Article by Liam McDonald Edited and Cover Art by Trewkat

Rollups are taking over Ethereum. Visit any Ethereum conference this year and the majority of projects you’ll meet will be some kind of rollup — whether zero-knowledge, modular, or some kind of app-specific rollup (ASR). But attention is shifting away from optimistic and zero-knowledge rollups and moving towards a new era of rollups, dubbed “Rollups-as-a-Service” (RaaS).

RaaS projects are helping developers build their own L2, L3, or ASR in record time, in under five minutes even. These rollups are highly customizable, modular, and optimized for superior developer and user experiences. Some popular names you might recognize in your travels around the emerging RaaS ecosystem include Caldera, AltLayer, and Eclipse.

RaaS projects are capturing developer attention because of their high customizability. Many RaaS projects are focusing on modularizing their rollups to help developers achieve an improved user experience (UX) — faster transaction finality, cheaper fees, higher TPS, and gas token optionality, for example. This improved user experience is built by separating the settlement, execution, consensus, and data availability (DA) layers of a chain and giving developers the choice over which layers they’d like to use between existing L1s/2s.

This modular autonomy was introduced by projects like Caldera, Eclipse, and AltLayer, all of which allow developers to choose the optimal rollup layers for their desired UX. RaaS solidifies Ethereum’s ability to support the next wave of user onboarding — users who will demand convenience over everything.

Builders are also modularizing the use of blockchains down to the app layer in another effort to focus on the UX of applications. The desire to enhance user experience — cheap fees, fast transaction throughput, gas token optionality — without sacrificing the security of a chain has led to the rise of app-specific rollups (ASRs), which are Layer 2s and 3s built for the proprietary use of single applications.

The maturation of the rollup ecosystem is changing the trajectory of Ethereum. While once thought of as a network fully reliant on the Layer 1 design, the new rollup-centric trajectory of Ethereum is increasingly app-specific. Such app-centric developer and user design is the very thesis of Ethereum counterpart, Cosmos, and after nine long years of debates between these communities about how blockchains should be designed, their visions for the future are finally converging.

Cosmos is a ‘Layer 0’ ecosystem that provides a Software Development Kit (SDK) for any amount of customizable app-specific blockchains to be built. The distinction between Ethereum and Cosmos can be analogized in ecological terms — if Ethereum is a tree and all of its branches are rollups, then Cosmos is the mycelial layer that connects every plant in the forest. The ‘mycelial’ Cosmos provides the ingredients to birth any forest plant (i.e. application) while also letting each of these ‘plants’ communicate with each other.

As David Hoffman mentioned in the Bankless podcast’s October 2022 episode, which reviewed the Cosmos Thesis with Sunny Aggarwal and Zaki Manian, the Ethereum and Cosmos ecosystems have long been aligned about the end state of blockchains, but their pathways to achieving this vision are different. Ethereum began by prioritizing chain security, becoming an ‘empire-like’ monolithic L1 which many chains organized around (rollups and eventually app-specific rollups). In contrast, Cosmos began as an ecosystem of app-specific chains that chose to integrate a shared-security model later. We are now witnessing the inevitable convergence of the Ethereum and Cosmos theses in app-specific chains and shared security.

So, why aren’t as many app-specific chains being built on top of Cosmos? Let’s think this through.

At present, it makes sense for developers to build on top of Ethereum rather than Cosmos. Relatively speaking, Ethereum has more of the ingredients needed for network effects: users, total value locked, external investment, developers onboarding, and applications deployed. However, there’s a reason these two ecosystems are frequently mentioned alongside each other; Cosmos is not to be counted out.

When choosing the right ecosystem for an app-chain, it depends on the goals of the application. For most, the goals are those network-effect ingredients mentioned previously, but Cosmos offers several advantages that have yet to be developed on Ethereum, such as native cross-chain interoperability and less rent-extractive security.

Cosmos blockchains are natively tied together through the Inter-Blockchain Communication Protocol (IBC), which allows chains within the IBC to natively communicate with each other and send liquidity, messages, and assets cross-chain. The IBC, although in its early stages, offers a great foundation for solving the bridge problem — which is the lack of a standard for monolithic blockchains to communicate cross-chain. Every Cosmos blockchain is tied into the IBC, as well as many chains built from the Cosmos SDK, like Crypto.com Chain and our erstwhile friend Terra. Rollups built on top of Ethereum cannot natively communicate with each other or Ethereum Mainnet, and because of this, it’s likely that we’ll see global blockchain adoption slowed by major bridge hacks as more and more rollups ship. In 2022 alone, between the Ronin, Wormhole, and Harmony hacks, more than $1 billion was stolen from vulnerable bridge contracts. We need cross-chain communication standards.

Shared security is new to the Cosmos ecosystem. It was introduced by Sunny Aggarwal and initialized by the Atom 2.0 proposals recently passed in the Cosmos governance forum. The shared security model allows validators of one Cosmos blockchain to verify transactions on other Cosmos blockchains (up to a certain limit) by putting up stake in the token of the blockchain it wants to secure — i.e. shared security. While Ethereum does offer its own version of shared security for rollups, there is a tipping point in which rollups become extractive to Ethereum security when they attract most users, applications, and TVL. This tipping point is unlikely to fully materialize, but it is important to note the tradeoffs between scalability and security that Ethereum faces as the rollup ecosystem grows.

The emergence of app-specific rollups on Ethereum is very telling of the desires of today’s developers and users. Builders want a completely customizable tech stack and refuse to be bound to the limitations of the Ethereum Layer 1. Users want little-to-no fees, faster transactions, and convenience over everything. Both builders and users have come to the conclusion that the Ethereum L1 isn’t enough.

Cosmos knew this, and as ASR development continues on Ethereum, it can be expected that many of those projects will find Cosmos appealing. Convenience will lead the next wave of blockchain adoption, and Cosmos is well-positioned to attract many of the builders and applications that will lead this charge.

This article was published in collaboration with the BanklessDAO Writers Cohort.

Author Bio

Liam McDonald writes about emerging DeFi primitives and how they intersect with the traditional world.

Editor and Designer Bio

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More Like This

Ethereum Scaling Solutions by Sandeep

Alternative L1s: Cosmos by Austin Foss

The Polkadot Primer by Onodu Michael

Article by Liam McDonald Edited and Cover Art by Trewkat

Rollups are taking over Ethereum. Visit any Ethereum conference this year and the majority of projects you’ll meet will be some kind of rollup — whether zero-knowledge, modular, or some kind of app-specific rollup (ASR). But attention is shifting away from optimistic and zero-knowledge rollups and moving towards a new era of rollups, dubbed “Rollups-as-a-Service” (RaaS).

RaaS projects are helping developers build their own L2, L3, or ASR in record time, in under five minutes even. These rollups are highly customizable, modular, and optimized for superior developer and user experiences. Some popular names you might recognize in your travels around the emerging RaaS ecosystem include Caldera, AltLayer, and Eclipse.

RaaS projects are capturing developer attention because of their high customizability. Many RaaS projects are focusing on modularizing their rollups to help developers achieve an improved user experience (UX) — faster transaction finality, cheaper fees, higher TPS, and gas token optionality, for example. This improved user experience is built by separating the settlement, execution, consensus, and data availability (DA) layers of a chain and giving developers the choice over which layers they’d like to use between existing L1s/2s.

This modular autonomy was introduced by projects like Caldera, Eclipse, and AltLayer, all of which allow developers to choose the optimal rollup layers for their desired UX. RaaS solidifies Ethereum’s ability to support the next wave of user onboarding — users who will demand convenience over everything.

Builders are also modularizing the use of blockchains down to the app layer in another effort to focus on the UX of applications. The desire to enhance user experience — cheap fees, fast transaction throughput, gas token optionality — without sacrificing the security of a chain has led to the rise of app-specific rollups (ASRs), which are Layer 2s and 3s built for the proprietary use of single applications.

The maturation of the rollup ecosystem is changing the trajectory of Ethereum. While once thought of as a network fully reliant on the Layer 1 design, the new rollup-centric trajectory of Ethereum is increasingly app-specific. Such app-centric developer and user design is the very thesis of Ethereum counterpart, Cosmos, and after nine long years of debates between these communities about how blockchains should be designed, their visions for the future are finally converging.

Cosmos is a ‘Layer 0’ ecosystem that provides a Software Development Kit (SDK) for any amount of customizable app-specific blockchains to be built. The distinction between Ethereum and Cosmos can be analogized in ecological terms — if Ethereum is a tree and all of its branches are rollups, then Cosmos is the mycelial layer that connects every plant in the forest. The ‘mycelial’ Cosmos provides the ingredients to birth any forest plant (i.e. application) while also letting each of these ‘plants’ communicate with each other.

As David Hoffman mentioned in the Bankless podcast’s October 2022 episode, which reviewed the Cosmos Thesis with Sunny Aggarwal and Zaki Manian, the Ethereum and Cosmos ecosystems have long been aligned about the end state of blockchains, but their pathways to achieving this vision are different. Ethereum began by prioritizing chain security, becoming an ‘empire-like’ monolithic L1 which many chains organized around (rollups and eventually app-specific rollups). In contrast, Cosmos began as an ecosystem of app-specific chains that chose to integrate a shared-security model later. We are now witnessing the inevitable convergence of the Ethereum and Cosmos theses in app-specific chains and shared security.

So, why aren’t as many app-specific chains being built on top of Cosmos? Let’s think this through.

At present, it makes sense for developers to build on top of Ethereum rather than Cosmos. Relatively speaking, Ethereum has more of the ingredients needed for network effects: users, total value locked, external investment, developers onboarding, and applications deployed. However, there’s a reason these two ecosystems are frequently mentioned alongside each other; Cosmos is not to be counted out.

When choosing the right ecosystem for an app-chain, it depends on the goals of the application. For most, the goals are those network-effect ingredients mentioned previously, but Cosmos offers several advantages that have yet to be developed on Ethereum, such as native cross-chain interoperability and less rent-extractive security.

Cosmos blockchains are natively tied together through the Inter-Blockchain Communication Protocol (IBC), which allows chains within the IBC to natively communicate with each other and send liquidity, messages, and assets cross-chain. The IBC, although in its early stages, offers a great foundation for solving the bridge problem — which is the lack of a standard for monolithic blockchains to communicate cross-chain. Every Cosmos blockchain is tied into the IBC, as well as many chains built from the Cosmos SDK, like Crypto.com Chain and our erstwhile friend Terra. Rollups built on top of Ethereum cannot natively communicate with each other or Ethereum Mainnet, and because of this, it’s likely that we’ll see global blockchain adoption slowed by major bridge hacks as more and more rollups ship. In 2022 alone, between the Ronin, Wormhole, and Harmony hacks, more than $1 billion was stolen from vulnerable bridge contracts. We need cross-chain communication standards.

Shared security is new to the Cosmos ecosystem. It was introduced by Sunny Aggarwal and initialized by the Atom 2.0 proposals recently passed in the Cosmos governance forum. The shared security model allows validators of one Cosmos blockchain to verify transactions on other Cosmos blockchains (up to a certain limit) by putting up stake in the token of the blockchain it wants to secure — i.e. shared security. While Ethereum does offer its own version of shared security for rollups, there is a tipping point in which rollups become extractive to Ethereum security when they attract most users, applications, and TVL. This tipping point is unlikely to fully materialize, but it is important to note the tradeoffs between scalability and security that Ethereum faces as the rollup ecosystem grows.

The emergence of app-specific rollups on Ethereum is very telling of the desires of today’s developers and users. Builders want a completely customizable tech stack and refuse to be bound to the limitations of the Ethereum Layer 1. Users want little-to-no fees, faster transactions, and convenience over everything. Both builders and users have come to the conclusion that the Ethereum L1 isn’t enough.

Cosmos knew this, and as ASR development continues on Ethereum, it can be expected that many of those projects will find Cosmos appealing. Convenience will lead the next wave of blockchain adoption, and Cosmos is well-positioned to attract many of the builders and applications that will lead this charge.

This article was published in collaboration with the BanklessDAO Writers Cohort.

Author Bio

Liam McDonald writes about emerging DeFi primitives and how they intersect with the traditional world.

Editor and Designer Bio

Trewkat is a writer and editor at BanklessDAO. She’s interested in learning about crypto and NFTs, with a particular focus on how best to communicate this knowledge to others.

BanklessDAO is an education and media engine dedicated to helping individuals achieve financial independence.

This post does not contain financial advice, only educational information. By reading this article, you agree and affirm the above, as well as that you are not being solicited to make a financial decision, and that you in no way are receiving any fiduciary projection, promise, or tacit inference of your ability to achieve financial gains.

Bankless Publishing is always accepting submissions for publication. We’d love to read your work, so please submit your article here!

More Like This

Ethereum Scaling Solutions by Sandeep

Alternative L1s: Cosmos by Austin Foss

The Polkadot Primer by Onodu Michael