Why do Web3 projects need rollups?

The Ethereum blockchain, since its inception, has attracted an incredible amount of developer activity and spawned a vibrant ecosystem of decentralised applications (dApps). However, the network's growing popularity has also led to scalability issues, often resulting in high transaction fees (up to $100) and slow confirmation times during peak periods. Even after the last upgrade, its throughput is only 30 TPS (transactions per second). One promising solution to these challenges is "rollups".

What are rollups and?their types

Rollups are a Layer 2 scaling solution that increases the Ethereum network's transaction throughput without compromising its security. In essence, rollups bundle or "roll up" multiple transactions into a single one, significantly reducing the amount of data that needs to be stored and processed on-chain.

There are two primary types of rollups: Optimistic Rollups and zk-Rollups.

• Optimistic Rollups

Optimistic Rollups use a technique known as "optimistic execution" to improve the scalability of Ethereum. This means that all transactions are assumed to be valid by default. Only when a transaction is challenged the system checks its validity.

When a user makes a transaction in an Optimistic Rollup, the transaction is executed not on the Ethereum mainnet but on a side chain. The result of this execution (a state transition) is then posted to the Ethereum mainnet. Along with this, cryptographic proof (in the form of Merkle proof) is also posted to the chain.

The mainnet, however, does not immediately verify this proof. Instead, it waits for a challenge period (usually one week). During this period, any observer can challenge the transaction if they believe it is invalid. If no challenge is made, the transaction is assumed to be valid. But if a challenge is successful, the transaction is rolled back, and the party who posted the fraudulent proof is penalised by losing their stake.

This process allows Optimistic Rollups to perform many transactions off-chain and only post a minimal amount of data on-chain, significantly improving scalability. However, the challenge period can introduce latency and complexities related to data availability and cross-rollup communication.

• zk-Rollups

Zk-Rollups, or zero-knowledge rollups, take a different approach. Instead of relying on challenges to ensure the validity of transactions, they use a type of cryptographic proof called a zk-SNARK (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge).

When a user makes a transaction in a zk-Rollup, the transaction is executed off-chain, just like in an Optimistic Rollup. But instead of posting the state transition and waiting for challenges, a zk-SNARK is created and verified by the network instantly.

A zk-SNARK is a proof that allows one party to prove to another that they know a value X without conveying any information apart from the fact they know the value X. In the context of zk-Rollups, it's used to prove that a batch of transactions is valid without revealing any other information about them.

This process allows for instant transaction finality and higher throughput compared to Optimistic Rollups. However, zk-SNARKs are computationally intensive to generate and require more advanced cryptographic knowledge to implement, which can increase development complexity.

Benefits of rollup solutions for Web3, DeFi Projects

DeFi and Web3 projects can greatly benefit from rollup solutions for several reasons:

• Scalability Enhancement: rollups can scale Ethereum to approximately 2000-3000 transactions per second (TPS) from its current limit of about 30 TPS. This represents an almost 100x increase in throughput capacity. With this upgrade, every DeFi project can significantly enhance its platform's ability to handle a much larger volume of transactions, accommodating its growing user base without facing network congestion issues.
• Gas Fee Reduction: Transaction costs on Ethereum can vary widely based on network congestion, but they have been known to reach upwards of $50 for complex interactions like token swaps on DEXs. By batching transactions, rollups could potentially reduce these costs by up to 100 times, making them as low as $0.50 for a similar transaction. This dramatic decrease in transaction costs would make trading on every DEX more accessible and appealing to a broader range of users, including those with smaller trading volumes.
• Enhanced User Experience: Faster transaction times and lower fees will enhance the user experience, potentially increasing user retention and attracting new users to the platform.

What type of rollup to choose for a project?

Implementing Optimistic Rollups is generally simpler and requires less computational resources than zk-Rollups, primarily because Optimistic Rollups don't rely on complex zk-SNARKs. However, the challenge period in Optimistic Rollups can lead to increased capital inefficiency as funds are locked up during this time.

Zk-Rollups, while more complex to implement, offer immediate transaction finality and higher throughput. They also reduce data storage requirements on-chain, as the computation is done off-chain and only the zk-SNARK proof and the updated state root are posted to the chain. This could lead to even lower transaction costs compared to Optimistic Rollups. However, as we said earlier, the complexity of zk-SNARKs requires more advanced knowledge and could increase development costs.

Choosing a rollup for a project depends largely on the specific requirements of the project. If fast transaction completion is a priority, zk rollups are more appropriate. However, if the project requires a more complex interaction of smart contracts, optimistic rollups may be a better choice, as they are more compatible with Ethereum's smart contract language, Solidity.

Projects built on rollups

Optimistic Rollups

• Uniswap: Uniswap, one of the most widely-used decentralised exchanges, has deployed its V3 on the Optimism network. Optimism reduces transaction fees and improves transaction speed significantly. For instance, Uniswap transactions on Optimism could be up to 10-50 times cheaper compared to Layer 1, depending on network conditions.
• Synthetix: Synthetix, a decentralised platform for trading synthetic assets, has integrated with Optimistic Ethereum. As a result, users can mint and burn sUSD, and claim staking rewards on Layer 2, resulting in significantly lower transaction costs and a smoother user experience.

zk-Rollups

• Loopring: Loopring, a decentralised exchange protocol, uses zk-Rollups to facilitate high-speed, low-cost trading. With zk-Rollups, Loopring can settle up to 2,025 trades per second while maintaining the same level of Ethereum security. Moreover, it reduces gas fees to a fraction of the usual Ethereum cost, making trading more affordable for users.
• zkSync: zkSync, developed by Matter Labs, is a Layer 2 scaling solution using zk-Rollups. zkSync promises to increase Ethereum's throughput to over 2000 TPS while keeping transaction costs low. Furthermore, it offers low withdrawal costs and quick finality, making it an ideal solution for applications requiring high-speed and low-cost operations. For instance, Gitcoin, a platform for developer funding, has integrated zkSync to handle numerous microtransactions more efficiently.

Current trends and our opinion

As of May 2023, both types of rollups are gaining traction. Some projects are choosing to implement Optimistic Rollups due to their compatibility with existing Ethereum infrastructure. Meanwhile, other projects are looking towards zk-Rollups for their scalability and quick finality.

For projects that require complex smart contracts and are okay with a slightly longer transaction confirmation time, Optimistic Rollups like Optimism or Arbitrum could be a good fit. For those looking to prioritise speed and scalability, zk-Rollups solutions such as zkSync or StarkWare might be more appropriate.

Our Cyber Bee team is deeply involved in blockchain and web3 development, offering a suite of services for DeFi and other Web 3.0 projects seeking to integrate rollup solutions.

1. Technical Implementation: We can handle the technical aspects of implementing a rollup solution for your project. Whether it's an Optimistic Rollup or a zk-Rollup, our team of experienced developers can ensure a smooth transition and integration process.
2. Consultation and Strategy: We provide expert consultation on the strategic use of rollups in your project. Our team can help you determine whether an Optimistic Rollup or zk-Rollup is more suitable for your needs and devise a plan for its implementation.
3. Maintenance and Support: After integration, we offer ongoing maintenance and support services to ensure that the rollup solution continues to function optimally and that any arising issues are promptly addressed.

Unleash the full potential of your Web3 project with our expert rollup implementation services - contact us today!