Despite the industry's overuse of the term, decentralization isn't just a keyword used to attract investment; it's a core tenet of the cryptocurrency community's underlying ethos — and it's high time that Ethereum-based Layer 2 (L2) projects get with the program.

The race to scale Ethereum has picked up steam in 2024, with every milestone heavily promoted on socials. And why not? Industry developments that further EVM equivalence, transaction throughput, and interoperability should be welcomed with open arms.

Still, no one should be too excited by these milestones if they're achieved while compromising the values of the Ethereum community.

Unfortunately, too many L2 projects have focused on developing their base of support while foregoing a responsibility to a censorship free, distributed experience for end users.

Luckily, you and I aren't the only one's that have noticed this glaring oversight. According to Vitalik Buterin (Ethereum's enigmatic co-founder), the buck stops here.

In September, Buterin made it clear that decentralization should be at the forefront of L2 progress: 

If we're to take him at his word, then starting in 2025, L2 projects who have not met Stage 1 decentralization will no longer be publicly mentioned by Buterin. 

Looking at the calendar, the deadline is now less than three months away and with this foreboding threat hanging over the industry writ large, projects that have yet to achieve this moderate accomplishment must now scramble to prove themselves worthy of his mentions — and it's about time.

What is stage 1 decentralization?

The various stages of decentralization (which begin at stage 0 and progress toward full decentralization at stage 2) are described in a forum post by Buterin that dates back to November, 2022. The post evaluates the maturity of L2 projects at the time and describes the necessary milestones to be reached by decentralized protocols.

Stage 1 describes a project with "limited training wheels." Basically, stage 1 projects must run fraud proof or validity proof schemes which include a multi-sig 'security counsel' that can override the proof system's outputs. Further, upgrade mechanisms employed by stage 1 L2 projects cannot be used to "intervene in real-time disputes."

Buterin's latest X post describes the need for a 75% threshold on any security council decision to override the proof system, and at least 26% of the council must come from outside the rollup team.

Which L2 projects have already achieved stage 1 decentralization?

According to L2BEAT, very few projects have achieved stage 1 decentralization thus far, and those that have dominate market share. In fact, more than 50% of current market share belongs to two projects (Arbitrum One and OP Mainnet). It turns out, these are the only universally-purposed L2 projects to have achieved Stage 1 decentralization thus far (and coincidentally they are both based on optimistic rollups).

But what about projects based on zk-rollups? Many investors (myself included) believe that the future may belong to this particular brand of L2 tech. With the potential for increased privacy and faster finality, it seems that projects incorporating zk-rollups are poised to take a significant bite out of Arbitrum's market share, and soon.

So why haven't they decentralized further?

From what I can ascertain, zk-rollups are somewhat more difficult to implement, and typically, these projects are newer in the space. Still, if they're to gain steam into 2025, they can no longer hide behind their novelty and must now focus on a real commitment to decentralization.

A plebs perspective on L2 investing

For now, achieving stage 1 decentralization should be the driving force behind the development of every L2 project, and investors in the space should look for companies making concrete steps in this direction.

Going forward, all scaling solutions (especially those using zk-rollups) must now focus on presenting detailed roadmaps that clearly show their intentions and progress toward a decentralized future, and investors should demand no less than full transparency.

All other milestones trumpeted by L2 developers only distract from this goal. 

*This post is an opinion piece and is not investment advice.

**If you are investing in the L2 space, let us know what drives your decision-making in the comments below!