The Protocol: Ethereum Layer-2s Keep Coming as OKX Apes In

As blockchain developers head into the final stretch of 2023, a few trends stand out: the proliferation of Ethereum layer-2 networks, the ascendancy of zero-knowledge cryptography and the appearance of tokens, smart contracts and now file hosting on the Bitcoin blockchain.

Another theme gathering momentum is interoperability – the idea that all of these blockchains and layers might eventually be connected. For today's feature, Sam Kessler examines "intents," a type of blockchain interaction that's rooted in the idea that the broader ecosystem of these increasingly intertwined networks could become more challenging to navigate.Everybody's doing it – launching new layer-2 blockchains atop Ethereum to provide a venue for cheap and easy transactions. This week brought the news (thanks to this scoop from our Margaux Nijkerk) that the crypto exchange Kraken may be considering its own layer-2 network, just months after rival Coinbase launched a layer-2, Base. Details below.

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LAYER 2'S EVERYWHERE: In last week's The Protocol, we dedicated a not-inconsiderable quantity of ink to the fast-growing list of new "layer 2" blockchains aiming to provide a venue for fast and speedy transactions atop Ethereum. Grab another well, cause there's been plenty more announcements already this week. The most notable was inarguably Tuesday's disclosure by the crypto exchange OKX that it plans to build a layer 2 using Polygon's technology. Wednesday brought the news of Kinto, which has raised $5 million this year to develop a layer-2 network that's fully compliant with anti-money-laundering laws using Optimism's OP Stack, and Redstone, an "alternative data availability" chain designed by the Lattice team for OP Stack. There are nagging questions about just who is going to use all these networks, but developers suggest there's still not enough. "We're going to need a lot of L2s," Ryan Wyatt, who was just hired by a unit of the Optimism Foundation as chief growth officer after leaving Polygon Labs several months ago, told CoinDesk TV this week. "One chain, a mainnet, is not going to do it." Even Cardano founder Charles Hoskinson tried to elbow into the mix, posting Sunday on X (formerly Twitter) that "I'm game if you are" – attaching a link to CoinDesk's article last week about Kraken's discussions with prospective layer-2 technology partners including Polygon, Matter Labs and Nil Foundation – and tagging Kraken Chairman Jesse Powell. One snarky poster replied, "If this is how we reaching out, most likely not happening."

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Highlighting blockchain tech upgrades and developments.

1. Ethereum platform Infura takes step toward decentralization with Microsoft, Tencent.

2. Zircuit, a new EVM-compatible ZK rollup, is announcing its public testnet launch. According to the team: "Zircuit uses a hybrid approach that combines the latest ZK proofs with optimistic infrastructure. More efficient proof generation results in reduced fees and the development of new compression algorithms increases transaction speeds and saves users gas..

3. Rarimo, an interoperability protocol for cross-chain identity and asset management, has launched version 2.0 of its Proof-of-Humanity plug-in, a solution that enables Web3 dApps to verify its users are humans instead of bots, according to the team.

4. Agrotoken, the first global tokenization infrastructure for agricultural commodities, has announced its plans to launch on Polkadot, to enable seamless tokenization of agricultural commodities. According to the team: "Visa-backed Agrotoken is to build a Polkadot parachain that tokenizes soybeans, corn and wheat."

5. Upshot, a protocol for decentralized delivery of alpha signals, announced its Machine Intelligence Network, according to the team: "The network crowdsources financial alpha produced by disparate machine learning models. 'Alpha Miners' contribute insights to the network in the form of proprietary data, predictive model features, or predictions, then are rewarded based on how useful their alpha is (as determined by our new 'Proof of Alpha' scoring mechanism)."

See the entire Protocol Village list from this past week here.

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Regulatory, Policy, and Legal

Chart of Bitcoin average transaction fees (in U.S. dollars) shows recent spike, hitting $15.865 on Nov. 9. (BitInfoCharts.com)

Bitcoin transaction fees surged on Nov. 9 to $15.865, the highest in six months, according to BitInfoCharts, and some blockchain analysts are pointing the finger at a rise in Ordinals inscriptions activity – related to the tokens-on-Bitcoin frenzy that stirred up worries earlier this year over network congestion. Galaxy Research noted in a post on X that "over the last seven days, inscriptions-related transactions have made up 40% of total Bitcoin transaction count." CoinDesk reported that the gains came after Binance listed Ordinals’ ORDI tokens on its platform." Blockware Intelligence wrote that "the low priority-fee rate currently sits around ~69 sat/vByte but it reached as high as 250 sat/vByte last week" – contributing to a "boost to miner profits courtesy of higher transaction fees and a higher BTC price." According to analysts at Coinbase Institutional, "Ordinal trading volumes (averaging $10M daily) over the past week have been comparable to NFT trading volumes on Ethereum (averaging $16M daily)."