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By Alice Orlova
The rivalry between optimistic and ZK rollups, utility-first NFTs on Arbitrum and Optimism, DeFi composability as a key advantage of DeFi on rollups over CEXs – these are just some of the topics discussed during Pontem Network’s recent expert panel.
On July 14, blockchain product studio Pontem Network hosted an expert panel on optimistic rollups, featuring executives from Cashmere Labs, Perpetual Protocol, and XP.NETWORK. They discussed the future of Arbitrum and Optimism in the context of the ZK rollup boom, the evolution of the cross-rollup ecosystem, NFTs on optimistic chains, and much more. Here are the five most important insights.
1) The 7-day challenge window doesn’t have to be a deal-breaker
Optimistic rollups emerged as a way to speed up transactions on Ethereum and soon grew into large ecosystems in their own right. They are cheap and easy to build on for any developer familiar with EVM, but there is a drawback: it takes seven days to bridge assets between Ethereum and a rollup.
Some consider this issue so serious that optimistic rollups will eventually lose out to ZK rollups. However, the panel experts cited several reasons why optimistic rollups will remain relevant:
1) The two types of chains have different priorities: scalability and affordability for optimistic rollups, versus privacy and security for ZK networks. They cater to different types of users, and we should see more and more products deployed on both, according to the Cashmere Labs CEO, Reliq.
2) As JHolme5 of Perpetual Protocol pointed out, ZK rollups have issues of their own: high cost of generating zero-knowledge, potential security concerns (like trusted setup ceremonies), lack of full EVM equivalence, and the comparative difficulty of building dApps for them;
3) Finally, as XP.NETWORK CTO Dima Brook said, “The 7-day lag affects only the interactions between L2 and L1. The issue is irrelevant for interactions within an L2 ecosystem, between rollups, and when using third-party protocols – LayerZero, for example, or XP.NETWORK for NFTs.”
2) It’s time to look at the rollup space as an ecosystem
We shouldn’t be so focused on the connections between each rollup and Ethereum mainnet, and look toward a cross-chain L2 ecosystem instead.
For instance, Reliq described how LayerZero and Cashmere Exchange’s stablecoin pools make it possible to port liquidity betweenArbitrum, Optimism, Metis, Polygon zkEVM, etc. within 4 minutes – all without using third-party aggregators.
Of course, building this ecosystem requires a careful approach to security, as cross-chain interactions can be risky. But we can still expect a lot more transaction volume on multi-rollup protocols in a year or two.
3) CEXes remain the necessary first step for most users
Pontem Network co-founder Alejo Pinto asked the experts if DeFI protocols on optimistic rollups can eventually supplant centralized exchanges. After all, CEXes require KYC, can go bankrupt, trade against their customers, and most importantly,keep their clients’ private keys.
Once again, Jholmes stressed that rollup-based protocols and CEXes serve different types of customers. On one hand are DeFi power users and advanced traders who prioritize privacy and control over their funds. On the other hand are newbies who learn about crypto from YouTube videos about trading and don’t worry about decentralization.
To this, Reliq added: “Most people enter crypto to make money. As they are already familiar with the stock market, a CEX is a logical first step. But once they buy some crypto on Binance, they start exploring what it is that the tokens they bought are used for. We as decentralized protocols need CEXes, but we also need to be clear about what we do and the purpose of our tokens – then users may start to use DeFi protocols more.”
4) Composability is rollups’ secret weapon against CEXes
Self-custody is an important advantage of DeFi,but so is composability. With so much of the code open-source, teams can build on top of each others’ protocols to create products that wouldn’t be possible in TradFi. Examples include power perpetual swaps (like those offered by Perpetual Protocol), NFT-collateralized loans, trustless volatility futures, and more.
As a caveat, the Pontem Network co-founder added that until the UX is there, newbies won’t adopt these composable products, no matter how lucrative they are.
5) Rollups will become home to utility-driven NFTs
When most people think of rollups, they think about DeFi. But what about NFTs?
Dima Brook made an interesting point: a market without NFTs is essentially a market without goods. Most DeFi protocols operate in a market of money, but a healthy economy needs goods and services that can be bought with that money. NFTs on optimistic chains can and will become those goods – as tools for instant property registration, for example, ticketing, patent issuance, and other real-world use cases.
Jholmes added that Optimism already has a thriving NFT scene, including utility-driven protocols for bloggers (writing NFTs) and music NFT tools.
Alejo Pinto noted that while low fees on rollups make it practical to distribute music or films as NFTs, users may be nervous to transact with NFTs representing high-value items like cars or real estate on an L2. But, as Brook concluded, “Think of how often you buy a car versus how often you buy smaller items. If you treat NFTs as a store of value, then Ethereum is the way to go. But if you have real-world utility in mind, rollups are the way to go.”
Perhaps the main takeaway of the Pontem Network-organized panel was that, in spite of the buzz around ZK and hybrid rollups, optimistic chains will dominate the L2 scene for the next few years at least, with a host of new use cases on the way. The full Twitter Space is available here.
Author Bio
Alice Orlova is a blockchain writer with 6 years of experience in the industry and 120+ collaborations with Web3 startups. Head of Content at Pontem Network.
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