Hey DEFI TIMES community,
March is the month many Ethereum fans have been waiting for. It's the time Optimism's mainnet goes live! Few people have expected it to happen this quickly!
Rollups - especially optimistic rollups - are the most celebrated scaling solution on Ethereum. Even Vitalik thinks that we will soon depend so heavily on Rollups that we don't even need shards to process smart contracts. He proposed the rollup-centric roadmap!
And I believe so too! In my opinion, Rollups will help Ethereum scale - not only in the long term but also in the near future.
But not so fast. There will be hurdles to overcome, and the gas fees won't come down overnight. The launch of Optimism in March will mark the beginning of a scalable Ethereum, but it will certainly not solve all the problems right away.
Gas fees will remain high, and rollups come with their own inherent trade-offs.
So what can we expect after Optimism goes live?
Let's have a quick recap of what Optimistic rollups are in order to understand the advantages and trade-offs!
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What are Optimistic-Rollups on Ethereum?
Optimistic Rollups are a second-layer solution on Ethereum. In contrast to Plasma, rollups can natively run smart contracts. For the first time, you can execute these smart contracts in a cheap and fast way. You can build anything on rollups - at least anything you can also build on Ethereum.
It's easy to implement Optimistic rollups because you can copy the code from the main chain and take it to the second layer - there are no significant hurdles to overcome.
While rollups are fast, they are also secured by the Ethereum main chain. The transactions are published on the Ethereum blockchain in bundles (the minimum necessary information).
However, there are some trade-offs with Optimistic rollups: It takes one week to withdraw funds back to the main chain.
Nonetheless, Rollups, especially Optimistic rollups, have the potential to scale Ethereum for the masses. And...they will launch in March!
What can we expect?
Most knowledgeable people in the Ethereum ecosystem expect rollups to change the game. But can we expect them to scale overnight?
Well, yes and no! While Rollups are easy to implement, they have inherent limitations and their own trade-offs. And these trade-offs limit the user experience; however, if appropriately implemented, users will decide to use them anyway. Let's go through each trade-off quickly to get a feeling for their limitations!
Lack of Composability
Each DeFi protocol will have its own rollup first, which means that there is no single universal rollup connecting all protocols. That's why we will lose our biggest strength on Ethereum: composability.
The concept of money legos will not be transferable to the rollup-ecosystem. To ensure composability, we need to find a way to connect all the different rollups that are emerging - and this will take time!
You can imagine a rollup like a different blockchain! That's why it's hard to make cross-rollup-communication possible.
We already have a promising solution: Hop Protocol has achieved remarkable results!
However, just after the launch in March, rollups will not be composable with one another!
High depositing costs
In order to use rollups, you have to deposit your tokens at first, which means that you have to do at least one transaction on the Ethereum main chain.
This depositing transaction can be expensive - depending on the network usage. Even though your transactions on the rollup itself are almost gas-free, many users will hesitate to use rollups because of this single expensive transaction.
Many users could prefer to stay on the expensive but composable main chain instead of switching to a fast & un-composable rollup!
Long withdrawal period
Once your tokens are on the rollups, they will be there for at least a week. Why? Because the withdrawal period is exactly one week.
This is due to the nature of optimistic rollups. The withdrawal period is necessary to prevent fraud within the system. Some people could choose to stay on the ETH main chain for this reason! One week in DeFi is like one year in the real world, right?
Smart Contract risk
Optimistic rollups are new, which means that they are not battle-tested yet. They need to stand the test of time and volatility to prove themselves secure; At first, risk-averse market participants will avoid using them!
Of course, many people in DeFi don't care about security and smart contract risk. They are the pioneers making innovation possible, but they are also taking the most significant risks.
Just after the release of rollups, we could potentially see hacks, stolen funds, and overall uncertainty, as is the case with every new DeFi protocol.
What will happen after the launch?
Now that we know about the trade-offs let's get into what could happen after rollups launch. Rollups are said to scale Ethereum to the masses, and I agree with that! The only question will be: How long will it take?
The answer depends on how fast we can manage to minimize these trade-offs! Highly dedicated teams and individuals are working hard to make rollups just as user-friendly as the Ethereum main chain. But when they first launch...the trade-offs will still exist!
So I don't expect hundreds of thousands of Ethereum users to deposit their funds into rollups. To summarize, rollups have significant trade-offs:
Little composability among rollups
Smart contracts are not battle-tested, and people fear losing their funds
Long withdrawal period (one week)
High depositing costs
However, there will be a point where these trade-offs cease to exist. This will be when people decide that rollups are a better environment than the Ethereum main chain itself. That's when Ethereum will scale.
We will see a time where we won't even need to withdraw our funds from the rollup to Ethereum. We will see a time where rollups are composable with one another.
Rollups are great, but we need more time to minimize their own trade-offs. How long will it take? Well, maybe a few months, perhaps a year? We don't know.
But what we do know is that rollups are here to stay, and they will change the Ethereum ecosystem forever. There are few things I'm more excited about in the Ethereum ecosystem than rollups - not even EIP-1559. Sure, EIP-1559 will enhance the ETH user experience, but it won't necessarily lower the transaction fees - rollups will sooner or later.
All in all, rollups won't change the Ethereum landscape overnight; however, they will undoubtedly do so in the medium and long term!
Most people praise rollups like they solve every problem on Ethereum, but few people realize that they bring their own issues that need to be addressed; solving those problems should be the top priority: We have dozens of teams working on them right now!
Despite the trade-offs, I couldn't be more optimistic about optimistic rollups!
All information presented above is meant for informational purposes only and should not be treated as financial, legal, or tax advice. This article's content solely reflects the opinion of the writer, who is not a financial advisor.
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Great primer guys, thank you for this awesome overview!