Optimistic rollup panel recap: the best insights from experts

On July 14, Pontem hosted a Twitter Space on optimistic rollups with legends from Cashmere Labs, Perpetual Protocol, and XP.NETWORK. The recording is posted here, but we’ve summarized the most interesting points from the discussion in this recap.

About the panel

We were lucky to have guest speakers from some of the most innovative startups in the space:

JHolme5, Content Manager at Perpetual Protocol:– a perpetual swap platform on Optimism and one of the first to offer decentralized power perps.

Reliq, CEO of Cashmere Labs: - a cross-chain, MEV-resistant swap protocol based on LayerZero that is already live on 10+ testnets, including Arbitrum, Optimism, Metis, Polygon zkEVM, etc.

Dima Brook, CTO at XP.NETWORK: – a powerful NFT bridge that supports 30+ blockchains, including Arbitrum Nova.

As always, Pontem co-founder Alejo Pinto facilitated the discussion. Do check out the full recording here, because we simply can’t stuff all the alpha into one recap.

Insight no.1: optimistic or ZK rollups?

Out of the 10 biggest blockchains by DeFi TVL, two are optimistic rollups: Arbitrum (with $2.17 billion) and Optimism. Metis isn’t too far behind. It’s easy to see why they are so popular: sending ETH costs around $0.1 on a rollup vs. $2+ on the mainnet; it’s faster; and Ethereum dApps can be easily ported to a rollup without rewriting the code.

At the same time, many think that the future belongs to zero-knowledge rollups and zkEVMs, because they offer better privacy and security. Another big problem with optimistic rollups is that you have to wait 7 days when sending funds back to Ethereum. But are these really deal-breakers?

Our experts at the panel don’t think so. Reliq said that these two rollup types aim at different types of users: someone who wants scalability and cheap transactions will pick an optimistic chain, while privacy-minded people will go with a ZK chain. As for startups, it makes sense to launch on both types of chains – something that Cashmere Exchange is already doing.

Besides, like JHolm5 said, ZK chains aren’t perfect, either:

• ZK proofs are costly to compute
• the state of these chains’ EVM equivalence is in flux
• there are potential points of centralization (like trusted setup ceremonies)
• it’s hard for EVM developers to switch to building dApps for ZK chains.

As for the 7-day challenge window, Dima Brook pointed out that it’s only a problem when bridging to Ethereum. Protocols on the same rollup and on different rollups can interact very fast without such issues. In fact, cross-rollup DeFi has a great future (see the next insight).

The consensus is that optimistic chains will dominate in the next couple of years, and after that, the two types of rollups will coexist. There’s no reason to think that ZK chains will suddenly push optimistic chains off the scene.

Insight no.2: cross-rollup DeFi will become a trend

There’s no need to choose between Optimism, Arbitrum, etc. - in fact, DeFi projects will do well to launch on different rollups. We’re used to thinking of the L2 ecosystem like a star, with Ethereum in the center and each rollup connected to it. Instead, it’s better to think of L2s like a net, all interlinked, where the connection to L1 is just one of many.

Cashmere Exchange is a case in point. It uses LayerZero to transfer liquidity between rollups (as well as Polygon, Ethereum, BNB Chain, etc.) to offer the best swap rates and MEV protection. It takes just one simple transaction, a couple of minutes, and no third-party aggregators.

Of course, you need to pay close attention to security: after all, just last week the Multichain bridge got hacked for $100+ million. But with messaging protocols like LayerZero, a cross-rollup ecosystem can become a huge trend.

Insight no.3: DeFi on rollups won’t replace CEX – and it doesn’t need to

Alejo Pinto next asked the guests if, in their opinion, DeFi protocols will eventually replace DEXs. Dima Brook said that the future belongs to decentralized technology – however, that’s the ultimate goal. As  Jholmes pointed out, there are people who prioritize privacy and self-custody, and then there are beginners who naturally enter crypto via a CEX and don’t care much about decentralization yet.

Reliq made another important clarification: people come into the crypto industry with the desire to make money. They know how stock trading works, and it’s easy for them to understand how Binance works. And only once they’ve bought some tokens on a CEX will they begin to wonder what those tokens are designed for. The job of DeFi protocols is to explain what they do and how their tokens should be used, so that people have an incentive to explore that utility.

Insight no.4: DeFi composability on rollups will become more important

JHolm5 named another advantage of DeFi vs. CEX that many people don’t think about: composability. With so many open-source projects out there, teams can integrate other products into their own: for example, Perpetual Protocol’s perps, or NFTs as collateral, or liquid staking derivatives.

In centralized finance, this is hardly possible. It would take platforms like Binance and Kraken, for instance, to enter a partnership, work out the fine legal points, etc.. There is no such thing as open-source in TradFi.

Of course, such composable products won’t make complete newbies leave CEXs. DeFi protocols need to solve the UX issue first to make their products accessible – and improve security.

Insight no.5: NFTs will thrive on rollups – as long as they have utility

For most of the panel, the experts have been talking about DeFi, but later the discussion turned towards NFTs. Many people don’t realize that rollup ecosystems have their own thriving NFT scene – exactly because the attention is so focused on DeFi.

Jholme5 stressed that Optimism – the chain on which Perpetual Protocol is deployed – has very interesting utility-driven NFT protocols. For example, there is a blogging platform, Mirror, with writing NFTs; and a service for music NFTs, too.

XP.NETWORK’s Dima Brook shared an innovative angle: NFTs play the role of goods and services in the larger blockchain market. In DeFi, people buy money for money to create more money virtually out of nothing. Nobody knows how long it can last – but not forever. In a healthy market, money should be exchanged for goods and services – and that’s the role of NFTs.

Of course, simple PFPs aren’t very useful goods. The industry needs more utility-first NFT protocols: for patenting, ticketing, lending and borrowing, etc. For Dima, the key value of NFTs is their ability to serve as an immediate, trustless proof of property registration.

The legal system isn’t ready for NFT-based real estate deeds or car ownership, of course. And even once it becomes possible, people will probably use Ethereum to buy real estate NFTs, and not rollups. But the majority of NFT-enabled purchases will feature small items like tickets – and those can be exchanged on rollups with their low fees.

The current NFT market downturn is a good thing, said Dima Brook. It will clear out low-utility, speculative projects and pave the way for a new trend: NFTs as a serious technology.

Finally, Dima Brook reminded the audience that, even if Vitalik Buterin apparently considered optimistic rollups a poor way to solve the scalability issue (as opposed to sharding), they do work. It’s only one of the ways, together with ZK rollups, sharding, and others. We need to embrace competition between technologies – and let the industry figure it out with time.

Check out the full recording and tell us what you think!