Aug 22, 2024
TL;DR
The Arithmic whitepaper introduces a decentralized Proof-of-Stake L2 with native (re)staking, sustainable yield generation, and multichain staking pools.
Arithmic aims to fix issues in the L2 ecosystem by decentralizing operations, providing stable incentives, and enhancing interoperability.
Explore the whitepaper to see how Arithmic offers innovative solutions to current L2 problems, ensuring better alignment between L1s, L2s, infrastructure providers, and stakers.
Layer 2s (L2) are broken. They have been essential in addressing scalability and efficiency challenges prevalent in Ethereum, increasing its throughput 23 times. However, most L2s are centralized, opposing the space’s ethos and having significant issues with how incentives align with ecosystem participation.
In this article, we briefly summarize our new whitepaper, “Universal L2 enabling Native (Re)staking”, and show how Arithmic fixes the broken L2 ecosystem through a novel approach to decentralized computation, yield generation, and incentive alignment.
The Problem with Existing L2s
Layer 2 networks are designed to alleviate congestion and high transaction costs. They have undoubtedly solved this challenge, with numerous L2s, such as Base, Arbitrum, and zkSync, having transaction costs under $0.1.
However, the existing L2 landscape is riddled with issues:
Centralization: Most L2s rely on centralized operations, where a single organization controls validators and sequencers. Examples include Arbitrum, Optimism, Base, zkSync, and others.
Unstable Yield Mechanisms: Many L2s use token airdrops to attract users, leading to short-term engagement and volatility in token values. This method often results in users quickly selling off tokens, destabilizing the network.
No native yield: L2 networks rely on the external Ethereum network for yield. Without a flywheel of incentives, infrastructure providers won’t secure and decentralize the network. This means that as users and activity increase on the L2, there’s no corresponding incentive increase for operators, leading to centralization and reduced network security over time.
Given the persistent nature of L2s, introducing another one might seem redundant. Arithmic, however, is not just another L2. We address the core issues plaguing L2s that allow us to facilitate scaling in a never-before-seen way.
Arithmic’s Solution: A New Paradigm in Layer-2 Technology
The Arithmic Network introduces a decentralized Proof-of-Stake (PoS) L2 with native (re)staking. Arithmic has its own Virtual Machine (VM) that performs computations proved on Ethereum using a combination of validity and fraud-proof mechanisms. The ZK-proofs of these computations are posted as blob-transactions on Ethereum’s L1. This setup, akin to optimistic roll-ups but with additional validity proofs, incentivizes validators through a yield-based mechanism to check proofs of computation, ensuring only malicious proofs trigger a designated validator on Ethereum. Arithmic also employs a lookup-based VM using SNARKs for proof verification, offering faster execution than older paradigms like Plonky2, RISC-Zero, and Cairo.
The VM’s unique design is designed to generate quick proofs using fewer resources and, hence, gas price effectiveness, making it an improved environment for decentralized applications. The network is built around several key other innovations that collectively address the shortcomings of existing L2 solutions:
1. Decentralized Network Operations
Arithmic champions decentralization by involving various infrastructure providers such as sequencers, provers, and validators in new ways. Unlike traditional L2s that rely on a single entity, Arithmic’s model distributes these roles across a broad spectrum of participants.
This minimizes the risk of central points of failure and enhances network security. Validators are incentivized through a well-structured slashing mechanism, which ensures they act in the network’s best interest and maintain its integrity. Incentives are aligned through external and internal yield that come from staking pools. A marketplace is opened to ensure that stakers and infrastructure providers can exchange resources to strengthen the network.
2. Sustainable Yield Generation
A significant innovation in Arithmic is its yield generation mechanism. Instead of relying only on unstable and often speculative token airdrops, Arithmic generates yield through consensus operations.
This provides a stable and long-term incentive for participants. Stakers provide validation and consensus to the underlying network in return for yield. Arithmic secures other chains and ensures that rewards are more predictable and sustainable, attracting long-term participants and stabilizing the network’s economy.
3. Multichain Staking Pools
The multichain staking pools are a standout feature that allows users to deposit multiple L1 and L2 tokens, enhancing their crypto-economic security while securing Arithmic. Staking assets from various blockchains earns users yield in Arithmic’s native tokens. As Eigenlayer lets ETH be restaked to secure protocols, Arithmic lets L1 and L2 tokens be staked to secure the Arithmic L2 ecosystem and restaked to secure other L2s.
This supports a fluid and integrated staking ecosystem, making it easier for users to participate in activities across different networks. The result is a more flexible and interconnected blockchain environment, driving greater adoption and utility.
Read the Arithmic Whitepaper!
The Arithmic whitepaper demonstrates how Arithmic is more than ”just another L2”; it is the necessary step forward for ecosystem alignment between L1s, L2s, infrastructure providers, and stakers. By addressing the centralization issues, offering sustainable yield generation, and enhancing interoperability through multichain staking pools, Arithmic provides robust and innovative solutions to the pressing challenges faced in the existing L2 ecosystem.
Read the full whitepaper here or join our Discord to discover how Arithmic is set to change the L2 landscape with native staking.
Links:
X handle: https://x.com/ArithmicNetwork