Bumpy Road to Decentralization: Optimism Disables Permissionless Fraud Proofs

Optimism, a leading Layer 2 protocol leveraging Optimistic Rollups, recently posted on X (formerly Twitter) that it has temporarily disabled permissionless fraud proofs after discovering significant security vulnerabilities during independent security audits. Launched in June, these fraud proofs were a pivotal step towards achieving what Vitalik Buterin refers to as “Stage 1” decentralization, where the network operates with minimal external oversight but is still fully controlled by the team. 

Fraud proofs are vital for validating transactions on Layer 2 networks that employ Optimistic Rollups. Like other Layer 2 solutions, Optimistic Rollups aim to boost transaction throughput on blockchains by aggregating multiple transactions off-chain into a single batch. This batch is then posted to the main Layer 1 blockchain as a single transaction.

The “optimistic” aspect of these rollups presumes that all transactions are valid unless proven otherwise. They rely on a system where transactions can be challenged within a specific timeframe. For Optimism, this period is about one week. If any transaction is successfully challenged during the “challenge period”, it is reverted, thus ensuring the security of the main blockchain. 

It is worth noting that until June this year, Optimism operated without a comprehensive fraud-proof mechanism in place. Users had to trust the platform’s integrity, assuming there would be no fraudulent activity. The shift towards implementing permissionless fraud proofs marked a significant step towards greater decentralization and security of the Optimism network.

After the initial rollout, however, some serious security flaws were identified, leading to the deactivation of the fraud proofs. Optimism has assured its users that although the issues are severe, they have not been exploited, and user assets were never at risk.

In response to these vulnerabilities, Optimism is planning a hard fork of the network to resolve these issues and restore the fraud proofs. This update is expected to take place in approximately three weeks. 

Optimism is currently the third-largest Layer 2 network, boasting over $5.5 billion in Total Value Locked (TVL). Notably, Arbitrum, which is currently the largest Layer 2 network by TVL that also utilizes optimistic rollups, had a similar setup, allowing only whitelisted accounts the chance to submit fraud proofs. According to the news, they launched a testnet for permissionless fraud proofs in April, which is not yet available on the mainnet.

Currently, all major Layer 2 networks based on optimistic rollups are in a stage where they either lack fraud-proof mechanisms entirely or have them only in the testnet phase. While the aim is to achieve full decentralization, it remains a distant goal for now.