The technology around Layer2 solutions has become increasingly mature over the past year as network congestion and transaction costs in Ether have soared.
We are seeing rapid growth in Ethernet Layer2 activity as many of the leading DeFi protocols are now opting to build or port contracts into several thriving Layer2 ecosystems.
What is Layer2?
“Layer2” or “L2” collectively describes a number of solutions (rollups, validium, plasma, state channels, etc.) that help decentralized applications scale by taking transactions off-chain. to help decentralized applications scale. They are conceptually built on top of ethereum, hence the name.
Despite the congestion in the Ethernet network, Layer2 solutions allow users of any Ethernet application to enjoy instant and affordable transactions at a very low cost of gas, while still leveraging the strong security and decentralization of the main Ethernet network.
Top DeFi protocol leads the way
DeFi 1.0 has shown its potential to transform global finance. However, Ethernet’s network congestion and high gas fees still prevented many from using it. Now that DeFi has taken hold, we are seeing some of the most well-known protocols rush to implement Layer2 solutions to ease the burden and barriers to entry for users.
Aave, a non-custodial liquidity protocol for earning interest from deposit and borrowing assets. It launched on Polygon last month, which made DeFi products more easily and widely available to all and quickly grew to more than $1 billion in liquidity in just 10 days.
1inch, a platform designed to find the best trading platform among multiple decentralized exchanges (DEXs), has just announced its expansion to Polygon. it joins Aave as the most prominent DeFi dapp integrated with Layer 2. this move provides 1inch users with several sources of Polygon-based liquidity, including Curve, SushiSwap, QuickSwap, Aave.
dYdX, the leading trading platform for financing and perpetual trading. In order to scale trading, dYdX and StarkWare have established the Layer2 protocol for cross-edge Perpetuals based on StarkWare’s StarkEx scalability engine (Layer 2) and dYdX’s Perpetual smart contracts. dYdX users can now have zero gas cost, with lower transaction fees, and smaller transaction sizes. Top DeFi protocols are leading the way: the list is continuing to grow
Various Layer2 solutions are being followed by projects to implement them.
Optimistic rollups (on-chain data, proof of fraud): implemented by Optimism, Offchani Labs Arbitrum, Fuel Network
ZK rollups (on-chain data, zero-knowledge proof of validity): implemented by Loopring, Starkware, Matter Labs zkSync, Aztec 2.0
Validium (off-chain data, zero-knowledge validation proof): implemented by Starkware, Matter Labs zkPorter
Plasma (off-chain data, fraud proofs): implemented by OMG Network, Matic Network, Gazelle, Leap DAO
State channels: implemented by Connext, Raiden, Perun
The off-chain extension solution also includes sidechains, however, it should be noted that sidechains do not inherit the security of Ether L1.
Uniswap DEX- V3 implements optimistic rollup
DeGate – L2 DEX
Curve finance- stable coin DEX
Synthetics- Derivatives DEX
Loopring- Smart wallet and DEX
Immutable X- NFT
Hermez network- Payments
Other projects include Chainlink, Sushiswap, Open Sea, Graph, Polywhale, Decentraland, SuperFarm, Pooltogether, and many more are in the works.
Layer 2 network effects are heating up
The expansion of the Layer 2 ecosystem is becoming more and more interesting as the technology continues to mature and the demand to take Ether transactions off-chain continues to grow. Due to the recent surge in Layer 2 activity, there is a significant network effect that provides additional incentive for integration of the DeFi protocol.
Currently, Polygon has the most mature and fastest growing network. Since October 2020, the total value locked into Polygon has risen from less than $5 million to $5.8 billion today. By comparison, xDAI’s TVL is currently around $71 million.
Layer2 decentralized exchanges are also on the rise
Decentralized exchanges are at the heart of the Layer 2 ecosystem.
While some protocols have been integrated with Layer2 native decentralized exchanges, they are focused solely on increasing the available liquidity of the Layer2 ecosystem, providing users with an “Uniswap experience” at a very low gas fee.
Layer2’s decentralized exchange trading volume in 24 hours:
Quickswap (Polygon): $668286390
Deversifi (Starkware): $6053032
Leverj (Gluon): $3011540
In comparison, Uniswap has a trading volume of 1.65 billion.
The most anticipated projects are being built on Layer2
While many projects on Etherpad migrated to Layer2 after initially building on Layer1, some of the most anticipated projects for 2021 have chosen to build on Layer2 from the start.
One example is Scaleswap, an upcoming IDO launch platform with Polygon. Scaleswap is leveraging Layer2 extensions and a cutting-edge user experience to improve IDO, making it accessible and fair for all.
Since the rise of Polkastarter in late 2020, IDO’s launch platform has revolutionized cryptocurrency investment and funding. However, like many early DeFi protocols, the current platform does not yet offer true open access due to the high cost of gas and the lack of ideal selection criteria when deciding to join a launch pool.Layer2 scaling and a community-centric approach can help Scaleswap address both of these issues.
There are still many core issues to be solved on Layer2
In his article on Layer2 extensions, Vitalik details the many issues that remain to be solved in the Layer2 extensions solution, and which represent opportunities for developers and investors on Layer2.
User and ecological migration: While many protocols are already being migrated to Layer2, the infrastructure to support L2 wallets and payment methods is far from adequate.
Cross-rollup transfer transactions: rollups can communicate with Layer1 and transfer funds to each other, but direct real-time transfers between rollups are not possible. rollups still incur high gas fees through the main network and have to wait an hour or even 7 days for withdraw time, there is a need for decentralized direct real-time transfers between rollups as soon as possible. Orbiter finance and Hop exchange are both protocols that solve this problem, but the difference is that in a single transaction, Orbiter transfers across rollups with only one contract at the target rollup, while Hop requires one contract at each of the rollups at both ends of the transfer.
Audit incentive: For large-scale rollups, there is still a need to investigate how to maximize the probability of an honest node submitting fraud proof information when errors occur in optimistic rollups.
Finding the design space between Plasma and Rollup: Is there a technical solution to put some of the data related to status updates on the chain instead of all of them?
Maximize the security of pre-confirmation: Many rollups include “pre-confirmation” to improve the user experience, but if the sequencer (one of the contracts in a rollup that sorts the user’s transactions) promises that its transactions will be included in the next batch of transactions to be validated, but the sequencer goes back on its word, then the “pre-validation” is not secure. The economic incentive of tokens will solve this problem to a limited extent, so is there a better mechanism to solve it?
Improving the response time to the actual sequencer: If a sequencer suddenly goes offline, it needs to be fixed quickly and inexpensively, either by switching to other rollups quickly and inexpensively, or by replacing the sequencer.
Efficient ZK-VM: Creating a ZK-SNARK can be used to prove that the generic EVM code is executing correctly and giving the right results.
Ether 2.0 is coming soon
A big question on everyone’s mind is whether the Layer2 space will still be relevant once Ether 2.0 arrives. Ether 2.0 has multiple layers, not all of which are immediately deployable. the PoS merge is scheduled to launch later this year, but it’s only the first of five major concepts that will make up the future of Ether. The biggest throughput upgrade is sharding, which won’t happen until 2022 or 2023. The sharding itself will be deployed in phases and may take additional time to fully roll out.
The bottom line? No amount of Ether 2.0 scaling will be enough to meet demand. Users will always want a cheaper and faster network.
Vitalik Buterin said in response to whether Layer2 scaling solutions are still available for the ETH 2.0 release:
“Layer2, based on channel and Plasma fully off-chain, will continue to work …… The global reach of the Ether ecosystem could easily see more demand, especially for micro-payment oriented applications. The “Layer2” space is about to get a lot more interesting.
There will be no competition between Ethernet 2.0 and Layer2 solutions. Instead, the two will work together. Layer2 provides the roads, bridges, entrance ramps and other infrastructure necessary to make Ethernet a robust, global-scale network. The Ether Layer2 ecosystem is thriving, and it’s just getting started.
Posted by:CoinYuppie，Reprinted with attribution to:https://coinyuppie.com/the-most-complete-layer2-project-collection-and-layer2-core-issues-to-be-solved/
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