Interpretation of Layer2 Scaling Solution Boba Network: Technical Advantages, Ecological Projects

Author: Tangyuan, Hive Tech

On April 5, Ethereum Layer 2 scaling solution Boba Network completed a $45 million Series A funding round with a valuation of $1.5 billion. According to the official introduction, this round of financing had over 400 participants, including cryptocurrency exchanges such as Crypto.com, Huobi, and BitMart.

After the financing news was announced, Boba Network's governance token BOBA surged from $1.4 to a high of $1.9, with an intraday increase of about 35%, before retreating back to around $1.6.

Boba Network is an Ethereum Layer 2 scaling solution that employs Optimistic Rollup technology, created by the Enya team, which consists of core contributors from the OMG Foundation. The OMG Network (OMG), supported by the OMG Foundation, is also a network dedicated to Ethereum Layer 2 scaling, utilizing Plasma off-chain expansion technology, primarily focusing on Layer 2 transfer and payment functions.

In fact, Boba Network's mainnet went live in September 2021 and attracted attention with the airdrop of its governance token BOBA. However, after that, the ecosystem on this blockchain network entered a period of dormancy, remaining relatively inactive.

According to data from L2Beat, the total value locked (TVL) in Boba Network is only $184 million, a nearly 90% decrease from the peak of $1.3 billion in November last year. BOBA has also dropped from its all-time high of $5.5 in November last year to around $1. Until this recent funding brought about an increase in BOBA, the crypto community had almost forgotten about this Layer 2 network.

People are also curious why Boba Network, which still has a barren on-chain ecosystem, was able to secure $45 million in funding. What advantages does it have among the many Layer 2 scaling solutions? How is the development of applications on this chain? This issue of DeFi Hive will take you to understand Boba Network.

Boba Network Validates Rollup Scaling Advantages

The birth of Boba Network almost encapsulates the history of Ethereum's scaling, providing a judgment on the superiority of two scaling technologies. It all starts with the Enya team.

Enya is a blockchain development company co-founded by Stanford University staff and alumni, primarily dedicated to decentralized infrastructure. Enya is also a core member of the OMG Foundation, which initially developed the Ethereum scaling network OmiseGo Network, commonly referred to as "OMG Network," while Boba Network is a later Layer 2 network.

In addressing Ethereum's scaling issues, the developers centered around Enya experimented with two Ethereum scaling networks based on different technologies. Among them, OmiseGo Network adopted Plasma off-chain expansion technology, while Boba Network utilized Optimistic Rollup technology.

After two to three years of experimentation, Plasma technology did not perform as well as Rollup.

In solving the scalability issue, Plasma technology leans towards a "sidechain" approach, which typically involves running a large number of transactions and computations from Ethereum's mainnet smart contracts on a sidechain, and then periodically recording the hash of the sidechain data on the Ethereum mainnet, while the transaction data itself is not recorded on the mainnet.

Under Plasma technology, since the Ethereum mainnet does not record the blockchain's transaction data and only stores the hash of the transaction data, when disputes arise over the transaction data on the sidechain, the mainnet cannot determine where the error occurred, which can affect the operation of the sidechain. Additionally, exiting the sidechain requires at least a 7-day waiting period. These issues hindered the long-term development of the OmiseGo Network built on Plasma technology.

In contrast, Rollup scaling technology aims to build a Layer 2 network compatible with Ethereum, making it easier to resolve the mainnet's trust issues regarding the data of the scaling network. This technology supports the batch packaging and compressed storage of all Layer 2 network transaction data on the Ethereum mainnet, with the security of the data guaranteed by the Ethereum mainnet. When disputes arise over Layer 2 transaction data, the Ethereum mainnet can recalculate the submitted data to determine the error.

Currently, Rollup has become the mainstream technology for building Ethereum Layer 2 solutions, while Plasma is no longer favored. This is also the reason why OMG Network did not see any progress during the DeFi boom from 2020 to 2021. Therefore, the OMG Foundation began exploring Rollup, with the Enya team as the core development resource, and collaborated to launch Boba Network.

Features of Boba Network

In September 2021, Boba Network's mainnet went live, and the governance token BOBA began circulating on the network. The crypto community noticed that this Layer 2 network started with an airdrop, where BOBA generated on-chain was airdropped to OMG holders at a 1:1 ratio.

At that time, this airdrop resulted in a win-win for both assets, with OMG surging from around $4 to a high of $20 just before the BOBA airdrop, while BOBA peaked at $5.5 in the secondary market. Currently, OMG hovers around $4, while BOBA is near $1.6.

Solving the Waiting Period for Exiting Layer 2 Network Funds

Boba Network has provided an answer to the competition in Ethereum scaling technology, demonstrating that building a Layer 2 network using Rollup technology is superior. However, Rollup scaling technology also has the choice between Optimistic Rollup and ZK Rollup. The former is more convenient for compatibility with the Ethereum Virtual Machine (EVM), allowing applications to quickly land on Layer 2 networks; while the latter, due to the immediacy of its data verification algorithm, offers users the convenience of quickly returning crypto assets from Layer 2 networks to the Ethereum mainnet.

In this choice, Boba Network stands on the side of Optimistic Rollup, indicating that it is more important to allow applications to smoothly migrate from the Ethereum network to Layer 2 networks, which is the starting point for a thriving ecosystem.

In October 2021, Boba Network upgraded its Optimistic Rollup Virtual Machine (OVM) to version 2.0, making it compatible with the Ethereum Virtual Machine (EVM). This development significantly reduced the workload for migrating and deploying smart contract code, allowing Ethereum application developers to deploy their application smart contracts on the Boba Network without changing the underlying code.

However, Optimistic Rollup still lacks a more direct solution to the delay issue of exiting crypto assets from Layer 2 networks, with the 7-day waiting period being a major pain point for network users. Boba Network has designed an indirect solution for this.

1. Using "Liquidity Pools" to Solve the Delay in Exiting Crypto Assets

In addition to the basic advantages brought by Optimistic Rollup technology, such as low gas fees and high throughput, Boba Network has also made improvements in the asset exit process from Layer 2, introducing "liquidity pools" that support liquidity providers in adding liquidity for different assets on-chain, assisting users in exchanging assets across the mainnet and Layer 2 networks, thereby reducing the asset exit cycle from Layer 2 networks from at least 7 days to a matter of "minutes."

Boba Network Liquidity Pool

The cross-chain liquidity pool provided by Boba Network is similar to "like-asset exchange pools (WETH-ETH)." For example, when users withdraw ETH from Boba Network to the Ethereum mainnet, they are actually exchanging through a liquidity pool composed of "L2 ETH - L1 ETH."

This solution not only addresses the fund exit issue from Layer 2 networks to the Ethereum mainnet but can also be extended to other Ethereum-compatible blockchains, such as BSC and Polygon, greatly facilitating the transfer of crypto assets from Boba Network to other blockchain networks.

2. Using "Cross-Chain Bridges" to Enable NFT Flow Between Layer 1 and Layer 2

The cross-chain flow of crypto assets is one of the most important infrastructure directions during the DeFi explosion, and Boba Network has kept up with the trend using "liquidity pools." Another hot area is NFTs, with the Ethereum network being a significant source of NFT products. To enable this trend to land on Boba Network, the network has created a dedicated "NFT Cross-Chain Bridge" to support the efficient and low-cost transfer of NFT assets between Boba Network and the Ethereum mainnet.

Using this cross-chain bridge, users can transfer NFT assets from Boba Network to the Ethereum mainnet at any time according to their needs, and they can also transfer NFT assets from Ethereum to Boba Network, enjoying low-cost transactions. This cross-chain bridge is also one of the few NFT asset cross-chain tools currently available in the market.

Why is Boba Network's Ecosystem Lacking Despite Its Strong Technology?

Having chosen a more practical scaling technology and solved the cross-chain circulation problem of on-chain assets, Boba Network should theoretically gain recognition in the Layer 2 network market. However, compared to Arbitrum and Optimism, its name is not as well-known, and the total value locked (TVL) in its on-chain assets is significantly lower than those two mainstream Layer 2 networks.

Boba Network On-Chain Locking Data

As of April 7, L2BEAT data shows that Arbitrum's TVL is $4 billion, with a market share of 56.1%; Optimism's TVL is $633 million, with a market share of 8.87%; while Boba Network's TVL is $184 million, with a market share of only 2.58%.

Boba Network's most glorious moment was during the BOBA airdrop in November last year, when its TVL peaked at $1.3 billion. Since then, its on-chain TVL has shrunk significantly, now down nearly 90%.

In terms of development technology and team strength, Boba Network seems to have the "geographical" and "human" advantages, but it has not been favored by "timing." Its mainnet launch and compatibility with Ethereum occurred during a bull market phase, but the subsequent ecosystem development coincided with the crypto market's transition from bull to bear, and the market's cautiousness towards risk may have affected the inflow of crypto assets into this chain.

However, there are counterexamples; Arbitrum, which started around the same time as Boba Network, has garnered favor from developers and users. In this contrasting situation, it is necessary to examine the application status on the Boba Network.

1. Decentralized Trading Application OolongSwap

OolongSwap (OLO) is the native decentralized trading application (DEX) on Boba Network, which integrates trading, lending, and liquidity pool functions, supporting the exchange of application assets on the Boba Network.

2. Lending Application Bodh Finance

Bodh Finance is a decentralized lending application that allows users to borrow and earn interest using crypto assets. Depositors can earn interest income by providing liquidity in the protocol, while borrowers can take out loans from the application with over-collateralization.

3. Stablecoin Exchange Application zencha Finance

zencha Finance supports low-slippage exchanges for assets such as DAI, USDC, and USDT.

4. Yield Farming Platform BananaFarm

BananaFarm is an automated yield platform that provides users with automated investment strategies through smart contracts and algorithmic programs, maximizing incentive returns for those contributing liquidity in on-chain DeFi applications.

Browsing the applications on Boba Network, it is not difficult to find that the applications on this chain are quite homogeneous, primarily consisting of basic DeFi applications such as lending, DEX, and yield farming, leading to a certain degree of aesthetic fatigue for crypto users.

In addition, there are obstacles for crypto assets to enter Boba Network. On one hand, although Boba Network has produced the underlying token BOBA, it initially required ETH as gas fees, meaning users had to hold ETH to enter the network. Additionally, they needed to use the Boba Network cross-chain bridge to access its ecosystem. On the other hand, centralized exchanges that hold a large amount of user crypto assets do not support withdrawals to the Boba Network, limiting the flow of users.

To address the first pain point, on April 6 of this year, the Boba Network community voted to pass a proposal to enable BOBA as a means of paying gas fees on-chain. ETH can still be used as the default method, but users can choose to change to BOBA for gas fee payments.

To incentivize developers to actively create applications on the chain, Boba Network launched an options incentive program called "WAGMI" in February this year. In addition to attracting developers, application users can also earn option tokens WAGMI as rewards for using applications (such as providing liquidity for on-chain applications), which can be exchanged for BOBA upon expiration. The value of WAGMI is linked to on-chain metrics, such as the TVL of on-chain applications; the higher the TVL of on-chain applications, the greater the value of WAGMI, and the more BOBA rewards can be redeemed.

From the perspective of TVL, the WAGMI incentive has not yet brought significant improvement to Boba Network. On April 5, after the network's development team announced the acquisition of $45 million in funding, the TVL did see an increase. Founder Alan Chiu also specifically mentioned that this funding will be dedicated to creating a "universal alliance and building the Boba ecosystem."

Whether this funding will partially flow into the application developer community remains to be seen, but the participation of several centralized exchanges may help Boba Network break the barriers for user assets to enter the network.