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other L1s, especially EVM-compatible chains in which users can easily bridge over their ETH, stole the limelight. Ecosystems like Polygon and Avalanche that dedicated a portion of their token treasuries to user incentives were key to making this happen.
While each L2 does improve performance, drawbacks to L2 solutions primarily include their further fragmentation of the network. With L2, there is no single, global state that supports composable smart contracts. Cross-L2 transfers currently are not seamless, and side chains require bridging, which means an overall lack of communication between various L2 projects.
Similar to competing L1 blockchains, rollups are not naturally composable with each other. Rollups break interoperability/composability, meaning there is no seamless, frictionless way for communicating messages across different L2s at the moment. Much of the critical infrastructure currently deployed in live rollups, like sequencers or the bridges, are centralized, black-box solutions. This means that without rollups communicating with one another, liquidity is siloed to that one rollup (unless it is bridged over). This leads to the fragmentation of liquidity, resulting in a worse user experience for all, i.e. shallow order books, increased slippage on trades, and fewer dApps available.
But there are many live interoperability solutions like Hop, Connext, Li.Finance, layerswap.i, cBridge, dAMM, and more already working to “bridge” liquidity and remedy this issue. In addition, projects are already working on internally-sharded ZK-rollups, a rollup within a rollup. These are mostly theoretical at the moment, but could retain full synchronous composability and another ~100x improvement in TPS.
These solutions known as “bridges” are a system that transfers data between two or more blockchains or rollups. There are several components to most bridge designs:
- Monitors: A validator, oracle, or relayer must monitor the state on the chain.
- Relayer: A relayer needs to relay transaction data/messages from the main chain to the rollup.
- Consensus: In some models, consensus is required between the actors monitoring the source chain in order to relay that information to the destination chain.
- Signing: A participant needs to cryptographically sign the data sent to the destination chain.
Another key obstacle for L2 adoption is the UX and cost for users onboarding to an L2. The obvious solution is fiat and exchange onramps directly to an L2. As of Q1 2022, only a select few centralized exchanges support native withdrawals to L2s. This means a user must first deposit to the L1 and then bridge over to the L2. This is costly and adds friction to the user experience. A current workaround is to use an exchange to withdraw to a sidechain like Polygon PoS which has sufficient liquidity in cross-chain (centralized) bridges like Hop or Connext.
The pages below were pulled from CryptoEQ's Ethereum Upgrade CORE+ Report. You can read the full thing here for free.
More Bridges
BoringDAO
