If Base is a rising star, then Morph and others are like promising stocks that bring new variables to Layer 2 (L2).
(Let’s start with a summary:
Layer2 Morph completes a $20 million seed and angel round of financing, led by Dragonfly, with participation from Pantera, Foresight, and other encryption institutions.
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(Background information:
Explanation: Why did the upgrade of Cancun reduce Gas fees on the Ethereum L2 network, Starknet, by 99%?
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Table of Contents
The increasingly crowded L2 battlefield
A new path for the development of the L2 track
The “horse racing mechanism” behind decentralized sorters
The long-term development framework of combining OP and ZK
Low-cost and low-threshold modular design and maintenance
Can Morph bring a turning point for L2 in the second half?
Conclusion
What is the main battlefield for Ethereum L2?
The Ethereum ecosystem has always been at the center of the cryptocurrency narrative, whether it was the ICO craze of 2017, the DeFi boom of 2020, the subsequent NFT wave, or the current crowded L2 battlefield.
However, despite the numerous L2 projects on the market, the Ethereum ecosystem is increasingly fragmented, so what problems does Ethereum L2 need to solve? For many people, it seems to have become a difficult question to answer, and it has also become a must-answer question for L2 projects in the second half of the competition.
As the most fiercely competitive track on Ethereum, the competition in Ethereum L2 has always been intense.
From a data perspective, the L2 track in the past year can be divided into two phases, with mid-October 2023 as the dividing point:
According to L2BEAT statistics, before October 2023, the overall TVL (Total Value Locked) of the L2 track hovered around $1 billion for a long time.
After October 2023, TVL started to rise rapidly, reaching a level of $4 billion in just six months, an increase of 300%.
Even when calculated in ETH, the growth of L2 TVL has accelerated since October 2023, breaking through the bottleneck of 70,000 ETH and reaching a historical high of 12.5 million ETH, an increase of 80% in the past six months.
In terms of types, L2 projects mainly focus on two mainstream scaling solutions: Optimistic Rollup (OP) and ZK Rollup. Among them, OP projects occupy a dominant position:
There are a total of 10 L2 projects with a TVL of over $500 million, with the OP category accounting for more than 85% of the market share, far exceeding the less than 15% market share of the ZK category.
Among them, the top 5 spots are all taken by OP projects, and the scale of the leading OP project, Arbitrum (nearly $17 billion), is 17 times larger than that of the leading ZK project (approximately $1 billion). Therefore, the competition in the L2 track is still dominated by OP projects, while ZK is still in a catching-up position.
Let’s review the situation of new projects and established players over the past year.
First, on March 23, 2023, Arbitrum officially launched its token, directly helping the TVL of the L2 track surpass the $10 billion mark. However, it was difficult to surpass this volume until the end of 2023.
At the same time, the surge of Ordinals and the booming narrative of Bitcoin ecology have also made Ethereum L2 lose its heat. With the resurgence of heterogeneous chains represented by Solana, the development bottleneck of L2 itself has led to a major discussion about Ethereum and L2 in the industry.
Especially among the L2 solutions based on the scalability concept, the liquidity fragmentation and incompatibility between them have caused new problems, which have once again made the Ethereum narrative seem sluggish.
It was not until Blast, the biggest disruptor in the race, was launched in November 2023. With three powerful features, staking interest, airdrop expectations, and an invitation system, Blast’s TVL surpassed that of established L2 projects zkSync and Starknet in just five days, and its growth rate was considered crazy:
As of the time of writing, the TVL has reached $2.6 billion in less than six months, ranking fourth in the L2 track, only behind Arbitrum ($17 billion), Optimism ($6.7 billion), and Base ($5.72 billion).
In addition, Optimism’s OP Stack narrative has given birth to the representative project Base in March 2024, accelerating the trend of “one-click deployment + modularity”. According to incomplete statistics from Coin98 Analytics, as of the end of last year, there were more than 20 L2 sub-projects (including test networks) in the OP Stack ecosystem.
At the same time, various L2 projects have also accelerated their own superchain ecosystem programs:
Arbitrum has deployed a new network called Arbitrum Nova, which is designed for games, social applications, and high-throughput DApps, as well as an open-source toolkit called Arbitrum Orbit, which supports developers in deploying and building their own chains.
zkSync has launched the modular open-source framework ZK Stack for building customized ZK Rollups.
At the Paris EthCC conference, Eli Ben-Sasson, co-founder of StarkWare, also announced that Starknet will soon launch Starknet Appchains, which can be launched by applications built on the Starknet stack, with features such as customizability and decentralization.
It is also worth noting that the Dencun upgrade activated on the Ethereum mainnet on March 15 has significantly reduced the Gas fees required for transactions and transfers on L2. According to OKLink statistics, after the Dencun upgrade, L2 transaction fees have generally decreased by more than 80%, and the actual fees have basically dropped to $0.1 or even below $0.05.
In this context, entering 2024, the expanding modular narrative + DA concept and the increasingly fragmented L2 have undoubtedly become a new trend. Many projects have begun to consider issuing their own L2/L3, which means that the Ethereum L2 track will become more crowded, and the problem of homogeneity will become more prominent.
Therefore, finding a differentiated competitive direction has become a key point for L2 to break through in the second half.
From this perspective, the Dencun upgrade is far from the end of the L2 battlefield. The market is calling for new solutions for Ethereum L2.
In this context, some new variables about L2 have also emerged. New players in Ethereum L2, including Morph, have been gaining market attention since the end of last year. Many Web3 capital players have sensed the huge opportunities hidden in them:
In November 2023, Blast completed a $20 million financing round, with participation from Paradigm and Standard Crypto.
On March 3, 2024, Taiko, an Ethereum Layer 2 network based on zkRollup, completed a $15 million Series A financing round, led by Lightspeed Faction, Hashed, Generative Ventures, and Token Bay Capital, with participation from Wintermute, Amber Group, OKX Ventures, and GSR.
On March 20, 2024, Ethereum L2 Morph completed a $20 million financing round (including a $1 million angel round), with participation from Dragonfly Capital, Pantera Capital, Foresight Ventures, The Spartan Group, MEXC Ventures, and other top VC players in the industry.
On March 26, 2024, modular L2 Reya Network completed a $10 million financing round, with participation from Coinbase Ventures, Wintermute, Fabric Ventures, and other well-known VCs. On April 9, HashKey Group announced the launch of the Ethereum L2 network HashKey Chain, which adopts ZK Proof zero-knowledge proof technology, providing users with low-cost, efficient, and developer-friendly on-chain solutions.
Under such intense competition, the market is further focusing on the Ethereum L2 track, and the discussion volume on the technical level of Ethereum L2 is increasing again. Especially in the current situation where building a prosperous on-chain application layer on L2 has become a mainstream long-term narrative.
In this article, we will use Morph as an example to briefly analyze the new development path brought by these new players to the L2 track, and what variables they can bring to the Ethereum ecosystem and L2 track.
As we all know, sorters are responsible for controlling the order of transactions submitted from L2 to L1. Currently, most L2 projects operate sorters in a centralized manner, providing users with faster transaction confirmation speeds.
However, this solution also has huge risks. Once a few centralized nodes go offline, it will cause the L2 network to be down for a long time. Moreover, these centralized sorters may also prioritize transaction sorting based on personal interests to maximize their arbitrage opportunities, delaying user transactions or even censoring and rejecting user transactions.
Therefore, the advantages of decentralized sorters are self-evident. They can not only eliminate single points of failure but also ensure the decentralization of the network, maintaining network security and stability. At the same time, they can share the sorter revenue, which is the major income of the L2 network, with the builders of the entire network.
Morph, as the first L2 network on Ethereum to implement a decentralized sorter design from the underlying logic, emphasizes the importance of building decentralized sorters from the beginning. It has designed a feasible solution based on principles such as high efficiency, low cost, scalability, and ease of maintenance:
In the Morph execution mechanism, a decentralized sequencer network allows multiple nodes (sorters) to participate in transaction packaging and sorting, instead of being controlled by a single node.
In addition, the decentralized sorter mechanism design of Morph has also given birth to another macro-level potential vision: redistributing sorter profits to project parties/DApp developers on the chain, providing more diverse and subjective on-chain products and user experiences.
In other words, in the future, after Morph’s sorters collect Gas fees from users, they can completely redistribute the profits according to established mechanisms to project parties/DApps on the chain. This can create a new incentive mechanism. For example, let project parties receive rewards based on their contributions, fairly and transparently, thus realizing a competition mechanism similar to “community horse racing.” Through the decentralized sorter mechanism, Morph can fully use the sorter fee profit disposal right as a baton to reward DApps that contribute to the Morph ecosystem, creating a self-sustaining ecosystem.
This fully leverages the advantages of different project parties, achieving a highly market-oriented competition among DApps in terms of market promotion and innovative services. It incentivizes these contributors to jointly achieve the sustainable development of the Morph ecosystem.
In the simplest example, if Morph chooses to link the incentive measures to the Gas consumption of DApp smart contracts and the number of active users, developers will indirectly receive incentives, prompting them to spend as much Gas fee as possible for their contracts and increase the number of active users of their projects, thereby achieving breakthroughs from “0 to 1” and large-scale adoption.
In theory, this design concept can achieve “varied and competing” situations, low-cost assistance to Morph’s rapid promotion and landing from “0 to 1,” and also provide users with efficient and diverse on-chain scene services in a differentiated way.
Finally, project parties/DApps that receive sorter fee income can also distribute this additional profit as incentives to different types of individual users to meet their operational needs. This gives each DApp another means of incentivizing users, and Morph achieves its own promotion and large-scale adoption goals, achieving a “win-win” situation.
According to official disclosures, Morph plans to launch its mainnet in the middle of this year and open the decentralized sorter function. Judging from the progress of the current L2 battlefield, this may be the first L2 network where developers or users can experience the actual use of a decentralized sorter.
As mentioned earlier, almost all mainstream L2 solutions are derivatives of OP Rollup or ZK Rollup. When DApps or project parties decide whether to adopt OP or ZK, their core consideration is still the trade-off between low cost and security.
To put it simply, Optimistic Rollup lacks security but is more easily compatible with Ethereum, and due to its optimistic challenge feature, it does not need to bear the cost of L2 state verification for the vast majority of the time, so the cost is relatively low.
On the other hand, ZK Rollups, although more secure, have higher costs due to the need for zero-knowledge proof generation and verification. However, they are more suitable for scenarios with high security requirements, such as high-value transfers and confidential transactions.
Morph, as an L2 project, aims to provide a long-term development framework that combines the advantages of both OP and ZK. By adopting a modular design, Morph can dynamically switch between OP and ZK based on different use cases and user needs. This provides flexibility and scalability for the L2 network, enabling it to adapt to various scenarios while maintaining security at the required level.
In addition, Morph also aims to reduce the cost and threshold of L2 design and maintenance through its modular design. Developers can choose and combine different modules according to their needs, reducing development costs and making it easier to build and maintain L2 networks.
In conclusion, new players like Morph are bringing new development paths to the L2 track, and they have the potential to bring significant variables to the Ethereum ecosystem and L2 track. The introduction of decentralized sorters and the combination of OP and ZK in a long-term development framework, as well as the low-cost and low-threshold modular design, can potentially bring about a turning point in the L2 track.While it is true that ZK Rollups offer high security, they lack efficiency. They rely entirely on mathematics to provide higher security objectively and do not require a dispute period to ensure network security. However, achieving ZK Rollups in the short term is challenging, as proof generation is slow and it is difficult to make it compatible with the EVM.
Therefore, although the majority of OPRs in the OP system have not implemented an interactive fraud proof system, which means that users cannot respond when they discover that an OPR has submitted an incorrect L2 state, and they cannot monitor malicious behavior by OPR operators. But at least for high-volume DApps in the current and even the next few years, ZK Rollup still does not have an economic advantage.
In the face of this situation, many DApps may prioritize cost advantages over enhanced security, which is also a reality factor for the dominance of the OP system. Therefore, in the L2 world, there is a widely recognized judgment similar to a prophecy, which is that the OP system is the present of L2, but ZK is the ultimate future of Rollup and Ethereum L2.
The key question is, with the development of ZK Rollup, what should DApps that have chosen to deploy on the OP system do once ZK achieves a good balance between economic and security in the future? How to solve the technical and time costs of migration?
This is where the innovative Responsive Validity Proof (RVP) proposed by Morph comes in, which combines Optimistic Rollup with Validity Proof and uses ZK-Proof to verify the correctness of the state. After the L2 accepts state changes, if a challenge is initiated, the sequencer must generate and submit a ZK-proof to L1 for verification within the challenge period. This design reduces the complexity of verification and theoretically shortens the challenge period from 7 days to 1-2 days, achieving fast, secure, and low-cost transaction processing.
In traditional Optimistic Rollup, malicious sequencers have the motivation to launch DoS attacks on L1 to reject the challenge process. However, since RVP is generated by the sequencer, this motivation does not exist in RVP, completely eliminating this problem and significantly shortening the challenge period.
In fact, this can also be understood as providing an integrated solution, allowing DApps to start with a more economical configuration (OP) while maintaining the flexibility to gradually enhance security measures (ZK Proof) without making major changes to the existing infrastructure.
This also highlights the flexibility of the Morph architecture. Comparatively counterintuitive, just as alloys often have better performance than pure metals, the current hybrid solution of Morph has achieved the best balance between scalability, low cost, and high efficiency. It is cheaper than ZKR in terms of cost, while its security is higher than most OPRs without fraud-proof.
In addition, from the perspective of attracting project owners/DApps, migration thresholds and usage costs are the core considerations for competition between different L2s.
The modularity undoubtedly plays a key role here. Morph is divided into three important modules: the Sequencer Network responsible for consensus and execution, the Optimistic zkEVM responsible for settlement, and the Rollup responsible for data availability.
Morph adopts a design mechanism similar to Ethereum 2.0, separating the consensus client and execution client to prevent invalid transactions from being included in the block and causing loss of user fees.
The Rollup strategy also maximizes efficiency by including multiple transactions in a batch and multiple blocks in a batch. In addition, using the ZK Proof function, the content of the block is compressed to effectively manage the cost of L1 data availability.
At the same time, the design of multiple batch submitters allows each sequencer to take turns submitting batches to Ethereum, solving the single point of failure problem of individual submitters, ensuring the liveness of batch submission, and combining incentive mechanisms to ensure no transaction conflicts.
This modular collaboration architecture provides attractive deployment options for developers and enables them to quickly adapt to new standards, reducing trial and error costs and maintaining consistency with Ethereum as much as possible.
For example, when conducting major Ethereum upgrades like Dencun, Morph can efficiently integrate EIP-4844 and join new features in a timely manner, achieving compatibility with the Ethereum development path. In contrast, regular Rollups require mainnet hard forks or contract proxy upgrades and extensive testing to achieve seamless interaction with existing systems.
Overall, in the current Ethereum L2 ecosystem, the competition in underlying performance may not be the mainstream narrative that the public is concerned about. Instead of focusing on scalability and performance improvements, the key consideration is how to attract more developers, project owners, communities, and markets to achieve a booming ecosystem with various use cases in AI, DeFi applications, NFTs, GameFi, etc. This will avoid the embarrassing situation of “high valuation” but stagnant on-chain construction.
After all, time seems to be cyclical. In 2021, we marveled at Axie Infinity sweeping Southeast Asia and bringing a wave of new incremental users to Web3. But now in 2024, we have returned to the beginning. With the accelerating expansion, the Web3 world is facing its unique traffic dilemma: the stock of Web3 users has peaked, but it is difficult for incremental users to enter.
In this dimension, Morph’s unique positioning as a “consumer-grade L2” is well suited to this incremental demand. On the one hand, the consumer-grade field has sufficient scenarios and a diverse ecology that can be empowered. It covers a wide range from satisfying spiritual entertainment to satisfying material-level on-chain assets through deepening ecological construction one by one.
On the other hand, the consumer-grade user market is also broad enough. At a time when blockchain is seeking to break through, by providing a low-threshold and seamless experience, Morph can become the gateway for mass Web2 users to enter the Web3 world.
Especially the long-term development framework that combines OP and ZK, the “horse racing mechanism” behind the decentralized sequencer, and the low cost and maintenance threshold of modular design. In essence, this combination is a solution that utilizes different advantages in resources, talents, and technologies to achieve market-driven transparent and fair distribution of internal L2 development solutions.
Firstly, the long-term development framework that combines OP and ZK, as well as the low cost and maintenance threshold of modular design, can effectively lower the migration and development thresholds for developers and project owners/DApps. It provides attractive deployment options for developers and enables them to quickly adapt to new standards, reducing trial and error costs and maintaining consistency with Ethereum as much as possible.
Based on this, developers can basically not change a single line of code and maintain a high degree of compatibility with Ethereum’s execution client, thereby minimizing the usage threshold for developers on Morph. This means that different chain projects, especially top protocols, can quickly integrate and enter, moving towards a positive loop.
Secondly, the “horse racing mechanism” behind the decentralized sequencer fully leverages the advantages of different project owners. It realizes high market competition between various project owners in the construction of Morph’s DApp ecosystem, market promotion, and service utilization. This incentivizes these community builders to jointly achieve sustainable development of the Morph ecosystem.
Because it is currently in the early stage of ecosystem construction, Morph has recently launched a series of ecosystem activities and long-term plans:
– On March 25th, Morph announced the launch of the Sparkloom Builder Program, which will last for 4 months and includes online hackathons and incubator programs. The hackathon prize pool is $20,000, and the winners will be invited to join the Morph incubator program. The ultimate winner of the incubator has the opportunity to receive up to $100,000 in funding and share 30% of the initial airdrop of Morph, as well as quarterly refunds of full sequencer fee profits for the first year.
– On April 9th, Morph co-hosted the Hack.Summit Hackathon competition with BeraChain, Solana, and The Graph. It provided various workshops and lectures on various application scenarios related to Web3 technology and set up rewards to promote the development and application of Web3 technology.
– On April 13th, Morph co-organized the offline Meetup & Mini-HackerHouse event in Shanghai with OpenBuild, Chainlink, SNZ, EthPlanet, and MaskSolidity. It helped developers interested in blockchain enter the Ethereum ecosystem.
In addition, Morph has also launched the Sparkloom Incubator program, which runs from April 29th to June 30th. It mainly targets AI, DeFi, GameFi, Infrastructure, NFT, and Middleware/Tools projects. Winners can receive mentorship from institutions such as Dragonfly, Pantera, LayerZero, The Block, Nansen, and Pyth, grants of up to $100,000 for individual projects, 30% of the initial airdrop of Morph, and quarterly refunds of full sequencer fee profits.
This not only allows Morph to leverage the mature user base of existing crypto industry players at a low cost to quickly start promotion and implementation but also provides an effective channel for ordinary users to “Contribute-To-Earn” (C2E). Ordinary users can earn rewards by contributing to different services designed by B-side institutions on different chains, such as using protocols, holding positions, and conducting lending, etc. These rewards are transparently and fairly distributed.
This provides B-side institutions with another means of user operation and income choices, and ordinary users have opportunities to share the Morph network sequencer fee profit rewards. Morph also achieves its own construction, promotion, and large-scale adoption goals, realizing a “win-win” situation. If it can steadily advance, it may be a good path from a self-loop to positive feedback.
If we say that “Web3 in 2022 is like Web2 in 2002,” then now is perhaps a good time to take action. The focus is on how to break through the consumer-grade scenarios and attract more and more incremental users. Whoever captures the future billions of users in the Web3 world will win this war.
Of course, new players like Taiko and Morph are still in the early stages of testing and have not yet launched tokens. Therefore, it is possible to objectively look at the competitive advantages and potential growth space relative to other L2s.
As mentioned earlier, the competition in underlying performance may not be the mainstream narrative that the public is concerned about in the current Ethereum L2 ecosystem. Instead of focusing on scalability and performance improvements, the key consideration is how to attract more developers, project owners, communities, and markets to achieve a booming ecosystem with various use cases in AI, DeFi applications, NFTs, GameFi, etc. This will avoid the embarrassing situation of “high valuation” but stagnant on-chain construction.
Overall, if everything goes well, whether it’s potential stocks like Morph and Taiko or emerging newcomers like Base and Linea, they will lay the foundation for the growth of new waves of DApps, new users, and ultimately the TVL of the Ethereum ecosystem. This may follow a completely different pace from the previous L2/public chain boom.
Especially for a consolidating solution like Morph, it is stirring up a pool of spring water. With the steady progress of the long-term development framework that combines OP and ZK, the “horse racing mechanism” behind the decentralized sequencer, and the low cost and maintenance threshold of modular design, if it can steadily advance, it may be a good path from a self-loop to positive feedback. This is highly imaginative and also quite challenging.