The Rivalry Between EVM and L1s Will Shape the Future of DeFi (Opinion)

By Piers Ridyard, CEO of RDX Works

The 2018-19 bear market noticed the event of the MetaMask pockets, Uniswap decentralized alternate, OpenSea NFT market, and different Layer 1s reminiscent of Solana. Solely with this sort of core infrastructure in place was the next 2021 increase in DeFi and NFTs made potential.

An identical story is enjoying out at the moment. Rising from the rubble are two competing visions vying to turn into the core infrastructure of the subsequent cycle:

The incumbent Ethereum and its ecosystem of Layer 2 (L2) scaling networks, reminiscent of Arbitrum and Polygon that run the Ethereum Digital Machine (EVM).

A brand new cohort of Layer 1s (L1s) have purposefully averted the EVM and intention for an enhanced pockets person expertise, utility improvement surroundings, and scalability, with networks reminiscent of Aptos, Radix, and Sui being the prime examples.

EVM Layer 2s: Scaling The Incumbent

The EVM is the dominant platform in Web3 at the moment, accounting for ~95% of all DeFi assets under management (AUM), ~80% of active addresses, and ~40% of all Web3 developers.

This success has led to Ethereum’s congestion and excessive transaction charges. The virtually universally accepted answer: L2 scaling networks.

L2s are separate networks, providing their very own ledger, tokens, and decentralized purposes (dApps.) Their defining function is that they periodically publish summaries of their transactions again to the L1, Ethereum, piggybacking on the L1 to ensure that transactions received’t roll again.

These L2s provide the identical utility improvement surroundings as Ethereum, the EVM. This permits for any dApp constructed on Ethereum to be simply copied over to an L2. From DEXes to lending to NFTs, dApps copied over can profit from a brand new community that has increased throughput and decrease charges but inherits a number of the safety of Ethereum itself.

However there are points with this strategy.

First, safety and developer expertise continues to be a serious concern. From the unique hack of The DAO in 2016 by way of the billions of {dollars} misplaced yearly over 2021-2022, the EVM has confirmed again and again that dApps constructed with it can not safeguard customers’ funds.

Second, the UX is way from mainstream-ready. The EVM locations a excessive technical burden on its customers, together with “blind signing” – equal to signing a clean verify for each transaction; “seed phrases” – a password that have to be saved safe, else chances are you’ll lose all of your belongings; or the have to be cautious of “malicious tokens” that might steal your belongings.

The requirement to take care of backward compatibility means options are usually additive, piling up extra complexity and threat fairly than making the deep-rooted modifications wanted to repair points correctly. A living proof, ERC-4337 Account Abstraction, which is Ethereum’s answer to seed phrases, proposes a wholly new “mempool” by way of which transactions have to be routed.

Third, L2s solely half-solve the issue of scalability as every new community is sort of a new island with its personal dApps and liquidity, not “composable” with the Ethereum mainland or different L2s. Because of this, we will proceed to see tasks prioritize being on Ethereum, or within the state of affairs that an L2 features sufficient traction to supply a compelling different, it should finally itself turn into congested, taking us again to sq. one.

Non-EVM L1s: The Challengers

Quite than iterate on the EVM, a brand new batch of L1s are charting their very own path, ranging from scratch with their very own customized stacks.

First, they differentiate by addressing the neverending hacks and exploits by way of an improved developer expertise. To realize this, some tasks, for instance, have turned sensible contracts containing belongings into bodily objects that may be “moved” between house owners, with options to enhance the safety of tokens and sensible contracts.

On the identical time, different protocols have taken the article mannequin one step additional, with all belongings being natively ruled by a “DeFi Engine.” Just like how Sport Engines diminished bugs and improved recreation developer productiveness by natively governing behaviors reminiscent of physics and gravity, this identical idea is now being utilized to finance.

Actually, belongings being native to the ledger isn’t only a profit for builders. It’s a prerequisite to an improved person expertise. By natively understanding belongings, these platforms can present customers with human-readable transactions that assure what the transaction goes to do.

This solves the clean verify “blind signing” transactions that the EVM and its L2s are architecturally unable to repair, as they’ll’t provide ensures on one thing they don’t natively perceive.

With regards to scalability (the very drawback that L2s have been constructed to unravel), new approaches promise to supply “linear scalability” with out compromising that all-important composability.

This consists of “intra-validator sharding,” which permits for every pc that validates transactions to truly be composed of many various underlying computer systems, or “multi-shard consensus.”

This permits for parallelization of processing throughout a number of groupings of computer systems. In every of those instances, including extra computer systems to the community permits for extra transactions to be processed, much like how the web itself scales.

The Struggle Forward

Regardless of the technical benefits supplied by the most recent L1s, decentralized networks are all about group and momentum. The EVM and its L2s maintain a major lead in public consciousness, developer group, and basic tooling and infrastructure.

Getting builders to study a brand new language and for customers to undertake a brand new chain amongst all of the noise is just not simple and will depend on how effectively the worth proposition of that new chain may be propagated.

However, taking a step again – DeFi and Web3 account for under 0.01% of world monetary belongings, 0.1% of web customers, and 0.1% of world builders. The journey forward is lengthy, and there’s nonetheless ample alternative for newer platforms with radically totally different approaches and considerably much less technical debt to battle for the remaining 99.9%.

Creator bio

Piers Ridyard is the CEO of RDX Works, a public protocol and ledger for DeFi. Piers began in crypto when he began mining on the genesis block of Ethereum in early 2015, investing in “The DAO” and going deep on every thing from recreation idea to prediction markets. This finally led him to construct and exit Surematics, a YCombinator firm that constructed decentralized dealroom software program for insurance coverage firms in 2017. Piers grew to become CEO of RDX Works in 2017, becoming a member of the Founder, Dan Hughes, and constructing the crew to over 75 folks world wide. His background consists of finance, legislation, electronics, and arithmetic. He additionally has two levels, one in Chinese language and Enterprise and a second in Regulation, in addition to having achieved his stage 1 Chartered Monetary Analyst designation.