A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

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Original title: “Solana Need L2s And Appchains?”

Original article by Yash Agarwal

Original translation: Ladyfinger, BlockBeats

Editor’s Note:

As a high-performance public blockchain platform, Solana is facing unprecedented development opportunities and challenges. In this article, Yash Agarwal takes a panoramic and in-depth look at the key issues in the Solana ecosystem – modularity, application chains, and Rollups, and how they work together to drive Solana towards a broader future.

Introduction

A month ago, Vibhu, the founder of DRiP, the top free NFT distribution application on Solana, made a statement that sparked widespread discussion:

Solana will and needs to have Layer 2 and Rollup.

He expressed this view because DRiP loses about $20,000 in value per week as SOL prices and network congestion rise. The increase in Solana network activity has brought two effects:

Pros: Enhanced liquidity, increased capital and trading volume (thanks to composability)

Disadvantages: Rising infrastructure costs, poor user experience, network congestion

However, DRiP mainly distributes millions of NFTs from artists to thousands of wallets every week through Solana as infrastructure, and does not have much demand for high composability. Solanas TVL growth and capital inflows have little impact on DRiP, which is mainly plagued by high infrastructure costs.

Vibhu noted that “composability has diminishing returns.” He also mentioned that Solana application developers have privately discussed their need for Rollups because these Rollups can increase transaction throughput, reduce block space competition, and reduce fees. In addition, they can better control the economic value generated by the business.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

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Solana has experienced multiple congestion events over the past few months, from JUP airdrops to ORE mining and meme coin trading at peak times. While some believe that Firedancer can solve these problems, the reality is that the timeline is unclear and it is currently not possible to scale more than 10x. Despite this, Solana is the only one of all the battle-tested major chains to remain a monolithic chain.

Should Solana remain a monolithic chain or become modular?

Will Solana also evolve into sharded Layer 2 and Layer 3 solutions like Ethereum?

What is the current situation of Solana’s application chain and Rollup?

To answer these questions and put together a summary, this article will explore various possibilities and discuss the pros and cons of each project. This article will not go into technical details, but will discuss various expansion methods from a market-oriented and practical application perspective to provide an overview. All insights, no nonsense, just a lot of exclusive information.

In short, we will discuss the following questions:

Solana and the problem of network congestion

Making Solana modular

Solana Application Chain — with examples

Solana Layer 2 and Rollup — with examples

Infrastructure to support Rollup and application chains

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Solana’s Problems and the Need for Modularity

First, let’s discuss the current problem: Due to the airdrop and the surge in memecoin transactions, the Solana network has been very congested recently (most of which has now been resolved), resulting in high ping times, high transaction failure rates, and increased network fees. Despite this, Solana has been able to maintain a transaction processing rate of 1-2 thousand transactions per second, which is more than the sum of all EVM chains. It can be said that this is a good problem for blockchains, and it also tests Solana’s monolithic chain theory.

The Solana Foundation recently published a blog post urging projects to take immediate actions to improve network performance, including:

· Implement priority fees: It is crucial to avoid delayed or lost transactions.

Make optimal use of the programs compute units (CUs): use only necessary resources.

Implementing stake-weighted Quality of Service (QoS): Allowing applications to prioritize users’ transactions.

However, these measures can only improve transaction completion rates to a certain extent and cannot guarantee a smooth trading experience. One solution to this problem is the much-anticipated New Transaction Scheduler, which is scheduled to be introduced in version 1.18 at the end of April. The new scheduler will exist alongside the current scheduler, but will not be enabled by default, allowing validators to monitor the performance of the new scheduler and easily switch back to the old scheduler if problems arise. The new scheduler is designed to fill blocks more efficiently and affordably, improving the inefficiencies of the old scheduler.

Read this article to learn more about the new scheduler .

Anza, a forked entity of Solana Labs, has been working to resolve network congestion issues identified as being related to the QUIC implementation and the behavior of Agave (Solana Labs)’s validator client in handling the large volume of requests.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

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Although modularity advocates strongly advocate Solana’s “Modularity Roadmap”, Solana Labs/Anza, the core maintainer of the Solana protocol, is still focused on optimizing throughput and latency issues at the base layer. Potential improvements include:

Improved the fee market and increased the base fee (currently set to 5000 Lamports or 0.000005 SOL).

Implement exponential growth of account write lock fees, i.e. gradually increasing fees to curb spam.

· Optimize CU budget requests through penalty mechanism.

Improve the overall network architecture.

Even if these vertical scaling, single-chain, improvements work, we can’t rule out the possibility that Solana will adopt horizontal scaling, Rollup. The reality is that Solana can combine both features — it can serve as an excellent Rollup base layer, with ultra-low latency block times (~400ms) and significant Rollup performance improvements, such as fast sequencer soft confirmations. On top of that, Solana has a history of implementing changes quickly, which may make it more efficient as a Rollup base layer than Ethereum.

Update: Anza has pushed out some patches that have helped alleviate ongoing network congestion issues, and will be making further enhancements in v1.18.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Making Solana modular

Solanas modular development plan has already begun. As shown in the Anza DevRel post , Solana validators and SVM (the execution environment that handles transactions and smart contracts/programs) are tightly coupled and maintained by Anza. However, the validator client and SVM runtime will be separated in the coming months. This separation will help create the Solana Application Chain.

For Rollup, optimizing Solana’s data availability (DA) or blob layer may come at a later stage.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Source: Anza DevRel

Anza engineer Joe C also revealed plans to modularize SVM, where the transaction processing pipeline will be separated from the validator and placed into the SVM. This will enable developers to run the SVM implementation independently of any validator.

The standalone SVM will be a collection of completely independent modules. Any SVM implementation can drive these modules through well-defined interfaces, further reducing the barrier to SVM-compatible projects and significantly reducing the overhead required to build custom solutions. Teams can implement only the modules they are interested in while leveraging established implementations, such as those from Agave or Firedancer.

In short, Solana will become more plug-and-play, making Solana application chains and Rollups easier to implement.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

In general, this can go in two directions: Layer2 (or Rollup) and application chain. We will introduce them one by one below.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Solana Application Chain

Also known as SVM forks, these are essentially forks of the Solana chain designed specifically for specific applications. Pyth was the first Solana AppChain, but the concept really gained traction when Maker founder Rune proposed developing a Maker AppChain based on the Solana (SVM) codebase for governance. Rune chose SVM because of its strong developer community and technical advantages over other VMs, aiming to fork the most performant chain to better meet consumer needs. Although it has not yet been implemented, the move has sparked widespread discussion about the Solana AppChain.

Generally speaking, they can be divided into two categories:

Permissionless — Anyone can join the network, similar to the current Solana mainnet.

Permissioned — Solana Permissioned Environments (SPEs) , packaged by the Solana Foundation for institutions, allow entities to build and maintain their own chain instances, powered by the SVM.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Pyth — OG Solana Application Chain:

Pyth once accounted for 10-20% of all transactions on the Solana mainnet. However, it did not require any composability, so they simply forked Solanas codebase. This allowed them to take advantage of Solanas fast 400 millisecond block time for high-frequency price updates. Pythnet is the first network to adopt SVM as its application chain.

The Pythnet application chain is an authority proof-of-authority fork of the Solana mainnet, serving as a computing base layer for processing and aggregating data provided by the Pyth data publishing network.

Why did Python migrate?

It does not require high composability, especially for non-Solana applications, and is therefore immune to mainnet congestion.

It requires a permissioned environment to publish data.

Reduce infrastructure costs by internalizing fees that would previously leak onto the base layer, Solana.

Cube Exchange is another example, a hybrid CEX deployed as a sovereign SVM application chain with a fully offline order book and settlement on its SVM application chain.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Solana Lisk Example

Perp DEXs: Perp DEXs like Hyperliquid can run as independent Layer 1 networks. In addition, for trading use cases, it is possible to customize the number of transactions per block, or implement conditional logic, such as integrating the execution of stop-loss orders directly into Layer 1, ensuring that it is enforced as a state transition, or introducing application-specific atomic logic.

AI and DePin: These can have a controlled list of service providers, like Pyth. For example, Akash operates as a computing marketplace through the Cosmos application chain.

Governance application chains: Sovereign governance application chains can be very attractive, as evidenced by MakerDAO’s interest in the SVM application chain . Crypto governance is still evolving, and having dedicated chain forks can be a useful coordination mechanism .

Future enterprise application chains: Potential applications include funds, such as BlackRock, or payment systems, such as Visa or CBDC.

· Game Application Chain: A casino game project running on Solana is considering its application chain.

· Forking Solana for modifications: Similar to the optimized EVM (parallelization) provided by Monad or Sei, someone could build a more optimized version of Solana. This trend may become more common in the coming years as the Solana mainnet begins to explore new design architectures.

Envisioning the Solana Application Chain Stack

While building an application chain may be relatively simple, ensuring connectivity between all application chains is critical for interoperability. Drawing inspiration from Avalanche subnets , which connect via native Avalanche Warp Messaging, and Cosmos application chains, which connect via IBC, Solana can also create a local messaging framework to connect these application chains.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

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A middleware platform similar to Cosmos-SDK can be built to provide a one-stop service to create application chains with built-in support for oracles such as Pyth or Switchboard, remote procedure calls, RPCs such as Helius, and messaging connections such as Wormhole.

Polygons AggLayer provides an innovative solution that allows developers to link different Layer 1 or Layer 2 into the AggLayer to achieve cross-chain ZK proof aggregation.

What is the positive impact of application chains on the Solana ecosystem?

Lisks do not pay fees in SOL or use SOL as a transaction fee token, so they do not contribute value to SOL directly, except for SOL re-staking for economic security purposes, but their benefits to the SVM ecosystem are obvious. Just like the network effect of the EVM, more SVM forks and Lisks will strengthen the network effect of the SVM. This logic also applies even if Eclipse, as a Layer 2 extension of the SVM on Ethereum, competes with the Solana mainnet.

Solana Layer 2

Solana Layer 2, or Rollup, is a logically independent chain that publishes data to the Data Availability (DA) layer of its main chain and reuses the main chains consensus mechanism. They can also use other DA layers such as Celestia, but this is no longer a true rollup. The term RollApp is usually used for application-specific Rollups (which most Solana applications are exploring).

Will Solana’s Rollup be like Ethereum?

Obviously not. For Solana, Rollup will be mostly abstracted from end users. Ideologically, Ethereums Rollup was top-down, i.e. the Ethereum Foundation and leaders decided that the best way to scale was through Rollup, and then started supporting various Layer 2s after the CryptoKitties incident. In Solana, demand is bottom-up, i.e. from application developers with significant user adoption. Therefore, most of the current roll-up plays are marketing plays, which are more narrative-driven than user demand-driven. This is a significant difference that may lead to a different Rollup future than Ethereum.

Is compression equivalent to Rollup?

Layer 2 scales the base layer blockchain (Layer 1) by executing transactions on Layer 2, batching transaction data, and compressing them. The compressed data is then sent to Layer 1 and used for fraud proofs (optimistic rollup) or validity proofs (zk rollup). This proof process is called settlement. Similarly, compression offloads transactions from the mainnet, reducing contention for the base layer state. It is worth noting that Grass Layer 2 will utilize state compression for its rollup.

Rollup landscape on Solana:

There are currently two Rollapps-like projects running:

GetCode

It is a payment app with a micropayment SDK that allows anyone to instantly make and accept payments and uses a rollup-like structure for their app. It creates intents for all transactions and uses a rollup-like sequencer to settle on Solana every N intervals.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Using a rollup-like structure, we can achieve:

Flexibility: Intents can represent a variety of future activities, not just payment transactions. Additionally, Solana as a chain can be replaced if necessary.

Instant and Private: Due to the soft finality of the sorter, payments are instant even during Solana congestion . While transactions are visible on-chain, the exact amounts and intentions remain obscure, ensuring user privacy.

MagicBlocks’ Short-Term Rollup

MagicBlocks is a web3 gaming infrastructure that has developed Ephermal Rollup, specifically for gaming. It uses the account structure of SVM to split the game state into clusters. The state is then temporarily transferred to an auxiliary layer or ephermal rollup, a configurable dedicated layer. The ephemeral rollup runs as a dedicated SVM runtime or rollup to process transactions at a higher throughput.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Using a rollup-like structure, we can achieve:

Customization of specialized runtimes, including gas-free transactions, faster block times, and integrated timing mechanisms, e.g., integrated transaction scheduling systems like Clockwork that run without fees.

Developers can deploy programs to the base layer, such as Solana, rather than on a separate chain or rollup. Short-lived Rollups do not fragment the existing ecosystem, allowing for the acceleration of targeted operations without creating isolated environments. This means that all existing Solana infrastructure can be leveraged.

This approach helps create a highly scalable system that is able to initiate rollups on demand and automatically scale horizontally to accommodate users performing millions of transactions, without the typical trade-offs of traditional Layer 2. While MagicBlock focuses on gaming, this approach can also be applied to other areas such as payments.

Solana Rollup coming soon:

Grass : Grass is a DePIN project that focuses on solving the data needs of artificial intelligence through verification and crawling technology. The project crawls AI training data through Grass nodes on the network, and stores this data on the blockchain by validators, while accurately recording the source of the data and the nodes that perform the crawling, and giving rewards accordingly.

Given that Grass needs to handle up to 1 million network requests per second, this is unrealistic for the Solana mainnet. Therefore, the project plans to use zero-knowledge proof technology to verify the data set and settle in batches on Solanas Layer 1.

The Grass team is also considering introducing state compression technology from other clusters and anchoring data on the beta version of the Solana mainnet. This innovation will make Grass a foundational platform that supports a wide range of applications that can only be built on it.

*Note that projects building platforms and infrastructure usually have higher market valuations. Grass is also about to launch its token.

Zeta : One of the earliest perpetual contract exchanges on Solana, it has a fully on-chain perpetual order book and is currently planning to migrate its trade matching process off-chain using Solana’s Rollup technology.

Perpetual contract exchanges have obvious advantages in using Rollup technology because it greatly improves the user trading experience. You can ask users who have traded with perpetual contract exchanges on platforms such as Hyperliquid or Aevo with Solana, which requires users to sign each transaction, the wallet pops up, and waits for about 10 to 20 seconds. In addition, perpetual contract transactions do not need to be executed synchronously and can be highly integrated with other parts of the DeFi ecosystem, especially in terms of transaction matching.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Interestingly, Armani, the co-founder of Backpack also tweeted that they are now focusing on Layer 2 solutions.

A panoramic discussion on the development of Solana ecosystem: What is the impact of L2 and application chain?

Sonic is developing a modular SVM chain called Hypergrid , which allows game developers to deploy their own chains on the Solana platform. At the same time, there are Ethereum Rollup projects based on SVM technology, such as Eclipse and NitroVM , which use SVM as their execution engine. In the Solana ecosystem, Neon is a Layer 2 solution compatible with EVM. In addition, some innovative projects such as Molecule , an SVM Layer 2 for Bitcoin, are still in the early conceptual stage.

Sovereign SDK provides a node.js-like framework specifically for building Rollups. Users can submit their Rust code, and the platform is able to convert it into Optimistic Rollup or ZK Rollup that supports deployment on any blockchain. These Rust codes can be customized application logic or the implementation of any virtual machine.

Some arguments about Rollup

Rollup = consistency with SOL

“ETH-Aligned”, Ethereum consistency, or “ETH Bag Biases”, Ethereum bag bias, has become a popular Internet meme.

Why are Layer 2 and Restaking/EigenLayer the hottest topics?

This is because they increase the “monetaryness” of ETH, which is used as a core asset everywhere.

The same principle applies to Solana. The Solana community will support any solution that increases their SOL holdings – its that simple. As the Solana ecosystem expands, the once-overlooked monetary nature of SOL will become important. Remember, most Rollups are marketing tricks anyway, and since the market still values infrastructure more than applications, they provide better token value accumulation.

Rollups will feel like an extension of Solana

In addition to the security benefits, which are inherited from the base layer, easy access to Solana users and assets will be a significant advantage. As Jon Charbonneau pointed out, Ethereum Rollups like Base, Optimism, and Arbitrum feel more like extensions of Ethereum. Users keep the same wallets and addresses, the native gas token is a single standard version of ETH, ETH dominates DeFi, all trading pairs are ETH, social applications price NFTs in ETH and pay creators, for example, friend.tech, and deposits to Layer 2 are instant, etc.

The same will happen on Solana. Learning from Ethereum, most Solana Rollapps will not make users feel like they are using a separate chain, e.g., Getcode.

Solana will see more “RollApps” instead of “Rollups”

Solana does not have scaling issues like Ethereum, where the mainnet has become difficult to use due to high gas fees, it is highly optimized. However, some applications that require dedicated block space will create their Rollups. Although a general-purpose Rollup on Solana does not make sense to me, it does make sense for the project economically. For example, Base users generated $2 million in revenue for Coinbase in just one day! The incentives for builders are heavily tilted towards Layer 2. However, as observed, every EVM Rollup seems to be a normal Rollup, and many projects like Linea, Scroll, or zkSync have become ghost chains with only farmers doing a few transactions for token airdrops.

Additionally, I feel like a generalized Layer 2 on Solana could lead to the same old problems as Ethereum, namely centralized Rollups, congestion, and liquidity fragmentation.

Why do some applications want to migrate to Rollapps/AppChains?

Each application will initially launch on the Solana mainnet because hosting more applications on shared infrastructure significantly reduces complexity for developers and users. However, as these applications grow, they may seek to:

Value capture. Internalizing value on a shared Solana layer that is not designed for just one application is more challenging. MEV capture could be another lucrative option for DEXs.

Dedicated block space.

Customizability in use cases. For example, in terms of privacy, Getcode uses a sequencer to provide private payments to its users, market fee experiments, encrypted memory pools that minimize MEV, and customized order books.

However, not all applications will want to launch their own Rollup, especially those that have not reached a certain escape velocity, e.g., sufficient TVL, users, transaction volume. Launching your own chain today involves painful and unnecessary trade-offs, complexity, cost, worse user experience, liquidity fragmentation, etc. Most applications, especially those in the early stages, cannot justify these trade-offs for incremental gains. Solana remains the heart and soul of SVM development, so many new applications may be deployed.

For App Builders

Solana Mainnet or Lisk or Rollup depends entirely on the situation. If there is no strong need for composability with other applications, it makes perfect sense to put some different components off-chain, either Lisk or Rollup. Users don’t even need to know they are using a Rollup or Lisk. Grass, Zeta, and Getcode all abstract away any Rollup-type infrastructure they use for their users.

For use cases that require authorization and customization, Token Extension can also meet most requirements, such as KYC or transfer logic, while maintaining composability.

Infrastructure to promote Rollup and application chains

If the Rollapp/Application Chain theory is expanded, existing infrastructure providers will be able to benefit greatly because they will enter new markets:

Existing Rollup as a Service (RaaS) providers, such as Caldera , can easily enter the SVM market as demand arises. SVM Ethereum Rollups like Eclipse and NitroVM are also closely watching this opportunity. In addition, Sovereign Labs offers a Sovereign SDK Solana Adapter that is able to support Rollups on Solana (not yet production ready). Helius is another company that is well suited to build infrastructure for Solana Layer 2, as Mert has hinted at multiple times .

Shared sequencers like Rome Protocol and the need for light clients like Tinydancer . Shared sequencers can be interesting for Rollups because they enable activities like atomic arbitrage, MEV, and seamless bridging, reducing the fragmentation of liquidity.

Wallets like Phantom , Backpack , and Solflare . Multi-signature and smart contract wallet infrastructure like Squads . Squads has been positioned as the ultimate smart contract wallet infrastructure layer for Solana and SVM.

· Re-staking SOL: Modularity theory also promotes re-staking, as these Rollups/appchains may need SOL to share security and be more consistent with Solana. This will bring early participants such as Cambrian , Picaso and Solayer , Jito through Stakenet and LST like Sanctum and validators to increase their income.

Finally, can Solana cope with global demand?

Of course not. Realistically, even given Moore’s Law, even if hardware continues to improve in performance, and Solana is optimized for this hardware progress, this is impractical. I believe that all less critical transactions, such as DRiP sending NFTs, will eventually move to their own chain, while the most valuable transactions will stay on the main chain where true composability is critical, such as spot DEXs.

This doesn’t mean Solana has lost the battle between monolith and composability; it will manage better than other chains in situations where it relies on composability and low latency. And Sui, Aptos, Sei, Monad, etc. are no better because we don’t yet know if they can withstand the test of high real user activity.

Unlike Ethereum, the Solana mainnet is not intended to be a “B2B chain”; it has always been and always will be a consumer chain. Building distributed systems at scale is extremely challenging, and Solana has the best potential to become the shared ledger for the world’s most valuable transactions.

Solana Needs a Soulmate: Are Lisks and Rollups the Perfect Match?

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