SeCure, privAte, and interoperabLe layEr 2

Project funded by the Vienna Science and Technology Fund

Duration: 2023-06-01 ‒ 2027-05-31 (ongoing)

Funding: € 879,850



Blockchains and their application to cryptocurrencies have revolutionized the financial landscape. Nevertheless, their widespread adoption is hindered by their inherent scalability issues. In particular, the security of blockchains follows from the public verifiability of on-chain transactions, which yields a throughput orders of magnitude lower than payment services like Visa. Layer 2 (L2) protocols emerged as a promising scalability solution, with payment channel networks (PCNs), e.g., Lightning Network, and rollups, e.g., Arbitrum, being the most deployed solutions. 

The core idea of both PCNs and rollups is similar, that is, to move a significant part of the transaction workload off-chain and only use the blockchain for dispute resolutions. The way each solution implements this idea as well as the assumptions and guarantees though, differ significantly. In particular, payment channels, once connected together into a PCN, enable users to perform arbitrarily many off-chain transactions while requiring only two on-chain transactions (to open and close a channel). Security is enforced against rational users by forcing them to lock a collateral per channel. The distribution of the collateral determines the feasible transaction values for each channel user at any time. Rollups, on the other hand, allow synchronizing executions performed on a rollup-specific chain back to the main chain, by exposing them on the latter in compressed format. Security in rollups is enforced reactively via fraud proofs (optimistic rollups) or proactively via zero-knowledge proofs (zk-rollups). In both cases, rollups leave a significantly higher on-chain footprint than payment channels, i.e., more information is posted on-chain, but they alleviate the high collateral requirement. PCNs and rollups thus yield different trade-offs in terms of collateral, required by the former, and on-chain footprint, which is significantly higher in the latter.   In SCALE2, we will lay the theoretical and practical foundations of L2 protocols, by investigating which properties and functionalities are realizable under which system and cryptographic assumptions,  and by designing and developing a corresponding spectrum of protocols and implementations. We will specifically focus on four fundamental limitations of  PCNs and rollups, namely practicality, privacy, interoperability, and bridging.

The practicality challenge encompasses the foundational study of PCNs and rollups with respect to various system assumptions that hinder their large-scale deployment. For instance, PCNs demand high collateral and online participation, whereas rollups suffer from high latency (optimistic rollups) or  work efficiently only for limited expressivity (zk-rollups). The privacy challenge captures the need of users to protect their data such as their transaction values or even their participation on a PCN. Currently, the transactions executed in an optimistic rollup and the opening/closing state of a payment channel are public knowledge. Interoperability, on the other hand, encapsulates the ability to design L2 solutions that function securely and efficiently cross-chain; a lacking but critical functionality for the design of scalable DeFi applications. The final challenge is bridging L2 solutions since current PCNs and rollups typically operate in isolation even from similar constructions on the same chain. Bridging expresses the ability of different L2 constructions to communicate with each other regardless of the chain they are based on. Bridging, in conjunction with interoperability, are the cornerstones to ensuring not only the widespread adoption but also opening up the design of a new spectrum of L2 applications, such as DeFi and Web 3.0. 

In short, SCALE2 will deliver the first development framework for  L2 protocols that achieves practicality, privacy,  interoperability, and bridging. We expect our project to have a major impact both on the scientific community and the financial aspects of cryptocurrencies as scaling solutions are desperately needed to cater for the ever-growing user base and functionality demands  in the blockchain space.

Keywords: Layer 2, payment channels, rollups, security, efficiency, interoperability


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