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DeFi Summer on Layer 2

DeFi之道

Read this article in 10 Minutes

With the popularity of Ethereum Layer 2 scaling solutions like Polygon and Arbitrum, DeFi may usher in a Layer 2 Gold Rush.

Original Title: "The Layer 2 Gold Rush | Market Monday LITE"

Original Source: David Hoffman, Bankless

Original Translation: Overnight Porridge

Over the weekend, Arbitrum rolled out their mainnet for developers, and it's hard to overstate the significance of this event as it pertains to the overall progress of Ethereum and the cryptosystem.

From day one, it was clear that Ethereum needed to scale. Sharding and Layer 2 were both considered reasonable paths for Ethereum to scale, but how to build out sharding and Layer 2 networks was a very open, undecided research question.

Over time, and after much iteration and redesign, these questions slowly got answers. From 2015 to 2018, we went from state channels to plasma, then onto Rollups (the current best solution).

The launch of Arbitrum's mainnet is the culmination of 6 years of cryptosystem R&D, and Optimism isn't far behind.

It feels like we are on the crest of the

Layer 2 Summer

This is how I think about it:

Ethereum is the early-day Disneyland, it's a hub-and-spoke model where when you go to the Ethereum theme park, you're going to the same place as everyone else, everyone is trying to ride the same rides.

There's only so much you can do because congestion limits the park's functionality (imagine Disneyland in 1955 but with a 2020 population).

It's a very cool place, but the fast-pass line is still too long because the whales keep riding the same rides over and over again.

The Ethereum theme park needs more attractions, so what does it do.

It built more parks.

Various teams have been building on the Ethereum main hub to create a cool new park where all main chain visitors can go and explore, avoiding the crowds at the main rides and attractions.

Polygon was launched a few months ago.

Arbitrum was released last Friday.

Optimism is also coming soon.

There are too many new places for Ethereum visitors to access.

Speculative Growth

Continuing on the theme of California, one of the greatest migration events in human history was the California Gold Rush.

In 1848, gold was discovered in California, leading to about 300,000 people rushing to California from other parts of the U.S. and abroad. The sudden influx of gold into the money supply revitalized the U.S. economy, making California one of the most prosperous regions in the world.

Speculators realized there was wealth to be had, and the desire for wealth led people to uproot themselves, move westward, and engage in gold speculation.

With the launch of these Layer 2 networks, this is what is about to happen (or has already happened).

But this gold rush will happen twice:

1. First with developers.

2. Then with users.

Developers Staking Their Claim

When Polygon, Arbitrum, Optimism, Hermes, or any other Ethereum Layer 2 goes live, they release free land to the world. But it's just land, fertile land, with nothing on it.

The first race is to have DeFi apps build infrastructure on this land. DeFi apps are the new rides and attractions that will eventually draw people from the Ethereum main park to L2 to see all the fun stuff happening.

Layer 2 creates the land, but DeFi applications need to claim that land.

The first gold rush was for DeFi applications. That's why Arbitrum doesn't allow any DeFi application to "race" ahead of others.

Last Friday, Arbitrum launched its "developer mainnet," but it didn't preallocate any DeFi applications, maintaining a trusted neutrality, nor did it let any DeFi application start building infrastructure ahead of others.

Now that Arbitrum is open to developers, they are all rushing into this new land to quickly build their DeFi applications.

Layer 2 Gold Rush

Here's where the fun begins - below I'll explain why I'm speculating a DeFi summer: Layer 2 edition is coming.

DeFi applications want you to use their application on the new Layer 2 network. They've just built your favorite rides in the Ethereum main park that you've been using, but now these applications don't have to wait and are nearly feeless. They want you to use these DeFi applications instead of choosing competitors to grab as much land as possible.

So what are these Layer 2 networks going to do? Issuing tokens, of course.

Liquidity mining, yield farming, they'll do what DeFi applications do best, incentivize usage through token issuance.

We've seen this on Polygon already, which has also been hugely successful. If you provide liquidity to SushiSwap on the Polygon network, you can earn SUSHI and MATIC token rewards.

I was yield farming MATIC tokens on the Aave app on Polygon before, those were good times.

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Layer 2 will mint its token and distribute its token through DeFi apps to decentralize control of the Layer 2 network.

Next up is another DeFi summer, except this time it's on a larger scale because we'll have dual (app + Layer 2) token incentives, and in the long term, Layer 2 real estate will be very valuable.

That's what I see on the horizon.

It's time to pack our bags and head west because there's gold there, there's new, untapped land, and pioneers will do what they do best.

It's time to settle in on new land.