Written by Kevin
As DeFi evolves & Layer2 technology evolves, mobility segmentation will greatly affect the strongest spear of DeFi – “composability”. Currently, there is no shortage of projects in the crypto market with Layer2-based DeFi solutions.
Among them, Celer Network, which is committed to building an internet-scale blockchain application portal platform with off-chain scaling technology as its cornerstone, has recently launched Layer2.finance, which “scales up” the existing DeFi ecosystem in situ: while ensuring that the liquidity of the DeFi protocol is not fragmented, it also ensures its composability, allowing Everyone (and not just a few whale-gold investors and capital giants) can participate in and enjoy the universality of decentralized financial services.
Geometrically Expanding DeFi and Slowly Growing New Users
The combinable and permissionless nature of blockchain technology that has been embedded in DeFi since its inception, and its tremendous financial inclusion has led to explosive growth in 2021, with total locked-in value (TVL) increasing from the tens of millions of dollars level in 2020 to the current $117 billion (as of May 9). However, limited by the resources and architecture of the Ethernet mainnet, DeFi’s massive growth at the funding level is slowly becoming inversely proportional to the slow growth of users: with Gas fees suddenly capped, making fast and small transactions on DeFi is becoming a high barrier, shutting out the majority of regular users.
On the other hand, on-chain data shows that the growth of DeFi has slowed down significantly recently, especially after the rapid growth in the middle of last year, the overall growth of the DeFi ecosystem in the main Ethernet network has slowed down, and the trend of slowing down is more obvious in some common DeFi projects such as MakerDAO, Uniswap, Curve. The trend of slowdown is more obvious on some common DeFi projects like MakerDAO, Uniswap and Curve. In addition, the data shows that the daily activity of DeFi on Ether does not follow the significant growth of locked-in funds.
DeFi, an innovative open finance that should be decentralized, without permission, and everyone can participate, is slowly becoming the exclusive territory of large institutions and giant whale users, and ordinary users are standing in front of this high threshold to the future financial world, and it is difficult to take a step.
The high transaction fees on the main Ethernet network, while discouraging small / new users from joining, have also facilitated the development of various Ethernet Fork blockchains featuring low transaction fees and high efficiency: the DeFi app with the highest total lock-in is not from Ethernet, but rather PancakeSwap on the later CoinSec Smartchain (BSC), which has surpassed the old DeFi apps on the Ethernet chain with $15 billion TVL. The fact that PancakeSwap on BSC has surpassed Compound and Uniswap, the oldest DeFi apps on the ethereum chain, with a TVL of $15 billion shows that the high fees have become a roadblock and one of the biggest problems preventing ethereum from expanding.
However, due to Ether’s historical accumulation, market consensus and capital security, it is still the place for mainstream DeFi applications in the foreseeable period, and a large number of giant whales still choose to reside in Ether’s home base. In this opportunity, various Layer2 solutions focused on overcoming Gas costs and transaction speed are expected, each with its own characteristics and advantages, and with different focuses. Finance, recently launched by Celer Network.
Celer Network, which allows DeFi to “scale in place
Among the many solutions, Celer Network is committed to building an Internet-scale blockchain application portal platform based on off-chain scaling technology that allows everyone to develop, run and use high-performance distributed blockchain applications easily and quickly.
Celer Network has established close strategic partnerships with leading blockchain public chains and communities, for example, Celer Network has announced a strategic partnership with L4, a top-tier investment and research organization backed by the Ether Foundation with Vitalik as research advisor, to jointly lead the establishment of an industry standard for off-chain scaling in Ether. Celer’s fruitful strategic partnership with DFINITY has resulted in the initial integration of DFINITY into the Celer Network off-chain scaling network. Recently, Celer announced a partnership with StarkWare to develop a zero-knowledge proof (ZK Rollup) based version of Celer’s latest scaling solution, Layer2.finance, using StarkWare’s StarkEx service and the Cairo programming language.
According to the information, Celer has several core advantages.
Stateful channels (Celer is the author of the stateful channel standard)
X10,000x reduction in blockchain transaction interaction finality latency.
Zero off-chain smart contract running costs.
Simultaneous acceleration of simple payments and complex smart contracts.
Reducing costs for micropayments by X100x.
Faster as more nodes are added.
Compatible with multiple blockchains and able to support all public chains based on the EVM execution principle (e.g., Ether, Thunder Token, Oasis Lab), as well as DFINITY and Polka.
In terms of core scaling solution, Celer has chosen Stateful Channel and released the world’s first main network of generalized Stateful Channel network, and CelerX, an ecological project based on this Stateful Channel technology, has also realized large-scale landing applications. Last year, the Celer team introduced the hybrid Rollup concept, and the recently launched Layer2.finance mainly uses an innovative optimistic Rollup architecture that scales the entire existing DeFi protocol without requiring any DeFi protocol to be migrated to another chain – that is, “in-place scaling” of the existing DeFi ecosystem.
Cross-Layer2 DeFi solutions at a glance
Ethernet Layer1’s asset pools effectively scale DeFi, but are also limited by their underlying limitations, with users incurring high Gas fees for withdrawals, deposits and transactions. In the case of YFI, depositing and withdrawing funds from the asset pool, as well as rebalancing the fund, costs a significant amount of money for each operation. Especially in the case of network congestion, this fee can even generate an “astronomical” amount close to or exceeding 1 ETH.
Therefore, it can be seen that transaction costs are one of the main issues addressed by Layer2 solutions, while asset efficiency and combinability are equally important, with the more well-known solutions including DeFi Pooling, InstaDAPP and Layer2.
DeFi Pooling is a solution proposed by StarkEx, a product of StarkWare, a zero-knowledge proof research and development organization, which allows liquidity to be retained on the ethereum mainchain while significantly reducing the cost of gas to participate in DeFi operations. According to the information, DeFi Pooling reduces the cost of Gas fees by splitting the deposit, withdrawal and rebalancing operations in DeFi and introducing them into a Layer 2 scaling solution, which provides position rebalancing at Layer 2. StarkEx currently has three native operations: transfers, conditional transfers, and tier 2 limit orders. starkWare will soon release StarkExV3 in May, which will support tier 1 limit orders, enabling smart contracts on tier 1 to submit transactions on tier 2.
Another DeFi aggregator, InstaDApp, greatly simplifies the asset management experience in the decentralized financial space. InstaDApp ensures that users have 100% control and ownership of their assets through a non-custodial approach and the use of smart contracts, while retaining the benefits of decentralization by providing users with a senseless and convenient experience. InstaDApp is designed to make it easier for new users to try decentralized products, which not only gives it a promising future, but also a promising future for the DeFi ecosystem.
Celer Network, an Ethernet Layer2 scaling project, has recently launched Layer2.finance to lower the barriers to DeFi use and allow the general public to use the existing DeFi protocol freely and easily without worrying about high transaction fees. Layer2.finance is not a new DeFi protocol, but a “DeFi world gateway” with low barriers and no need to trust centralized third parties.
Layer2.finance enables “in-place scaling” of the existing DeFi ecosystem, as existing Layer-2 scaling solutions require the migration of the entire DeFi protocol and ecosystem, which not only affects the composability of DeFi, but also fragments the ecosystem, users and mobility. As there is no need to migrate DeFi to Layer2, DeFi protocols are not fragmented in terms of liquidity, but at the same time, their composability is ensured.
In terms of technical implementation, Layer2.finance allows multiple users, who would otherwise need multiple, multi-account, money distribution transactions to be aggregated into a single transaction via Layer2 Rollup. This aggregation process is achieved through an innovative Layer2-to-Layer1 generalized function call that ensures the same level of security as Layer1 without the need for additional trust in any centralized third party.
Bringing Layer2 to DeFi without migrating DeFi to Layer2
The latest result of Celer’s “in-place expansion” is Layer2.finance (l2f for short), which went live on the l2f mainnet in late April, with the first supported DeFi protocols being Compound, AAVE and Curve. The first DeFi protocols supported are Compound, AAVE and Curve.
In the near future, l2f also plans to add support for several popular apps such as Cream, Liquity, yEarn, DODO, Mirror, Alpha Finance, SushiSwap, Uniswap, BarnBridge, and 1Inch. During the same period, the “0 Gas Fee No Threshold Play DeFi” campaign was launched. During the campaign period, users can enjoy 100% fee-free access to the DeFi portfolio strategy on Layer2.finance. In addition, for the first 500 eligible users, Celer will additionally reimburse them for the fee of transferring from the main Ethernet network to Layer2.finance.
The underlying design of l2f ensures that DeFi protocol liquidity is not fragmented and that it is combinable, as there is no need to migrate DeFi to Layer2. l2f allows multiple users, who would otherwise need multiple, multi-account, money distribution transactions to be aggregated into a single transaction via Layer2 Rollup. This aggregation process is achieved through an innovative Layer2-to-Layer1 generalized function call that ensures the same level of security as Layer1, without requiring additional trust in any centralized third party. This innovative solution is like a “public transportation system” in the DeFi world, allowing people to access all existing DeFi protocols through a unified interface at a very low cost.
Layer2.finance builds a model similar to a decentralized intermediary: users keep their funds on the Layer2 chain and indicate, through a special Layer2 transaction form, which DeFi protocol they want their funds to be placed in, allowing them to freely choose and move their funds between the different strategies corresponding to the different protocols.
Another very important point is that Layer2.Finance is a completely trustless architecture. In this case, users only pass money from the Layer 1 blockchain to Layer 2, and there is an exchange between Layer 1 and Layer 2, where they still have full ownership of the token at all times. In l2f, a user can specify, for example, to put the token into Compound, and another user does the same, then the transactions from Layer2 can be aggregated to Layer1, packaging the transactions from Layer1 into one – the whole process has no trust issues.
The main benefits of Layer2.finance for a wide audience are
Low cost. Since Layer2.finance aggregates a small amount of liquidity, it is much cheaper to allocate funds and generate revenue for each user. The more people use it, the more it will actually reduce the costs for individual users to interact with the DeFi protocol, although there are some data availability costs.
Combinability is maintained, there is no liquidity fragmentation and no need to migrate DeFi protocols. Layer2.finance scales the DeFi protocol in-place, so it does not cause any mobility fragmentation and will further increase the composability of the DeFi protocol.
Stackable scalability. If a single Layer2.finance aggregation chain becomes too crowded or the state becomes too large to maintain, a new chain can be added to connect to the same liquidity system in Layer-1 DeFi. While limited in the short term by the on-chain capacity, the upper limit of scalability will be increased in the future with ETH 2.0 in an almost infinite stackable way.
Flexible DeFi Slicing. In addition to scalability, there are many reasons to start multiple Layer2.finance chains, such as different batch configurations, different policy risk profiles (regardless of risk level), etc. This effectively enables functional fragmentation in the DeFi ecosystem .
With the emergence of l2f, users do not need to cumbersome Layer2 migration, but bring the low cost, composability and scalability of Layer2 to the original DeFi applications, users can experience low cost, extremely fast and smooth native Ethernet applications in place – the emergence of l2f makes DeFi The emergence of l2f is expected to bring DeFi into millions of households soon.
As the cryptocurrency market continues to boom and gradually enters the mainstream, more and more users enter the blockchain world, the limitations of the underlying performance of Ether will be further amplified, and DeFi, which is rooted in Ether and is the most important scenario, undoubtedly needs to find a breakthrough to solve the high transaction costs while retaining composability and capital efficiency. Finance may be the breakthrough.
In that case, practitioners and ordinary users should keep a close eye on the many Layer2 solutions, Ether 2.0 and high-performance public chains and other tracks, hoping that the industry can make DeFi do well and fast and truly benefit the common man.
Layer2.Finance Official Website.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/bringing-inclusivity-to-defi-an-insight-into-layer2-finances-scaling-in-place-solution/
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