Welcome to The Protocol
CoinDesk’s weekly wrap-up of the most significant stories in cryptocurrency technology development is here. I’m Ben Schiller, CoinDesk’s Opinion and Features editor. In this issue, we delve into:
- Can Based Rollups solve Ethereum’s scaling challenges?
- Lido’s transition to a modular framework
- Uniswap finally launches its long-anticipated Unichain
- Ethereum’s Pectra upgrade is on the horizon
Network News
BASED ROLLUPS TO THE RESCUE:
In recent years, Ethereum has embraced a layer-2 scaling strategy, which encouraged the emergence of third-party networks known as “layer-2 rollups.” This initiative aimed to alleviate congestion on the Ethereum mainnet by offloading transactions to these auxiliary networks, resulting in lower fees and improved transaction speeds for users. However, this approach has inadvertently created a highly fragmented ecosystem of layer-2 solutions. Although these networks submit data back to Ethereum, they often face challenges in direct communication with one another, making asset transfers and information sharing laborious and costly. Additionally, the reliance on centralized sequencers—company-controlled systems that manage transaction data—introduces a significant risk of failure.
In response, some Ethereum developers are advocating for a novel approach to security and interoperability known as “based rollups.” Unlike traditional rollups, based rollups delegate execution tasks—like transaction processing—back to Ethereum’s layer-1 instead of utilizing separate layer-2 networks. In this model, transactions are processed through a component called a “sequencer,” which batches multiple transactions and submits them to Ethereum for settlement. While this method enhances efficiency and generates revenue for rollup operators through transaction ordering, it also creates a single point of failure. By harnessing Ethereum’s extensive network of validators for sequencing, based rollups mitigate this vulnerability.
Rollups such as Optimism, Arbitrum, Base, zkSync, and Blast have rapidly scaled to support transaction volumes exceeding that of Ethereum itself. Currently, there are 140 active layer-2 networks, as reported by L2Beat. However, the experience of operating across these networks—especially in terms of asset and data transfer—has become cumbersome. As Ethereum continues to grow and layer-2 networks play a crucial role in its ecosystem, enhancing communication between these solutions—essentially improving “composability”—is increasingly vital. — Margaux Nijkerk Read more.
LIDO GOES MODULAR:
The team behind Lido, the premier staking service on Ethereum, has proposed a significant overhaul of the platform with the introduction of modular “vaults.” This new framework, featuring stVaults, aims to provide a customizable component that caters to institutional investors and more complex staking strategies. Currently, Lido allows users to pool their ether (ETH) and participate in staking—locking up their tokens to help secure the network in exchange for interest. Pioneering the concept of liquid staking, Lido provides users with a receipt for their deposits, known as staked ETH (stETH), which can be traded at any time. This innovation made entering and exiting staking positions as straightforward as buying and selling stETH tokens.
Lido V3’s stVaults are described as “modular smart contracts designed to meet the diverse and evolving needs of Ethereum participants,” according to a recent press release from CoinDesk. This upgrade will enable staking solutions beyond traditional liquid staking. Specifically, stVaults will assist institutional stakers in customizing their staking setups, node operators in attracting high-volume stakers, and asset managers in developing new staking use cases. As Konstantin Lomashuk, the founder of the Lido staking protocol, stated, “The beauty of customizable infrastructure is that it allows for the creation of even more intricate financial products.” — Margaux Nijkerk Read more.
UNICHAIN FINALLY LAUNCHED:
Uniswap Labs, the leading developer of the prominent decentralized exchange Uniswap, announced on February 13 that its eagerly awaited layer-2 network, Unichain, is now operational. Built on Optimism’s OP Stack, Unichain offers quicker and more cost-effective transactions compared to Ethereum’s mainnet, similar to other layer-2 solutions. Developers can now deploy applications on this network, which has been specifically optimized for decentralized finance (DeFi), positioning it as “the home for liquidity across chains,” as stated by Uniswap Labs. For Uniswap Labs, launching a layer-2 network serves a dual purpose: enhancing user experience and creating a new revenue stream through network fees. A representative from Uniswap Labs indicated that “around 20%” of the chain’s revenue would be allocated directly to the company.
Unichain has been undergoing testing since October 2024 and is classified by Uniswap Labs as a “stage-1” rollup, meaning it incorporates some elements of decentralization while retaining certain centrally-controlled safeguards in this initial phase. The network is built on the OP Stack, a modular framework that allows developers to create interoperable layer-2 chains based on Optimism’s optimistic rollup technology. Notable projects such as Coinbase’s ‘Base,’ Kraken’s ‘Ink,’ World’s ‘World chain,’ and Sony’s ‘Soneium’ have also emerged from the OP Stack framework. “We anticipate a diverse landscape of use cases, with trading being just one aspect,” Adams told CoinDesk in an interview. Collaborating with Ethereum research firm Flashbots, the Uniswap team has developed a Trusted Execution Environment (TEE) on Unichain, providing a secure area for sensitive transactions and optimizing the chain for DeFi by enabling advanced trades and achieving swifter transaction finality. — Margaux Nijkerk Read more.
PECTRA ROLLING OUT IN APRIL:
Ethereum developers have confirmed the testing schedule for Pectra, the network’s first upgrade in 11 months, targeting a potential launch in April. The Pectra upgrade will introduce a variety of enhancements, focusing particularly on wallets and validators. This upgrade comes amid increased scrutiny of Ethereum, as the community has urged the network to refocus and remain competitive. During their bi-weekly “All Core Developers” call, Ethereum’s core builders decided on February 26 to begin testing Pectra on the Holesky testnet, followed by a subsequent test on the Sepolia testnet on March 5. If these tests prove successful, developers will reconvene on March 6 to determine the official launch timeline. Tim Beiko, the protocol support lead at the Ethereum Foundation, indicated that the upgrade is expected to hit the mainnet in early April.
Pectra, a combination of two separate upgrades—Prague and Electra—will encompass eight major enhancements to the second-largest blockchain by market capitalization. Among the most eagerly anticipated features is EIP-7702, which aims to improve the user experience for crypto wallets. In recent weeks, the Ethereum community has been grappling with an identity crisis, as its native token, ether (ETH), has underperformed compared to other cryptocurrencies, while competitor networks like Solana have attracted attention and talent away from the Ethereum ecosystem—the original programmable blockchain that remains the most trafficked. In light of this controversy, much of which is directed at the Ethereum Foundation, which manages chain upgrades and is currently undergoing significant leadership changes, developers are hopeful that Pectra will stabilize the network and enhance its overall performance. — Margaux Nijkerk Read more.
Money Center
El Salvador Dispatch
Berlín, a vibrant community of 20,000 residents, is now home to El Salvador’s second Bitcoin circular economy. “Bitcoin City already exists. It’s called Berlín,” remarked one enthusiastic resident. Tom Carreras provides insights into this emerging landscape.
LinksDAO Launches on Base
Initially founded on the sale of NFTs, LinksDAO has adapted to the evolving market landscape since its inception.
Regulatory and Policy
Hester Peirce, the head of the SEC’s newly established crypto taskforce, has indicated that memecoins are likely to fall outside the purview of the regulator, signaling a shift in regulatory attitudes.
Calendar
- Feb. 19-20, 2025: ConsensusHK, Hong Kong.
- Feb. 23-24: NFT Paris
- Feb 23-March 2: ETHDenver
- March 18-19: Digital Asset Summit, London
- May 14-16: Consensus, Toronto.
- May 27-29: Bitcoin 2025, Las Vegas.
