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ARB vs. OP vs. ZK: Which L2 Token Will Perform Best?

Lincoln Murr

Summary: The Layer 2 landscape has fulfilled its role of bringing faster, cheaper transactions to Ethereum while retaining similar security guarantees. Over the past year, it has grown into an entire industry, with dozens of L2s vying for user liquidity and developer activity. Let’s break down the three biggest L2 ecosystems – zkSync, Arbitrum, and Optimism ...

The Layer 2 landscape has fulfilled its role of bringing faster, cheaper transactions to Ethereum while retaining similar security guarantees. Over the past year, it has grown into an entire industry, with dozens of L2s vying for user liquidity and developer activity. Let’s break down the three biggest L2 ecosystems – zkSync, Arbitrum, and Optimism – to determine which of their tokens will perform best.

Though Ethereum initially favored a sharding approach to scaling, where there would be several smaller chain instances at the L1 level, it ultimately chose the rollup-centric roadmap, favoring the autonomy and independence of third-party developer teams who could create unique execution environments that settle transactions to the L1. The biggest tradeoff of this model is the fractionalization of liquidity and poor user experience when going between L2s – each L2 has to bootstrap liquidity on its network and effectively rebuild what Ethereum already has.

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So far, we’ve seen a power law effect with L2s, where the biggest L2s share most of the market share. The top three L2s are Arbitrum, Base, and Optimism. For the purpose of this analysis, we are analyzing zkSync, the eigth-largest rollup, since it has an upcoming token launch at an estimated $10 billion fully diluted valuation. Each L2 has a vision expanding beyond their rollup and hopes to bring together an ecosystem of various chains and layers using their technology. Each L2’s token is used for governance, but may be one day included for revenue sharing from a portion of the transaction fees, which is the primary driver of price speculation.

At a $3 billion valuation, ARB is the biggest L2 token by market cap and total value locked with $3 billion and 32% market share of the L2 space. It is the governance token for the Arbitrum DAO, which has been criticized for its slow-moving nature and lack of real progress beyond distributing tokens to Arbitrum-based projects. Arbitrum is creating Arbitrum Orbit, an interconnected web of L2s and L3s built using interoperable Arbitrum technology. The L3s settle down to the Arbitrum L2, bringing more value to the chain. There has yet to be any significant L3 built-in Orbit, though the L3 landscape is in its infancy. One of their most innovative offerings, Stylus, allows developers to program in Rust on EVM-compatible chains, greatly expanding the number of developers who could build on Arbitrum products. 

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Optimism’s OP token has a similar valuation but only 9% market share on its main L2. However, its vision for an interconnected group of rollups known as the Optimism Superchain has seen significant adoption, with Coinbase’s Base rollup adding an additional 17% market share to OP’s influence. The Superchain is similar to Arbitrum Orbit, albeit with a more cohesive vision and constitutional governance by the OP token. Several prominent chains have been building on the OP stack, including NFT hub Zora, DeFi hub Mode, gaming chain Redstone, and others.

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zkSync’s vision for a hub of chains using its technology is significantly behind the other two because of its first-mover advantage. The highly-anticipated ZK token is expected to be released sometime before the end of June, with a significant allocation dedicated to the community. At an estimated $10 billion fully diluted valuation, which is in line with the other two tokens, there is plenty of capital to incentivize developers to make zkSync their tech stack and build Hyperchains. zkSync is the only one of these three rollups to emphasize zero-knowledge technology, which is seen as more secure and future-proof than the optimistic rollup approach. 

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With the power law in full effect for the L2 industry, adoption and liquidity become the most important factors in ensuring a valuable ecosystem and token price. ARB, OP, and ZK are all poised to compete for this top spot. Arbitrum is the current largest, Optimism has the best multi-rollup coalition, and zkSync has the best tech, so it’s still anyone’s game.

By Lincoln Murr

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