Lao Bai, Research Partner at ABCDE, Discusses the Technological Advances of Ethereum Rollups and Solana

Author: Lao Bai, ABCDE Capital Investment Partner and Amber Group Advisor

After discussing RWA, let’s talk about some noteworthy developments on ETH and Solana.

Ethereum

What stands out on ETH is probably the Native Rollup proposed by Justin some time ago. This is an expansion of the current Based Rollup, and of course, the implementation difficulty has increased significantly.

Let’s briefly talk about Based Rollup:

This is what Puffer/Taiko is working on. Unlike traditional L2, the ordering rights are handed over to L1. The main benefits are twofold: 1) L1 can capture more value, and 2) All Based Rollups can theoretically form interoperability.

I originally had some doubts about point 2, but later, when talking to a project team working on Based Rollups, I asked the Founder and confirmed that interoperability is indeed possible. This is because, within any 12S Slot on L1, a designated validator is responsible for block production, and all Based Rollups’ ordering is managed by that chosen validator. So, these Based Rollups can indeed achieve interoperability.

However, there are two follow-up issues:

• 1) Currently, there are a few L2s occupying absolutely important positions, and I can’t think of any motivation for them to transition into Based Rollups.
• 2) If, in the future, there are dozens or even hundreds of Based Rollups, the burden on the validator responsible for block production on L1 will be much higher. Their hardware requirements will also increase significantly compared to now. Since validators are randomly elected, it means that the hardware requirements for all Candidates must also improve, otherwise, they won’t be able to handle the ordering of dozens or hundreds of L2s. This will inevitably affect the decentralization of ETH Validators.

Feel free to leave comments and discuss these doubts with me.

Now, let’s talk about Native Rollup:

Based Rollup gives the ordering rights to L1 validators, while Native Rollup gives the proof system to L1 validators. It introduces a precompiled contract to allow L1 to perceive the state transitions of Native Rollups in each block (this precompiled contract likely needs to be added in a future hard fork upgrade). The proof system initially uses Re-execution (where L1 validators execute transactions themselves) as the initial solution, and later transitions to Real-Time Proving (based on Snark proof) as the optimization solution. However, this requires a significant improvement in ZK technology (able to generate a proof of a block within a few seconds, which is currently far from achievable, and it may take at least 3 to 5 years).

There are three notable aspects of Native Rollup:

• 1) You will find that this is actually very similar to Ethereum’s original scalability solution. Isn’t this just sharding, rather than Rollup?
• 2) You will notice that ETH and Solana meet at a certain point. The two scalability projects on Solana, MagicBlock’s Ephemeral Rollup and Lollipop’s extended execution layer, are quite similar to Native Rollup in approach, both giving a sharding-like feel.
• 3) I’m not 100% sure, but I believe and hope that Native Rollup and MagicBlock’s user experience won’t require users to switch networks. That is, you can stay on ETH/Solana L1 in MetaMask/Phantom, and your assets won’t go through the process of bridging into and out of L2. Native/Ephemeral Rollups just serve as an external execution layer, completing computations and then settling automatically on L1. This way, liquidity won’t face the problem of isolated islands.

However, there’s always a sense that the ideal is full, but the reality is harsh. Setting aside the technical difficulty and implementation timeline, the existing L2’s interest fragmentation makes it hard to be optimistic. The cryptocurrency space has long surpassed the crypto-punk spirit and the tech-first mentality and has become more of a marketplace.

As for next month’s Prague upgrade, there have been many articles online analyzing it, so I won’t repeat them here. I hope that after this upgrade, 7702 will finally end the chaos of abstracting accounts and various EIPs, and present a final chain-level solution. Of course, whether users and developers accept it is Another Story.

Solana

There are two things worth mentioning recently on Solana as well.

The first is the highly-discussed SIMD-0228 proposal from some time ago.

The proposal primarily aimed to change the current inflation of Solana, adjusting it from a fixed annual decrease of 15% to a dynamically adjusted inflation rate based on the staking ratio.

In general, it had the following features:

• 1) The position of MEV income is elevated (In Q4 2024, Solana’s MEV income was 10 times that of Q1, but with the pump.fun cooling down, I’m curious what the MEV income will be in 2025.)
• 2) Dynamic adjustment of inflation, with three balance points set at 65%, 50%, and 33% staking ratios.
• 3) The new proposal is not too disadvantageous for medium and small validators.
• 4) It is clear that Solana is shifting from “overpaying for security” to “seeking the minimum necessary payment.”

The proposal ultimately failed, as it did not receive 66.7% approval votes, but it came close with 61%.

Although the proposal didn’t pass, there are two interesting things worth mentioning:

• 1) Anatoly wasn’t too discouraged; he believes “Solana’s governance needs to be fast and decisive. Rapid governance actions will be key to finding better solutions.” In other words, the failure of SIMD-0228 is a reflection of the autonomous efficiency of the Solana network. From the initiation of the proposal by Multicoin to community discussions and the final vote, the entire process took about a month, “fast approval/failure,” and then onto the next. This is crucial for Solana’s rapid evolution.
• 2) Chinese media’s interpretation of this proposal’s inflation rate was almost entirely wrong. The vast majority of Chinese media, including Chinese Twitter, interpreted the inflation part of the proposal as “reducing inflation by 80%,” meaning reducing inflation from 4.8% to about 0.8% under the current 65% staking rate. I was shocked when I first saw it and found that several sources had the same interpretation! How could this be? The validators would riot! Even if MEV income rises, the issuance income would drop by 80%, and validators would be on strike… After looking at the original proposal and the interpretations from English-speaking KOLs, it should reduce from 4.8% to around 0.8%-4%, not directly to 0.8%. It seems the first article in the Chinese-speaking world misunderstood the formula and directly interpreted it as reducing to 0.8%, which was then copied and spread across all media and KOLs.

The second point is not really news, but I only learned about it recently when a Founder of an RWA project on Solana told me about Solana Token Extension. I’m guessing many people don’t know about it, so I’m sharing it here.

Solana Token Extension: A new generation of SPL token standards, providing a chain-level token solution for Solana. It includes features such as privacy transactions (where only the amount is private, but the sender and receiver cannot hide), transfer hooks (such as requiring KYC or enforcing royalties), non-transferable tokens (similar to SBTs), interest-bearing assets, metadata, and more. There are 19 features in total, and they can be freely combined.

This is also why the RWA project chose Solana as its platform. In addition to TPS, Solana provides chain-native solutions for privacy, KYC, and other token standards, which are more flexible than ETH’s individual ERC token standards. Meanwhile, newer chains like Move-based chains can’t yet offer such rich native usability, making Solana the only choice. This also makes me much more confident in Solana. Solana can do much more than just Pumpfun and Meme. I believe that with these Token Extensions, it can create many meaningful projects.

Finally, after discussing ETH and Solana, this weekend I will write the final part of this series, which will cover my observations and thoughts on Crypto X AI in 2025.

Original link: Lao Bai’s X

Series article part 1: “ABCDE Investment Research Partner: Eastern and Western VC Market Perspectives and Some Thoughts”

Series article part 2: “ABCDE Investment Research Partner Lao Bai Talks about the Application Scenarios and Recent Trends of Real-World Assets (RWA)”