Ethereum's $32M Boost: L2s, ZKPs, and Global Education!

The Ethereum Foundation is understandably doubling down on its commitment to securing a long-term, scalable, sustainable, and secure future for the Ethereum network. By Q1 2025, a significant investment of $32.65 million will support 32 diverse projects in seven core areas. All in all, this move solidifies their strong commitment to scalability, privacy, developer adoption and community growth. This investment isn't just about throwing money at problems. It's a strategic move to bolster the Ethereum ecosystem and ensure its continued relevance in the ever-evolving world of Web3. This article looks at what change this funding has brought to Ethereum. It prioritizes development of Layer 2 solutions, zero-knowledge proofs, and the global community.

The Growing Discussion on Layer 2 Revenue

Layer 2 (L2) scaling solutions like Optimism’s Bedrock upgrade are intended to help make transactions on the Ethereum network faster and cheaper. Their deepening control over the consensus layer of the network has led to a broader conversation about revenue, equity and redistribution within the Ethereum ecosystem. More recently, critics of L2s complain that they’re getting more “extractive”. They argue that these systems are retaining an unsustainable 99% of transaction fees, all the while relying on Ethereum’s security and infrastructure.

Overview of Layer 2 Solutions

Layer 2 solutions operate on top of the Ethereum mainnet (Layer 1), handling transactions off-chain before settling them on the main chain. This alleviates congestion on the Ethereum mainnet, making transactions quicker and more cost effective for all mainnet users. The two primary types of L2 solutions, optimistic rollups and ZK-rollups (zero-knowledge rollups), are fundamentally different. In simplest terms, optimistic rollups operate under the assumption that transactions are valid until proven invalid, whereas ZK-rollups use cryptographic proofs to validate transactions off-chain.

Current Revenue Trends in Layer 2

From the beginning, the heart of that debate has been over the allocation of fees paid to Ethereum, between L2s and the Ethereum mainnet. Financial statements from the top L2s paint an entirely different picture. Take Base, one of the most popular L2 solutions, which typically retains just 90-92% of the total fees it generates. Currently, only 8-10% of those fees return to Ethereum to cover the cost of settling. Recently, worries have been expressed regarding L2s. A lot of them feel like they aren’t doing enough to secure and maintain the mainnet, which is what they run their businesses on. The community is hard at work searching for other solutions to fix the growing revenue imbalance. They’re exploring “base rollups,” where transaction ordering would happen on mainnet rather than on L2s. Released in May 2024, Taiko Alethia is the front-runner of the based-rollups movement, having $148.3 million in total value secured.

Ethereum's Strategic Investment

So far, the Ethereum Foundation has invested $32.65 million to address some of these central challenges. Together, this multi-pronged approach is designed to keep growing the Ethereum ecosystem. By making opportunistic grants across technical, community, and educational domains, the Foundation hopes to increase Ethereum’s technical potential while simultaneously connecting more people to Ethereum.

Details of the $32M Investment

The funding was distributed across seven domains: Community and education, Protocol growth & support, Consensus layer, Developer experience & tooling, Cryptography & zero knowledge proofs, Layer 2 and General growth & support.

Community and Education: This received the largest portion of the funding, supporting global events like ETHPrague and ETHiopia. These events are crucial for fostering community engagement, knowledge sharing, and onboarding new developers and users to the Ethereum ecosystem.
Cryptography & Zero-Knowledge Proofs (ZKPs): ZKPs research received the second-largest share of funding, with 16 projects selected. ZKPs are a vital technology for enhancing privacy and scalability on Ethereum.
Layer 2: Addressed for fee distribution and revenue imbalances.
Protocol Growth & Support: This supports core development and maintenance of the Ethereum protocol.
Consensus Layer: Focuses on improving the security and efficiency of Ethereum's proof-of-stake consensus mechanism.
Developer Experience & Tooling: Aims to make it easier for developers to build and deploy applications on Ethereum.
General Growth & Support: Provides funding for various initiatives that contribute to the overall health and growth of the Ethereum ecosystem.

Potential Impacts on the Ethereum Ecosystem

Governments should look to this investment to see how it is possible to have a serious impact on growing the Ethereum ecosystem. The Ethereum Foundation even more supports community events and educational initiatives. This ecosystem-first approach is a great way to attract developers and ultimately more users to the platform. Ethereum’s concentration on ZKPs will spur the creation of privacy-enhancing technologies, making Ethereum much more attractive to users who prioritize privacy and confidentiality. Further improvements to the protocol, consensus layer, and developer tools will only continue to accelerate the network’s performance. This will further improve usability tremendously for all users. The based-rollup movement is picking up steam, pioneered by work produced by Taiko Alethia. This has the potential to change the revenue relationship under L2s with the mainnet, driving a more sustainable and fair ecosystem.

Advantages and Disadvantages of Layer 2

While layer 2 solutions do bring numerous benefits, they equally present their own challenges and risks. To know these strengths and weaknesses is paramount for users and developers alike when traversing the Ethereum landscape.

Benefits of Layer 2 Solutions

Increased Scalability: L2s significantly increase the number of transactions that can be processed per second on the Ethereum network.
Lower Transaction Fees: By processing transactions off-chain, L2s can drastically reduce transaction fees compared to the mainnet.
Improved User Experience: Faster transaction speeds and lower fees contribute to a smoother and more user-friendly experience.
Innovation: L2s enable the development of new and innovative applications that would be impractical or impossible on the mainnet due to scalability limitations.

Challenges and Risks Associated with Layer 2

Centralization Concerns: Some L2 solutions are more centralized than the Ethereum mainnet, raising concerns about censorship resistance and security.
Security Risks: While L2s benefit from Ethereum's security, they also introduce new attack vectors and vulnerabilities.
Complexity: L2s add complexity to the Ethereum ecosystem, making it more challenging for users and developers to understand and navigate.
Revenue Imbalances: As previously discussed, the current revenue distribution model between L2s and the mainnet raises concerns about fairness and sustainability.

The Future of Layer 2 in the Ethereum Network

They are likely to collectively play an increasingly important role in the Ethereum network. As Ethereum grows and matures, L2s will become increasingly important in scaling the network and paving the way for mass adoption.

Predictions for Layer 2 Adoption

We can expect L2 adoption to accelerate in a hurry. The result is more users and developers preferring faster, cheaper transactions — pushing this trend further. With their built-in privacy, ZK-rollups are likely to increase in popularity as users demand more privacy. Specifically, based rollups are primed to revolutionize the L2 landscape. They’ll address revenue imbalances and continue building a productive symbiosis between L2s and the Ethereum mainnet.

Long-term Implications for Ethereum and its Users

Further adoption of L2s would have far-reaching effects on Ethereum and its users. By scaling the network, L2s can empower Ethereum to handle many more types of applications. This ranges from decentralized finance (DeFi) to gaming and social media. Reducing the transaction fee burden could help bring Ethereum and its benefits to developing countries and people with fewer means. We need to separate the opportunities from the challenges and risks that L2s present. This continues to raise issues of centralization and security, and efforts will continue to help build a sustainable, equitable ecosystem. We’re investing strategically in these L2 solutions, ZKPs and community building. Such a bold step is necessary for maximizing Ethereum’s complete power and realizing its mission of a decentralized future.