Original Title: "GameFi Public Chain Research Series Part 2 - Layer2 and Optimistic Tracks"

Original Source: Melon Lab

In the previous article "Guatian Academy GameFi Public Chain Research Series Part One - Ethereum's Development and Upgrade Path", we initially introduced the development history of Ethereum and the basic information of Ethereum 2.0 upgrade, which led to the two main sub-races of Layer2, Optimistic Rollup and ZK Rollup. If we analogize Ethereum to a company, we can simply understand that the Ethereum 2.0 upgrade is a restructuring of the internal management structure of the company, from the original chain structure to the beacon chain-shard total structure, while Layer2 further outsources the tasks that need to be executed on this total structure, achieving further reduction of the company's burden, improving efficiency, and enhancing the overall task processing capability.

In the second research article of this series, we will further explore Layer2 solutions and delve deeper into the Optimistic Rollup track.

One, Layer2 Scheme Overview

To understand Layer2 scaling solutions, we first need to confirm the concept of Layer2.

What is Layer2? Layer 2 refers to off-chain networks, systems, or technologies based on the underlying blockchain (i.e. Layer 1) used to scale the underlying blockchain network. There are currently two methods of classifying Layer2 in the market. Narrowly defined Layer2 requires inheriting the security of the Ethereum chain and conducting transactions bundled with Layer2 Ethereum, while Layer2 is only responsible for computation. ZK and optimistic rollup are the orthodox Layer2 solutions. Broadly defined Layer2 includes all Ethereum scaling solutions, mainly including the following 5 types:

Sidechain: A sidechain is an independent blockchain that operates in parallel with Ethereum. By locking a certain amount of assets in the smart contract of the main chain and then minting the same amount of assets on the sidechain, the so-called "atomic swap" is achieved. The biggest problem with sidechain solutions is weak security, but they have good independence and flexibility. Polygon is a representative of Ethereum sidechains. Some people also consider the BNB chain as an Ethereum sidechain. Although BNB is also an EVM compatible chain, strictly speaking, it is an Ethereum imitation chain that can operate independently of Ethereum. We do not classify it as a sidechain for now.

State Channel: By establishing exclusive payment channels and multi-signature addresses between traders, off-chain transactions can be completed. Only when settlement is required, the final calculation result will be recorded on the chain. This technology has the characteristics of fast speed and low fees. Representative technologies include Lightning Network (based on Bitcoin) and Raiden Network (based on Ethereum).

Rollups: as previously explained in an article, it is the process of outsourcing data execution to Layer2 and batch submitting it to the main chain. It is mainly divided into two types: optimistic rollup and zero-knowledge proof (ZK) rollup. Optimistic rollup takes an optimistic approach to the validity of data. If no one questions the data and submits fraudulent proof within a specified time, the data is considered to be true and accurate. Otherwise, a fraud handling mechanism is activated to revoke the transaction. ZK rollup, on the other hand, bundles multiple transactions together and publishes them to L1 while simultaneously publishing a proof (using zero-knowledge proof technology) to claim the validity of these transactions.

Validium: Validium also uses zero-knowledge proof, but unlike ZK Rollup, it only uploads the state root and zero-knowledge proof to the main network, while transaction data is stored in Layer2, thus achieving higher throughput but sacrificing some security. Because both use zero-knowledge proof, many people consider Validium to be a variant of ZK Rollup, so another way to classify them is to divide ZK and optimistic into two categories and classify Validium under ZK. ImmutableX, a gaming chain, mainly uses the underlying technology of Validium.

05Plasma: Plasma is a framework solution for Ethereum Layer2 extension, also known as "chain within a chain". By locking assets on the main chain and transferring transactions to the sub-chain for processing, the sub-chain periodically submits state updates to the main chain. This not only speeds up settlement, but also greatly reduces transaction fees on a large scale. The difference between a sub-chain and a side-chain is that a sub-chain uses root storage, allowing users to safely exit the Plasma chain if any errors occur, while a side-chain does not have this function. Overall, the sub-chain is more closely related to the main chain.

In this article, we will focus on the sidechain solutions Polygon PoS, as well as the two main projects of Optimistic Rollup - Arbitrum and Optimism, and the BNB ecosystem project opBNB and COMBO, which are both Ethereum-based and Optimistic Rollup. We will mainly explain the basic technical principles, ecology, and support for blockchain gaming of these public chain projects. ZK Rollup and Validium will be introduced in the third article.

二、Polygon PoS Analysis

Polygon Introduction

Polygon, formerly known as Matic, was originally a blockchain scalability platform, known as the "Blockchain Internet of Ethereum". With the continuous development of the ecosystem, the platform has expanded from a single Layer2 solution to a "Network of Networks", aiming to solve the transaction speed and scalability issues of the Ethereum mainnet, and mainly layout in the fields of blockchain games and NFTs. In fact, classifying Polygon as a sidechain is not very accurate, because based on Polygon's overall product matrix, the sidechain product Polygon PoS is the basic plate of Polygon, while the ZK Rollup matrix composed of Polygon zkEVM, Polygon Miden, Polygon Zero, and Polygon Nightfall is Polygon's potential growth point. In the Polygon2.0 upgrade plan released this year, the team is preparing to upgrade Polygon PoS to zkEVM Validium as a whole. Due to space limitations and topic classification, in this article, we mainly analyze the sidechain product Polygon PoS, and the ZK part will be further elaborated in the next article.

Technology

Although based on Ethereum, Polygon PoS benefits from faster speed and higher scalability, with transaction volume consistently exceeding 2 times that of the Ethereum mainnet (about 2 million daily transactions), while gas fees are only 0.1% of Ethereum's.

Polygon PoS is an EVM-compatible sidechain that was launched on June 1, 2020. It is currently the main business of Polygon. Polygon PoS is also the most mature Ethereum sidechain solution to date. The overall architecture of Polygon PoS can be divided into three layers:

 Ethereum Layer: This layer consists of a series of Ethereum smart contracts that are responsible for resolving processing flows on Ethereum. By using Ethereum as the endpoint, it can effectively utilize Ethereum's security as a shield, while the Matic token is also pledged in this layer.

The Checkpoint layer of PoS: This layer is the core layer of Polygon, responsible for producing and verifying Matic sidechain blocks. PoS nodes can listen to events on the Ethereum chain, pass information to the Matic sidechain, and regularly publish blocks generated by Matic to the Ethereum chain, thereby achieving information synchronization between the Matic sidechain and the Ethereum mainnet.

Matic sidechain layer is responsible for transactions, shuffling, block formation, and regularly publishing checkpoints to the node layer.

Polygon has a unique hybrid structure that enables Polygon POS to support the Plasma framework and inherit the security of Ethereum; the PoS Bridge further ensures the security of the chain by using the same set of validators and staking with MATIC.

Ecology

Polygon was launched in 2020 and entered a period of explosive growth in Q2 2021, becoming the third public chain with a complete ecosystem after Ethereum and BNB. By Q1 2023, the Polygon ecosystem had over 53,000 projects.

Benefiting from the early development of the platform and the booming stage of DeFi, DeFi projects have expanded rapidly. For example, when leading DeFi projects such as Uniswap, Aave, and Curve deployed on multiple chains, they chose Polygon as their first stop. In April 2021, Polygon launched a $150 million DeFi development fund and rewarded the project Matic. While DeFi projects in the Polygon ecosystem have some shortcomings in innovation, their total value locked (TVL) ranks fifth overall on the chain and has been surpassed by the rising star Arbitrum.

Data source: Defillama

Polygon has a unique vision for NFTs in the cryptocurrency industry. In June 2021, Opensea became the first platform to support Polygon's blockchain. Since then, Ethereum and Polygon have each taken different paths in the high-end and low-end NFT markets. Many international brands, such as Starbucks, Mastercard, and Adidas, have launched their own NFTs on Polygon. These leading companies have also attracted more brands to join, creating a positive cycle. Other popular projects on Polygon include Lama Kings, Doodle Changs, y00ts, Bungo Beanz, and Super Pengs.

According to data from Footprint, in terms of gaming and metaverse, the number of active gaming projects on the Polygon chain has reached 468, ranking third after BNB and Ethereum. Looking at specific projects, the two leading metaverse projects, Decentraland and The Sandbox, were deployed on the Polygon chain as early as April and June 2021, respectively. Other popular games include Pixels, Arc8, Benji Bananas, Sunflower Land, and Skyweaver.

In July 2021, Polygon announced the establishment of Polygon Studios, focusing on investments in the NFT, Gaming, and Metaverse fields. In terms of offline promotion, Polygon has also been frequently involved. Based on its low-cost and fast transaction experience, Polygon has become one of the best choices for Web2 and traditional enterprises who want to explore blockchain or web3.

Summary of Advantages and Disadvantages

Polygon PoS, as the earliest mature Ethereum Layer2 ecosystem, has a significant first-mover advantage. Its advantages are also very clear:

Speed: Intuitive and efficient bridging, deposit, and withdrawal, with transaction speeds of up to 7000 tps, far exceeding the performance before the Ethereum upgrade (15 tps);

Security: relying on Ethereum and sharing its security;

Compatibility: Full EVM compatibility means that smart contracts can be deployed directly on the Polygon chain;

Low cost: approximately 0.1% of Ethereum's cost.

Low transaction fees and fast speeds make Polygon the best choice for high-frequency trading projects (Defi, GameFi, etc.) within the Ethereum ecosystem. Although the rise of layer-two star projects such as Arbitrum, Optimism, and zkSync will to some extent affect Polygon's market position, Polygon itself is constantly evolving and embracing the ZK track in all directions, acquiring and launching a series of products based on ZK technology. We will analyze this in detail in the next article.

Polygon PoS entered the market at the perfect time. In 2020, the Ethereum network was severely congested and scalability issues were prominent, creating a strong demand for a phenomenal product within the Ethereum ecosystem to improve its performance. At that time, the Rollup track and Ethereum 2.0 upgrade were still in development, and the main competitors in the Layer2 market had not yet formed a strong threat. In addition, Polygon's marketing strategy was also very powerful. In the early stages of development, it leveraged the DeFi trend and adopted a subsidy strategy to expand its reach to major players such as Aave, Curve, Uniswap, and Quickswap. For the gaming and metaverse tracks, it adopted an investment + incubation strategy for extensive layout, bringing a certain number of high-quality projects. In terms of ecosystem integration, it has deep cooperation with platforms such as ImmutableX, sharing the traffic dividends of these platforms. We believe that with the further improvement of the Polygon ecosystem and the gradual maturity of the Polygon ZK ecosystem, Polygon will usher in another significant growth and continue to consolidate its position as a top-tier public chain.

Three, Arbitrum Project Analysis

Arbitrum Introduction

As a leading Layer2 project in the encryption industry, Arbitrum has always been surrounded by a halo. Especially during the coin issuance period in the first half of 2023, it became one of the hottest topics in the chain circle, and for a while, everyone was eager to join the Layer2 ecosystem. According to the statistics of Defillama, Arbitrum has surpassed many public chain competitors and ranks fourth in total lock-up volume after ETH, BSC, and TRON, even surpassing the veteran Layer2 sidechain Polygon, showing its dominance as the Layer2 leader.

Arbitrum was launched in May 2021: Arbitrum One officially launched on the Ethereum mainnet. In October 2021, the public testnet of Arbitrum Nova was launched. In 2022, the plan for Arbitrum Orbit is steadily progressing, which is designed as a Layer 2 solution specifically for NFT and virtual reality (VR) applications. This will provide more scalability for digital assets and applications in the virtual world.

The development history of Optimism shows its important role in solving the congestion and high transaction fees of the Ethereum network, as well as its continuous growth and adoption in the Ethereum ecosystem. It represents an important progress of Layer 2 scaling technology in the blockchain field.

Technology

Service: Provides data availability, synchronization, and communication between L1 and L2.

Tools: Used to facilitate the development, testing, deployment, monitoring, and debugging of OP Stack-based blockchain.

OP Stack will be built as a forkable, modular, and scalable blockchain infrastructure. To achieve this vision, all types of L2 need to be integrated into a single Superchain, which combines the separated L2 into an interoperable composite system. The deployment of L2 will be as simple as deploying smart contracts on Ethereum today. It can transform the narrative of "one-click token issuance" into "one-click chain issuance". Essentially, Superchain is a horizontally scalable blockchain network that shares the security of Ethereum, as well as communication layers and development tools. Superchain can be compared to Cosmos based on Ethereum security, but now OP Stack has become the Cosmos Killer. Benefiting from the OP Stack or Superchain architecture, there are already five public chain projects online, including Optimism, Base, Zora, Aevo, and Public Goods Network, and opBNB has also been officially launched recently.

From a structural perspective, OP Stack can be divided into six layers from bottom to top: DA Layer, Sequencing Layer, Derivation Layer, Execution Layer, Settlement Layer, and Governance Layer. Each layer of OP Stack is a modular API that can be combined and decoupled as needed. The most critical layers are the DA Layer, Execution Layer, and Settlement Layer, which form the main workflow of OP Stack.

DA Layer: The Data Availability Layer is the original data source of the OP Stack, and can use one or more Data Availability modules to obtain input data. Currently, the main DA Layer is Ethereum, but there will be more chains in the future.

Execution layer: The state structure in the OP Stack provides possibilities for EVM or other VMs, increasing support for L2 transactions initiated on Ethereum, while adding additional L1 data costs to the overall cost of publishing transactions to Ethereum.

Settlement Layer: This layer aggregates L2 transaction data on the OP Stack and sends the information to the target chain for settlement after L2 confirmation. In the future, it is expected to access ZK and other validity proof mechanisms to bridge the gap between different chains, and even connect OP system L2 and ZK system L2.

Ecology

DeFi is always the highlight of public chains. The prosperity and innovation of DeFi projects will attract and accommodate a large amount of liquidity, just like injecting fuel into the engine, activating the entire public chain ecosystem. OP's DeFi ecosystem is relatively complete, with decentralized exchanges, lending, and other functions. For example, Velodrome is the largest DEX on OP, and Sonne Finance is OP's native lending platform, which is also the second largest in TVL among lending projects.

In the GameFi field, unfortunately, OP doesn't have any outstanding projects to offer. There is neither a "chain game Nintendo" like Tresure DAO nor an innovative Risk to Earn project like Trident. However, OP has a killer move in the gaming industry, which is Op Craft based on Op Stack. The whole-chain game is a new paradigm. When it comes to pure on-chain games, you may first think of the Dark Forest. Expanding the concept of pure on-chain games, a popular term now is Onchain Autonomous World, which may be the gameplay that best fits the characteristics of blockchain. It originates from games but goes beyond games. This trendy term was first created by Op Craft.

Summary of Advantages and Disadvantages

Optimism has four major advantages: EVM equivalence, data security, speed, and cost.

Optimism is one of the most EVM-compatible chains, with a focus on going further and being equivalent to EVM. Optimism can support any Ethereum application with its Optimistic Virtual Machine (OVM), which is compatible with EVM. Developers can deploy any Ethereum-based dApp on Optimism with minimal architecture changes. This allows decentralized applications (dApps) built on Ethereum to seamlessly integrate with Optimism.

Optimism's rollup architecture can obtain security from the Ethereum mainnet. Transactions are processed on Optimism, but transaction data is written to and stored on Ethereum. This allows Optimism to inherit Ethereum's security while maintaining scalability.

Optimism can achieve 10-100 times scalability improvements based on the nature of transactions. Optimism has near-instant transaction finality, allowing users to check their transaction results almost immediately.

Optimism's transactions are also very cheap, with a cost of only about 1% of the Ethereum transaction cost.

Optimism has three main drawbacks: long and costly withdrawal times, potential misalignment of incentives among network participants, and underlying L1 review of transactions.

Due to the 1-week challenge period for fraud proof, it takes 1 week for official Optimism bridge withdrawal. One important thing to note when using the network is that once the withdrawal is submitted through the main bridge, it cannot be cancelled. Due to the security measures implemented in the bridge, the cost of withdrawal through the main bridge is high and may cost over $100. Such a long and costly withdrawal period may have a negative impact on adoption and composability.

This network relies on incentivized validators to challenge fraudulent proposals. If there are fewer or no fraudulent proposals, validators receive fewer or no rewards from the operational nodes, as they only receive rewards when successfully challenging fraudulent proposals. This will suppress validator node operation.

If a specific transaction has enough value, the Sequencer may bribe Ethereum miners to allow fraudulent proposals to pass at a very low cost during the computation check.

Five, opBNB and COMBO Project Analysis

opBNB

opBNB is a Layer2 network built on OP Stack technology on BSC. Similar to Ethereum's Optimism Rollup, opBNB calculates transaction data off-chain and packages it for submission to Layer1 to improve network performance, ultimately achieving high TPS, low gas fees, and the same level of security as Layer1.

In 2020, amidst congestion on the Ethereum network, the launch of BSC provided users and developers with a fast, secure, and low-cost decentralized application environment. However, with the surge in transaction volume from GameFi and other applications, BSC has also faced network congestion and high gas fees at times, and its existing design and architecture have struggled to meet scalability demands. In this context, opBNB has emerged as a new possibility for addressing BSC's scalability issues.

The open source nature of OP Stack allows developers to easily utilize OP to build Layer2 public chains. For example, Coinbase's Base is also based on OP Stack, but the difference is that Base is an Ethereum L2, while opBNB is a BSC L2. BNB chose OP over ZK mainly because of OP's practicality, ease of use, high degree of customization, and true EVM compatibility. It can quickly land in application development and user usage, while ZK is more narrative and difficult to develop.

Compared to Ethereum, BSC can be considered "fast", while opBNB is even faster. opBNB will increase the Gas limit to an astonishing 100M, surpassing Optimism's 30MGas limit, and can process over 4000 transfer transactions per second with an average cost of less than 0.005 USD per transaction.

Backed by the BNB ecosystem, opBNB has inherent advantages and can smoothly undertake BNB ecological projects, including DeFi projects such as the derivative trading platform OpenOcean, the recently popular Goose Finance and BabySwap, and the cross-chain bridge Orbit Bridge; GameFi projects include football game Ultimate Champions, metaverse game SecondLive, Mobox's NFT Farmer, and upcoming Cards Ahoy, and so on.

COMBO

Unlike the three public chain projects mentioned earlier, COMBO is a Layer 2 network that focuses on Web3 games. It opened its testnet in April this year. Based on BNB Chain, COMBO is similar to opBNB and adopts Optimistic Rollup Layer 2 technology, which can achieve a speed of 5,000 TPS and gas fees as low as 0.001Gwei.

For the convenience of game developers, the collaboration between COMBO and numerous infrastructure projects has given COMBO comprehensive on-chain development tools, mainly including the following aspects:

Full-stack development toolkit: Provides game developers with a comprehensive set of tools and resources covering front-end and back-end development, including frameworks, libraries, documentation, testing tools, and more;

ComboUp: Provides developers with an always-available environment to launch games and applications, and offers templates, modules, and infrastructure to accelerate the development and deployment process.

Web3 gaming solution and ecosystem: providing asset ownership, decentralized markets, and interoperability with other blockchain-based games, while bringing together developers and players to build a complete gaming ecosystem;

COMBO's ecological layout revolves around the gaming and metaverse tracks, covering basic infrastructure, network, security, wallet, data, NFT market, and other basic applications. It is supported by heavyweight metaverse projects such as Lifeform, Ultiverse, and SecondLive. Although not huge, it is comprehensive.

The project has raised a total of $40 million, with Binance leading with $12 million. In June of this year, the COMBO team allocated $80 million to the ecological fund to support developers creating Web3 games on COMBO, as well as providing them with advisors and resources in the gaming industry to help with the Web3 game development process. For COMBO ecological projects, there is also the opportunity to receive $100,000 in COMBO tokens as Grants, as well as further strategic investments.

COMBO is to BNB and Optimistic Rollup what Immutable is to ETH and ZK Rollup. Both are exclusive gaming chains, backed by the large ecosystems of BNB and ETH, respectively, and have adopted the two most mainstream layer 2 technologies. Both platforms have fist games/metaverse products, with Immutable being Gods Unchained and COMBO being SecondLive. With the influence and topicality of SecondLive's metaverse track, the support of the main investor Binance, and its own deep cultivation of the metaverse and gaming tracks, it is believed that the COMBO ecosystem will also be able to take advantage of the booming development of the gaming and metaverse tracks and experience a round of growth.

Summary

This long research article analyzes Layer2, mainly based on the OP track, including Polygon PoS based on sidechain technology, Arbitrum and Optimism based on Optimistic Rollup technology, as well as opBNB and COMBO based on the BNB ecosystem, which also use Optimistic Rollup as the underlying technology.

Overall, Rollup is the mainstream solution in the Layer2 track, with significant improvements and enhancements in security, speed, scalability, and cost compared to the original Layer1 mainnet. Of course, the Rollup solution also has some existing problems, especially the withdrawal delay caused by the OP challenge period, low interoperability caused by cross-chain bridges, limited asset types supported, fragmented asset liquidity, and centralized sequencers. In addition, there are also some possible security vulnerabilities and risks in the Rollup technology, which are also concerns for many users. How to solve the above problems, reduce the impact of OP withdrawal waiting period, improve capital efficiency and security, and decentralize sequencers will be the content that the OP track needs to continuously improve in the future.

This article introduces 5 Layer2 public chain projects, of which 3 are based on the Ethereum ecosystem and 2 are based on the BNB ecosystem; 1 is based on sidechain technology (Polygon PoS), and 4 are based on the OP architecture. It can be said that these 5 projects are the gems of the Layer2 and OP tracks, carrying the responsibility of ecological development. Of course, there are other second-layer public chains based on OP technology, such as Metis, Boba, Mantle, etc., which are also the backbone of the current OP ecosystem, but due to the limited length of the article, further analysis cannot be provided.

In the final section, because people often compare Optimism and Arbitrum, let's talk again about the differences between the two in terms of technology and non-technical aspects.

From a technical perspective, the main difference lies in the dispute resolution process. When faced with challenges, Optimism relies on the Ethereum Virtual Machine (EVM) to run, while Arbitrum uses an off-chain dispute resolution process to reduce disputes to a single step in a transaction, and then sends the result to the EVM for final verification. Therefore, in terms of dispute resolution process, Optimism is simpler than Arbitrum and will also have certain advantages in terms of speed and cost.

From a market perspective, there is not much difference in transaction data and performance between Arbitrum and Optimism, both are at the same level, with Arbitrum possibly slightly ahead; their market valuations are also similar, with market caps of $1.36 billion and $1.32 billion respectively. In terms of market strategy, Optimism is pursuing a horizontal expansion model with OP Stack, attracting more developers to release Layer 2 public chains on the platform, and leveraging strong B-side resources to drive the participation of large ecosystems such as Binance and Coinbase; while Arbitrum has chosen a vertical ecological layout based on the Arbitrum Orbit framework, and is actively laying out the Layer 3 track, launching XAI Games to achieve higher performance.

Let's take a look at the GameFi field again. The ecosystem of Arbitrum is currently ahead of Optimism. Although Optimism has OP Craft, it is not as popular as TreasureDao on Arbitrum in terms of popularity. In terms of exclusive support for GameFi, it is also not as good as Arbitrum Nova, which is a high-frequency interactive exclusive chain, and XAI, which is a Layer3 game exclusive chain.

Overall, the Arbitrum and Optimism projects have their own unique features and focuses in both technology and market aspects. With the intensification of competition in the Layer2 field, it is believed that various public chains will continuously bring higher performance, more comprehensive ecology, and better user experience based on their respective advantages. In the next article, we will focus on exploring several Layer2 public chains in the ZK and Validium tracks to analyze the overall development of the ZK track. Stay tuned!

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