According to L2Beat, six Ethereum layer 2s have reached Phase 1, while most others are still stuck in Phase 0.
Ethereum co-founder Vitalik Buterin said on September 12 that if a network has not reached "Phase 1" by the end of this year, he will no longer consider it "Layer 2."
“The era of rollups glorified as multi-signature wallets is coming to an end,” he said, adding that “the era of cryptographic trust has arrived.”
The question of whether the network is layer 2 is not just a technical issue for the Ethereum community.
It determines whether the network relies on Ethereum’s security and therefore can be trusted to protect users’ funds, or whether it is a completely independent network that may or may not be secure.
The issue was brought to the forefront when decentralized finance protocol Velocore was attacked on June 2, resulting in a $2.6 million loss.
Velocore runs on the Linea network, which claims to be Ethereum layer 2. However, the team quickly halted block production to prevent attackers from withdrawing funds to Ethereum.
Critics argue that if the security of the network relies on Ethereum, this pause in block production should not happen. After all, the authorities cannot suspend Ethereum.
As a result of this incident, many critics claimed that the Ethereum ecosystem was decentralizing too slowly.
Buterin had already commented on the topic a month before the Velocore attack. He said that all Ethereum layer 2 will need to reach "phase 1" by the end of 2024. If they are not achieved, the community should no longer refer to them as "Tier 2".
But what exactly is phase one?
Stages of decentralization
The term "Phase 1, Layer 2" comes from Buterin's post on the Ethereum Magician Alliance message board on November 2, 2022.
In the post, Buterin argued that Ethereum Layer 2 is still in the early stages of development and cannot be expected to achieve full decentralization immediately.
Instead, developers should be given a grace period to fully develop their web components. Initially, these networks will be highly centralized. But over time, they will become completely permissionless, guaranteeing censorship-free transactions.
The Phase 0 network calls itself Layer 2 or “aggregation,” and compressed versions of all its transactions are published to Ethereum.
Additionally, the team provides a “rollup full node” that can independently confirm the state of Layer 2 as long as it has complete transaction data from both layers. As long as the team does not actively try to block users by publishing fake state roots on Ethereum, users can exit the network without help from the team.
In the Phase 1 rollup, network smart contracts on Ethereum include “fraud-proof or validity-proof schemes” that prevent developers from issuing invalid state roots.
If a developer attempts to fraudulently withdraw funds that do not belong to them or prevents users from legitimate withdrawals, these transactions will fail under normal circumstances.
However, developers can overturn a fraud certificate with a vote of at least six of the eight members of the Cybersecurity Council. This vulnerability exists if a developer discovers a bug in the fraud proof system.
Additionally, at least three of the eight members of the Security Council must be from outside the development team, so it is theoretically impossible for the development team to overturn these certifications on their own.
Network upgrades must also be delayed for at least seven days before implementation unless approved by the Security Council.
In the two years since Buterin’s post, most self-proclaimed layer 2 networks remain stuck at stage 0 or lower, leading to criticism that the entire Ethereum ecosystem has failed to deliver on its promise.
However, six networks bucked the trend and successfully entered at least the first phase.
Networks that have reached stage 1
Image source: L2BeatL2 first stage list
Here is the full list of networks that claim to be layer 2 (L2s) and have reached stage 1, according to research from blockchain analytics platform L2Beat. This list is sorted by Total Value Locked (TVL), with the networks holding the most assets listed first.
Decision One
Abitrum One has entered its first phase. The network is run by 14 validators who process withdrawals and deposits using a set of fraud proofs. If a validator attempts to submit fraudulent transactions, smart contracts on Ethereum will reject these transactions unless these proofs are explicitly overridden.
Fraud proofs can be overturned by the 12-member Arbitrum Security Council. However, no single organization is allowed to have more than three members on the safety committee, according to Arbitrum documents. Development teams are not exempt from this limitation.
The Arbitrum Decentralized Autonomous Organization (ArbitrumDAO) can upgrade the network, but there will be a delay of 12 days and eight hours, while the Security Council can upgrade the network without delay.
If the Arbitrum sequencer stops running, users can withdraw directly from the Ethereum network, but withdrawals will be delayed by one day after being initiated. According to L2Beat, if users do not agree to the upgrade initiated by ArbitrumDAO, they have a two-day "exit window." If they exit within this two-day window, ArbitrumDAO will not be able to stop them on its own, even if the DAO becomes corrupt or is taken over by attackers.
If the user disagrees with the upgrade performed by the Security Council, there is no exit window because Security Council upgrades are almost instantaneous.
Optimism
On June 10, with the implementation of the “Cannon” error-proofing system, Optimism entered the first stage. On August 17, it returned to Phase 0 after a bug was discovered in the system. However, it re-enabled error-proofing on September 11 and is now back in Phase 1.
If an Optimism validator attempts to process fraudulent transactions, the error-proofing system in the Optimism Ethereum smart contract will reject these transactions. A Security Council vote could overturn these error-proofing mechanisms, but no organization has enough seats to make this happen without cooperation from other organizations.
According to L2Beat, OptimismDAO cannot implement network upgrades without the consent of the Security Council. Upgrades are implemented without delay.
dYdX v3
DYdX v3 is the first phase of Ethereum L2 and is completely independent from Cosmos-based dYdX v4. It uses zero-knowledge validity proofs to ensure that all valid withdrawals are processed and that invalid withdrawals are not processed.
dYdX validators can block withdrawals for up to 14 days by refusing to include them in transactions. If this happens, users can initiate a "force exit" on Ethereum after the 14-day period to get their funds back.
Under normal circumstances, the upgrade is delayed for 9 days, or only 2 days if the priority controller approves the upgrade as an emergency upgrade. L2Beat warns that if governance is controlled by malicious actors, it can block withdrawals by blocking them for 14 days and initiating contract upgrades that are implemented within nine days.
Even so, L2Beat still considers dYdX to be in Phase 1, as upgrades would normally be delayed by nine days, exceeding the seven-day minimum.
ZKsync Lite
ZKsync Lite uses zero-knowledge proof to verify transactions. Under normal circumstances, the team cannot process invalid transactions or prevent the confirmation of valid transactions.
If the team initiates the upgrade, it takes 21 days for the upgrade to take effect. If the ZKsync validator refuses to include a user's withdrawal into a transaction, the user can initiate a forced withdrawal on Ethereum and have 14 days to recover the funds. According to L2Beat's report, the upgrade will take 21 days, giving users a seven-day "exit window."
ZKsync Lite has no smart contract functionality; it is designed specifically for crypto payments.
In addition to these networks, L2Beat also lists DeGate v1 and Fuel v1 as networks that have achieved Phase 1. In fact, these networks are considered "Phase 2", which is fully decentralized. Their combined TVL is approximately $51 million.
Users who agree with Buterin's standards should continue to refer to these networks as "Layer 2" after January 1, as long as they don't object to some of L2Beat's analysis.
The top four Layer2s that were not selected
The first four networks currently not designated as Phase 1 by L2Beat either do not meet one of the criteria required for Phase 1 or are still under evaluation.
All of these networks have already entered Phase 0, so it is still possible that they will enter Phase 1 by the end of the year.
Base
Coinbase’s Base network does not run fraud proofs. It is part of the Optimism superchain, which has implemented fraud proof. Therefore, it will be simple for Base to implement fraud proofs and may enter the first phase before the end of the year. But so far, it has not done so.
Picture source: L2Beat basic network first phase problem
Blast
L2Beat considers Blast a "Stage 0" network. Users can run the Blast node independently to check the validity of deposits and withdrawals. However, the software will only issue a warning if the withdrawal is invalid. Users cannot withdraw funds against the will of Blast management.
Blast may issue fraud proof before the end of this year, in which case it will continue to be labeled "Tier 2" in 2025. But it does not currently meet all the criteria for Phase 1 aggregation.
ZKsync Era
According to Matter Labs, the network’s developer, ZKsync Era, uses zero-knowledge proofs to verify deposits and withdrawals. L2Beat is currently evaluating how the system works. The ZKsync Era may already be in Phase 1, or it may reach Phase 1 soon.
On September 12, the team announced a new governance system that designates “guardians” to protect users in the event of governance attacks. In the announcement, the team claimed that it is trying to achieve the second phase of complete decentralization.
Even so, L2Beat currently classifies the ZKsync Era as Phase 0 because it has not yet completed its evaluation of Phase 1 elements of the network.
Starknet
Starknet has implemented zero-knowledge validity proofs in its smart contracts. However, these proofs can be overridden by whitelisted operators, and consumers cannot withdraw money without permission from the layer 2 validator.
Since Starknet has already implemented proof of validity, applying other standards for Phase 1 networks will be relatively simple. Therefore, Starknet may enter Phase 1 before December 31st, but it is not yet up to par.
A handful of other networks with TVL below $600 million are still considered Phase 0.
These include Mode, Lisk, Polygon zkEVM, Taiko, Bob, Loopring, Zora, Kroma, Kinto, Paradex, Boba, ZKSpace, and more.
These networks have all reached Phase 0, and some have met at least one of the Phase 1 criteria. But no network has yet met all the criteria to reach Phase 1.
Scroll and Linea are still below Stage 0
According to L2Beat, there are two networks with TVL in excess of $700 million, and while they claim to have reached Tier 2, they haven’t even reached Stage 0 yet.
The first is Scroll, which has over $1.1 billion in cryptocurrency locked in its contracts. L2Beat said that Scroll "has no node software available that can reconstruct state from L1 data," so users cannot independently verify their transactions.
The second is Linea, with more than $780 million locked in its contract. Like Scroll, Linea has not developed node software that allows the public to check the validity of its transactions.
These networks both do and do not meet the definition of "Tier 2" advocated by Buterin in 2025.
Ethereum supporters will likely continue to push the team to make their network more decentralized, and if they don't, they will increasingly stop calling them layer 2. But some networks will continue to claim they're working on it, while others will claim it doesn't matter. Only time will tell which side will win out in the long term.
[Disclaimer] There are risks in the market, so investment needs to be cautious. This article does not constitute investment advice, and users should consider whether any opinions, views or conclusions contained in this article are appropriate for their particular circumstances. Invest accordingly and do so at your own risk.
This article is reprinted with permission from: "MarsBit"
Original author: Alvis, Mars Finance
