LikeCoin 3.0 Green Paper. Part Two. Where Does the Coin Fall?

Last week’s newsletter was the debut on Paragraph.xyz.  Kindly check your spam folder, newsletters tend to get misjudged as junk mail, dropping last week’s open rate to 30%, likely due to this. If you find the newsletter in your spam folder, kindly move it back to your inbox to train Gmail or your email system, and please add the sender [email protected] to your address book.

Now, back to our discussion on the LikeCoin Green Paper, here is the third piece.


Bringing LikeCoin’s infrastructure back to Ethereum raises a series of questions that need further consideration.

  1. Should LikeCoin’s smart contracts be deployed on a single chain or multiple chains, with cross-chain bridges allowing LIKE tokens 3.0 to operate simultaneously across multiple chains while maintaining the total supply unchanged?
  2. With Ethereum hosting over 100 L2 chains, which one or ones should LikeCoin choose as the underlying layer for 3.0?
  3. How should users of LikeCoin 1.0 and 2.0 upgrade their existing LIKE tokens?
  4. What are the options for validators from LikeCoin 2.0, and how can they continue to participate?
  5. How should data on LikeCoin 2.0, such as ISCN and NFTs, be migrated to LikeCoin 3.0?
  6. How can DApps from LikeCoin 2.0 be upgraded to LikeCoin 3.0?
  7. How will LikeCoin 3.0 tokens be distributed, and will there be any limits?
  8. On which platforms will LikeCoin 3.0 tokens be traded?
  9. What governance mechanisms and tools will LikeCoin 3.0 utilize?

Given that the first two questions are more fundamental and impact decisions on other fronts, this article will prioritize addressing them, while other questions will be discussed in subsequent articles.

Single Chain vs Multi-Chain

While L2 has been developing for several years and is gradually maturing, most exchanges and OTC boutiques in Taiwan and Hong Kong have not kept up, for reasons unknown – whether it’s due to an inability to discern or understand the demand, or perhaps regulatory constraints. From what I can observe, most users either haven’t grasped the situation yet and are adopting a wait-and-see approach, or they’re still recovering from the bear market two years ago and lack interest in new developments. Therefore, when discussing whether LikeCoin 3.0 should exist on a single chain or multiple chains, let’s first briefly explain the concept of L2.

L2, or Layer 2, is the second layer network, which is Ethereum’s scaling solution. It allows general computations to be executed on L2, which are then periodically bundled (“roll up”) onto the L1 mainnet, significantly increasing L1 capacity and reducing user transaction costs. To illustrate, let’s use the example of four people – Alice, Bob, Carol and Dave – playing mahjong, with two of them from Taiwan and two from Hong Kong, for example. If Alice wins a hand, Bob, Carol and Dave all need to transfer money. This process is not only cumbersome but also costly. So, Bob comes up with a solution: he takes out pen and paper and uses four columns to represent the four individuals, with Carol responsible for keeping track. In Alice’s column, he writes +400; in Bob’s -200; in Carol’s -100 and in Dave’s -100. Dave further suggests settling every four rounds, and everyone transfers the money in the bank.

In this example, the bank account represents L1, reliable but with high transaction costs. Bob’s proposed accounting method represents L2, which lacks the credibility of a bank but is convenient and efficient. Carol, the person keeping track, is technically referred to as a sequencer, while Dave’s improvement suggestion is roll up, which ensures the security of L2 is periodically returned to L1.

The above analogy aims to provide readers who are unfamiliar with L2 with a basic understanding. However, please don’t take it too seriously, as playing mahjong and keeping accounts cannot fully encompass all L2 concepts. For example, EVM smart contracts can be deployed on multiple L2s, and users don’t necessarily have to concentrate on the same ledger but can use their preferred chain. Before minting new tokens for LikeCoin 3.0, the first decision to make is whether to use a single chain or multiple chains.

Regarding this issue, I suggest first locking in on a single L2 chain. The most obvious benefit of single-chain deployment is consolidating liquidity. Otherwise, if deployed across multiple chains, liquidity becomes dispersed, making it difficult for users to decide where to buy or sell LIKE tokens. In fact, one well-known drawback of current L2s is precisely liquidity fragmentation. In addition to trading, consolidating LikeCoin on a single chain also allows DApps, NFTs and other data to be centralized. Although multi-chain offers choices, when the scale is not large enough, it may lead to data, NFTs and content being scattered across multiple chains, thus disrupting the user experience. Moreover, by conducting a vote before deployment to choose a single L2 as the foundation for LikeCoin, we can balance democracy with efficiency.

However, the selection of the first L2 chain by the community is just the beginning. Years later, the chosen L2 may become crowded, or LikeCoin’s ecosystem may be mature enough to expand to more L2s. Therefore, LikeCoin’s smart contracts can leave room for maneuvering, so that under the premise of community consensus, LikeCoin can be deployed to another or even multiple L2s. This is also the common practice of large-scale DApps like Uniswap and AAVE, starting from L1 and then being led by the community to decide whether to deploy the protocol on more L2s. Each deployment is both an expansion and an inevitable dispersion of liquidity and user groups. It’s the most flexible and feasible approach, tailored to the needs of the community.

photo credit: public domain 亜東印画輯. Cover: CC-BY-NC-SA 王惠瑩

L2: The Better Choice?

When it comes to selecting an L2 solution to support LikeCoin, the first consideration is whether to develop our own L2. Honestly, I’ve been pondering this possibility for the past 2 years. However, as time has passed, the situation has become increasingly clear: our own L2 might lack the stablecoins like USDC, crucial support from platforms like Uniswap and Opensea, essentially losing most advantages of migrating back to Ethereum. If we were to go with our own chain, we might as well continue operating the existing LikeCoin chain. While developing and maintaining L2 is much simpler and cheaper compared to L1, it still requires a considerable effort. For instance, Gitcoin’s L2 Public Good Network (PGN) recently ceased operations due to poor response.

Stepping back, the Ethereum ecosystem offers over 100 L2 options for LikeCoin to choose from, and the number keeps growing. Evaluating each one individually is nearly impossible. A more practical approach is to identify the peripheral applications that LikeCoin needs the most, filter out L2 solutions that support these applications, and then make further decisions based on that narrowed down list.

In my estimation, the essential peripheral applications that LikeCoin 3.0 would need when moving to Ethereum L2 include:

1. USDC and USDT ERC-20: for liquidity and exchanges

2. Uniswap: for liquidity provision and trading

3. Opensea: for presenting, selling and trading NFT books and Writing NFT interfaces

4. Gnosis Safe: for multi-signature wallets

The absence of any of these applications would significantly impact the operation of LikeCoin 3.0. Therefore, if we were to choose an L2 to deploy LikeCoin smart contracts, I would opt for one that supports all of the above applications. Below, I’ve listed some L2 chains supported by USDC and several DApps, as well as other L1 chains using 0x addresses, for reference. (Note: USDT is similar to USDC, so it’s not considered separately here.)

  • USDCArbitrumAvalancheBase, Celo, EthereumOptimismPolygon PoS, zkSync
  • UniswapArbitrumAvalancheBase, Blast, BNB chain, Celo, EthereumOptimismPolygon PoS
  • OpenseaArbitrum, Arbitrum Nova, AvalancheBase, Blast, BNB chain, Ethereum, Klaytn, OptimismPolygon PoS, Zora
  • Gnosis SafeArbitrum, Aurora (Near), AvalancheBase, BNB chain, Celo, Ethereum, Gnosis Chain, OptimismPolygon PoS, Polygon zkEVM, ZkSync Era

Among the L2 or side chains that are supported by both USDC, Uniswap, Opensea,and Gnosis Safe, apart from the Ethereum mainnet and another L1 chain, Avalanche, there are 4 options:

  • Arbitrum
  • Base
  • Optimism
  • Polygon PoS

After passing through various considerations, each has its own strengths and community preferences. It should not be too wrongno matter which one the community will ultimately choose. Unless one of these chains is supported by a foundation to cover the development costs of LikeCoin 3.0, my top recommendation, based on self-funding or potentially retrospective rewards, would be Optimism (OP mainnet). This is primarily because the community atmosphere there tends to be more supportive of public goods and concerned with public interest. Over the past year, many projects and users with similar ideas have gravitated towards Optimism. Especially after the closure of PGN Public Good Network, Optimism has become almost the default choice. For example, Matters, a close ally of LikeCoin, has recently deployed USDT donation and the latest feature, Billboard, which distributes ad profits to authors, on Optimism. If LikeCoin 3.0 settles on Optimism, integration and interaction with Matters are expected to be simplified, greatly improving the current cross-chain user experience.

Next time, we’ll continue discussing other aspects.


p.s. Sometimes emotions get the best of me, like when I saw dozens of bamboo trees in the village being cut down and replaced with a red flag.


Comments

Leave a Reply

Your email address will not be published. Required fields are marked *