OMG Labs Update #03: The Road Ahead For Layer-2s

Work in Progress. Expect anything/everything we cover here or write here, to change (or break) quickly and without notice. “We” refers to the joint Enya/OMG team. We’ve been operating as one team since we announced our core partnership.

1. Thoughts and Observations

Some of our thoughts and observations as we continue to research the future of Layer-2s:

  • There are two primary ways to prove the correctness of Layer-2s:
  • On-going Validity Proofs: Prove correctness of state transitions as they are being generated and submit proofs to the Layer-1 rollup smart contract, which only accepts proven transactions/transitions. This eliminates exit games and challenge periods (aside from a ~20-minute window). But is computationally intensive and gas-consuming. Zk-rollups fall into this category; zk-proofs have the extra feature of data compression.
  • Presumption of Validity: Assume all Layer-2 transactions are valid until proven otherwise. This is somewhat simpler to implement but relies on an arbitrarily defined challenge period upon exit. Plasma and Optimistic Rollups fall into this category. Our Quasar fast-exit solution conforms to an emerging design pattern for solving the exit problem (see also the Optimism/MakerDAO partnership) but it ties up capital that one might argue could be deployed more productively elsewhere.
  • More functionally ‘limited’’ validity proofs that use less intensive cryptographic techniques might give us the best of both worlds. And pave the way for extensible and increasingly complex smart contracts. This is an area we will continue to explore further as part of our vision of Layer-2 augmenting Layer-1 instead of just scaling.
  • As the number of Layer-1s and Layer-2s proliferate, it becomes increasingly important to facilitate easy movement of funds across chains. The work we’ve done on Quasar will be helpful here.
  • We have been thinking more and more of the “roundtrip time and cost” defined as the time it takes to deposit funds into a Layer-2 (L1->Layer-2), perform a transaction on Layer-2 and then return to L1 (Layer-2->L1). For a Layer-2 to be competitive, the roundtrip time should be measured in seconds or minutes, not weeks, and the roundtrip cost needs to be below the cost of performing the equivalent transaction on the mainchain. For example, if a swap on the mainchain takes ~3 minutes and costs $80, then a swap on Layer-2 should be about as fast and offer a significant cost advantage, taking into account the full roundtrip cost. This is a tough goal to meet since interaction with a Layer-2 involves executing at least four smart contracts, three of which are on the L1 itself (deposit, root hash write, exit).
  • Secure cross-chain communications is another area of focus for us in a multi-chain, multi-Layer-2 world.
  • Another area of active investigation for us is a sustainable and equitable economic model for Layer-2s. How should Layer-2 gas fees be structured such that developers and users can benefit from predictably and substantially lower gas fees compared to Ethereum L1 while covering the ongoing L1 costs? Is MEVA (Miner Extractable Value Auction) a necessary evil as some believe, or is there a better way? We welcome your thoughts — please share them with us on Twitter, Telegram, or Discord.

2. Current Activities

Over the past several weeks, we launched a number of new projects such as Hashcast and Varna. We are now incorporating community feedback to ensure these products are easy to use and stable.

2.1 Hashcast — Public Beta
We’ve decided to freeze the development of Hashcast’s frontend as it’s just meant to be a demo for exercising the underlying service. However, if you find any issues please do file them on GitHub.

2.2 Varna — Plasma’s Privacy-Preserving Exchange — Private Beta
Since the last update, we opened up Varna to a group of active OMG community members for testing. They have been tremendously helpful in squashing bugs and generous in their feedback on the product. After implementing their suggestions we will release the next version as a public beta.

2.3 Quasar — Plasma’s fast-exit solution
The smart contracts are done and frozen, awaiting audit. Given the level of activity across the blockchain ecosystem, it’s not surprising that all the top audit firms are swamped. For example, one of the firms we worked with previously is fully booked until August. We are doing everything we can to expedite the audit process.

3. What’s Next

  • Incorporate community feedback into Varna UX.
  • Lockdown Quasar audit timeline.
  • Develop the OMG fountain: A tool that directly provides users with OMG (fee token) on Plasma for a small fee*, without users having to buy OMG off an exchange, and onboarding their OMG from Layer-1 to Layer-2.
  • Complete and test committed Plasma v2 features.

* The fee would ideally be the exchange-traded value for OMG tokens.

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