The Rise of Rollups in the Interchain
When you’re starting out a new Web3 project it can be challenging to navigate the multiple options out there: do you launch a smart contract, a rollup or are you going to build your own blockchain? And when you figure that out, there still remains the question of which tech stack to use or on which blockchain to launch your contracts.
This decision is generally based on a combination of business and technical requirements. In this article, I’d like to go over some of the reasons why a project would consider launching a rollup, and give you an overview of what’s currently (and soon to be) available for you in the interchain ecosystem, and how that compares to some of the other rollup frameworks out there.
Rollups are Appchains
The Interchain Stack has been the pioneer of the Appchain Thesis since it was announced in 2016. Instead of launching a dApp in a crowded shared-state environment such as Ethereum, an innovative alternative was offered that would enable developers to easily deploy dedicated blockchains for their application with Cosmos SDK, using CometBFT (previously Tendermint) at the consensus layer. To solve for the fragmentation that would occur, the Inter-Blockchain Communication (IBC) protocol enabled cheap and fast peer-to-peer connectivity between blockchains.
Moving forward 8 years, we are now witnessing this reality in full force with a large number of dedicated blockspace solutions out there such as the OP Stack, Arbitrum Nitro, Polygon CDK and more recently, EigenLayer AVS. This is a huge validation of the Appchain Thesis because regardless of the exact tech stack used, rollups (and AVSs) are essentially the same Application Specific Blockchains that Cosmos originally envisioned.
But if Cosmos SDK already enables everyone to build application specific blockchains, why is the layer-2 rollup space getting so much traction?
The Business Case for Rollups
Time To Market
Launching a layer-1 blockchain comes with a lot of infrastructural work that needs to be completed before launch. Finding an active validator set for your network can be daunting, and the coordination work that is required around testnet and mainnet launches as well as upgrades can take precious time away from development. The modular nature of rollups enables you to outsource a lot of the work that’s required to start producing blocks to third parties.
Cost Reduction
While launching a smart contract is generally the most cost effective way to deploy a Web3 application, it’s often not sufficiently configurable at the protocol level, or scalable enough for high throughput applications that can’t wait for other transactions to be processed before theirs. Launching a chain solves this but can come at a higher price.
The reduced time to market provides cost benefits, but removing a validator from the equation has even more financial benefits. The staking rewards that come with a Proof-of-Stake network can significantly impact the performance of a token. The supply that regularly hits the market through security incentives can have negative consequences for chains that are still in the process of finding product-market-fit and a sustainable revenue stream. Even if you run a Proof-of-Authority network, validator incentives can be a drain to your operational budget.
Rollups enable you to reduce this cost dramatically. While they aren’t exactly cost-free to maintain, the outsourcing of data availability, consensus and optionally settlement enables cost effective hyperspecialization at scale, which significantly lowers the cost compared to operating a layer-1 blockchain.
Compliance
For businesses that require strict access control or modifications to the core protocol in order to meet their compliance requirements, dedicated blockspace is a necessity when smart contracts on monolithic blockchains are not an option. Deploying a layer-2 rollup gives you nearly the same control that a layer-1 blockchain would provide but with reduced costs and increased time to market.
The Technical Case for Rollups
Sovereignty, Flexibility & Control
If your application requires modifications to the transaction lifecycle, custom behavior that executes at the end of each block, or anything else that’s not provided in pre-built execution environments, you’ll find that this is impossible to achieve when launching a smart contract on Solana, Ethereum or any other layer-1 blockchain.
Similarly, if you need to roll-back state changes in an emergency or you want to guarantee that your transactions always get through regardless of your competitor’s success, you’ll likely want to have your own dedicated block space for your application. Cosmos SDK is built for this exact purpose, and now that rollup solutions that are using it are coming to life, the possibilities for affordable, fast and hyper-customizable blockspace are within reach for developers and organizations of all sizes.
While EVM-based rollup solutions like OP Stack, Arbitrum Nitro and Polygon CDK offer you dedicated blockspace, they are not inherently designed for maximum customization. This is a limitation inherited from the Ethereum Virtual Machine that is hard to overcome.
Building a rollup with Cosmos SDK gives you an established and well documented path to full customization. And if you’re set on accessing solidity devs and the numerous EVM tools out there like Metamask and Hardhat, why not use an EVM solution like Evmos, Octane or Berachain’s BeaconKit while maintaining complete control over aspects like the transaction lifecycle and block validity rules of your rollup?
Performance
The bottleneck in blockchains is rarely computation. More often than not it’s the latency between validators that slows down blockchains. While CometBFT-based chains can run sub-second blocktimes in some specific validator configurations, Cosmos rollups offer you the opportunity to experience blazing fast transaction throughput by placing consensus outside of the rollup’s block production and leveraging security from the underlying layer-1.
Cosmos SDK and Zero Knowledge Technology
Unlike a proof-of-stake chain, rollups generally don’t have a consensus mechanism to guarantee the correctness of the block. A rollup is generally operated by a single entity, so it may be lying. In order for rollups to interoperate with other networks, some kind of settlement finality needs to take place so that it’s guaranteed that the rollup isn’t being dishonest.
Optimistic rollups are optimistic in that they assume the rollup is honest and will allow for a fraud proof window where other node operators can contest the state of the rollup. The downside is that this means users would have to wait up to several days before an interaction with another chain is confirmed to be safe. To solve this, optimistic rollup bridges generally have a third party that looks at the rollup’s transactions and checks to see if everything is in order. If everything looks in order, the third party will take the risk of the transfer and offer the user an instant withdrawal to another blockchain network by offering their own tokens to the user. After this, they wait through the fraud proof window before the user’s tokens become available to the third party.
While these money markets tend to work for token transfers, this mechanism doesn’t work well for general message passing. For example, if a smart contract on a rollup wants to call another smart contract on Ethereum, there is no straightforward way to assess what value a third party should be offering as collateral in order for the smart contract to trust the cross-chain transaction. Moreover, existing dApps on other networks are not designed to work with this mechanism. Similarly, if a Cosmos chain wants to query the state of a rollup using IBC’s Interchain Queries, there is no straightforward way to know whether the rollup is honest unless the optimistic window has passed. While complex solutions can be designed for this, it inherently limits true interoperability and the many impressive use-cases that IBC enables.
Zero Knowledge (ZK) rollups offer a different solution in that they generate cryptographic proofs that guarantee the correctness of a block which would enable instant withdrawals. This is currently very computationally expensive and oftentimes not yet ready for production, but it’s undeniable that ZK proofs are likely going to be the standard in how rollups will settle in the near future as it offers a vastly superior user and developer experience.
The Cosmos SDK team is working diligently towards that future and is currently making progress on getting the SDK to be ZK-ready. Work has started on making the first SDK module ZK provable and more will follow. As ZK technology becomes more efficient and computational costs reduce, a thriving Cosmos SDK-based rollup ecosystem with powerful ZK-based solutions pushing the boundaries of IBC will inch closer each day.
The State of Rollups in Cosmos
While the rollup space in the interchain is still nascent, there are several projects already launched and some underway. We’d like to provide you an overview of what’s currently available so you can get started with building your Cosmos SDK-based rollup today:
Rollkit
Rollkit is a rollup framework that enables you to build Cosmos SDK sovereign rollups. Rollkit is an ABCI 2.0 client that acts as a drop-in replacement for CometBFT so any sovereign appchain built with Cosmos SDK and CometBFT can become a sovereign rollup. Sovereign rollups do not settle anywhere. Currently, Rollkit operates in a pessimistic mode in which the trust assumption is that the sequencer behaves honestly, which can be validated by running a full node and replaying the blocks by reading from the data availability layer.
The project was kickstarted by Celestia Labs and is a great way to build sovereign rollups with the full feature set of a Cosmos SDK app.
Rollkit is mainnet-ready today.
Dymension
Dymension offers a set of tools that enables developers to build “RollApps”, which can be EVM, CosmWasm or Cosmos SDK-based. These optimistic rollups settle on Dymension Hub, a Cosmos SDK-based chain that allows the rollups to inherit its security properties. While fraud proofs are used to guarantee correctness of the ledger, it uses a modified version of IBC called Escrow IBC (eIBC) to enable cross-chain token transfers without users having to wait for the fraud proof window.
Dymension is live on mainnet today.
Initia
Initia is a platform that enables a network of interwoven rollups they call minitias, built on top of Cosmos SDK. It functions as a layer-1 network on which rollups settle. It supports EVM, Move and CosmWasm, and provides optimistic bridging between rollups and other major blockchain networks.
Initia is currently in testnet.
Celestia
Celestia is a modular data availability network that powers rollup platforms like the OP-stack, Arbitrum, Dymension and Initia. Built on top of Cosmos SDK, it is a service provider that enables you to outsource the data availability of your chain’s transactions to Celestia.
Celestia is live on mainnet and powering a huge network of applications.
Get in touch
If your organization is interested in learning more about building rollups using Cosmos SDK or other components of the Interchain Stack, please consider applying to the Interchain Builders Program.
We are available to help you orient around the various options to get your Web3 product built and launched today.
