Discussion on the Liquidity Play People for Suckers Problem in the Layer 2 Era

As Ethereum shifts its expansion focus to Layer 2, coupled with the emergence of tools like RaaS, a large number of public chains are rapidly developing. Many entities wish to build their own chains to represent different interest demands and pursue higher valuations. However, the surge in the number of public chains has led to the ecosystem's development struggling to keep pace, with many projects experiencing a drop in value during their initial token offerings.

With the help of technologies like OP Stack, several well-known institutions have launched their own Layer 2 networks. Nowadays, the monthly operational cost of building a chain based on OP Stack is about $10,000, significantly lowering the financial and technical barriers.

The future will undoubtedly be an era of multi-chain coexistence. Although these Layer 2 chains may choose EVM compatibility for interoperability, it is difficult to build applications and reach consensus on the same chain due to the large number of downstream applications behind them.

The current multi-chain ecosystem has brought new challenges: liquidity and state decentralization. Interoperability has become an area that must be explored and addressed. Currently, there are various liquidity solutions, such as chain abstraction, intent, settlement execution, native cross-chain, ZK sharding, etc., but the core essence is similar.

The widely recognized cake architecture in the industry introduces the core components of cross-chain abstraction from top to bottom:

Application Layer: The layer where users interact directly, completely shielding the details of liquidity conversion.

Permission Layer: Users connect their wallets to the dApp and request quotes to fulfill their trading intentions.

Account Management and Abstraction Layer: Maintaining unique account structures across different chains.

Layer 2: Receiving and executing user transaction intentions, the Solver role competes here to provide a better user experience.

Settlement Layer: The middleware layer that realizes user intentions through the solution layer, including core components such as oracles, cross-chain bridges, early confirmation schemes, and data availability.

There are various solutions to address liquidity fragmentation in the current market:

1. Centered on RaaS: Assisting Rollup in sharing liquidity and state through shared sequencers and cross-chain bridges.

2. Account-Centric: Build a full-chain account wallet that supports signing and executing transactions across multiple blockchain protocols.

3. Centered around the off-chain intent network: Users send intents to the Solver network, and Solvers compete with quotes to provide the optimal solution.

4. Centered on the on-chain Liquidity network: Build a Liquidity layer, on which applications share full-chain Liquidity.

5. Application-Centric on the Blockchain: Build high liquidity applications by integrating large market makers or third-party applications.

Solving liquidity issues is crucial. If we can integrate scattered liquidity across the entire chain, it will have tremendous potential. Various solutions approach the problem from different layers and angles, but essentially all rely on fundamental components. Here are a few typical case studies of chain abstraction projects:

INFINIT has built a DeFi RaaS service, providing the necessary components for the protocol, with the final liquidity placed on the INFINIT Liquidity Layer.

The Khalani Network has designed three core components: intention-compatible layer, validity language, and universal settlement layer.

Liquorice focuses on trading, providing efficient inventory management tools for professional trading firms.

Xion is built on Cosmos IBC to facilitate cross-chain communication, aiming to improve the fragmentation issue of on-chain interactions.

=nil; Foundation proposed the zkSharding solution, using ZK technology to scale the Ethereum mainnet.

The ERC-7683 standard aims to establish a universal standard for cross-L2 and sidechain operations, enabling seamless cross-chain execution.

OP Stack, ERC-7683, and zkSharding are all solutions within Ethereum aimed at addressing liquidity fragmentation between Layer 2s.

Solving cross-chain liquidity issues is a complex and multifaceted field. The future will undoubtedly be a coexistence of multiple chains, integrating all-chain liquidity with vast development potential, and is expected to build important infrastructure for the Web3 era.