Vitalik Buterin, co-founder of Ethereum, recently announced that he will no longer classify a network as “layer 2” if it has not reached “Stage 1” by the end of the year. He emphasized that the era of rollups being glorified multisigs is coming to an end and that the era of cryptographic trust is upon us.
Determining whether a network is a layer 2 is more than just a technicality for the Ethereum community. It determines whether the network relies on Ethereum for security and can be trusted to secure users’ funds, or if it is a separate network that may or may not be secure.
The issue came to the forefront when Velocore, a decentralized finance protocol, was exploited, resulting in a loss of $2.6 million. Velocore ran on the Linea network, which claimed to be an Ethereum layer 2. However, the team quickly halted block production to prevent the attacker from withdrawing funds to Ethereum. Critics argued that this should not have been possible if the network depended on Ethereum for security.
Buterin had previously commented on this topic, stating that all Ethereum layer 2s should reach Stage 1 by the end of 2024. If they fail to do so, they should no longer be referred to as layer 2s.
But what exactly is Stage 1? Buterin introduced the concept of “Stage 1 layer 2” in a post to the Fellowship of Ethereum Magicians message board. He explained that in the early stages of development, layer 2 networks would be centralized but would gradually become permissionless, guaranteeing censorship-free transactions.
A Stage 0 network, or “rollup,” posts compressed versions of its transactions to Ethereum and provides a rollup full node that can independently confirm the state of layer 2. In Stage 1, the network’s smart contract on Ethereum includes a fraud-proof or validity-proof scheme to prevent fraudulent transactions. The developer can override these proofs with a vote from at least six out of eight members of the network’s Security Council. At least three of the Security Council members must be from outside the development team to prevent the team from overriding the proofs on its own. Network upgrades require a minimum seven-day delay unless approved by the Security Council.
Since Buterin’s post, six networks have reached Stage 1, including Arbitrum One, Optimism, dYdX v3, ZKsync Lite, DeGate v1, and Fuel v1. These networks have implemented various mechanisms to ensure security and decentralization.
However, there are still four networks that have not yet reached Stage 1. These include Base, Blast, ZKsync Era, and Starknet. They either fail to meet the criteria for Stage 1 or are still being evaluated.
In addition, there are other networks at Stage 0, with less than $600 million in total value locked. These networks have made progress but have not fulfilled all the criteria for Stage 1.
There are also two networks, Scroll and Linea, with over $700 million in total value locked that have not even reached Stage 0. These networks lack the necessary node software for independent verification of transactions.
The Ethereum community will likely continue to push for more decentralization and may stop referring to networks as layer 2s if they don’t meet the criteria. However, some networks will claim to be working on decentralization, while others may argue that it doesn’t matter. Only time will tell which side will prevail in the long run.