Foresight Ventures: (Almost) Everything about Rollup

0. Essence and Principle of Rollup

a) Essence of Rollup

There are two ways to scale a blockchain: one is to optimize the blockchain itself, and the other is to use the blockchain in a better way.

  • Off-chain aggregator, which means it will execute and aggregate transactions off-chain, compressing large volumes of transactions and eventually putting them on the Ethereum mainnet for the purpose of making transactions faster and cheaper.

b) Mechanism of Optimistic Rollup

Optimistic Rollup is, as the name suggests, optimistic. It uses a presumption of innocence, where everyone will believe by default that each execution is correct, and security is ensured by the fact that each batch state can be challenged by fraud proof.

c) Mechanism of zk Rollup

zk Rollup, as the name implies, uses zk zero-knowledge proof technology (actually Validity Proof). It uses the presumption of guilt, where people will default to questioning that each execution is wrong, and security is ensured by the proofs contained in each batch.

d) Differences of Two Types of Rollups

If you still can’t understand it, you can check the diagram below.

1. Rollup, the Good

Let’s start by taking about what is great about the Rollups as a whole:

  • Scaling: Their TPS is indeed excellent, though not as high as the theoretical peak, but the fast confirmation of L2 provides a fast and almost feeless Web3 experience.
  • Experience: Switching to Rollup is a simple task for developers and users, and the experience is almost identical to that of Ethereum. Various cross-chain bridges, wallets, Uniswap and other infrastructures also serve for a smooth user experience. This is also supported by a good ecosystem.
  • Innovation: Rollup is already an excellent ground for innovation in EVM applications, and is also more imaginative than Polygon’s “test network” style network.
  • Optimism: launched token, on which many “groundbreaking and incredibly optimistic experiments” have been made (with all sorts of missteps, concealed facts and indifference, and recently often questioned by frustrated users as “the abolitionist prince of the Ethereum Foundation”). The Bedrock upgrade will make the VM MIPS-Geth, doing the same thing as EVM. Optimism developers have also been talking about the zkMIPS concept, so I wonder if they’ll work in that direction later?
  • StarkNet: The cross-chain bridge is not fully open yet. Cairo and StarkNet have built a good development ecosystem, and the game ecosystem is worth watching. StarkEx’s Validium model has also made applications such as dYdX, ImmutableX. StarkNet can also serve as a settlement layer and build L3 on top of L2.
  • zkSync: The first to make a more complete zkEVM. 2.0 version of Volition mode gives users the flexibility to choose between zkPorter or Ethereum data availability options.
  • Aztec: Privacy zk Rollup for the UTXO model, soon to support the privacy DeFi ecosystem (but additional optimizations are needed due to the large transaction data size). Although it does not support universal computation, it is one of the few zk Rollups that is truly zk.
  • Fuel: V1 is an Optimistic Rollup, and very decentralized. Instead of adapting EVM, V2 is a high performance VM with a UTXO model to support parallel tx processing, aiming to build the fastest execution layer.
  • Milkomeda: EVM Rollup on Algorand.
  • Orbis: Validium Rollup on Cardano.

2. Rollup, the Bad

After the praise in the previous chapter, we will point out in this section some of the issues that Rollup needs to address:

a) Centralization😱

The silky smooth user experience of the Rollup network is obtained by compromising security, and many components of the network are centralized, although there are three points that can be made to “weasel” around this issue:

  1. Users can reconstruct all states by DA on L1.
  2. The trust model itself is always a smart contract that can be centralized.
  • Centralized upgrades: Most Rollup networks are upgraded centrally, meaning that the cost of actually hacking an entire Rollup is negligible compared to the billions of TVLs on the network. For example, zkSync is a security council that manages upgrades. Thinking back to the Ronin hack, it is definitely not safe to have billions of dollars depending on the multi-signature of a few people.

b) Real Performance😱

Rollup’s current demonstration of super performance is “fake”, the real “finality” is not that good, and there is still room for performance improvement. This is a double-edged sword.

c) Economics😱

  • MEV: Since Rollup is now run on centralized sequencer, all these gains can be captured by Rollup. MEV is a two-sided thing. On the bright side, the Rollup network can embrace the value of MEV to the network, making it an important part of the economic mechanism and incentive for miners after the network is decentralized; on the dark side, the Rollup network needs to eliminate any MEV, as it is often considered an additional tax on users. Arbitrum chooses to “ignore” MEV by adopting a first-come, first-served mechanism, but this places higher hardware requirements on the nodes and reduces the cost of DDoS.

3. Endgame Comparison of Optimistic Rollup and zk Rollup

  1. Easier to add features like privacy: Since we are already using zk, it is much easier to develop a truly private zk-zk Rollup than a zk-Op Rollup. Of course, there are zk-Op Rollup projects like ZKOPRU that are already live.
  2. Optimization: For Optimistic Rollup, parallelized tx processing is a straightforward and efficient optimization, while zk Rollup with the same scheme (StarkNet’s next version of sequencer can do parallelized execution) will still lose to Optimistic Rollup in the long run (again due to the extra proof overhead). Therefore, zk Rollup will adopt the alternative of Fractal L3 scaling, i.e., continue to build Rollup on top of Rollup. The recursive superpower not only allows L2 to verify that L3’s proof is correct, but also allows L1 to verify that L2’s verification of L3 is correct or not.
  3. Optimization implementation: These are derived from the roadmap and the envisioned design solutions, and are not currently in practice. Personally, I think it will take a long time to complete these upgrades. Some of these upgrades have side effects, such as introducing a new mechanism that requires additional trust assumptions.

4. Future of Rollup

By comparing Optimistic Rollup with zk Rollup, we actually have a comprehensive view of their future performance optimization options. So what does the future of Rollup look like from other perspectives?

a) Decentralization

In the decentralized perspective, we focus on the sequencer and contract upgrade problem, in the future, a Rollup must be decentralized, then the following decentralized design is needed:

  • Decentralized contract upgrade: Contract upgrades should not be managed by multi-sig, but by decentralized governance (involving tokens) or by giving up contract upgrade control (e.g. a non-mandatory upgrade like Uniswap V2 to V3).
  • Multi-lang clients: Like Ethereum, multi-lang clients are necessary in decentralization to ensure 100% uptime of the network.

b) Composability

The composability of Rollup is the ability of smart contracts on different Rollups to read and write directly to each other.

c) Feature

For feature expansion, zk Rollup has even more potential. The concept of L3 makes App-specific Rollup particularly attractive, and Immutable X has announced that it will deploy additional protocols on StarkNet to enable it to exist as an L3.

  • L1 as the hour hand, L2 as the minute hand, and L3 as the second hand. Further improve the overall network performance without affecting the L1 pulse.
  • Payment-only L3
  • NFT Marketplace L3
  • Game Engine L3
  • DEX and DeFi L3
  • Validium/Optimistic Chain: Have an additional DA layer like L2 or Celestia, which requires additional trust assumptions.

5. Conclusion

This is what we need to understand about Rollup.

About Foresight Ventures

Foresight Ventures believes crypto will define the next few decades of innovation. The fund invests early and makes decisions quickly, providing wide-ranging support for projects from its robust ecosystem that includes major market players crypto exchange Bitget and crypto wallet BitKeep. Its founding and partnership team includes veterans of some of the top financial and technology firms dedicated to sourcing and supporting the next generation of disruptive innovations across Web3.

Related Readings:

https://twitter.com/sanjaypshah/status/1532396051075719170

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Foresight Ventures

Foresight Ventures

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Foresight Ventures is a blockchain technology-focused investment firm, focusing on identifying disruptive innovation opportunities that will change the industry