened to ZK Rollups), which batch together transactions and then transforms them into a single settlement transaction on the Ethereum network.   



<h3 class="wp-block-heading">Starkware, how dYdX rolls&nbsp;</h3>



If DEXs are going to “rule crypto” as dYdX founder Antonio Juliano proclaimed earlier this year, keeping the status quo isn&#8217;t going to work — they need an alternative to compress thousands of trades into a small size to run on Ethereum more efficiently.



And with the adoption of ZK-rollups, thanks to Starkware’s layer-2 solution, the exchange is now open to the little fish and not just the big whales who can invest a minimum of $10,000.



<blockquote class="wp-block-quote">“We like to think of Ethereum as this prime real estate you only use for displaying really expensive stuff. It’s like a display window on Fifth Avenue or something,” Starkware’s co-founder Eli Ben-Sasson told Blockworks in an interview.&nbsp;</blockquote>



But layer-2s currently have a centralization problem. After all, they rely on an outside operator to manage the transactions and send them back on-chain. 



Starkware is well aware of this and is actively moving to develop <a href="https://medium.com/starkware/on-the-road-to-starknet-a-permissionless-stark-powered-l2-zk-rollup-83be53640880" target="_blank" rel="noreferrer noopener">Starknet</a> — a decentralized version of its ZK-Rollup mechanism, due out at the end of the year.&nbsp;



“Things like Starknet are going to be the manufacturing plant, producing a lot of the stuff that then gets displayed and curated on a layer-1,” Ben-Sasson said. 



But does all of this take the <a href="https://cms.blockworks.co/qcp-capital-wary-of-ether-downside-as-china-mining-pools-shut/" target="_blank" rel="noreferrer noopener">“magic” out of Ethereum</a>, as research house Santiment argued in a recent note? Not the case, believes Ben-Sasson.&nbsp;&nbsp;



“I think that overall this would not decrease the value and usage of Ethereum, it&#8217;s the other way around,” he said. “Just like how you could move manufacturing facilities out of Manhattan or the center of London because you’re utilizing them for more expensive and important stuff.”



Ben-Sasson doesn’t think concerns over the centralization of layer-2s are as pressing of an issue as some might think, pointing out that if Starknet vanishes tomorrow, all the funds can be retrieved via a layer-1.



“Even though there was a central party running part of the system, the funds are always held in a non-custodial fashion, and you can revert to a layer-1 to get your funds back. But we’re not content with that. The path forward is decentralization,” Ben-Sasson concluded.



But decentralized or not, considering the uptick in volume over the last week — Dragonfly Capital’s Qureshi puts that on attractive token rewards and not a China exodus —  the market doesn’t seem to mind. After all, it is pushing through more volume than Coinbase. Maybe the future isn’t that decentralized?

The Rise of DEXs Begins Move to Layer-2s Like Starkware

Ben Strack

<div id="highlights-block_61533f8603881" class="highlights">
 <ul>
 <li>Layer-1s competing with Ethereum “will take years to catch up if they ever do,” Nahmii spokesperson says</li>
 <li>Kavita Gupta, a former founding managing partner of ConsenSys Ventures that just launched the Delta Blockchain Fund, named Nahmii as one of its first investments</li>
 </ul>
 
</div>



Nahmii, a solution created to help make Ethereum accessible to institutions, is launching its mainnet with $8 million in funding.



Nahmii is a layer-2 scaling solution that allows developers of smart contract-based applications to build solutions with the performance required at institutional scale.



DARMA Partners, the general partner of investment fund <a href="https://darma.capital" target="_blank" rel="noreferrer noopener">DARMA Capital</a>, led the $8 million funding roundi. Other investors included Aligned Capital, CMT Digital, the Delta Blockchain Fund, Fourth Revolution Capital and Quantstamp.



Kavita Gupta, a former founding managing partner of ConsenSys Ventures that<a href="https://cms.blockworks.co/former-consensys-ventures-managing-partner-launches-blockchain-fund/" target="_blank" rel="noreferrer noopener"> just launched</a> the Delta Blockchain Fund, named Nahmii as one of its first investments.&nbsp;



“Nahmii as a layer-2 solution is aiming to be cross chain with a strong focus on institutional DeFi adoption, which differentiates it,” Gupta said.



The <a href="https://www.businesswire.com/news/home/20210928005227/en/Nahmii-Launches-Layer-2-Solution-Primed-for-Institutional-Scale-Raises-8M-from-Blockchain-Investing-Leaders" target="_blank" rel="noreferrer noopener">news</a> comes after Nahmii 1.0 launched what it says was the first layer-2 payment network on top of Ethereum in 2018. The team previously worked on Bitcoin’s Lightning Network and Plasma, as well as a content distribution platform that served 50 million users per day.



“Nahmii is the first Ethereum layer-2 scaling solution to achieve commercial viability because it is the first solution to provide instant finality with no latency and predictable fees that commercial users demand,” a spokesperson told Blockworks. “True scaling is holistic and includes finality and predictability, not just high transactions per second on a layer-2.&nbsp;



<h3 class="wp-block-heading">Nahmii’s security model</h3>



Layer-2 is a term for solutions built to scale a blockchain by handling transactions off the base layer (in this case Ethereum mainnet) while retaining the decentralized security model of that mainnet.



Other ​​layer-2 implementations built on top of Ethereum include like Optimism and Arbitrum, do so through the use of optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">rollups</a>.



Nahmii’s security model, which the company refers to in <a href="https://www.nahmii.io/public/file/nahmii.White.Paper.v2.0.pdf" target="_blank" rel="noreferrer noopener">their whitepaper</a> as “a hybrid ‘state pool’ model”, shares similarities with <a href="https://cms.blockworks.co/polygon-trust-crypto-economy-etf-hit-the-market/" target="_blank" rel="noreferrer noopener">sidechains like Polygon</a> as well as other layer-2 implementations on Ethereum.



Nahmii’s implementation, however, relies initially on a centralized Operator, run by the corporation Nahmii AS, which is slated to be supplemented by additional federated parties over time.&nbsp;



While acknowledging that “the protocol will not be fully trustless at first release,” the company cites oversight features in the form of governance, and technical features which limit the risk of fraud and abuse by a malicious Operator.



The emphasis in this approach is on speed — reaching consensus and achieving transaction finality quickly, which they argue is more important to users than decentralization. The Nahmii representative added that transactions are irreversible in milliseconds, a feature which matters for institutional operators and high-frequency traders, and one which may offer an edge versus competing protocols.



Other features Nahmii is expected to support are transparency of transaction fees and the option for financial institution to implement compliance with KYC/AML rules.



<h3 class="wp-block-heading">Layer-1 competition</h3>



The launch comes as more layer-1 protocols <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/" target="_blank" rel="noreferrer noopener">have popped up</a> as demand increases for lower transaction prices and higher throughput than what the Ethereum network currently provides. Such platforms include Cardano, Solana, Polkadot and Avalanche.



John Wu, president of Ava Labs — the team behind the Avalanche blockchain — <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">said at Blockworks’ Digital Asset Summit</a> (DAS) earlier this month that these next-generation layer-1 protocols “are where the economies will be.” 



Multicoin Capital managing partner Tushar Jain <a href="https://cms.blockworks.co/das-2021-are-layer-1s-better-than-layer-2s/" target="_blank" rel="noreferrer noopener">said during a separate panel</a> at DAS that layer-1 blockchains are currently more reliable than the layer-2s built on top of them, especially in times of high market volatility.



But Ethereum is where much of the blockchain technology innovation is taking place, a Nahmii spokesperson said.&nbsp;



“The reality is that Ethereum has a huge head start, and competing layer-1s will take years to catch up if they ever do,” the representative added. “As a layer-2, Nahmii leverages the security of Ethereum and has access to the largest community of blockchain developers and the most mature development tooling.”

Nahmii Raises $8M, Launches Solution to Boost Ethereum Accessibility for Institutions

<div id="highlights-block_614a27561d180" class="highlights">
 <ul>
 <li>Osprey Funds’ support of Ethereum-compatible blockchain Polygon (formerly Matic Network) comes after the firm launched an offering earlier this month focused on layer-1 Solana</li>
 <li>Top holdings of the First Trust SkyBridge Crypto Industry and Digital Economy ETF (CRPT) include Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square</li>
 </ul>
 
</div>



Osprey Funds has launched the first US fund to invest exclusively in the native token of the Polygon network, while First Trust Advisors and SkyBridge Capital have brought to market a new actively managed ETF that will buy the stocks of crypto and digital economy companies.



A protocol for developing blockchains on top of Ethereum, Polygon gains from Ethereum’s secure network while mitigating common blockchain pain points, such as high gas fees and slow transactions, according to Osprey Funds CEO Greg King.



“Polygon is compelling for the flexibility that it brings to ETH,” King told Blockworks in an email. “It is not just a layer-2 scaling solution — it delivers a set of tools that facilitate exciting new [decentralized apps] while still being part of the Ethereum ecosystem.”



Its native token, $MATIC, was priced at $1.12 as of 1:30 pm Eastern on Tuesday, according to <a href="https://www.coingecko.com/en/coins/polygon" target="_blank" rel="noreferrer noopener">CoinGecko</a>, which was down 10.6% in the last seven days. Polygon’s market capitalization was just below $7.5 billion at that time.



While often described as a layer-2, Polygon’s security model is based on an independent set of validator nodes that stake $MATIC and participate in validating transactions. Polygon periodically creates “checkpoints” recorded on the Ethereum mainnet, roughly every 10 minutes, of its state — a snapshot of its transaction record. That increases its security relative to some blockchains, but the Proof-of-Stake commit chain — an entirely separate blockchain — is quite different from layer-2 implementations built on top of Ethereum mainnet, like Optimism and Arbitrum, which inherit Ethereum’s security directly through the use of &#8220;optimistic <a href="https://ethereum.org/en/developers/docs/scaling/layer-2-rollups/" target="_blank" rel="noreferrer noopener">rollups</a>.&#8221;



<div class="wp-block-image"><figure class="aligncenter size-large is-resized"><img decoding="async" loading="lazy" src="https://blockworks-co.imgix.net/wp-content/uploads/2021/09/2021-09-21-polygon-intrographic-2-1-1024x1024-1-1024x1024-1.jpg" alt="" class="wp-image-8338" width="512" height="512"/><figcaption>Graphic: <a href="https://immunebytes.com/introduction-to-polygon-is-it-the-solution-to-ethereums-problems/" target="_blank" rel="noreferrer noopener">immunebytes.com</a></figcaption></figure></div>



<h3 class="wp-block-heading">Branching out</h3>



Osprey’s launch comes about two weeks after the New York-based digital asset manager <a href="https://cms.blockworks.co/osprey-funds-launches-solana-trust-amid-tokens-rally/'" target="_blank" rel="noreferrer noopener">kicked off</a> the <a href="https://ospreyfunds.io/products/osol/" target="_blank" rel="noreferrer noopener">Osprey Solana Trust</a> for private placement. It also offers products focused on Bitcoin, Polkadot and Algorand.



Like the Solana Trust, the Polygon Trust is currently available to accredited investors and has a $10,000 minimum investment. Osprey intends to list the fund on the OTCQX market and has agreed to waive the management fee for all investors until January 2023.



King told Blockworks at the time that the firm was focused on launching first-to-market funds that track promising layer-1 protocols. Though he labeled Solana and Algorand as potential challengers to Ethereum, he said Osprey remains supportive of Ethereum.



Tushar Jain, a managing partner at Multicoin Capital, <a href="https://cms.blockworks.co/das-2021-are-layer-1s-better-than-layer-2s/" target="_blank" rel="noreferrer noopener">argued at Blockworks’ Digital Asset Summit</a> last week that layer-1 blockchains are currently more reliable than the layer-2s built on top of them. Ava Labs President John Wu said, <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">during a separate session</a> at the conference, that the new wave of layer-1s “are where the economies will be.”&nbsp;



“Our future product development will continue its focus on layer 1s,” King said Tuesday, “but layer 2s and beyond are possible as we broaden the Osprey product set.”



Broader crypto exposure in an ETF



Also on Tuesday, First Trust unveiled an actively managed ETF sub-advised by SkyBridge Capital.



<a href="https://www.ftportfolios.com/LoadContent/gchdqptsgrao" target="_blank" rel="noreferrer noopener">The First Trust SkyBridge Crypto Industry and Digital Economy ETF</a> (CRPT) seeks to invest at least 80% of its net assets in the stocks and American depository receipts of crypto and digital economy companies. It will not invest directly in digital assets or indirectly through the use of derivatives or through investments in funds or trusts that hold them.



Anthony Scaramucci, founder and managing partner of SkyBridge, said in a statement that cryptocurrency adoption represents “the biggest macro trend since the commercialization of the internet.” The fund, which costs 85 basis points, will be managed by Scaramucci and Brett Messing, SkyBridge’s president and co-chief investment officer.



CRPT’s top five holdings are Coinbase, Marathon Digital, Riot Blockchain, MicroStrategy and Square, Bloomberg Intelligence Senior ETF Analyst Eric Balunchas noted in <a href="https://twitter.com/EricBalchunas/status/1440302883669348364" target="_blank" rel="noreferrer noopener">a Twitter post</a>.&nbsp;



The new fund’s largest competitor will be Amplify Investments’ Transformational Data Sharing ETF (BLOK), which has nearly $1.3 billion in assets. That actively managed product, which launched in January 2018, carries an expense ratio of 71 basis points.&nbsp;



VanEck’s Digital Transformation ETF (DAPP) and Bitwise Asset Management’s Crypto Industry Innovators ETF (BITQ), are index offerings that launched in April and May, respectively. DAPP costs 50bps, while BITQ is priced at 85bps.



“The honest truth is that there are so few companies that are even remotely pure plays in the space that they all look remarkably similar,” Dave Nadig, chief investment officer and director of research at ETF Trends, told Blockworks. “The top tens for BITQ, DAPP and CRPT are all essentially the same if not very close, with the weighting schemes the main difference.”



<blockquote class="wp-block-quote">“While I think it&#8217;s great there are so many options out there, choosing between them is extremely difficult based on anything but a most cursory set of analysis,” Nadig added. “Do you want indexed or not, what kind of concentration can you stomach, how long do you plan on holding and thus how fee sensitive are you?”</blockquote>



Other funds in the space include the Siren Nasdaq NexGen Economy ETF (BLCN), the Capital Link Global Fintech Leaders ETF (KOIN) and First Trust’s own Indxx Innovative Transaction &amp; Process ETF (LEGR). Invesco <a href="https://cms.blockworks.co/invesco-proposes-crypto-economy-etf/" target="_blank" rel="noreferrer noopener">revealed plans in June</a> to launch a Crypto Economy ETF that would invest primarily in entrenched crypto companies and up to 10% in bitcoin futures contracts.



<hr class="wp-block-separator">
Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.
<hr class="wp-block-separator">

Polygon Trust, and Crypto Economy ETF Hit the Market

<div id="highlights-block_6144ca3ff08ae" class="highlights">
 <ul>
 <li>Solutions that better balance of composability, security and speed will be a key innovation in future as many users must currently weigh tradeoffs, executives say</li>
 <li>Multicoin Capital managing partner Tushar Jain revealed that his firm has a big bet on layer-1 Solana</li>
 </ul>
 
</div>



Layer-1 blockchains are currently more reliable than the layer-2s built on top of them, argued <a href="https://multicoin.capital" target="_blank" rel="noreferrer noopener">Multicoin Capital</a> managing partner Tushar Jain, but there exist tradeoffs between all these solutions.



“The biggest trade-off of the approach that Ethereum is taking is that it breaks composability…when you go to different shards, or if you go to different rollups,” said Jain, speaking at Blockworks’ Digital Asset Summit (DAS) in New York City this week.



Layer-2 is a term for solutions built to scale an application by handling transactions off the layer-1 Ethereum mainnet while utilizing the decentralized security model of that mainnet. But Jain argued that in times of high market volatility, it can be hard to move assets this way.&nbsp;



“The throughput of the entire sharded system, or the entire layer-2 ecosystem, gets bottlenecked down to the throughput of that base layer that is actually communicating everything,” Jain said. “You have some ideas of cross-chain layer-2-to-layer-2 bridges, but those are not great&#8230;Those types of bridges are not reliable when you need them the most.”



Protocols like <a href="https://hop.exchange/" target="_blank" rel="noreferrer noopener">Hop</a> are designed to solve this problem by allowing users to move assets between Ethereum&#8217;s layer-2 ecosystem and the layer-1 mainnet quickly and in a trustless manner.



<h3 class="wp-block-heading"><meta charset="utf-8">The Investment Case for DeFi</h3>



Jain was joined on the DAS panel, called “The Investment Case for DeFi,” by Michael Shaulov, CEO and co-founder of Fireblocks; Ben Forman, founder and managing partner at ParaFi Capital; and Jonathan Steinberg, founder and CEO of ETF issuer WisdomTree.



<figure class="wp-block-embed aligncenter is-type-video is-provider-youtube wp-block-embed-youtube wp-embed-aspect-16-9 wp-has-aspect-ratio"><div class="wp-block-embed__wrapper">
<iframe loading="lazy" title="Digital Asset Summit: 2021" width="1024" height="576" src="https://www.youtube.com/embed/aoo_GVVVbiI?start=4258&#038;feature=oembed" frameborder="0" allow="accelerometer; autoplay; clipboard-write; encrypted-media; gyroscope; picture-in-picture" allowfullscreen></iframe>
</div></figure>



Speaking to tradeoffs between the competing solutions, Forman said that certain financial applications may require more scalability and less trust, while others demand a higher level of trust.



<blockquote class="wp-block-quote">“You’re probably more comfortable holding significant amounts of value — so hundreds of millions, billions — secured by the very decentralized and secure Ethereum L-1 versus having it on an L-2 environment,” he explained. “Then there are applications like lending and borrowing that may not require as many transactions per second versus trading, that likely do, so it just depends on which type of DeFi application you’re looking at.”</blockquote>



A report published by Galaxy Digital on Friday about the layer-2 ecosystem noted that layer-1 blockchains have not been able to scale significantly without sacrificing decentralization, a feature that defines the value proposition for the entire crypto economy.&nbsp;&nbsp;



Whether for scaling payments through state channels like Bitcoin’s Lightning Network or computation through rollups like Ethereum’s Arbitrum, Galaxy argues in the report that a layered approach to scaling brings the most benefit with the least compromise on base-layer security, resiliency and decentralization.



“There’s this triage of composability, the speed and the trust and so far we see that people give up on one or two of those to achieve the third or two out of three,” Shaulov said during the panel. “Eventually we somehow need to find the solution that satisfies all three.”



<h3 class="wp-block-heading">Avalanche, Cosmos and Solana, oh my</h3>



Meanwhile, competition within the layer-1 space alone <a href="https://cms.blockworks.co/competition-in-layer-1-space-continues-to-heat-up/" target="_blank" rel="noreferrer noopener">has heated up</a> of late amid a higher demand for transaction prices and throughput that are lower and faster than what the Ethereum network provides. Such platforms include Cardano, which now has the third-largest coin by market capitalization, as well as Solana, Polkadot and Avalanche.



“We’re seeing a lot of different layer-1 chains out there, and they’re all choosing different tradeoffs,” Jain said during the panel. “These things aren’t just better than the other.”



The Multicoin Capital managing partner called Solana one of his firm’s “big bets in this space,” noting that its maintaining composability is critical for a successful DeFi ecosystem.&nbsp;



The Solana blockchain <a href="https://cms.blockworks.co/sol-stumbles-as-solana-struggles-with-technical-issues/" target="_blank" rel="noreferrer noopener">suffered a major outage</a> on Tuesday, but <a href="https://cms.blockworks.co/solana-recovers-after-10-hour-outage/" target="_blank" rel="noreferrer noopener">recovered</a> the next day. Its native token, $SOL, was priced at $144.50, which was down 8% in the last 24 hours, as of 1 p.m. eastern on Friday, according to <a href="https://www.coingecko.com/en" target="_blank" rel="noreferrer noopener">CoinGecko</a>.



John Wu, president of Ava Labs — the company behind the Avalanche blockchain — <a href="https://cms.blockworks.co/das-2021-ava-labs-wu-says-economies-will-depend-on-next-gen-layer-1s/" target="_blank" rel="noreferrer noopener">said at DAS</a> that the new generation of layer-1 protocols competing with Ethereum will be “where the economies will be” due to the transaction speeds and lower costs.



Avalanche announced Thursday that it had closed a <a href="https://cms.blockworks.co/avalanche-closes-230m-token-sale-backed-by-three-arrows-capital-polychain/" target="_blank" rel="noreferrer noopener">$230 million token sale</a> in June, led by Singapore’s Three Arrows Capital and Polychain.



<h3 class="wp-block-heading">The future of DeFi?&nbsp;</h3>



The innovation and efficiency of traditional financial services on the blockchain will transform the industry, but it will require staying within the bounds of responsible regulation, Steinberg said.



Steinberg in 2006 founded the ETF issuer, which now has about $75 billion in assets under management. The executive compared the digital assets space to the ETF market, which he noted in 1999 had $40 billion assets and today approaches $9 billion.&nbsp;



WisdomTree’s CEO added bringing assets such as Treasurys and gold to the blockchain within the foundational regulatory principles of traditional finance will be a “transformative moment.”



“If we are able to create the innovations and the efficiencies possible on distributed ledger, we will I believe pick up the users, because it will be the better investor experience,” he said.



Forman said the term DeFi will disappear in ten years as crypto banks, traditional banks and fintech companies build on top of blockchains to provide access to all types of financial products.



<blockquote class="wp-block-quote">“Everything will just be finance,” he said. “You’ll go to Compound to do your lending and borrowing, you’ll go to Uniswap to do your trading, you’ll go to Nexus Mutual to do your insurance, and the complexity of all that is abstracted away from the end user.”</blockquote>



Amid recent <a href="https://cms.blockworks.co/opensea-hits-3b-in-monthly-nft-volume/" target="_blank" rel="noreferrer noopener">high NFT volumes</a>, Shaulov highlighted the immense potential of monetizing digital creations.&nbsp;&nbsp;



“You can just sort of imagine how anyone can upload a TikTok movie, get an NFT, go to Compound and leverage that to borrow against what they just recorded,” he said.



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Are you a UK or EU reader that can’t get enough investor-focused content on digital assets?<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Join us</a>&nbsp;in London on November 15th and 16th for the Digital Asset Summit (DAS) London. Use code ARTICLE for £75 off your ticket.&nbsp;<a target="_blank" href="https://cms.blockworks.co/events/das-london/" rel="noreferrer noopener">Buy it now</a>.



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