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  1. Aug 2021
    1. So how can rollups win in the long run?To my mind, there are two ways: one is that a non-rollup sidechain catastrophically fails, and the industry learns a lesson à la Mt. Gox. And catastrophically fail doesn’t just mean “nodes can’t sync.” It means “the money is gone” or “the chain has completely halted.” That’s possible, but probably unlikely.So that leaves us with the other way: rollups have to actually become significantly better than the alternatives. Decentralization virtue signaling is not enough. For this, I personally only see one path forward, which is the promise of cryptography and zero-knowledge proofs.

      How can rollups win?

      1. Sidechains fail.
      2. Rollups are significantly better.
    2. (Note that ZK rollups don’t suffer from this issue, since their withdrawals are effectively instant.)
    3. Then consider the movement of funds in and out of rollups.For optimistic rollups, when you want to withdraw funds, there is a ~1 week challenge period during which your withdrawal is frozen. This sucks. So to facilitate “fast withdrawals,” market makers will stand ready to move your assets quickly across the boundary—for a fee. The fee they charge you will depend on their inventory and the liquidity of the asset. If you’re moving ETH, this will cost maybe 0.2% or something, but if you’re trying to move a random dog coin, it will likely cost much more, possibly 1% or higher. Some assets may not be possible to fast-withdraw at all if there’s not enough liquidity.

      How do funds move in and out of Optimistic Rollup?

    4. And none of the rollups are exactly EVM compatible — there are subtle differences between each of these rollups’ virtual machines and the EVM. For Arbitrum, they use AVM, for Optimism, OVM, each of which subtly breaks some contracts and EVM-compatible tooling. And for the ZK-rollups, that’s a whole nother universe — ZKRs will instead compile Solidity down to equivalent zero-knowledge circuits, to be executed in a ZK virtual machine.Now compare this to Polygon, where you literally just copy and paste your contracts and everything works.

      Side chains are more EVM compatible than Rollups.

    5. Why are rollups more expensive than these sidechains? This is because every rollup ultimately must post calldata onto Ethereum; this tethers their fees to Ethereum fees. Each rollup can only scale Ethereum by a constant factor. So the fees won’t be that low compared to what many users are already used to.

      Why are rollups more expensive than sidechains?

    6. Right now on Polygon, a simple Uniswap-style trade costs $0.0001. On Binance Smart Chain, it costs $0.20. On Ethereum, it costs about $7. And on Optimism, it’ll cost around $0.68.

      Compare swap cost between chains.

    7. I often say there are three motivations that drive crypto users today:Making moneyHaving funIdeologyOf these three, ideology is the weakest. And I worry that ideology will end up being the primary driver in favor of the adoption of rollups.

      What drive crypto users?