Ethereum’s Layer 2 Teams Want You to Clone Their Code

With billions of dollars flocking over the past year to Arbitrum, Optimism, zkSync and other “layer 2” blockchain networks that work atop Ethereum, the smart angle among crypto futurists was that the winner (or winners) of this “rollup race” might eventually become the primary gateway by which most people access digital assets.

Initially, each team privately contrived of its own novel approach for building a “rollup” – a blockchain that settles transactions on Ethereum but is quicker and cheaper to use. When these rollup chains began going public in 2020, a cut-throat competition for users ensued, with dueling platforms hell-bent on convincing users that their technology was the best around.

But recently, the dynamic has shifted dramatically: The teams are starting to just give their technology away. After years of toil and costly research and development, most of the teams are suddenly open-sourcing their code – putting it out into the public for anyone to see, edit and upgrade. And now, some rollup teams are even releasing free tools for developers to clone their codebases wholesale.

Earlier this week, Matter Labs, the firm behind the zkSync Etheruem rollup, launched an SDK (software development kit) to help developers construct new blockchains using zkSync’s code. This follows in the footsteps of Optimism and Arbitrum, two of zkSync’s rivals, rolling out similar toolkits in recent months.

By making their code open source and easy to replicate – ostensibly to appeal to crypto community norms and ideals – all of these layer 2 teams are theoretically making it easier for copycat chains to steal away their users.

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What’s going on?

Executives and industry experts say that the teams now see a future unfolding where there will be many layer 2 blockchains, possibly sharing liquidity and linked by common technology – mini-ecosystems termed superchains or hyperchains. The goal is subtly shifting from building the networks to providing the underlying technology; the teams may be hoping to lay the groundwork for new blockchain ecosystems in which they are uniquely positioned to capture a big chunk of the value.

Today’s incumbent layer 2 platforms won’t fall by the wayside in this new model. “You can think of these new chains as additional distribution channels. Other chain developers will market their chains and get more developers, but essentially, liquidity still flows back to the L2,” said Anurag Arjun, a Polygon co-founder who now runs the blockchain infrastructure firm Avail.

Understanding how victory is being re-defined in the Ethereum rollup race is therefore key to grokking what to expect for the next phase of the crypto industry.

Anthony Rose, senior vice president of technology at Matter Labs, says “philosophy” drove the team’s decision to launch an SDK. Openness and transparency are core to the crypto ethos and they are a key part of the “ZK Credo” Matter Labs just released laying out its vision for zkSync. Optimism and Arbitrum made similar gestures towards crypto’s open ideals when they launched similar tools.

Good public relations is certainly its own reason to go open source. These teams know that they’ll have a better chance of currying favor with developers if they help them kick-start their crypto projects.

The move to open source one’s code isn’t just a PR play, moreover. On a more pragmatic level, open-sourcing technology is also viewed as a way to improve it. As more developers begin making chains with ZK Stack, for example, Matter Labs will have a larger community of builders making improvements to its own chain’s technology – improvements that zkSync Era can itself benefit from.

The Value Capture Play

A more likely – and perhaps, more cynical – way to view these blockchain-in-a-box products is in terms of how they situate their creators at the center of crypto’s value chain.

Today, Ethereum captures most of the value from its roll-up ecosystem. Layer 2 chains ultimately settle transactions on Ethereum and pay fees in ether (ETH), its native currency.

As new ecosystems emerge based around specific rollup technologies, layer 2 chains might have more of a shot at capturing some of this value themselves.

Take Matter Labs and its ZK Stack as an example. According to Rose, “The idea is to have this out-of-the-box toolkit for people to deploy hyperchains, to be able to build what we're thinking of as this future internet of value, in which we have these connected permissionless systems.”

In this “future internet of value,” Matter Labs says zkSync Era will be just one among many compatible blockchains. As it stands now, though, Era is the chain with the most liquidity, the largest number of builders, and the greatest number of platforms already on its network. New blockchains that launch using the ZK Stack could just clone zkSync to compete with it, but they’re more likely to rely on Era for its liquidity and interoperability tech.

“They will absolutely try to control the interoperability, the solution there,” suggests Arjun. “The ZK stack can be open source – just take the stack and deploy it. But if you really want to tap into the liquidity of zkSync Era, here is the mechanism to do it. So that is the moat, in a sense.”

Offchain Labs, the developers behind Arbitrum, seem to have similar motivations for their approach to open source with its new Arbitrum Orbit program.

Offchain Labs allows anyone to build a “layer 3” blockchain that settles transactions on the layer 2 Arbitrum chain.

But when it comes to building layer 2 networks that live alongside Arbitrum, Offchain Labs open-sourced its code under a license that requires explicit sign-off from the Arbitrum DAO. Because Arbitrum DAO members are ARB token holders, they’re incentivized to green-light layer 2 chains that accrue value back to ARB and the Arbitrum ecosystem.

Rollups getting commoditized

Ultimately, as the crypto space and its use cases continue to mature, it’s not altogether clear how any given blockchain might best capture value in the long run – particularly as some tokens (like zkSync’s) have yet to launch, and others (like Arbitrum’s) are currently just used for protocol governance and not for fees.

With this uncertainty, though, rollup teams can do worse than to make sure they stay at the center of things – providing, at least initially, the primary gateway for new chains to start up, earn liquidity and interoperate.

On some level, rollup teams may feel they have no choice but to put their code out into the open. Rollups – particularly those like zkSync that are powered by zero-knowledge (ZK) cryptography – used to be extremely difficult to build. However, as more teams are open-sourcing their code roll-up technology is quickly being commoditized.