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How is the development of the much-anticipated Layer2 DeFi?

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The DeFi pattern is still based on Ethereum, but it pushes expensive transaction fees to some Layer2 or sidechains. These solutions are only composable within their respective platforms, but withdrawals and interactions with other expansion solutions are

Original title: "How is the development of the much-anticipated Layer2 DeFi?" "

Original source: Encryption Valley Live

Gas fee is still the favorite of DeFi enthusiasts topic of. We can easily connect with liquidity miners by expressing surprise at prices over 300 gwei, or discussing gas prices at different times of the day.

As long as transactions on Ethereum can capture huge economic value, gas fees will be high, and it is hard to imagine any short-term loss of value in Ethereum block space Case.

The impact of high gas fees may be good news for Ethereum's scalability efforts, which may make ETH2.0 " Coming soon”, almost every DeFi project is exploring some scaling solutions. Each solution presents a set of tradeoffs around security, EVM compatibility, and speed.

Composability is DeFi's favorite hot word, but it only exists in Ethereum Layer1, which enables a transaction to call multiple contracts at the same time.

DEX Expansion plan

The fees to do transactions on Ethereum may not be the most expensive, but they may be the most frequent. Market makers must submit and cancel orders as prices change, an operation that is costly on Ethereum. The first generation of DEXs (0x, IDEX, dYdX) tried to solve this problem with off-chain order submission and cancellation.

Given their scalability needs, DEXs are further along than other DeFi applications in their migration to Layer 2. In January, I looked at scaling solutions for IDEX (Optimized Optimistic Rollup), Loopring (ZK Rollup), and 0x/Diversifi (ZK STARKS). This article (for the most part) introduces them and gives easy-to-follow technical explanations for each option. Let's take a look together.

In general, order book DEXs have unique needs compared to the rest of DeFi. Composability is not very important, and the design is optimized for high-frequency traders. There will be withdrawal costs and time delays when entering and exiting Layer2 at the same time, but I hope the experience will be better than that of centralized exchanges.

Loopring is currently the most viable option ($19M locked) as it comes with the security properties of Ethereum. The challenge for it and other DEX rollovers is how to encourage other complementary economic behaviors in their development.

xDai: the hottest project now

xDai has been around since 2018 and might be more accurately described as a sidechain as it relies on a limited set of validators for security . Its STAKE token secures the network through autonomous proof of consensus, which is like proof of authority. But for a DAO to transfer assets from Ethereum to xDai requires a trusted bridge. If a bridge is attacked, any assets passing through could be stolen.

While it lacks strong security properties, it does have two key advantages:

Fully compatible with EVM - any existing contract can be deployed to the xDai chain with almost no code modification. For teams struggling with gas fees right now, xDai is the quickest way out.

Support Metamask--Blockchain wallets are a tough business, especially for Web3 wallets that require native browser integration . My guess is that 90% of DeFi users have at least the Metmask browser plugin.

Ameen Soleimani has a longer article supporting the benefits of xDai. Both he and MetaCartel are loyal supporters of xDai. Gnosis also announced a major partnership with xDai last week, and a series of projects are planned to launch on xDai.

Optimism

Last week, the big news in the Layer2 space was the announcement of the Optimism testnet. Synthetix announced a Layer 2 demo of its popular Mintr App on the same day. Optimism is considered by many to be the ultimate scaling solution because it comes with the security properties of Ethereum and the Optimism Virtual Machine (OVM) is EVM compatible. Optimism also has support from some heavyweights in the industry.

The expectations are high, but the testnet shows there is still a way to go.

Fraud proof comes from OVM's ZK Snark structure, which is a core component of its security profile. This testnet should be a test before the official testnet, and we are still at least 6 months away from the real liquidity on the Optimism official network. Uniswap founder Hayden Adams is a fan, but is Uniswap v3's launch plan consistent with Optimistic Network's plan?

Islanded mobility

Ethereum's high gas fees have created an urgent need for scalability, but the market for that need is surprisingly fragmented. Some solutions exist, but they are of limited use, while others provide technical capabilities but no security guarantees, and new solutions are not ready for real prime time. This means that the DeFi landscape is still based on Ethereum, but pushes expensive transaction fees to some Layer2 or side chains. These solutions are only composable within their respective platforms, but withdrawals and interactions with other expansion solutions are not Very troublesome.

There may be other Ethereum Layer2 schemes, and the ZK and rollup revolution may have just begun, but other public chains, such as the most famous NEAR , Solana, Cosmos, and Polkadot, can position themselves as similar to "Ethereum" sidechains. They will need to focus on their bridge to Ethereum.

The real question now is, how do these Layer 2 or sidechain solutions interoperate? Of course, cross-shard communication will eventually solve this problem, but at the same time, their security properties will not be consistent and easy transfer will not be possible. Will a centralized company facilitate its rapid transfer? Connext's Spacefold is working on cross-chain interoperability for EVM-compatible chains.