In a series of thought-provoking tweets, Anatoly Yakovenko, the co-founder of Solana Labs, recently sparked discussions about the possibility of Ethereum functioning as a layer-2 (L2) solution for the Solana blockchain. This proposition raises interesting questions about the potential benefits and challenges associated with such an integration. In this article, we delve deeper into the considerations put forth by Yakovenko, exploring the concept of Ethereum as an L2 protocol for Solana and its implications for the decentralized finance (DeFi) ecosystem.
Ethereum Could Be A L2 For Solana
Yakovenko proposes that Ethereum could function as an L2. According to him, this is “probably more likely than you might think at first glance,” adding that L2s are bridge protocols that provide one way security.
Under this setup, SOL asset holders on Ethereum would have finality guarantees, ensuring that they can safely exit back to the Solana blockchain. Even in the event of a double spend or an invalid state transition on Ethereum, users would have recourse to retrieve their SOL assets securely. However, there are three key components necessary to make Ethereum an L2 protocol:
Submitting Ethereum Transactions to Solana: To enable secure interoperability, all Ethereum transactions would need to be submitted into the SOL blockchain. This process ensures that the necessary transaction data is accessible to Solana’s network.
SPV Root for Resulting State: A Simplicity Payment Verification (SPV) root, which represents the agreed-upon state root, would need to be submitted as a proof of Ethereum consensus signatures aligning on a specific state root. This allows validators to reach consensus on the Ethereum state.
Bridge Timeout for Fault Resolution: A bridge timeout mechanism would be required to identify and address faults within the bridge protocol. Examples of faults include conflicting SPVs for the root, invalid root computation, and censorship. The timeout mechanism enables faults to be proven and resolved effectively.
Security And Limitations
While the proposal offers a way to secure Solana assets on Ethereum, it is crucial to understand the limitations and potential risks associated with this integration. Yakovenko emphasizes that holding assets on Ethereum would be safe, but it would not be advisable to lend or maintain positions against them.
In the event of an Ethereum fault, Solana assets held on Ethereum become separated from the Ethereum social consensus fork. Consequently, the representations of these assets on Ethereum would become worthless.
For instance, if someone lent Solana USDC on Ethereum, the borrower would be able to withdraw the real USDC on Solana, while the lender on Ethereum would receive a junk token. This situation is similar to the experience of holding USDC on Ethereum’s proof-of-work (EthPow) chain.
Furthermore, Yakovenko notes that while central limit order books (CLOBs) would remain functional in this setup, automated market makers (AMMs) and non-flash loan borrowing and lending protocols would face limitations.
Responding to a question about Ethereum’s consideration of becoming a L2, Yakovenko suggests that this is a permissionless bridge protocol, implying that Ethereum does not need to explicitly consider this integration:
This is a permissionless bridge protocol. Eth doesn’t need to consider anything.
Remarkably, Yakovenko’s contemplation of Ethereum as an L2 protocol has ignited discussions about the possibilities and challenges of such an integration. While the proposal offers a means to secure Solana assets on Ethereum and enhance interoperability, it comes with certain limitations and risks.
SOL Price On The Verge of Breakout?
At press time, the SOL price exhibited a bullish momentum. SOL was trading just below the 32.8% Fibonacci retracement level. A rise above this level could open up the possibility of a renewed attack on the 200-day EMA, a level that the SOL price has not been able to overcome since April 2023. If successful, SOL would be back on bullish territory and could climb to the 61.5-Fibonacci retracement level at $27.11, which is also the year-to-date high.
Featured image from Markets Insider, chart from TradingView.com