Crypto Exchanges Frequently Embrace Layer 2, Carrying Ambitions for Future Markets
Layer 2 has become one of the most pivotal arenas this year. Its evolution will enable Web3 networks to serve users more efficiently and at a lower cost, while retaining the advantages of new production relationships and smart contracts. Such foundational infrastructure will influence the pace of future industry developments. Recently, aside from projects specifically focused on the L2 track, exchanges have been increasingly active in the L2 domain. Mantle, Base, and opBNB have consecutively launched or announced their Layer 2 mainnet timings, attracting market attention. In this article, we will review the latest state of exchange L2s and what they signify.
I. Base
Supported by Coinbase, Base is an Ethereum L2 network. It offers a secure, cost-effective, and developer-friendly environment for building decentralized applications or on-chain “dapps”, aiming to usher the next billion users into Web3 and the crypto-economy.
1. Technical Overview
Base was the first to collaborate with the OP Stack team, becoming a core developer of OP Stack. Utilizing Optimistic rollup and the modular technical stack of OP Stack, their technical roadmaps for 2023 are also harmonized. It can be said that all the advantages of OP Stack are inherited in Base, such as sharing Ethereum’s security, EVM equivalence, the lowest costs in the current L2 space, excellent scalability, and OP Stack’s modular structure. For further technical characteristics of OP Stack, readers can refer to our previous report titled, Cancun-Deneb Upgrade: Evaluating the Optimistic Outlook for OP Mainnet.
2. Current Progress
1) Timeline: Base testnet was launched on February 23, 2023, announcing a collaboration with Optimism and a super-chain concept. On July 13, 2023, the mainnet was opened to builders. It was then announced that on August 9, 2023, the mainnet would be opened to the entire network, kicking off the month-long Onchain Summer event.
2) Meme craze at the end of July: Right after the mainnet was opened on July 13, there wasn’t much capital on the chain. On July 28, officials promoted a link for early builders to mint NFTs. The condition for minting was deploying a smart contract on the Base mainnet. After July 30, the Total Value Locked (TVL) on Base began to grow rapidly, exceeding 8 million USD within two days.
Due to the limited number of applications launched on-chain, the deployed smart contracts are mainly memes with no real-world application. With the manipulation of funds, meme tokens, represented by “bald”, skyrocketed a thousand times within a day before plummeting to zero. Although the vast majority of memes made a flashy debut and quickly performed a “rug pull”, the exaggerated numbers have attracted more funds into “base”. Because there is no official cross-chain bridge for the time being, a large amount of capital remains on the chain for speculation. This wave of activity brought extremely high market enthusiasm even before the official launch of the Base mainnet.
3) On-chain data:
Since the announcement of the mainnet launch on August 3rd, the current on-chain TVL (Total Value Locked) has exceeded $120 million.
The total number of transactions is 5.75 million, the total number of users is 340,000+, the number of contracts created is 53,000, and the average gas price is $0.36.
The primary application on the chain is a DEX, with “baseswap” ranking first. The TVL of “baseswap” exceeds 50% of the top ten DEXs combined.
3. Future plans:
(1) Vision for building a web3 open portal:
From its inception, Coinbase had a four-phase plan, aiming to create an open financial system to enhance global economic freedom. Over the past decade, the first three phases have been completed. They are: protocols (*Bitcoin, Ethereum), establishing exchanges (*Coinbase Exchange) as bridges for digital currencies, and creating a public market interface for decentralized applications or “dapps” (*Coinbase and Coinbase Wallet). Currently, they are in the fourth phase. Previously, Coinbase’s main services were based on Web2 technology. In this phase, by building a chain written with smart contracts, they aim to provide an environment for crypto-native dapps and bring a billion users into the crypto economy.
(2) Technical Roadmap:
The goal for 2023 is to collaborate with OP Labs and Optimism Collective, to advance Base and Op Mainnet from Phase 0 Roll up (defined by Vitalik) to Phase 1 Roll up, achieving high decentralization and trustlessness.
A. Launching Fault Proofs: Initiate at least one fault proof for the OP stack, utilizing a set of validators to identify and challenge faults, thereby safeguarding the security of Base and Op Mainnet.
B. Advancing Decentralization: Decentralize the upgrade capability of Base and Op Mainnet smart contracts. Initially, hand it over to a security committee, ensuring the committee’s quorum is decentralized and not under the control of any single entity.
C. Deployment of the Superchain: We are introducing the initial version of the Superchain, which can sort transactions aggregated from Base, Op Mainnet, and any OP Stack. This ensures the rights of anyone involved in these ecosystems are protected.
The goal for 2024 is to diligently advance the Base and Optimism mainnets to Phase 2. This would be a stage where their decentralization and security levels rival that of Ethereum.
4. Project Features
(1) No Token Plans at the Moment: Base has officially stated that there are currently no plans to issue network tokens. *One main reason might be to comply with U.S. regulations. Given the ongoing interplay between Coinbase and the SEC, there might be changes in the future.
(2) Building an Open Chain: Base aims to be a bridge, not an island. It will offer access to Ethereum L1, other L2s, and other L1 ecosystems such as Solana. Apart from ensuring Base’s interoperability with other chains, it will support as many chains as possible within Coinbase products.
(3) Integration with the Coinbase Ecosystem: With nearly 100 million users and assets worth $130 billion, the development and interconnectivity of Base will introduce these users to the blockchain world via Coinbase. It also aims to attract more new users to Coinbase through Base’s blockchain gateway.
II. Mantle
Supported by Bitdao and Bybit, the Mantle network uses the Optimistic rollup for Ethereum L2. The extensive Mantle vault empowers it, with its product roadmap and plans governed entirely by token holders.
1. Technical Overview
(1) Modular Architecture & Data Availability: Similar to the OP Stack, Mantle employs a modular architecture. In this modular blockchain, core operational functions (*execution, consensus, settlement, data availability) are carried out on dedicated layers. Such a design can somewhat alleviate the blockchain trilemma; scalability-wise, resource partitioning boosts network efficiency as each layer is dedicated to specific tasks. Security-wise, all users operate at the same security level. In terms of decentralization, techniques like fraud proofs and zk-proofs running on different layers reduce the overall execution and validation load on nodes, eliminating the need to execute all transactions to verify validity. With its modular architecture, Mantle has a distinct Data Availability layer, or DA, ensuring that Mantle can enhance throughput without compromising security or adding to the burden of validation nodes. This DA is powered by EigenDA technology.
(2) Threshold Signature Scheme: One limitation of the Optimistic rollup is the lengthy waiting time imposed on withdrawals in the form of a challenge period. To address the uncertainty of transaction validation during this challenge period, Mantle employs a distributed signing scheme to verify block data. This combination of distributed key generation and digital signatures is more commonly termed the Threshold Signature Scheme (TSS). It allows every party in the client network to generate a valid signature, ensuring the verifiability of distributed signature data (*as long as there are enough honest signatures). Since each TSS client holds only a part of the private key, the private key is no longer a single point of failure. By utilizing the Threshold Signature Scheme (*TSS) technology, dedicated nodes contribute multi-signatures, enhancing the accuracy of off-chain transactions. This shortens the waiting period for withdrawals. However, the current TSS nodes are all authorized by core Mantle contributors, meaning they are centralized.
(3) Improved fraud proof
In the prevailing fraud proof models, contracts for dispute resolution — on-chain validators — can only execute instructions within lower-level virtual machines like MIPS or WASM. This necessitates Ethereum Virtual Machine (EVM) clients to recompile their fraud proofs into a lower-level language so that on-chain validators can interpret them. This implies that the content of the fraud proof is generated outside the scope of the EVM.
The Mantle Network employs an interactive fraud-proof mechanism to establish transaction validity and compiles and verifies fraud proofs using EVM-level instructions (i.e., no need for low-level translations, eliminating ambiguity).
1. Current Progress
(1) Timeline: January 10, 2023: BitDAO’s modular Ethereum Layer 2 network, Mantle Network, announces the launch of its testnet — May 19, 2023: BitDAO community’s proposal regarding “branding, tokens, and token economics” was unanimously approved with a 100% vote. BitDAO, Mantle, and BIT ecosystem will be collectively named Mantle, and BIT tokens will be converted to Mantle. — July 17, 2023: Mantle Network announces the launch of its Mainnet Alpha version at EthCC.
(2) Token Economics and Token Exchange:
On July 17, 2023, at 6:00 AM GMT, Mantle officially initiated its token exchange, allowing for a 1:1 exchange of BIT for MNT. The current total MNT supply is 6,219,316,794, with 52% in circulation, 47.4% held in the treasury, and 0.6% reserved for the core team’s budget. MNT tokens serve a dual role in the Mantle ecosystem, functioning as governance and utility tokens. They grant holders voting rights and practical features. Due to factors like token exchanges and governance proposal approvals, Mantle’s tokenomics might undergo further changes in the future.
(3) On-chain Data:
Total Value Locked (TVL) is 92 million. This is primarily due to a large number of tokens available upon MNT’s launch. The current circulating supply of MNT tokens is around 320 million, with a current price of $0.505 and a market cap of 1.6 billion.
Recently, daily transactions have exceeded 100,000, with a total of 160,000+ wallet addresses and over 1.1 million total transactions.
The top application in on-chain TVL ranking is its native Dex, Agni Finance, which uses the ve(3,3) mechanism and accounts for over 63% of the TVL among the top ten.
2. Future Plans:
(1) Technical Roadmap:
The official statement primarily discloses further technical plans. At the L1 level, the focus is on optimizing fraud proofs, which includes transitioning from nodes authorized by core contributors to permissionless fraud proofs. At the L2-L1 level, the primary focus is around EIP-4844 optimizations. At the L2 level, the current version is EVM-compatible and will enhance the EVM environment. The centralized sequencer will be upgraded to a decentralized one.
3. Project Features:
(1) Strong Financial Backing:
BitDAO is one of the largest DAO organizations and also has one of the largest treasuries with reserves of 3.8 billion US dollars. These assets are significantly contributed by Bybit, which has donated over 600 million USDC/USDT and 177,000 ETH to the BitDAO treasury.
Through the merger of BitDao and Mantle, Mantle Network has inherited nearly 300 million US dollars in stablecoin reserves and close to 270,000 ETH (valued at approximately 489 million US dollars) from BitDAO. These funds will be pivotal in bolstering the entire on-chain ecosystem’s competitive edge.
(2) LSD Strategy:
The Mantle community has proposed the introduction of Mantle LSD and mntETH. Including the Mantle Treasury, users can deposit ETH and receive interest-bearing mntETH tokens. Verification services are outsourced to external node operators. Currently, the Mantle treasury holds nearly 270,000 ETH. In the current LSD track, the fourth-ranked Frax has staked 245,000 ETH, and the fifth-ranked StakeWise has staked 94,000 ETH. It’s evident that if Mantle vigorously develops its LSD initiative, it will quickly secure a prominent position.
III. BNB Chain-L2
Supported by BNB Chain and Binance, based on the BSC, two L2 solutions have been laid out: opBNB and zkBNB. These are introduced to expand the performance of the BSC chain. Currently, opBNB is developing faster, employing OP Stack technology.
1. Technical Overview
The BNB Chain comprises two blockchains: the BNB Beacon Chain (BC) and the BNB Smart Chain (BSC). The BNB Beacon Chain handles governance of the BNB Chain and manages staking and voting on it. In contrast, the BNB Smart Chain is EVM-compatible, operates at the consensus level, and features a multi-chain hub.
zkBNB and opBNB are L2 scaling solutions for BSC. Unlike other L2s discussed in this article, zkBNB and opBNB are designed for BSC as Layer 1, not Ethereum. Although BSC operates at a faster rate than Ethereum, as a chain that hosts numerous games, enhancing scalability through L2 is still vital.
zkBNB — zkBNB is an infrastructure for developers built on the zk-Rollup architecture. It’s poised to assist in creating large-scale BSC-based applications with higher throughput and low to zero transaction fees. It is currently in the testnet phase. Arnaud Bauer, Senior Solution Architect of BNB Chain, mentioned in an interview with The Block earlier this year that zkBNB is not yet EVM-compatible, which is why opBNB was prioritized.
opBNB — The opBNB network is the second-layer scaling solution for the BNB Smart Chain, technologically supported by OP Stack. It achieves scalability while inheriting BSC’s Layer 1 security and EVM compatibility. (Details about OP Stack are not discussed here.)
2. Current Progress
(1) Timeline: On 14th February 2023, BNBChain announced its 2023 technical roadmap, setting scalability as a long-term objective. On 19th June 2023, the launch of the opBNB testnet was announced. Then, on 2nd August 2023, it was declared that the opBNB mainnet would launch in mid-August, initially open to infrastructure providers, and then to the general public by the end of August or early September. (zkBNB, initially highlighted as this year’s scalability focal point, hasn’t seen further developments.)
(2) On-Chain Data:
Currently, Ethereum’s TVL is seven times that of BSC, but BSC’s transaction volume is three times that of Ethereum, with costs being just 7.7% of Ethereum’s. On Layer 1, BSC has a lower cost than Ethereum, while Ethereum boasts the largest capital volume.
On L2, the opBNB testnet processes an average of 100,000–150,000 daily, with an average block time of 1 second. Daily active accounts range from 6,000–20,000, and each transfer costs approximately $0.005.
3. Future Plans
For 2023, BNBChain’s technical roadmap will advance in five key areas:
(1) Enhance Overall Blockchain Network Performance: This will be achieved mainly by increasing the block gas limit, implementing parallel EVM, upgrading BSC nodes, and other methods.
(2) Improve Scalability: BSC scalability will be realized through a multi-chain approach. The rollup solutions primarily include zkBNB and opBNB, with opBNB currently having faster progress. zkBNB was also initially scheduled to launch this year.
(3) Build New Infrastructure: The focus will be on integrating more infrastructure elements, with a key component being decentralized storage. This year, BNB Greenfield was introduced, where users and dApps can create, store, and exchange data they fully own, fostering a new data economy. Storage is also a crucial step in further enhancing network performance.
(4) Increase Decentralization: By the end of 2023, the number of active validator seats will increase from 29 to 100. More consensus mechanisms and on-chain governance will also be introduced.
(5) Boost BNB Security: This involves introducing new security services, risk management frameworks, and enhancing the security of cross-chain components.
4. Project Features
(1) L2 on BSC: BSC (Binance Smart Chain) surpasses ETH in terms of processing speed and cost efficiency. With the technology of opBNB, performance will be further enhanced through L2.
(2) Comprehensive and Mature BNB Chain Ecosystem: Binance is currently the largest cryptocurrency exchange with the most users and funds. BNB Chain has set up a variety of infrastructure and applications within its ecosystem. This allows for a flexible and efficient integration with opBNB, maximizing the value of the ecosystem and its tokens.
IV. Conclusion
In the second half of this year, we expect to hear more and more about L2. Perhaps the “L2 Summer” is on the horizon. From a technical standpoint, mainstream L2 technologies seem to be converging, opting for more scalable modular structures. The optimistic rollup is being adopted more due to its practicality, and OP Stack has secured more external collaborations.
Exchanges are increasingly focusing on their own L2. One of the primary reasons might be to build on the existing foundation of CEX funds and users. By constructing a Web3-native blockchain network, they aim to attract more new users and dApps, creating a more diverse business structure and room for growth. In the future, it will be intriguing to see who can further solidify their position or change the pecking order through L2. Let’s wait and see.
Relevant Links：
Base Official Website:https://base.org
Mantle Official Website:https://www.mantle.xyz
BNBChain Official Website:https://www.bnbchain.org
Cancun-Deneb Upgrade: Evaluating the Optimistic Outlook for OP Mainnet
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