Layer 2 Enters High-Speed Development Phase, NFT Opens Up the Mass Market
Since the start of the year, Layer 2 and NFT have been identified as two star sectors with clear development trajectories. Unfortunately, Optimism, a leading Layer 2 project, delayed its mainnet launch to July. While Layer 2 projects using ZK Rollup technology have made some progress, they suffer from the drawback of being unable to support general-purpose smart contracts. Additionally, the wallets, applications, and supporting tools for early Layer 2 networks were not fully developed, which is why Layer 2 has remained in a "pre-explosion" state for so long.
However, things seem to have changed somewhat in May. Recently, the Layer 2 sector saw a broad surge that drew significant attention, with MATIC surging over 150% in the past seven days, while CELR and PERP rose 53% and 42% respectively. The reasons behind the Layer 2 sector's movement are attributed to two factors: first, on-chain project progress has been notable, and migration from Layer 1 to Layer 2 is accelerating; second, a number of public chains have emerged, attempting to carve out a share of Ethereum's DeFi ecosystem, making the urgency of Ethereum Layer 2 solutions increasingly apparent and boosting attention once again.
NFT previously saw a brief spike in data due to high-priced artworks frequently being auctioned and celebrity endorsements, but the low liquidity of artworks made it difficult to sustain the momentum, leading it into a slump. Uniswap V3's use of NFT in place of the original ERC-20 for LP tokens is seen as the starting point for NFT entering financial applications, giving NFT strong financial attributes. Additionally, with the NBA playoffs about to begin, the UEFA Champions League final scheduled for May 30, and the FIFA World Cup Asian qualifiers underway, community discussion about NFT has noticeably increased recently. However, on-chain data shows that NFT has not yet emerged from its slump. Perhaps on one hand, its "breakout" remains largely停留在概念上, while on the other hand, the broader market rebound has lacked strength — at the time of writing, Bitcoin一度跌破4万美元关口, Ethereum跌下3000美元, the market turbulence has also cast a shadow over NFT's subsequent development.
Ethereum Fee Revenue Hits New High, Layer 2 Enters High-Speed Development Phase
On May 18, a piece of news caught our attention: according to Coin Metrics data, Ethereum's fee revenue in May 2021 was on track to break the monthly record of $722 million set in February 2021.
It is worth noting that there were still two weeks left in May at that point, and if this trend continued, it meant Ethereum's May fee revenue would exceed the Q1 total of $1.7 billion before month-end.
This month's record trading fees were attributed on one hand to the rise in Ethereum's price, which hit a new all-time high of $4,371.96 on May 12; on the other hand, recent market volatility led to on-chain trading volume hitting new records. Beyond simple transfers, even relatively straightforward transactions such as trading on Uniswap typically incur fees of around $40 at normal speed. This illustrates that Layer 2 solutions, which can significantly reduce fees and improve transaction speeds, are poised to enter a period of opportunity.
Arbitrum, another highly anticipated Optimistic Rollup project, finally announced its mainnet timeline, opening to developers on May 28. OKX announced a partnership with Arbitrum's development team Offchain Labs to support users in depositing and withdrawing on the Arbitrum mainnet without interacting with Ethereum Layer 1, and without paying Ethereum gas fees — reducing friction for users while alleviating congestion on the Ethereum ecosystem.
zkSync, which uses ZK Rollup technology, announced its 2.0 roadmap on March 27, with a public testnet expected online in May and mainnet launch in August. On April 9, zkSync tweeted that zkSync 2.0 would be Turing complete, meaning it would be EVM compatible.
Additionally, they launched a lower-cost scaling solution called zk Porter, which they say will support the zkSync 2.0 mainnet launch in August. The zkSync 2.0 state will be divided into two aspects: ZK Rollup with on-chain data availability and zk Porter with off-chain data availability. The team stated that zk Porter can interact with Uniswap deployed on the ZK Rollup side within a single block, with each trade costing only a few cents — a 100x reduction in fees compared to rollup.
The launch of zk Porter represents a compromise by zkSync. To put it another way, zk Porter's Shard 0 is essentially a ZK Rollup with full data availability and Ethereum's security guarantees, while other shards sacrifice data availability in exchange for reduced trading costs and improved throughput. This means ensuring data availability is delegated to zkSync token holders, who confirm zk Porter account data availability by signing blocks, thereby tracking the state on zk Porter. They believe zk Porter is a safer solution than Optimism.
However, this viewpoint was soon contested by Vitalik Buterin, who argued that zk Porter's off-chain data availability security level is lower than that of the base chain and lacks tight coupling. Vitalik also added that in his view, zkSync 2.0's Turing-complete zero-knowledge proof system is still in its very early stages and may harbor many unknown vulnerabilities and risks. He suggested developers prioritize the Optimistic Rollup approach. Nonetheless, if we look a few years ahead, ZK Rollup could be the more perfect solution.
Loopring, another decentralized trading protocol based on ZK Rollup, announced on April 21 that Loopring 3.7 would be released in May, featuring Ethport, a bridge product spanning L1, L2, and centralized exchanges. It is understood that Ethport enables Loopring users to directly interact with Layer 1 DApps from Layer 2 at low cost through batch processing and zero-knowledge proof functionality, supporting cross-Layer 2 transfers.
In addition to the highly anticipated Rollup scaling solutions, sidechains such as Polygon (Matic Network) and Celer Network, as well as state channels and alternative Layer 2 solutions, have all made good progress recently.
Polygon has been one of the most closely watched Layer 2 projects recently. They continue to actively pursue partnerships with various protocols and tools. Decentralized prediction market protocol Plot X has launched its V2 mainnet on Polygon, on-chain trading aggregator 1inch Network has expanded to the Polygon network, Ethereum development tools Infura and Truffle now support Polygon, and NFT fractional trading protocol Unicly has launched on Polygon, among others.
According to Dappradar data, over the past seven days, Polygon attracted more than 75,000 new users, and the influx of new users brought nearly $1 billion in trading volume. Over the past four weeks, the number of Polygon DApps grew from 61 to 93, with 46 belonging to the DeFi category.
Polygon's governance token, MATIC, has performed exceptionally well. Starting from the price rally that began on May 9, MATIC rose from an opening price of $0.7537 to $2.3890 on May 19, a surge of 217%. According to Maticvigil.com data, MATIC wallet addresses have exceeded 820,000, with nearly 83.4 million on-chain transactions completed. MATIC's total supply is 10 billion tokens, with over 6.1 billion currently in circulation.
Celer Network, another Ethereum Layer 2 scaling project, announced in late April a partnership with zero-knowledge proof research institution StarkWare to develop a Layer 2.finance ZK Rollup version, with CELR surging 58% over the past two days.
Near, an "alternative" Layer 2 solution, released its EVM solution Aurora on May 12, enabling developers to seamlessly deploy Solidity and Vyper smart contracts. Additionally, based on its Rainbow Bridge technology, it provides permissionless token transfers and data migration services between Ethereum and Aurora. Aurora uses ETH as its internal base currency for transaction fee payments.
Major Sports Events Arrive, NFT Opens Up the Mass Market
In the early hours of May 23, we will welcome the first round of the NBA playoffs, while on May 30 the UEFA Champions League champion will be decided between Manchester City and Chelsea. Additionally, the 2022 FIFA World Cup Asian qualifiers are in full swing. Affected by these events, the NFT sports sector has seen gains. There are indications that as major sporting events unfold and progress, NFT is expected to receive a further boost through the sports sector.
However, this has yet to be confirmed by on-chain data. The weekly trading volume for the week of May 16 was $11.42 million, the lowest weekly trading volume since January 17, 2021.
The number of NFT platform users has been gradually increasing after entering May, with the week of May 2 setting a year-to-date high of 650,000 users. However, after the market declined, the number of NFT platform users dropped sharply to 57,000 in the week of May 16.
Although various NFT metrics have declined, its cross-industry influence continues to expand. On May 11, it was reported that e-commerce giant eBay stated it would allow the sale of digital collectibles such as trading cards, images, or video clips as NFTs on its platform. On May 19, crypto artist Sean Williams tweeted that Instagram may be launching an NFT platform and is currently negotiating signing related agreements with artists.
Taobao Alibaba Auction's "Fun 520 Auction Festival" launched an NFT digital art special session, with artworks such as artist Wan Wenguang's "U107 — Waste-Free Planet Series — Van Gogh of the Cabinet People" and several other digital artworks to be auctioned starting at 10:00 AM on May 20. It is reported that users who purchase NFT digital artworks may, within the scope of the original license, access, study, research, appreciate, download, display, and share them.
Earlier, media outlets noted that second-hand trading platform Xianyu and online retail platform Taobao are becoming new interfaces for NFT. NFT products listed for sale can already be seen on these platforms. For those outside the crypto space, the existence of NFT may serve as a very interesting gateway into the crypto world.
Since the beginning of the year, we have been emphasizing that Layer 2 and NFT are the two major sectors that must be watched this year. Before we knew it, it was already mid-May. Layer 2 has entered an accelerated development phase, with mainnets or testnets for most major projects launching in May. While NFT has been boosted by hot topics, it still has some distance to go before a full-scale outbreak. It should be noted that Bitcoin has shown weak rebound momentum recently, with its trend appearing somewhat sluggish. Today it fell to as low as $38,526.0 before recovering above $40,000, yet market sentiment has not improved significantly. When exactly Bitcoin will bottom out is undoubtedly the most pressing concern for investors at the moment.
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