(1/24) Fragmentation on @ethereum
The rollup-centric roadmap is the clear path for upgrading Ethereum into the World Computer, but achieving the vision requires working through issues. The most obvious: rollups create fragmentation.
The problem and a peak into the future.
(2/24) Ethereum is the World Computer, a single, globally shared computing platform that exists in the space between a network of 1,000s of computers (nodes).
These nodes are real computers in the real world, communicating directly from peer to peer.
x.com/LogarithmicRex/status/1592309373732151296
(3/24) Ethereum is still young and evolving, but the rollup-centric roadmap provides a north star to the endgame.
Rollups - independent, high performance blockchains - settle to Ethereum, borrowing Ethereum's sense of property rights and economic security.
x.com/LogarithmicRex/status/1591614638138875905
(4/24) The rollup-centric roadmap was adopted in 2020, and so today we are in the awkward teenaged-years. We're seeing a lot of excitement and promise, and huge amounts of success.
But we're also experiencing a lot of growing pains.
(5/24) One of the more obvious: today's implementation of the rollup-centric roadmap has created a very fragmented Ethereum.
For example, even though @base and @arbitrum are both rollups that settle to Ethereum, they are essentially independent from each other.
(6/24) The first layer of fragmentation: capital that's deposited on one rollup is walled-off from capital that's deployed in another. Liquidity gets siloed by rollups.
Liquidity has very strong network effects - less liquidity leads to worse outcomes and attracts less users.
x.com/LogarithmicRex/status/1562577628741046272
(7/24) But the problems don't stop at liquidity, fragmentation materially degrades what's possible on blockchains.All blockchains are shared computing environment; people can build off of anything anyone else has built.
And fragmentation introduces significant barriers.
(8/24) Let's say I have capital in an LP position on @AerodromeFi (Base), and I notice that a juicy liquidation just became available on @Dolomite_io (Arbitrum).
Ideally, I'd like to withdraw from Aerodrome, liquidate from Dolomite and deposit the proceeds back into Aerodrome.
(9/24) If Ethereum was really the World Computer and rollups were really an extension of Ethereum, you would think that Ethereum would be able to facilitate this multi-step transaction.
Unfortunately, as of today it doesn't. Each rollup is its own walled garden.
(10/24) Achieving our Areodrome-Dolomite example is possible today… but it’s clunky and requires trusting centralized facilitators.
High level: the txn must be broken down into subsets that interact with one chain at a time and a 3rd party handles cross-chain communication.
(11/24) First, we submit a txn on Base to withdraw from Aerodrome.
Then, we use a third party bridge to move funds to Arbitrum.
Next, we submit a txn on Arbitrum to Dolomite.
After that, we use a third party to move funds back to Base.
Finally, we deposit back into Aerodrome.
(12/24) Not only is this very complicated, manual and slow, there is a lot of risk implicit in this flow.
Most obviously, we must trust centralized bridges to move capital around. We just have to send it money and hopefully the bridge fulfills their end of the bargain.
(13/24) More subtle are the risks associated with timing. It takes time for each of these legs to finalize, and the next leg cannot begin until them.
What happens if while we are waiting for our Base->Arbitrum bridge to settle someone else snags the juicy Dolomite liquidation.
(14/24) Let's contrast with an example entirely contained on a single blockchain (Ethereum). Replacing Aerodrome with @CurveFinance and Dolomite with @aave, we want to achieve the same goal.
Withdraw from Curve, liquidate from Aave, return capital to Curve.
(15/24) When all of these actions take place on a single blockchain, we can stitch together all of the legs into a single atomic transaction.
Atomic implies that it cannot be split; either the entire transaction succeeds or the entire transaction fails.
(16/24) This example illustrates blockchain's superpowers: financial instruments can composed into transactions/structures that are greater than the sum of its parts.
Most of De-Fi and the other apps that drove the last cycle were built on the power of atomic composability.
x.com/LogarithmicRex/status/1563228298276065280
(17/24) Which finally brings us to the big question: "if atomic composability was one of the most important features of Ethereum, and the rollup-centric roadmap doesn't support atomic composability, was the rollup-centric roadmap a mistake?"
The answer: of course not!
(18/24) To repeat myself one more time, rollups are still a very new technology and the rollup-centric roadmap is very young. As we progress down the roadmap, rollups will evolve to natively support atomic composability.
Let's spend a few tweets looking into the future!
(19/24) To address the fragmentation of liquidity, we're building liquidity layers. These layers will aggregate liquidity in a form that allows rollups to maintain sovereignty without siloing capital.
Want to dig deeper? Check out my interview with @0xPolygon's @_bfarmer!
x.com/StrangeH2OPod/status/1759594089883066658
(20/24) Atomic composability requires developing shared sequencers. Sequencers refers to the group responsible for order that transactions are executed on a blockchain.
If a single sequencer is responsible for multiple chains, atomic composability is back on the table.
x.com/LogarithmicRex/status/1867594181071556827
(21/24) The easiest approach to shared sequencing is to share a centralized sequencer. This is best illustrated with @Optimism's Superchain, a tech stack that allows anyone to quickly and easily deploy their own rollup.
All Superchain rollups can opt into shared sequencing.
(22/24) But centralized sequencing is not credibly neutral. Aside from the importance for Ethereum, it's also critical to ensure rollups are interested in sharing sequencers.
Solution: decentralize the sequencer!
For more check out my interview with @EspressoSys's @benafisch.
x.com/ExpansionPod_/status/1823876473188466691
(23/24) Solutions like Espresso or @AstriaOrg are huge steps forward towards achieving the vision of the rollup-centric roadmap, but they require creating decentralized, credibly neutral networks.
But here's a thought: we already have a decentralized, credibly neutral network...
(24/24) Which brings us to the endgame solution: based rollups. Coined by @drakefjustin, based rollups will deliver decentralized sequencing using the most decentralized node-set in existence: Ethereum's.
Want to learn more? Make sure to follow, based rollup threads are coming!