Vitalik Buterin’s Challenge: Stage 1 Criteria and the Future of Ethereum Layer-2

Key Takeaways

• Fraud-proof or validity-proof mechanisms, multisig governance, and upgrade delays are key elements for layer-2 networks to achieve decentralization.
• Vitalik Buterin has set strict decentralization standards for Ethereum Layer-2 solutions, pushing for more transparency and security.
• Rollups are leading the charge in meeting these tougher requirements.
• Decentralization remains the core focus of Buterin’s challenge for Layer-2 scalability.

Ethereum, one of the most established blockchains, faces scalability challenges that need solutions without compromising security. 

Layer-2 solutions are tools that help Ethereum handle more transactions faster and cheaper by processing them off the main blockchain while still using Ethereum for security.

Vitalik Buterin, co-founder of Ethereum, announced in Sept. 2024 that he will support only layer-2 networks that have reached “Stage 1” of decentralization by 2025, the core ambition of decentralized finance (DeFi).

Networks that fail to meet Vitalik’s requirements risk losing visibility and support. He emphasized that only Stage 1+ networks will receive his public acknowledgment moving forward. 

This article explores the implications of this challenge, its significance for Ethereum layer-2 solutions, and the future outcomes for networks that succeed or fail to meet these standards.

Understanding Ethereum Layer-2 Solutions

To meet Buterin’s endorsement, layer-2 solutions must minimize centralized control and follow strict governance standards. Reaching Stage 1 means implementing essential fraud-proof or validity-proof systems, with a secure council in place to address potential issues.

• Rollups (e.g., optimistic rollups and zero-knowledge rollups): Rollups process transactions off-chain and then submit summaries to the main chain, which reduces network congestion and transaction costs. Optimistic Rollups assume transactions are valid unless challenged, while zero-knowledge rollups (ZK rollups) use cryptographic proofs for immediate validation. 
• State channels: These enable users to conduct multiple off-chain transactions, with only the final state being recorded on-chain, minimizing network congestion and transaction fees.
• Sidechains: Sidechains are independent blockchains that run in parallel to the main Ethereum chain. They have their own consensus mechanisms, making them more scalable but less secure than the main chain since they do not inherit Ethereum’s security directly. Sidechains enable faster transactions and offer more flexibility.
• Plasma chains: Plasma chains are similar to sidechains but are smaller chains anchored to the main Ethereum chain. They use fraud proofs to handle disputes. Plasma chains face challenges such as the “mass exit” problem, where multiple users trying to exit simultaneously can congest the network and issues related to data availability, making it difficult to verify fraudulent activity.

All of these layer-2 solutions aim to improve scalability and security. However, they approach these goals in different ways.

Vitalik Buterin’s Challenge

According to Vitalik Buterin, to reach Stage 1, layer-2 networks must enhance decentralization, reduce reliance on centralized entities, and ensure security and transparency by achieving the following:

• Fraud-proof or validity-proof mechanism: The network must use a fraud-proof or validity-proof system to verify transaction accuracy. This method allows participants to challenge and correct incorrect transactions, which builds trust in the network.
• Multi-signature security council: The network should have a security council using a multisig, meaning at least six out of eight members must approve important decisions and intervene in case of bugs or emergencies. This prevents any single entity from having complete control.
• Upgrade delay: The network should implement a mandatory delay of at least seven days before applying any upgrade. This delay allows stakeholders time to review changes and respond if needed, ensuring community protection.

Implications for Layer-2 Networks

Vitalik Buterin’s specific standards for layer-2 networks puts significant pressure on these projects to enhance decentralization and reduce centralized control, pushing them towards better cryptographic trust and resilience.

Examples of Networks Achieving Stage 1

According to the latest analysis from L2Beat  the following networks have reached Stage 1 or Stage 2 of decentralization:

Stage 1 Networks

These solutions have partial decentralization with oversight from a Security Council, and some override mechanisms for critical scenarios, described as having “limited training wheels.”

• Arbitrum One: This layer-2 optimistic rollup reached Stage 1 by implementing fraud-proof mechanisms, a Security Council with decentralized members, and delayed upgrades to enhance security.
• Optimism (OP Mainnet): This is another layer-2 optimistic rollup. It Achieved Stage 1 after re-enabling the fault-proof system in September 2024. It uses a Security Council for oversight, ensuring no single entity has complete control.
• dYdX v3: A decentralized exchange (DEX) that uses SK rollup technology and has a nine-day upgrade delay, meeting Stage 1 requirements for security and decentralization.
• ZKsync Lite: A rollup that employs zero-knowledge proofs and requires a 21-day delay for any upgrade, meeting the Stage 1 security and user protection criteria.

Stage 2 Networks

These networks achieve complete decentralization, with no centralized entity capable of overriding transactions. They operate fully under community governance with “no training wheels.” Stage 2 offers higher security and decentralization compared to Stage 1.

• DeGate v1: This is a Layer-2 rollup-based DEX built on Ethereum. It uses roll-up technology to achieve scalability while maintaining decentralization and security. DeGate v1 achieved Stage 2 by reaching full decentralization without oversight by centralized entities. Governance is permissionless, and no council can override transactions.
• Fuel v1: A Layer-2 scalability solution on Ethereum for payments using modular rollup technology. It reached Stage 2, becoming fully decentralized with governance handled by the community through smart contracts.

The Future of Ethereum Layer-2

The outcome of Vitalik Buterin’s challenge will shape Ethereum’s Layer-2 future. Networks that reach Stage 1 will expand Ethereum’s capabilities and attract more users. 

Those that don’t may struggle with user trust and adoption. This challenge emphasizes the need for ongoing innovation to meet the blockchain’s evolving demands.

Conclusion

Ethereum, like many other networks, faces scalability challenges, which Layer-2 solutions aim to address without compromising security. Vitalik Buterin has set standards for Layer-2 networks that might be challenging for some projects. 

These standards include implementing fraud-proof or validity-proof mechanisms, establishing a multi-signature council, and incorporating upgrade delays to ensure stakeholder protection. Layer-2 networks that fail to meet these criteria risk losing community trust and adoption. 

Reaching “Stage 1” by 2025 to gain his support may add pressure but also serve as an incentive to stay aligned with the core ambitions of DeFi and the ethos of blockchain technology.

FAQs