Rollup Investment Guide Part1

user-image
Ponyo
Research Analyst/
Xangle
Oct 05, 2023

*This article was co-authored by Xangle and Republic Crypto

Table of Contents

1. Introduction

2. The Golden Age of Rollups

2-1. Growth Drivers at the Infrastructure Level: A Look into EIP4844, ERC4337, RaaS

2-2. Notable Performance Among Rollups (feat. Optimism & Base)

3. Despite the Success of Rollups, Investment Perspectives in Rollup Governance Tokens May Differ

3-1. Bear Case Scenario: Limited Upside

3-2. Bull Case Scenario: Growth Stock Narrative

4. Conclusion

 

 

 

 

1. Introduction

Rollups are solidifying their standing amidst fierce competition within the blockchain infrastructure space. Taking into account the rapid advancements in rollup infrastructure, the growth trajectory of its ecosystem, and the emerging trend of modular stacks,very few would dispute the potential of rollups. I, too, am bullish about the future of rollups, projecting their market share to expand notably in the coming year. Yet, when we pivot to an investment perspective, the valuation of rollup tokens remains a gray area.

Venturing to assess the value of digital assets is inherently risky. The crypto market observed over the past few years defies valuation norms typically applied in traditional financial markets. There have been numerous instances of investors who, in discussing 'intrinsic value', have shorted meme coins like $DOGE, $SHIBA, and $PEPE, only to vanish without a trace. It sometimes raises the question of whether discussing token valuation even holds relevance.

Nevertheless, the motive behind this report is to offer readers diverse and objective viewpoints concerning rollup tokens. While a definitive valuation methodology and framework for digital assets remain elusive, many investors tend to equate network growth directly with the appreciation of its token's value, which isn't always the case.

The <Rollup Investment Guide> series is structured in two parts. The first delves into the future of rollups and their main growth catalysts. Using Optimism as an example, the report delves into rollup tokenomics and value capture mechanisms, painting a bull/bear case scenario for rollup governance tokens. The second report propose various tokenomics improvements that can enhance the value of l2 governance tokens.

2. The Golden Age of Rollups

2-1. Growth Drivers at the Infrastructure Level: A Look into EIP4844, ERC4337, RaaS

In recent years, the progress of rollups has been nothing short of spectacular. Since the inception of a tangible concept around rollups in 2018, R&D among great talents in the blockchain industry has led to the emergence of EVM equivalent rollups, fraud/validity-proof-based bridges, advancement in batch data compression techniques, rollup SDKs, and etc. Numerous rollup solutions, including notable ones like Optimism, zkSync, Arbitrum, and StarkNet, have emerged and are already making a mark in the blockchain market.

Source: ThirdWeb

The rollup ecosystem's growth is anticipated to accelerate from next year, largely revolving around three pivotal developments: EIP4844, ERC4337, and RaaS (Rollup-as-a-Service).

The first driver, EIP4844 (a.k.a proto-danksharding), is an upgrade proposal aimed to 1) pre-introduce the execution logic required for a smooth transition of the protocol architecture to Danksharding, and 2) introduce blob carrying transactions. The reason EIP4844 is perceived as a growth catalyst for rollups is due to the potential significant reduction in DA (L1 publication) costs when replacing the previously utilized calldata with a new data type called blobs. In specific terms, rollup’s DA costs are projected to be practically zero until blob demand reaches its target level (based on 250KB per block), which is estimated to take about 1-2 years. (Refer to the 'EIP4844 and Its Impact on Rollup Economics' report).