Layer 2 Index Proposal

Product Products
1

Layer 2 Index (LAYERI)

We are in the process of the Ethereum scaling solution migration. Every day more and more TVL flows into Layer 2 scaling solutions such as Arbitrum and Optimism. This presents an interesting opportunity to be at the forefront of this new and expanding technology.

Motivation

Thesis: Layer 2 scaling solution will grow to a large scale and occupy a significant percentage of Ethereum block space. In the future many new users will only interact with L2 scaling solutions and a very large volume of DeFi transactions will be through L2.

LAYERI will appeal to individuals that seek to increase their exposure to Layer 2 scaling solutions. By purchasing LAYERI, investors eliminate the need to maintain a diversified portfolio of Layer 2 tokens. This means that INDEX can reach a wide range of customers by offering the only L2 index with a phenomenal level of potential ROI.

By providing a basket of ready L2 projects for users to purchase; LAYERI solves many issues such as:

Giving the opportunity of purchasing a wide basket of different L2 tokens which have been vetted by INDEX. As this is a growing space there will be potentially many new tokens launched hence this index will give the users confidence in all projects invested.

Getting exposure to Layer 2 without the need to do research into each individual project.

The need to keep up with the fast paced DeFi ecosystem as new L2 tokens will launch frequently.

Specification

Optimism and Arbitrum managed to achieve a TVL of $2.2bn and $155.7M respectively. With the total L2 TVL being at the beginning of it journey this index will offer a phenomenal potential ROI, as more transactions will migrate to L2s. This will provide the customer to exposure to L2 scaling solutions without the need to monitor new projects launching and be at the forefront of the opportunity. The only similar product is the DPI which aims to capture growth of DeFI, LAYERI could be utilised by placing it within the DPI without over complicating DPI.

Strengths

Cheap and faster transactions mean that many Ethereum users will migrate to L2s with many projects already doing so

The future of gaming, NFTs and other popular projects will be on L2s. Currently Crypto games have their own chains as its not feasible to launch on Ethereum. In the future roll ups will provide the solution as games can launch on L2s without the need to sacrifice Decentralisation.

Fee structure

LAYER will launch with the following fee structure:

Mint Fee: 0

Streaming Fee 35 Basis Points

Redeem Fee: 0

Yield: 25% Performance fee

2 Likes
2

Love the proposal, highly relevant and very attractive space to bet on. The main issue I have is that there are not that many L2 tokens trading right now? Also would be good to know what would count as a L2, there is always the debate about sidechains (xDai/Polygon etc.) that have tokens, would those be included?

3

Thanks for your reply. I have addressed some of the points below.

  1. There are not many tokens right now but they are rolling out as we speak. Arbitrum hit the $1bn in a matter of days and more and more projects native to L2s will originate there. We have already observed the LYRA token introduction and we will see many more. By the time the index is set up I am confident that we will be able to gather a collection of blue chip tokens for the index.

  2. The intention of the index is to target Optimistic Rollups although if there is community consensus to add projects from another L2 then I am sure that would be investigated further.

4

Thank you for the reply!

  1. Ok so protocols that are L2 native (eg Lyra) would qualify, even if they are not inherently a L2 tech? Feels like will be a fuzzy line then if we target exclusively such protocols that are only on L2, or those predominantly on L2. Eg if you have a successful L2 deployment and then deploy on L1, disqualify? Imo it makes more sense for a product like this to be purely the tooling/protocols for L2 (the tech) and not the projects built ontop of this tech.
  2. Reason to target Optimistic Rollups? Imo the general consensus is that ZK will win long term and there are already some tokens there such as Immutable X that could be included.
5

  1. I agree, but many projects that are successfully deployed on L2 but originated to an L1 would already be in the DPI. Why not just put your money into DPI ? Well this index will aim to adopt the new protocols fast. There simply would be a lot of cross over between DPI and this index as Uni etc would be added. Do you believe the protocols that are popular on L2s should be added in too ?

  2. I completely agree, the space of ZK roll ups is not big enough just yet for it to be a target. It is something that I definitely considered.

6

This has been something discussed about 9 months ago on the forum.

We need to have more top tier L2s launch a token first. Almost all have not. They’re all just focused on growing their ecosystems.

Right now it would mainly comprise of MATIC & LRC.

Previously I had recommended including HEZ, but they were acquired by Polygon. STAKE would be a potential asset to include. OMG would be a possible one, but they have yet to have any growth on their plasma chain- we’ll see how Boba Network performs when it launches.

There would need to be a distinction between L2 infra vs. projects that deploy onto L2 (e.g. Immutable X, dydx, Uniswap, etc.). This would need to solely be a L2 infra play as the former would just become an index comprised of assets already deployed by the coop.

6 Likes
7

Hi, love the idea! I think we should be thoughtful with the timing of this product as well as L2 definition.

  1. Definition:
    I personally would like to see a Layer 2 Index with only Rollups, optimistic and zk. Including Sidechains would not just make it less safe (imo), it would also start the whole debate again what is and is not a L2.
    I actually would prefer to see two different products: L2-solutions and Eth-scaling Solutions (incl. Polygon,xDai etc)

  2. Timing:
    Yesterday Arbitrum´s Sequencer was down for 45 min. Optimism is also just starting. If we want to bring something to the enduser, we should maybe wait to see how those different solutions are getting battle tested. I see this L2-Index Proposal early/mid next year, when the first Rollups have significant traction.

But in general, big fan of the idea! I was looking for something like this

8

FYI Optimism mentioned having no plans for a token.

Source: Bankless interview on August 10, 2021 at 90: 52 “We have no plans to have an optimism token”