Thread by @iamDCinvestor

1/ OK, so what's going to happen on #Ethereum as L2 starts to take off?

in this thread, i'll make some guesses on what the next year might look like

no, i'm not an engineer, but what happens next is mostly a question of human behavior & response to an evolving system

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2/ first, let's assume @optimismPBC launches this month

a few pioneering apps will be ready to deploy on it from day one, assuming porting apps onto it is as easy as the team claims

the apps everyone will be looking to use first will undoubtedly be DEXes

3/ a big question on everyone's mind is "where will @Uniswap deploy?"

imo, it's going to be on Optimism. the question is when?

if they wait too long (and i mean even a few weeks), @SushiSwap et al will come and eat their lunch

they need to be willing and able to move quickly

4/ no doubt the #1 use case on L2 will be more active trading, since L1 fees are prohibitive for this with small dollars

an interesting wrinkle here is the expected imminent release of Uniswap v3

5/ ideally, the team probably would have wanted to battle-test v3 on L1 first before deploying to L2

now, i'm not sure they'll have the chance

another option could be deploying v2 onto Optimism first, but i guess we'll see when we see

6/ so what will DEX LPs do?

i suspect ~20% of liquidity will move over quickly, then more to follow over the next month of operation

it's pretty hard for me to forecast what demand will look like on L2, but i think some may underestimate how much greater volumes could be

7/ more volume = more profit for LPs

if trading volumes are very high on L2 with many active traders, it makes sense for much of the liquidity to reside there

there will still be many who prefer to trade on L1 or need to in order to interop with other apps

8/ pretty quickly, i think we'll see a natural arb ecosystem evolve, creating an equilibrium of economic activity b/wn L1 and L2

another thing which will evolve quickly are lending services allowing users to borrow on L1 for "instant withdrawals"

9/ this is b/c optimistic rollups have a week long withdrawal period

zk-rollups do not have this restriction, which makes them better for NFTs and apps which require more frequent interop w/ L1, but more on that in a second

so what happens with the rest of DeFi?

10/ once DEXes are there, i expect the full financial stack to basically recreate itself on L2 / Optimism

this means all of your favorite apps from lending to prediction markets will quickly migrate to L2 within a couple of months at most

11/ we will also see enhanced functionality for some of those apps, and entirely new apps, which could only operate on L2

cheaper tx's means things like smart contract wallets will become default (as we've already seen start to emerge on L2s like Loopring)

12/ this will spur a "golden age" of bringing the mainstream to Ethereum

but the action won't be confined to Optimism

parallel to it, a vibrant ecosystem of zk-rollups will also continue to develop

long-term (say within 3 years), it's probable nearly all L2s are zk-rollups

13/ zk-rollups simply offer a lot of benefits over optimistic rollups (like fast withdrawals to L1)

the problem is that the tech for zk-rollups isn't ready to offer full EVM compatibility

i expect this to change over time, but for now, this is a HUGE plus for Optimism

14/ but zk-rollups will shine in the near-term with very powerful application-specific L2s

@zksync will continue to evolve around payments

@loopringorg & @deversifi will offer an array of financial services

@Immutable X will bring game-changing functionality to scale NFTs

15/ and many others will emerge or continue to develop apps in their own niches

many of these L2s are highly scalable and can offer *thousands* of transactions per second

over time, interconnections among them will build into a universe of chains across some zk-rollups

16/ as this happens, it will be come less frequent for users to ever use L1, until one day, perhaps many ever use it again

so what happens to L1? well, it's important to note that all L2s are secured by Ethereum L1. they PAY L1 for that security

17/ and L1 will still provide unique value as the highest security programmable blockchain on the planet

so i expect it will continue to be used for a variety of higher value transactions- becoming a true global settlement layer

18/ as L2 activity starts to really heat up (say in Q3/Q4), i expect we'll see a lot more focus on interop solutions between L2s

there are a lot of clever tricks which can be done to minimize friction for the users to work around some of the issues discussed above

19/ but true interop between chains is likely to take longer

but there's no doubt even this fledgling L2 ecosystem will bring some real relief to users of L1

tx's will be cheap again (hopefully for a while), and while we'll take a hit on composability, the ecosystem will adapt

20/ market-wise, all of this, will likely spur continued institutional and retail mania into Ethereum

a scaling ecosystem will allow for a lot more users and a lot more economic activity

in particular, we may see a BIG second wind for DeFi

21/ but importantly, we're also going to see new use cases at scale which haven't been possible at L1

i'm most looking forward to platforms like @Immutable X massively scaling NFT tx's to 9000 per second

this could spur the emergence of HUGE in-game economies on Ethereum

22/ so yes, it's going to be an awkward transition, an exhilarating one as we see the Ethereum ecosystem evolve to this new capacity, and address emegent issues

i think L2's will offer formidable competition to other L1s too, but that's a discussion for another time...