Ethereum Foundation Backs ‘Economic Zone’ to Solve Fragmentation Issues

Gnosis and Zisk proposed a framework for aligning infrastructure within Ethereum’s ecosystem on Sunday, describing the creation of an “economic zone” as a way to address barriers and limitations associated with layer-2 scaling networks.

Although some fear that Ethereum’s network is becoming increasingly fragmented by layer-2 networks that silo user activity, Gnosis co-founder Friederike Ernst and Zisk co-founder Jordi Baylina said they are betting on shared infrastructure as a potential solution.

Within the Ethereum Economic Zone (EEZ), layer-2 networks will have the opportunity to operate across a shared environment, according to a press release. That could prevent projects from doing duplicative work while improving users’ experiences, Gnosis and Zisk said. By default, users will use Ethereum (ETH) to pay for transactions, they added.

The initiative is being co-funded by the Ethereum Foundation, signaling that the nonprofit dedicated to Ethereum’s long-term success is interested in advancing technology that would reshape the relationship between Ethereum’s mainnet and layer-2 alternatives.

For networks that operate within the EEZ, transactions are set to be executed across various layer-2 networks and Ethereum’s mainnet itself. The feature is aimed at creating a unified execution environment where layer-2 networks don’t act like isolated islands. Gnosis and Zisk noted that having shared infrastructure reduces technical friction and risk.

“Every new L2 is a silo that makes it harder to seamlessly extend and drive value back to the Ethereum mainnet,” Ernst said in a statement. “The EEZ is designed to do the opposite.”

For years, Ethereum’s community has prioritized layer-2 networks as a way to increase transaction capacity and lower costs, with Base and Arbitrum emerging as prominent examples. However, Ethereum co-founder Vitalik Buterin called for a change last month, arguing that projects compromising on decentralization aren’t true extensions of its ecosystem.

Many layer-2 networks feature what are known as centralized sequencers. Under that design, one party is typically responsible for batching and processing transactions off-chain before they are submitted to Ethereum’s mainnet in their final form.

Some projects view centralized sequencers as necessary for compliance purposes. Still, there’s growing criticism within Ethereum’s community that they create gatekeepers, while also capturing revenue through fees in a way that doesn’t benefit the underlying network.

Although layer-2 networks borrow their security from Ethereum’s mainnet, they may establish a token of their own as the only way to pay for transaction costs. In that sense, the EEZ—pronounced “easy”—forces layer-2 networks to forgo that route.

Gnosis and Zisk did not reveal the EEZ’s scope in terms of funding, but it plans to share technical specifications in the coming weeks. What’s more, it unveiled an EEZ Alliance, including decentralized finance stalwarts like Aave and share tokenization specialist XStocks.

In the press release, Zisk’s Baylina noted that the EEZ will use zero-knowledge proofs, a form of cryptography experts say is core to Wall Street’s adoption. Established in 2015, Gnosis was contributing to Ethereum’s ecosystem when zero-knowledge proofs were conceptual.

Last year, the Ethereum Foundation signaled that it would become more involved in supporting decentralized finance and privacy on Ethereum with targeted funding. At the time, they noted how “incumbent systems often exert subtle pressures that narrow the design space.”