Ethereum created the first decentralized computing platform and made possible the proliferation of DeFi and NFT projects today. However, due to its limited compute capacity, Ethereum’s success has also become an obstacle to growth. High and unpredictable gas fees crowd out less wealthy users and deter new ones from joining the network. Numerous DeFi and NFT projects are now migrating to lower-cost and higher-performance alternatives that are more centralized, negating some of the key benefits of blockchains. While many layer 2 (L2) projects are under development to help scale Ethereum, they either do not offer EVM and Solidity compatibility, or have yet to launch their mainnet, despite being led by brilliant developers, because the engineering challenges are non-trivial.
Beyond low-cost but centralized platforms, there is an even larger threat to the long-term health of Ethereum - the increasing complexity of the codebase and the lack of incentives for broad and equitable participation in operating layer 2 networks. If the benefits of operating L2s only accrue to venture capitalists and a few lucky people, then censorship resistance and resilience through diversity are in jeopardy.
Ethereum Ecosystem Health at Risk
The key defining features of blockchains are trustlessness and decentralization. These features depend on broad dissemination of the technology, which requires codebases that are intelligible to typical computer science graduates rather than a few select experts. Try contributing to an L2 codebase today and see how long it takes to come up to speed.
Blockchains also require financial incentives to drive broad participation by a diverse community to secure the network. We have seen in the past year that this has been a powerful driver of development, adoption and growth. While mining rewards serve this purpose for the Ethereum mainchain (L1), analogous incentives do not yet exist for L2.
Finally, blockchains thrive when there are low barriers to entry, ideally allowing anyone, anywhere, to run vital infrastructure. Unfortunately, L2s are capital intensive to operate as they require frequent commitments to L1 regardless of transaction volume.
L2s are critical to the long-term success of Ethereum even in the age of eth2 because they help scale the execution of smart contracts while eth2 takes care of data sharding. However:
- The complexity of L2 codebases
- The lack of community incentives to secure an L2
- The capital intensity of operating an L2
… combined pose serious barriers to the adoption of L2s, which in turn poses a threat to the Ethereum ecosystem.
The Next Billion Users
Today there are approximately 150M unique Ethereum addresses, and about 1M active ones.
Let’s project forward in time to when Ethereum reaches a billion users. What might they look like?
- Unlike crypto natives, the next billion users will be less tech savvy and more price conscious. They expect things to “just work.”
- They expect transaction costs to be reasonable - or even minimal. Paying $20 to move $100 is a non-starter. They probably act and behave more like a Robinhood user than a Uniswap user.
- The nuances between L1 and L2, child chain vs side chain, Plasma vs rollups… would be completely foreign to them. Nor do they care.
- Hopefully many of these users will want to do their part to secure the decentralized world and earn something in return, such as by running an eth2 node or L2 node. However, they are probably not going to buy or rent high-end servers for that. We need to think more about phones and less about server farms.
There are roughly 21M software developers in the world, and about 1.3M Truffle users, a proxy for the number of Solidity developers.
What would it take to attract the next 20M developers to write smart contracts, or contribute code to L1/L2?
Even more importantly, what will these developers be able to do in their smart contracts? What benefits will they be able to deliver to their users and customers?
User expectations on technology products are rising rapidly as increasingly sophisticated algorithms leverage expanding pools of data to deliver personalized experiences, shaping how we learn, connect, buy, sell, and entertain.
Blockchains started by focusing on simple financial transfers; Ethereum opened the door to more complex calculations. There is now a growing gap between what developers and users of the normal internet expect, and what blockchains can currently deliver.
A system in which it’s hard to continuously update trading strategies (or even just to divide two floating point numbers) cannot possibly be ready for the future. Through this compute gap, we are missing out on some of the most revolutionary capabilities of distributed systems.
OMGX Design Goals
Given the challenges presented to the Ethereum ecosystem and our ambition to help scale the user and developer populations, we came up with the following design goals for OMGX, our next-generation Ethereum scaling and augmentation platform:
- A healthy, sustainably incentivized ecosystem that is flat, accessible, understandable, robust, and open
- A low-cost, scalable, and easy-to-use L2 so the next generation of users can be accommodated
- Powerful new capabilities that augment L1 in addition to scaling it, such that developers can leverage sophisticated algorithms within smart contracts with ease
These design goals drive not only the architectural choices we have made and the initial features we are rolling out today, but also into the future.
Foundation for OMGX: Optimistic Rollup by Optimism
We chose to build on the great work already done by the Optimism team because we believe in making things as simple as possible, but not simpler. Through the basic Ethereum scalability research in Plasma Group to their work in Optimism PBC, they have come up with a brilliant layer 2 design that is essentially a modified version of Ethereum, which makes it relatively easy to ensure EVM and Solidity compatibility, minimizing the efforts required to migrate smart contracts from L1 to L2. We will be an active contributor to the Optimism open source project, submitting enhancements and fixes to the codebase.
Swap-Based Onramp, Fast Exit, and Cross-Chain Bridging
One of the most significant barriers to adoption for users is the friction of moving funds into and out of an L2. As the number of L2 (and non-Ethereum L1s) increases, friction in cross-chain liquidity becomes an annoyance to users as well. Requiring a user to wait 7 days when they withdraw funds from L2 before they can do anything with it is a growth inhibitor that must be addressed.
Designed with the end users in mind and based on our experience in developing Quasar, the fast-exit option for OMG Plasma, we developed a swap-based mechanism to deliver a smooth user experience for moving funds across chains, whether you are going from L1 to L2, L2 to L1, or between two L2s (as long as they are both EVM-compatible). The users who choose to take advantage of this benefit will pay a small convenience fee that is shared among the liquidity providers of the pools backing the swaps.
Users of OMG Plasma will be able to bypass the exit challenge period using Quasar when moving funds to OMGX in addition to L1.
Incentives for Community Participation
Acting as liquidity providers as described above is just the first of several staking opportunities we will roll out to the community. The higher level goal is to encourage broad-based participation in the operations and governance of OMGX. As the only tokenized EVM-compatible L2, we are in a unique position to use our token responsibly for the long-term sustainability of the network.
Augmenting Ethereum: Extensible Smart Contracts
Algorithms have powered the explosive growth of the digital world. With the rise of the internet, computers encoded the logic of existing and new businesses to allow them to scale beyond borders and physical location. Now, the most powerful chips ever power machine learning models that drive everything from fraud detection to medical diagnoses. As chips got better, applications on top have grown in step. However, these advances in computer science are out of reach for smart contract developers today due to the cost of execution on L1 and constraints such as integer-only operations.
OMGX will empower smart contract developers to leverage much richer compute capabilities than what is possible today on Ethereum. Where desired, verifiers will be incentivized to independently confirm the results of distributed off-L1 computations. Smart contract developers will finally be able to take advantage of a much wider array of tools such as machine learning classifiers, seasoned multi-factor risk models, privacy-preserving computations, and standard endpoints such as AWS Lambda, just to name a few, to create more compelling dApps that will in turn attract more users into the ecosystem.
We’re Just Getting Started
Scalability will always be a challenge for any computing platform - we still want faster CPUs after all these years. Over time, however, computers evolved from one general purpose CPU doing all the work, to having a constellation of co-processors, each of which specializing in a more focused set of operations that could be performed more efficiently. We expect to help scale the capacity of Ethereum for years to come, and to augment its core compute functionality with a rich universe of capabilities developed by the broader developer community.
As Jeff Bezos said, “One thing I love about customers is that they are divinely discontent. Their expectations are never static – they go up. It’s human nature.” Our users and developers will always demand more from us, and we look forward to working with the rest of the Ethereum community to rise up to the challenge.
This article appeared on OMGX Network on May 11, 2021.