Layer2finance: The Future of the Scaled Exterior DeFi Portal

We are optimistic that the Layer2 track will continue to iterate on innovative solutions like in the future.

Layer2finance: The Future of the Scaled Exterior DeFi Portal

DeFi is known to facilitate open on-chain financial activities through its combinability and lack of licensing, rapidly forming a more efficient money market through individual DeFi protocols. However, as of now, the DeFi world, which upholds an open and inclusive low barrier due to expensive Gas fees, is turning into a game that seems to belong only to giant whale users. Transaction fees in different DeFi protocols can easily range from $50 to $200, discouraging many retail investors and seriously hindering DeFi from achieving its goal of the next 10 million users.

To address this issue, some of the head DeFi protocols are trying to find a change of scenery by deploying and moving to Layer2. For example, Synthetix has pledged 5.3 million SNXs on Optimism, representing 5% of its total SNX pledges in L1. Aave currently has $2 billion in TVL on Polygon after turning on liquidity mining, but it still has $11.5 billion on Layer1. The upcoming launch of Arbitrum and Optimism this summer is also very exciting to see if some DeFi protocols will be “factory pre-installed”. But at the same time, the community has serious concerns and doubts about the future of the DeFi protocol mobility and combination of multiple chains and layer2 architecture, migration costs, migration process, whether the corresponding supporting services and infrastructure to keep up with the problems and technical trade-offs.

As a new idea to solve this problem, Celer Network has released, which differs from the first idea in that the expansion method of is not through the migration of DeFi protocols, but through the migration of users and mobility to layer2 to achieve the “in-place expansion” of the existing DeFi ecosystem. “In situ scaling”. Users transfer liquidity to the rollup chain of by putting their funds into a layer2 rollup contract. From layer1’s perspective, this corresponds to the formation of an aggregated pool of liquidity for multiple users. On top of layer2’s rollup chain, users can make operations on the funds they have deposited in, such as putting them into lending agreements or participating in various types of liquidity mining to gain revenue. It is important to note here that the layer2 operations performed by users on do not immediately issue a transfer of funds from layer1, but only express a user’s “willingness to allocate funds”. When there are more users on, the same willingness to allocate funds over a period of time can be aggregated without trust into a single layer1 fund transfer transaction via, and the total amount of funds transferred is the sum of all the same willingness to allocate funds. By using a method similar to that of “Pound for Pound”, allows retail investors to share and significantly reduce costs when interacting with the DeFi protocol. The main innovation of from a technical point of view is the cost reduction based on layer2, and from a product point of view it has the potential to become the main portal of DeFi in the future.

Layer2 technical solutions and trade-offs

In the first version, used the Optimistic Rollup architecture developed by Celer itself, where the presence of a challenge period (fraud prevention window) caused delays. Users may have to wait several hours before their transaction requests are packaged and sent to L1’s DeFi protocol. Similarly withdrawing funds from the strategy pool requires a similar wait time.

However, has reduced the long challenge period from days to hours by simplifying the state and calculations. Together with the fact that the Celer State Guardian Network (SGN) acts as a distributed watchtower to monitor the Layer2 state, this also adds a certain level of security to Thus, although the length of the challenge period was reduced, no one took risks as a result.

In addition to this, StarkWare has abandoned the idea of developing a separate “DeFi Pooling” similar to and has announced a partnership with to work on and launch a layer-2 version, which will be available at the end of the second quarter. StarkWare is the leading zk-rollup solution company, and its ZK-STARK algorithm provides great scalability and product diversity to projects such as DeversiFi, dYdX and Immutable X. The addition of to the StarkWare ecosystem will greatly enhance its competitiveness.

We think it is reasonable for to use Optimistic Rollup in the first version to develop itself, because Optimistic Rollup is faster to launch and more flexible to upgrade in later iterations. Although ZK Rollup has a shorter challenge period than Optimistic Rollup, the few extra hours of waiting time do not seriously impair the user experience since the application scenario of itself requires users to wait for common aggregation, and the Optimistic Rollup is less costly to spread out when the user base is not very large. Rollup has a lower levelized cost. By adding a version of ZK Rollup with StarkWare in the future, the pooled funds distribution time and withdrawal time will be greatly reduced, thus further enriching’s application scenarios for highly concurrent users, including, for example, aggregated transactions.

Network effect of enriched users

Currently, v0.1 (similar to the beta public test version) has been online on the Ethereum mainnet for a week and supports three protocols, AAVE, Compound and Curve 3Pool, with Compound and Curve coming with liquidity mining. The current total locked position is $1.5M with 270+ users. According to Celer Network Twitter, in the first week, saved a total of $34,000 in Gas fees for 900 DeFi transactions, with an average savings of $40 per transaction. Although relatively small compared to the massive DeFi protocols that lock up billions, it is already bringing tangible benefits to the users involved, demonstrating the performance benefits of

Unlike many other DeFi protocols, which simply pursue the volume of lock-in as a measure of network effect, another important measure of is the number of participating users, as the cost reduction of comes from the increase in the number of users.

At this stage, has not yet developed an initial network effect for two main reasons. Firstly, has not yet turned on liquidity mining, but after the planned v1.0 goes live, will probably turn on liquidity mining to do the initial user acquisition; secondly, the current online trading strategy is more conservative, and users in other protocols (e.g. harvest) can get higher returns with the same strategy by additional liquidity mining. Higher returns for more aggressive and medium-risk bulk strategies have not yet been accessed.

If both of the above issues are solved in the official v1.0 release, will have a good chance to attract users and gain a high user retention rate through strong network effects and rich and constantly increasing DeFi strategies with the market. For liquidity mining, it is expected that Celer will improve the existing liquidity mining mechanism by not simply emphasizing the lock-in amount, but also emphasizing the network effect of the number of users. The speed of new strategy access is crucial for user retention in The Celer team also mentions on the official website that they are working on the integration with YFI, Uniswap, Sushiswap, 1inch, Alpha Finance, DODO and Liquity, as well as with the yet to be launched DeFi protocol. They are also working with DeFi protocols that are not yet online to access’s strategy interface at the beginning of the launch in order to expand the pool of different strategies as much as possible.

Potential to become a DeFi portal

The strategy interface of is flexible and not limited to interaction with a single DeFi protocol. For example, a strategy can include multi-protocol strategies such as pledging a portion of ETH to a Maker, lending DAI to generate interest on Curve, etc. This also gives the ability to compete with aggregation protocols such as Rari Capital and Harvest Finance. However, from a different perspective, can also integrate directly with these aggregators, using the aggregator itself as part of the strategy, reducing the cost of becoming available to users and providing the aggregator with long-tail liquidity that it would otherwise not receive, achieving a win-win situation with the strategic aggregation protocol. stands for DeFi portal entrance market, although DeFi portal platforms like instadapp that focus on user-friendly operations can attract some new users to use, but because providing such a solution in layer1 actually increases the cost of gas consumption additionally, in new users are likely to be lost from the platform. For, however, users not only have no additional costs, but also continue to enjoy the benefits of low fees and easy “one-click operation” for different protocols and strategies. If the DeFi protocol on can be rapidly iterated as the community grows, it has the potential to serve as a high-retention portal to the DeFi world and to build up further network effects and positive feedback.


IOSG is optimistic that the Layer2 track will continue to iterate in the future with innovative solutions like, which does not create liquidity fragmentation, does not require redevelopment or redeployment on Layer2, and can be additionally adapted to scenarios such as extremely concurrent aggregated transactions in the future through ZK-Rollup integration. However, its current limitations also remain and are expected to be addressed in the near future (perhaps in the next release), such as

Users need to suffer some waiting time

The number of existing policies is limited and needs to be increased

The APY of the current strategy is still relatively low compared to other protocols

Comparison of and DeFi L2 migration approaches

Overall, introduces a brilliant idea to solve Ethereum’s Gas cost problem and bring more users into the DeFi world. Although the first version still has limitations, we still see a clear and viable roadmap and we will keep an eye on’s development.

We are also optimistic about StarkWare’s performance and development in the layer2 track. StarkWare’s self-developed ZK-STARK zero-knowledge proof protocol is an upgrade to SNARK, which aims to provide “zero-knowledge, simple, transparent, obvious and secure” cryptographic proofs. Technically, zk-STARK does not require an initial trusted setup, as they rely on a conflict-resistant hash function. This approach also eliminates the assumption that zk-SNAR itself is computationally expensive and vulnerable to attacks by quantum computers. In addition, StarkWare also has the Validium mode, in which the data is stored under the chain, thus improving efficiency and making it more suitable for high-frequency scenarios.

In conclusion, whether it is or StarkWare, privacy and scaling protocols have great potential in the cryptocurrency world and could be a groundbreaking path to mainstream adoption, a track we will keep an eye on and be enthusiastic about.

Posted by:CoinYuppie,Reprinted with attribution to:
Coinyuppie is an open information publishing platform, all information provided is not related to the views and positions of coinyuppie, and does not constitute any investment and financial advice. Users are expected to carefully screen and prevent risks.

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