Layer 2 Governance - Navigating the Next Frontier of Blockchain Scaling

L2 Governance BGIN Block #11

Key Takeaways:

• Definition of Layer 2 (L2) solutions remains ambiguous and often misused

• Sequencers play a crucial role in L2 governance and security

• Data storage and availability present unique challenges

• Fraud proofs and validity proofs offer different security trade-offs

• Centralization of sequencers raises important governance questions

Defining the Layer 2 Landscape

BGIN Block #11 tackled the complex world of Layer 2 governance, starting with a fundamental question: What exactly is L2? As one participant noted:

"L2 has become a marketing term. Many projects call themselves L2 if they provide faster transactions and lower fees than L1, often without meeting core criteria."

Core Characteristics of True L2s

Essential elements include:

1. Speed and Cost Efficiency

   • Faster transactions than L1

   • Lower fees per transaction

2. Technical Compatibility

   • Support for L1 virtual machine

   • Application compatibility

   • State management capabilities

3. Security Inheritance

   • Leverages L1 security guarantees

   • Maintains data availability

   • Provides verifiable proofs

The Sequencer Challenge

Sequencers emerged as a critical focus point:

• Responsible for transaction validation

• Submit proofs to L1

• Maintain state consistency

• Manage data availability

As one expert explained: "If sequencers fail or misbehave, the entire L2 ecosystem is at risk. We need robust governance frameworks for sequencer operation."

Proof Mechanisms

Two main approaches were discussed:

Fraud Proofs

• Users submit Merkle proofs

• Challenge period required

• Delayed finality

• Lower computational requirements

Validity Proofs

• Continuous validation through zk-proofs

• Immediate finality

• Higher computational needs

• More complex implementation

Data Storage Solutions

Key considerations:

1. Call Data Storage

   • Cost efficiency

   • L1 capacity constraints

   • EIP-4844 improvements

2. Data Availability Layers

   • Off-chain storage solutions

   • Monitoring requirements

   • Governance tokens for incentives

Risk Factors

Major risks identified:

1. Smart contract vulnerabilities

2. Sequencer centralization

3. Challenge period manipulation

4. Deposit incentive misalignment

5. Data availability issues

Governance Models

Emerging governance approaches:

• DAO-based decision making

• Stake-based voting

• Multi-stakeholder frameworks

• Hybrid models

Future Considerations

Key areas for development:

1. Decentralized sequencer networks

2. Improved proof systems

3. Enhanced data availability solutions

4. Standardized governance frameworks

5. Cross-L2 coordination

BGIN's Focus

The working group is:

• Documenting L2 governance models

• Analyzing risk factors

• Developing best practices

• Creating educational resources

• Fostering industry dialogue

Call to Action

BGIN invites L2 developers, researchers, and stakeholders to:

• Contribute to governance frameworks

• Share operational experiences

• Participate in working groups

• Help define standards

• Join the ongoing dialogue

The Path Forward

As L2 solutions continue to evolve, the need for clear governance frameworks becomes increasingly important. Your participation in BGIN can help shape these crucial standards.

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This blog post is based on discussions from BGIN Block #11, Washington DC, October 21, 2024.

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