Take you into the Layer 2 network that focuses on DeFi on the four major Ethereum
For ETH 2.0, Ethernet Square community really waited too long, many projects DeFi looking forward to ” V God ” can be issued as soon as the good news, you can now still no exact timetable.
Therefore, in order to solve the urgent need, these projects began to seek Layer 2 network solutions.
Why do you need a Layer 2 network solution?
In fact, although DeFi, as an emerging financial boom, has aroused strong interest among crypto users, due to the limitations of Ethereum itself, the development of the DeFi industry is actually not satisfactory.
For example, the current routine execution cost of smart contracts exceeds $100, and some slightly complicated lightning loan transaction costs can even reach $2,000.
Not only that, sometimes activating DeFi projects may also cause unnecessary expenses, because every operation may involve the payment of ETH fees.
Generally speaking, DeFi product position transactions need to be carried out at least twice (one in and one out), which means that user expenditures will also double.
Although some DeFi users have strong financial resources, the vast majority of retail crypto investors can only watch from the sidelines because of the high cost of Ethereum. This is actually not very good for the emerging vertical industry of DeFi.
Since the birth of Bitcoin , cryptocurrency has always been inclusive and decentralized, and everyone can participate in it.
From the perspective of Ethereum design, economic incentives are the only factor that determines who can use EVM, which is actually a good thing.
However, when too many people began to use EVM for Token exchange, mortgage, farming, liquidity pools, loans, and governance, problems began to appear. This is one of the reasons why DeFi developers need Layer 2 network solutions.
However, for most DeFi projects, one of the main reasons why Layer 2 network solutions have not yet been implemented is to wait for the release of ETH 2.0.
Due to relatively limited time and resources, these projects had to make a “choice of two” decision.
If the DeFi project now deploys the Layer 2 solution, and ETH 2.0 is soon launched one after another, then the deployment costs they previously invested will be “in vain”.
According to the information disclosed by the researchers of the Ethereum Foundation, although “V God” has been opposed to the extension, the hope that ETH 2.0 will go online as scheduled is still very slim.
Therefore, it is also a good idea to try to deploy a Layer 2 network solution for emergencies. On the other hand, Layer 2 network solutions are only valuable through network effects.
Four Layer 2 networks that focus on DeFi
So in summary, the editor hopes to introduce to you four Layer 2 networks on Ethereum that focus on DeFi, which may help increase network effects:
The Loopring protocol uses zkSNARKs to increase the throughput of Ethereum, as much as possible to ensure that transactions can be completed safely off-chain, and only verify operations are placed on the chain.
Smart contracts will be able to execute transactions and open positions at the frequency that users expect, thereby improving the market operation efficiency of the DeFi platform. When smart contracts are used, as long as the contract itself is not a “rotten apple”, security can be fully guaranteed.
On Loopring 3.x, you only need to pay deposit and withdrawal fees. With the upcoming Rails application (supported by DXdao), the coverage of the second-tier solution will also be further expanded.
The last point to be mentioned is that since Loopring 3.x supports storing off-chain balances in the Merkle tree, this means that users no longer need to pay expensive fees when transferring tokens on the chain.
Dfinance is a Cosmos-based project that aims to provide DeFi with a dedicated decentralized infrastructure to help developers design and build a better decentralized financial user experience.
Dfinance’s infrastructure has taken advantage of almost all the advantages of the blockchain, and has also been upgraded in many aspects, including:
1. High throughput
2. Low latency
3. Unlimited expansion
4. Fine security
5. High-end smart contract engine
At the same time, Dfinance uses Libra’s “Move” programming language and virtual machine to build a powerful development environment execution node.
Because the Move development language is rigorous and has a higher-level language and ownership logic, it provides developers with a clear security strategy.
OMG is also one of the main competitors of the Layer 2 network focusing on DeFi. Bitfinex has deployed the OMG layer 2 network for the USDT stablecoin.
The predecessor of OMG Network is OmiseGo, which itself is a decentralized public network that can support high transaction throughput and low-cost P2P transactions.
OMG can provide specific blockchain financial services for various asset classes and DApps worldwide. This solution uses the Layer 2 Plasma structure, which greatly improves the security of DApps and users.
For those decentralized payment systems based on the Ethereum network, OMG is undoubtedly one of the most effective network expansion solutions.
zkSync is a scalable low-cost Layer 2 solution suitable for trustless payment. The agreement enables Ethereum to use zkRollup technology, which aims to achieve zero-knowledge proof and constant data connection on the chain.
In fact, this “one-layer dual-solution” model can bring many advantages, such as:
1. Provide mainnet-level security
2. Significantly reduce costs
3. Support faster transaction speed
In addition to security, the team behind zkSync also focuses on user experience and developer thinking. They know that adopting technology depends on excellent design and frictionless experience.
Therefore, the most complete service and support is provided for developers, so that they have no reason not to use the second-tier solution.
Potential risks of Layer 2 networks
Finally, let’s talk about the potential risks of the Layer 2 network.
The Layer 2 network is promising, but at the same time, users also need to bear certain risks in order to “exchange” low-cost, scalable, and high-throughput off-chain transaction services. We believe that there are currently three potential risks:
Since transactions on the Layer 2 network are very convenient, they will also attract cryptocurrency fraudsters. They usually create new DApps and use a forked Layer 2 network.
This means that users may trade with some malicious smart contracts, and these fraudsters steal the user’s cryptocurrency over time -this is also one of the most obvious risks on the Layer 2 network.
The second hidden danger is network failure. Because the current Layer 2 solution has not been tested, some bugs may lead to catastrophic consequences.
Not only that, but network vulnerabilities will also make it easier for hackers to steal user funds. Can you imagine what it would be like if 50% of DeFi assets evaporate overnight?
At this stage, the DeFi lock-up volume is about 9 billion US dollars. The second-tier solution will undoubtedly encourage users to conduct off-chain transactions, but DeFi users must pay attention to the problem of network vulnerabilities.
Let’s go back to the payment issue. Bitcoin is indeed more reliable than Ethereum. Regardless of the amount of money invested by the Ethereum community, “Bitcoin is digital gold” has become a fact recognized by the crypto community.
At present, Bitcoin’s second-tier solution “Lightning Network” has accumulated about 11 million US dollars of funds, and its goal is only one: payment.
After two years of operation, although loopholes are still unavoidable, the overall performance of the Lightning Network seems to be good, and we have hardly seen large-scale downtime problems.
The last thing I want to say is that although there are certain risks, developers should still unswervingly create a sustainable ecosystem, so that the Layer 2 network can become an indispensable part of Ethereum and DeFi.
Investment is risky. The views and opinions in this article represent only the author and do not constitute any suggestions.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/take-you-into-the-layer-2-network-that-focuses-on-defi-on-the-four-major-ethereum/
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