With the rise of Ethereum and the upcoming Cancun upgrade, ARB continues to break new highs, and other L2s are also starting to exert force.

By Luccy

Arbitrum's native governance token ARB continues to break new highs. According to OKX market data on January 3, at the time of writing, ARB briefly exceeded $1.94, breaking new highs once again, with a 24-hour increase of 10.33%. According to L2BEAT data, Arbitrum's locked value exceeds $20 billion, making it the largest L2 Rollup.

ARB has risen by 60% since December.

On July 7, 2023, the Arbitrum community passed two proposals, AIP-1.1 and AIP-1.2. Proposal AIP-1.1 suggests placing the remaining 700 million ARB of the foundation in "smart contract-controlled lockup" for four years. Proposal AIP-1.2 aims to modify several governance documents of the Arbitrum ecosystem, including lowering the threshold of ARB tokens required for on-chain improvement proposals from 5 million to 1 million.

The massive unlock caused a brief rise in ARB prices, but the price then fell all the way, only starting to improve after hitting a low of $0.74 on September 11.

In terms of timing, ARB closely followed the rise in OP prices. According to The Block data, starting from the fourth quarter of 2023, Arbitrum's daily transaction volume increased from 670,000 to 926,000, a 38% increase. OP's mainnet daily transaction volume increased by 20%, from 354,000 to 431,000. After hitting a historical high of $4.10, OP has been trading near its peak.

As the second largest Optimistic Rollup in terms of TVL, OP surged by nearly 69% per week, a development consistent with OP's TVL exceeding $5 billion. Despite criticism of Optimism's inaction in decentralization issues, Optimism's market success with OP-Stack seems to be able to reverse the situation. However, a more reasonable market evolution trend is that the success of OP-Stack will further amplify, and there will naturally be other relay players in the blank spaces of OP-Stack.

The focus of OP-Stack's implementation is to achieve a shared Sequencer. The more OP strategic alliances there are in the future, the greater the benefits it can capture through the Sequencer, and conversely, the more interests it will be involved in. This social consensus will become a new constraint outside of technology, keeping Optimism in a dominant position.

As part of the Ethereum ecosystem, it can be seen that one of the major factors driving the trend of ARB is ETH. Arbitrum, as the foundation of Ethereum L2, means that ARB may be closely related to ETH. If ETH slows down its momentum, ARB may also slow down. Similarly, if ETH moves towards $2500, many crypto researchers expect ARB to rise to $2.

In addition, the surge in ARB is partly due to market expectations for Ethereum Improvement Proposal (EIP) 4844, and on the other hand, Vitalik's post celebrating Arbitrum's achievement of the first phase of Rollup.

Expectations for the Cancun Upgrade

On December 22, the founder of The Daily Gwei and co-founder of EthHub, @sassal0x, announced on social media that Ethereum developers will implement EIP-4844 on January 17, and the next major Ethereum upgrade, Dencun, will go live on the Goerli testnet.

EIP-4844, co-authored by Ethereum researcher Dankrad Feist and Ethereum co-founder Vitalik Buterin, is also the core content of the Cancun upgrade, serving as a mid-term transitional solution to improve the performance of Ethereum L1+L2 and solve the gas fee issue.

EIP-4844 will adopt the original danksharding, a concept named after Feist, aimed at increasing the total number of transactions Ethereum can handle. Danksharding is a complete implementation of Rollup extension, which will provide Ethereum with a large space for compressing transaction data for Rollup dumps. It introduces a new transaction type (blob carrying transactions) to reduce Ethereum's transaction fees.

Compared to the full node storage structure of calldata, Blob is designed to be temporarily stored by some nodes, which can significantly increase the data submission limit for Layer2 to the mainnet in a single time, expand its TPS, and because it is only temporary storage, data storage efficiency will increase, and data storage costs will also decrease linearly. The enhancement of DA capability is due to one month of temporary storage, which is more than enough to cope with the 7-day fraud proof time window of OP-Rollup.

This means that EIP-4844 can increase the TPS of Rollup while reducing gas fees. Simply put, after EIP-4844, Rollup does not have to compete with ETH native applications for the use of ETH block space, which is bullish for L2.

First Phase of Rollup

In March 2023, Arbitrum officially announced the first Rollup to enter the first phase.

At the end of the year, Vitalik gave a positive evaluation of Arbitrum on Warpcast, "This is a real decentralized progress. I hope to see ten Rollups enter the first phase next year and achieve a certain degree of decentralization of sequencers." A few hours after the comment was posted, the price of ARB rose by 22%.

As the first phase of Rollup, it means that Arbitrum has met all five requirements for complete decentralization. According to L2BEAT data, at the time of writing, Arbitrum is the only L2 that has completed the five requirements of the first phase.

According to Vitalik's preliminary proposal on the Ethereum Magicians forum, the five requirements are: 1. Deploy a complete and fully functional proof system; 2. At least 5 external participants can submit fraud proofs; 3. Users can exit without the help of authorized operators; 4. If participants more centralized than the Security Council implement unnecessary upgrades, users have at least 7 days to exit; 5. The Security Council is properly established.

In addition, it is worth noting that on December 29, the Arbitrum ecosystem game Layer3 Xai will distribute the first season airdrop, which has already taken a snapshot for Xai Odyssey legends and pioneers and Sentry Node Key holders.

Undervalued, high "odds"

In addition to ARB, the rise of Ethereum and the anticipation of the Cancun upgrade are also driving the rise of other L2 tokens. On December 27, according to OKX market data, Layer 2 project tokens experienced a general rise, with OP rising by 19.38% in 24 hours, MATIC rising by 18.34% in 24 hours, and METIS rising by 17.1% in 24 hours.

Among them, in addition to star projects such as Starknet and zkSync, there are also undervalued projects with high "odds" such as Metis and ZK Fair.

Metis

Metis is a Layer 2 scaling and general infrastructure project founded by Elena Sinelnikova, Kevin Liu, and Yuan Su in 2018, based on Optimistic Rollup. Its native token METIS has surged from $20 to $90, a 350% increase in just two weeks.

On December 18, MetisDAO announced the establishment of the Metis Ecosystem Development Fund (Metis EDF). With the establishment of Metis EDF, a fund of up to 46 million METIS will be used to promote project deployment, product development, and builder rewards in the ecosystem.

Currently, projects in the Metis ecosystem include the DEX Hermes, which is positioned as a high capital efficiency AMM that provides low-cost, near-zero slippage trading for users, and the first DEX in the Metis network, NetSwap, which allows for swap trading.

The Hummus protocol is a single-sided AMM built on Metis, allowing users to swap stablecoins with minimal loss. Its native token is HUM. Users can stake stablecoins to earn HUM and use the staked HUM rewards to increase the yield of staked stablecoins. The background of the Metis project has also brought native meme coins to the chain, including meme VMUM and BARSIK.

According to an official blog post, Metis is expected to become the first decentralized sequencer for Optimistic Rollup early next year, and the distribution of the Metis Ecosystem Development Fund will take place one week after the launch of the decentralized sequencer. With the launch of the decentralized sequencer and the incentives from the ecosystem fund, new projects in the Metis ecosystem are still worth looking forward to.

ZKFair

ZKFair is the first ZK-L2 based on Polygon CDK and Celestia DA, with technical support provided by Lumoz RaaS. ZKFair is completely fair launched and community-driven, aiming to solve the pain points of high L2 valuations, multiple PUAs, and high user participation thresholds.

On the day of the ZKFair testnet launch, over 30,000 users joined the community and interacted on the testnet. Its innovative economic model has been a focus of attention for the community. ZKFair uses USDC as the fee token, with its native token being ZKF, with a total supply of 10 billion, all of which will be distributed to the community through airdrops.

25 billion will be airdropped to the community, including Polygon zkEVM, zkSync, Linea, Scroll, ZKSpace interaction addresses, Lumoz point holders, Ordinals community, and others. Users can now check the community airdrop amounts on the official website zkfair.io. No more ZKF tokens will be issued in the future. When the 10 billion ZKF tokens are all released and in circulation, users will be able to use Owlto Finance to share 75% of the token airdrop.

Mainnet launch, airdrop expectations

Starknet

In the Layer2 world, Starknet is one of the four major players alongside Arbitrum, Optimism, and zkSync. Compared to its counterpart zkSync, Starknet uses zk-STARKs, which provide higher transparency and security.

On December 1, 2023, the Starknet Foundation announced that it had taken an airdrop snapshot and would distribute STRK tokens to certain past active users and contributors in the first quarter of 2024, while unlocking previously distributed tokens. On December 8, the Starknet Foundation announced plans to allocate over 18 billion STRK tokens in multiple initiatives, with an initial 50 million STRK allocated for on-chain incentives in DeFi. This move has attracted many investors to start early positioning in the Starknet ecosystem.

There are over 170 projects in development in the Starknet ecosystem. Most of the ecosystem is in its early stages, with most protocol applications not yet launched. RabbitX and Loot Realm are among the few projects that have already issued assets.

Recently, the official release of the Starknet network's main DeFi applications, including cross-chain bridges, AMM/DEX, aggregators, lending, and derivatives, has been announced. With the issuance of tokens by Starknet, official incentives for DeFi protocols in its ecosystem, and the overall market recovery, the numbers for 2024 are expected to further increase, benefiting the entire ecosystem of L2 projects.

zkSync

The market has become desensitized to the technical narrative of ZK-Rollup and OP-Rollup, and it is highly likely that zkSync will no longer focus on technical breakthroughs as its core selling point, but will instead focus on the "ecosystem."

In terms of the ecosystem, in the competitive landscape of Layer2, zkSync has to go all out to support a blockbuster-level Derivative platform. Due to the issuance incentives from Holdstation, its Derivatives' daily average trading volume has risen to over 20 million, with the highest APY reaching 69%, and 30-day fees reaching $200,000. Its tokenomics is forming a flywheel model that subsidizes users with gas to attract more users to trade, accumulate more fees, and subsidize more users.

After quietly completing the boojum upgrade and integrating STARK and SNARK proofs, zkSync's gas fees have decreased by about 30% in the past 30 days, reaching the same level as Arbitrum. Combined with its existing user experience advantages, this has further attracted a wider user base and traffic.

On the other hand, due to the fact that at least half of zkSync's current data comes from the efforts of the community, the willingness to pay gas is also based on the expectation of airdrops. zkSync itself uses a perception-free account abstraction to lower the user threshold and employs NFT gameplay for community expansion, such as Pudgy Penguins. Additionally, members of Matter Labs have recently been vocal about AA account abstraction, and community members speculate that wallet usage of AA account abstraction could be a possible airdrop criteria.

Overall, after more than half a year since the launch of the zkSync mainnet, it has indeed firmly established its position as one of the top ZK-Rollups, and its market expectations are even higher than Starknet. Although it has accumulated a huge burden of public opinion and pressure under the spotlight for a long time, the community generally believes that zkSync will have a certain layout in community activities.

Taiko

Taiko is a decentralized Ethereum equivalent ZK-Rollup that inherits Ethereum's security while providing lower transaction fees. Taiko allows developers and users to safely use Ethereum without worrying about any changes. Additionally, due to its decentralized design, Taiko can also support a vibrant community of block proposers, verifiers, and node operators.

Taiko is a Based Rollup, the first of its kind among its competitors. It does not have a centralized sequencer but relies on Ethereum validators to order transactions and blocks. As a controversial Rollup, Taiko allows application chains to define their own proof systems and adopt updated, more efficient validity proofs as technology progresses without modifying Taiko's core protocol.

On December 5, Taiko announced the launch of the Taiko Grants Cycle 2 developer incentive program, with a total incentive pool of $30 million. On December 8, Taiko announced the launch of a community education campaign on Galxe, mainly consisting of three tasks: creating a wallet driven by account abstraction using Particle, creating a .taiko domain, and reading official articles and participating in quizzes. Users who complete the tasks will receive loyalty points.

Taiko is currently fine-tuning the new design and Rollup contract codebase. Once completed, this will be deployed as Taiko's Alpha-6 testnet with a four-layer proof system. In the upcoming A6 testnet, Taiko will implement a 24-hour cooldown for all levels. Ultimately, Taiko's main goal is to combine the advantages of controversial Rollup with Optimistic Rollup and ZK-Rollup.

Manta

Manta is the first public chain built on Celeasita's ETH L2, raising $60 million in funding. 5% of the airdropped token supply. It provides native rewards for ETH and stables.

Manta has launched a liquidity incentive activity called New Paradigm within its ecosystem, similar to the recent Blur's Blast liquidity staking. The basic logic is that all rewards are 3% (basic reward) + 2% (additional reward) + 1.5% (ecosystem reward) = 6.5%. Users stake ETH or USDC to receive blind box fragment rewards, which can be exchanged for blind boxes, and the NFTs obtained from the blind boxes can be exchanged for future token airdrops.

Starting in January 2024, users can exchange the obtained NFTs for token rewards. After receiving the token rewards for 69 days, users can unlock and transfer their staked ETH and USDC from the Manta ecosystem. Currently, an invitation link is required to access the activity page. ```

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